SENECA FINANCIAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL
CONDITION
(Dollars in thousands)
|
|
Years Ended December 31,
|
|
|
|
2019
|
|
|
2018
|
|
ASSETS
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
3,094
|
|
|
$
|
3,470
|
|
Securities, available-for-sale
|
|
|
27,959
|
|
|
|
26,174
|
|
Loans, net of allowance for loan losses of $1,241 and $1,234
|
|
|
164,388
|
|
|
|
154,650
|
|
Federal Home Loan Bank of New York stock, at cost
|
|
|
2,820
|
|
|
|
2,622
|
|
Accrued interest receivable
|
|
|
799
|
|
|
|
771
|
|
Premises and equipment, net
|
|
|
5,414
|
|
|
|
3,445
|
|
Bank owned life insurance
|
|
|
2,492
|
|
|
|
2,438
|
|
Pension asset
|
|
|
2,831
|
|
|
|
1,250
|
|
Other assets
|
|
|
441
|
|
|
|
487
|
|
Total assets
|
|
$
|
210,238
|
|
|
$
|
195,307
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS' EQUITY
|
|
|
|
|
|
|
|
|
LIABILITIES
|
|
|
|
|
|
|
|
|
Deposits:
|
|
|
|
|
|
|
|
|
Non-interest bearing
|
|
$
|
16,719
|
|
|
$
|
13,201
|
|
Interest bearing
|
|
|
135,192
|
|
|
|
130,774
|
|
Total Deposits
|
|
|
151,911
|
|
|
|
143,975
|
|
Federal Home Loan Bank advances
|
|
|
32,900
|
|
|
|
28,350
|
|
Advances from borrowers for taxes and insurance
|
|
|
2,234
|
|
|
|
2,127
|
|
Other liabilities
|
|
|
2,124
|
|
|
|
1,444
|
|
Total liabilities
|
|
|
189,169
|
|
|
|
175,896
|
|
STOCKHOLDERS' EQUITY
|
|
|
|
|
|
|
|
|
Preferred stock, $0.01 par value, 1,000,000 shares authorized and unissued
|
|
|
|
|
|
|
|
|
Common stock, $0.01 par value, 19,000,000 shares authorized, 1,978,923 shares issued and 1,912,959 shares outstanding at December 31, 2019 and 1,978,923 shares issued and outstanding at December 31, 2018
|
|
|
|
|
|
|
|
|
|
|
|
9
|
|
|
|
9
|
|
Additional paid-in capital
|
|
|
7,858
|
|
|
|
7,846
|
|
Treasury stock, at cost (65,964 shares at December 31, 2019)
|
|
|
(579
|
)
|
|
|
-
|
|
Retained earnings
|
|
|
16,604
|
|
|
|
15,487
|
|
Unearned ESOP shares, at cost
|
|
|
(725
|
)
|
|
|
(747
|
)
|
Accumulated other comprehensive loss
|
|
|
(2,098
|
)
|
|
|
(3,184
|
)
|
Total stockholders' equity
|
|
|
21,069
|
|
|
|
19,411
|
|
Total liabilities and stockholders' equity
|
|
$
|
210,238
|
|
|
$
|
195,307
|
|
The accompanying notes are an integral part
of these consolidated financial statements.
SENECA FINANCIAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Dollars in thousands, except for share
data)
|
|
Years Ended December 31,
|
|
|
|
2019
|
|
|
2018
|
|
INTEREST INCOME
|
|
|
|
|
|
|
|
|
Loans, including fees
|
|
$
|
7,862
|
|
|
$
|
6,889
|
|
Securities
|
|
|
883
|
|
|
|
779
|
|
Other
|
|
|
24
|
|
|
|
34
|
|
Total interest income
|
|
|
8,769
|
|
|
|
7,702
|
|
INTEREST EXPENSE
|
|
|
|
|
|
|
|
|
Deposits
|
|
|
1,721
|
|
|
|
1,264
|
|
Advances and borrowings
|
|
|
852
|
|
|
|
654
|
|
Total interest expense
|
|
|
2,573
|
|
|
|
1,918
|
|
Net interest income
|
|
|
6,196
|
|
|
|
5,784
|
|
PROVISION FOR LOAN LOSSES
|
|
|
242
|
|
|
|
10
|
|
Net interest income after provision for loan losses
|
|
|
5,954
|
|
|
|
5,774
|
|
NON-INTEREST INCOME
|
|
|
|
|
|
|
|
|
Service fees
|
|
|
132
|
|
|
|
135
|
|
Income from financial services
|
|
|
300
|
|
|
|
268
|
|
Fee income
|
|
|
293
|
|
|
|
183
|
|
Earnings on bank-owned life insurance
|
|
|
54
|
|
|
|
56
|
|
Net gains on sales of available-for-sale securities
|
|
|
7
|
|
|
|
-
|
|
Net gains on sale of fixed assets
|
|
|
9
|
|
|
|
-
|
|
Net gains on sale of residential mortgage loans
|
|
|
60
|
|
|
|
30
|
|
Total non-interest income
|
|
|
855
|
|
|
|
672
|
|
NON-INTEREST EXPENSE
|
|
|
|
|
|
|
|
|
Compensation and employee benefits
|
|
|
3,004
|
|
|
|
3,073
|
|
Core processing
|
|
|
714
|
|
|
|
724
|
|
Premises and equipment
|
|
|
556
|
|
|
|
483
|
|
Professional fees
|
|
|
374
|
|
|
|
356
|
|
Postage & office supplies
|
|
|
109
|
|
|
|
118
|
|
FDIC premiums
|
|
|
25
|
|
|
|
37
|
|
Advertising
|
|
|
210
|
|
|
|
191
|
|
Mortgage recording tax
|
|
|
(101
|
)
|
|
|
(120
|
)
|
Director fees
|
|
|
139
|
|
|
|
131
|
|
Other
|
|
|
390
|
|
|
|
422
|
|
Total non-interest expense
|
|
|
5,420
|
|
|
|
5,415
|
|
Income before provision for income taxes
|
|
|
1,389
|
|
|
|
1,031
|
|
PROVISION FOR INCOME TAXES
|
|
|
272
|
|
|
|
181
|
|
Net income
|
|
$
|
1,117
|
|
|
$
|
850
|
|
|
|
|
|
|
|
|
|
|
Net income per common shares - basic and diluted
|
|
$
|
0.60
|
|
|
$
|
0.45
|
|
Weighted average number of common shares outstanding - basic and diluted
|
|
|
1,863,957
|
|
|
|
1,904,516
|
|
The
accompanying notes are an integral part of these consolidated financial statements.
SENECA FINANCIAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE
INCOME
(Dollars in thousands)
|
|
Years Ended December 31,
|
|
|
|
2019
|
|
|
2018
|
|
|
|
|
|
|
|
|
NET INCOME
|
|
$
|
1,117
|
|
|
$
|
850
|
|
|
|
|
|
|
|
|
|
|
OTHER COMPREHENSIVE INCOME, BEFORE TAX
|
|
|
|
|
|
|
|
|
Available-for-sale securities:
|
|
|
|
|
|
|
|
|
Unrealized holding gains (losses) arising during period
|
|
|
794
|
|
|
|
(290
|
)
|
Less reclassification adjustment for net gains included in net income
|
|
|
(7
|
)
|
|
|
-
|
|
Net unrealized gains (losses) on available-for-sale securities
|
|
|
787
|
|
|
|
(290
|
)
|
|
|
|
|
|
|
|
|
|
Defined benefit pension plan:
|
|
|
|
|
|
|
|
|
Net gains arising during the period
|
|
|
484
|
|
|
|
253
|
|
Less reclassification of amortization of net losses recognized in net pension expense
|
|
|
103
|
|
|
|
209
|
|
Net changes in defined benefit pension plan
|
|
|
587
|
|
|
|
462
|
|
|
|
|
|
|
|
|
|
|
OTHER COMPREHENSIVE INCOME, BEFORE TAX
|
|
|
1,374
|
|
|
|
172
|
|
|
|
|
|
|
|
|
|
|
Tax effect
|
|
|
288
|
|
|
|
36
|
|
|
|
|
|
|
|
|
|
|
OTHER COMPREHENSIVE INCOME, NET OF TAX
|
|
|
1,086
|
|
|
|
136
|
|
|
|
|
|
|
|
|
|
|
TOTAL COMPREHENSIVE INCOME
|
|
$
|
2,203
|
|
|
$
|
986
|
|
The accompanying notes are an integral part
of these consolidated financial statements.
SENECA FINANCIAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’
EQUITY
FOR THE YEARS ENDED DECEMBER 31, 2019
AND 2018
(Dollars in thousands)
|
|
|
|
|
Additional
|
|
|
|
|
|
|
|
|
Unearned
|
|
|
Accumulated Other
|
|
|
|
|
|
|
Common
|
|
|
Paid-In
|
|
|
Treasury
|
|
|
Retained
|
|
|
ESOP
|
|
|
Comprehensive
|
|
|
Total
|
|
|
|
Stock
|
|
|
Capital
|
|
|
Stock
|
|
|
Earnings
|
|
|
Shares
|
|
|
Loss
|
|
|
Equity
|
|
BALANCE,
JANUARY 1, 2018
|
|
$
|
9
|
|
|
$
|
7,846
|
|
|
$
|
-
|
|
|
$
|
14,637
|
|
|
$
|
(770
|
)
|
|
$
|
(3,320
|
)
|
|
$
|
18,402
|
|
Net income
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
850
|
|
|
|
-
|
|
|
|
-
|
|
|
|
850
|
|
Other comprehensive
income
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
136
|
|
|
|
136
|
|
ESOP
shares committed to be released (2,586 shares)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
23
|
|
|
|
-
|
|
|
|
23
|
|
BALANCE,
DECEMBER 31, 2018
|
|
$
|
9
|
|
|
$
|
7,846
|
|
|
$
|
-
|
|
|
$
|
15,487
|
|
|
$
|
(747
|
)
|
|
$
|
(3,184
|
)
|
|
$
|
19,411
|
|
Net income
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,117
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,117
|
|
Other comprehensive
income
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,086
|
|
|
|
1,086
|
|
ESOP shares
committed to be released (2,586 shares)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
22
|
|
|
|
-
|
|
|
|
22
|
|
Stock-based
compensation
|
|
|
-
|
|
|
|
12
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
12
|
|
Purchase
of treasury shares at cost (65,964 shares)
|
|
|
-
|
|
|
|
-
|
|
|
|
(579
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(579
|
)
|
BALANCE,
DECEMBER 31, 2019
|
|
$
|
9
|
|
|
$
|
7,858
|
|
|
$
|
(579
|
)
|
|
$
|
16,604
|
|
|
$
|
(725
|
)
|
|
$
|
(2,098
|
)
|
|
$
|
21,069
|
|
The accompanying notes are an integral part
of these consolidated financial statements.
SENECA FINANCIAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
|
|
Year Ended December 31,
|
|
|
|
2019
|
|
|
2018
|
|
CASH FLOWS FROM OPERATING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
1,117
|
|
|
$
|
850
|
|
Adjustments to reconcile net income to net cash flow from operating activities:
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
253
|
|
|
|
199
|
|
Provision for loan losses
|
|
|
242
|
|
|
|
10
|
|
Net amortization of premiums and discounts on securities
|
|
|
205
|
|
|
|
254
|
|
Gain on sale of residential mortgage loans
|
|
|
(60
|
)
|
|
|
(30
|
)
|
Proceeds from sale of residential mortgage loans
|
|
|
2,960
|
|
|
|
4,912
|
|
Loans originated and sold
|
|
|
(2,900
|
)
|
|
|
(4,882
|
)
|
Deferred income tax expense
|
|
|
172
|
|
|
|
169
|
|
Gain on sale of available-for-sale securities
|
|
|
(7
|
)
|
|
|
-
|
|
Gain on sale of fixed assets
|
|
|
(9
|
)
|
|
|
-
|
|
Amortization of deferred loan fees
|
|
|
54
|
|
|
|
89
|
|
ESOP compensation expense
|
|
|
22
|
|
|
|
23
|
|
Stock based compensation expense
|
|
|
12
|
|
|
|
-
|
|
Earnings on investment in bank owned life insurance
|
|
|
(54
|
)
|
|
|
(56
|
)
|
Increase in accrued interest receivable
|
|
|
(28
|
)
|
|
|
(105
|
)
|
Decrease in other assets
|
|
|
46
|
|
|
|
52
|
|
Decrease in pension liability
|
|
|
-
|
|
|
|
(55
|
)
|
Increase in pension asset
|
|
|
(1,282
|
)
|
|
|
(824
|
)
|
Increase (decrease) in other liabilities
|
|
|
508
|
|
|
|
(389
|
)
|
Net cash flow provided by operating activities
|
|
|
1,251
|
|
|
|
217
|
|
CASH FLOWS FROM INVESTING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Activity in securities available-for-sale
|
|
|
|
|
|
|
|
|
Proceeds from calls and maturities
|
|
|
780
|
|
|
|
-
|
|
Proceeds from sales
|
|
|
5,878
|
|
|
|
-
|
|
Principal repayments
|
|
|
1,842
|
|
|
|
2,422
|
|
Purchases
|
|
|
(9,697
|
)
|
|
|
(7,043
|
)
|
Purchase of Federal Home Loan Bank of New York stock
|
|
|
(2,062
|
)
|
|
|
(1,479
|
)
|
Redemption of Federal Home Loan Bank of New York stock
|
|
|
1,864
|
|
|
|
1,197
|
|
Loan originations and principal collections, net
|
|
|
(10,034
|
)
|
|
|
(13,600
|
)
|
Proceeds from sale of fixed assets
|
|
|
9
|
|
|
|
-
|
|
Purchases of premises and equipment
|
|
|
(2,221
|
)
|
|
|
(1,018
|
)
|
Net cash flow used in investing activities
|
|
|
(13,641
|
)
|
|
|
(19,521
|
)
|
CASH FLOWS FROM FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Increase in deposits
|
|
|
7,936
|
|
|
|
14,379
|
|
Increase in advances from borrowers for taxes and insurance
|
|
|
107
|
|
|
|
170
|
|
Purchase of treasury stock
|
|
|
(579
|
)
|
|
|
-
|
|
Repayments on long-term FHLB advances
|
|
|
(11,600
|
)
|
|
|
(2,100
|
)
|
Proceeds from long-term FHLB advances
|
|
|
18,850
|
|
|
|
2,350
|
|
(Decrease) Increase in short-term FHLB advances
|
|
|
(2,700
|
)
|
|
|
3,600
|
|
Net cash flow provided by financing activities
|
|
|
12,014
|
|
|
|
18,399
|
|
Net change in cash and cash equivalents
|
|
|
(376
|
)
|
|
|
(905
|
)
|
CASH AND CASH EQUIVALENTS - beginning of year
|
|
|
3,470
|
|
|
|
4,375
|
|
CASH AND CASH EQUIVALENTS - end of year
|
|
$
|
3,094
|
|
|
$
|
3,470
|
|
SUPPLEMENTAL CASH FLOW INFORMATION
|
|
|
|
|
|
|
|
|
Cash paid for:
|
|
|
|
|
|
|
|
|
Interest on deposits and borrowed funds
|
|
$
|
2,526
|
|
|
$
|
1,918
|
|
Income taxes
|
|
$
|
53
|
|
|
$
|
30
|
|
The accompanying notes are an integral part
of these consolidated financial statements.
SENECA FINANCIAL CORP. AND SUBSIDIARIES
Notes
to the consolidated Financial Statements
FOR
THE years ended december 31, 2019 and 2018
1. THE ORGANIZATION
Seneca Financial Corp. (the “Company”)
is a federally chartered mid-tier stock holding company and was formed in connection with the conversion of Seneca Federal Savings
and Loan Association (the “Bank”) into the mutual holding company form of organization in October 2017, and it is a
subsidiary of Seneca Financial MHC (the “Mutual Holding Company”), a federally chartered mutual holding company. The
Mutual Holding Company owned 1,068,618 shares, or 54.0%, of the Company’s issued stock at the time of the reorganization.
