The accompanying notes are an integral part of these consolidated
financial statements.
The accompanying notes are an integral part of these consolidated
financial statements.
The accompanying notes are an integral part of these consolidated
financial statements.
The accompanying notes are an integral part of these consolidated
financial statements.
The accompanying notes are an integral part of these consolidated
financial statements.
The accompanying notes are an integral part of these consolidated
financial statements.
The accompanying notes are an integral part of these consolidated
financial statements.
Notes to Condensed Consolidated Financial Statements (unaudited)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The following is a description of the more significant policies
used in the presentation of the accompanying consolidated financial statements of Sunnyside Bancorp, Inc. and Subsidiary, (collectively,
the “Company”).
Principles of Consolidation
The consolidated financial statements are comprised of the accounts
of Sunnyside Bancorp. Inc., and its wholly-owned subsidiary, Sunnyside Federal Savings and Loan Association of Irvington (“Sunnyside
Federal” or the “Association”). All significant intercompany accounts and transactions have been eliminated in
consolidation.
Business
Sunnyside Federal is a community-oriented savings institution
whose primary business is accepting deposits from customers within its market area (Westchester County, New York) and investing
those funds in mortgage loans secured by one-to-four family residences and in mortgage-backed and other securities. To a significantly
lesser extent, funds are invested in multi-family and commercial mortgage loans, commercial loans, and consumer loans. Customer
deposits are insured up to applicable limits by the Federal Deposit Insurance Corporation. As a federally-chartered savings association,
Sunnyside Federal’s primary regulator is the Office of the Controller of the Currency (the “OCC”).
Basis of Financial Statement Presentation
The accompanying unaudited consolidated financial statements
of the Company have been prepared in accordance with instructions for Form 10-Q, and in accordance with accounting principles generally
accepted in the United States of America (“GAAP”) for interim financial information. Accordingly, they do not include
all of the information and footnotes required by GAAP for complete financial statements. However, such information presented reflects
all adjustments (consisting solely of normal recurring adjustments), which are, in the opinion of the Company’s management,
necessary for a fair statement of results for the interim period.
The results of operations for the three and nine months ended
September 30, 2016, are not necessarily indicative of the results to be expected for the year ended December 31, 2016, or any other
future interim period. The unaudited consolidated financial statements and notes thereto should be read in conjunction with the
audited financial statements and notes thereto for the year ended December 31, 2015 included in the Company’s annual report
on Form 10-K.
Cash and Cash Equivalents
For purposes of reporting cash flows, the Company considers
all cash and amounts due from depository institutions and interest-bearing deposits in other depository institutions with original
maturities of three months or less to be cash equivalents.
Investment and Mortgage-Backed Securities
Securities that the Company has the positive intent and ability
to hold to maturity are classified as held-to-maturity securities and reported at amortized cost. Securities classified as available-for-sale
securities are reported at fair value, with unrealized holding gains or losses reported in a separate component of retained earnings.
As of September 30, 2016 and December 31, 2015, the Company had no securities classified as held for trading.
The Company conducts a periodic review and evaluation of the
securities portfolio to determine if a decline in the fair value of any security below its cost basis is other-than-temporary.
The evaluation of other-than-temporary impairment considers the duration and severity of the impairment, the Company’s intent
and ability to hold the securities and assessments of the reason for the decline in value and the likelihood of a near-term recovery.
If such a decline is deemed other-than-temporary, the security is written down to a new cost basis and the resulting loss is charged
to income as a component of non-interest expense.
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(Cont’d)
Investment and Mortgage-Backed Securities
(Cont’d)
Premiums and discounts on securities are amortized by use of
the level-yield method, over the life of the individual securities. Gain or loss on sales of securities is based upon the specific
identification method.
Loans Receivable
Loans receivable are stated at unpaid principal balances less
the allowance for loan losses and net deferred loan fees.
Recognition of interest on the accrual method is generally discontinued
when interest or principal payments are ninety days or more in arrears, or when other factors indicate that the collection of such
amounts is doubtful. At that time, a loan is placed on a nonaccrual status, and all previously accrued and uncollected interest
is reversed against interest income in the current period. Interest on such loans, if appropriate, is recognized as income when
payments are received. A loan is returned to an accrual status when factors indicating doubtful collectibility no longer exist.
Allowance for Loan Losses
An allowance for loan losses is maintained at a level, to the
best of management’s knowledge, to cover all known and inherent losses in the portfolio that are both probable and reasonable
to estimate. Management of the Company, in determining the provision for loan losses considers the risks inherent in its loan portfolio
and changes in the nature and volume of its loan activities, along with the general economic and real estate market conditions.
The Company utilizes a two tier approach: (1) identification of problem loans and establishment of specific loss allowances on
such loans; and (2) establishment of general valuation allowances on the remainder of its loan portfolio. The Company maintains
a loan review system which allows for a periodic review of its loan portfolio and the early identification of potential problem
loans. Such system takes into consideration, among other things, delinquency status, size of loans, type of collateral and financial
condition of the borrowers. Specific loan losses are established for identified loans based on a review of such information and
appraisals of the underlying collateral. General loan losses are based upon a combination of factors including, but not limited
to, actual loan loss experience, composition of the loan portfolio, current economic conditions, and management's judgment. Although
management believes that adequate specific and general loan loss allowances are established, actual losses are dependent upon future
events and, as such, further additions to the level of specific and general loan loss allowances may be necessary.
A loan evaluated for impairment is deemed to be impaired when,
based on current information and events, it is probable that the Company will be unable to collect all amounts due according to
the contractual terms of the loan agreement. An insignificant payment delay, which is defined as up to ninety days by the Company,
will not cause a loan to be classified as impaired. A loan is not impaired during a period of delay in payment if the Company expects
to collect all amounts due, including interest accrued at the contractual interest rate for the period of delay. The amount of
loan impairment is measured based on the present value of expected future cash flows discounted at the loan’s effective interest
rate or, as a practical expedient, at the loan’s observable market price or the fair value of the collateral if the loan
is collateral dependent. All loans identified as impaired are evaluated independently. The Company does not aggregate such loans
for evaluation purposes. Payments received on impaired loans are applied first to accrued interest receivable and then to principal.
Federal Home Loan Bank of New York stock
As a member of the Federal Home Loan Bank of New York (“FHLB”),
the Company is required to acquire and hold shares of FHLB Class B stock. The holding requirement varies based on the Company’s
activities, primarily its outstanding borrowings, with the FHLB. The investment in FHLB stock is carried at cost. The Company conducts
a periodic review and evaluation of its FHLB stock to determine if any impairment exists.
Premises and Equipment
Premises and equipment are comprised of land, building, and
furniture, fixtures, and equipment, at cost, less accumulated depreciation. Depreciation charges are computed on the straight-line
method over the following estimated useful lives:
Building and improvements
|
|
5 to 40 years
|
Furniture, fixtures and equipment
|
|
2 to 10 years
|
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(Cont’d)
Bank-Owned Life Insurance
Bank-owned life insurance (“BOLI”) is accounted
for in accordance with FASB guidance. The cash surrender value of BOLI is recorded on the statement of financial condition as an
asset and the change in the cash surrender value is recorded as non-interest income. The amount by which any death benefits received
exceeds a policy’s cash surrender value is recorded in non-interest income at the time of receipt. A liability is also recorded
on the statement of financial condition for postretirement death benefits provided by the split-dollar endorsement policy. A corresponding
expense is recorded in non-interest expense for the accrual of benefits over the period during which employees provide services
to earn the benefits.
Income Taxes
Federal and state income taxes have been provided on the basis
of reported income. The amounts reflected on the tax return differ from these provisions due principally to temporary differences
in the reporting of certain items for financial reporting and income tax reporting purposes. The tax effect of these temporary
differences is accounted as deferred taxes applicable to future periods. Deferred income tax expense or benefit is determined by
recognizing deferred tax assets and liabilities for the estimated future tax consequences attributable to differences between the
financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences
are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized
in earnings in the period that includes the enactment date. The realization of deferred tax assets is assessed and a valuation
allowance provided, when necessary, for that portion of the asset which is not likely to be realized.
