NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE A – ORGANIZATION
Roma Financial Corporation (the “Company”) is a federally-chartered corporation organized in January 2005 for the purpose of acquiring all of the capital stock that Roma Bank issued in its mutual holding company reorganization. Roma Financial Corporation’s principal executive offices are located at 2300 Route 33, Robbinsville, New Jersey 08691 and its telephone number at that address is (609) 223-8300.
Roma Financial Corporation, MHC is a federally-chartered mutual holding company that was formed in January 2005 in connection with the mutual holding company reorganization. Roma Financial Corporation, MHC has not engaged in any significant business since its formation. So long as Roma Financial Corporation MHC is in existence, it will at all times own a majority of the outstanding stock of Roma Financial Corporation. Roma Financial Corporation, MHC, whose activity is not included in these consolidated financial statements, held 22,584,995 shares or 74.5% of the Company’s outstanding common stock at June 30, 2013.
Roma Bank is a federally-chartered stock savings bank. It was originally founded in 1920 and received its federal charter in 1991. Roma Bank’s deposits are federally insured by the Deposit Insurance Fund as administered by the Federal Deposit Insurance Corporation.
RomAsia Bank is a federally-chartered stock savings bank. RomAsia Bank received all regulatory approvals on June 23, 2008 to be a federal savings bank and began operations on that date. The Company originally invested $13.4 million in RomAsia Bank and in 2011 invested an additional $2.5 million. The Company currently holds a 91.22% ownership interest.
Roma Bank and RomAsia Bank are collectively referred to as (the “Banks”). Pursuant to the provisions of the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”), as of July 21, 2011, Roma Financial Corporation, MHC and the Company are regulated by the Federal Reserve Bank of Philadelphia and Roma Bank and RomAsia Bank by the Office of the Comptroller of the Currency.
The Banks offer traditional retail banking services, one-to four-family residential mortgage loans, multi-family and commercial mortgage loans, construction loans, commercial business loans and consumer loans, including home equity loans and lines of credit. Roma Bank operates from its main office in Robbinsville, New Jersey, and twenty-three branch offices located in Mercer, Burlington, Camden and Ocean Counties, New Jersey. RomAsia Bank operates from two locations in Monmouth Junction and Edison, New Jersey. As of September 30, 2012, the Banks had 270 full-time employees and 22 part-time employees. Roma Bank maintains a website at
www.romabank.com
. RomAsia Bank maintains a website at
www.Romasiabank.com
.
Throughout this document, references to “we,” “us,” or “our” refer to the Banks or the Company, or both, as the context indicates.
NOTE B - BASIS OF PRESENTATION
The consolidated financial statements include the accounts of the Company, its wholly-owned subsidiary, Roma Bank and Roma Bank’s wholly-owned subsidiaries, Roma Capital Investment Corp. (the “Investment Co.”) and General Abstract and Title Agency (the “Title Co.”), and the Company’s majority owned investment of 91.22% in RomAsia Bank. The consolidated statements also include the Company’s 50% interest in 84 Hopewell, LLC (the “LLC”), a real estate investment which is consolidated according to the requirements of Accounting Standards Codification Topic 810,
Variable Interest Entities
. All significant inter-company accounts and transactions have been eliminated in consolidation. These statements were prepared in accordance with instructions for Form 10-Q and Rule 10-01 of Regulation S-X and, therefore, do not include all information or footnotes necessary for a complete presentation of financial condition, results of operations, and cash flows in conformity with generally accepted accounting principles in the United States of America (“GAAP”).
In the opinion of management, all adjustments which are necessary for a fair presentation of the consolidated financial statements have been made at and for the three and six months ended June 30, 2013 and 2012. The results of operations for the three and six months ended June 30, 2013 are not necessarily indicative of the results which may be expected for the entire fiscal year or other interim periods.
The December 31, 2012 data in the consolidated statements of financial condition was derived from the Company’s audited consolidated financial statements for that date. That data, along with the interim financial information presented in the consolidated statements of financial condition, income, comprehensive income, changes in stockholders’ equity and cash flows should be read in conjunction with the 2012 audited consolidated financial statements for the year ended December 31, 2012, including the notes thereto included in the Company’s Annual Report on Form 10-K.