In connection with the reorganization, Seneca Financial Corp. sold 910,305 shares of common stock to the public at $10.00 per share,
representing 46% of its outstanding shares of common stock at the time of the reorganization. The Mutual Holding Company activity
is not included in the accompanying consolidated financial statements. Seneca Savings, formerly known as Seneca Federal Savings
and Loan Association, is a wholly owned subsidiary of the Company. The same directors and officers, who manage the Bank, also manage
the Company and the Mutual Holding Company.
Seneca Savings maintains its executive offices
and main branch in Baldwinsville, New York, with branches in Liverpool, North Syracuse and Bridgeport, New York. The Bank is a
community-oriented savings and loan institution whose business primarily consists of accepting deposits from customers within its
market area and investing those funds primarily in residential and commercial mortgage loans.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The consolidated financial statements include
the accounts of the Company, the Bank and the Bank’s wholly-owned subsidiary, Seneca Savings Insurance Agency, Inc. dba Financial
Quest (“Quest”). Quest offers financial planning and investment advisory services and sells various insurance and investment
products through broker networks. All significant intercompany transactions and balances have been eliminated in consolidation.
The Company, as used in the consolidated financial statements, refers to the consolidated group.
Comprehensive Income
Accounting principles generally require that
recognized revenue, expenses, gains, and losses be included in earnings. Although certain changes in assets and liabilities, such
as unrealized gains and losses on available-for-sale securities and our defined benefit program, are reported as a separate component
of the equity section of the consolidated statements of financial condition, such items, along with net income, are components
of comprehensive income.
Use of Estimates
The preparation of consolidated financial
statements in conformity with accounting principles generally accepted in the United States of America (“GAAP”) requires
management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent
assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenue and expense during
the reporting period. Actual results could differ from those estimates. Material estimates that are particularly susceptible to
significant changes in the near term relate to the determination of the allowance for loan losses, deferred tax assets, the assumptions
used in the actuarial valuation and the estimation of fair values for accounting and disclosure purposes.
The Company is subject to the regulations
of various governmental agencies. The Company also undergoes periodic examinations by the regulatory agencies which may subject
it to further changes with respect to asset valuations, amounts of required loss allowances, and operating restrictions resulting
from the regulators’ judgements based on information available to them at the time of their examinations.
SENECA FINANCIAL CORP. AND SUBSIDIARIES
Notes
to the consolidated Financial Statements
FOR
THE years ended december 31, 2019 and 2018
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES — (Continued)
Emerging Growth
The Company, as an emerging growth company,
has elected to use the extended transition period for complying with any new or revised financial accounting standards provided
pursuant to Section 13(a) of the Exchange Act.
Cash and Cash Equivalents
For the purposes of the consolidated statements
of cash flows, cash and cash equivalents include cash and amounts due from banks and interest-bearing deposits in the Federal Home
Loan Bank of New York with original maturities of three months or less.
Securities
The Company classifies investment securities
as available-for-sale. The Company does not hold any securities considered to be trading or held to maturity. Available-for-sale
securities are reported at fair value, with net unrealized gains and losses reflected as a separate component of stockholders’
equity, net of the applicable income tax effect.
Gains or losses on investment security transactions
are based on the amortized cost of the specific securities sold. Premiums and discounts on securities are amortized and accreted
into income using the interest method over the period to maturity or earliest call date.
When the fair value of an available-for-sale
security is less than its amortized cost basis, an assessment is made at the balance sheet date as to whether other-than-temporary
impairment (“OTTI”) is present. The Company considers numerous factors when determining whether potential OTTI exists
and the period over which the debt security is expected to recover. The principal factors considered are (1) the length of time
and the extent to which the fair value has been less than amortized cost basis, (2) the financial condition of the issuer (and
guarantor, if any) and adverse conditions specifically related to the security industry or geographic area, (3) failure of the
issuer of the security to make scheduled interest or principal payments, (4) any changes to the rating of a security by a rating
agency, and (5) the presence of credit enhancements, if any, including the guarantee of the federal government or any of its agencies.
For debt securities, OTTI is considered to
have occurred if (1) the Company intends to sell the security, (2) it is more likely than not the Company will be required
to sell the security before recovery of its amortized cost basis, or (3) if the present value of expected cash flows is not sufficient
to recover the entire amortized cost basis or carrying value.
For debt securities, credit-related OTTI
is recognized in earnings while noncredit-related OTTI on securities not expected to be sold is recognized in other comprehensive
income (loss). Credit-related OTTI is measured as the difference between the present value of an impaired security’s expected
cash flows and its amortized cost basis or carrying value. Noncredit-related OTTI is measured as the difference between the fair
value of the security and its amortized cost, or carrying value, less any credit-related losses recognized.
SENECA FINANCIAL CORP. AND SUBSIDIARIES
Notes
to the consolidated Financial Statements
FOR
THE years ended december 31, 2019 and 2018
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES — (Continued)
Investment securities are exposed to various
risks such as interest rate, market, and credit risks. Due to the level of risk associated with certain investment securities,
it is at least reasonably possible that changes in the values of investment securities will occur in the near term and that such
changes could materially affect the amounts reported in the accompanying consolidated financial statements.
Federal Home Loan Bank of New York Stock
Federal law requires a member institution
of the Federal Home Loan Bank System to hold stock of its district Federal Home Loan Bank (“FHLB”) according to a predetermined
formula. This restricted stock is carried at cost.
Management’s determination of whether
this investment is impaired is based on their assessment of the ultimate recoverability of its cost rather than by recognizing
temporary declines in value. The determination of whether a decline affects the ultimate recoverability of cost is influenced by
criteria such as (1) the significance of the decline in net assets of the FHLB as compared to the capital stock amount for the
FHLB and the length of time this situation has persisted, (2) commitments by the FHLB to make payments required by law or regulation
and the level of such payments in relation to the operating performance of the FHLB, and (3) the impact of legislative and regulatory
changes on institutions and, accordingly, on the customer base of the FHLB.
Loans
The Company grants mortgage, commercial and
consumer loans to customers. A substantial portion of the loan portfolio is represented by residential mortgage loans in Onondaga
County located in Upstate New York. The ability of the Company’s debtors to honor their contracts is dependent upon the real
estate market and general economic conditions in these areas.
Loans that management has the intent and
ability to hold for the foreseeable future or until maturity or pay-off are reported at their unpaid principal balances, less the
allowance for loan losses and net deferred fees or costs on originated loans. Interest income is generally recognized when income
is earned using the interest method. Loan origination and commitment fees, as well as certain direct origination costs, are deferred
and amortized over the life of the loan using the interest method, resulting in a constant effective yield over the loan term.
Deferred fees are recognized in income and deferred costs are charged to income immediately upon prepayment of the related loan.
The loans receivable portfolio is segmented
into mortgage loans on real estate, commercial and industrial loans, and consumer loans. The mortgage loans on real estate segment
consists of the following classes of loans: one-to-four family first-lien residential mortgages, residential construction, home
equity loans and lines of credit, and commercial loans. Consumer loans includes home equity lines of credit on real estate, loans
with junior liens and other consumer loans.
Mortgage loans on real estate:
|
•
|
One- to four-family first-lien residential — are loans secured by first lien collateral on residential
real estate primarily held in the Western New York region. These loans can be affected by economic conditions and the value of
underlying properties. Western New York’s housing market has consistently demonstrated stability in home prices despite economic
conditions. Furthermore, the Company has conservative underwriting standards and its residential lending policies and procedures
ensure that its one- to four-family residential mortgage loans generally conform to secondary market guidelines.
|
|
•
|
Residential Construction — are loans to finance the construction of either one- to four-family owner
occupied homes or commercial real estate. At the end of the construction period, the loan automatically converts to either a one-
to four-family or commercial mortgage, as applicable. Risk of loss on a construction loan depends largely upon the accuracy of
the initial estimate of the value of the property at completion compared to the actual cost of construction. The Company limits
its risk during construction as disbursements are not made until the required work for each advance has been completed and an updated
lien search is performed. The completion of the construction progress is verified by a Company loan officer or inspections performed
by an independent appraisal firm. Construction delays may impair the borrower’s ability to repay the loan.
|
SENECA FINANCIAL CORP. AND SUBSIDIARIES
Notes
to the consolidated Financial Statements
FOR
THE years ended december 31, 2019 and 2018
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES — (Continued)
|
•
|
Home equity loans and lines of credit — are loans or lines of credit secured by first or second
liens on owner-occupied residential real estate primarily held in the Western New York region. These loans can also be affected
by economic conditions and the values of underlying properties.
|
Home equity loans may have increased risk of loss
if the Company does not hold the first mortgage resulting in the Company being in a secondary position in the event of collateral
liquidation. The Company does not originate interest only home equity loans.
|
•
|
Commercial — are loans used to finance the purchase of real property, which generally consists of
developed real estate that is held as first lien collateral for the loan. These loans are secured by real estate properties that
are primarily held in the Western New York region. Commercial real estate lending involves additional risks compared with one-
to four-family residential lending, because payments on loans secured by commercial real estate properties are often dependent
on the successful operation or management of the properties, and/or the collateral value of the commercial real estate securing
the loan, and repayment of such loans may be subject to adverse conditions in the real estate market or economic conditions to
a greater extent than one- to four-family residential mortgage loans. Also, commercial real estate loans typically involve relatively
large loan balances to single borrowers or groups of related borrowers. Accordingly, the nature of these types of loans make them
more difficult for the Company to monitor and evaluate.
|
Commercial and industrial loans:
Includes business installment loans, lines
of credit, and other commercial loans. Most of the Company’s commercial loans have fixed interest rates and are for terms
generally not in excess of 5 years.
Whenever possible, the Company collateralizes
these loans with a lien on business assets and equipment and require the personal guarantees from principals of the borrower. Commercial
loans generally involve a higher degree of credit risk because the collateral underlying the loans may be in the form of intangible
assets and/or inventory subject to market obsolescence. Commercial loans can also involve relatively large loan balances to a single
borrower or groups of related borrowers, with the repayment of such loans typically dependent on the successful operation of the
commercial business and the income stream of the borrower. Such risks can be significantly affected by economic conditions. Although
commercial loans may be collateralized by equipment or other business assets, the liquidation of collateral in the event of a borrower
default may be an insufficient source of repayment because the equipment or other business assets may be obsolete or of limited
use, among other things. Accordingly, the repayment of a commercial loan depends primarily on the credit worthiness of the borrowers
(and any guarantors), while liquidation of collateral is a secondary and often insufficient source of repayment.
SENECA FINANCIAL CORP. AND SUBSIDIARIES
Notes
to the consolidated Financial Statements
FOR
THE years ended december 31, 2019 and 2018
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES — (Continued)
Consumer loans:
Consist of loans secured by collateral such
as an automobile or a deposit account, unsecured loans, and lines of credit. Consumer loans tend to have a higher credit risk due
to the loans being either unsecured or secured by rapidly depreciable assets. Furthermore, consumer loan payments are dependent
on the borrower’s continuing financial stability, and therefore are more likely to be adversely affected by job loss, divorce,
illness, or personal bankruptcy.
Loans Held for Sale
Mortgage loans originated and intended for
sale in the secondary market are carried at the lower of cost or market in the aggregate. Net unrealized losses, if any, are recognized
through a valuation allowance by charges to noninterest income. Gains and losses on loan sales are recorded in noninterest income,
and direct loan origination costs and fees are deferred at origination of the loan and are recognized in noninterest income upon
sale of the loan in the consolidated statements of income. We had no loans held for sale at December 31, 2019 and 2018.
Allowance for Loan Losses
The allowance for loan losses represents
management’s estimate of losses inherent in the loan portfolio as of the date of the consolidated statement of financial
condition and it is recorded as a reduction of loans. The allowance is increased by the provision for loan losses, and decreased
by charge-offs, net of recoveries. Loans deemed to be uncollectible are charged against the allowance for loan losses, and subsequent
recoveries, if any, are credited to the allowance. All, or part, of the principal balance of loans receivable are charged off to
the allowance as soon as it is determined that the repayment of all, or part, of the principal balance is highly unlikely. Non-residential
consumer loans are generally charged off no later than 180 days past due on a contractual basis, unless productive collection efforts
are providing results. Consumer loans may be charged off earlier in the event of bankruptcy, or if there is an amount that is deemed
uncollectible. Because all identified losses are immediately charged off, no portion of the allowance for loan losses is restricted
to any individual loan and the entire allowance is available to absorb all loan losses.
The allowance for loan losses is maintained
at a level considered adequate to provide for losses that can be reasonably anticipated. Management performs a quarterly evaluation
of the adequacy of the allowance. The allowance is based on the Company’s past loan loss experience, known and inherent risks
in the portfolio, adverse situations that may affect the borrower’s ability to repay, the estimated value of any underlying
collateral, composition of the loan portfolio, current economic conditions, and other relevant factors. This evaluation is inherently
subjective, as it requires material estimates that may be susceptible to significant revision as more information becomes available.
The allowance consists of specific, general,
and unallocated components. The specific component relates to loans that are classified as impaired. For loans that are classified
impaired, an allowance is established when the discounted cash flows or collateral value of the impaired loan are lower than the
carrying value of that loan.
The general component covers pools of loans,
by loan class, including commercial loans not considered impaired, as well as smaller balance homogenous loans, such as residential
real estate, home equity and other consumer loans. These pools of loans are evaluated for loss exposure based on historical loss
rates for each of these categories of loans, which are adjusted for qualitative factors. The qualitative factors include:
|
•
|
Lending policies and procedures, including underwriting standards and collection, charge-off and recovery practices
|
SENECA FINANCIAL CORP. AND SUBSIDIARIES
Notes
to the consolidated Financial Statements
FOR
THE years ended december 31, 2019 and 2018
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES — (Continued)
|
•
|
National, regional, and local economic and business conditions as well as the condition of various market segments, including
the value of underlying collateral for collateral dependent loans
|
|
•
|
Nature and volume of the portfolio and terms of the loans
|
|
•
|
Experience, ability and depth of the lending management and staff
|
|
•
|
Volume and severity of past due, classified, and non-accrual loans, as well as other loan modifications
|
|
•
|
Quality of the Company’s loan review system and the degree of oversight by the Company’s Board of Directors
|
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 analysis and 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.
A loan is considered impaired when, based
on current information and events, it is probable that the Company will be unable to collect the scheduled payments of principal
or interest when due according to the contractual terms of the loan agreement. Factors considered by management in determining
impairment include payment status, collateral value, and the probability of collecting scheduled principal and interest payments
when due. Loans that experience insignificant payment delays and payment shortfalls generally are not classified as impaired. Management
determines the significance of payment delays and shortfalls on a case-by case basis, taking into consideration all the circumstances
surrounding the loan and the borrower, including the length and reason for the delay, the borrower’s prior payment record
and the amount of shortfall in relation to what is owed. Impairment is measured by either the present value of the expected future
cash flows discounted at the loan’s effective interest rate or the fair value of the underlying collateral if the loan is
collateral dependent.
An allowance for loan loss is established
for an impaired loan if it’s carrying value exceeds its estimated fair value. The estimated fair values of substantially
all the Company’s impaired loans are measured based on the estimated fair value of the loan’s collateral.
For loans secured by real estate, estimated
fair values are determined primarily through third-party appraisals. When a real estate secured loan becomes impaired, a decision
is made regarding whether an updated certified appraisal of the real estate is necessary. This decision is based on various considerations,
including the age of the most recent appraisal, the loan-to-value ratio based on the original appraisal, and the condition of the
property. Appraised values are discounted to arrive at the estimated selling price of the collateral, which is the estimated fair
value. The discounts also include estimated costs to sell the property.
For commercial and industrial loans secured
by non-real estate collateral, such as accounts receivable, inventory and equipment, estimated fair values are determined based
on the borrower’s financial statements, inventory reports, account receivable aging or equipment appraisals or invoices.