Employee Benefits
Defined Benefit Plans:
The accounting guidance related to retirement benefits requires
an employer to: (a) recognize in its statement of financial position an asset for a plan’s overfunded status or a liability
for a plan’s underfunded status; (b) measure a plan’s assets and its obligations that determine its funded status
as of the end of the employer’s fiscal year; and (c) recognize, in comprehensive income, changes in the funded status
of a defined benefit postretirement plan in the year in which the changes occur. The accounting guidance requires that plan assets
and benefit obligations be measured as of the date of the employer’s fiscal year-end statement of financial condition.
401(K) Plan:
The Company has a 401(k) plan covering substantially all employees.
The Company matches 50% of the first 6% contributed by participants and recognizes expense as its contributions are made.
Employee Stock Ownership Plan:
The employee stock ownership plan (ESOP) is accounted for in
accordance with the provisions of ASC 718-40, “Employers’ Accounting for Employee Stock Ownership Plans.”
The funds borrowed by the ESOP from the Company to purchase the Company’s common stock are being repaid from the Association’s
contributions over a period of up to 25 years. The Company’s common stock not yet allocated to participants is recorded
as a reduction of stockholders’ equity at cost. Compensation expense for the ESOP is based on the market price of the Company’s
stock and is recognized as shares are committed to be released to participants.
Equity Incentive Plan:
On July 17, 2014, the Board of Directors adopted the Sunnyside
Bancorp, Inc. 2014 Equity Incentive Plan (the “Stock Incentive Plan”) which was approved by shareholders at the Company’s
2014 Annual Meeting of Shareholders held on September 16, 2014. Stock options and restricted stock may be granted to directors,
officers and other employees of the Company. The maximum number of shares which may be issued upon exercise of the options under
the plan cannot exceed 79,350 shares. The maximum number of shares of stock that may be issued as restricted stock awards cannot
exceed 23,805.
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(Cont’d)
Employee Benefits
(Cont’d)
Equity Incentive Plan (Cont’d):
The Stock Incentive Plan will remain in effect as long as any
awards under it are outstanding; however, no awards may be granted under the Stock Incentive Plan on or after the 10-year anniversary
of the effective date of the Stock Incentive Plan or July 17, 2024.
Under FASB ASC Topic 718, the Company will recognize compensation
expense on its income statement over the requisite service period or performance period based on the grant date fair value of stock
options and other equity-based compensation (such as restricted stock).
On June 16, 2015, the Company granted 10,500 shares of restricted
stock to certain executive officers, with a grant date fair value of $10.50 per share. Twenty percent of the shares awarded vest
annually. Management recognizes expense for the fair value of those awards on a straight line basis over the requisite service
period. For the three and nine months ended September 30, 2016, the Company recognized approximately $5,500 and $16,500 in expense
in regard to those restricted stock awards compared to $5,500 each for the same periods in 2015. Expected future expense relating
to these non-vested restricted shares at September 30, 2016 is $82,700 over a weighted average period of 3.75 years. There were
no stock options outstanding as of September 30, 2016.
Comprehensive Income
Accounting principles generally require that recognized revenue,
expenses, gains and losses be included in net income. Although certain changes in assets and liabilities, such as unrealized gains
and losses on available-for-sale securities, and the actuarial gains and losses of the pension plan, are reported as a separate
component of the equity section of the balance sheet, such items, along with net income, are components of comprehensive income.
Concentration of Credit Risk and Interest-Rate Risk
Financial instruments which potentially subject the
Company to concentrations of credit risk consist of cash and cash equivalents, investment and mortgage-backed securities and
loans. Cash and cash equivalents include amounts placed with highly rated financial institutions. Investment securities
include securities backed by the U.S. Government and other highly rated instruments. The Company’s lending activity is
primarily concentrated in loans collateralized by real estate in the State of New York. As a result, credit risk is broadly
dependent on the real estate market and general economic conditions in the State.
The Company is principally engaged in the business of attracting
deposits from the general public and using these deposits, together with borrowings and other funds, to make loans secured by real
estate in the State of New York. The potential for interest-rate risk exists as a result of the shorter duration of the Company's
interest-sensitive liabilities compared to the generally longer duration of interest-sensitive assets. In a rising rate environment,
liabilities will reprice faster than assets, thereby reducing net interest income. For this reason, management regularly monitors
the maturity structure of the Company's assets and liabilities in order to measure its level of interest-rate risk and to plan
for future volatility.
Advertising Costs
It is the Company’s policy to expense advertising costs
in the period in which they are incurred.
Earnings Per Share
Basic earnings per share is computed by dividing net income
for the period by the weighted average number of shares of common stock outstanding adjusted for unearned shares of the Employee
Stock Ownership Plan (“ESOP”). Diluted earnings per share is computed by adjusting the weighted average number of shares
of common stock outstanding to include the effect of outstanding stock options and compensation grants, if dilutive, using the
treasury stock method.
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(Cont’d)
Recent Accounting Pronouncements
In June 2014, the Financial Accounting Standards Board (“FASB”)
issued Accounting Standards Update (“ASU”) 2014-12, “Compensation – Stock Compensation (Topic 718)”.
The amendments in this ASU require a performance target that affects vesting and that could be achieved after the requisite service
period be treated as a performance condition. The performance target should not be reflected in estimating the grant-date fair
value of the award, and compensation cost should be recognized in the period in which it becomes probable that the performance
target will be achieved and should represent the compensation cost attributable to the period(s) for which the requisite service
has already been rendered. The amendments in this ASU are effective for annual periods beginning after December 15, 2015. The adoption
of this guidance on January 1, 2016 did not have a material impact on the operating results or financial condition of the Company.
In August 2014, the FASB issued ASU No. 2014-15, “Presentation
of Financial Statements – Going Concern (Subtopic 205-40): Disclosure of Uncertainties about an Entity’s Ability to
Continue as a Going Concern.” This update is intended to provide guidance about management’s responsibility to evaluate
whether there is substantial doubt about an entity’s ability to continue as a going concern and to provide related footnote
disclosures. Management is required under the new guidance to evaluate whether there are conditions or events, considered in the
aggregate, that raise substantial doubt about the entity’s ability to continue as a going concern within one year after the
date the financial statements are issued when preparing financial statements for each interim and annual reporting period. If conditions
or events are identified, the ASU specifies the process that must be followed by management and also clarifies the timing and content
of going concern footnote disclosures in order to reduce diversity in practice. The amendments in this ASU are effective for annual
periods and interim periods within those annual periods beginning after December 15, 2015. The adoption of this guidance on January
1, 2017 is not expected to have a material impact on the operating results or financial condition of the Company.
In January 2015, the FASB issued ASU 2015-01, “Income
Statement – Extraordinary and Unusual Items (Subtopic 225-20)”. This ASU eliminates extraordinary items from US GAAP
and will align more closely with International Accounting Standards 1, “Presentation of Financial Statements”. The
amendments in this ASU are effective beginning after December 15, 2015. The adoption of this guidance on January 1, 2016 did not
have a material impact on the operating results or financial condition of the Company.
In February 2015, the FASB issued ASU 2015-02, “Consolidation
(Topic 810)”. This ASU focuses on the consolidation evaluation for reporting organizations that are required to evaluate
consolidation of certain legal entities by reducing the number of consolidation models from four to two and is intended to improve
current GAAP. The amendments in this ASU are effective beginning after December 15, 2015. The adoption of this guidance on January
1, 2016 did not have a material impact on the operating results or financial condition of the Company.
