UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
(Mark One)
| x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended September
30, 2014
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)
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United States of America |
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06-1786701 |
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(State or other jurisdiction of incorporation or organization) |
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(I.R.S. Employer Identification No.) |
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325 Hamilton Avenue, White Plains, New York |
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10601 |
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(Address of principal executive offices) |
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(Zip Code) |
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(914) 684-2500 |
(Registrant’s telephone number, including area code) |
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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. Yes x No ¨
Indicate by check mark whether the registrant
has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted
and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant
was required to submit and post such files). Yes x No ¨
Indicate by check mark whether the registrant
is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See 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 x |
(Do not check if a smaller reporting company) |
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Indicate
by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨
No x
As of November 7, 2014, there were 12,376,202
shares of the registrant’s common stock outstanding.
NORTHEAST COMMUNITY BANCORP, INC.
Table of Contents
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(UNAUDITED)
| |
September 30, | | |
December 31, | |
| |
2014 | | |
2013 | |
| |
(In thousands, | |
| |
except share and per share data) | |
ASSETS |
Cash and amounts due from depository institutions | |
$ | 2,732 | | |
$ | 3,794 | |
Interest-bearing deposits | |
| 30,528 | | |
| 27,737 | |
Cash and cash equivalents | |
| 33,260 | | |
| 31,531 | |
| |
| | | |
| | |
Certificates of deposit | |
| 1,146 | | |
| 2,142 | |
Securities available-for-sale | |
| 42 | | |
| 113 | |
Securities held-to-maturity (fair value of $7,251 and $8,739, respectively) | |
| 7,004 | | |
| 8,444 | |
Loans receivable, net of allowance for loan losses of $3,851 | |
| 414,503 | | |
| 367,825 | |
and $4,015, respectively | |
| | | |
| | |
Premises and equipment, net | |
| 11,816 | | |
| 12,234 | |
Investments in restricted stocks, at cost | |
| 1,804 | | |
| 1,594 | |
Bank owned life insurance | |
| 20,955 | | |
| 20,490 | |
Accrued interest receivable | |
| 1,349 | | |
| 1,267 | |
Goodwill | |
| 749 | | |
| 749 | |
Intangible assets | |
| 299 | | |
| 345 | |
Other real estate owned | |
| 4,047 | | |
| 3,985 | |
Other assets | |
| 5,088 | | |
| 7,506 | |
Total assets | |
$ | 502,062 | | |
$ | 458,225 | |
LIABILITIES AND STOCKHOLDERS’ EQUITY |
Liabilities | |
| | | |
| | |
Deposits: | |
| | | |
| | |
Non-interest bearing | |
$ | 30,730 | | |
$ | 28,310 | |
Interest bearing | |
| 333,386 | | |
| 296,899 | |
Total deposits | |
| 364,116 | | |
| 325,209 | |
| |
| | | |
| | |
Advance payments by borrowers for taxes and insurance | |
| 3,397 | | |
| 3,987 | |
Federal Home Loan Bank advances | |
| 27,123 | | |
| 21,000 | |
Accounts payable and accrued expenses | |
| 3,859 | | |
| 3,861 | |
Total liabilities | |
| 398,495 | | |
| 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 | |
| 57,027 | | |
| 57,083 | |
Unearned Employee Stock Ownership Plan (“ESOP”) shares | |
| (2,916 | ) | |
| (3,111 | ) |
Retained earnings | |
| 55,044 | | |
| 54,428 | |
Treasury stock – at cost, 848,798 and 658,048 shares, respectively | |
| (5,681 | ) | |
| (4,291 | ) |
Accumulated other comprehensive loss | |
| (39 | ) | |
| (73 | ) |
Total stockholders’ equity | |
| 103,567 | | |
| 104,168 | |
Total liabilities and stockholders’ equity | |
$ | 502,062 | | |
$ | 458,225 | |
See Notes to Unaudited Consolidated Financial Statements
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
| |
Three Months Ended | | |
Nine Months Ended | |
| |
September 30, | | |
September 30, | |
| |
2014 | | |
2013 | | |
2014 | | |
2013 | |
| |
(In thousands, except share and per share data) | |
INTEREST INCOME: | |
| | | |
| | | |
| | | |
| | |
Loans | |
$ | 4,770 | | |
$ | 4,304 | | |
$ | 14,250 | | |
$ | 13,627 | |
Interest-earning deposits | |
| 7 | | |
| 3 | | |
| 16 | | |
| 9 | |
Securities – taxable | |
| 68 | | |
| 72 | | |
| 215 | | |
| 255 | |
| |
| | | |
| | | |
| | | |
| | |
Total Interest Income | |
| 4,845 | | |
| 4,379 | | |
| 14,481 | | |
| 13,891 | |
INTEREST EXPENSE: | |
| | | |
| | | |
| | | |
| | |
Deposits | |
| 831 | | |
| 749 | | |
| 2,397 | | |
| 2,207 | |
Borrowings | |
| 27 | | |
| 46 | | |
| 125 | | |
| 192 | |
Total Interest Expense | |
| 858 | | |
| 795 | | |
| 2,522 | | |
| 2,399 | |
Net Interest Income | |
| 3,987 | | |
| 3,584 | | |
| 11,959 | | |
| 11,492 | |
PROVISION (CREDIT) FOR LOAN LOSSES | |
| 8 | | |
| (191 | ) | |
| (208 | ) | |
| (554 | ) |
Net Interest Income after Provision | |
| | | |
| | | |
| | | |
| | |
(Credit) for Loan Losses | |
| 3,979 | | |
| 3,775 | | |
| 12,167 | | |
| 12,046 | |
NON-INTEREST INCOME: | |
| | | |
| | | |
| | | |
| | |
Other loan fees and service charges | |
| 96 | | |
| 122 | | |
| 332 | | |
| 462 | |
Earnings on bank owned life insurance | |
| 157 | | |
| 162 | | |
| 465 | | |
| 481 | |
Investment advisory fees | |
| 191 | | |
| 183 | | |
| 590 | | |
| 537 | |
Other | |
| 6 | | |
| 5 | | |
| 17 | | |
| 15 | |
Total Non-Interest Income | |
| 450 | | |
| 472 | | |
| 1,404 | | |
| 1,495 | |
NON-INTEREST EXPENSES: | |
| | | |
| | | |
| | | |
| | |
Salaries and employee benefits | |
| 2,093 | | |
| 1,862 | | |
| 6,446 | | |
| 6,197 | |
Occupancy expense | |
| 322 | | |
| 352 | | |
| 1,098 | | |
| 1,092 | |
Equipment | |
| 110 | | |
| 138 | | |
| 405 | | |
| 469 | |
Outside data processing | |
| 280 | | |
| 229 | | |
| 820 | | |
| 789 | |
Advertising | |
| 16 | | |
| 13 | | |
| 37 | | |
| 43 | |
Impairment loss on goodwill | |
| — | | |
| — | | |
| — | | |
| 334 | |
Other real estate owned expense | |
| 162 | | |
| 59 | | |
| 274 | | |
| 318 | |
FDIC insurance premiums | |
| 115 | | |
| 155 | | |
| 363 | | |
| 268 | |
Other | |
| 787 | | |
| 914 | | |
| 2,646 | | |
| 2,760 | |
Total Non-Interest Expenses | |
| 3,885 | | |
| 3,722 | | |
| 12,089 | | |
| 12,270 | |
Income before Provision for Income Taxes | |
| 544 | | |
| 525 | | |
| 1,482 | | |
| 1,271 | |
PROVISION FOR INCOME TAXES | |
| 166 | | |
| 144 | | |
| 433 | | |
| 302 | |
Net Income | |
$ | 378 | | |
$ | 381 | | |
$ | 1,049 | | |
$ | 969 | |
Net Income per Common Share - Basic | |
$ | 0.03 | | |
$ | 0.03 | | |
$ | 0.09 | | |
$ | 0.08 | |
Weighted Average Number of Common | |
| | | |
| | | |
| | | |
| | |
Shares Outstanding – Basic | |
| 12,081 | | |
| 12,324 | | |
| 12,124 | | |
| 12,318 | |
Dividends Declared per Common Share | |
$ | 0.03 | | |
$ | 0.03 | | |
$ | 0.09 | | |
$ | 0.09 | |
See Notes to Unaudited Consolidated Financial Statements
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)
| |
Three Months | | |
Nine Months | |
| |
Ended September 30, | | |
Ended September 30, | |
| |
(In thousands) | |
| |
| | |
| | |
| | |
| |
| |
2014 | | |
2013 | | |
2014 | | |
2013 | |
Net income | |
$ | 378 | | |
$ | 381 | | |
$ | 1,049 | | |
$ | 969 | |
Other comprehensive income: | |
| | | |
| | | |
| | | |
| | |
Unrealized loss on securities available-for-sale arising during the period | |
| 1 | | |
| — | | |
| (1 | ) | |
| — | |
Defined benefit pension: | |
| | | |
| | | |
| | | |
| | |
Reclassification adjustments out of accumulated | |
| | | |
| | | |
| | | |
| | |
other comprehensive loss: | |
| | | |
| | | |
| | | |
| | |
Amortization of prior service cost (1) | |
| 5 | | |
| 5 | | |
| 16 | | |
| 15 | |
Amortization of actuarial (gain) loss (1) | |
| 1 | | |
| 9 | | |
| (1 | ) | |
| 27 | |
Actuarial gains arising during period | |
| 14 | | |
| 69 | | |
| 44 | | |
| 207 | |
Total | |
| 21 | | |
| 83 | | |
| 58 | | |
| 249 | |
Income tax effect (2) | |
| (9 | ) | |
| (33 | ) | |
| (24 | ) | |
| (100 | ) |
Total other comprehensive income | |
| 12 | | |
| 50 | | |
| 34 | | |
| 149 | |
| |
| | | |
| | | |
| | | |
| | |
Total comprehensive income | |
$ | 390 | | |
$ | 431 | | |
$ | 1,083 | | |
$ | 1,118 | |
| (1) | Amounts are included in salaries and employees benefits in the unaudited consolidated statements of income as part of net periodic
pension cost. See Note 10 for further information. |
| (2) | Amounts are included in provision for income taxes in the unaudited consolidated statements of income. |
See Notes to Unaudited Consolidated Financial Statements
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (UNAUDITED)
Nine Months Ended September 30, 2014 and 2013 (in thousands,
except share and 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, 2012 | |
$ | 132 | | |
$ | 57,178 | | |
$ | (3,370 | ) | |
$ | 53,893 | | |
$ | (3,712 | ) | |
$ | (272 | ) | |
$ | 103,849 | |
Net income | |
| — | | |
| — | | |
| — | | |
| 969 | | |
| — | | |
| — | | |
| 969 | |
Other comprehensive income | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| 149 | | |
| 149 | |
Cash dividends declared ($0.09 per share) | |
| — | | |
| — | | |
| — | | |
| (453 | ) | |
| — | | |
| — | | |
| (453 | ) |
ESOP shares earned | |
| — | | |
| (77 | ) | |
| 195 | | |
| — | | |
| — | | |
| — | | |
| 118 | |
Balance – September 30, 2013 | |
$ | 132 | | |
$ | 57,101 | | |
$ | (3,175 | ) | |
$ | 54,409 | | |
$ | (3,712 | ) | |
$ | (123 | ) | |
$ | 104,632 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Balance at December 31, 2013 | |
$ | 132 | | |
$ | 57,083 | | |
$ | (3,111 | ) | |
$ | 54,428 | | |
$ | (4,291 | ) | |
$ | (73 | ) | |
$ | 104,168 | |
Net income | |
| — | | |
| — | | |
| — | | |
| 1,049 | | |
| — | | |
| — | | |
| 1,049 | |
Other comprehensive income | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| 34 | | |
| 34 | |
Purchase of 190,750 shares of treasury stock | |
| — | | |
| — | | |
| — | | |
| — | | |
| (1,390 | ) | |
| — | | |
| (1,390 | ) |
Cash dividends declared ($0.09 per share) | |
| — | | |
| — | | |
| — | | |
| (433 | ) | |
| — | | |
| — | | |
| (433 | ) |
ESOP shares earned | |
| — | | |
| (56 | ) | |
| 195 | | |
| — | | |
| — | | |
| — | | |
| 139 | |
Balance – September 30, 2014 | |
$ | 132 | | |
$ | 57,027 | | |
$ | (2,916 | ) | |
$ | 55,044 | | |
$ | (5,681 | ) | |
$ | (39 | ) | |
$ | 103,567 | |
See Notes to Unaudited Consolidated Financial Statements
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
| |
Nine Months Ended | |
| |
September 30, | |
| |
2014 | | |
2013 | |
| |
(In thousands) | |
Cash Flows from Operating Activities: | |
| | | |
| | |
Net income | |
$ | 1,049 | | |
$ | 969 | |
Adjustments to reconcile net income to net cash provided by operating activities: | |
| | | |
| | |
Net amortization (accretion) of securities premiums and discounts, net | |
| (28 | ) | |
| 55 | |
Provision (credit) for loan losses | |
| (208 | ) | |
| (554 | ) |
Depreciation | |
| 532 | | |
| 572 | |
Net amortization of deferred loan fees and costs | |
| 112 | | |
| 114 | |
Amortization of intangible assets | |
| 46 | | |
| 46 | |
Deferred income tax (benefit) expense | |
| (30 | ) | |
| 78 | |
Impairment loss on goodwill | |
| — | | |
| 334 | |
Loss on sale of other real estate owned | |
| — | | |
| 51 | |
Earnings on bank owned life insurance | |
| (465 | ) | |
| (481 | ) |
ESOP compensation expense | |
| 139 | | |
| 118 | |
Increase in accrued interest receivable | |
| (82 | ) | |
| (116 | ) |
Decrease in other assets | |
| 2,424 | | |
| 553 | |
Increase in accounts payable and accrued expenses | |
| 61 | | |
| 161 | |
Net Cash Provided by Operating Activities | |
| 3,550 | | |
| 1,900 | |
Cash Flows from Investing Activities: | |
| | | |
| | |
Net increase in loans | |
| (48,682 | ) | |
| (11,272 | ) |
Proceeds from sale of real estate owned | |
| 2,100 | | |
| 399 | |
Principal repayments on securities available-for-sale | |
| 70 | | |
| 13 | |
Principal repayments on securities held-to-maturity | |
| 1,468 | | |
| 2,892 | |
Proceeds from maturities of certificates of deposit | |
| 996 | | |
| 249 | |
Purchase of certificates of deposit | |
| — | | |
| (996 | ) |
Net purchase of FHLB of NY stock | |
| (210 | ) | |
| 481 | |
Capitalized cost of real estate owned | |
| (62 | ) | |
| — | |
Purchases of premises and equipment | |
| (114 | ) | |
| (55 | ) |
Net Cash Used In Investing Activities | |
| (44,434 | ) | |
| (8,289 | ) |
Cash Flows from Financing Activities: | |
| | | |
| | |
Net increase (decrease) in deposits | |
| 38,907 | | |
| (2,164 | ) |
Proceeds from FHLB of NY advances | |
| 19,123 | | |
| — | |
Repayment of FHLB of NY advances | |
| (13,000 | ) | |
| (10,000 | ) |
Purchase of treasury stock | |
| (1,390 | ) | |
| — | |
(Decrease) increase in advance payments by borrowers for taxes and insurance | |
| (590 | ) | |
| 365 | |
Cash dividends paid | |
| (437 | ) | |
| (453 | ) |
Net Cash Provided by (Used in) Financing Activities | |
| 42,613 | | |
| (12,252 | ) |
Net Increase (Decrease) in Cash and Cash Equivalents | |
| 1,729 | | |
| (18,641 | ) |
Cash and Cash Equivalents - Beginning | |
| 31,531 | | |
| 49,242 | |
Cash and Cash Equivalents - Ending | |
$ | 33,260 | | |
$ | 30,601 | |
SUPPLEMENTARY CASH FLOWS INFORMATION | |
| | | |
| | |
Income taxes paid (refunded) | |
$ | (1,706 | ) | |
$ | 104 | |
Interest paid | |
$ | 2,520 | | |
$ | 2,399 | |
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING ACTIVITIES | |
| | | |
| | |
Dividends declared and not paid | |
$ | 144 | | |
$ | — | |
Loans receivable transferred to real estate owned | |
$ | 2,100 | | |
$ | — | |
See Notes to Unaudited Consolidated Financial Statements
NORTHEAST COMMUNITY BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 – BASIS OF PRESENTATION
Northeast Community Bancorp,
Inc. (the “Company”) is a federally-chartered corporation organized as a mid-tier holding company for Northeast Community
Bank (the “Bank”), in conjunction with the Bank’s reorganization from a mutual savings bank to the mutual holding
company structure on July 5, 2006. The Bank is a New York State-chartered savings bank and completed its conversion from a federally-chartered
savings bank effective as of the close of business on June 29, 2012. The accompanying unaudited consolidated financial statements
include the accounts of the Company, the Bank and the Bank’s wholly owned subsidiaries, New England Commercial Properties,
LLC (“NECP”) and NECB Financial Services Group, LLC. NECB Financial Services Group was formed by the Bank in the second
quarter of 2012 as a complement to the Bank’s existing investment advisory and financial planning services division, Hayden
Wealth Management. As of the filing of this Form 10-Q, NECB Financial Services Group has not conducted any business. All significant
intercompany accounts and transactions have been eliminated in consolidation.