Indications of value from these sources are generally discounted based on the age of the financial information or the quality of
the assets.
Large groups of homogeneous loans are collectively
evaluated for impairment. Accordingly, the Company does not separately identify individual residential mortgage loans, home equity
and other consumer loans for impairment disclosures, unless such loans are related to borrowers with impaired commercial loans
or they are the subject to a troubled debt restructuring agreement.
SENECA FINANCIAL CORP. AND SUBSIDIARIES
Notes
to the consolidated Financial Statements
FOR
THE years ended december 31, 2019 and 2018
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES — (Continued)
Loans whose terms are modified are classified
as troubled debt restructurings if the Company grants such borrowers concessions and it is deemed that those borrowers are experiencing
financial difficulty. Concessions granted under a troubled debt restructuring generally involve a temporary reduction in the interest
rate or an extension of a loan’s stated maturity date. Loans classified as troubled debt restructurings are designated as
impaired and evaluated as discussed above.
The allowance estimation methodology includes
further segregation of loan classes into risk rating categories. The borrower’s overall financial condition, repayment sources,
guarantors, and value of the collateral, if appropriate, are evaluated annually for commercial loans or when credit deficiencies
arise on all loans. Credit quality risk ratings include regulatory classifications of special mention, substandard, doubtful and
loss. See Note 4 for a description of these regulatory classifications.
In addition, Federal regulatory agencies,
as an integral part of their examination process, periodically review the Company’s allowance for loan losses and may require
the Company to recognize additions to the allowance based on their judgments about information available to them at the time of
their examination, which may not be currently available to management. Based on management’s comprehensive analysis of the
loan portfolio, management believes the current level of the allowance for loan losses is adequate.
Income Recognition on Impaired and Nonaccrual Loans
For residential and commercial classes of
loans receivable, the accrual of interest is discontinued when the contractual payment of principal or interest has become 90 days
past due or management has serious doubts about further collectability of principal or interest, even though the loan may be currently
performing. For other loan classes of loans receivable, the accrual of interest is discontinued when the contractual payment of
principal or interest has become 90 days past due or management has serious doubts about further collectability of principal or
interest, even though the loan may be currently performing. A loan may remain on accrual status if it is in the process of collection
and is either guaranteed or well secured. When a loan is placed on non-accrual status, unpaid interest is reversed and charged
to interest income. Interest received on non-accrual loans, including impaired loans, generally is either applied against principal
or reported as interest income, according to management’s judgment as to the collectability of principal. Generally, loans
are restored to accrual status when the obligation is brought current, has performed in accordance with the contractual terms for
a reasonable period and the ultimate collectability of the total contractual principal and interest is no longer in doubt. Nonaccrual
troubled debt restructurings are restored to accrual status if principal and interest payments, under the modified terms, are current
for six consecutive months after modification.
For non-accrual loans, when future collectability
of the recorded loan balance is expected, interest income may be recognized on a cash basis. In the case where a non-accrual loan
had been partially charged off, recognition of interest on a cash basis is limited to that which would have been recognized on
the recorded loan balance at the contractual interest rate. Cash interest receipts in excess of that amount are recorded as recoveries
to the allowance for loan losses until prior charge-offs have been fully recovered.
Foreclosed Real Estate
Real estate properties acquired through,
or in lieu of, loan foreclosure are initially recorded at fair value less estimated selling costs at the date of foreclosure establishing
a new cost basis. Any write-downs based on the asset’s fair value at date of acquisition are charged to the allowance for
loan losses. After foreclosure, property held for sale is carried at the lower of the new cost basis or fair value less any costs
to sell. Costs of significant property improvements are capitalized, whereas costs relating to holding property are expensed. Valuations
are periodically performed by management, and any subsequent write-downs are recorded as a charge to earnings, if necessary, to
reduce the carrying value of the property to the lower of its cost or fair value less cost to sell. The Company did not have foreclosed
real estate at December 31, 2019 and December 31, 2018. The Company had residential real estate loans in the process of foreclosure
of $637,000 and $444,000 at December 31, 2019 and 2018, respectively.
SENECA FINANCIAL CORP. AND SUBSIDIARIES
Notes
to the consolidated Financial Statements
FOR
THE years ended december 31, 2019 and 2018
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES — (Continued)
Premises and Equipment
Land is carried at cost. Land improvements,
buildings and building improvements, furniture, fixtures, and equipment are carried at cost, less accumulated depreciation computed
on the straight-line method over the estimated useful lives of the assets. Estimated useful lives are generally seven to 39 years
for buildings and building improvements and three to 10 years for furniture, fixtures, and equipment.
Income Taxes
Income taxes are provided for the tax effects
of certain transactions reported in the consolidated financial statements. Income taxes consist of taxes currently due plus deferred
taxes related primarily to temporary differences between the financial reporting and income tax basis of the allowance for loan
losses, premises and equipment, certain state tax credits, and deferred loan origination costs. The deferred tax assets and liabilities
represent the future tax return consequences of the temporary differences, which will either be taxable or deductible when the
assets and liabilities are recovered or settled. Deferred tax assets are reduced by a valuation allowance when, in the opinion
of management, it is more likely than not that some portion of the deferred tax assets will not be realized. Deferred tax assets
and liabilities are reflected at income tax rates applicable to the period in which the deferred tax assets and liabilities are
expected to be realized or settled. As changes in tax laws or rates are enacted, deferred tax assets and liabilities are adjusted
through the provision for income taxes.
The Company’s Federal and New York
State tax returns, constituting the returns of the major taxing jurisdictions, are subject to examination by the authorities for
2016, 2017 and 2018 as prescribed by applicable statute. No waivers have been executed that would extend the period subject to
examination beyond the period prescribed by statute.
Advertising
The Company charges the costs associated
with advertising to expense as incurred. Advertising expenses charged to operations for the years ended December 31, 2019 and 2018
was $210,000 and $191,000, respectively.
Off-Balance Sheet Credit Related Financial Instruments
In the ordinary course of business, the Company
has entered into commitments to extend credit, including commitments under commercial lines of credit. Such financial instruments
are recorded when they are funded. The Company does not engage in the use of derivative financial instruments.
Transfers of Financial Assets
Transfers of financial assets are accounted
for as sales, when control over the assets has been surrendered. Control over transferred assets is deemed to be surrendered when
(1) the assets have been isolated from the Company, (2) the transferee obtains the right (free of conditions that constrain it
from taking advantage of that right) to pledge or exchange the transferred assets, and (3) the Company does not maintain effective
control over the transferred assets through an agreement to repurchase them before their maturity.
SENECA FINANCIAL CORP. AND SUBSIDIARIES
Notes
to the consolidated Financial Statements
FOR
THE years ended december 31, 2019 and 2018
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES — (Continued)
Revenue Recognition
The Company recognizes revenue in the consolidated
statements of income as it is earned and when collectability is reasonably assured. The primary source of revenue is interest income
from interest earning assets, which is recognized on the accrual basis of accounting using the effective interest method. The recognition
of revenues from interest earning assets is based upon formulas from underlying loan agreements, securities contracts, or other
similar contracts. Non-interest income is recognized on the accrual basis of accounting as services are provided or as transactions
occur. Non-interest income includes earnings on bank-owned life insurance, fees from brokerage and advisory service, deposit accounts,
merchant services, ATM and debit card fees, mortgage banking activities, and other miscellaneous services and transactions. See
Note 15 for more information regarding the Company’s non-interest income.
Significant Group Concentrations of Credit Risk
Most of the Company’s activities are
with customers located primarily in Onondaga County of New York State. A large portion of the Company’s portfolio is centered
in residential and commercial real estate. The Company closely monitors real estate collateral values and requires additional reviews
of commercial real estate appraisals by a qualified third party for commercial real estate loans more than $249,999. All residential
loan appraisals are reviewed by an individual or third party who is independent of the loan origination or approval process and
was not involved in the approval of appraisers or selection of the appraiser for the transaction, and has no direct or indirect
interest, financial or otherwise in the property or the transaction. Note 3 discusses the types of securities that the Company
invests in. Note 4 discusses the types of lending that the Company engages in. The Company does not have any significant concentrations
to any one industry or customer.
Bank-owned life insurance
The Company invests in bank-owned life insurance
(BOLI) as a source of funding for employee benefit expenses. BOLI involves the purchasing of life insurance by the Company on a
chosen group of employees. The Company is the owner and beneficiary of the life insurance policies, and as such, the investment
is carried at the cash surrender value of the underlying policies. Income from the increase in cash surrender value of the policies
is included in noninterest income in the consolidated statements of income. The BOLI policies are an asset that can be liquidated,
if necessary, with associated tax costs. However, the Company intends to hold these policies and, accordingly, has not provided
for deferred income taxes on the earnings from the increases in cash surrender value.
Pension and Postretirement Plans
The Company sponsors qualified defined benefit pension plan
and supplemental executive retirement plan (SERP). The qualified defined benefit pension plan is funded with trust assets invested
in a diversified portfolio of debt and equity securities. Accounting for pensions and other postretirement benefits involves estimating
the cost of benefits to be provided well into the future and attributing that cost over the time period each employee works. To
accomplish this, the Company makes extensive use of assumptions about inflation, investment returns, mortality, turnover, and
discount rates. The Company has established a process by which management reviews and selects these assumptions annually. Among
other factors, changes in interest rates, investment returns and the market value of plan assets can (i) affect the level of plan
funding; (ii) cause volatility in the net periodic pension cost; and (iii) increase our future contribution requirements. A significant
decrease in investment returns or the market value of plan assets or a significant decrease in interest rates could increase the
Company’s net periodic pension costs and adversely affect the Company’s results of operations. A significant increase
in the Company’s contribution requirements with respect to the Company’s qualified defined benefit pension plan could
have an adverse impact on the Company’s cash flow. Changes in the key actuarial assumptions would impact net periodic benefit
expense and the projected benefit obligation for the Company’s defined benefit and other postretirement benefit plan. See
Note 10, “Employee Benefit Plans,” for information on these plans and the assumptions used.
SENECA FINANCIAL CORP. AND SUBSIDIARIES
Notes
to the consolidated Financial Statements
FOR
THE years ended december 31, 2019 and 2018
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES — (Continued)
Employee Stock Ownership Plan (“ESOP”)
Compensation expense is recognized based
on the current market price of shares committed to be released to employees. All shares released and committed to be released are
deemed outstanding for purposes of earnings per share calculations. Dividends declared and paid on allocated shares held by the
ESOP are charged to retained earnings. The value of unearned shares to be allocated to ESOP participants for future services not
yet performed is reflected as a reduction of stockholders’ equity. Dividends declared on unallocated shares held by the ESOP
are recorded as a reduction of the ESOP’s loan payment to the Company.
Stock-Based Compensation
Compensation costs related to share-based
payments transactions are recognized based on the grant-date fair value of the stock-based compensation issued. Compensation costs
are recognized over the period than an employee provides service in exchange for the award. Compensation costs related to the employee
Stock Ownership plan are dependent upon the average stock price and the shares committed to be released to the plan participants
through the period in which income is reported.
In August of 2019, the board of directors
of the Company approved the grant of stock option awards to its directors and executive officers under the 2019 Stock Option Plan
that had 96,967 shares authorized for award. A total of 47,500 stock option awards were granted to five directors and nine officers
of the Company at an exercise price of $9.20 per share. The awards will vest ratably over five years (20% per year for each year
of the participant’s service with the Company) and will expire ten years from the date of the grant, or September 2029. The
fair value of each option grant was established at the date of grant using the Black-Scholes option pricing model. The Black-Scholes
model used the following weighted average assumptions: risk-free interest rate of 1.5%;volatility factors of the expected market
price of the Company's common stock of 21.23%; weighted average expected lives of the options of 7.5 years. Based upon these assumptions,
the weighted average fair value of options granted was $2.52.
Federal Home Loan Bank of New York Letter (FHLBNY) of Credit
(LOC)
The Bank has secured a LOC from the FHLBNY
to collateralize New York state deposits related to the Banking Development District Program. The program helps to give incentives
for banks to open branches in communities with underserved banking resources. The Bridgeport branch will allow us to market our
deposit products in Madison county and has been opened in the later part of 2019. The LOC is collateralized by one-to four- mortgage
loans pledged to the FHLBNY.
Earnings per Common Share
Basic net income per common share is calculated by dividing net income by the weighted-average number of common shares outstanding
during the period. The Company has granted 47,500 stock options to directors and officers during the year ended December 31,
2019, but had no potentially dilutive common stock equivalents. Unallocated common shares held by the ESOP are not included
in the weighted-average number of common shares outstanding for purposes of calculating earnings per common share until they
are committed to be released.
Reclassifications
Certain amounts in the 2018 consolidated
financial statements have been reclassified to conform with the 2019 presentation format. These classifications are immaterial
and had no effect on net income or stockholders’ equity for the periods presented herein.
Subsequent Events
The Company evaluated its December 31, 2019
consolidated financial statements for subsequent events through the date the consolidated financial statements were issued. As
a result of the spread of the COVID-19 coronavirus, economic uncertainties have arisen which are likely to negatively impact our
operational and financial performance. The extent of the impact of COVID-19 on our operational and financial performance
will depend on certain developments, including the duration and spread of the outbreak and impact on our customers, employees and
vendors, all of which are uncertain and cannot be predicted. At this point, the extent to which COVID-19 may impact our financial
condition or results of operations is uncertain.
SENECA FINANCIAL CORP. AND SUBSIDIARIES
Notes
to the consolidated Financial Statements
FOR
THE years ended december 31, 2019 and 2018
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES — (Continued)
New Accounting Pronouncements
In March
2017, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No.
2017-08, Receivables—Nonrefundable Fees and Other Costs (Subtopic 310-20): Premium Amortization on Purchased Callable
Debt Securities. The amended guidance shortens the amortization period for the premium paid on some classes of callable debt
to the earliest call date instead of the bond’s maturity.
The amendment more closely aligns
the interest income recorded on bonds held at a premium or a discount with the economics of the underlying instrument. Public companies
will have to begin applying the revisions to FASB ASC 310-20, Receivables – Nonrefundable Fees and Other Costs, and the related
amendments in their first fiscal years that start after December 15, 2018. The changes will have to be used for the quarterly reports
for those years. The FASB issued the amendment in response to the concerns that were brought to it about the requirements in ASC
310-20 that sometimes-forced bondholders to record a loss once a bond was called by its issuer. The amended guidance largely affects
municipal bonds but also could affect the accounting treatment of some callable corporate debt.
For Public Business Entities
(“PBEs”) that are U.S. Securities and Exchange Commission (SEC) filers, such as the Company, the amendments in this
update are effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. All
entities may adopt the amendments in this update earlier as of the fiscal years beginning after December 15, 2018, including interim
periods within those fiscal years. An entity will apply the amendments in this update through a cumulative-effect adjustment to
retained earnings as of the beginning of the first reporting period in which the guidance is effective. The provisions of this
new accounting standard are complex and will require substantial analysis prior to the ASU’s implementation. The Company’s
management is currently in the process of evaluating the impact that this standard will have on its consolidated financial statements,
however, management does not expect the adoption of this ASU to have a material impact on its consolidated financial statements
and results of operations.
In June
2016, the FASB issued ASU 2016-13, “Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses
on Financial Instruments” (“ASU 2016-13”). ASU 2016-13 requires credit losses on most financial assets measured
at amortized cost and certain other instruments to be measured using an expected credit loss model (referred to as the current
expected credit loss (“CECL”) model). Under the CECL model, entities will estimate credit losses over the entire contractual
term of the instrument (considering estimated prepayments, but not expected extensions or modifications unless reasonable expectation
of a troubled debt restructuring exists from the date of initial recognition of that instrument. Further, ASU 2016-13 made certain
targeted amendments to the existing impairment model for available for sale (“AFS”) debt securities. For an AFS debt
security for which there is neither the intent nor a more-likely-than-not requirement to sell, an entity will record credit losses
as an allowance rather than a write-down of the amortized cost basis. ASU 2016-13 is effective for annual reporting periods,
including interim reporting periods within those periods, beginning after December 15, 2019 for all public business entities that
are SEC filers. Early application is permitted as of the annual reporting periods beginning after December 15, 2018, including
interim periods within those periods. An entity will apply the amendments in this ASU 2016-13 through a cumulative-effect adjustment
to retained earnings as of the beginning of the first reporting period in which the guidance is effective. The Company’s
management is evaluating the potential impact on our consolidated financial statements; however, due to the significant differences
in the revised guidance from existing U.S. GAAP, the implementation of this guidance may result in material changes in our accounting
for credit losses on financial instruments. We are also reviewing the impact of additional disclosures required under ASU 2016-13
on our ongoing financial reporting.