In January, 2016, the FASB issued ASU 2016-01, Financial Instruments
– Overall (Subtopic 825-10): “Recognition and Measurement of Financial Assets and Financial Liabilities” requires
all equity investments to be measured at fair value with changes in the fair value recognized through net income (other than those
accounted for under equity method of accounting or those that result in consolidation of the investee). The amendments in this
Update also require an entity to present separately in other comprehensive income the portion of the total change in the fair value
of a liability resulting from a change in the instrument-specific credit risk when the entity has elected to measure the liability
at fair value in accordance with the fair value option for financial instruments. In addition, this ASU eliminates the requirement
to disclose the fair value of financial instruments measured at amortized cost for entities that are not public business entities
and the requirement to disclose the method(s) and significant assumptions used to estimate the fair value that is required to be
disclosed for financial instruments measured at amortized cost on the balance sheet for public business entities. ASU 2016-01 is
effective for fiscal years beginning after December 15, 2017 for public entities. The adoption of this guidance on January 1, 2018
is not expected to have a material impact on the operating results or financial condition of the Company.
In February 2016, the FASB issued ASU 2016-02, “Leases
(Topic 842)”. Under the new guidance, lessees will be required to recognize the following for all leases (with the exception
of short-term leases) at the commencement date: (i) a lease liability, which is a lessee’s obligation to make lease payments
arising from a lease, measured on a discounted basis; and (ii) a right-of-use asset, which is an asset that represents the lessee’s
right to use, or control the use of, a specified asset for the lease term. Under the new guidance, lessor accounting is largely
unchanged. Public business entities should apply the amendments in ASU 2016-02 for fiscal years beginning after December 15, 2018,
including interim periods within those fiscal years. Early application is permitted for all public business entities upon issuance.
Lessees (for capital and operating leases) and lessors (for sales-type, direct financing, and operating
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(Cont’d)
Recent Accounting Pronouncements
(Cont’d)
leases) must apply a modified retrospective transition approach
for leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements.
The adoption of this guidance on January 1, 2019 is not expected to have a material impact on the operating results or financial
condition of the Company.
In March 2016, the FASB issued ASU 2016-09, “Compensation
– Stock Compensation (Topic 718):” Improvements to Employee Share-Based Payment Accounting”. This ASU simplifies
several aspects of the accounting for share-based payment transactions, including the income tax consequences, classification of
awards as equity or liabilities, forfeitures, and classification on the statement of cash flows. ASU 2016-09 is effective for annual
periods, and interim periods within those annual periods, beginning after December 15, 2016 for public entities. The adoption of
this guidance on January 1, 2017 is not expected to have a material impact on the operating results or financial condition of the
Company.
In June 2016, the FASB issued ASU 2016-13, “Financial
Instruments – Credit Losses” (Topic 326). The new guidance replaces the incurred loss impairment methodology in current
GAAP with an expected credit loss methodology and requires consideration of a broader range of information to determine credit
loss estimates. Financial assets measured at amortized cost will be presented at the net amount expected to be collected by using
an allowance for credit losses. Purchased credit impaired loans will receive an allowance account at the acquisition date that
represents a component of the purchase price allocation. Credit losses relating to available-for-sale debt securities will be recorded
through an allowance for credit losses, with such allowance limited to the amount by which fair value is below amortized cost.
This guidance is effective for fiscal years beginning after December 15, 2019 and interim periods within those fiscal years. The
Company is currently evaluating this guidance to determine the impact on its consolidated financial statements.
In
August 2016, the FASB issued new guidance related to the “Statement of Cash Flows
”
(Topic 230). The new guidance
clarifies the classification within the statement of cash flows for certain transactions, including debt extinguishment costs,
zero-coupon debt, contingent consideration related to business combinations, insurance proceeds, equity method distributions and
beneficial interests in securitizations. The guidance also clarifies that cash flows with aspects of multiple classes of cash flows
or that cannot be separated by source or use should be classified based on the activity that is likely to be the predominant source
or use of cash flows for the item. This guidance is effective for fiscal years beginning after December 15, 2017 and interim periods
within those fiscal years. The adoption of this guidance is not expected to
have a material impact on the operating results
or financial condition of the Company.
Subsequent Events
The Company has evaluated all events subsequent to the balance
sheet date of September 30, 2016 through the date of this report, and has determined that there are no subsequent events that require
disclosure under FASB guidance.
2.
MUTUAL
TO STOCK CONVERSION AND LIQUIDATION ACCOUNT
On July 15, 2013, the Association completed its mutual-to-stock
conversion, and the Company consummated its initial stock offering. The Company sold 793,500 shares of its common stock, including
55,545 shares purchased by the Association’s ESOP, at a price of $10.00 per share, in a subscription offering, for gross
offering proceeds of $7,935,000. The cost of conversion and the stock offering were deferred and deducted from the proceeds of
the offering. Conversion costs incurred totaled $845,000 resulting in net proceeds of $6.5 million after also deducting the shares
acquired by the ESOP.
In accordance with applicable federal conversion regulations,
at the time of the completion of our mutual-to-stock conversion, the Company established a liquidation account in the Association
in an amount equal to the Association’s total retained earnings as of the latest balance sheet date in the final prospectus
used in the Conversion. Each eligible account holder or supplemental account holder is entitled to a proportionate share
of this liquidation account in the event of a complete liquidation of the Association, and only in such event. This
share will be reduced if the eligible account holder’s or supplemental account holder’s deposit balance falls below
the amounts on the date of record as of any December 31 and will cease to exist if the account is closed. The liquidation
account will never be increased despite any increase after conversion in the related deposit balance.
The Company may not declare, pay a dividend on, or repurchase
any of its capital stock, if the effect thereof would cause retained earnings to be reduced below the liquidation account amount
or regulatory capital requirements.
3. SECURITIES
|
|
September
30, 2016
|
|
|
|
Amortized
|
|
|
Gross
Unrealized
|
|
|
Fair
|
|
|
|
Cost
|
|
|
Gains
|
|
|
Losses
|
|
|
Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities held to maturity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. government and agency obligations
|
|
$
|
2,000,000
|
|
|
$
|
21,922
|
|
|
$
|
-
|
|
|
$
|
2,021,922
|
|
State, county, and municipal obligations
|
|
|
815,536
|
|
|
|
18,799
|
|
|
|
-
|
|
|
|
834,335
|
|
Mortgage-backed securities
|
|
|
1,477,966
|
|
|
|
56,685
|
|
|
|
-
|
|
|
|
1,534,651
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
4,293,502
|
|
|
$
|
97,406
|
|
|
$
|
-
|
|
|
$
|
4,390,908
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities available for sale:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. government and agency obligations
|
|
$
|
999,332
|
|
|
$
|
1,801
|
|
|
$
|
-
|
|
|
$
|
1,001,133
|
|
Mortgage-backed securities
|
|
|
28,687,226
|
|
|
|
232,710
|
|
|
|
21,122
|
|
|
|
28,898,814
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
29,686,558
|
|
|
$
|
234,511
|
|
|
$
|
21,122
|
|
|
$
|
29,899,947
|
|
|
|
December
31, 2015
|
|
|
|
Amortized
|
|
|
Gross Unrealized
|
|
|
Fair
|
|
|
|
Cost
|
|
|
Gains
|
|
|
Losses
|
|
|
Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities held to maturity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. government and agency obligations
|
|
$
|
2,000,000
|
|
|
$
|
49,394
|
|
|
$
|
-
|
|
|
$
|
2,049,394
|
|
State, county, and municipal obligations
|
|
|
816,364
|
|
|
|
15,255
|
|
|
|
571
|
|
|
|
831,048
|
|
Mortgage-backed securities
|
|
|
1,919,909
|
|
|
|
59,112
|
|
|
|
-
|
|
|
|
1,979,021
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
4,736,273
|
|
|
$
|
123,761
|
|
|
$
|
571
|
|
|
$
|
4,859,463
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities available for sale:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. government and agency obligations
|
|
$
|
5,660,537
|
|
|
$
|
-
|
|
|
$
|
45,055
|
|
|
$
|
5,615,482
|
|
Mortgage-backed securities
|
|
|
25,327,782
|
|
|
|
54,108
|
|
|
|
247,070
|
|
|
|
25,134,820
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
30,988,319
|
|
|
$
|
54,108
|
|
|
$
|
292,125
|
|
|
$
|
30,750,302
|
|
M
ortgage-backed securities consist
of securities guaranteed by Ginnie Mae, Fannie Mae, Freddie Mac, and the Small Business Administration with amortized costs of
$1.8 million, $18.0 million, $7.2 million, and $3.2 million, respectively, at September 30, 2016 ($2.3 million, $11.5 million,
$10.0 million, and $3.6 million, respectively, at December 31, 2015).