The Investment Co. was incorporated in the State of New Jersey effective September 4, 2004, and began operations October 1, 2004. The Investment Co. is subject to the investment company provisions of the New Jersey Corporation Business Tax Act. The Title Co. was incorporated in the State of New Jersey effective March 7, 2005 and commenced operations April 1, 2005. The Company, together with
NOTE B - BASIS OF PRESENTATION (Continued)
two individuals, formed a limited liability company, 84 Hopewell, LLC. The LLC was formed to build a commercial office building in which is located the Company’s Hopewell branch, corporate offices for the other LLC members construction company and tenant space. The Company invested $360,000 in the LLC and provided a loan in the amount of $3.6 million to the LLC. The Company and the other 50% owner’s construction company both have signed lease commitments to the LLC.
The consolidated financial statements have been prepared in conformity with GAAP. In preparing the consolidated financial statements, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the consolidated statements of financial condition and revenues and expenses for the periods then ended. Actual results could differ significantly from those estimates.
A material estimate that is particularly susceptible to significant change relates to the determination of the allowance for loan losses. The allowance for loan losses represents management’s best estimate of losses known and inherent in the portfolio that are both probable and reasonable to estimate. While management uses the most current information available to estimate losses on loans, actual losses are dependent on future events and, as such, increases in the allowance for loan losses may be necessary.
In addition, various regulatory agencies, as an integral part of their examination process, periodically review the Banks’ allowance for loan losses. Such agencies may require the Banks to recognize additions to the allowance based on their judgments about information available to them at the time of their examinations.
In accordance with Accounting Standards Codification (“FASB ASC”) Topic 855,
Subsequent Events
, management has evaluated subsequent events until the date of issuance of this report, and concluded that no events occurred that were of a material nature.
NOTE C - CONTINGENCIES
The Company, from time to time, is a party to routine litigation that arises in the normal course of business. In the opinion of management, the resolution of such litigation, if any, would not have a material adverse effect, as of June 30, 2013, on the Company’s consolidated financial position or results of operations.
NOTE D – EARNINGS PER SHARE
Basic earnings per share is based on the weighted average number of common shares actually outstanding adjusted for Employee Stock Ownership Plan (“ESOP”) shares not yet committed to be released. Diluted EPS is calculated by adjusting the weighted average number of shares of common stock outstanding to include the effect of outstanding stock options and unvested stock awards, if dilutive, using the treasury stock method. Shares issued and reacquired during any period are weighted for the portion of the period they were outstanding.
The following table sets forth the composition of the weighted average common shares (denominator) used in the basic and diluted earnings per share computation.
|
|
|
|
For the Three
Months Ended
June 30, 2013
|
|
|
For the Six
Months Ended
June 30, 2013
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) income attributable to Roma Financial Corporation
|
|
$
|
(355,513
|
)
|
|
$
|
1,021,507
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding-basic
|
|
|
29,679,769
|
|
|
|
29,670,649
|
|
|
|
Effect of dilutive stock options outstanding
|
|
|
-
|
|
|
|
131,706
|
|
|
|
Weighted average common shares outstanding-diluted
|
|
|
29,679,769
|
|
|
|
29,802,355
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per share-basic
|
|
$
|
(0.01
|
)
|
|
$
|
0.03
|
|
|
|
Earnings per share-diluted
|
|
$
|
(0.01
|
)
|
|
$
|
0.03
|
|
All stock options outstanding for the three months ended June 30, 2013 were anti-dilutive due to a loss in the period. All unvested restricted stock grants for the three and six months ended June 30, 2013 were anti-dilutive. All stock options outstanding and restricted stock grants for both the three and six months ended June 30, 2012 were anti-dilutive.
NOTE E – STOCK BASED COMPENSATION
Equity Incentive Plan
At the Annual Meeting held on April 23, 2008, stockholders of the Company approved the Roma Financial Corporation 2008 Equity Incentive Plan. The 2008 Plan enables the Board of Directors to grant stock options to executives, other key employees and nonemployee directors. The options granted under the Plan may be either incentive stock options or non-qualified stock options. The Company has reserved 1,292,909 shares of common stock for issuance upon the exercise of options granted under the 2008 Plan and 517,164 shares for grants of restricted stock. The Plan will terminate in ten years from the grant date. Options will be granted with an exercise price not less than the Fair Market Value of a share of Common Stock on the date of the grant. Options may not be granted for a term greater than ten years. Stock options granted under the Incentive Plan are subject to limitations under Section 422 of the Internal Revenue Code. The number of shares available under the 2008 Plan, the number of shares subject to outstanding options and the exercise price of outstanding options will be adjusted to reflect any stock dividend, stock split, merger, reorganization or other event generally affecting the number of Company’s outstanding shares.