In July 2019, the FASB decided
to add a project to its technical agenda to propose staggered effective dates for certain accounting standards, including ASU 2016-13.
The FASB has proposed an approach that ASU 2016-13 will be effective for Public Business Entities that are SEC filers, excluding
smaller reporting companies such as the Company, for fiscal years beginning after December 15, 2019 and interim periods within
those fiscal years. For all other entities, including smaller reporting companies like the Company, ASU 2016-13 will be effective
for fiscal years beginning after January 1, 2023, including interim periods within those fiscal years. For all entities, early
adoption will continue to be permitted; that is, early adoption is allowed for fiscal years beginning after December 15, 2018,
including interim periods within those fiscal years (that is, effective January 1, 2019, for calendar-year-end companies). The
FASB approved the proposal in October. The Company is currently a smaller reporting company, and the Company’s expected adoption
date for ASU 2016-13 will change from fiscal years beginning after December 15, 2019 to fiscal years beginning after January 1,
2023, including interim periods within those fiscal years.
SENECA FINANCIAL CORP. AND SUBSIDIARIES
Notes
to the consolidated Financial Statements
FOR
THE years ended december 31, 2019 and 2018
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES — (Continued)
In February
2016, the FASB issued ASU No. 2016-02, Leases (Topic 842). ASU No. 2016-02 to increase transparency and comparability among
organizations by recognizing lease assets and lease liabilities on the balance sheet and by disclosing key information about leasing
arrangements.
Under the new guidance, a lessee
will be required to recognize assets and liabilities for leases with lease terms of more than 12 months. Consistent with current
U.S. GAAP, the recognition, measurement, and presentation of expenses and cash flows arising from a lease by a lessee will depend
primarily on its classification as a finance or an operating lease (i.e., the classification criteria for distinguishing between
finance leases and operating leases are substantially like the classification criteria for distinguishing between capital leases
and operating leases under the previous guidance). However, unlike current U.S. GAAP, which requires only capital leases to be
recognized on the consolidated statement of financial condition, ASU No. 2016-02 will require both operating and finance leases
to be recognized on the consolidated statement of financial condition. Additionally, the ASU will require disclosures to help investors
and other consolidated financial statement users better understand the amount, timing, and uncertainty of cash flows arising from
leases, including qualitative and quantitative requirements. Lessor accounting will remain largely unchanged from current U.S.
GAAP. However, the ASU contains some targeted improvements that are intended to align, where necessary, lessor accounting with
the lessee accounting model and with the updated revenue recognition guidance issued in 2014.
The amendments in ASU No. 2016-02
are effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years, for (1)
public business entities, (2) not-for-profit entities that have issued, or are conduit bond obligors for, securities that are traded,
listed, or quoted on an exchange or an over-the-counter market, and (3) employee benefit plans that file financial statements with
the SEC. For all other entities, the amendments are effective for fiscal years beginning after December 15, 2019, and for interim
periods within fiscal years beginning after December 15, 2020. Early application is permitted for all entities. The Company is
currently evaluating the effects of the ASU 2016-02 on its consolidated financial statements and disclosures, if any.
In July
2018, the FASB issued ASU No. 2018-11, Leases (Topic 842): Targeted Improvements, which amends
FASB Accounting Standards Codification (ASC) Topic 842, Leases, to (1) add an optional transition method that would permit
entities to apply the new requirements by recognizing a cumulative-effect adjustment to the opening balance of retained earnings
in the year of adoption, and (2) provide a practical expedient for lessors regarding the separation of the lease and non-lease
components of a contract. This guidance did not change the Company’s assessment of the impact of ASU No. 2016-02 on
the consolidated financial statements as described above.
In August
2018, the FASB has issued Accounting Standards Update (ASU) No. 2018-15, Intangibles—Goodwill and Other—Internal
Use Software (Subtopic 350-40): Customer's Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That
Is a Service Contract, a consensus of the FASB Emerging Issues Task Force, which amends the FASB Accounting Standards Codification
(ASC) to provide guidance on accounting for costs of implementation activities performed in a cloud computing arrangement that
is a service contract. In April 2015, the FASB issued ASU No. 2015-05, Intangibles—Goodwill and Other—Internal-Use
Software (Subtopic 350-40): Customer's Accounting for Fees Paid in a Cloud Computing Arrangement, which provided guidance to
customers concerning whether a cloud computing arrangement (e.g., software, platform, or infrastructure offered as a service) includes
a software license. Pursuant to that guidance, (1) if a cloud computing arrangement includes a software license, the software license
element of the arrangement should be accounted for in a manner consistent with the acquisition of other software licenses, or (2)
if the arrangement does not include a software license, then the arrangement should be accounted for as a service contract, with
the fees associated with the hosting element (service) of the arrangement expensed as they are incurred.
Following the issuance of ASU
No. 2015-05, constituents requested that the FASB provide additional guidance on the accounting for costs of implementation activities
performed in a cloud computing arrangement that is a service contract. Accordingly, because United States generally accepted accounting
principles (U.S. GAAP) do not contain explicit guidance on accounting for such costs, and to address the resulting diversity in
practice, the FASB has issued ASU No. 2018-15 to align the requirements for capitalizing implementation costs incurred in a hosting
arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain
internal-use software (and hosting arrangements that include an internal-use software license). Note that the guidance on accounting
for the service element of a hosting arrangement that is a service contract is not affected by the amendments in ASU No.
2018-15.
SENECA FINANCIAL CORP. AND SUBSIDIARIES
Notes
to the consolidated Financial Statements
FOR
THE years ended december 31, 2019 and 2018
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES — (Continued)
For Public Business Entities,
the amended guidance is effective for fiscal years beginning after December 15, 2019 (i.e., calendar-year 2020), and for interim
periods within those fiscal years. The Company does not expect the new guidance to have a material impact on the consolidated financial
statements.
In December 2019, the FASB issued Accounting Standards Update
2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes, as part of its overall simplification initiative
to reduce costs and complexity of applying accounting standards while maintaining or improving the usefulness of the information
provided to users of financial statements. The FASB’s amendments primarily impact ASC 740, Income Taxes, and may impact both
interim and annual reporting periods. This ASU is effective for the Company in 2022. Early adoption is permitted. The Company does
not expect the new guidance to have a material impact on the consolidated financial statements and does not expect to early adopt.
3. Securities
The amortized cost and fair values of securities,
with gross unrealized gains and losses are as follows:
|
|
Amortized
Cost
|
|
|
Unrealized
Gains
|
|
|
Unrealized
Losses
|
|
|
Fair
Value
|
|
|
|
(Dollars in Thousands)
|
|
Available-for-sale securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. government agency securities
|
|
$
|
1,142
|
|
|
$
|
-
|
|
|
$
|
(36
|
)
|
|
$
|
1,106
|
|
Municipal securities
|
|
|
10,454
|
|
|
|
174
|
|
|
|
(5
|
)
|
|
|
10,623
|
|
Mortgage-backed securities and collateralized mortgage obligations
|
|
|
10,816
|
|
|
|
69
|
|
|
|
(33
|
)
|
|
|
10,852
|
|
Corporate securities
|
|
|
5,311
|
|
|
|
68
|
|
|
|
(1
|
)
|
|
|
5,378
|
|
|
|
$
|
27,723
|
|
|
$
|
311
|
|
|
$
|
(75
|
)
|
|
$
|
27,959
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2018:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Municipal securities
|
|
$
|
9,850
|
|
|
$
|
10
|
|
|
$
|
(181
|
)
|
|
$
|
9,679
|
|
Mortgage-backed securities and collateralized mortgage obligations
|
|
|
11,022
|
|
|
|
-
|
|
|
|
(243
|
)
|
|
|
10,779
|
|
Corporate securities
|
|
|
5,853
|
|
|
|
-
|
|
|
|
(137
|
)
|
|
|
5,716
|
|
|
|
$
|
26,725
|
|
|
$
|
10
|
|
|
$
|
(561
|
)
|
|
$
|
26,174
|
|
Government agency securities include notes
and bonds with both fixed and variable rates. Mortgage backed securities and collateralized mortgage obligations consist of securities
that are issued by Fannie Mae (“FNMA”), Freddie Mac (“FHLMC”), Ginnie Mae (“GNMA”), and Small
Business Administration (“SBIC”) and are collateralized by residential mortgages. Municipal securities consist of government
obligation and revenue bonds. Corporate securities consist of fixed and variable rate bonds with large financial institutions.
Investment securities with carrying amounts
of $11.0 million and $9.8 million were pledged to secure deposits and for other purposes required or permitted by law for
the years ended December 31, 2019 and 2018, respectively.
SENECA FINANCIAL CORP. AND SUBSIDIARIES
Notes
to the consolidated Financial Statements
FOR
THE years ended december 31, 2019 and 2018
3. Securities — (Continued)
The amortized cost and fair value of debt
securities based on the contractual maturity are shown below. Actual maturities may differ from contractual maturities because
borrowers may have the right to call or prepay obligations.
|
|
December 31, 2019
|
|
|
December 31, 2018
|
|
|
|
Amortized
Cost
|
|
|
Fair
Value
|
|
|
Amortized
Cost
|
|
|
Fair
Value
|
|
|
|
(Dollars in Thousands)
|
|
Due in one year or less
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
500
|
|
|
$
|
501
|
|
Due after one year through five years
|
|
|
6,716
|
|
|
|
6,772
|
|
|
|
3,372
|
|
|
|
3,313
|
|
Due after five years through ten years
|
|
|
6,448
|
|
|
|
6,552
|
|
|
|
7,481
|
|
|
|
7,357
|
|
Due after ten years
|
|
|
3,743
|
|
|
|
3,783
|
|
|
|
4,350
|
|
|
|
4,224
|
|
Mortgage-backed securities and collateralized mortgage obligations
|
|
|
10,816
|
|
|
|
10,852
|
|
|
|
11,022
|
|
|
|
10,779
|
|
|
|
$
|
27,723
|
|
|
$
|
27,959
|
|
|
$
|
26,725
|
|
|
$
|
26,174
|
|
During the year ended December 31, 2019,
the Company sold $5.9 million of available-for-sale securities with a gross realized gain of $28,000 and gross realized loss of
$21,000. During the year ended December 31, 2018, the Company did not sell available-for-sale securities.
Management has reviewed its loan, mortgage
backed securities and collateralized mortgage obligations portfolios and determined that, to the best of its knowledge, little
or no exposure exists to sub-prime or other high-risk residential mortgages. The Company is not in the practice of investing in,
or originating, these types of investments or loans.
Information pertaining to securities with
gross unrealized losses aggregated by investment category and length of time that individual securities have been in a continuous
unrealized loss position follows:
|
|
Less than Twelve Months
|
|
|
Over Twelve Months
|
|
|
|
Gross
Unrealized
Losses
|
|
|
Fair
Value
|
|
|
Gross
Unrealized
Losses
|
|
|
Fair
Value
|
|
|
|
(Dollars in Thousands)
|
|
December 31, 2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. government agency securities
|
|
|
(36
|
)
|
|
|
1,106
|
|
|
|
-
|
|
|
|
-
|
|
Municipal securities
|
|
|
(5
|
)
|
|
|
1,885
|
|
|
|
-
|
|
|
|
-
|
|
Mortgage-backed securities and collateralized mortgage obligations
|
|
|
-
|
|
|
|
-
|
|
|
|
(33
|
)
|
|
|
2,969
|
|
Corporate Securities
|
|
|
-
|
|
|
|
-
|
|
|
|
(1
|
)
|
|
|
509
|
|
|
|
$
|
(41
|
)
|
|
$
|
2,991
|
|
|
$
|
(34
|
)
|
|
$
|
3,478
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2018:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Municipal securities
|
|
$
|
(7
|
)
|
|
$
|
1,786
|
|
|
$
|
(174
|
)
|
|
$
|
6,636
|
|
Mortgage-backed securities and collateralized mortgage obligations
|
|
|
(19
|
)
|
|
|
3,249
|
|
|
|
(224
|
)
|
|
|
7,530
|
|
Corporate Securities
|
|
|
(137
|
)
|
|
|
5,716
|
|
|
|
-
|
|
|
|
-
|
|
|
|
$
|
(163
|
)
|
|
$
|
10,751
|
|
|
$
|
(398
|
)
|
|
$
|
14,166
|
|
Management evaluates securities for other-than-temporary
impairment at least on a quarterly basis, and more frequently when economic or market concerns warrant such evaluation. For the
years ended December 31, 2019 and 2018, the Company did not record an other-than-temporary impairment (OTTI) charge.
SENECA FINANCIAL CORP. AND SUBSIDIARIES
Notes
to the consolidated Financial Statements
FOR
THE years ended december 31, 2019 and 2018
3. Securities — (Continued)
At December 31, 2019, five collateralized
mortgage obligations and a corporate security were in a continuous loss position for more than twelve months. At December 2019,
one U.S. government agency security and three municipal securities were at a loss for less than one year.
At December 31, 2018, eleven collateralized
mortgage obligations, three mortgage backed securities, and eighteen municipal securities were in a continuous loss position for
more than twelve months. At December 2018, five municipal obligations, two collateralized mortgage obligations, three mortgage
backed securities, and ten corporate securities were at a loss for less than one year.
The mortgage-backed securities and collateralized
mortgage obligations were issued by U.S. Government sponsored agencies. All are paying in accordance with their terms with
no deferrals of interest or defaults. Because the decline in fair value is attributable to changes in interest rates, not credit
quality, and because management does not intend to sell and will not be required to sell these securities prior to recovery or
maturity, no declines are deemed to be other-than-temporary.
4. LOANS
Net loans for the period December 31, 2019 and 2018
are as follows:
|
|
December 31,
|
|
|
|
2019
|
|
|
2018
|
|
|
|
(Dollars in Thousands)
|
|
Mortgage loans on real estate:
|
|
|
|
|
|
|
|
|
One-to four-family first lien residential
|
|
$
|
99,248
|
|
|
$
|
102,617
|
|
Residential construction
|
|
|
3,710
|
|
|
|
3,500
|
|
Home equity loans and lines of credit
|
|
|
9,109
|
|
|
|
9,212
|
|
Commercial
|
|
|
34,432
|
|
|
|
23,409
|
|
Total mortgage loans on real estate
|
|
|
146,499
|
|
|
|
138,738
|
|
Commercial and industrial
|
|
|
16,814
|
|
|
|
14,134
|
|
Consumer loans
|
|
|
1,876
|
|
|
|
2,519
|
|
Total loans
|
|
|
165,189
|
|
|
|
155,391
|
|
Allowance for loan losses
|
|
|
(1,241
|
)
|
|
|
(1,234
|
)
|
Net deferred loan origination costs
|
|
|
440
|
|
|
|
493
|
|
Net loans
|
|
$
|
164,388
|
|
|
$
|
154,650
|
|
Residential real estate loans serviced for
others by the Company totaled $26.4 million and $27.3 million at December 31, 2019 and 2018, respectively.
Loan Origination/Risk Management
The Company has lending policies and procedures
in place that are designed to maximize loan income within an acceptable level of risk. Management reviews and approves these policies
and procedures on a regular basis. A reporting system supplements the review process by frequently providing management with reports
related to loan production, loan quality, loan delinquencies, non-performing and potential problem loans. Diversification in the
loan portfolio is a means of managing risk associated with fluctuations in economic conditions.