Proceeds from the sale of securities held to maturity amounted
to $0 and $982,705 for the three months ended September 30, 2016 and 2015, respectively. Net gains of $0 and $22,133 were recognized
on the sales for the three months ended, September 30, 2016 and 2015, respectively. The sale of the securities in 2015 occurred
after the Company had already collected a substantial portion (at least 85%) of the principal outstanding due to prepayments on
the debt securities.
Proceeds from the sales and calls of securities available for
sale amounted to $3,000,000 and $0 for the three months ended September 30, 2016 and 2015, respectively. Net gains of $16,729 and
$0 were recognized on those sales and calls for the three months ended, September 30, 2016 and 2015, respectively.
Proceeds from the sale of securities held to maturity amounted
to $221,569 and $982,705 for the nine months ended September 30, 2016 and 2015, respectively. Net gains of $4,507 and $22,133 were
recognized on the sales during the nine months ended September 30, 2016 and 2015, respectively. The sale of the securities occurred
after the Association had already collected a substantial portion (at least 85%) of the principal outstanding due to prepayments
on the debt securities.
3. SECURITIES
(Cont’d)
Proceeds from the sales and calls of securities available for
sale amounted to $18,704,011 and $8,606,475 for the nine months ended September 30, 2016 and 2015, respectively. Net gains of $121,891
and $99,026 were recognized on those sales and calls for the nine months ended, September 30, 2016 and 2015, respectively.
The following is a summary of the amortized cost and fair value
of securities at September 30, 2016 and December 31, 2015, by remaining period to contractual maturity. Actual maturities may differ
from these amounts because certain debt security issuers have the right to call or redeem their obligations prior to contractual
maturity. In addition, mortgage backed securities that amortize monthly are listed in the period the security is legally set to
pay off in full.
|
|
September
30, 2016
|
|
|
|
Held
to Maturity
|
|
|
Available
for Sale
|
|
|
|
Amortized
|
|
|
Fair
|
|
|
Amortized
|
|
|
Fair
|
|
|
|
Cost
|
|
|
Value
|
|
|
Cost
|
|
|
Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Within one year
|
|
$
|
65,000
|
|
|
$
|
65,064
|
|
|
$
|
-
|
|
|
$
|
-
|
|
After one to five years
|
|
|
404,465
|
|
|
|
405,610
|
|
|
|
999,332
|
|
|
|
1,001,133
|
|
After five to ten years
|
|
|
-
|
|
|
|
-
|
|
|
|
3,134,174
|
|
|
|
3,153,923
|
|
After ten years
|
|
|
3,824,037
|
|
|
|
3,920,234
|
|
|
|
25,553,052
|
|
|
|
25,744,891
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
4,293,502
|
|
|
$
|
4,390,908
|
|
|
$
|
29,686,558
|
|
|
$
|
29,899,947
|
|
|
|
December
31, 2015
|
|
|
|
Held
to Maturity
|
|
|
Available
for Sale
|
|
|
|
Amortized
|
|
|
Fair
|
|
|
Amortized
|
|
|
Fair
|
|
|
|
Cost
|
|
|
Value
|
|
|
Cost
|
|
|
Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Within one year
|
|
$
|
65,000
|
|
|
$
|
65,637
|
|
|
$
|
-
|
|
|
$
|
-
|
|
After one to five years
|
|
|
405,463
|
|
|
|
410,756
|
|
|
|
999,176
|
|
|
|
988,268
|
|
After five to ten years
|
|
|
-
|
|
|
|
-
|
|
|
|
6,646,014
|
|
|
|
6,592,105
|
|
After ten years
|
|
|
4,265,810
|
|
|
|
4,383,070
|
|
|
|
23,343,129
|
|
|
|
23,169,929
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
4,736,273
|
|
|
$
|
4,859,463
|
|
|
$
|
30,988,319
|
|
|
$
|
30,750,302
|
|
The following tables summarize the fair values and unrealized
losses of securities with an unrealized loss at September 30, 2016 and December 31, 2015, segregated between securities that have
been in an unrealized loss position for less than one year, or one year or longer, at the respective dates.
|
|
September
30, 2016
|
|
|
|
Under
One Year
|
|
|
One
Year or More
|
|
|
|
|
|
|
Gross
|
|
|
|
|
|
Gross
|
|
|
|
Fair
|
|
|
Unrealized
|
|
|
Fair
|
|
|
Unrealized
|
|
|
|
Value
|
|
|
Loss
|
|
|
Value
|
|
|
Loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities available for sale:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage-backed securities
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
2,521,272
|
|
|
$
|
21,122
|
|
3. SECURITIES
(Cont’d)
|
|
December
31, 2015
|
|
|
|
Under
One Year
|
|
|
One
Year or More
|
|
|
|
|
|
|
Gross
|
|
|
|
|
|
Gross
|
|
|
|
Fair
|
|
|
Unrealized
|
|
|
Fair
|
|
|
Unrealized
|
|
|
|
Value
|
|
|
Loss
|
|
|
Value
|
|
|
Loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities held to maturity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
State, county, and municipal obligations
|
|
$
|
204,986
|
|
|
$
|
571
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities available for sale:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. government and agency obligations
|
|
|
4,627,215
|
|
|
|
34,146
|
|
|
|
988,267
|
|
|
|
10,909
|
|
Mortgage-backed securities
|
|
|
16,181,086
|
|
|
|
128,104
|
|
|
|
3,983,918
|
|
|
|
118,966
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
20,808,301
|
|
|
|
162,250
|
|
|
|
4,972,185
|
|
|
|
129,875
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
21,013,287
|
|
|
$
|
162,821
|
|
|
$
|
4,972,185
|
|
|
$
|
129,875
|
|
The unrealized losses are primarily due to changes in market
interest rates subsequent to purchase. A total of 3 and 40 securities were in an unrealized loss position at September 30, 2016
and December 31, 2015, respectively. The Company generally purchases securities issued by Government Sponsored Enterprises (GSE).
Accordingly, it is expected that the GSE securities would not be settled at a price less than the Company’s amortized cost
basis. The Company does not consider these investments to be other-than-temporarily impaired at September 30, 2016 and December 31,
2015 since the decline in market value is attributable to changes in interest rates and not credit quality and the Company has
the intent and ability to hold these investments until there is a full recovery of the unrealized loss, which may be at maturity.