The accompanying unaudited
consolidated financial statements were prepared in accordance with generally accepted accounting principles for interim financial
information as well as instructions for Form 10-Q. Accordingly, they do not include all of the information or footnotes necessary
for the presentation of financial position, results of operations, changes in stockholders’ equity and cash flows in conformity
with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for complete financial
statements. In the opinion of management, all adjustments (consisting only of normal recurring accruals) considered necessary for
a fair presentation have been included. Operating results for the nine-month period ended September 30, 2014 are not necessarily
indicative of the results that may be expected for the full year or any other interim period. The December 31, 2013 consolidated
statement of financial condition data was derived from audited consolidated financial statements, but does not include all disclosures
required by U.S. GAAP. That data, along with the interim financial information presented in the unaudited consolidated statements
of financial condition, income, comprehensive income, stockholders’ equity, and cash flows should be read in conjunction
with the consolidated financial statements and notes thereto, included in the Company’s annual report on Form 10-K for the
year ended December 31, 2013.
The preparation of consolidated
financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect certain recorded
amounts and disclosures. Accordingly, actual results could differ from those estimates. The most significant estimate pertains
to the allowance for loan losses. In preparing these consolidated financial statements, the Company evaluated the events that occurred
after September 30, 2014 and through the date these consolidated financial statements were issued.
Loans
Loans are stated at unpaid
principal balances plus net deferred loan origination costs less an allowance for loan losses. Interest on loans receivable is
recorded on the accrual basis. An allowance for uncollected interest is established on loans where management has determined that
the borrowers may be unable to meet contractual principal and/or interest obligations or where interest or principal is 90 days
or more past due, unless the loans are well secured and in the process of collection. When a loan is placed on nonaccrual, an allowance
for uncollected interest is established and charged against current income. Thereafter, interest income is not recognized unless
the financial condition and payment record of the borrower warrant the recognition of interest income. Generally, loans are restored
to accrual status when the obligation is brought current, has performed in accordance with the contractual terms for a reasonable
period of time (generally six 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.
NOTE 1 – BASIS OF PRESENTATION (Continued)
Allowance for Loan Losses (Continued)
This evaluation is inherently
subjective as it requires material estimates that may be susceptible to significant revision as more information becomes available.
Risk characteristics associated with the types of loans the Company underwrites are as follows:
Multi-family, Mixed-use
and Non-residential Real Estate Loans. Loans secured by multi-family, mixed-use, and non-residential real estate generally
have larger balances and involve a greater degree of risk than one- to four-family residential mortgage loans. Of primary concern
in multi-family, mixed-use and non-residential real estate lending is the current and potential cash flow of the property and the
borrower’s demonstrated ability to operate that type of property. Payments on loans secured by income properties often depend
on successful operation and management of the properties. As a result, repayment of such loans may be subject to a greater extent
than residential real estate loans to adverse conditions in the real estate market or the economy.
Commercial and Industrial
Loans. Unlike residential mortgage loans, which are generally made on the basis of a borrower’s ability to make repayment
from the operation and cash flow from the real property whose value tends to be more ascertainable, commercial and industrial loans
are of higher risk and tend to be made on the basis of a borrower’s ability to make repayment from the cash flow of the borrower’s
business. As a result, the availability of funds for the repayment of commercial and industrial loans may depend substantially
on the success of the business itself. Further, any collateral securing such loans may depreciate over time, may be difficult to
appraise and may fluctuate in value.
Construction Loans.
Construction financing is generally considered to involve a higher degree of risk of loss than long-term loans secured by improved,
occupied real estate due to: (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. The Company
sought to minimize these 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 limiting our construction loans to multi-family
and single family 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.
A loan is considered impaired when, based on current information and events, it is probable that the Company will be unable to
collect the scheduled payments of principal or interest when due according to the contractual terms of the loan agreement. Factors
considered by management in determining impairment include payment status, collateral value, and the probability of collecting
scheduled principal and interest payments when due. Loans that experience insignificant payment delays and payment shortfalls generally
are not classified as impaired. Management determines the significance of payment delays and payment shortfalls on a case-by-case
basis, taking into consideration all of the circumstances surrounding the loan and the borrower, including the length of the delay,
the reasons for the delay, the borrower’s prior payment records, and the amount of the shortfall in relation to the principal
and interest owed. Impairment is measured on a loan-by-loan basis.
The Company does not evaluate
individual one-to-four family residential real estate and consumer loans for impairment, unless such loans are part of a larger
relationship that is impaired, or are classified as a troubled debt restructuring (“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.
NOTE 1 – BASIS OF PRESENTATION (Continued)
Allowance for Loan Losses (Continued)
The general component covers
pools of loans by loan class including loans not considered impaired, as well as smaller balance homogeneous loans, such as residential
real estate and consumer loans. These pools of loans are evaluated for loss exposure based upon historical loss rates, adjusted
for qualitative factors. These qualitative risk factors include:
|
1. |
Changes in policies and procedures in underwriting standards and collections. |
|
2. |
Changes in economic conditions. |
|
3. |
Changes in nature and volume of lending. |
|
4. |
Experience of origination team. |
|
5. |
Changes in past due loan volume and severity of classified assets. |
|
6. |
Quality of loan review system. |
|
7. |
Collateral values in general throughout lending territory. |
|
8. |
Concentrations of credit. |
|
9. |
Competition, legal and regulatory issues. |
Each factor is assigned
a value to reflect improving, stable or declining conditions based on management’s best judgment using relevant information
available at the time of the evaluation. Adjustments to the factors are supported through documentation of changes in conditions
in a narrative accompanying the allowance for loan loss calculation.
The allowance for loan
losses calculation methodology includes further segregation of loan classes into risk rating categories. The borrower’s overall
financial condition, repayment sources, guarantors and value of collateral, if appropriate, are evaluated annually for commercial
loans or when credit deficiencies arise, such as delinquent loan payments, for commercial, residential and consumer loans. Credit
quality risk ratings include regulatory classifications of pass, special mention, substandard, doubtful and loss. Loans criticized
as special mention have potential weaknesses that deserve management’s close attention. If uncorrected, the potential weaknesses
may result in deterioration of the repayment prospects. Loans classified substandard have a well-defined weakness or weaknesses
that jeopardize the liquidation of the debt. They include loans that are inadequately protected by the current sound net worth
and paying capacity of the obligor or of the collateral pledged, if any.
Loans classified doubtful
have all the weaknesses inherent in loans classified substandard with the added characteristic that collection or liquidation in
full, on the basis of current conditions and facts, is highly improbable. Loans classified as a loss are considered uncollectible
and are charged to the allowance for loan losses. Loans not classified are rated pass.
The allowance calculation
for each pool of loans is also based on the loss factors that reflect the Company’s historical charge-off experience adjusted
for current economic conditions applied to loan groups with similar characteristics or classifications in the current portfolio.
During the quarter ended September 30, 2014, the Company revised the methodology used to calculate the historical loss factor from
three to two years. The Company believes this change in methodology was warranted due to the Company’s determination that
the Company’s historical loss charge-offs from 2009 to 2012 was a result of the recent economic recession, that the bulk
of the loss charge-offs from 2009 to 2012 occurred in 2012, that there has not been a significant amount of loss charge-offs during
the past two years, and that the Company’s loan portfolio has weathered the recession with no further anticipated significant
loss charge-offs.
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 TDRs if the Company grants such borrowers concessions and it is deemed that those borrowers are experiencing
financial difficulty. Concessions granted under a TDR generally involve a temporary reduction in interest rate or an extension
of a loan’s stated maturity date. Adversely classified, non-accrual TDRs may be returned 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.
NOTE 1 – BASIS OF PRESENTATION (Continued)
Allowance for Loan Losses (Continued)
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 September 30, 2014.
Goodwill
Goodwill totaled $749,000
at September 30, 2014 and December 31, 2013 and consists of goodwill acquired in the business combination completed by the Company
in November 2007. The Company tests goodwill during the fourth quarter of each year for impairment, or more frequently if certain
indicators are present or changes in circumstances suggest that impairment may exist. The Company utilizes a two-step approach.
The first step requires a comparison of the carrying value of the reporting unit to the fair value of the unit. The Company estimates
the fair value of the reporting unit through internal analyses and external valuation, which utilizes an income approach based
on the present value of future cash flows. If the carrying value of the reporting unit exceeds its fair value, impairment exists
and the Company will perform the second step of the goodwill impairment test to measure the amount of impairment loss, if any.
The second step of the goodwill impairment test, if necessary, compares the implied fair value of a reporting unit’s goodwill
with its carrying value.
The implied fair value
of goodwill is determined in the same manner that the amount of goodwill recognized in a business combination is determined. The
Company allocates the fair value of the reporting unit to all of the assets and liabilities of that unit, including identifiable
intangible assets, as if the reporting unit had been acquired in a business combination. Any excess of the value of a reporting
unit over the amounts assigned to its assets and liabilities is the implied fair value of goodwill. No impairment charges were
recorded for the three- and nine-month periods ended September 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.
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 nine-month periods ended September 30, 2014 and 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, 2013
and September 30, 2014, the ESOP trust held 518,420 shares of the Company’s common stock, which represents all allocated
and unallocated shares held by the ESOP. As of December 31, 2013, the Company had allocated 181,447 shares to participants, and
an additional 25,921 shares had been committed to be released. As of September 30, 2014, the Company had allocated 207,368 shares
to participants, and an additional 19,441 shares had been committed to be released.
The Company recognized
compensation expense of $45,000 and $43,000 during the three-month periods ended September 30, 2014 and 2013, respectively, and
$139,000 and $118,000 during the nine-month periods ended September 30, 2014 and 2013, respectively, which equals the fair value
of the ESOP shares when they became committed to be released.
Note
4 – Outside director retirement plan (“drp”)
Net periodic pension cost for the Company’s
DRP is as follows:
| |
Three Months | | |
Nine Months | |
| |
Ended September 30, | | |
Ended September 30, | |
| |
(In thousands) | |
| |
| | |
| | |
| | |
| |
| |
2014 | | |
2013 | | |
2014 | | |
2013 | |
Service cost | |
$ | 18 | | |
$ | 18 | | |
$ | 54 | | |
$ | 55 | |
Interest cost | |
| 10 | | |
| 11 | | |
| 30 | | |
| 31 | |
Amortization of prior service cost | |
| 5 | | |
| 5 | | |
| 16 | | |
| 15 | |
Amortization of actuarial (gain) loss | |
| 1 | | |
| 9 | | |
| (1 | ) | |
| 27 | |
Total | |
$ | 34 | | |
$ | 43 | | |
$ | 99 | | |
$ | 128 | |
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.