At June 30, 2013, there were 526,909 shares available for option grants under the 2008 Plan and 226,499 shares available for grants of restricted stock.
The Company accounts for stock based compensation under FASB ASC Topic 718,
Compensation-Stock Compensation
. ASC Topic 718 covers a wide range of share-based compensation arrangements including share options, restricted share plans, performance-based awards, share appreciation rights, and employee share purchase plans. ASC Topic 718 requires that compensation cost relating to share-based payment transactions be recognized in the financial statements. The cost is measured based on the fair value of the equity or liability instruments issued.
ASC Topic 718 also requires the Company to realize as a financing cash flow rather than an operating cash flow, as previously required, the benefits of realized tax deductions in excess of previously recognized tax benefits on compensation expense. In accordance with SEC Staff Accounting Bulletin (“SAB”) No. 107, the Company classified share-based compensation for employees and outside directors within “salaries and employee benefits” in the consolidated statement of income to correspond with the same line item as the cash compensation paid.
The stock options will vest over a five year service period and are exercisable within ten years. Compensation expense for all option grants is recognized over the awards’ respective requisite service period.
Restricted shares vest over a five year service period. Management recognizes compensation expense for the fair value of restricted shares on a straight-line basis over the requisite service period of the awards of five years. The number of shares granted and the grant date market price of the Company’s common stock determines the fair value of the restricted shares under the Company’s restricted stock plan.
The following is a summary of the status of the Company’s stock option activity and related information for the year ended December 31, 2012 and for the six months ended June 30, 2013:
|
|
|
Number of
Stock Options
|
|
|
Weighted
Avg.
Exercise Price
|
|
Weighted Avg.
Remaining
Contractual
Life
|
|
Aggregate
Intrinsic
Value
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
|
Balance at December 31, 2010
|
|
|
797,200
|
|
|
$
|
13.67
|
|
|
|
|
|
|
Granted
|
|
|
32,000
|
|
|
|
13.67
|
|
|
|
|
|
|
Forfeited
|
|
|
(8,000
|
)
|
|
|
13.67
|
|
|
|
|
|
|
Balance at December 31, 2011
|
|
|
821,200
|
|
|
$
|
13.67
|
|
|
|
|
|
|
Forfeited
|
|
|
(17,200
|
)
|
|
|
13.67
|
|
|
|
|
|
|
Balance at December 31, 2012
|
|
|
804,000
|
|
|
$
|
13.67
|
|
|
|
|
|
|
Forfeited
|
|
|
(38,000
|
)
|
|
|
13.67
|
|
|
|
|
|
|
|
Balance at June 30, 2013
|
|
|
766,000
|
|
|
$
|
13.67
|
|
5.11 years
|
|
$
|
3,439
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at June 30, 2013
|
|
|
746,800
|
|
|
$
|
13.67
|
|
5.02 years
|
|
$
|
3,353
|
|
NOTE E – STOCK BASED COMPENSATION (Continued)
The key valuation assumptions and fair value of stock options granted June 15, 2011 were:
|
|
Expected life
|
|
6.5 years
|
|
|
|
Risk-free rate
|
|
2.26%
|
|
|
|
Volatility
|
|
35.42%
|
|
|
|
Dividend yield
|
|
3.32%
|
|
|
|
Fair value
|
|
$1.70
|
|
The following is a summary of the status of the Company’s restricted shares as of June 30, 2013 and changes during the year ended December 31, 2012 and for the six months ended June 30, 2013:
|
|
|
Number of
Restricted Shares
|
|
|
Weighted
Average Grant
Date Fair Value
|
|
|
|
|
|
|
|
|
|
|
Non-vested restricted shares at December 31, 2011
|
|
|
153,350
|
|
|
$
|
11.70
|
|
|
Vested
|
|
|
(52,542
|
)
|
|
|
12.59
|
|
|
Forfeited
|
|
|
(4,685
|
)
|
|
|
13.67
|
|
|
Non-vested restricted shares at December 31, 2012
|
|
|
96,123
|
|
|
$
|
11.08
|
|
|
Vested
|
|
|
(50,000
|
)
|
|
|
12.89
|
|
|
Granted
|
|
|
6,000
|
|
|
|
16.74
|
|
|
Non-vested restricted shares at June 30, 2013
|
|
|
52,123
|
|
|
$
|
10.04
|
|
Stock option and stock award expenses included in compensation expense were $266,000 and $581,000, respectively, for the three and six months ended June 30, 2013 with respective tax benefits of $106,000 and $232,000; and $302,000 and $615,000 for the three and six months ended June 30, 2012, with respective tax benefits of $121,000 and $246,000. At June 30, 2013, there was approximately $551,000 thousand of unrecognized cost, related to outstanding stock options and restricted shares, which will be recognized over a period of approximately 2.3 years and 3.32 years, respectively.