4. LOANS RECEIVABLE, NET
|
|
September 30,
|
|
|
December 31,
|
|
|
|
2016
|
|
|
2015
|
|
Mortgage loans:
|
|
|
|
|
|
|
|
|
Residential 1-4 family
|
|
$
|
25,292,249
|
|
|
$
|
29,156,224
|
|
Commercial and multi-family
|
|
|
15,711,496
|
|
|
|
13,816,059
|
|
Home equity lines of credit
|
|
|
535,393
|
|
|
|
407,764
|
|
|
|
|
|
|
|
|
|
|
|
|
|
41,539,138
|
|
|
|
43,380,047
|
|
|
|
|
|
|
|
|
|
|
Other loans:
|
|
|
|
|
|
|
|
|
Secured by savings accounts
|
|
|
5,600
|
|
|
|
18,201
|
|
Student
|
|
|
5,828,825
|
|
|
|
1,932,791
|
|
Commercial
|
|
|
947,854
|
|
|
|
2,171,795
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,782,279
|
|
|
|
4,122,787
|
|
|
|
|
|
|
|
|
|
|
Total loans
|
|
|
48,321,417
|
|
|
|
47,502,834
|
|
|
|
|
|
|
|
|
|
|
Less:
|
|
|
|
|
|
|
|
|
Deferred loan fees (costs), net
|
|
|
(101,579
|
)
|
|
|
(52,707
|
)
|
Premium on loans purchased
|
|
|
(53,567
|
)
|
|
|
-
|
|
Allowance for loan losses
|
|
|
466,893
|
|
|
|
463,243
|
|
|
|
|
|
|
|
|
|
|
|
|
|
311,747
|
|
|
|
410,536
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
48,009,670
|
|
|
$
|
47,092,298
|
|
4. LOANS RECEIVABLE, NET
(CONT’D)
In the ordinary course of business, the Company makes loans
to its directors, executive officers, and their associates (related parties) on the same terms as those prevailing at the time
of origination for comparable loans with other borrowers. The unpaid principal balances of related party loans were approximately
$163,000 and $169,000 at September 30, 2016 and December 31, 2015, respectively.
Activity in the allowance for loan losses is summarized as follows:
|
|
Three Months Ended
|
|
|
|
September
30,
|
|
|
|
2016
|
|
|
2015
|
|
|
|
|
|
|
|
|
Balance at beginning of period
|
|
$
|
463,243
|
|
|
$
|
433,055
|
|
Provision for loan losses
|
|
|
3,650
|
|
|
|
22,000
|
|
|
|
|
|
|
|
|
|
|
Balance at end of period
|
|
$
|
466,893
|
|
|
$
|
455,055
|
|
|
|
Nine Months Ended
|
|
|
|
September
30,
|
|
|
|
2016
|
|
|
2015
|
|
|
|
|
|
|
|
|
Balance at beginning of period
|
|
$
|
463,243
|
|
|
$
|
396,055
|
|
Provision for loan losses
|
|
|
3,650
|
|
|
|
59,000
|
|
|
|
|
|
|
|
|
|
|
Balance at end of period
|
|
$
|
466,893
|
|
|
$
|
455,055
|
|
The allowance for loan losses consists of specific, general
and unallocated components. The specific component relates to loans that are classified as impaired. For loans that are classified
as impaired, an allowance is established when the discounted cash flows (or collateral value or observable market price) of the
impaired loan is lower than the carrying value of that loan. There are no specific allowances as of September 30, 2016 and December
31, 2015. The general component covers pools of loans by loan class not considered impaired, as well as smaller balance homogeneous
loans, such as one-to-four family real estate, home equity lines of credit and other consumer loans. These pools of
loans are evaluated for loss exposure based upon historical loss rates for each of these categories of loans, adjusted for qualitative
factors. These qualitative risk factors include:
|
1.
|
Lending policies and procedures, including underwriting
standards and collection, charge-off, and recovery practices.
|
|
2.
|
National, regional, and local economic and business conditions
including the value of underlying collateral for collateral dependent loans.
|
|
3.
|
Nature and volume of the portfolio and terms of loans.
|
|
4.
|
Experience, ability, and depth of lending management and
staff and the quality of the Company’s loan review system.
|
|
5.
|
Volume and severity of past due, classified and nonaccrual
loans.
|
|
6.
|
Existence and effect of any concentrations of credit and
changes in the level of such concentrations.
|
4. LOANS RECEIVABLE, NET
(CONT’D)
|
7.
|
Effect of external factors, such as competition and legal and regulatory requirements.
|
Each factor is assigned a value to reflect improving, stable
or declining conditions based on management’s best judgment using relevant information available at the time of the evaluation.
Adjustments to the factors are supported through documentation of changes in conditions in a narrative accompanying the allowance
for loan loss calculation.
An unallocated component is maintained to cover uncertainties
that could affect management’s estimate of probable losses. The unallocated component of the allowance reflects the margin
of imprecision inherent in the underlying assumptions used in the methodologies for estimating specific and general losses in the
portfolio.
The allowance calculation methodology includes further segregation
of loan classes into risk rating categories. The borrower’s overall financial condition, repayment sources, guarantors and
value of collateral, if appropriate, are evaluated when credit deficiencies arise, such as delinquent loan payments. Credit quality
risk ratings include regulatory classifications of pass, special mention, substandard, doubtful and loss.
Loan classifications are defined as follows:
|
•
|
Pass — These loans are well protected by the
current net worth and paying capacity of the obligor (or guarantors, if any) or by the fair value, less cost to acquire and sell,
of any underlying collateral in a timely manner.
|
|
•
|
Special Mention — These loans have potential
weaknesses that deserve management’s close attention. If left uncorrected, these potential weaknesses may result in deterioration
of repayment prospects.
|
|
•
|
Substandard — These loans are inadequately protected
by the current net worth and paying capacity of the obligor or by the collateral pledged, if any. Assets so classified must have
a well-defined weakness, or weaknesses that jeopardize the liquidation of the debt. They are characterized by the distinct possibility
that the Company will sustain some loss if the deficiencies are not corrected.
|
|
•
|
Doubtful — These loans have all the weaknesses
inherent in a loan classified substandard with the added characteristic that the weaknesses make the full recovery of our principal
balance highly questionable and improbable on the basis of currently known facts, conditions, and values. The likelihood of a
loss on an asset or portion of an asset classified as doubtful is high. Its classification as Loss is not appropriate, however,
because pending events are expected to materially affect the amount of loss.
|
|
•
|
Loss — These loans are considered uncollectible
and of such little value that a charge-off is warranted. This classification does not necessarily mean that an asset has no recovery
or salvage value; but rather, there is much doubt about whether, how much, or when the recovery will occur.