NOTE 5 – INVESTMENTS
The following table sets
forth the amortized cost and fair values of our securities portfolio at the dates indicated:
| |
| | |
Gross | | |
Gross | | |
| |
| |
Amortized | | |
Unrealized | | |
Unrealized | | |
Fair | |
| |
Cost | | |
Gains | | |
Losses | | |
Value | |
| |
(In thousands) | |
September 30, 2014 | |
| | |
| | |
| | |
| |
Securities available-for-sale: | |
| | | |
| | | |
| | | |
| | |
Mortgage-backed securities – residential: | |
| | | |
| | | |
| | | |
| | |
Federal Home Loan Mortgage Corporation | |
$ | 35 | | |
$ | 2 | | |
$ | — | | |
$ | 37 | |
Federal National Mortgage Association | |
| 5 | | |
| — | | |
| — | | |
| 5 | |
Total | |
$ | 40 | | |
$ | 2 | | |
$ | — | | |
$ | 42 | |
| |
| | | |
| | | |
| | | |
| | |
Securities held-to-maturity: | |
| | | |
| | | |
| | | |
| | |
Mortgage-backed securities – residential: | |
| | | |
| | | |
| | | |
| | |
Government National Mortgage Association | |
$ | 5,366 | | |
$ | 194 | | |
$ | — | | |
$ | 5,560 | |
Federal Home Loan Mortgage Corporation | |
| 193 | | |
| 5 | | |
| — | | |
| 198 | |
Federal National Mortgage Association | |
| 136 | | |
| 2 | | |
| — | | |
| 138 | |
Collateralized mortgage obligations-GSE | |
| 1,309 | | |
| 46 | | |
| — | | |
| 1,355 | |
Total | |
$ | 7,004 | | |
$ | 247 | | |
$ | — | | |
$ | 7,251 | |
NOTE 5 – INVESTMENTS (Continued)
| |
| | |
Gross | | |
Gross | | |
| |
| |
Amortized | | |
Unrealized | | |
Unrealized | | |
Fair | |
| |
Cost | | |
Gains | | |
Losses | | |
Value | |
| |
(In thousands) | |
December 31, 2013 | |
| | |
| | |
| | |
| |
Securities available-for-sale: | |
| | | |
| | | |
| | | |
| | |
Mortgage-backed securities – residential: | |
| | | |
| | | |
| | | |
| | |
Federal Home Loan Mortgage Corporation | |
$ | 63 | | |
$ | 2 | | |
$ | — | | |
$ | 65 | |
Federal National Mortgage Association | |
| 47 | | |
| 1 | | |
| — | | |
| 48 | |
Total | |
$ | 110 | | |
$ | 3 | | |
$ | — | | |
$ | 113 | |
| |
| | | |
| | | |
| | | |
| | |
Securities held-to-maturity: | |
| | | |
| | | |
| | | |
| | |
Mortgage-backed securities – residential: | |
| | | |
| | | |
| | | |
| | |
Government National Mortgage Association | |
$ | 6,426 | | |
$ | 215 | | |
$ | — | | |
$ | 6,641 | |
Federal Home Loan Mortgage Corporation | |
| 238 | | |
| 7 | | |
| — | | |
| 245 | |
Federal National Mortgage Association | |
| 155 | | |
| 6 | | |
| — | | |
| 161 | |
Collateralized mortgage obligations-GSE | |
| 1,624 | | |
| 67 | | |
| — | | |
| 1,691 | |
Other | |
| 1 | | |
| — | | |
| — | | |
| 1 | |
Total | |
$ | 8,444 | | |
$ | 295 | | |
$ | — | | |
$ | 8,739 | |
Contractual final maturities
of mortgage-backed securities available-for-sale were as follows:
| |
September 30, 2014 | |
| |
Amortized Cost | | |
Fair Value | |
| |
(In thousands) | |
Due after five but within ten years | |
$ | 6 | | |
$ | 6 | |
Due after ten years | |
| 34 | | |
| 36 | |
| |
| | | |
| | |
Total | |
$ | 40 | | |
$ | 42 | |
Contractual
final maturities of mortgage-backed securities held-to-maturity were as follows:
| |
September 30, 2014 | |
| |
Amortized Cost | | |
Fair Value | |
| |
(In thousands) | |
Due after one but within five years | |
$ | 75 | | |
$ | 77 | |
Due after five but within ten years | |
| 125 | | |
| 127 | |
Due after ten years | |
| 6,804 | | |
| 7,047 | |
| |
| | | |
| | |
Total | |
$ | 7,004 | | |
$ | 7,251 | |
The maturities shown above
are based upon contractual final maturity. Actual maturities will differ from contractual maturities due to scheduled monthly repayments
and due to the underlying borrowers having the right to prepay their obligations.
NOTE 6 – FAIR VALUE DISCLOSURES
The Company uses fair value
measurements to record fair value adjustments to certain assets and liabilities and to determine fair value disclosures. The Company’s
securities available-for-sale are recorded at fair value on a recurring basis. Additionally, from time to time, we may be required
to record at fair value other assets and liabilities on a non-recurring basis, such as impaired loans and other real estate owned.
U.S. GAAP has established a fair value hierarchy that prioritizes the inputs to valuation methods used to measure fair value. The
hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1
measurements) and the lowest priority to unobservable inputs (Level 3 measurements). The three levels of the fair value hierarchy
are as follows:
NOTE 6 – 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:
| |
| | |
(Level 1) | | |
(Level 2) | | |
| |
| |
| | |
Quoted Prices | | |
Significant | | |
| |
| |
| | |
in Active | | |
Other | | |
(Level 3) | |
| |
| | |
Markets for | | |
Observable | | |
Significant | |
Description | |
Total | | |
Identical Assets | | |
Inputs | | |
Unobservable Inputs | |
September 30, 2014: | |
(In thousands) | |
Recurring: | |
| | | |
| | | |
| | | |
| | |
Mortgage-backed securities - residential: | |
| | | |
| | | |
| | | |
| | |
Federal Home Loan Mortgage Corporation | |
$ | 37 | | |
$ | — | | |
$ | 37 | | |
$ | — | |
Federal National Mortgage Association | |
| 5 | | |
| — | | |
| 5 | | |
| — | |
Total | |
$ | 42 | | |
$ | — | | |
$ | 42 | | |
$ | — | |
Nonrecurring: | |
| | | |
| | | |
| | | |
| | |
Impaired loans | |
$ | 4,110 | | |
$ | — | | |
$ | — | | |
$ | 4,110 | |
| |
| | | |
| | | |
| | | |
| | |
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 non-recurring basis and for which the Company has utilized Level 3 inputs
to determine fair value:
| |
Quantitative Information about Level 3 Fair Value Measurements |
| |
| | |
| |
| |
|
| |
Fair Value Estimate | | |
Valuation | |
Unobservable | |
Range |
(in thousands) | |
Estimate | | |
Techniques | |
Input | |
(Weighted Average Rate) |
September 30, 2014: | |
| | | |
| |
| |
|
Impaired loans | |
$ | 4,110 | | |
Appraisal of collateral (1) | |
Appraisal adjustments (2) | |
0.00% |
| |
| | | |
| |
Liquidation expenses (2) | |
0.51%-10.51% (3.23%) |
| |
| | | |
| |
| |
|
| |
| | | |
| |
| |
|
December 31, 2013: | |
| | | |
| |
| |
|
Impaired loans | |
$ | 789 | | |
Appraisal of collateral (1) | |
Appraisal adjustments (2) | |
0.00% |
| |
| | | |
| |
Liquidation expenses (2) | |
3.00% (3.00%) |
| (1) | Fair value is generally determined through independent appraisals of the underlying collateral, which generally include various
Level 3 inputs which are not identifiable. |
| (2) | Appraisals may be adjusted by management for qualitative factors such as economic conditions and aged appraisals. The range
of liquidation expenses and other appraisal adjustments are presented as a percent of the appraisal. |
NOTE 6 – FAIR VALUE DISCLOSURES (Continued)
The carrying amounts and fair values of the
Company’s financial instruments are summarized below:
| |
| | |
| | |
Fair Value at | |
| |
| | |
| | |
September 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 | |
$ | 33,260 | | |
$ | 33,260 | | |
$ | 33,260 | | |
$ | — | | |
$ | — | |
Certificates of deposit | |
| 1,146 | | |
| 1,146 | | |
| — | | |
| 1,146 | | |
| — | |
Securities available-for-sale | |
| 42 | | |
| 42 | | |
| — | | |
| 42 | | |
| — | |
Securities held-to-maturity | |
| 7,004 | | |
| 7,251 | | |
| — | | |
| 7,251 | | |
| — | |
Loans receivable | |
| 414,503 | | |
| 424,245 | | |
| — | | |
| — | | |
| 424,245 | |
Investments in restricted stock | |
| 1,804 | | |
| 1,804 | | |
| — | | |
| 1,804 | | |
| — | |
Accrued interest receivable | |
| 1,349 | | |
| 1,349 | | |
| — | | |
| 1,349 | | |
| — | |
| |
| | | |
| | | |
| | | |
| | | |
| | |
Financial Liabilities | |
| | | |
| | | |
| | | |
| | | |
| | |
Deposits | |
| 364,116 | | |
| 367,724 | | |
| — | | |
| 367,724 | | |
| — | |
FHLB of New York advances | |
| 27,123 | | |
| 27,089 | | |
| — | | |
| 27,089 | | |
| — | |
Accrued interest payable | |
| 4 | | |
| 4 | | |
| — | | |
| 4 | | |
| — | |
| |
| | | |
| | | |
| | | |
| | | |
| | |
| |
| | |
| | |
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 | |
Investments in restricted 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 | | |
| — | |
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 September 30, 2014 and December
31, 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-sale and held-to-maturity are determined utilizing Level 2 inputs. For these securities, the Company obtains fair
value measurements from an independent pricing service. The fair value measurements consider observable data that may include dealer
quotes, market spreads, cash flows, the U.S. Treasury yield curve, live trading levels, trade execution data, market consensus
prepayments speeds, credit information and the security’s terms and conditions, among other things.
Loans
Fair values are estimated
for portfolios of loans with similar financial characteristics. The total loan portfolio is first divided into performing and non-performing
categories. Performing loans are then segregated into adjustable and fixed rate interest terms. Fixed rate loans are segmented
by type, such as construction, other loans secured by real estate, commercial and industrial loans, and consumer. Certain types,
such as commercial loans and consumer loans, are further segmented by maturity and type of collateral.
For performing loans, fair
value is calculated by discounting scheduled future cash flows through estimated maturity using a market rate that reflects the
credit and interest-rate risks inherent in the loans. The discounted value of the cash flows is reduced by a credit risk adjustment
based on internal loan classifications. For non-performing loans, fair value is calculated by discounting the estimated future
cash flows from the remaining carrying value at a market rate. For impaired loans which the Company has measured and recorded impairment
generally based on the fair value of the loan’s collateral, fair value is generally determined based upon independent third-party
appraisal of the properties, or discounted cash flows based upon the expected proceeds. These assets are typically included as
Level 3 fair values, based upon the lowest level of input that is significant to the fair value measurements.
Restricted Stocks
The carrying amount of
the restricted stocks, consisting of Federal Home Loan Bank of New York (“FHLB”) stock and Atlantic Community Bankers
Bank (“ACBB”) stock, approximates its fair value, and considers the limited marketability of these securities.
Deposit Liabilities
The fair value of deposits
with no stated maturity, such as non-interest-bearing demand deposits, money market accounts, interest checking accounts, and savings
accounts is equal to the amount payable on demand. Time deposits are segregated by type, size, and remaining maturity. The fair
value of time deposits is based on the discounted value of contractual cash flows. The discount rate is based on rates currently
offered in the market.
FHLB of New York Advances
The fair value of the FHLB
advances is estimated based on the discounted value of future contractual payments. The discount rate is equivalent to the estimated
rate at which the Company could currently obtain similar financing.
Off-Balance- Sheet Financial Instruments
The fair value of commitments
to extend credit is estimated based on an analysis of the interest rates and fees currently charged to enter into similar transactions,
considering the remaining terms of the commitments and the credit-worthiness of the potential borrowers. At September 30, 2014
and December 31, 2013, the estimated fair values of these off-balance-sheet financial instruments were immaterial.
NOTE 6 – FAIR VALUE DISCLOSURES (Continued)
Off-Balance- Sheet Financial Instruments
(Continued)
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.
The above information should
not be interpreted as an estimate of the fair value of the entire Company since a fair value calculation is only provided for a
limited portion of the Company’s assets and liabilities. Due to a wide range of valuation techniques and the degree of subjectivity
used in making the estimates, comparisons between the Company’s disclosures and those of other companies may not be meaningful.