Equity Incentive Plan – RomAsia Bank
The stockholders of RomAsia Bank approved an equity incentive plan in 2009. On January 6, 2010, directors, senior officers and certain employees of the RomAsia Bank were granted, in the aggregate, options to purchase 75,500 shares of RomAsia common stock.
The Plan enables the Board of Directors of RomAsia Bank to grant stock options to executives, other key employees and nonemployee directors. The options granted under the Plan may be either incentive stock options or non-qualified stock options. RomAsia has reserved 225,000 shares of its common stock for issuance upon the exercise of options granted under the Plan. The Plan will terminate in ten years from the grant date. Options will be granted with an exercise price not less than the Fair Market Value of a share of RomAsia’s Common Stock on the date of the grant. Options may not be granted for a term greater than ten years. The stock options vest over a five year service period and are exercisable within ten years. Stock options granted under the Incentive Plan are subject to limitations under Section 422 of the Internal Revenue Code. The number of shares available under the Plan, the number of shares subject to outstanding options and the exercise price of outstanding options will be adjusted to reflect any stock dividend, stock split, merger, reorganization or other event generally affecting the number of Company’s outstanding shares. At June 30, 2013, there were 114,500 shares available for option grants under the Plan. On March 1, 2012 RomAsia Bank granted 46,500 options. The key valuation assumptions and fair value of stock options granted in March 2012 were:
|
|
Expected life
|
|
6.5 years
|
|
|
|
Risk-free rate
|
|
1.33%
|
|
|
|
Volatility
|
|
28.30%
|
|
|
|
Fair value
|
|
$2.76
|
|
NOTE E – STOCK BASED COMPENSATION (Continued)
The following is a summary of the status of the RomAsia’s stock option activity and related information for the year ended December 31, 2012 and for the six months ended June 30, 2013:
|
|
|
Number of
Stock Options
|
|
|
Weighted
Avg.
Exercise Price
|
|
Weighted Avg.
Remaining
Contractual
Life
|
|
Aggregate
Intrinsic
Value
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
|
Balance at December 31, 2010
|
|
|
75,500
|
|
|
$
|
8.47
|
|
|
|
|
|
|
Forfeited
|
|
|
(9,500
|
)
|
|
|
8.47
|
|
|
|
|
|
|
Balance at December 31, 2011
|
|
|
66,000
|
|
|
|
8.47
|
|
|
|
|
|
|
Forfeited
|
|
|
(7,000
|
)
|
|
|
8.47
|
|
|
|
|
|
|
Granted
|
|
|
46,500
|
|
|
|
8.81
|
|
|
|
|
|
|
Balance at December 31, 2012 and
June 30, 2013
|
|
|
105,500
|
|
|
$
|
8.60
|
|
7.42 years
|
|
$
|
280
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at June 30, 2013
|
|
|
46,700
|
|
|
$
|
8.47
|
|
8.42 years
|
|
$
|
130
|
|
Stock option expense, related to the RomAsia plan included with compensation expense was $16,000 and $31,000, respectively, for the three and six months ended June 30, 2013 with respective tax benefits of $7,000 and $13,000; and $15,000 and $27,000, respectively, for the three months and six months ended June 30, 2012, with respective tax benefits of $7,000 and $12,000. At June 30, 2013, approximately $144,000 of unrecognized cost, related to outstanding stock options, which will be recognized over a period of approximately 2.42 years.