|
One of the primary methods the Company uses as an indicator
of the credit quality of their portfolio is the regulatory classification system. The following table reflects the credit quality
indicators by portfolio segment and class, at the dates indicated:
|
|
September
30, 2016
|
|
|
|
Mortgage
Loans
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
|
|
|
|
Commercial
|
|
|
|
|
|
|
Residential
|
|
|
Real Estate and
|
|
|
|
|
|
and
|
|
|
|
|
|
|
1-4
Family
|
|
|
Multi-Family
|
|
|
Home
Equity
|
|
|
Other
|
|
|
Total
|
|
|
|
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pass
|
|
$
|
24,731
|
|
|
$
|
15,349
|
|
|
$
|
512
|
|
|
$
|
6,782
|
|
|
$
|
47,374
|
|
Special Mention
|
|
|
-
|
|
|
|
363
|
|
|
|
-
|
|
|
|
-
|
|
|
|
363
|
|
Substandard
|
|
|
561
|
|
|
|
-
|
|
|
|
23
|
|
|
|
-
|
|
|
|
584
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
25,292
|
|
|
$
|
15,712
|
|
|
$
|
535
|
|
|
$
|
6,782
|
|
|
$
|
48,321
|
|
4. LOANS RECEIVABLE, NET
(CONT’D)
|
|
December
31, 2015
|
|
|
|
Mortgage
Loans
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
|
|
|
|
Commercial
|
|
|
|
|
|
|
Residential
|
|
|
Real Estate and
|
|
|
|
|
|
and
|
|
|
|
|
|
|
1-4
Family
|
|
|
Multi-Family
|
|
|
Home
Equity
|
|
|
Other
|
|
|
Total
|
|
|
|
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pass
|
|
$
|
28,458
|
|
|
$
|
12,676
|
|
|
$
|
383
|
|
|
$
|
4,123
|
|
|
$
|
45,640
|
|
Special Mention
|
|
|
409
|
|
|
|
1,140
|
|
|
|
25
|
|
|
|
-
|
|
|
|
1,574
|
|
Substandard
|
|
|
289
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
289
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
29,156
|
|
|
$
|
13,816
|
|
|
$
|
408
|
|
|
$
|
4,123
|
|
|
$
|
47,503
|
|
The following table provides
information about loan delinquencies at the dates indicated:
|
|
September
30, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
90 Days
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
or More
|
|
|
|
30-59
|
|
|
60-89
|
|
|
90 Days
|
|
|
|
|
|
|
|
|
|
|
|
Past Due
|
|
|
|
Days
|
|
|
Days
|
|
|
or More
|
|
|
Total
|
|
|
Current
|
|
|
Total
|
|
|
and
|
|
|
|
Past
Due
|
|
|
Past
Due
|
|
|
Past
Due
|
|
|
Past
Due
|
|
|
Loans
|
|
|
Loans
|
|
|
Accruing
|
|
|
|
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential 1-4 family
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
561
|
|
|
$
|
561
|
|
|
$
|
24,731
|
|
|
$
|
25,292
|
|
|
$
|
-
|
|
Commercial real estate and multi-family
|
|
|
2,626
|
|
|
|
-
|
|
|
|
-
|
|
|
|
2,626
|
|
|
$
|
13,086
|
|
|
|
15,712
|
|
|
|
-
|
|
Home equity lines of credit
|
|
|
-
|
|
|
|
-
|
|
|
|
23
|
|
|
|
23
|
|
|
$
|
512
|
|
|
|
535
|
|
|
|
-
|
|
Commercial and other
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
$
|
6,782
|
|
|
|
6,782
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
2,626
|
|
|
$
|
-
|
|
|
$
|
584
|
|
|
$
|
3,210
|
|
|
$
|
45,111
|
|
|
$
|
48,321
|
|
|
$
|
-
|
|
|
|
December
31, 2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
90 Days
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
or More
|
|
|
|
30-59
|
|
|
60-89
|
|
|
90 Days
|
|
|
|
|
|
|
|
|
|
|
|
Past Due
|
|
|
|
Days
|
|
|
Days
|
|
|
or More
|
|
|
Total
|
|
|
Current
|
|
|
Total
|
|
|
and
|
|
|
|
Past
Due
|
|
|
Past
Due
|
|
|
Past
Due
|
|
|
Past
Due
|
|
|
Loans
|
|
|
Loans
|
|
|
Accruing
|
|
|
|
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential 1-4 family
|
|
$
|
-
|
|
|
$
|
279
|
|
|
$
|
289
|
|
|
$
|
568
|
|
|
$
|
28,588
|
|
|
|
29,156
|
|
|
$
|
-
|
|
Commercial real estate and multi-family
|
|
|
-
|
|
|
|
737
|
|
|
|
-
|
|
|
|
737
|
|
|
|
13,079
|
|
|
|
13,816
|
|
|
|
-
|
|
Home equity lines of credit
|
|
|
-
|
|
|
|
25
|
|
|
|
-
|
|
|
|
25
|
|
|
|
383
|
|
|
|
408
|
|
|
|
-
|
|
Commercial and other
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
4,123
|
|
|
|
4,123
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
-
|
|
|
$
|
1,041
|
|
|
$
|
289
|
|
|
$
|
1,330
|
|
|
$
|
46,173
|
|
|
$
|
47,503
|
|
|
$
|
-
|
|
There were no troubled debt restructured loans at September
30, 2016 or December 31, 2015.
4. LOANS RECEIVABLE, NET
(CONT’D)
The following is a summary of loans, by loan type, on which
the accrual of income has been discontinued and loans that are contractually past due 90 days or more but have not been classified
as non-accrual at the dates indicated:
|
|
September 30,
|
|
|
December 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
|
(In thousands)
|
|
|
|
|
|
|
|
|
Residential 1-4 family
|
|
$
|
561
|
|
|
$
|
289
|
|
Commercial real estate and multi-family
|
|
|
-
|
|
|
|
-
|
|
Home equity lines of credit
|
|
|
23
|
|
|
|
-
|
|
Other loans
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Total non-accrual loans
|
|
|
584
|
|
|
|
289
|
|
|
|
|
|
|
|
|
|
|
Accruing loans delinquent 90 days or more
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Total non-performing loans
|
|
$
|
584
|
|
|
$
|
289
|
|
The total amount of interest income on non-accrual loans that
would have been recognized if interest on all such loans had been recorded based upon original contract terms amounted to approximately
$7,400 and $3,300 for the three months ended September 30, 2016 and 2015, respectively. The total amount of interest income recognized
on non-accrual loans amounted to approximately $3,700 and $600 during the three months ended September 30, 2016 and 2015, respectively.
For the nine months ended September 30, 2016 and 2015, such
interest income that would have been recognized on non-accrual loans totaled approximately $32,700 and $15,200, respectively. The
total amount of interest income recognized on non-accrual loans amounted to approximately $32,900 and $4,900 during the nine months
ended September 30, 2016 and 2015, respectively.
The following tables present the activity
in the allowance for loan losses by loan type for the periods indicated:
|
|
Three Months Ended
|
|
|
|
September
30, 2016
|
|
|
|
Mortgage
Loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential
|
|
|
and
|
|
|
Home Equity
|
|
|
Commercial
|
|
|
|
|
|
|
|
|
|
1-4
Family
|
|
|
Multi-Family
|
|
|
LOC
|
|
|
and
Other
|
|
|
Unallocated
|
|
|
Total
|
|
|
|
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning balance
|
|
$
|
299
|
|
|
$
|
133
|
|
|
$
|
4
|
|
|
$
|
25
|
|
|
$
|
2
|
|
|
$
|
463
|
|
Provision for loan losses
|
|
|
(6
|
)
|
|
|
8
|
|
|
|
1
|
|
|
|
1
|
|
|
|
-
|
|
|
|
4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending Balance
|
|
$
|
293
|
|
|
$
|
141
|
|
|
$
|
5
|
|
|
$
|
26
|
|
|
$
|
2
|
|
|
$
|
467
|
|
4. LOANS RECEIVABLE, NET
(CONT’D)
|
|
Three Months Ended
|
|
|
|
September
30, 2015
|
|
|
|
Mortgage
Loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential
|
|
|
and
|
|
|
Home Equity
|
|
|
Commercial
|
|
|
|
|
|
|
|
|
|
1-4
Family
|
|
|
Multi-Family
|
|
|
LOC
|
|
|
and
Other
|
|
|
Unallocated
|
|
|
Total
|
|
|
|
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning balance
|
|
$
|
287
|
|
|
$
|
111
|
|
|
$
|
3
|
|
|
$
|
26
|
|
|
$
|
6
|
|
|
$
|
433
|
|
Provision for loan losses
|
|
|
28
|
|
|
|
16
|
|
|
|
-
|
|
|
|
(20
|
)
|
|
|
(2
|
)
|
|
|
22
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending Balance
|
|
$
|
315
|
|
|
$
|
127
|
|
|
$
|
3
|
|
|
$
|
6
|
|
|
$
|
4
|
|
|
$
|
455
|
|
|
|
Nine Months Ended
|
|
|
|
September
30, 2016
|
|
|
|
Mortgage
Loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential
|
|
|
and
|
|
|
Home Equity
|
|
|
Commercial
|
|
|
|
|
|