SENECA FINANCIAL CORP. AND SUBSIDIARIES
Notes
to the consolidated Financial Statements
FOR
THE years ended december 31, 2019 and 2018
4. LOANS — (Continued)
Risk Characteristics of Portfolio Segments
The risk characteristics within the loan
portfolio vary depending on the loan segment. Consumer loans generally are repaid from personal sources of income. Risks associated
with consumer loans primarily include general economic risks such as declines in the local economy creating higher rates of unemployment.
Those conditions may also lead to a decline in collateral values should the Company be required to repossess the collateral securing
consumer loans. These economic risks also impact the commercial loan segment, however commercial loans are considered to have greater
risk than consumer loans as the primary source of repayment is from the cash flow of the business customer. Real estate loans,
including residential mortgages, manufactured housing, commercial and home equity loans, comprise approximately and 89.0% and 90%
of the portfolio at December 31, 2019 and 2018, respectively. Loans secured by real estate provide the best collateral protection
and thus significantly reduce the inherent risk in the portfolio
Management has reviewed its loan portfolio
and determined that, to the best of its knowledge, little or no exposure exists to sub-prime or other high-risk residential mortgages.
The Company is not in the practice of originating these types of loans.
Description of Credit Quality Indicators
Real estate, commercial and consumer loans
are assigned a “Pass” rating unless the loan has demonstrated signs of weakness as indicated by the ratings below:
|
•
|
Special Mention: The relationship is protected but are potentially weak. These assets may constitute an undue
and unwarranted credit risk but not to the point of justifying a substandard rating. All loans 60 days past due are classified
Special Mention. The loan is not upgraded until it has been current for six consecutive months.
|
|
•
|
Substandard: The relationship is inadequately protected by the current sound worth and paying capacity of
the obligor or the collateral pledge, if any. Assets so classified have a well-defined weakness or a weakness that jeopardized
the liquidation of the debt. All loans 90 days past due are classified Substandard. The loan is not upgraded until it has been
current for six consecutive months.
|
|
•
|
Loss: Loans are considered uncollectible and of such little value that continuance as bankable assets are
not warranted. It is not practicable or desirable to defer writing off this basically worthless asset even though partial recovery
may be possible in the future.
|
The risk ratings are evaluated at least annually
for commercial loans or when credit deficiencies arise, such as delinquent loan payments, for commercial, real estate or consumer
loans. See further discussion of risk ratings in Note 2.
SENECA FINANCIAL CORP. AND SUBSIDIARIES
Notes
to the consolidated Financial Statements
FOR
THE years ended december 31, 2019 and 2018
4. LOANS — (Continued)
The following table presents the classes
of the loan portfolio, not including net deferred loan costs, summarized by the aggregate pass rating and the classified ratings
within the Company’s internal risk rating system as of December 31, 2019 and 2018:
|
|
December 31, 2019
|
|
|
|
(Dollars in Thousands)
|
|
|
|
Pass
|
|
|
Special
Mention
|
|
|
Substandard
|
|
|
Loss
|
|
|
Total
|
|
Mortgage loans on real estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
One-to four-family first lien residential
|
|
$
|
99,248
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
99,248
|
|
Residential construction
|
|
|
3,710
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
3,710
|
|
Home equity loans and lines of credit
|
|
|
9,109
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
9,109
|
|
Commercial
|
|
|
31,072
|
|
|
|
58
|
|
|
|
3,302
|
|
|
|
-
|
|
|
|
34,432
|
|
Total mortgage loans on real estate
|
|
|
143,139
|
|
|
|
58
|
|
|
|
3,302
|
|
|
|
-
|
|
|
|
146,499
|
|
Commercial and industrial
|
|
|
16,214
|
|
|
|
565
|
|
|
|
35
|
|
|
|
|
|
|
|
16,814
|
|
Consumer loans
|
|
|
1,876
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,876
|
|
Total loans
|
|
$
|
161,229
|
|
|
$
|
623
|
|
|
$
|
3,337
|
|
|
$
|
-
|
|
|
$
|
165,189
|
|
|
|
December 31, 2018
|
|
|
|
(Dollars in Thousands)
|
|
|
|
Pass
|
|
|
Special
Mention
|
|
|
Substandard
|
|
|
Loss
|
|
|
Total
|
|
Mortgage loans on real estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
One-to four-family first lien residential
|
|
$
|
102,617
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
102,617
|
|
Residential construction
|
|
|
3,500
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
3,500
|
|
Home equity loans and lines of credit
|
|
|
9,212
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
9,212
|
|
Commercial
|
|
|
21,260
|
|
|
|
-
|
|
|
|
2,149
|
|
|
|
-
|
|
|
|
23,409
|
|
Total mortgage loans on real estate
|
|
|
136,589
|
|
|
|
-
|
|
|
|
2,149
|
|
|
|
-
|
|
|
|
138,738
|
|
Commercial and industrial
|
|
|
13,887
|
|
|
|
-
|
|
|
|
247
|
|
|
|
|
|
|
|
14,134
|
|
Consumer loans
|
|
|
2,519
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
2,519
|
|
Total loans
|
|
$
|
152,995
|
|
|
$
|
-
|
|
|
$
|
2,396
|
|
|
$
|
-
|
|
|
$
|
155,391
|
|
SENECA FINANCIAL CORP. AND SUBSIDIARIES
Notes
to the consolidated Financial Statements
FOR
THE years ended december 31, 2019 and 2018
4. LOANS — (Continued)
Loans are considered past due if the required
principal and interest payments have not been received within thirty days of the payment due date. An age analysis of past due
loans, segregated by class of loans, are as follows:
|
|
December 31, 2019
|
|
|
|
(Dollars in Thousands)
|
|
|
|
30-59 Days
Past Due
|
|
|
60-89 Days
Past Due
|
|
|
90 Days
Past Due
|
|
|
Total
Past Due
|
|
|
Current
|
|
|
Total Loans
Receivable
|
|
Mortgage loans on real estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
One-to four-family first lien residential
|
|
$
|
778
|
|
|
$
|
946
|
|
|
$
|
857
|
|
|
$
|
2,581
|
|
|
$
|
96,667
|
|
|
$
|
99,248
|
|
Residential construction
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
3,710
|
|
|
|
3,710
|
|
Home equity loans and lines of credit
|
|
|
67
|
|
|
|
-
|
|
|
|
56
|
|
|
|
123
|
|
|
|
8,986
|
|
|
|
9,109
|
|
Commercial
|
|
|
245
|
|
|
|
120
|
|
|
|
-
|
|
|
|
365
|
|
|
|
34,067
|
|
|
|
34,432
|
|
Total mortgage loans on real estate
|
|
|
1,090
|
|
|
|
1,066
|
|
|
|
913
|
|
|
|
3,069
|
|
|
|
143,430
|
|
|
|
146,499
|
|
Commercial and industrial
|
|
|
52
|
|
|
|
-
|
|
|
|
-
|
|
|
|
52
|
|
|
|
16,762
|
|
|
|
16,814
|
|
Consumer loans
|
|
|
12
|
|
|
|
-
|
|
|
|
8
|
|
|
|
20
|
|
|
|
1,856
|
|
|
|
1,876
|
|
Total loans
|
|
$
|
1,154
|
|
|
$
|
1,066
|
|
|
$
|
921
|
|
|
$
|
3,141
|
|
|
$
|
162,048
|
|
|
$
|
165,189
|
|
|
|
December 31, 2018
|
|
|
|
(Dollars in Thousands)
|
|
|
|
30-59 Days
Past Due
|
|
|
60-89 Days
Past Due
|
|
|
90 Days
Past Due
|
|
|
Total
Past Due
|
|
|
Current
|
|
|
Total Loans
Receivable
|
|
Mortgage loans on real estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
One-to four-family first lien residential
|
|
$
|
1,331
|
|
|
$
|
628
|
|
|
$
|
670
|
|
|
$
|
2,629
|
|
|
$
|
99,988
|
|
|
$
|
102,617
|
|
Residential construction
|
|
|
-
|
|
|
|
-
|
|
|
|
462
|
|
|
|
462
|
|
|
|
3,038
|
|
|
|
3,500
|
|
Home equity loans and lines of credit
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
9,212
|
|
|
|
9,212
|
|
Commercial
|
|
|
-
|
|
|
|
364
|
|
|
|
-
|
|
|
|
364
|
|
|
|
23,045
|
|
|
|
23,409
|
|
Total mortgage loans on real estate
|
|
|
1,331
|
|
|
|
992
|
|
|
|
1,132
|
|
|
|
3,455
|
|
|
|
135,283
|
|
|
|
138,738
|
|
Commercial and industrial
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
14,134
|
|
|
|
14,134
|
|
Consumer loans
|
|
|
3
|
|
|
|
-
|
|
|
|
13
|
|
|
|
16
|
|
|
|
2,503
|
|
|
|
2,519
|
|
Total loans
|
|
$
|
1,334
|
|
|
$
|
992
|
|
|
$
|
1,145
|
|
|
$
|
3,471
|
|
|
$
|
151,920
|
|
|
$
|
155,391
|
|
At December 31, 2019 we had $212,000 of loans
pass-due 90 days and still accruing and at December 31, 2018 there were no loans over 90 days that are still accruing. Nonaccrual
loans, segregated by class of loan as of December 31, 2019 and 2018 are as follows:
|
|
At December 31,
|
|
|
|
2019
|
|
|
2018
|
|
|
|
(Dollars in Thousands)
|
|
|
|
|
|
|
|
|
Mortgage loans on real estate
|
|
$
|
1,671
|
|
|
$
|
1,201
|
|
Consumer loans
|
|
|
-
|
|
|
|
13
|
|
Total nonaccrual loans
|
|
$
|
1,671
|
|
|
$
|
1,214
|
|
SENECA FINANCIAL CORP. AND
SUBSIDIARIES
Notes
to the consolidated Financial Statements
FOR
THE years ended december 31, 2019 and 2018
4. LOANS — (Continued)
Troubled debt restructurings (“TDRs”)
occur when we grant borrowers concessions that we would not otherwise grant but for economic or legal reasons pertaining to the
borrower’s financial difficulties. A concession is made when the terms of the loan modification are more favorable that the
terms the borrower would have received in the current market under similar financial difficulties. These concessions may include,
interest by the borrower to satisfy all or part of the debt, or the addition of borrower(s). The Company identifies loans for potential
TDRs primarily through direct communication with the borrower and evaluation of the borrower’s financial statements, revenue
projections, tax returns, and credit reports. Even if the borrower is not presently in default, management will consider the likelihood
that cash flow shortages, adverse economic conditions, and negative trends may result in a payment default in the near future.
Generally, we will not return a TDR to accrual status until the borrower has demonstrated the ability to make principal and interest
payments under the restructured terms for at least six consecutive months. The Company’s TDRs are impaired loans, which may
result in specific allocations and subsequent charge-offs if appropriate.
The Company had no loans that had been
modified as TDRs during the year ended December 31, 2019. During the year ended December 31, 2017, the Company modified two commercial
mortgage loans valued at $1.0 million that are considered TDRs. We modified the terms to interest only for a two-year period. These
loans are paying according to their modified terms and are classified as substandard and impaired. The loans have been placed on
non-accrual as of December 31, 2019. At the time of the restructuring the post-modification recorded investment balance was the
same as the pre-modification recorded investment balance. A charge-off was recorded in December of 2019 reducing the post-modification
investment balance of the TDR’s by $57,700. There has been no subsequent default on said restructure.
The following table summarizes impaired
loans information by portfolio class:
|
|
December 31, 2019
|
|
|
|
(Dollars in Thousands)
|
|
|
|
Recorded
Investment
|
|
|
Unpaid
Principal
Balance
|
|
|
Related
Allowance
|
|
With an allowance recorded:
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage loans on real estate
|
|
$
|
327
|
|
|
$
|
327
|
|
|
$
|
17
|
|
|
|
|
327
|
|
|
|
327
|
|
|
|
17
|
|
With no allowance recorded:
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage loans on real estate
|
|
|
1,417
|
|
|
|
1,417
|
|
|
|
-
|
|
|
|
|
1,417
|
|
|
|
1,417
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
1,744
|
|
|
$
|
1,744
|
|
|
$
|
17
|
|
|
|
December 31, 2018
|
|
|
|
(Dollars in Thousands)
|
|
|
|
Recorded
Investment
|
|
|
Unpaid
Principal
Balance
|
|
|
Related
Allowance
|
|
With an allowance recorded:
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage loans on real estate
|
|
$
|
780
|
|
|
$
|
780
|
|
|
$
|
38
|
|
|
|
|
780
|
|
|
|
780
|
|
|
|
38
|
|
With no allowance recorded:
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage loans on real estate
|
|
|
1,313
|
|
|
|
1,313
|
|
|
|
-
|
|
|
|
|
1,313
|
|
|
|
1,313
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
2,093
|
|
|
$
|
2,093
|
|
|
$
|
38
|
|
SENECA FINANCIAL CORP. AND SUBSIDIARIES
Notes
to the consolidated Financial Statements
FOR
THE years ended december 31, 2019 and 2018
4. LOANS — (Continued)
The following table presents the average recorded
investment in impaired loans:
|
|
December 31,
|
|
|
|
2019
|
|
|
2018
|
|
|
|
(Dollars in Thousands)
|
|
Mortgage loans on real estate
|
|
$
|
1,919
|
|
|
$
|
2,026
|
|
Commercial and industrial loans
|
|
|
—
|
|
|
|
—
|
|
Total
|
|
$
|
1,919
|
|
|
$
|
2,026
|
|
The following table presents interest income
recognized on impaired loans for the years ended December 31, 2019 and 2018:
|
|
December 31,
|
|
|
|
2019
|
|
|
2018
|
|
|
|
(Dollars in Thousands)
|
|
Mortgage loans on real estate
|
|
$
|
38
|
|
|
$
|
38
|
|
Commercial and industrial loans
|
|
|
—
|
|
|
|
—
|
|
Total
|
|
$
|
38
|
|
|
$
|
38
|
|
Changes in the allowance for loan losses
for the years ended December 31, 2019 and 2018 are as follows:
|
|
December 31, 2019
|
|
|
|
(Dollars in Thousands)
|
|
|
|
Mortgage Loans on
Real Estate
|
|
|
Commercial and
Industrial
Loans
|
|
|
Consumer Loans
|
|
|
Unallocated
|
|
|
Total
|
|
Allowance for loan losses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning balance
|
|
$
|
933
|
|
|
$
|
132
|
|
|
$
|
17
|
|
|
$
|
152
|
|
|
$
|
1,234
|
|
Charge-offs
|
|
|
(219
|
)
|
|
|
-
|
|
|
|
(16
|
)
|
|
|
-
|
|
|
|
(235
|
)
|
Recoveries
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Provision
|
|
|
231
|
|
|
|
(11
|
)
|
|
|
16
|
|
|
|
6
|
|
|
|
242
|
|
Ending balance
|
|
$
|
945
|
|
|
$
|
121
|
|
|
$
|
17
|
|
|
$
|
158
|
|
|
$
|
1,241
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance: individually evaluated for impairment
|
|
|
17
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
17
|
|
Ending balance: collectively evaluated for impairment
|
|
|
928
|
|
|
|
121
|
|
|
|
17
|
|
|
|
158
|
|
|
|
1,224
|
|
Ending balance
|
|
$
|
945
|
|
|
$
|
121
|
|
|
$
|
17
|
|
|
$
|
158
|
|
|
$
|
1,241
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans receivable balance:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance: individually evaluated for impairment
|
|
|
1,744
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,744
|
|
Ending balance: collectively evaluated for impairment
|
|
|
144,755
|
|
|
|
16,814
|
|
|
|
1,876
|
|
|
|
-
|
|
|
|
163,445
|
|
Ending balance
|
|
$
|
146,499
|
|
|
$
|
16,814
|
|
|
$
|
1,876
|
|
|
$
|
-
|
|
|
$
|
165,189
|
|
SENECA FINANCIAL CORP. AND SUBSIDIARIES
Notes
to the consolidated Financial Statements
FOR
THE years ended december 31, 2019 and 2018
4. LOANS — (Continued)
|
|
December 31, 2018
|
|
|
|
(Dollars in Thousands)
|
|
|
|
Mortgage Loans on
Real Estate
|
|
|
Commercial and
Industrial
Loans
|
|
|
Consumer Loans
|
|
|
Unallocated
|
|
|
Total
|
|
Allowance for loan losses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning balance
|
|
$
|
870
|
|
|
$
|
116
|
|
|
$
|
5
|
|
|
$
|
250
|
|
|
$
|
1,241
|
|
Charge-offs
|
|
|
-
|
|
|
|
(8
|
)
|
|
|
(9
|
)
|
|
|
-
|
|
|
|
(17
|
)
|
Recoveries
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Provision
|
|
|
63
|
|
|
|
24
|
|
|
|
21
|
|
|
|
(98
|
)
|
|
|
10
|
|
Ending balance
|
|
$
|
933
|
|
|
$
|
132
|
|
|
$
|
17
|
|
|
$
|
152
|
|
|
$
|
1,234
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance: individually evaluated for impairment
|
|
|
38
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
38
|
|
Ending balance: collectively evaluated for impairment
|
|
|
895
|
|
|
|
132
|
|
|
|
17
|
|
|
|
152
|
|
|
|
1,196
|
|
Ending balance
|
|
$
|
933
|
|
|
$
|
132
|
|
|
$
|
17
|
|
|
$
|
152
|
|
|
$
|
1,234
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans receivable balance:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance: individually evaluated for impairment
|
|
|
2,093
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
2,093
|
|
Ending balance: collectively evaluated for impairment
|
|
|
136,645
|
|
|
|
14,134
|
|
|
|
2,519
|
|
|
|
-
|
|
|
|
153,298
|
|
Ending balance
|
|
$
|
138,738
|
|
|
$
|
14,134
|
|
|
$
|
2,519
|
|
|
$
|
-
|
|
|
$
|
155,391
|
|
In the ordinary course of business, the Company
makes loans to its directors and officers, including their families and companies in which certain directors are principal owners.