Employee Stock Ownership Plan
Roma Bank has an Employee Stock Ownership Plan (“ESOP”) for the benefit of employees who meet the eligibility requirements defined in the plan. The ESOP trust purchased 811,750 shares of common stock as part of the stock offering using proceeds from a loan from the Company. The total cost of the shares purchased by the ESOP trust was $8.1 million, reflecting a cost of $10 per share. Roma Bank makes cash contributions to the ESOP on a quarterly basis sufficient to enable the ESOP to make the required loan payments to the Company. The loan bears an interest rate of 8.25% with principal and interest payable in equal quarterly installments over a fifteen year period. The loan is secured by the shares of the stock purchased.
Shares purchased with the loan proceeds were initially pledged as collateral for the term loan and are held in a suspense account for future allocation among participants. Contributions to the ESOP and shares released from the suspense account will be allocated among the participants on the basis of compensation, as described by the Plan, in the year of allocation. As shares are committed to be released from collateral, the Company reports compensation expense equal to the current market price of the shares, and the shares become outstanding for earnings per share computations. Roma Bank made its first loan payment in October 2006. As of June 30, 2013, there were 432,938 unearned shares. The Company’s ESOP compensation expense was $230 thousand and $439 thousand, respectively, for the three and six months ended June 30, 2013; and $119 thousand and $257 thousand, respectively, for the three and six months ended June 30, 2012.
RomAsia Bank issued warrants to purchase 150,500 shares of RomAsia Common Stock (the “Warrants”), bearing an exercise price of $10.00 per share, to the Founding Stockholders who subscribed initially for 150,500 shares of RomAsia Common Stock and provided $1,505,000 to pay RomAsia’s organizational expenses. The warrants were issued on June 23, 2008.
The warrants will become exercisable in three equal installments on the first, second and third anniversaries after their respective dates of issuance. Warrants will be convertible into one share of RomAsia Common Stock and will be transferable only in compliance with the Securities Act of 1933, as amended, and applicable state securities laws. RomAsia may redeem the Warrants at a price of $1.00 per Warrant at any time after January 1, 2012 upon 60 days prior written notice to the holders thereof.
The Warrants provide that, in the event that RomAsia’s capital falls below certain minimum requirements, the FDIC or the OCC may require RomAsia to notify the holders of the Warrants that such holders must exercise the Warrants within 30 days of such notice, or such longer period as the FDIC or OCC may prescribe, or forfeit all rights to purchase shares of RomAsia Common Stock under the Warrants after the expiration of such period.
The Warrants expire ten years after being issued. In the event a holder fails to exercise the Warrants prior to their expiration, the Warrants will expire and the holder thereof will have no further rights with respect to the Warrants.
NOTE F – STOCK WARRANTS (Continued)
The Warrant expense for minority shareholders, (8.78% ownership), for the three and six months ended June 30, 2013 and 2012 was $0 for both periods, and respective tax benefits of $0, for both periods. The warrant expense for the majority shareholder, Roma Financial Corporation, was eliminated in consolidation. The warrants were 100% vested at June 30, 2013.
NOTE G - REAL ESTATE OWNED VIA EQUITY INVESTMENTS
In 2008, Roma Bank, together with two individuals, formed 84 Hopewell, LLC. The LLC was formed to build a commercial office building which includes Roma Bank’s Hopewell branch, corporate offices for the other 50% owners’ construction company and tenant space. Roma Bank made a cash investment of approximately $360,000 in the LLC and provided a loan to the LLC in the amount of $3.6 million. Roma Bank and the construction company both have signed lease commitments to the LLC. With the adoption of guidance in regards to variable interest entities now codified in FASB ASC Topic 810,
Consolidation,
the Company is required to perform an analysis to determine whether such an investment meets the criteria for consolidation into the Company’s financial statements. As of June 30, 2013 and December 31, 2012, this variable interest entity met the requirements of ASC Topic 810 for consolidation based on Roma Bank being the primary financial beneficiary. This was determined based on the amount invested by the Bank compared to the other partners to the LLC and the lack of personal guarantees. As of June 30, 2013, the LLC had $3.7 million in fixed assets and a loan from Roma Bank for $3.2 million, which was eliminated in consolidation. The LLC had accrued interest payable to the Bank of $10 thousand at June 30, 2013 and during the six months then ended the Bank paid $65 thousand in rent to the LLC. Both of these amounts were eliminated in consolidation. Roma Bank’s 50% share of the LLC’s net income for the three and six months ended June 30, 2013 was $22 thousand and $18 thousand, respectively.