|
|
|
|
1-4
Family
|
|
|
Multi-Family
|
|
|
LOC
|
|
|
and
Other
|
|
|
Unallocated
|
|
|
Total
|
|
|
|
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning balance
|
|
$
|
315
|
|
|
$
|
130
|
|
|
$
|
3
|
|
|
$
|
15
|
|
|
$
|
-
|
|
|
$
|
463
|
|
Provision for loan losses
|
|
|
(22
|
)
|
|
|
11
|
|
|
|
2
|
|
|
|
11
|
|
|
|
2
|
|
|
|
4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending Balance
|
|
$
|
293
|
|
|
$
|
141
|
|
|
$
|
5
|
|
|
$
|
26
|
|
|
$
|
2
|
|
|
$
|
467
|
|
|
|
Nine Months Ended
|
|
|
|
September
30, 2015
|
|
|
|
Mortgage
Loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential
|
|
|
and
|
|
|
Home Equity
|
|
|
Commercial
|
|
|
|
|
|
|
|
|
|
1-4
Family
|
|
|
Multi-Family
|
|
|
LOC
|
|
|
and
Other
|
|
|
Unallocated
|
|
|
Total
|
|
|
|
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning balance
|
|
$
|
258
|
|
|
$
|
91
|
|
|
$
|
3
|
|
|
$
|
32
|
|
|
$
|
12
|
|
|
$
|
396
|
|
Provision for loan losses
|
|
|
57
|
|
|
|
36
|
|
|
|
-
|
|
|
|
(26
|
)
|
|
|
(8
|
)
|
|
|
59
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending Balance
|
|
$
|
315
|
|
|
$
|
127
|
|
|
$
|
3
|
|
|
$
|
6
|
|
|
$
|
4
|
|
|
$
|
455
|
|
5. ACCUMULATED OTHER COMPREHENSIVE LOSS
The components of accumulated other comprehensive loss included
in equity are as follows:
|
|
September 30,
|
|
|
December 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
|
|
|
|
|
|
Unrealized net loss on pension plan
|
|
$
|
(1,538,059
|
)
|
|
$
|
(1,609,735
|
)
|
Unrealized gain (loss) on securities available for sale
|
|
|
213,390
|
|
|
|
(238,017
|
)
|
|
|
|
|
|
|
|
|
|
Accumulated other comprehensive loss before taxes
|
|
|
(1,324,669
|
)
|
|
|
(1,847,752
|
)
|
|
|
|
|
|
|
|
|
|
Tax effect
|
|
|
523,128
|
|
|
|
733,482
|
|
|
|
|
|
|
|
|
|
|
Accumulated other comprehensive loss
|
|
$
|
(801,541
|
)
|
|
$
|
(1,114,270
|
)
|
6. REGULATORY CAPITAL
The Association is subject to various regulatory capital requirements
administered by the federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory, and
possible additional discretionary, actions by regulators, that if undertaken could have a direct material effect on the Company's
consolidated financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action,
the Association must meet specific capital guidelines that involve quantitative measures of the Association’s assets, liabilities,
and certain off-balance-sheet items, as calculated under regulatory accounting practices. Capital amounts and classification are
also subject to qualitative judgments by the regulators about components, risk weightings and other factors.
Quantitative measures established by regulation to ensure capital
adequacy require the Association to maintain minimum amounts and ratios of common equity Tier 1 capital, total and Tier 1 capital
to risk-weighted assets, and Tier 1 capital to average assets, as defined in the regulations. As of September 30, 2016 and December
31, 2015, the Association exceeded all capital adequacy requirements to which it was subject (see tables below).
On January 1, 2015, the final rules implementing the Basel Committee
on Banking Supervision capital guidelines for banking organizations (Basel III) regulatory capital framework and related Dodd-Frank
Act changes became effective for the Association. These rules supersede the federal banking agencies' general risk-based capital
rules (Basel I). Full compliance with all of the final rule's requirements is phased in over a multi-year transition period ending
on January 1, 2019. Basel III revised minimum capital requirements and adjusted prompt corrective action thresholds. Under the
final rules, minimum requirements increased for both the quantity and quality of capital held by the Association. The rules included
a new common equity Tier 1 capital to risk-weighted assets ratio of 4.5 percent, raised the minimum ratio of Tier 1 capital to
risk-weighted assets from 4.0 percent to 6.0 percent, required a minimum ratio of total capital to risk-weighted assets of 8.0
percent, and required a minimum leverage ratio of 4.0 percent. A new capital conservation buffer, comprised of common equity Tier
1 capital, was also established above the regulatory minimum capital requirements. This conservation buffer will be phased in beginning
January 1, 2016 at 0.625 percent of risk-weighted assets and increase each subsequent year by an additional 0.625 percent until
reaching its final level of 2.5 percent of risk-weighted assets on January 1, 2019. The final rule also revised the definition
and calculation of Tier 1 capital, total capital and risk-weighted assets.
6. REGULATORY CAPITAL (Cont’d)
The following table presents the Association’s actual
capital positions and ratios at the dates indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
To be Well
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capitalized
Under
|
|
|
|
|
|
|
|
|
|
Minimum
Capital
|
|
|
Prompt Corrective
|
|
|
|
Actual
|
|
|
Requirements
|
|
|
Action
Provisions
|
|
|
|
Amount
|
|
|
Ratio
|
|
|
Amount
|
|
|
Ratio
|
|
|
Amount
|
|
|
Ratio
|
|
|
|
(Dollars
in Thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Risk-based Capital
|
|
$
|
12,165
|
|
|
|
26.08
|
%
|
|
$
|
4,023
|
|
|
|
8.625
|
%
|
|
$
|
4,665
|
|
|
|
10.00
|
%
|
Common Equity Tier 1 Capital
|
|
|
11,698
|
|
|
|
25.08
|
%
|
|
|
2,391
|
|
|
|
5.125
|
%
|
|
|
3,032
|
|
|
|
6.50
|
%
|
Tier 1 Risked-based Capital
|
|
|
11,698
|
|
|
|
25.08
|
%
|
|
|
3,090
|
|
|
|
6.625
|
%
|
|
|
3,732
|
|
|
|
8.00
|
%
|
Tier 1 Leverage Capital
|
|
|
11,698
|
|
|
|
12.18
|
%
|
|
|
3,841
|
|
|
|
4.000
|
%
|
|
|
4,801
|
|
|
|
5.00
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Risk-based Capital
|
|
$
|
12,201
|
|
|
|
30.41
|
%
|
|
$
|
3,210
|
|
|
|
8.000
|
%
|
|
$
|
4,012
|
|
|
|
10.00
|
%
|
Common Equity Tier 1 Capital
|
|
|
11,738
|
|
|
|
29.25
|
%
|
|
|
1,805
|
|
|
|
4.500
|
%
|
|
|
2,608
|
|
|
|
6.50
|
%
|
Tier 1 Risked-based Capital
|
|
|
11,738
|
|
|
|
29.25
|
%
|
|
|
2,407
|
|
|
|
6.000
|
%
|
|
|
3,210
|
|
|
|
8.00
|
%
|
Tier 1 Leverage Capital
|
|
|
11,738
|
|
|
|
12.92
|
%
|
|
|
3,634
|
|
|
|
4.000
|
%
|
|
|
4,542
|
|
|
|
5.00
|
%
|
7. FAIR VALUE MEASUREMENTS AND DISCLOSURES
A. Fair Value Measurements
The Accounting Standards Codification (“ASC”) Topic
820, “Fair Value Measurements and Disclosures,” defines fair value, establishes a framework for measuring fair value
and expands disclosures about fair value measurements. ASC Topic 820 applies only to fair value measurements already required or
permitted by other accounting standards and does not impose requirements for additional fair value measures. ASC Topic 820 was
issued to increase consistency and comparability in reporting fair values.
The Company uses fair value measurements to record fair value
adjustments to certain assets and to determine fair value disclosures. The Company did not have any liabilities that were measured
at fair value at September 30, 2015 and December 31, 2014. Securities available-for-sale are recorded at fair value on a recurring
basis. Additionally, from time to time, the Company may be required to record at fair value other assets or liabilities on a non-recurring
basis, such as foreclosed real estate owned and certain impaired loans. These non-recurring fair value adjustments generally involve
the write-down of individual assets due to impairment losses.