All such loans were made on substantially the same terms including interest rates and collateral, as those prevailing at the same
time for comparable transactions with unrelated persons. Loans to directors and officers are listed below and are included in loans
on the statement of financial condition.
|
|
December 31,
|
|
|
|
2019
|
|
|
2018
|
|
|
|
(Dollars in Thousands)
|
|
Balance, beginning of period
|
|
$
|
420
|
|
|
$
|
367
|
|
Payments
|
|
|
(44
|
)
|
|
|
(10
|
)
|
Proceeds
|
|
|
-
|
|
|
|
63
|
|
Balance, end of period
|
|
$
|
376
|
|
|
$
|
420
|
|
SENECA FINANCIAL CORP. AND SUBSIDIARIES
Notes
to the consolidated Financial Statements
FOR
THE years ended december 31, 2019 and 2018
5. PREMISES AND EQUIPMENT
Premises and equipment at December 31, 2019 and
2018 are summarized as follows:
|
|
December 31,
|
|
|
|
2019
|
|
|
2018
|
|
|
|
(Dollars in Thousands)
|
|
|
|
|
|
|
|
|
Building and building improvements
|
|
$
|
4,638
|
|
|
$
|
3,390
|
|
Construction in progress
|
|
|
1,509
|
|
|
|
993
|
|
Furniture, fixture and equipment
|
|
|
1,908
|
|
|
|
1,491
|
|
|
|
$
|
8,055
|
|
|
$
|
5,874
|
|
Accumulated depreciation
|
|
|
(2,641
|
)
|
|
|
(2,429
|
)
|
Total
|
|
$
|
5,414
|
|
|
$
|
3,445
|
|
Depreciation expense for the years ended
December 31, 2019 and 2018 was $253,000 and $199,000, respectively.
6. DEPOSITS
The components of deposits for the years
ended December 31, 2019 and 2018 consist of the following:
|
|
December 31,
|
|
|
|
2019
|
|
|
2018
|
|
|
|
(Dollars in Thousands)
|
|
Demand deposit
|
|
$
|
16,719
|
|
|
$
|
13,201
|
|
NOW accounts
|
|
|
14,961
|
|
|
|
14,901
|
|
Regular savings and demand clubs
|
|
|
22,275
|
|
|
|
21,536
|
|
Money markets
|
|
|
20,741
|
|
|
|
15,134
|
|
Certificates of deposit and retirement accounts
|
|
|
77,215
|
|
|
|
79,203
|
|
|
|
$
|
151,911
|
|
|
$
|
143,975
|
|
As of December 31, 2019, certificates of
deposit and retirement accounts have scheduled maturities as follows (dollars in thousands):
2020
|
|
$
|
59,963
|
|
2021
|
|
|
11,795
|
|
2022
|
|
|
4,206
|
|
2023
|
|
|
670
|
|
2024
|
|
|
581
|
|
Thereafter
|
|
|
-
|
|
|
|
$
|
77,215
|
|
The aggregate amount of time deposits in
denominations of $250,000 or more were $19.4 million and $14.4 million at December 31, 2019 and 2018, respectively.
Under the Dodd-Frank Act, deposit insurance per account owner is $250,000.
Interest expense on deposits for the years ended December 31,
2019 and 2018 are as follows:
|
|
December 31,
|
|
|
|
2019
|
|
|
2018
|
|
|
|
(Dollars in Thousands)
|
|
NOW accounts
|
|
$
|
23
|
|
|
$
|
24
|
|
Regular savings and demand clubs
|
|
|
20
|
|
|
|
16
|
|
Money markets
|
|
|
169
|
|
|
|
77
|
|
Certificates of deposit and retirement accounts
|
|
|
1,509
|
|
|
|
1,147
|
|
|
|
$
|
1,721
|
|
|
$
|
1,264
|
|
The aggregate amount of related party transactions
and deposits are immaterial for the years ended December 31, 2019 and 2018.
SENECA FINANCIAL CORP. AND SUBSIDIARIES
Notes
to the consolidated Financial Statements
FOR
THE years ended december 31, 2019 and 2018
7. BORROWINGS
Advances from the Federal Home Loan Bank
of New York (“FHLBNY”) reflect advances borrowed from the FHLBNY. The FHLBNY charges a substantial prepayment penalty
for early payoff of an advance. The unamortized balances on advances at December 31, 2019 and 2018 are summarized as follows:
|
|
December 31,
|
|
|
|
2019
|
|
|
2018
|
|
|
|
(Dollars in Thousands)
|
|
Term Advances:
|
|
|
|
|
|
|
|
|
Advanced December 29, 2014 - Due December 30, 2019 - bearing interest at 2.483% and 1.787% at December 31, 2017 and 2016, respectively adjustable rate
|
|
$
|
-
|
|
|
$
|
3,000
|
|
Advanced March 30, 2015 - Due April 1, 2019 - bearing interest at 1.64% fixed rate
|
|
|
-
|
|
|
|
4,000
|
|
Advanced September 28, 2015 - Due September 28, 2020 - bearing interest at 1.91% fixed rate
|
|
|
1,000
|
|
|
|
1,000
|
|
Advanced March 29, 2016 - Due March 29, 2021 - bearing interest at 1.81% fixed rate
|
|
|
2,000
|
|
|
|
2,000
|
|
Advanced December 9, 2016 - Due December 9, 2020 - bearing interest at 2.10% fixed rate
|
|
|
1,500
|
|
|
|
1,500
|
|
Advanced March 30, 2017 - Due March 30, 2022 - bearing interest at 2.33% fixed rate
|
|
|
3,000
|
|
|
|
3,000
|
|
Advanced June 29, 2017 - Due June 29, 2022 - bearing interest at 2.22% fixed rate
|
|
|
1,000
|
|
|
|
1,000
|
|
Advanced September 7, 2017 - Due September 9, 2019 - bearing interest at 1.67% fixed rate
|
|
|
-
|
|
|
|
250
|
|
Advanced September 7, 2017 - Due September 7, 2022 - bearing interest at 2.03% fixed rate
|
|
|
1,650
|
|
|
|
1,650
|
|
Advanced December 29, 2017 - Due December 30, 2019 - bearing interest at 2.25% fixed rate
|
|
|
-
|
|
|
|
2,000
|
|
Advanced December 29, 2017 - Due December 29, 2020 - bearing interest at 2.36% fixed rate
|
|
|
1,000
|
|
|
|
1,000
|
|
Advanced March 5, 2018 - Due March 5, 2021 - bearing interest at 2.74% fixed rate
|
|
|
1,250
|
|
|
|
1,250
|
|
Advanced September 26, 2018 - Due September 26, 2023 - bearing interest at 3.37% fixed rate
|
|
|
1,100
|
|
|
|
1,100
|
|
Advanced December 27, 2018 - Due January 3, 2019 - bearing interest at 2.63% fixed rate
|
|
|
-
|
|
|
|
5,600
|
|
Advanced January 8, 2019 - Due January 8, 2024 - bearing interest at 2.97% fixed rate
|
|
|
2,000
|
|
|
|
-
|
|
Advanced April 1, 2019 - Due April 1, 2021 - bearing interest at 2.63% fixed rate
|
|
|
1,000
|
|
|
|
-
|
|
Advanced April 1, 2019 - Due April 1, 2022 - bearing interest at 2.60% fixed rate
|
|
|
1,000
|
|
|
|
-
|
|
Advanced May 13, 2019 - Due May 13, 2022 - bearing interest at 2.44% fixed rate
|
|
|
1,000
|
|
|
|
-
|
|
Advanced May 16, 2019 - Due May 16, 2021 - bearing interest at 2.49% fixed rate
|
|
|
1,000
|
|
|
|
-
|
|
Advanced May 16, 2019 - Due May 16, 2022 - bearing interest at 2.48% fixed rate
|
|
|
1,000
|
|
|
|
-
|
|
Advanced May 29, 2019 - Due May 30, 2023 - bearing interest at 2.38% fixed rate
|
|
|
1,500
|
|
|
|
-
|
|
Advanced September 25, 2019 - Due September 25, 2023 - bearing interest at 1.89% fixed rate
|
|
|
2,000
|
|
|
|
-
|
|
Advanced December 26, 2019 - Due January 2, 2020 - bearing interest at 1.81% fixed rate
|
|
|
2,900
|
|
|
|
-
|
|
Advanced December 27, 2019 - Due December 27, 2024 - bearing interest at 1.98% fixed rate
|
|
|
1,000
|
|
|
|
-
|
|
Advanced December 30, 2019 - Due January 2, 2024 - bearing interest at 1.91% fixed rate
|
|
|
3,000
|
|
|
|
-
|
|
Advanced December 30, 2019 - Due December 30, 2021 - bearing interest at 1.86% fixed rate
|
|
|
2,000
|
|
|
|
-
|
|
Total
|
|
$
|
32,900
|
|
|
$
|
28,350
|
|
SENECA FINANCIAL CORP. AND SUBSIDIARIES
Notes
to the consolidated Financial Statements
FOR
THE years ended december 31, 2019 and 2018
7. BORROWINGS — (Continued)
The contractual maturities and weighted average
rates of advances from FHLBNY at December 31, 2019 are as follows (dollars in thousands):
2020
|
|
$
|
6,400
|
|
|
|
1.98
|
%
|
2021
|
|
|
7,250
|
|
|
|
2.19
|
%
|
2022
|
|
|
8,650
|
|
|
|
2.32
|
%
|
2023
|
|
|
4,600
|
|
|
|
2.40
|
%
|
2024
|
|
|
6,000
|
|
|
|
2.28
|
%
|
|
|
$
|
32,900
|
|
|
|
2.23
|
%
|
The Company has access to FHLBNY advances,
under which it can borrow at various terms and interest rates. Residential and commercial mortgage loans of $78.8 million
and $70.3 million at December 31, 2019 and 2018, respectively, and investment securities of $10.9 million and $9.8 million,
respectively, have been pledged by the Company under a blanket collateral agreement to secure the Company’s borrowings. The
total outstanding indebtedness under borrowing facilities with the FHLBNY cannot exceed the total value of the assets pledged under
the blanket collateral agreement. The Company has a municipal letter of credit (MULOC) with the FHLBNY collateralizing a $10.0
million certificate of deposit with the State of New York Banking Development District, The New York State certificate was deposited
after the Company opened its fourth location in Bridgeport, New York. The Company has also pledged a collateralized mortgage obligation
with a book value of $318,000 and a market value of $321,000 to a local municipality collateralizing their deposits. The Company
also has a $2.5 million dollar line of credit with a correspondent bank that is available on an unsecured basis and has no draws
on the line of credit.
8. INCOME TAXES
Income tax expense for the years ended December
31, is summarized as follows (in thousands):
|
|
December 31,
|
|
|
|
2019
|
|
|
2018
|
|
|
|
(Dollars in thousands)
|
|
Current:
|
|
|
|
|
|
|
Federal
|
|
$
|
96
|
|
|
$
|
8
|
|
State
|
|
|
4
|
|
|
|
4
|
|
|
|
|
100
|
|
|
|
12
|
|
Deferred:
|
|
|
|
|
|
|
|
|
Federal
|
|
|
172
|
|
|
|
169
|
|
State
|
|
|
-
|
|
|
|
-
|
|
|
|
|
172
|
|
|
|
169
|
|
Total provision for income taxes
|
|
$
|
272
|
|
|
$
|
181
|
|
SENECA FINANCIAL CORP. AND SUBSIDIARIES
Notes
to the consolidated Financial Statements
FOR
THE years ended december 31, 2019 and 2018
8. INCOME TAXES — (Continued)
The Company’s deferred federal and
state income tax and related valuation accounts represents the estimated impact of temporary differences between how we recognize
our assets and liabilities under GAAP and how such assets and liabilities are recognized under federal and state tax law. Deferred
tax assets and liabilities are determined based on the difference between the financial statement and tax bases of assets and liabilities
as measured by the enacted tax rates which will be in effect when these differences reverse.
The components of the net deferred tax assets,
included in other assets in the consolidated statements of financial condition, are as follows:
|
|
December 31,
|
|
|
|
2019
|
|
|
2018
|
|
|
|
(Dollars in thousands)
|
|
Deferred tax assets:
|
|
|
|
|
|
|
|
|
Allowance for loan losses
|
|
$
|
321
|
|
|
$
|
320
|
|
Net operating loss carryforward
|
|
|
356
|
|
|
|
278
|
|
Nonaccrual interest
|
|
|
24
|
|
|
|
21
|
|
Net unrealized loss on securities available-for-sale
|
|
|
-
|
|
|
|
116
|
|
Other
|
|
|
67
|
|
|
|
67
|
|
Total deferred tax assets
|
|
|
768
|
|
|
|
802
|
|
Deferred tax liabilities:
|
|
|
|
|
|
|
|
|
Net retirement plans
|
|
|
(839
|
)
|
|
|
(471
|
)
|
Deferred loan fees
|
|
|
(85
|
)
|
|
|
(94
|
)
|
Depreciation
|
|
|
(98
|
)
|
|
|
(115
|
)
|
Net unrealized gain on securities available-for-sale
|
|
|
(50
|
)
|
|
|
-
|
|
Other
|
|
|
(1
|
)
|
|
|
-
|
|
Total deferred tax liabilities
|
|
|
(1,073
|
)
|
|
|
(680
|
)
|
Valuation allowance
|
|
|
(172
|
)
|
|
|
(138
|
)
|
Net deferred tax liabilities
|
|
$
|
(477
|
)
|
|
$
|
(16
|
)
|
SENECA FINANCIAL CORP. AND SUBSIDIARIES
Notes
to the consolidated Financial Statements
FOR
THE years ended december 31, 2019 and 2018
8. INCOME TAXES — (Continued)
Items that give rise to differences between
income tax expense included in the statements of income and taxes computed by applying the statutory federal tax at a rate of 21%
for the periods below included the following:
|
|
Years Ended December 31,
|
|
|
|
2019
|
|
|
2018
|
|
|
|
(Dollars in thousands)
|
|
Computed at the statutory rate
|
|
$
|
291
|
|
|
$
|
216
|
|
Change in valuation allowance
|
|
|
34
|
|
|
|
35
|
|
State deferred tax liability
|
|
|
(34
|
)
|
|
|
(35
|
)
|
Nontaxable interest and dividend
|
|
|
(40
|
)
|
|
|
(37
|
)
|
Income from bank owned life insurance
|
|
|
(11
|
)
|
|
|
(12
|
)
|
Other items
|
|
|
32
|
|
|
|
14
|
|
Income tax provision
|
|
$
|
272
|
|
|
$
|
181
|
|
New York State (NYS) tax law changes were
enacted in 2015 that resulted in the Company generating a significant deduction, ultimately putting the Company in a NYS net operation
loss position for tax purposes that will persist for the foreseeable future. It is anticipated that mortgage recording tax generated
each year will reduce the NYS capital base to the fixed dollar minimum tax. Therefore, in 2015, the Company recorded a valuation
allowance against its net New York deferred tax asset as of December 31, 2015 as it is unlikely this deferred tax asset will impact
the Company’s New York tax liability in future years, primarily mortgage recording tax credit carryforward. The Company also
de-recognized state deferred tax liabilities as a result of NYS law changes.