NOTE H – INVESTMENT AND MORTGAGE-BACKED SECURITIES
The following summarizes the amortized cost and estimated fair value of securities available for sale at June 30, 2013 and December 31, 2012 with gross unrealized gains and losses therein:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In Thousands)
|
|
|
Available for sale:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage-backed securities-U.S. Government
Sponsored Enterprises (GSEs)
|
|
$
|
10,285
|
|
|
$
|
127
|
|
|
$
|
296
|
|
|
$
|
10,116
|
|
|
Obligations of state and political subdivisions:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
After five through ten years
|
|
|
2,500
|
|
|
|
81
|
|
|
|
35
|
|
|
|
2,546
|
|
|
After ten years
|
|
|
1,075
|
|
|
|
86
|
|
|
|
-
|
|
|
|
1,161
|
|
|
|
|
|
3,575
|
|
|
|
167
|
|
|
|
35
|
|
|
|
3,707
|
|
|
U.S. Government (including agencies)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
One through five years
|
|
|
5,235
|
|
|
|
229
|
|
|
|
19
|
|
|
|
5,445
|
|
|
After five through ten years
|
|
|
1,000
|
|
|
|
-
|
|
|
|
21
|
|
|
|
979
|
|
|
After ten years
|
|
|
1,484
|
|
|
|
-
|
|
|
|
68
|
|
|
|
1,416
|
|
|
|
|
|
7,719
|
|
|
|
229
|
|
|
|
108
|
|
|
|
7,840
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate bond
|
|
|
500
|
|
|
|
-
|
|
|
|
-
|
|
|
|
500
|
|
|
Equity securities
|
|
|
50
|
|
|
|
6
|
|
|
|
-
|
|
|
|
56
|
|
|
Mutual funds
|
|
|
4,189
|
|
|
|
-
|
|
|
|
238
|
|
|
|
3,951
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
26,318
|
|
|
$
|
529
|
|
|
$
|
677
|
|
|
$
|
26,170
|
|
NOTE H – INVESTMENT AND MORTGAGE-BACKED SECURITIES (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In Thousands)
|
|
|
Available for sale:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage-backed securities-U.S. Government Sponsored Enterprises (GSEs)
|
|
$
|
12,115
|
|
|
$
|
327
|
|
|
$
|
163
|
|
|
$
|
12,279
|
|
|
Obligations of state and political
subdivisions:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
After five through ten years
|
|
|
1,994
|
|
|
|
127
|
|
|
|
2
|
|
|
|
2,119
|
|
|
After ten years
|
|
|
1,583
|
|
|
|
198
|
|
|
|
-
|
|
|
|
1,781
|
|
|
|
|
|
3,577
|
|
|
|
325
|
|
|
|
2
|
|
|
|
3,900
|
|
|
U.S. Government (including
agencies):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
One through five years
|
|
|
3,102
|
|
|
|
116
|
|
|
|
-
|
|
|
|
3,218
|
|
|
After five through ten years
|
|
|
3,664
|
|
|
|
229
|
|
|
|
-
|
|
|
|
3,893
|
|
|
After ten years
|
|
|
1,516
|
|
|
|
21
|
|
|
|
-
|
|
|
|
1,537
|
|
|
|
|
|
8,282
|
|
|
|
366
|
|
|
|
-
|
|
|
|
8,648
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate bond
|
|
|
1,000
|
|
|
|
9
|
|
|
|
18
|
|
|
|
991
|
|
|
Equity securities
|
|
|
50
|
|
|
|
6
|
|
|
|
-
|
|
|
|
56
|
|
|
Mutual funds
|
|
|
3,134
|
|
|
|
-
|
|
|
|
87
|
|
|
|
3,047
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
28,158
|
|
|
$
|
1,033
|
|
|
$
|
270
|
|
|
$
|
28,921
|
|
NOTE H – INVESTMENT AND MORTGAGE-BACKED SECURITIES (Continued)
The unrealized losses, categorized by the length of time of continuous loss position, and the fair value of related securities available for sale at June 30, 2013 and December 31, 2012 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In Thousands)
|
|
|
June 30, 2013:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage-backed securities-GSEs
|
|
$
|
3,532
|
|
|
$
|
92
|
|
|
$
|
2,146
|
|
|
$
|
204
|
|
|
$
|
5,678