In accordance with ASC Topic 820, the Company groups its assets
at fair value in three levels, based on the markets in which the assets are traded and the reliability of the assumptions used
to determine fair value. These levels are:
|
•
|
Level 1 — Valuation is based upon quoted prices
for identical instruments traded in active markets.
|
|
•
|
Level 2 — Valuation is based upon quoted prices for similar instruments in active markets, quoted prices for identical
or similar instruments in markets that are not active and model-based valuation techniques for which all significant assumptions
are observable in the market.
|
|
•
|
Level 3 — Valuation is generated from model-based techniques that use significant assumptions not observable in the market.
These unobservable assumptions reflect the Company’s own estimates of assumptions that market participants would use in pricing
the asset or liability. Valuation techniques include the use of option pricing models, discounted cash flow models and similar
techniques. The results cannot be determined with precision and may not be realized in an actual sale or immediate settlement of
the asset or liability.
|
7. FAIR VALUE MEASUREMENTS AND DISCLOSURES
(Cont’d)
A. Fair Value Measurements (Cont’d)
The Company bases its fair values on the price that would be
received to sell an asset in an orderly transaction between market participants at the measurement date. ASC Topic 820 requires
the Company to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value.
Assets that are measured on a recurring basis are limited to
the available-for-sale securities portfolio. The available-for-sale portfolio is carried at estimated fair value with any unrealized
gains and losses, net of taxes, reported as accumulated other comprehensive income or loss in stockholders’ equity. Substantially
all of the available-for-sale portfolio consists of investment securities issued by government-sponsored enterprises. The fair
values for substantially all of these securities are obtained from an independent securities broker. Based on the nature of the
securities, the securities broker provides the Company with prices which are categorized as Level 2 since quoted prices in active
markets for identical assets are generally not available for the majority of securities in the portfolio.
The following table provides the level of valuation assumptions
used to determine the carrying value of assets measured at fair value on a recurring basis at September 30, 2016 and December 31,
2015:
|
|
|
|
|
Fair
Value Measurements
|
|
|
|
|
|
|
Quoted Prices in Active
|
|
|
Significant Other
|
|
|
Significant
|
|
|
|
Carrying
|
|
|
Markets for Identical
|
|
|
Observable Inputs
|
|
|
Unobservable Inputs
|
|
Description
|
|
Value
|
|
|
(Level
1)
|
|
|
(Level
2)
|
|
|
(Level
3)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2016:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities available for sale
|
|
$
|
29,899,947
|
|
|
$
|
-
|
|
|
$
|
29,899,947
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2015:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities available for sale
|
|
$
|
30,750,302
|
|
|
$
|
-
|
|
|
$
|
30,750,302
|
|
|
$
|
-
|
|
There were no assets measured at fair value on a non-recurring
basis at September 30, 2016 and December 31, 2015.
B. Fair Value Disclosures
The following methods and assumptions were used by the Company
in estimating fair values of financial instruments as disclosed herein.
Cash and Cash Equivalents
For cash and due from banks and federal funds sold, the carrying
amount approximates the fair value (Level 1).
Securities
The fair value of securities is estimated based on bid quotations
received from securities dealers, if available (Level 1). If a quoted market price was not available, fair value was estimated
using quoted market prices of similar instruments, adjusted for differences between the quoted instruments and the instruments
being valued (Level 2).
FHLB Stock
The fair value for FHLB stock is its carrying value, since this
is the amount for which it could be redeemed. There is no active market for this stock, and the Company is required to maintain
a minimum balance based upon the unpaid principal of home mortgage loans (Level 2).
7. FAIR VALUE MEASUREMENTS AND DISCLOSURES
(Cont’d)
B. Fair Value Disclosure
s (Cont’d)
Loans Receivable
Fair values are estimated for portfolios of loans with similar
financial characteristics. Loans are segregated by type such as residential mortgage, commercial, and consumer. Each loan category
is further segmented into fixed and adjustable rate interest terms and by performing and nonperforming categories (Level 3).
Deposits
The fair value of deposits with no stated maturity, such as
non-interest-bearing demand deposits, savings, and NOW and money market accounts, is equal to the amount payable on demand (Level
1). The fair value of certificates of deposit is based on the discounted value of contractual cash flows. The discount rate is
estimated using the rates currently offered for deposits with similar remaining maturities (Level 2).
Short-Term Borrowings
The carrying amounts of federal funds purchased, and other short-term
borrowings maturing within 90 days approximate their fair values. Fair values of other short-term borrowings are estimated using
discounted cash flow analyses based on the Company’s current incremental borrowing rates for similar types of borrowing arrangements
(Level 1).
Long-Term Borrowings
The fair value of long-term borrowings is estimated using discounted
cash flow analysis based on the current incremental borrowing rates for similar types of borrowing arrangements (Level 2).
Off-Balance-Sheet Instruments
In the ordinary course of business the Company has entered into
off-balance-sheet financial instruments consisting of commitments to extend credit. Such financial instruments are recorded in
the financial statements when they are funded. Their fair value would approximate fees currently charged to enter into similar
agreements.
The carrying values and estimated fair values of financial instruments
are as follows (in thousands):
|
|
September
30, 2016
|
|
|
December
31, 2015
|
|
|
|
Carrying
|
|
|
Estimated
|
|
|
Carrying
|
|
|
Estimated
|
|
|
|
Value
|
|
|
Fair
Value
|
|
|
Value
|
|
|
Fair
Value
|
|
|
|
(In Thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
3,087
|
|
|
$
|
3,087
|
|
|
$
|
3,327
|
|
|
$
|
3,327
|
|
Securities held to maturity
|
|
|
4,294
|
|
|
|
4,391
|
|
|
|
4,736
|
|
|
|
4,859
|
|
Securities available for sale
|
|
|
29,900
|
|
|
|
29,900
|
|
|
|
30,750
|
|
|
|
30,750
|
|
Loans receivable
|
|
|
48,010
|
|
|
|
49,160
|
|
|
|
47,092
|
|
|
|
47,543
|
|
FHLB and other stock, at cost
|
|
|
335
|
|
|
|
335
|
|
|
|
204
|
|
|
|
204
|
|
Accrued interest receivable
|
|
|
436
|
|
|
|
436
|
|
|
|
332
|
|
|
|
332
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits
|
|
|
74,859
|
|
|
|
74,913
|
|
|
|
78,110
|
|
|
|
78,266
|
|
FHLB Advances
|
|
|
3,000
|
|
|
|
3,001
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The fair value estimates are made at a discrete point in time
based on relevant market information and information about the financial instruments. Fair value estimates are based on judgments
regarding future expected loss experience, current economic conditions, risk characteristics of various financial instruments,
and other factors. These estimates are subjective in nature and involve uncertainties and matters of significant judgment and,
therefore,
7. FAIR VALUE MEASUREMENTS AND DISCLOSURES
(Cont’d)
B. Fair Value Disclosure
s (Cont’d)
cannot be determined with precision. Changes in assumptions
could significantly affect the estimates. Further, the foregoing estimates may not reflect the actual amount that could be realized
if all or substantially all of the financial instruments were offered for sale.
In addition, the fair value estimates were based on existing
on-and-off balance sheet financial instruments without attempting to value the anticipated future business and the value of assets
and liabilities that are not considered financial instruments. Other significant assets and liabilities that are not considered
financial assets and liabilities include premises and equipment and advances from borrowers for taxes and insurance. In addition,
the tax ramifications related to the realization of the unrealized gains and losses have a significant effect on fair value estimates
and have not been considered in any of the estimates.
Finally, reasonable comparability between financial institutions
may not be likely due to the wide range of permitted valuation techniques and numerous estimates which must be made given the absence
of active secondary markets for many of the financial instruments. The lack of uniform valuation methodologies introduces a greater
degree of subjectivity to these estimated fair values.