NOTE 7 – LOANS RECEIVABLE
AND THE ALLOWANCE FOR LOAN LOSSES
The following is an analysis of the allowance
for loan losses and related information concerning loan balances:
| |
September 30, | | |
December 31, | |
| |
2014 | | |
2013 | |
| |
(In thousands) | |
Residential real estate: | |
| | | |
| | |
One-to-four family | |
$ | 12,552 | | |
$ | 11,752 | |
Multi-family | |
| 191,568 | | |
| 188,923 | |
Mixed-use | |
| 59,261 | | |
| 50,467 | |
Total residential real estate | |
| 263,381 | | |
| 251,142 | |
Non-residential real estate | |
| 84,453 | | |
| 81,985 | |
Construction | |
| 37,250 | | |
| 6,568 | |
Commercial and industrial | |
| 32,463 | | |
| 31,345 | |
Consumer | |
| 148 | | |
| 161 | |
| |
| | | |
| | |
Total Loans | |
| 417,695 | | |
| 371,201 | |
| |
| | | |
| | |
Allowance for loan losses | |
| (3,851 | ) | |
| (4,015 | ) |
Deferred loan costs, net | |
| 659 | | |
| 639 | |
| |
| | | |
| | |
Net Loans | |
$ | 414,503 | | |
$ | 367,825 | |
NOTE 7 – LOANS RECEIVABLE AND THE ALLOWANCE FOR LOAN LOSSES
(Continued)
At and for the Nine Months Ended September 30, 2014 (in thousands)
|
|
Residential
Real
Estate | | |
Non-
residential
Real Estate | | |
Construction | | |
Commercial
and
Industrial | | |
Consumer | | |
Unallocated | | |
Total | |
Allowance for loan losses: | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Beginning balance | |
$ | 2,556 | | |
$ | 896 | | |
$ | 97 | | |
$ | 456 | | |
$ | — | | |
$ | 10 | | |
$ | 4,015 | |
Charge-offs | |
| (580 | ) | |
| (41 | ) | |
| — | | |
| — | | |
| — | | |
| — | | |
| (621 | ) |
Recoveries | |
| 100 | | |
| 565 | | |
| — | | |
| — | | |
| — | | |
| — | | |
| 665 | |
Provision (credit) | |
| 198 | | |
| (452 | ) | |
| 122 | | |
| (66 | ) | |
| — | | |
| (10 | ) | |
| (208 | ) |
Ending balance | |
$ | 2,274 | | |
$ | 968 | | |
$ | 219 | | |
$ | 390 | | |
$ | — | | |
$ | — | | |
$ | 3,851 | |
Ending balance: individually evaluated for impairment | |
$ | — | | |
$ | 160 | | |
$ | — | | |
$ | — | | |
$ | — | | |
$ | — | | |
$ | 160 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Ending balance: collectively evaluated for impairment | |
$ | 2,274 | | |
$ | 808 | | |
$ | 219 | | |
$ | 390 | | |
$ | — | | |
$ | — | | |
$ | 3,691 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Loans receivable: | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Ending balance | |
$ | 263,381 | | |
$ | 84,453 | | |
$ | 37,250 | | |
$ | 32,463 | | |
$ | 148 | | |
$ | — | | |
$ | 417,695 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Ending balance: individually | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
evaluated for impairment | |
$ | 7,328 | | |
$ | 11,061 | | |
$ | — | | |
$ | 2,538 | | |
$ | — | | |
$ | — | | |
$ | 20,927 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Ending balance: collectively evaluated for impairment | |
$ | 256,053 | | |
$ | 73,392 | | |
$ | 37,250 | | |
$ | 29,925 | | |
$ | 148 | | |
$ | — | | |
$ | 396,768 | |
For the Three Months Ended September
30, 2014 (in thousands)
|
|
Residential
Real
Estate | | |
Non-
residential
Real Estate | | |
Construction | | |
Commercial
and
Industrial | | |
Consumer | | |
Unallocated | | |
Total | |
Allowance for loan losses: | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Beginning balance | |
$ | 2,623 | | |
$ | 788 | | |
$ | 161 | | |
$ | 358 | | |
$ | — | | |
$ | — | | |
$ | 3,930 | |
Charge-offs | |
| (188 | ) | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| (188 | ) |
Recoveries | |
| 101 | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| 101 | |
Provision (credit) | |
| (262 | ) | |
| 180 | | |
| 58 | | |
| 32 | | |
| — | | |
| — | | |
| 8 | |
Ending balance | |
$ | 2,274 | | |
$ | 968 | | |
$ | 219 | | |
$ | 390 | | |
$ | — | | |
$ | — | | |
$ | 3,851 | |
NOTE 7 – LOANS RECEIVABLE AND THE ALLOWANCE
FOR LOAN LOSSES (Continued)
For the Nine Months Ended September 30, 2013 (in thousands)
|
|
Residential
Real
Estate | | |
Non-
residential
Real Estate | | |
Construction | | |
Commercial
and
Industrial | | |
Consumer | | |
Unallocated | | |
Total | |
Allowance for loan losses: | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Beginning balance | |
$ | 3,216 | | |
$ | 996 | | |
$ | — | | |
$ | 434 | | |
$ | — | | |
$ | — | | |
$ | 4,646 | |
Charge-offs | |
| — | | |
| (105 | ) | |
| — | | |
| — | | |
| — | | |
| — | | |
| (105 | ) |
Recoveries | |
| 23 | | |
| 4 | | |
| — | | |
| — | | |
| — | | |
| — | | |
| 27 | |
Provision | |
| (672 | ) | |
| 66 | | |
| 118 | | |
| (66 | ) | |
| — | | |
| — | | |
| (554 | ) |
Ending balance | |
$ | 2,567 | | |
$ | 961 | | |
$ | 118 | | |
$ | 368 | | |
$ | — | | |
$ | — | | |
$ | 4,014 | |
For the Three Months Ended September 30, 2013 (in thousands)
|
|
Residential
Real
Estate | | |
Non-
residential
Real Estate | | |
Construction | | |
Commercial
and
Industrial | | |
Consumer | | |
Unallocated | | |
Total | |
Allowance for loan losses: | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Beginning balance | |
$ | 2,804 | | |
$ | 869 | | |
$ | 75 | | |
$ | 457 | | |
$ | — | | |
$ | — | | |
$ | 4,205 | |
Charge-offs | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | |
Recoveries | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | |
Provision | |
| (237 | ) | |
| 92 | | |
| 43 | | |
| (89 | ) | |
| — | | |
| — | | |
| (191 | ) |
Ending balance | |
$ | 2,567 | | |
$ | 961 | | |
$ | 118 | | |
$ | 368 | | |
$ | — | | |
$ | — | | |
$ | 4,014 | |
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 | |
NOTE 7 – LOANS RECEIVABLE AND THE ALLOWANCE
FOR LOAN LOSSES (Continued)
The following is a summary of impaired loans at
September 30, 2014 and December 31, 2013:
| |
September 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 | |
$ | 7,328 | | |
$ | 8,055 | | |
$ | — | | |
$ | 8,629 | | |
$ | 9,259 | | |
$ | — | |
Non-residential real estate | |
| 8,964 | | |
| 11,981 | | |
| — | | |
| 11,488 | | |
| 14,739 | | |
| — | |
Commercial and industrial | |
| 2,538 | | |
| 2,538 | | |
| — | | |
| — | | |
| — | | |
| — | |
Subtotal | |
$ | 18,830 | | |
$ | 22,574 | | |
$ | — | | |
$ | 20,117 | | |
$ | 23,998 | | |
$ | — | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
With an allowance recorded: | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Non-residential real estate | |
$ | 2,097 | | |
$ | 2,097 | | |
$ | 160 | | |
$ | — | | |
$ | — | | |
$ | — | |
Subtotal | |
$ | 2,097 | | |
$ | 2,097 | | |
$ | 160 | | |
$ | — | | |
$ | — | | |
$ | — | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Total: | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Residential real estate-Multi-family | |
$ | 7,328 | | |
$ | 8,055 | | |
$ | — | | |
$ | 8,629 | | |
$ | 9,259 | | |
$ | — | |
Non-residential real estate | |
| 11,061 | | |
| 14,078 | | |
| 160 | | |
| 11,488 | | |
| 14,739 | | |
| — | |
Commercial and industrial | |
| 2,538 | | |
| 2,538 | | |
| — | | |
| — | | |
| — | | |
| — | |
Total | |
$ | 20,927 | | |
$ | 24,671 | | |
$ | 160 | | |
$ | 20,117 | | |
$ | 23,998 | | |
$ | — | |
| |
Three Months | | |
Nine Months | |
| |
Ended September 30, 2014 | | |
Ended September 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 | |
$ | 8,292 | | |
$ | 42 | | |
$ | 8,465 | | |
$ | 155 | |
Non-residential real estate | |
| 8,951 | | |
| 303 | | |
| 9,225 | | |
| 379 | |
Commercial and industrial | |
| 2,525 | | |
| — | | |
| 1,262 | | |
| — | |
Subtotal | |
$ | 19,768 | | |
$ | 345 | | |
$ | 18,952 | | |
$ | 534 | |
| |
| | | |
| | | |
| | | |
| | |
With an allowance recorded: | |
| | | |
| | | |
| | | |
| | |
Non-residential real estate | |
$ | 2,078 | | |
$ | — | | |
$ | 2,059 | | |
$ | 22 | |
Subtotal | |
$ | 2,078 | | |
$ | — | | |
$ | 2,059 | | |
$ | 22 | |
| |
| | | |
| | | |
| | | |
| | |
Total: | |
| | | |
| | | |
| | | |
| | |
Residential real estate-Multi-family | |
$ | 8,292 | | |
$ | 42 | | |
$ | 8,465 | | |
$ | 155 | |
Non-residential real estate | |
| 11,029 | | |
| 303 | | |
| 11,284 | | |
| 401 | |
Commercial and industrial | |
| 2,525 | | |
| — | | |
| 1,262 | | |
| — | |
Total | |
$ | 21,846 | | |
$ | 345 | | |
$ | 21,011 | | |
$ | 556 | |
NOTE 7 –LOANS RECEIVABLE AND THE ALLOWANCE FOR LOAN LOSSES
(Continued)
| |
Three Months | | |
Nine Months | |
| |
Ended September 30, 2013 | | |
Ended September 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 | |
$ | 8,570 | | |
$ | 62 | | |
$ | 9,726 | | |
$ | 322 | |
Non-residential real estate | |
| 11,226 | | |
| 21 | | |
| 10,564 | | |
| 66 | |
Commercial and industrial | |
| 916 | | |
| — | | |
| 1,459 | | |
| 49 | |
Total | |
$ | 20,712 | | |
$ | 83 | | |
$ | 21,749 | | |
$ | 437 | |
| (1) | There were no impaired loans with related allowance recorded outstanding during the three and nine months ended September 30,
2013. |
The following table provides information about delinquencies in
our loan portfolio at the dates indicated.
Age Analysis of Past Due Loans as of September 30, 2014 (in thousands)
|
|
30-59 Days
Past Due | | |
60 – 89
Days Past
Due | | |
Greater
Than 90
Days | | |
Total Past Due | | |
Current | | |
Total Loans
Receivable | | |
Recorded
Investment > 90 Days
and
Accruing | |
| |
| | |
| | |
| | |
| | |
| | |
| | |
| |
Residential real estate: | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
One- to four-family | |
$ | — | | |
$ | — | | |
$ | — | | |
$ | — | | |
$ | 12,552 | | |
$ | 12,552 | | |
$ | — | |
Multi-family | |
| — | | |
| — | | |
| 897 | | |
| 897 | | |
| 190,671 | | |
| 191,568 | | |
| — | |
Mixed-use | |
| — | | |
| — | | |
| 2,199 | | |
| 2,199 | | |
| 57,062 | | |
| 59,261 | | |
| — | |
Non-residential real estate | |
| — | | |
| — | | |
| 3,097 | | |
| 3,097 | | |
| 81,356 | | |
| 84,453 | | |
| — | |
Construction loans | |
| — | | |
| — | | |
| — | | |
| — | | |
| 37,250 | | |
| 37,250 | | |
| — | |
Commercial and industrial loans | |
| — | | |
| — | | |
| 2,538 | | |
| 2,538 | | |
| 29,925 | | |
| 32,463 | | |
| — | |
Consumer | |
| — | | |
| — | | |
| — | | |
| — | | |
| 148 | | |
| 148 | | |
| — | |
Total loans | |
$ | — | | |
$ | — | | |
$ | 8,731 | | |
$ | 8,731 | | |
$ | 408,964 | | |
$ | 417,695 | | |
$ | — | |
NOTE 7 – LOANS RECEIVABLE AND THE ALLOWANCE
FOR LOAN LOSSES (Continued)
Age Analysis of Past Due Loans as of December 31, 2013 (in thousands)
|
|
30-59 Days
Past Due | | |
60 – 89
Days Past
Due | | |
Greater
Than 90
Days | | |
Total Past Due | | |
Current | | |
Total Loans
Receivable | | |
Recorded
Investment > 90 Days
and
Accruing | |
| |
| | |
| | |
| | |
| | |
| | |
| | |
| |
Residential real estate: | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
One- to four-family | |
$ | — | | |
$ | — | | |
$ | — | | |
$ | — | | |
$ | 11,752 | | |
$ | 11,752 | | |
$ | — | |
Multi-family | |
| — | | |
| — | | |
| — | | |
| — | | |
| 188,923 | | |
| 188,923 | | |
| — | |
Mixed-use | |
| — | | |
| 2,210 | | |
| — | | |
| 2,210 | | |
| 48,257 | | |
| 50,467 | | |
| — | |
Non-residential real estate | |
| — | | |
| — | | |
| 2,372 | | |
| 2,372 | | |
| 79,613 | | |
| 81,985 | | |
| — | |
Construction loans | |
| — | | |
| — | | |
| — | | |
| — | | |
| 6,568 | | |
| 6,568 | | |
| — | |
Commercial and industrial loans | |
| — | | |
| — | | |
| — | | |
| — | | |
| 31,345 | | |
| 31,345 | | |
| — | |
Consumer | |
| — | | |
| — | | |
| — | | |
| — | | |
| 161 | | |
| 161 | | |
| — | |
Total loans | |
$ | — | | |
$ | 2,210 | | |
$ | 2,372 | | |
$ | 4,582 | | |
$ | 366,619 | | |
$ | 371,201 | | |
$ | — | |
The following tables provide certain
information related to the credit quality of the loan portfolio.
Credit Risk Profile by Internally Assigned Grade at September
30, 2014 (in thousands)
|
|
Residential
Real Estate | | |
Non-residential
Real Estate | | |
Construction | | |
Commercial
and Industrial | | |
Consumer | | |
Total | |
Grade: | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Pass | |
$ | 260,285 | | |
$ | 74,527 | | |
$ | 37,250 | | |
$ | 29,425 | | |
$ | 148 | | |
$ | 401,635 | |
Special Mention | |
| 230 | | |
| 829 | | |
| — | | |
| 500 | | |
| — | | |
| 1,559 | |
Substandard | |
| 2,866 | | |
| 9,097 | | |
| — | | |
| 2,538 | | |
| — | | |
| 14,501 | |
Total | |
$ | 263,381 | | |
$ | 84,453 | | |
$ | 37,250 | | |
$ | 32,463 | | |
$ | 148 | | |
$ | 417,695 | |
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 September 30, 2014
and December 31, 2013 (in thousands)
| |
2014 | | |
2013 | |
| |
| | |
| |
Residential real estate | |
$ | 3,096 | | |
$ | 2,210 | |
Non-residential real estate | |
| 3,097 | | |
| 2,372 | |
Commercial and industrial loans | |
| 2,538 | | |
| 84 | |
Total | |
$ | 8,731 | | |
$ | 4,666 | |
NOTE 7 – LOANS RECEIVABLE AND THE ALLOWANCE
FOR LOAN LOSSES (Continued)
There were no loans modified that were deemed
TDRs during the three and nine months ended September 30, 2014. The following table shows the breakdown of loans modified in TDRs
for the periods indicated:
| |
Three Months Ended September 30, | | |
Nine Months Ended September 30, | |
| |
2013 | | |
2013 | |
| |
| | |
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 | |
| 0 | | |
$ | — | | |
$ | — | | |
| 1 | | |
$ | 307 | | |
$ | 307 | |
Non-residential | |
| 0 | | |
| — | | |
| — | | |
| 3 | | |
| 3,253 | | |
| 3,253 | |
Total | |
| 0 | | |
$ | — | | |
$ | — | | |
| 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 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 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 September 30, 2014, none of the loans
that were modified during the previous twelve months had defaulted in the three and nine month periods ended September 30, 2014.
As of September 30, 2013, none of the loans that were modified during the previous twelve months had defaulted in the three and
nine month periods ended September 30, 2013.
NOTE 8 – EFFECT OF RECENT ACCOUNTING PRONOUNCEMENTS
In July 2013, the Financial
Accounting Standards Board (“FASB”) issued Accounting Standard Update (“ASU”) 2013-11, Presentation
of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists,
which provides guidance on financial statement presentation of an unrecognized tax benefit when a net operating loss (NOL)
carryforward, a similar tax loss, or a tax credit carryforward exists. The FASB’s objective in issuing this ASU is to eliminate
diversity in practice resulting from a lack of guidance on this topic in current U.S. GAAP. This ASU applies to all entities with
unrecognized tax benefits that also have tax loss or tax credit carryforwards in the same tax jurisdiction as of the reporting
date. For public entities, the guidance is effective for fiscal years beginning after December 15, 2013 and interim periods within
those years. The adoption of this guidance did not have a material impact on the Company’s consolidated financial statements.
In January 2014, the FASB
issued ASU 2014-04, Receivables – Troubled 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 residential real estate
property collateralizing a consumer mortgage loans, upon either (1) the creditor obtaining legal title to the residential real
estate property upon completion of a foreclosure or (2) the borrower conveying all interest in the residential real estate property
to the creditor to satisfy that loan through completion of a deed in lieu of foreclosure or through a similar legal agreement.
Additionally, the amendments require interim and annual disclosure of both (1) the amount of foreclosed residential real estate
property held by the creditor and (2) the recorded investment in consumer mortgage loans collateralized by residential real estate
property that are in the process of foreclosure according to local requirements of the applicable jurisdiction. For public entities,
the guidance is effective for annual periods, and interim periods within those annual periods, beginning after December 15, 2014.
The Company does not expect the adoption of this guidance to have a material impact on the Company’s consolidated financial
statements.
In May 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 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 of this standard effective
April 1, 2017 is not expected to have a material impact on the Company’s consolidated financial statements.
NOTE 9 – DIVIDEND RESTRICTION
NorthEast Community Bancorp
MHC (the “MHC”) held 7,273,750 shares, or 58.8%, of the Company’s issued and outstanding common stock, and the
minority public shareholders held 41.2% of outstanding stock, at September 30, 2014. The MHC filed notice with, and received approval
from, the Federal Reserve Bank of Philadelphia to waive its right to receive cash dividends for the period from November 13, 2013
through November 12, 2014.