|
|
|
$
|
295
|
|
|
U.S. Government securities
|
|
|
3,376
|
|
|
|
108
|
|
|
|
-
|
|
|
|
-
|
|
|
|
3,376
|
|
|
|
108
|
|
|
Obligations of state and political subdivisions
|
|
|
463
|
|
|
|
35
|
|
|
|
-
|
|
|
|
-
|
|
|
|
463
|
|
|
|
35
|
|
|
Mutual funds
|
|
|
973
|
|
|
|
37
|
|
|
|
2,977
|
|
|
|
201
|
|
|
|
3,950
|
|
|
|
238
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
8,344
|
|
|
$
|
272
|
|
|
$
|
5,123
|
|
|
$
|
405
|
|
|
$
|
13,467
|
|
|
$
|
677
|
|
|
December 31, 2012:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage-backed securities-GSEs
|
|
$
|
72
|
|
|
$
|
2
|
|
|
$
|
2,645
|
|
|
$
|
161
|
|
|
$
|
2,717
|
|
|
$
|
163
|
|
|
Obligation of state and political subdivisions
|
|
|
496
|
|
|
|
2
|
|
|
|
-
|
|
|
|
-
|
|
|
|
496
|
|
|
|
2
|
|
|
Corporate bond
|
|
|
-
|
|
|
|
-
|
|
|
|
482
|
|
|
|
18
|
|
|
|
482
|
|
|
|
18
|
|
|
Mutual funds
|
|
|
-
|
|
|
|
-
|
|
|
|
3,048
|
|
|
|
87
|
|
|
|
3,048
|
|
|
|
87
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
568
|
|
|
$
|
4
|
|
|
$
|
6,175
|
|
|
$
|
266
|
|
|
$
|
6,743
|
|
|
$
|
270
|
|
Management evaluates securities for other-than-temporary-impairment (“OTTI”) at least on a quarterly basis, and more frequently when economic or market conditions warrant such an evaluation.
In determining OTTI under the ASC Topic 320, management considers many factors, including: (1) the length of time and the extent to which the fair value has been less than amortized cost; (2) the financial condition and near term prospects of the issuer; (3) whether the market decline was affected by macroeconomic conditions, and (4) whether the entity has the intent to sell the debt security or more likely than not will be required to sell the debt security before its anticipated recovery. The assessment of whether an other-than-temporary-impairment decline exists involves a high degree of subjectivity and judgment and is based on information available to management at a point in time. An OTTI is deemed to have occurred if there has been an adverse change in the remaining expected future cash flows.
When OTTI for debt securities, occurs under the model, the amount of the OTTI recognized in earnings depends on whether an entity intends to sell the security or more likely than not will be required to sell the security before recovery of its amortized cost basis. If an entity intends to sell or more likely than not will be required to sell the security before recovery of its amortized cost basis, the OTTI shall be recognized in earnings equal to the entire difference between the investment’s amortized cost basis and its fair value at the balance sheet date. If any entity does not intend to sell the security and it is not more likely than not that the entity will be required to sell the security before recovery of its amortized cost basis, the OTTI shall be separated into the amount representing the credit loss and the amount related to all other factors. The amount of the total OTTI related to the credit loss is determined based on the present value of cash flows expected to be collected and is recognized in earnings. The amount of the total OTTI related to other factors shall be recognized in other comprehensive income, net of applicable tax benefit. The previous amortized cost basis less the OTTI recognized in earnings shall become the new amortized cost basis of the investment.