At December 31, 2019 and 2018, the Company
had no unrecognized tax benefits recorded. The Company does not expect the total amount of unrecognized tax benefits to significantly
increase or decrease in the next twelve months.
Under current income tax laws, the base-year
reserves would be subject to recapture if the Company pays a cash dividend in excess of earnings and profits or liquidates. The
Bank does not expect to take any actions in the foreseeable future that would require the recapture of any Federal reserves. As
a result, a deferred tax liability has not been recognized with respect to the Federal base-year reserve of $2,188,157
at December 31, 2019 and 2018, because the Bank does not expect that this amount will become taxable in the foreseeable future.
The unrecognized deferred tax liability with respect to the Federal base-year reserve was $459,513 at December 31, 2019. It is
more likely than not that this liability will never be incurred because, as noted above, the Bank does not expect to take any action
in the future that would result in this liability being incurred.
SENECA FINANCIAL CORP. AND SUBSIDIARIES
Notes
to the consolidated Financial Statements
FOR
THE years ended december 31, 2019 and 2018
9. COMPREHENSIVE LOSS
The balances and changes in the components
of accumulated other comprehensive loss, net of tax, are as follows:
|
|
Unrealized Gains
on
Available-for-
Sale Securities
|
|
|
Net Gain on
Pension Plan
|
|
|
Accumulated
Other
Comprehensive
(Loss)
|
|
|
|
(Dollars in Thousands)
|
|
Beginning balance
|
|
$
|
(436
|
)
|
|
$
|
(2,748
|
)
|
|
$
|
(3,184
|
)
|
Other comprehensive income
|
|
|
622
|
|
|
|
464
|
|
|
|
1,086
|
|
Ending balance
|
|
$
|
186
|
|
|
$
|
(2,284
|
)
|
|
$
|
(2,098
|
)
|
|
|
For the year ended December 31, 2018
|
|
|
|
Unrealized Losses
on Available-for-
Sale Securities
|
|
|
Net Gain on
Pension Plan
|
|
|
Accumulated
Other
Comprehensive
(Loss)
|
|
|
|
(Dollars in Thousands)
|
|
Beginning balance
|
|
$
|
(207
|
)
|
|
$
|
(3,113
|
)
|
|
$
|
(3,320
|
)
|
Other comprehensive income (loss)
|
|
|
(229
|
)
|
|
|
365
|
|
|
|
136
|
|
Ending balance
|
|
$
|
(436
|
)
|
|
$
|
(2,748
|
)
|
|
$
|
(3,184
|
)
|
The amounts of income tax (expense) benefit
allocated to each component of other comprehensive loss are as follows:
|
|
For the years ended
|
|
|
|
December 31, 2019
|
|
|
December 31, 2018
|
|
|
|
Before
Tax
Amount
|
|
|
Tax
(Expense)
Benefit
|
|
|
Net
|
|
|
Before
Tax
Amount
|
|
|
Tax
(Expense)
Benefit
|
|
|
Net
|
|
|
|
(Dollars in Thousands)
|
|
Available for sale securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized holding gains (loss) arising during period
|
|
$
|
794
|
|
|
$
|
(166
|
)
|
|
$
|
628
|
|
|
$
|
(290
|
)
|
|
$
|
61
|
|
|
$
|
(229
|
)
|
Reclassification adjustment for net gains included in net income
|
|
|
(7
|
)
|
|
|
1
|
|
|
|
(6
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Net unrealized gains (loss) on available-for-sale securities
|
|
|
787
|
|
|
|
(165
|
)
|
|
|
622
|
|
|
|
(290
|
)
|
|
|
61
|
|
|
|
(229
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Defined Benefit Pension Plan:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net gains arising during the period
|
|
|
484
|
|
|
|
(101
|
)
|
|
|
383
|
|
|
|
253
|
|
|
|
(53
|
)
|
|
|
200
|
|
Less reclassification of amortization of net losses recognized in net pension expense
|
|
|
103
|
|
|
|
(22
|
)
|
|
|
81
|
|
|
|
209
|
|
|
|
(44
|
)
|
|
|
165
|
|
Net changes in defined benefit pension plan
|
|
|
587
|
|
|
|
(123
|
)
|
|
|
464
|
|
|
|
462
|
|
|
|
(97
|
)
|
|
|
365
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Comprehensive Income
|
|
$
|
1,374
|
|
|
$
|
(288
|
)
|
|
$
|
1,086
|
|
|
$
|
172
|
|
|
$
|
(36
|
)
|
|
$
|
136
|
|
SENECA FINANCIAL CORP. AND SUBSIDIARIES
Notes
to the consolidated Financial Statements
FOR
THE years ended december 31, 2019 and 2018
9. COMPREHENSIVE LOSS — (Continued)
The following table presents the amounts
reclassified out of each component of accumulated other comprehensive loss (AOCL):
|
|
Amount Reclassified from AOCL
|
|
|
For the years ended
|
|
|
|
|
|
December 31,
2019
|
|
|
December 31,
2018
|
|
|
Affected line item in the
Statement of Income
|
|
|
(Dollars in Thousands)
|
|
|
|
Available for sale securities:
|
|
|
|
|
|
|
|
|
|
|
Realized gains on sale of available for sale securities
|
|
$
|
7
|
|
|
$
|
—
|
|
|
Net realized gains on sales of available-for-sale securities
|
Tax effect
|
|
|
(1
|
)
|
|
|
—
|
|
|
Provision for income taxes
|
|
|
|
6
|
|
|
|
—
|
|
|
Net income
|
Defined benefit pension plan:
|
|
|
|
|
|
|
|
|
|
|
Retirement plan net losses recognized in net period pension cost
|
|
|
(103
|
)
|
|
|
(209
|
)
|
|
Compensation and employee benefits
|
Tax effect
|
|
|
22
|
|
|
|
44
|
|
|
Benefit for income taxes
|
|
|
$
|
(81
|
)
|
|
$
|
(165
|
)
|
|
Net income
|
10. EMPLOYEE BENEFIT PLANS
Supplemental Executive Retirement Plan (SERP)
Beginning in 2016, the Company instituted
a SERP for its executive officers. All benefits provided under the SERP are unfunded and, as the executive officers retire, the
Company will make a payment to the participant. At December 31, 2019 and 2018, the Company recorded $118,642 and $83,367, respectively,
for the SERP in other liabilities on the consolidated statements of financial condition. Expenses for the SERP are included in
compensation and employee benefits on the consolidated statements of income and were $35,275 and $33,596, respectively, for the
years ended December 31, 2019 and 2018.
Defined Benefit Plan
The Company provides pension benefits for
eligible employees through a noncontributory defined benefit pension plan (the “Pension Plan”). Substantially all employees
participate in the retirement plan on a noncontributing basis and are fully vested after five years of service.
On October 13, 2017, the Compensation Committee
elected to soft-freeze the defined benefit pension plan effective January 1, 2018. All employees hired after that date will not
be eligible to participate in the defined benefit pension plan; they will, however, be able to participate in a 401k plan that
the Company will match up to 50% of the employee elected contribution amount capped at 3% of the employee’s earnings.
All plan provisions and actuarial methods used in 2019 are the
same as those used in 2018, with the exception of the discount rate used to determine the benefit obligation which decreased to
4.17% from 5.00% and the discount rate used to determine net periodic pension cost which increased to 5.00% from 3.75%. The mortality
table used in 2019 were RP-2014 (adjusted) with MP-2019 mortality improvements.
SENECA FINANCIAL CORP. AND SUBSIDIARIES
Notes
to the consolidated Financial Statements
FOR
THE years ended december 31, 2019 and 2018
10. EMPLOYEE BENEFIT PLANS — (Continued)
Information pertaining to the activity in
the Pension Plan for the years ended December 31, 2019 and 2018 is as follows:
|
|
December 31,
|
|
|
|
2019
|
|
|
2018
|
|
|
|
(Dollars in Thousands)
|
|
Change in benefit obligation:
|
|
|
|
|
|
|
|
|
Benefit obligation at beginning of year
|
|
$
|
9,789
|
|
|
$
|
11,273
|
|
Service cost
|
|
|
283
|
|
|
|
335
|
|
Interest cost
|
|
|
475
|
|
|
|
412
|
|
Actuarial loss (gain)
|
|
|
888
|
|
|
|
(1,668
|
)
|
Benefits paid
|
|
|
(568
|
)
|
|
|
(563
|
)
|
Benefit obligation at end of year
|
|
|
10,867
|
|
|
|
9,789
|
|
|
|
|
|
|
|
|
|
|
Change in plan assets:
Fair value of plan assets at beginning of year
|
|
$
|
11,039
|
|
|
$
|
11,219
|
|
Actual return (loss) on plan assets
|
|
|
2,227
|
|
|
|
(617
|
)
|
Employer contributions
|
|
|
1,000
|
|
|
|
1,000
|
|
Benefits paid
|
|
|
(568
|
)
|
|
|
(563
|
)
|
Fair value of plan assets at end of year
|
|
|
13,698
|
|
|
|
11,039
|
|
|
|
|
|
|
|
|
|
|
Net amount recognized, funded status
|
|
$
|
2,831
|
|
|
$
|
1,250
|
|
The accumulated benefit obligation was $10.4
million and $9.3 million at December 31, 2019 and 2018, respectively.
The assumptions used to determine the benefit
obligation at December 31, 2019 and 2018 are as follows:
|
|
2019
|
|
|
2018
|
|
Discount rate
|
|
|
4.17
|
%
|
|
|
5.00
|
%
|
Rate of increase in compensation levels
|
|
|
3.00
|
%
|
|
|
3.00
|
%
|
The components of net periodic pension cost
and amounts recognized in other comprehensive income for the years ended December 31, 2019 and 2018 are as follows:
|
|
December 31,
|
|
|
|
2019
|
|
|
2018
|
|
|
|
(Dollars in Thousands)
|
|
Service cost
|
|
$
|
283
|
|
|
$
|
335
|
|
Interest cost
|
|
|
475
|
|
|
|
412
|
|
Expected return on assets
|
|
|
(855
|
)
|
|
|
(799
|
)
|
Amortization of unrecognized loss
|
|
|
103
|
|
|
|
209
|
|
Net periodic pension cost
|
|
|
6
|
|
|
|
157
|
|
Total of amounts recognized in other comprehensive income loss
|
|
|
(587
|
)
|
|
|
(462
|
)
|
Total recognized in net periodic pension cost and other comprehensive income
|
|
$
|
(581
|
)
|
|
$
|
(305
|
)
|
SENECA FINANCIAL CORP. AND SUBSIDIARIES
Notes
to the consolidated Financial Statements
FOR
THE years ended december 31, 2019 and 2018
10. EMPLOYEE BENEFIT PLANS — (Continued)
The estimated net actuarial loss of
$180,000 will be amortized from accumulated other comprehensive loss into net periodic pension cost during the next fiscal year.
The assumptions used to determine net periodic
pension cost for the years ended December 31, 2019 and 2018 are as follows:
|
|
December 31,
|
|
|
|
2019
|
|
|
2018
|
|
Discount rate
|
|
|
5.00
|
%
|
|
|
3.75
|
%
|
Expected long-term rate of return on plan assets
|
|
|
7.00
|
%
|
|
|
7.00
|
%
|
Rate of increase in compensation levels
|
|
|
3.00
|
%
|
|
|
3.00
|
%
|
The long-term rate of return on assets assumption
was set based on historical returns earned by the asset allocation of the investments currently used by the Pension Plan, which
are expected to continue in the future.
Pension Plan assets are invested in diversified
funds under the advice of Edgewater Advisors, Ltd. The investment funds include a series of mutual funds, each with its own investment
objectives, investment strategies and risks.
The fair values of the Company’s pension
plan assets at December 31 by asset category are as follows (dollars in thousands):
|
|
|
|
Market Value of Assets - December 31, 2019
|
|
|
|
Asset Category
|
|
Total
|
|
|
Level 1
|
|
|
Level 2
|
|
|
|
Equities & Commodities:
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
Blackrock Dividend Equity
|
|
$
|
708
|
|
|
$
|
-
|
|
|
$
|
708
|
|
(2)
|
|
Select S&P 500 Index
|
|
|
2,867
|
|
|
|
-
|
|
|
|
2,867
|
|
(3)
|
|
Select Blue Chip Growth
|
|
|
718
|
|
|
|
-
|
|
|
|
718
|
|
(4)
|
|
Select S&P Mid Cap Index
|
|
|
1,692
|
|
|
|
-
|
|
|
|
1,692
|
|
(5)
|
|
Select Small Cap Index
|
|
|
1,442
|
|
|
|
-
|
|
|
|
1,442
|
|
(6)
|
|
Premier Strategic Emerging Markets
|
|
|
726
|
|
|
|
-
|
|
|
|
726
|
|
(7)
|
|
Oppenheimer Real Estate
|
|
|
389
|
|
|
|
-
|
|
|
|
389
|
|
|
|
Total Equities and Commodities
|
|
|
8,542
|
|
|
|
|
|
|
|
8,542
|
|
|
|
Fixed Income:
|
|
|
|
|
|
|
|
|
|
|
-
|
|
(8)
|
|
Premier Short-Duration Bond
|
|
|
1,290
|
|
|
|
-
|
|
|
|
1,290
|
|
(9)
|
|
Northern Bond Index
|
|
|
1,278
|
|
|
|
-
|
|
|
|
1,278
|
|
(10)
|
|
Select Western Strategic Bond
|
|
|
1,291
|
|
|
|
-
|
|
|
|
1,291
|
|
(11)
|
|
Premier Inflation Protected & Income Fund
|
|
|
642
|
|
|
|
-
|
|
|
|
642
|
|
(12)
|
|
Premier Babson High Yield Bond
|
|
|
655
|
|
|
|
-
|
|
|
|
655
|
|
|
|
Total Fixed Income
|
|
|
5,156
|
|
|
|
|
|
|
|
5,156
|
|
|
|
Total Market Value
|
|
$
|
13,698
|
|
|
$
|
-
|
|
|
$
|
13,698
|
|
SENECA FINANCIAL CORP. AND SUBSIDIARIES
Notes
to the consolidated Financial Statements
FOR
THE years ended december 31, 2019 and 2018
10. EMPLOYEE BENEFIT PLANS — (Continued)
|
|
|
|
Market Value of Assets - December 31, 2018
|
|
|
|
Asset Category
|
|
Total
|
|
|
Level 1
|
|
|
Level 2
|
|
|
|
Equities & Commodities:
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
Select Fundamental Value
|
|
$
|
514
|
|
|
$
|
-
|
|
|
$
|
514
|
|
(2)
|
|
Select S&P 500 Index
|
|
|
2,078
|
|
|
|
-
|
|
|
|
2,078
|
|
(3)
|
|
Select Blue Chip Growth
|
|
|
536
|
|
|
|
-
|
|
|
|
536
|
|
(4)
|
|
Select S&P Mid Cap Index
|
|
|
1,212
|
|
|
|
-
|
|
|
|
1,212
|
|
(5)
|
|
Select Small Cap Index
|
|
|
989
|
|
|
|
-
|
|
|
|
989
|
|
(6)
|
|
Premier Strategic Emerging Markets
|
|
|
577
|
|
|
|
-
|
|
|
|
577
|
|
(7)
|
|
Oppenheimer Real Estate
|
|
|
338
|
|
|
|
-
|
|
|
|
338
|
|
|
|
Total Equities and Commodities
|
|
|
6,244
|
|
|
|
|
|
|
|
6,244
|
|
|
|
Fixed Income:
|
|
|
|
|
|
|
|
|
|
|
|
|
(8)
|
|
Premier Short-Duration Bond
|
|
|
1,194
|
|
|
|
-
|
|
|
|
1,194
|
|
(9)
|
|
Northern Bond Index
|
|
|
1,223
|
|
|
|
-
|
|
|
|
1,223
|
|
(10)
|
|
Select Western Strategic Bond
|
|
|
1,214
|
|
|
|
-
|
|
|
|
1,214
|
|
(11)
|
|
Premier Inflation Protected & Income Fund
|
|
|
598
|
|
|
|
-
|
|
|
|
598
|
|
(12)
|
|
Premier Babson High Yield Bond
|
|
|
566
|
|
|
|
-
|
|
|
|
566
|
|
|
|
Total Fixed Income
|
|
|
4,795
|
|
|
|
|
|
|
|
4,795
|
|
|
|
Total
|
|
$
|
11,039
|
|
|
$
|
-
|
|
|
$
|
11,039
|
|
Level 1 — Quoted Prices in Active
Markets for Identical Assets
Level 2 — Significant Observable
Inputs
Level 3 — Significant Unobservable
Inputs
Fund Descriptions:
(1)
|
Select Fundamental Value — This fund invests in stocks of financially sound but temporarily out of-favor companies providing above-average total return potential and selling at below average projected P/E multiples.