The MHC intends to file
a notice with the Federal Reserve Bank of Philadelphia to waive its right to receive cash dividends declared by the Company in
the 12 months subsequent to the members’ approval to waive such right at a meeting of the MHC’s members to be held
on November 25, 2014.
The MHC has waived receipt
of all past dividends paid by the Company through September 30, 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 September 30, 2014 and December 31, 2013, the aggregate retained earnings restricted for cash dividends waived were $5,892,000
and $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
September 30,
2014 | | |
Nine Months
Ended
September 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) | |
$ | 16 | (1) | |
Salary and employee benefits |
Actuarial loss | |
| 1 | (1) | |
| (1 | ) (1) | |
Salary and employee benefits |
| |
| 6 | | |
| 15 | | |
Total before tax |
| |
| (4 | ) | |
| (6 | ) | |
Provision for income taxes |
Total reclassifications for the period | |
$ | 2 | | |
$ | 9 | | |
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.
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 nine months ended September 30, 2014.
For additional information
on our critical accounting policies, please refer to Note 1 of the consolidated financial statements included in our 2013 Annual
Report on Form 10-K.
Third Quarter Performance Highlights
The Company’s earnings
for the quarter ended September 30, 2014 decreased by $3,000 compared to the same period in 2013 primarily due to increases in
the provision for loan losses, non-interest expenses, and the provision for income taxes and a decrease in non-interest income,
partially offset by an increase in net interest income. The Company had an $8,000 provision for loan losses during the quarter
ended September 30, 2014 compared to a credit of $191,000 in provision for loan losses during the quarter ended September 30, 2013.
Non-performing loans (comprised
of non-accrual loans) increased by $4.1 million, or 87.1%, to $8.7 million as of September 30, 2014 from $4.6 million as of December
31, 2013. The increase in non-performing loans was primarily due to the addition of two non-performing commercial and industrial
loans totaling $2.5 million, two non-performing non-residential mortgage loans totaling $2.3 million, two non-performing multi-family
mortgage loans totaling $897,000, one non-performing mixed-use mortgage loan totaling $230,000, and payments made by the Company
for real estate taxes, water and sewer charges totaling $120,000 on properties secured by the non-performing mortgage loans, partially
offset by the conversion from non-performing to performing status of one non-residential mortgage loan totaling $823,000, the satisfaction
of one non-residential mortgage loan totaling $789,000 and two commercial and industrial loans totaling $85,000, and the charge-off
of $325,000 for one mixed-use mortgage loan.
Our interest rate spread
decreased to 3.42% for the three months ended September 30, 2014 from 3.45% for the three months ended September 30, 2013 and our
net interest margin decreased to 3.64% for the three months ended September 30, 2014 from 3.69% for the three months ended September
30, 2013. The decrease in the interest rate spread and the net interest margin in the third quarter of 2014 compared to the same
period in 2013 was due to a decrease of nine basis points in the yield on our interest-earning assets that exceeded a decrease
of six basis points in the cost of our interest-bearing liabilities.
Our loans receivable, net,
increased by $46.7 million, or 12.7%, to $414.5 million as of September 30, 2014 from $367.8 million at December 31, 2013 due primarily
to increases of $30.7 million in construction mortgage loans, $8.8 million in mixed-use mortgage loans, $2.6 million in multi-family
mortgage loans, $2.5 million in non-residential mortgage loans, $1.1 million in commercial and industrial loans, and $800,000 in
one-to-four family mortgage loans, offset by a decrease of $13,000 in consumer loans.
Comparison of Financial Condition at September 30, 2014 and December
31, 2013
Total assets increased
by $43.8 million, or 9.6%, to $502.1 million at September 30, 2014 from $458.2 million at December 31, 2013. The increase in total
assets was due primarily to increases of $46.7 million in loans receivable, net, $1.7 million in cash and cash equivalents, $465,000
in bank owned life insurance, $210,000 in restricted stocks, $82,000 in accrued interest receivable, and $62,000 in real estate
owned, offset by decreases of $2.4 million in other assets, $1.4 million in securities held-to-maturity, $996,000 in certificates
of deposit and $418,000 in premises and equipment. The increase in total assets was funded primarily from increases of $38.9 million
in deposits and $6.1 million in FHLB advances, partially offset by a decrease of $590,000 in advance payments by borrowers for
taxes and insurance.
Loans receivable, net,
increased by $46.7 million, or 12.7%, to $414.5 million at September 30, 2014 from $367.8 million at December 31, 2013 due primarily
to loan originations totaling $115.5 million which exceeded loan repayments and charge-offs totaling $68.8 million. The increase
in the mortgage loan portfolio was due to increases of $30.7 million, or 467.1%, in the construction mortgage loan portfolio to
$37.3 million at September 30, 2014 from $6.6 million at December 31, 2013, $8.8 million, or 17.4%, in the mixed-use mortgage loan
portfolio to $59.3 million at September 30, 2014 from $50.5 million at December 31, 2013, $2.5 million, or 3.0%, in the non-residential
mortgage loan portfolio to $84.5 million at September 30, 2014 from $82.0 million at December 31, 2013, $2.6 million, or 1.4%,
in the multi-family mortgage loan portfolio to $191.6 million at September 30, 2014 from $188.9 million at December 31, 2013, $1.1
million, or 3.6%, in the commercial and industrial loan portfolio to $32.5 million at September 30, 2014 from $31.3 million at
December 31, 2013, and $800,000, or 6.8%, in the one-to-four family mortgage loan portfolio to $12.6 million at September 30, 2014
from $11.8 million at December 31, 2013, partially offset by a decrease of $13,000, or 8.1%, in the consumer loan portfolio to
$148,000 at September 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 City metropolitan area construction market through the origination of construction loans
secured by the construction of multi-family properties located in the New York City metropolitan area. The increase in the construction
mortgage loan portfolio, the multi-family, mixed-use and non-residential mortgage loan portfolio and the commercial and industrial
loan portfolio was due to the Company’s more aggressive origination activities through the hiring of two new chief lending
officers in our two lending regions in the New York City metropolitan area. The purpose of the increase in loan origination was
to increase interest income.
Cash and cash equivalents
increased by $1.7 million, or 5.5%, to $33.3 million at September 30, 2014 from $31.5 million at December 31, 2013 due primarily
to increases in deposits and FHLB advances, offset by an increase in the loan portfolio. Bank owned life insurance increased by
$465,000, or 2.3%, to $21.0 million at September 30, 2014 from $20.5 million at December 31, 2013 due to accrued earnings during
2014. Investments in restricted stocks increased by $210,000, or 13.2%, to $1.8 million at September 30, 2014 from $1.6 million
at December 31, 2013 due to an increase in FHLB advances and the purchase of $70,000 in ACBB stock. The FHLB requires the purchase
of FHLB restricted stock amounting to 4.5% of the borrowed amount. The purchase of ACBB restricted stock was due to the Company’s
decision to become a member of ACBB, a banker’s bank, in order to provide the Company with an additional source of correspondent
banking services such as borrowings as a source of liquidity and investments in overnight Federal Funds as a source of additional
interest income.
Accrued interest receivable
increased by $82,000, or 6.5%, to $1.35 million at September 30, 2014 from $1.27 million at December 31, 2013 due primarily to
an increase in the mortgage loan portfolio. Other assets decreased by $2.4 million, or 32.2%, to $5.1 million at September 30,
2014 from $7.5 million at December 31, 2013 due to a $1.9 million income tax refund from the Internal Revenue Service that reduced
current tax assets. Securities held-to-maturity decreased by $1.4 million, or 17.1%, to $7.0 million at September 30, 2014 from
$8.4 million at December 31, 2013 due primarily to repayments. Premises and equipment decreased by $418,000, or 3.4%, to $11.8
million at September 30, 2014 from $12.2 million at December 31, 2013 due primarily to depreciation.
Deposits increased by $38.9
million, or 12.0%, to $364.1 million at September 30, 2014 from $325.2 million at December 31, 2013. The increase in deposits was
primarily attributable to increases of $30.4 million in certificates of deposit, $6.7 million in NOW and money market accounts,
and $2.4 million in non-interest bearing accounts, partially offset by decreases of $674,000 in regular savings accounts. The increase
in certificates of deposit was due to the offering of competitive interest rates for non-broker certificates of deposit gathered
through a non-broker 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 $29.3 million in non-broker certificates of deposit since December 31, 2013.
FHLB advances increased by $6.1 million, or 29.2%, to $27.1 million at September 30, 2014 from $21.0 million at December 31, 2013.
The increase in deposits and FHLB advances was primarily attributable to efforts by the Company to increase liquidity, fund loan
originations, increase reliance on long term certificates of deposit, and diversify sources of funds.
Advance payments by borrowers
for taxes and insurance decreased by $590,000, or 14.8%, to $3.4 million at September 30, 2014 from $4.0 million at December 31,
2013 due primarily to remittances of taxes for our borrowers.
Stockholders’ equity
decreased by $601,000, or 0.6%, to $103.6 million at September 30, 2014, from $104.2 million at December 31, 2013. This decrease
was primarily the result of stock repurchases of $1.4 million, and cash dividends declared and paid of $433,000, partially offset
by comprehensive income of $1.1 million and the amortization of $139,000 for the ESOP for the period.
Comparison of Operating Results for the Three Months Ended September
30, 2014 and 2013
General.
Net income decreased by $3,000, or 0.8%, to $378,000 for the quarter ended September 30, 2014 from net income of
$381,000 for the quarter ended September 30, 2013. The decrease was primarily the result of an increase of $199,000 in provision
for loan losses from a credit of $191,000 in provision for loan losses in 2013 to an $8,000 in provision for loan losses in 2014,
an increase of $163,000 in non-interest expenses, an increase of $22,000 in the provision for income taxes and a decrease of $22,000
in non-interest income, partially offset by an increase of $403,000 in net interest income.
Net
Interest Income. Net interest income increased by $403,000, or 11.2%, to $4.0 million for the three months ended
September 30, 2014 from $3.6 million for the three months ended September 30, 2013. The increase in net interest income resulted
primarily from an increase of $466,000 in interest income, partially offset by an increase of $63,000 in interest expense.
The net interest spread
decreased by three basis points to 3.42% for the three months ended September 30, 2014 from 3.45% for the three months ended September
30, 2013. The net interest margin decreased by five basis points between these periods from 3.69% for the quarter ended September
30, 2013 to 3.64% for the quarter ended September 30, 2014. The decrease in the interest rate spread and the net interest margin
in the third quarter of 2014 compared to the same period in 2013 was due to a decrease of nine basis points in the yield on our
interest-earning assets that exceeded a decrease of six basis points in the cost of our interest-bearing liabilities.
The average yield on our
interest-earning assets decreased by nine basis points to 4.42% for the three months ended September 30, 2014 from 4.51% for the
three months ended September 30, 2013 and the cost of our interest-bearing liabilities decreased by six basis points to 1.00% for
the three months ended September 30, 2014 from 1.06% for the three months ended September 30, 2013. The decrease in the yield on
our interest-earning assets was due to a decrease in the yield on loans receivable, offset by increases in the yield on securities
and other interest-earning assets. The decrease in the cost of our interest-bearing liabilities was due to a decrease in the cost
of borrowed money, offset by an increase in the cost of 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 September 30, 2014 and 2013.
| |
Three Months Ended September 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 | |
$ | 400,390 | | |
$ | 4,770 | | |
| 4.77 | % | |
$ | 339,682 | | |
$ | 4,304 | | |
| 5.07 | % |
Securities (including restricted stock) | |
| 9,045 | | |
| 68 | | |
| 3.01 | | |
| 10,629 | | |
| 72 | | |
| 2.75 | |
Other interest-earning assets | |
| 28,739 | | |
| 7 | | |
| 0.10 | | |
| 38,483 | | |
| 3 | | |
| 0.02 | |
Total interest-earning assets | |
| 438,174 | | |
| 4,845 | | |
| 4.42 | | |
| 388,794 | | |
| 4,379 | | |
| 4.51 | |
Allowance for loan losses | |
| (4,021 | ) | |
| | | |
| | | |
| (4,203 | ) | |
| | | |
| | |
Non-interest-earning assets | |
| 49,320 | | |
| | | |
| | | |
| 48,797 | | |
| | | |
| | |
Total assets | |
$ | 483,473 | | |
| | | |
| | | |
$ | 433,388 | | |
| | | |
| | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Liabilities and equity: | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Interest-bearing liabilities: | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Interest-bearing demand | |
$ | 66,296 | | |
$ | 61 | | |
| 0.37 | % | |
$ | 63,666 | | |
$ | 60 | | |
| 0.38 | % |
Savings and club accounts | |
| 85,136 | | |
| 119 | | |
| 0.56 | | |
| 82,630 | | |
| 112 | | |
| 0.54 | |
Certificates of deposit | |
| 171,142 | | |
| 651 | | |
| 1.52 | | |
| 147,862 | | |
| 577 | | |
| 1.56 | |
Total interest-bearing deposits | |
| 322,574 | | |
| 831 | | |
| 1.03 | | |
| 294,158 | | |
| 749 | | |
| 1.02 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Borrowings | |
| 21,860 | | |
| 27 | | |
| 0.49 | | |
| 5,000 | | |
| 46 | | |
| 3.68 | |
Total interest-bearing liabilities | |
| 344,434 | | |
| 858 | | |
| 1.00 | | |
| 299,158 | | |
| 795 | | |
| 1.06 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Noninterest-bearing demand | |
| 28,657 | | |
| | | |
| | | |
| 22,769 | | |
| | | |
| | |
Other liabilities | |
| 7,238 | | |
| | | |
| | | |
| 6,814 | | |
| | | |
| | |
Total liabilities | |
| 380,329 | | |
| | | |
| | | |
| 328,741 | | |
| | | |
| | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Stockholders’ equity | |
| 103,144 | | |
| | | |
| | | |
| 104,647 | | |
| | | |
| | |
Total liabilities and | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Stockholders’ equity | |
$ | 483,473 | | |
| | | |
| | | |
$ | 433,388 | | |
| | | |
| | |
Net interest income | |
| | | |
$ | 3,987 | | |
| | | |
| | | |
$ | 3,584 | | |
| | |
Interest rate spread | |
| | | |
| | | |
| 3.42 | % | |
| | | |
| | | |
| 3.45 | % |
Net interest margin | |
| | | |
| | | |
| 3.64 | % | |
| | | |
| | | |
| 3.69 | % |
Net interest-earning assets | |
$ | 93,740 | | |
| | | |
| | | |
$ | 89,636 | | |
| | | |
| | |
Interest-earning assets to interest-bearing liabilities | |
| 127.22 | % | |
| | | |
| | | |
| 129.96 | % | |
| | | |
| | |
Total interest income increased
by $466,000, or 10.6%, to $4.8 million for the three months ended September 30, 2014 from $4.4 million for the three months ended
September 30, 2013. Interest income on loans increased by $466,000, or 10.8%, to $4.8 million for the three months ended September
30, 2014 from $4.3 million for the three months ended September 30, 2013. The increase was primarily the result of an increase
of $60.7 million, or 17.9%, in the average balance of the loan portfolio to $400.4 million for the three months ended September
30, 2014 from $339.7 million for the three months ended September 30, 2013 as originations outpaced repayments and charge-offs,
net of recoveries. The increase in the average balance of the loan portfolio was offset by a decrease of 30 basis points in the
average yield on loans to 4.77% for the three months ended September 30, 2014 from 5.07% for the three months ended September 30,
2013. The decrease in the average yield on loans was due to the pay-off of numerous higher yielding mortgage loans and the refinancing
and/or re-pricing to lower interest rates of numerous mortgage loans in our loan portfolio.