NOTE H – INVESTMENT AND MORTGAGE-BACKED SECURITIES (Continued)
As of June 30, 2013, the Company’s available for sale portfolio in an unrealized loss position consisted of thirty-six securities. There was one mutual fund, and twenty-one mortgage-backed securities in an unrealized loss position for more than twelve months at June 30, 2013. As of June 30, 2013, there was one mutual fund, one municipal, three government agencies, and nine mortgage backed securities in an unrealized loss position for less than twelve months. As of December 31, 2012, the Company’s available for sale portfolio in an unrealized loss position consisted of twenty-nine securities. There was one mutual fund, one corporate bond, and nineteen mortgage backed securities in an unrealized loss position for more than twelve months at December 31, 2012. There were three mortgage-backed securities, one corporate bond and four government agencies in a loss position for less than twelve months at December 31, 2012.
The available for sale mutual funds are CRA investments that had an unrealized loss for more than twelve months of approximately $201 thousand and $87 thousand at June 30, 2013 and December 31, 2012, respectively. They have been in a loss position for the last two years with the greatest unrealized loss being approximately $201 thousand. Management does not believe the mutual fund securities available for sale are other-than-temporarily impaired due to reasons of credit quality. Unrealized losses in the mortgage-backed securities and corporate bond categories are due to the current interest rate environment and not due to credit concerns. The Company does not intend to sell these securities and it is not more likely than not that we will be required to sell these securities. As of June 30, 2013, management believes the impairments are temporary and no impairment loss has been realized in the Company’s consolidated income statement for the six months ended June 30, 2013.
Proceeds from the sale of securities were $500 thousand with a $1 thousand gain for sale during the six months ended June 30, 2013. Proceeds from the sale of securities available for sale amounted to $1.0 for both the three and six months ended June 30, 2012, with gross realized gains of $13 thousand, and gross realized losses of $-0- thousand.
The amortized cost and estimated fair value of securities available for sale at June 30, 2013 by contractual maturity are shown below. Expected maturities will differ from contractual maturities as borrowers may have the right to call or prepay obligations with or without call or prepayment penalties:
|
|
|
Amortized Cost
|
|
|
Fair Value
|
|
|
|
|
(in Thousands)
|
|
|
|
|
|
|
|
|
|
|
U.S. Government, Obligations of Political Subdivisions and Corporate bond:
|
|
|
|
|
|
|
|
After one to five years
|
|
$
|
5,235
|
|
|
$
|
5,445
|
|
|
After five to ten years
|
|
|
4,000
|
|
|
|
4,025
|
|
|
After ten years
|
|
|
2,559
|
|
|
|
2,577
|
|
|
Total
|
|
|
11,794
|
|
|
|
12,047
|
|
|
Mortgage-backed securities
|
|
|
10,285
|
|
|
|
10,116
|
|
|
Equity securities
|
|
|
50
|
|
|
|
56
|
|
|
Mutual funds
|
|
|
4,189
|
|
|
|
3,951
|
|
|
Total
|
|
$
|
26,318
|
|
|
$
|
26,170
|
|
NOTE H – INVESTMENT AND MORTGAGE-BACKED SECURITIES (Continued)
The following summarizes the amortized cost and estimated fair value of securities held to maturity at June 30, 2013 and December 31, 2012 with gross unrealized gains and losses therein:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In Thousands)
|
|
|
Held to maturity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Government (including agencies):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
After one through five years
|
|
$
|
61,216
|
|
|
$
|
-
|
|
|
$
|
1,363
|
|
|
$
|
59,853
|
|
|
After five through ten years
|
|
|
16,991
|
|
|
|
-
|
|
|
|
645
|
|
|
|
16,346
|
|
|
After ten years
|
|
|
1,000
|
|
|
|
-
|
|
|
|
27
|
|
|
|
973
|
|
|
|
|
|
79,207
|
|
|
|
-
|
|
|
|
2,035
|
|
|
|
77,172
|
|
|
Obligations of state and political subdivisions:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less than one year
|
|
|
60
|
|
|
|
1
|
|
|
|
-
|
|
|
|
61
|
|
|
After one through five years
|
|
|
3,683
|
|
|
|
199
|
|
|
|
-
|
|
|
|
3,882
|
|
|
After five through ten years
|
|
|