Interest income on securities
decreased by $4,000, or 5.6%, to $68,000 for the three months ended September 30, 2014 from $72,000 for the three months ended
September 30, 2013. The decrease was primarily due to a decrease of $1.6 million, or 14.9%, in the average balance of securities
to $9.0 million for the three months ended September 30, 2014 from $10.6 million for the three months ended September 30, 2013,
offset by an increase of 26 basis points in the average yield on securities to 3.01% for the three months ended September 30, 2014
from 2.75% for the three months ended September 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 a percentage of total investment securities.
Interest income on other
interest-earning assets (consisting solely of interest-earning deposits) increased by $4,000, or 133.3% to $7,000 for the three
months ended September 30, 2014 from $3,000 for the three months ended September 30, 2013. The increase was primarily due to an
increase of eight basis points in the average yield on other interest-earning assets to 0.10% for the three months ended September
30, 2014 from 0.02% for the three months ended September 30, 2013, offset by a decrease of $9.7 million, or 25.3%, in the average
balance of interest-earning assets to $28.7 million for the three months ended September 30, 2014 from $38.5 million for the three
months ended September 30, 2013. 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 $63,000, or 7.9%, to $858,000 for the three months ended September 30, 2014 from $795,000 for the three months ended
September 30, 2013. Interest expense on deposits increased by $82,000, or 10.9%, to $831,000 for the three months ended September
30, 2014 from $749,000 for the three months ended September 30, 2013. The increase in the interest expense on deposits was a result
of an increase of $28.4 million, or 9.7%, in the average balance of interest bearing deposits to $322.6 million for the three months
ended September 30, 2014 from $294.2 million for the three months ended September 30, 2013. 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 1.03% for the
three months ended September 30, 2014 from 1.02% for the three months ended September 30, 2013.
The interest expense of
our interest-bearing demand deposits increased by $1,000, or 1.7%, to $61,000 for the three months ended September 30, 2014 from
$60,000 for the three months ended September 30, 2013. The increase in interest expense in our interest-bearing demand deposits
was due to an increase of $2.6 million, or 4.1%, in the average balance of our interest-bearing demand deposits to $66.3 million
for the three months ended September 30, 2014 from $63.7 million for the three months ended September 30, 2013, offset by a decrease
of one basis point in the average interest cost to 0.37% for the three months ended September 30, 2014 from 0.38% for the three
months ended September 30, 2013 as we offered competitive interest rates to generate deposits.
The interest expense of
our interest-bearing savings and club deposits increased by $7,000, or 6.3%, to $119,000 for the three months ended September 30,
2014 from $112,000 for the three months ended September 30, 2013. The increase in interest expense in our interest-bearing savings
and club deposits was due to an increase of $2.5 million, or 3.0%, in the average balance of our interest-bearing savings and club
deposits to $85.1 million for the three months ended September 30, 2014 from $82.6 million for the three months ended September
30, 2013. The increase in interest expense in our interest-bearing savings and club deposits was also due to a two basis point
increase in the average interest cost to 0.56% for the three months ended September 30, 2014 from 0.54% for the three months ended
September 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 $74,000, or 12.8%, to $651,000 for the three months ended September 30,
2014 from $577,000 for the three months ended September 30, 2013. The increase in interest expense in our interest-bearing certificates
of deposit was due to an increase of $23.3 million, or 15.7%, in the average balance of our interest-bearing certificates of deposit
to $171.1 million for the three months ended September 30, 2014 from $147.9 million for the three months ended September 30, 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 non-broker nationwide certificate of deposit listing service. The increase in interest expense
of our interest-bearing certificates of deposit was offset by a four basis point decrease in the average interest cost on such
certificates to 1.52% for the three months ended September 30, 2014 from 1.56% for the three months ended September 30, 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 $19,000, or 41.3%, to $27,000 for the three months ended September 30, 2014 from $46,000 for the three months ended
September 30, 2013. The decrease in interest expense on borrowings was due to a decrease of 319 basis points in the cost of borrowed
money to 0.49% for the three months ended September 30, 2014 from 3.68% for the three months ended September 30, 2013 due primarily
to the maturity and repayment of higher costing FHLB advances and new lower cost FHLB advances obtained during the nine months
ended September 30, 2014. The decrease in interest expense on borrowings was partially offset by an increase of $16.9 million,
or 337.2%, in the average balance of borrowed money to $21.9 million for the three months ended September 30, 2014 from $5.0 million
for the three months ended September 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 September 30, 2014 and 2013.
| |
Three Months | |
| |
Ended September 30, | |
| |
2014 | | |
2013 | |
| |
| | |
| |
| |
(Dollars in thousands) | |
Allowance at beginning of period | |
$ | 3,930 | | |
$ | 4,205 | |
Provision (credit) for loan losses | |
| 8 | | |
| (191 | ) |
Charge-offs | |
| (188 | ) | |
| — | |
Recoveries | |
| 101 | | |
| — | |
Net charge-offs | |
| (87 | ) | |
| — | |
Allowance at end of period | |
$ | 3,851 | | |
$ | 4,014 | |
| |
| | | |
| | |
End of period - Allowance to non-performing loans | |
| 44.11 | % | |
| 173.78 | % |
End of period - Allowance to total loans outstanding | |
| 0.92 | % | |
| 1.15 | % |
Net charge-offs to average loans outstanding during the period | |
| 0.02 | % | |
| — | |
The allowance to non-performing
loans ratio decreased to 44.11% at September 30, 2014 from 173.78% at September 30, 2013 due primarily to an increase in non-performing
loans to $8.7 million at September 30, 2014 from $2.3 million at September 30, 2013 and a decrease of $163,000 in the allowance
for loan losses. The increase in non-performing loans was due to the addition of six mortgage loans totaling $5.4 million and two
commercial and industrial loans totaling $2.5 million, partially offset by the conversion from non-performing to performing status
of one mortgage loan totaling $810,000 and the satisfaction of one mortgage loan totaling $742,000.
The allowance for loan
losses was $3.9 million at September 30, 2014, $4.0 million at December 31, 2013, and $4.0 million at September 30, 2013. We recorded
a provision for loan losses of $8,000 for the three months ended September 30, 2014 compared to a credit provision for loan losses
of ($191,000) for the three month period ended September 30, 2013. The reduction in the allowance for loan losses was due to the
Company’s assessment that there are no additional losses currently 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 losses was adequate due to improvements in the economy and the multi-family, mixed-use
and non-residential real estate market.
The reduction in the allowance
for loan losses was also due to the Company’s decision to revise the methodology used to calculate the historical loss factor.
The Company has revised the historical loss look back period from three to two years as a result of the Company’s determination
that the Company’s historical loss charge-offs from 2009 to 2012 was a result of the recent economic recession, that the
bulk of the loss charge-offs from 2009 to 2012 occurred in 2012, that there has not been a significant amount of loss charge-offs
during the past two years, and that the Company’s loan portfolio has weathered the recession with no further anticipated
significant loss charge-offs. The Company’s allowance for loan losses at September 30, 2014 and provision for loan losses
recognized for the quarter ended September 30, 2014 would have been $176,000 larger without the change in the methodology.
We had charge-offs of $188,000
during the three months ended September 30, 2014 compared to no charge-offs during the three months ended September 30, 2013. We
recorded recoveries of $101,000 during the three months ended September 30, 2014 compared to no recoveries during the three months
ended September 30, 2013.
Non-interest
Income. Non-interest income decreased by $22,000, or 4.7%, to $450,000 for the three months ended September 30,
2014 from $472,000 for the three months ended September 30, 2013. The decrease was primarily due to decreases of $26,000 in other
loan fees and service charges, and $5,000 in earnings on bank owned life insurance, offset by increases of $8,000 in advisory fee
income generated by our wealth management division and $1,000 in other non-interest income. The decrease in other loan fees and
service charges was due to decreases of $9,000 in loan late charges, $6,000 in loan fees, and $3,000 in deposit account service
charges. The decrease in earnings on bank owned life insurance was due to a decrease in the effective yield of the underlying investments.
The increase in advisory fee income from our wealth management division was due to an increase in assets under management.
Non-interest
Expense. Non-interest expense increased by $163,000, or 4.4%, to $3.9 million for the three months ended September
30, 2014 from $3.7 million for the three months ended September 30, 2013. The increase resulted primarily from increases of $231,000
in salaries and employee benefits, $103,000 in real estate owned expenses, $51,000 in outside data processing expense, and $3,000
in advertising expense, partially offset by decreases of $127,000 in other non-interest expense, $40,000 in FDIC insurance expense,
$30,000 in occupancy expense, and $28,000 in equipment expense.
Salaries and employee benefits,
which represented 53.9% of the Company’s non-interest expense during the quarter ended September 30, 2014, increased by $231,000,
or 12.4%, to $2.1 million in 2014 from $1.9 million in 2013 due to the staffing of the Rockland County, New York loan production
office, offset by a reduction in the number of full time equivalent employees to 98 at September 30, 2014 from 102 at September
30, 2013. The reduction in staff occurred in the wealth management department, branch operations, lending operations, and headquarters
support personnel as part of a continued effort to contain expenses.
Real estate owned expense
increased by $103,000, or 174.6%, to $162,000 in 2014 from $59,000 in 2013 due to operating expenses related to two foreclosed
properties during the quarter ended September 30, 2014 compared to one foreclosed property during the quarter ended September 30,
2013. The Company acquired and sold one foreclosed multi-family property during a relatively short period of time during the quarter
ended September 30, 2014 resulting in a charge-off of $188,000 against the allowance for loan losses.
Outside data processing
expense increased by $51,000, or 22.3%, to $280,000 in 2014 from $229,000 in 2013 due to the addition of the Rockland County, New
York loan production office in January 2014 and an upgrade in data services. Advertising expense increased by $3,000, or 23.1%,
to $16,000 in 2014 from $13,000 in 2013 due to marketing efforts to promote services and products.
Other non-interest expense
decreased by $127,000, or 13.9%, to $787,000 in 2014 from $914,000 in 2013 due mainly to decreases of $88,000 in miscellaneous
other non-interest expenses, $56,000 in directors, officers and employee expenses, $20,000 in audit and accounting fees, and $11,000
in directors compensation, offset by increases of $18,000 in service contracts, $14,000 in telephone expenses, $11,000 in legal
fees, $2,000 in insurance expenses, and $1,000 in office supplies and stationery. The decrease in miscellaneous other non-interest
expenses was partially due to decreases of $50,000 in consulting expenses, $24,000 in personnel recruitment fees, and $7,000 in
postage expenses.
FDIC insurance expense
decreased by $40,000, or 25.8%, to $115,000 in 2014 from $155,000 in 2013 due to a decrease in the Company’s quarterly assessment
multiplier, offset by an increase in the Company’s assessment base from 2013 to 2014. Occupancy expense decreased by $30,000,
or 8.5%, to $322,000 in 2014 from $352,000 in 2013 due to a reimbursement of rental expense for our First Avenue branch office,
offset by the addition of the Rockland County, New York loan production office in January 2014. Equipment expense decreased by
$28,000, or 20.3%, to $110,000 in 2014 from $138,000 in 2013 due to decreases in the purchases of additional equipment and continued
efforts to contain expenses.
Income
Taxes. Income tax expense increased by $22,000, or 15.3%, to $166,000 for the three months ended September
30, 2014 from $144,000 for the three months ended September 30, 2013. The increase resulted primarily from a $19,000 increase in
pre-tax income in 2014 compared to 2013. The effective tax rate was 30.5% for the three months ended September 30, 2014 and 27.4%
for the three months ended June 30, 2013. The increase in the effective tax rate between periods was due to a lower percentage
of our pre-tax income being tax-exempt, specifically the earnings on bank-owned life insurance, in 2014 compared to 2013.
Comparison of Operating Results For The
Nine Months Ended September 30, 2014 and 2013
General.
Net income increased by $80,000, or 8.3%, to $1.1 million for
the nine months ended September 30, 2014 from $969,000 for the nine months ended September 30, 2013. The increase was primarily
the result of an increase of $467,000 in net interest income and a decrease of $181,000 in non-interest expenses, offset by a decrease
of $346,000 in credit to the provision for loan losses, a decrease of $91,000 in non-interest income, and an increase of $131,000
in the provision for income taxes.
Net
Interest Income. Net interest income increased by $467,000, or 4.1%, to $12.0 million for the nine months
ended September 30, 2014 from $11.5 million for the nine months ended September 30, 2013. The increase in net interest income resulted
primarily from an increase of $590,000 in interest income that exceeded an increase of $123,000 in interest expense.
The net interest spread
decreased by 17 basis points to 3.52% for the nine months ended September 30, 2014 from 3.69% for the nine months ended September
30, 2013. The net interest margin decreased by 20 basis points between these periods from 3.94% for the nine months ended September
30, 2013 to 3.74% for the nine months ended September 30, 2014. The decrease in the interest rate spread and the net interest margin
in 2014 compared to the same period in 2013 was due to a decrease of 23 basis points in the yield on our interest-earning assets
that exceeded a decrease of six basis points in the cost of our interest-bearing liabilities.
The average yield on our
interest-earning assets decreased by 23 basis points to 4.53% for the nine months ended September 30, 2014 from 4.76% for the nine
months ended September 30, 2013 and the cost of our interest-bearing liabilities decreased by six basis points to 1.01% for the
nine months ended September 30, 2014 from 1.07% for the nine months ended September 30, 2013. The decrease in the yield on our
interest-earning assets was due to a decrease in the yield on loans receivable, offset by increases in the yield on securities
and other interest-earning assets. The decrease in the cost of our interest-bearing liabilities was due to a decrease in the cost
of borrowed money, offset by an increase in the cost of interest-bearing deposits.
The following table summarizes
average balances and average yields and costs of interest-earning assets and interest-bearing liabilities for the nine months ended
September 30, 2014 and 2013.
| |
Nine Months Ended September 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 | |
$ | 388,934 | | |
$ | 14,250 | | |
| 4.89 | % | |
$ | 342,571 | | |
$ | 13,627 | | |
| 5.30 | % |
Securities | |
| 9,468 | | |
| 215 | | |
| 3.03 | | |
| 11,772 | | |
| 255 | | |
| 2.89 | |
Other interest-earning assets | |
| 27,955 | | |
| 16 | | |
| 0.08 | | |
| 34,821 | | |
| 9 | | |
| 0.03 | |
Total interest-earning assets | |
| 426,357 | | |
| 14,481 | | |
| 4.53 | | |
| 389,164 | | |
| 13,891 | | |
| 4.76 | |
Allowance for loan losses | |
| (4,116 | ) | |
| | | |
| | | |
| (4,403 | ) | |
| | | |
| | |
Non-interest-earning assets | |
| 48,701 | | |
| | | |
| | | |
| 49,606 | | |
| | | |
| | |
Total assets | |
$ | 470,942 | | |
| | | |
| | | |
$ | 434,367 | | |
| | | |
| | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Liabilities and equity: | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Interest-bearing liabilities: | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Interest-bearing demand | |
$ | 63,062 | | |
$ | 170 | | |
| 0.36 | % | |
$ | 62,217 | | |
$ | 163 | | |
| 0.35 | % |
Savings and club accounts | |
| 85,609 | | |
| 352 | | |
| 0.55 | | |
| 82,638 | | |
| 331 | | |
| 0.53 | |
Certificates of deposit | |
| 165,238 | | |
| 1,875 | | |
| 1.51 | | |
| 147,755 | | |
| 1,713 | | |
| 1.55 | |
Total interest-bearing deposits | |
| 313,909 | | |
| 2,397 | | |
| 1.02 | | |
| 292,610 | | |
| 2,207 | | |
| 1.01 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Borrowings | |
| 19,974 | | |
| 125 | | |
| 0.83 | | |
| 7,070 | | |
| 192 | | |
| 3.62 | |
Total interest-bearing liabilities | |
| 333,883 | | |
| 2,522 | | |
| 1.01 | | |
| 299,680 | | |
| 2,399 | | |
| 1.07 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Noninterest-bearing demand | |
| 25,539 | | |
| | | |
| | | |
| 22,331 | | |
| | | |
| | |
Other liabilities | |
| 8,039 | | |
| | | |
| | | |
| 7,504 | | |
| | | |
| | |
Total liabilities | |
| 367,461 | | |
| | | |
| | | |
| 329,515 | | |
| | | |
| | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Stockholders’ equity | |
| 103,481 | | |
| | | |
| | | |
| 104,852 | | |
| | | |
| | |
Total liabilities and | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Stockholders’ equity | |
$ | 470,942 | | |
| | | |
| | | |
$ | 434,367 | | |
| | | |
| | |
Net interest income | |
| | | |
$ | 11,959 | | |
| | | |
| | | |
$ | 11,492 | | |
| | |
Interest rate spread | |
| | | |
| | | |
| 3.52 | % | |
| | | |
| | | |
| 3.69 | % |
Net interest margin | |
| | | |
| | | |
| 3.74 | % | |
| | | |
| | | |
| 3.94 | % |
Net interest-earning assets | |
$ | 92,474 | | |
| | | |
| | | |
$ | 89,484 | | |
| | | |
| | |
Average interest-earning assets to | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
average interest-bearing liabilities | |
| 127.70 | % | |
| | | |
| | | |
| 129.86 | % | |
| | | |
| | |
Total interest income increased
by $590,000, or 4.2%, to $14.5 million for the nine months ended September 30, 2014, from $13.9 million for the nine months ended
September 30, 2013. Interest income on loans increased by $623,000, or 4.6%, to $14.3 million for the nine months ended September
30, 2014 from $13.6 million for the nine months ended September 30, 2013 as a result of an increase of $46.4 million, or 13.5%,
in the average balance of the loan portfolio to $388.9 million for the nine months ended September 30, 2014 from $342.6 million
for the nine months ended September 30, 2013 as originations outpaced repayments. The increase in the average balance of the loan
portfolio was offset by a decrease of 41 basis points in the average yield on loans to 4.89% for the nine months ended September
30, 2014 from 5.30% for the nine months ended September 30, 2013. The decrease in 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 $40,000, or 15.7%, to $215,000 for the nine months ended September 30, 2014 from $255,000 for the nine months ended
September 30, 2013. The decrease was primarily due to a decrease of $2.3 million, or 19.6%, in the average balance of securities
to $9.5 million for the nine months ended September 30, 2014 from $11.8 million for the nine months ended September 30, 2013, offset
by an increase of 14 basis points in the average yield on securities to 3.03% for the nine months ended September 30, 2014 from
2.89% for the nine months ended September 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 a percentage of total investment securities.
Interest income on other
interest-earning assets (consisting solely of interest-earning deposits) increased by $7,000, or 77.8%, to $16,000 for the nine
months ended September 30, 2014 from $9,000 for the nine months ended September 30, 2013. The increase was primarily due to an
increase of five basis points in the average yield on other interest-earning assets to 0.08% for the nine months ended September
30, 2014 from 0.03% for the nine months ended September 30, 2013, offset by a decrease of $6.9 million or 19.7%, in the average
balance of interest-earning assets to $28.0 million for the nine months ended September 30, 2014 from $34.8 million for the nine
months ended September 30, 2013. The increase in interest income on interest-earnings deposits was also 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 $123,000, or 5.1%, to $2.5 million for the nine months ended September 30, 2014 from $2.4 million for the nine months
ended September 30, 2013. Interest expense on deposits increased by $190,000, or 8.6%, to $2.4 million for the nine months ended
September 30, 2014 from $2.2 million for the nine months ended September 30, 2013. The increase in the interest expense on deposits
was a result of an increase of $21.3 million, or 7.3%, in the average balance of interest bearing deposits to $313.9 million for
the nine months ended September 30, 2014 from $292.6 million for the nine months ended September 30, 2013. 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 1.02% for the nine months ended September 30, 2014 from 1.01% for the nine months ended September 30, 2013.
The interest expense of
our interest-bearing demand deposits increased by $7,000, or 4.3%, to $170,000 for the nine months ended September 30, 2014 from
$163,000 for the nine months ended September 30, 2013. The increase in interest expense in our interest-bearing demand deposits
was due to an increase of $845,000, or 1.4%, in the average balance of our interest-bearing demand deposits to $63.1 million for
the nine months ended September 30, 2014 from $62.2 million for the nine months ended September 30, 2013 and an increase of one
basis point in the average interest cost to 0.36% for the nine months ended September 30, 2014 from 0.35% for the nine months ended
September 30, 2013 as we continued to offer competitive interest rates to generate deposits.
The interest expense of
our interest-bearing savings and club deposits increased by $21,000, or 6.3%, to $352,000 for the nine months ended September 30,
2014 from $331,000 for the nine months ended September 30, 2013. The increase in interest expense in our interest-bearing savings
and club deposits was due to an increase of $3.0 million, or 3.6%, in the average balance of our interest-bearing savings and club
deposits to $85.6 million for the nine months ended September 30, 2014 from $82.6 million for the nine months ended September 30,
2013. The increase in interest expense in our interest-bearing savings and club deposits was also due to a two basis point increase
in the average interest cost to 0.55% for the nine months ended September 30, 2014 from 0.53% for the nine months ended September
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 $162,000, or 9.5%, to $1.9 million for the nine months ended September
30, 2014 from $1.7 million for the nine months ended September 30, 2013. The increase in interest expense in our interest-bearing
certificates of deposit was due to an increase of $17.5 million, or 11.8%, in the average balance of our interest-bearing certificates
of deposit to $165.2 million for the nine months ended September 30, 2014 from $147.8 million for the nine months ended September
30, 2013. The increase in our interest-bearing certificates of deposit was due to management’s decision to continue offering
competitive interest rates to generate deposits through a non-broker nationwide certificate of deposit listing service. The increase
in interest expense of our interest-bearing certificates of deposit was offset by a four basis point decrease in the average interest
cost on such certificates to 1.51% for the nine months ended September 30, 2014 from 1.55% for the nine months ended September
30, 2014. 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 $67,000, or 34.9%, to $125,000 for the nine months ended September 30, 2014 from $192,000 for the nine months ended
September 30, 2013. The decrease in interest expense on borrowings was due to a decrease of 279 basis points in the cost of borrowed
money to 0.83% for the nine months ended September 30, 2014 from 3.62% for the nine months ended September 30, 2013 due primarily
to the maturity and repayment of higher costing FHLB advances during the nine months ended September 30, 2014 and new lower costing
FHLB advances obtained in December 2013 and the nine months ended September 30, 2014. The decrease in interest expense on borrowings
was partially offset by an increase of $12.9 million, or 182.5%, in the average balance of borrowed money to $20.0 million for
the nine months ended September 30, 2014 from $7.1 million for the nine months ended September 30, 2013.
Allowance
for Loan Losses. The following table summarizes the activity in the allowance for loan losses for the nine months
ended September 30, 2014 and 2013.
| |
Nine Months | |
| |
Ended September 30, | |
| |
2014 | | |
2013 | |
| |
(Dollars in thousands) | |
Allowance at beginning of period | |
$ | 4,015 | | |
$ | 4,646 | |
Provision (credit) for loan losses | |
| (208 | ) | |
| (554 | ) |
Charge-offs | |
| (621 | ) | |
| (105 | ) |
Recoveries | |
| 665 | | |
| 27 | |
Net recovery (charge-offs) | |
| 44 | | |
| (78 | ) |
Allowance at end of period | |
$ | 3,851 | | |
$ | 4,014 | |
We recorded provisions
(credit) for loan losses of ($208,000) and ($554,000) for the nine-month periods ended September 30, 2014 and 2013, respectively.
We charged-off $621,000 against two non-performing multi-family mortgage loans, one mixed-use mortgage loan, one non-residential
mortgage loan, and one foreclosed multi-family mortgage loan during the nine months ended September 30, 2014 compared to charge-offs
of $105,000 against two non-performing non-residential mortgage loans during the nine months ended September 30, 2013. We recorded
recoveries of $665,000 during the nine months ended September 30, 2014 compared to recoveries of $27,000 during the nine months
ended September 30, 2013.
The reduction in the allowance
for loan losses was also due to the Company’s decision to revise the methodology used to calculate the historical loss factor.
The Company has revised the historical loss look back period from three to two years as a result of the Company’s determination
that the Company’s historical loss charge-offs from 2009 to 2012 was a result of the recent economic recession, that the
bulk of the loss charge-offs from 2009 to 2012 occurred in 2012, that there has not been a significant amount of loss charge-offs
during the past two years, and that the Company’s loan portfolio has weathered the recession with no further anticipated
significant loss charge-offs. The Company’s allowance for loan losses at September 30, 2014 would have been $176,000 larger
and the provision (credit) for loan losses recognized for the nine months ended September 30, 2014 would have been $176,000 lower
without the change in the methodology.
Non-interest
Income. Non-interest income decreased by $91,000, or 6.1%, to $1.4 million for the nine months ended
September 30, 2014 from $1.5 million for the nine months ended September 30, 2013. The decrease was primarily due to decreases
of $130,000 in other loan fees and service charges and $16,000 in earnings on bank owned life insurance, partially offset by increases
of $53,000 in advisory fee income generated by our wealth management division and $2,000 in other non-interest income. The decrease
in other loan fees and service charges was due to decreases of $66,000 in mortgage broker fee income, $40,000 in loan fee income,
and $11,000 in loan late charges. The increase in advisory fee income from our wealth management division was due to an increase
in assets under management.
Non-interest
Expense. Non-interest expense decreased by $181,000, or 1.5%, to $12.1 million for the nine months ended September
30, 2014 from $12.3 million for the nine months ended September 30, 2013. The decrease resulted primarily from decreases of $334,000
in impairment loss on goodwill, $114,000 in other non-interest expense, $64,000 in equipment expenses, $44,000 in real estate owned
expenses, and $6,000 in advertising expense, offset by increases of $249,000 in salaries and employee benefits, $95,000 in FDIC
insurance expense, $31,000 in outside data processing expenses, and $6,000 in occupancy expense.
The Company did not have
any impairment loss on goodwill for the nine months ended September 30, 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 nine months ended September 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.
Other non-interest expense
decreased by $114,000, or 4.1%, to $2.7 million in 2014 from $2.8 million in 2013 due mainly to decreases of $218,000 in legal
fees, $52,000 in directors, officers and employee expenses, $48,000 in directors compensation, and $14,000 in office supplies and
stationery, offset by increases of $71,000 in audit and accounting fees, $66,000 in service contracts, $59,000 in telephone expenses,
$13,000 in miscellaneous other non-interest expenses, and $8,000 in insurance expenses. The decrease in legal fees was due primarily
to the Company’s decision to capitalize certain legal fees. The decrease in directors, officers and employee expenses was
due to efforts to contain expense. The increase in audit and accounting fees was due to an increase in services provided by our
independent and contract internal auditors.
Equipment expense decreased
by $64,000, or 13.6%, to $405,000 in 2014 from $469,000 in 2013 due to decreases in the purchases of additional equipment and continued
efforts to contain expenses. Real estate owned expense decreased by $44,000, or 13.8%, to $274,000 in 2014 from $318,000 in 2013
due primarily to a loss of $51,000 on the sale of a real estate owned during the nine months ended September 30, 2013. Advertising
expense decreased by $6,000, or 14.0%, to $37,000 in 2014 from $43,000 in 2013 due to continued efforts to contain expenses. Salaries
and employee benefits, which represented 53.3% of the Company’s non-interest expense during the nine months ended September
30, 2014, increased by $249,000, or 4.0%, to $6.4 million in 2014 from $6.2 million in 2013 due to the staffing of the Rockland
County, New York loan production office, offset by a reduction in the number of full time equivalent employees to 98 at September
30, 2014 from 102 at September 30, 2013. The reduction in staff occurred in the wealth management department, branch operations,
lending operations and headquarters support personnel as part of a continued effort to contain expenses.
FDIC insurance expense
increased by $95,000, or 35.4%, to $363,000 in 2014 from $268,000 in 2013 due to increases in the Company’s assessment base,
offset by a decrease in the quarterly assessment multiplier from 2013 to 2014. Outside data processing expense increased by $31,000,
or 3.9%, to $820,000 in 2014 from $789,000 in 2013 due to the addition of the Rockland County, New York loan production office
in January 2014 and an upgrade in data services. Occupancy expense increased by $6,000, or 0.5%, to $1.1 million in 2014 from $1.1
million in 2013 due to the addition of the Rockland County, New York loan production office in January 2014.
Income
Taxes. Income tax expense increased by $131,000, or 43.4%, to $433,000 for the nine months ended September
30, 2014 from $302,000 for the nine months ended September 30, 2013. The increase resulted primarily from a $211,000 increase in
pre-tax income in 2014 compared to 2013. The effective tax rate was 29.2% for the nine months ended September 30, 2014 compared
to 23.8% for the nine months ended September 30, 2013. The increase in the effective tax rate was primarily due to the decreased
portion of pre-tax income during 2014 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 | |
| |
September 30, 2014 | | |
December 31, 2013 | |
| |
(Dollars in thousands) | |
| |
| | |
| |
Non-accrual loans | |
$ | 8,731 | | |
$ | 4,666 | |
Loans past due 90 days or more and accruing | |
| — | | |
| — | |
Total non-performing loans | |
| 8,731 | | |
| 4,666 | |
Real estate owned | |
| 4,047 | | |
| 3,985 | |
Total non-performing assets | |
| 12,778 | | |
| 8,651 | |
| |
| | | |
| | |
Accruing troubled debt restructurings | |
| 12,196 | | |
| 15,535 | |
Nonaccrual troubled debt restructurings | |
| 2,545 | | |
| 1,269 | |
Total troubled debt restructurings | |
| 14,741 | | |
| 16,804 | |
Less nonaccrual troubled debt restructurings in total nonaccrual loans | |
| 2,545 | | |
| 1,269 | |
| |
| | | |
| | |
Total troubled debt restructurings and non-performing assets | |
$ | 24,974 | | |
$ | 24,186 | |
Total non-performing loans to total loans | |
| 2.09 | % | |
| 1.26 | % |
Total non-performing assets to total assets | |
| 2.54 | % | |
| 1.89 | % |
Total non-performing assets and troubled | |
| | | |
| | |
debt restructurings to total assets | |
| 4.97 | % | |
| 5.28 | % |
The non-accrual loans at
September 30, 2014 consisted of 10 loans in the aggregate, comprised of two multi-family mortgage loans, two mixed-use mortgage
loans, four non-residential mortgage loans, and two commercial and industrial loans.
Non-performing loans increased
by $4.1 million, or 87.1%, to $8.7 million as of September 30, 2014 from $4.6 million as of December 31, 2013. The increase in
non-performing loans was primarily due to the addition of two non-performing commercial and industrial loans totaling $2.5 million,
two non-performing non-residential mortgage loans totaling $2.3 million, two non-performing multi-family mortgage loans totaling
$897,000, one non-performing mixed-use mortgage loan totaling $230,000, and payments made by the Company for real estate taxes,
water and sewer charges totaling $120,000 on properties secured by the non-performing mortgage loans, partially offset by the conversion
from non-performing to performing status of one non-residential mortgage loan totaling $823,000, the satisfaction of one non-residential
mortgage loan totaling $789,000 and two commercial and industrial loans totaling $85,000, and the charge-off of $325,000 for one
mixed-use mortgage loan.
The two non-accrual multi-family
mortgage loans totaled $897,000 at September 30, 2014 and consisted primarily of the following mortgage loans:
| (1) | An outstanding balance of $694,000 secured by a 23 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. |
| (2) | An outstanding balance of $204,000 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 two non-accrual mixed-use
mortgage loans totaled $2.2 million at September 30, 2014 and consisted primarily of the following mortgage loans:
| (1) | An outstanding balance of $2.0 million, net of charge-off of $325,000, secured by three separate
buildings with 25 apartment units and office spaces. We classified this loan as substandard. We acquired the property as real estate
owned via a receiver sale on October 3, 2014 and we have retained a management company to operate the property. We plan to renovate
the property and will evaluate the options currently available to us. Prior to the receiver sale, the Court appointed a forensic
accountant who is still reviewing the books and records of the borrowing entity and managing partner. |
| (2) | An outstanding balance of $230,000 secured by two apartments above a full service gas station.
We classified this loan as special mention. We are negotiating with the borrower to bring the loan current. |
The four non-accrual non-residential
mortgage loans totaled $3.1 million at September 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. We acquired the property via a deed-in-lieu of foreclosure in November 2014. The Company has retained a property management
company to operate the property. 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 $348,000, secured by a building housing auto repair and auto rental facilities.
We classified this loan as substandard. We acquired the property as real estate owned via a foreclosure sale on October 17, 2014.
We have a contract to sell the property and we expect to close the sale by the end of 2014. |
| (4) | An outstanding balance of $204,000, 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 two non-accrual commercial
and industrial loans totaled $2.5 million at September 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. |
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 September 30, 2014,
we owned one foreclosed property with a net balance of $4.0 million consisting of an office building located in New Jersey.
The property was most recently appraised in November 2013 for $4.3 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.
The Company acquired and
sold one foreclosed multi-family property in the quarter ended September 30, 2014 resulting in a charge-off of $188,000 against
the allowance for loan losses.
TROUBLED DEBT RESTRUCTURED LOANS
There were no loans modified
that were deemed to be TDRs during the three and nine months ended September 30, 2014. As of September 30, 2014, none of the loans
that were modified during the previous twelve months had defaulted in the three and nine month period ended September 30, 2014.
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 | |
| — | | |
| 100 | | |
| — | | |
| — | | |
| — | | |
| 100 | |
Repayments | |
| (49 | ) | |
| (50 | ) | |
| — | | |
| — | | |
| — | | |
| (99 | ) |
Transfer to real estate owned | |
| (2,151 | ) | |
| | | |
| | | |
| | | |
| | | |
| (2,151 | ) |
Amortization of TDR reserves | |
| 13 | | |
| 74 | | |
| — | | |
| — | | |
| — | | |
| 87 | |
Balance - September 30, 2014 | |
$ | 4,232 | | |
$ | 10,509 | | |
$ | — | | |
$ | — | | |
$ | — | | |
$ | 14,741 | |
Related allowance | |
$ | — | | |
$ | — | | |
$ | — | | |
$ | — | | |
$ | — | | |
$ | — | |
There were no charge-offs
of loans classified as TDRs in the three and nine months ended September 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 no loans modified
during the three months ended September 30, 2013. There were four loans modified during the nine months ended September 30, 2013.
One 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 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 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 September 30, 2013,
none of the loans that were modified during the previous twelve months had defaulted in the three and nine month periods ended
September 30, 2013.
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, 2012 | |
$ | 6,444 | | |
$ | 6,989 | | |
$ | — | | |
$ | — | | |
$ | — | | |
$ | 13,433 | |
Additions | |
| 251 | | |
| 3,291 | | |
| — | | |
| — | | |
| — | | |
| 3,542 | |
Repayments | |
| (9 | ) | |
| (32 | ) | |
| — | | |
| — | | |
| — | | |
| (41 | ) |
Amortization of TDR reserves | |
| 40 | | |
| 110 | | |
| — | | |
| — | | |
| — | | |
| 150 | |
Balance - September 30, 2013 | |
$ | 6,726 | | |
$ | 10,358 | | |
$ | — | | |
$ | — | | |
$ | — | | |
$ | 17,084 | |
Related allowance | |
$ | — | | |
$ | — | | |
$ | — | | |
$ | — | | |
$ | — | | |
$ | — | |
There were no charge offs
against loans classified as TDRs in the three and nine months ended September 30, 2013. Additions for the period consist of four
non-residential mortgage loans and one residential mortgage loan 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.
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 $33.3 million at September 30, 2014 and consisted primarily of interest-bearing
deposits at other financial institutions and miscellaneous cash items. The Company can also borrow an additional $72.3 million
from the FHLB of New York and $8.0 million from ACBB to provide additional liquidity.
At September 30, 2014,
we had $83.6 million in loan commitments outstanding, consisting of $32.9 million in unused loans in process, $28.2 million in
unused commercial and industrial loan lines of credit, $19.7 million of real estate loan commitments, $2.7 million in unused real
estate equity lines of credit, and $119,000 in consumer lines of credit. Certificates of deposit due within one year of September
30, 2014 totaled $63.6 million. This represented 35.0% of certificates of deposit at September 30, 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 September 30, 2014. We
believe, however, based on past experience, a significant portion of our certificates of deposit will remain with us. We have the
ability to attract and retain deposits by adjusting the interest rates offered.
Our primary investing activities
are the origination of loans and the purchase of securities. Our primary financing activities consist of deposit accounts and FHLB
advances. At September 30, 2014, we had the ability to borrow $72.3 million, net of $27.1 million in outstanding advances, from
the FHLB of New York. At September 30, 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.
During the quarter ended
September 30, 2014, the Company became a member of ACBB, a banker’s bank, in order to provide the Company with an additional
source of correspondent services that includes the ability to borrow $8.0 million from ACBB via a line of credit. The Company has
thus far not utilized this line of credit.
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 September
30, 2014, the Company had liquid assets of $11.4 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 September 30, 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 nine
months ended September 30, 2014 and the year ended December 31, 2013, we engaged in no off-balance sheet transactions reasonably
likely to have a material effect on our financial condition, results of operations or cash flows.
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.
We have an Asset/Liability
Committee, comprised of our Chief Executive Officer, Chief Operating Officer, Chief Financial Officer, Chief Retail Banking Officer,
and three Chief Lending 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 100 to 400 basis point increase or 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 September 30, 2014 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 |
|
| | |
| | |
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 | | |
$ | 110,254 | | |
$ | (10,769 | ) | |
| (8.90 | )% | |
23.29% | |
(22) bp |
|
| 300 | | |
| 113,554 | | |
| (7,469 | ) | |
| (6.17 | )% | |
23.53% | |
2 bp |
|
| 200 | | |
| 116,329 | | |
| (4,694 | ) | |
| (3.88 | )% | |
23.60% | |
9 bp |
|
| 100 | | |
| 118,448 | | |
| (2,575 | ) | |
| (2.13 | )% | |
23.55% | |
4 bp |
|
| 0 | | |
| 121,023 | | |
| | | |
| | | |
23.51% |
|
|
|
| (100) | | |
| 127,915 | | |
| 6,892 | | |
| 5.69 | % | |
24.24% | |
73 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.
There were no changes in
the Company’s internal control over financial reporting during the three months ended September 30, 2014 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 MHC and each of the directors of the Company and the 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 their reply brief on March 29, 2013. The Court held a hearing on the motion on June 12, 2013.
On October 23, 2013, the Court denied 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 appealed and filed its opening brief on July 1, 2014, which was docketed
on July 7, 2014. Defendant’s opposition was filed on August 6, 2014. Plaintiffs’ reply brief was filed on August 15,
2014. The parties are waiting a decision on that appeal.
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 litigation.
The
parties have completed fact discovery, including fact witness depositions and document production, and have begun expert 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.
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, 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.
Item 2. |
Unregistered Sales of Equity Securities and Use of Proceeds |
None
Item 3. |
Defaults Upon Senior Securities |
Not applicable
Item 4. |
Mine Safety Disclosures |
Not applicable.
Item 5. |
Other Information |
None
| 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. |
| 101.0 | The following materials from the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2014, formatted
in XBRL (Extensible Business Reporting Language): (i) the Consolidated Statements of Financial Condition, (ii) the Consolidated
Statements of Income, (iii) the Consolidated Statements of Comprehensive Income, (iv) the Consolidated Statements of Stockholders’
Equity, (v) the Consolidated Statements of Cash Flows and (vi) the Notes to the Consolidated Financial Statements. |
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
Northeast Community Bancorp, Inc.
|
|
|
Date: November 14, 2014 |
By: |
/s/ Kenneth A. Martinek |
|
|
Kenneth A. Martinek |
|
|
Chief Executive Officer |
|
|
|
Date: November 14, 2014 |
By: |
/s/ Donald S. Hom |
|
|
Donald S. Hom |
|
|
Executive Vice President and Chief Financial Officer |
|
|
|
Exhibit 31.1
RULE 13a-14(a)/15d-14(a)
CHIEF EXECUTIVE OFFICER CERTIFICATION
I, Kenneth A. Martinek, certify that:
| 1. | I have reviewed this Quarterly Report on Form 10-Q of Northeast Community Bancorp, Inc.; |
| 2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or
omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this report; |
| 3. | Based on my knowledge, the financial statements, and other financial information included in this
report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant
as of, and for, the periods presented in this report; |
| 4. | The registrant’s other certifying officer and I are responsible for establishing and maintaining
disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial
reporting (as defined in Exchange Act Rule 13a-15(f) and 15d-15(f)) for the registrant and have: |
| (a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures
to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being
prepared; |
| (b) | Designed such internal control over financial reporting, or caused such internal control over financial
reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
| (c) | Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented
in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered
by this report based on such evaluation; and |
| (d) | Disclosed in this report any change in the registrant’s internal control over financial reporting
that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to
materially affect, the registrant’s internal control over financial reporting; and |
| 5. | The registrant’s other certifying officer and I have disclosed, based on our most recent
evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s
board of directors (or persons performing the equivalent functions): |
| (a) | All significant deficiencies and material weaknesses in the design or operation of internal control
over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize
and report financial information; and |
| (b) | Any fraud, whether or not material, that involves management or other employees who have a significant
role in the registrant’s internal control over financial reporting. |
|
|
Date: November 14, 2014 |
/s/ Kenneth A. Martinek |
|
Kenneth A. Martinek |
|
Chief Executive Officer |
Exhibit 31.2
RULE 13a-14(a)/15d-14(a)
CHIEF FINANCIAL OFFICER CERTIFICATION
I, Donald S. Hom, certify that:
| 1. | I have reviewed this Quarterly Report on Form 10-Q of Northeast Community Bancorp, Inc.; |
| 2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or
omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this report; |
| 3. | Based on my knowledge, the financial statements, and other financial information included in this
report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant
as of, and for, the periods presented in this report; |
| 4. | The registrant’s other certifying officer and I are responsible for establishing and maintaining
disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial
reporting (as defined in Exchange Act Rule 13a-15(f) and 15d-15(f)) for the registrant and have: |
| (a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures
to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being
prepared; |
| (b) | Designed such internal control over financial reporting, or caused such internal control over financial
reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
| (c) | Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented
in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered
by this report based on such evaluation; and |
| (d) | Disclosed in this report any change in the registrant’s internal control over financial reporting
that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to
materially affect, the registrant’s internal control over financial reporting; and |
| 5. | The registrant’s other certifying officer and I have disclosed, based on our most recent
evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s
board of directors (or persons performing the equivalent functions): |
| (a) | All significant deficiencies and material weaknesses in the design or operation of internal control
over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize
and report financial information; and |
| (b) | Any fraud, whether or not material, that involves management or other employees who have a significant
role in the registrant’s internal control over financial reporting. |
|
|
Date: November 14, 2014 |
/s/ Donald S. Hom |
|
Donald S. Hom |
|
Executive Vice President and Chief Financial Officer |
Exhibit 32.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADDED BY
SECTION 906 OF THE SARBANES-OXLEY ACT OF
2002
In connection with the Quarterly Report of Northeast
Community Bancorp, Inc. (the “Company”) on Form 10-Q for the quarter ended September 30, 2014 as filed with the Securities
and Exchange Commission (the “Report”), the undersigned hereby certify, pursuant to 18 U.S.C. § 1350, as added
by § 906 of the Sarbanes-Oxley Act of 2002, that:
| (1) | The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and |
| (2) | The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations
of the Company as of and for the period covered by the Report. |
|
|
Date: November 14, 2014 |
/s/ Kenneth A. Martinek |
|
Kenneth A. Martinek |
|
Chief Executive Officer |
|
|
Date: November 14, 2014 |
/s/ Donald S. Hom |
|
Donald S. Hom |
|
Executive Vice President and Chief Financial Officer |