|
|
|
(2)
|
Select S&P 500 Index — Seeks to match the performance of the S&P 500 by investing in a representative sample of the stocks in that index. The ability to match investment performance to the S&P 500 is affected by daily cash flow and expenses.
|
|
|
(3)
|
Select Blue Chip Growth — Invests at least 65% of assets in stocks of blue chip companies. These companies have a market capitalization of at least $200 million if included in the S&P 500 or the Dow Jones Industrial Average or $1 billion for companies not in these indices.
|
|
|
(4)
|
Select S&P Mid Cap Index — The investment seeks to provide investment results approximating (before fees and expenses) the aggregate price and dividend performance of the securities included in the Standard & Poor’s Midcap 400® Index.
|
|
|
(5)
|
Select Small Cap Index — The investment seeks to provide investment results approximating (before fees and expenses) the aggregate price and dividend performance of the securities included in the Russell 2000® Index.
|
SENECA FINANCIAL CORP. AND SUBSIDIARIES
Notes
to the consolidated Financial Statements
FOR
THE years ended december 31, 2019 and 2018
10. EMPLOYEE BENEFIT PLANS — (Continued)
(6)
|
Premier Strategic Emerging Markets — The investment seeks long-term capital growth. The fund mainly invests in common stocks of issuers in developing and emerging markets throughout the world and at times it may invest up to 100% of its total assets in foreign securities. It will invest at least 80% of its net assets (plus the amount of any borrowings for investment purposes) in equity securities of issuers whose principal activities are in a developing (or emerging) market, i.e. are in a developing market or are economically tied to a developing market country. The fund will invest in at least three developing markets. It focuses on companies with above-average earnings growth.
|
|
|
(7)
|
Oppenheimer Real Estate — The investment seeks total return. The fund invests at least 80% of its net assets (including borrowings for investment purposes) in common stocks and other equity securities of real estate companies. The advisor considers a real estate company to be one that derives at least 50% of its revenues from, or invests at least 50% of its assets in, the ownership, construction, financing, management or sale of commercial, industrial or residential real estate. It primarily invests in real estate investment trusts (REITs) but may also invest in real estate operating companies (REOCs) and other real estate related securities. The fund is non-diversified.
|
|
|
(8)
|
Premier Short-Duration Bond — The investment seeks to achieve a high total rate of return primarily from current income while minimizing fluctuations in capital values.
|
|
|
(9)
|
Northern Bond Index — The investment seeks to provide investment results approximating the overall performance of the securities included in the Barclays U.S. Aggregate Bond Index. The fund will invest substantially all (and at least 80%) of its net assets in bonds and other fixed income securities included in the index in weightings that approximate the relative composition of securities contained in the index. The index measures the investment grade, U.S. dollar denominated, fixed-rate taxable bond market, including Treasuries, government-related and corporate securities, mortgage-backed securities asset-backed securities, and commercial mortgage-backed securities.
|
|
|
(10)
|
Select Western Strategic Bond — The investment seeks maximum total return, consistent with preservation of capital and prudent investment management. Under normal circumstances, the fund invests at least 80% of its net assets in a diversified portfolio of investment grade fixed income securities (rated Baa3 or higher by Moody’s, BBB or higher by Standard & Poor’s, BBB- or higher by Fitch, or A-2 by S&P, P-2 by Moody’s, or F-2 by Fitch for short-term debt obligations, or, if unrated, determined by the fund’s sub-adviser, Metropolitan West Asset Management, LLC, to be of comparable quality).
|
|
|
(11)
|
Premier Inflation Protected & Income Fund — The investment seeks to achieve as high a total rate of real return on an annual basis as is considered consistent with prudent investment risk and the preservation of capital. The fund invests at least 80% of its net assets (plus the amount of any borrowings for investment purposes) in inflation-indexed bonds and other income producing securities. It may also invest in other income-producing securities of any kind. The advisor generally intends to maintain a dollar-weighted average credit quality of A or better. The fund may invest up to 15% of its total assets in securities that are not denominated in U.S. dollars.
|
|
|
(12)
|
Premier Babson High Yield Bond — The investment seeks to achieve a high level of total return, with an emphasis on current income, by investing primarily in high yield debt and related securities. The fund invests primarily in lower rated U.S. debt securities, including securities in default. It invests at least 80% of its net assets (plus the amount of any borrowings for investment purposes) in lower rated fixed income securities (rated below Baa3 by Moody’s, below BBB- by Standard & Poor’s or the equivalent by any NRSRO (using the lower rating) or, if unrated, determined to be of below investment grade quality by the fund’s sub-adviser.
|
SENECA FINANCIAL CORP. AND SUBSIDIARIES
Notes
to the consolidated Financial Statements
FOR
THE years ended december 31, 2019 and 2018
10. EMPLOYEE BENEFIT PLANS — (Continued)
The fair values of mutual funds are based
upon quoted prices of each fund’s underlying securities. The Company is not required to make any contributions to its defined
benefit pension plan in 2019 but made a $500,000 contribution in the 4th quarter of 2019 and $500,000 contribution in
the 1st quarter of 2020.
Estimated future benefit payments, which
reflect expected future service, as appropriate, are as follows (dollars in thousands):
2020
|
|
$
|
561
|
|
2021
|
|
$
|
548
|
|
2022
|
|
$
|
582
|
|
2023
|
|
$
|
604
|
|
2024
|
|
$
|
595
|
|
2025 – 2029
|
|
$
|
3,393
|
|
EMPLOYEE STOCK OWNERSHIP PLAN (“ESOP”)
Effective upon the completion of the Company’s
initial public stock offering in October 2017, the Bank established an Employee Stock Ownership Plan (“ESOP”) for all
eligible employees. The ESOP used $775,740 in proceeds from a term loan obtained from the Company to purchase 77,574 shares of
common stock on the open market at an average price of $10.00 per share. The ESOP loan will be repaid principally from
the Bank’s contribution to the ESOP in annual payments through 2047 at a fixed interest rate of 4.25%. Shares are released
to participants on a straight-line basis over the loan term and allocated based on participant compensation. The Bank recognizes
compensation benefit expense as shares are committed for release at their current market price. The difference between the market
price and the cost of shares committed to be released is recorded as an adjustment to additional paid-in capital. Dividends on
allocated shares are recorded as a reduction of retained earnings and dividends on unallocated shares are recorded as a reduction
of debt. The Company recognized $22,781 of compensation expense related to this plan for the year ended December 31, 2019 and $22,548
for the year ended December 31, 2018. At December 31, 2019, there were 71,820 shares not yet released having an aggregate market
value of approximately $675,117. Participant vesting provisions for the ESOP are 20% per year and will be fully vested upon completion
of six years of credited service. Eligible employees who were employed with the Bank shall receive credit for vesting purposes
for each year of continuous employment prior to adoption of the ESOP.
STOCK BASED COMPENSATION
A summary of the Company’s
stock option activity and related information for its equity incentive plan for the year ended December 31, 2019 is as follows:
|
|
For the year ended December 31, 2019
|
|
|
|
Options
|
|
|
Weighted Average
Exercise Price Per
Share
|
|
Outstanding at the beginning of the year
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Grants
|
|
|
47,500
|
|
|
$
|
9.20
|
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Outstanding at year-end
|
|
|
47,500
|
|
|
$
|
9.20
|
|
|
|
|
|
|
|
|
|
|
Exercisable at year-end
|
|
|
-
|
|
|
|
-
|
|
The grants to senior management and directors vest
over a five-year period in equal installments, with the first installment vesting on the anniversary date of the grant and succeeding
installments on each anniversary thereafter, through 2024.
The compensation expense of the awards is based on
the fair value of the instruments on the date of the grant.
SENECA FINANCIAL CORP. AND SUBSIDIARIES
Notes
to the consolidated Financial Statements
FOR
THE years ended december 31, 2019 and 2018
10. EMPLOYEE BENEFIT PLANS — (Continued)
The Company recorded compensation expense in the
amount of $11,970 for the twelve months ended December 31, 2019. There were no grants of awards during the twelve months ended
December 31, 2018.
Compensation costs related to share-based
payments transactions are recognized based on the grant-date fair value of the stock-based compensation issued. Compensation costs
are recognized over the period than an employee provides service in exchange for the award. Compensation costs related to the employee
Stock Ownership plan are dependent upon the average stock price and the shares committed to be released to the plan participants
through the period in which income is reported.
In August of 2019, the board of
directors of the Company approved the grant of stock option awards to its directors and executive officers under the 2019
Equity Plan that had 96,967 shares authorized for option awards. A total of 47,500 stock option awards were granted to five
directors and nine officers of the Company at an exercise price of $9.20 per share. The awards will vest ratably over five
years (20% per year for each year of the participant’s service with the Company) and will expire ten years from the
date of the grant, or September 2029. The fair value of each option grant was established at the date of grant using the
Black-Scholes option pricing model. The Black-Scholes model used the following weighted average assumptions: risk-free
interest rate of 1.5%;volatility factors of the expected market price of the Company's common stock of 21.23%; weighted
average expected lives of the options of 7.5 years. Based upon these assumptions, the weighted average fair value of options
granted was $2.52.
11. FAIR VALUE MEASUREMENT AND FAIR VALUE OF FINANCIAL INSTRUMENTS
Management uses its best judgment in estimating
the fair value of the Company’s assets and liabilities; however, there are inherent weaknesses in any estimation technique.
Therefore, for substantially all assets and liabilities, the fair value estimates herein are not necessarily indicative of the
amounts the Company could have realized in a sales transaction on the dates indicated. The estimated fair value amounts have been
measured as of their respective year-ends and have not been re-evaluated or updated for purposes of these consolidated financial
statements subsequent to those respective dates. As such, the estimated fair values of assets and liabilities subsequent to the
respective reporting dates may be different than the amounts reported at each year-end.
Accounting guidance establishes a fair value
hierarchy that prioritizes the inputs to valuation methods used to measure fair value. The hierarchy gives the highest priority
to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority
to unobservable inputs (Level 3 measurements). The three levels of the fair value hierarchy are as follows:
Level 1: Unadjusted quoted prices
in active markets that are accessible at the measurement date for identical unrestricted assets or liabilities.
SENECA FINANCIAL CORP. AND SUBSIDIARIES
Notes
to the consolidated Financial Statements
FOR
THE years ended december 31, 2019 and 2018
11. FAIR VALUE MEASUREMENT AND FAIR VALUE OF FINANCIAL INSTRUMENTS
— (Continued)
Level 2: Quoted prices in markets
that are not active, or inputs that are observable either directly or indirectly, for substantially the full term of the asset
or liability.
Level 3: Prices or valuation techniques
that require inputs that are both significant to the fair value measurement and unobservable (i.e. supported with little or no
market activity).
An asset or liability’s level within
the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement.
For financial assets measured at fair value on a
recurring basis, the fair value measurements by level within the fair value hierarchy used are as follows:
|
|
Total
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
|
(In Thousands of Dollars)
|
|
Available-for-sale Securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Government Agency Securities
|
|
$
|
1,106
|
|
|
|
-
|
|
|
$
|
1,106
|
|
|
|
-
|
|
Municipal securities
|
|
|
10,623
|
|
|
|
-
|
|
|
|
10,623
|
|
|
|
-
|
|
Mortgage-backed securities and collateralized mortgage obligations
|
|
|
10,852
|
|
|
|
-
|
|
|
|
10,852
|
|
|
|
-
|
|
Corporate securities
|
|
|
5,378
|
|
|
|
-
|
|
|
|
5,378
|
|
|
|
-
|
|
|
|
$
|
27,959
|
|
|
$
|
-
|
|
|
$
|
27,959
|
|
|
$
|
-
|
|
December 31, 2018:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Municipal securities
|
|
$
|
9,679
|
|
|
$
|
-
|
|
|
$
|
9,679
|
|
|
$
|
-
|
|
Mortgage-backed securities and collateralized mortgage obligations
|
|
|
10,779
|
|
|
|
-
|
|
|
|
10,779
|
|
|
|
-
|
|
Corporate securities
|
|
|
5,716
|
|
|
|
-
|
|
|
|
5,716
|
|
|
|
-
|
|
|
|
$
|
26,174
|
|
|
$
|
-
|
|
|
$
|
26,174
|
|
|
$
|
-
|
|
There were no securities transferred out
of level 2 securities available-for-sale during the twelve months ended December 31, 2019 and 2018.
Required disclosures include fair value information
about financial instruments, whether or not recognized in the consolidated balance sheets, for which it is practicable to estimate
that value. In cases where quoted market prices are not available, fair values are based on estimates using present value or other
valuation techniques. Those techniques are significantly affected by the assumptions used, including the discount rate, and estimates
of future cash flows. In that regard, the fair value estimates cannot be substantiated by comparison to independent markets and,
in many cases, could not be realized in immediate settlement of the instrument. Certain financial instruments and all non-financial
instruments are excluded from the disclosure requirements. Accordingly, the aggregate fair value amounts presented do not represent
the underlying value of the Company.
Due to a wide range of valuation techniques
and the degree of subjectivity used in making the estimates, comparisons between the Company’s disclosures and those of other
companies may not be meaningful. The following methods and assumptions were used to estimate the fair values of certain of the
Company’s assets and liabilities at December 31, 2019 and 2018.
Cash and due from banks
The carrying amounts of these assets approximate
their fair values.
SENECA FINANCIAL CORP. AND SUBSIDIARIES
Notes
to the consolidated Financial Statements
FOR
THE years ended december 31, 2019 and 2018
11. FAIR VALUE MEASUREMENT AND FAIR VALUE OF FINANCIAL INSTRUMENTS
— (Continued)
Securities Available-For-Sale
The fair value of securities available-for-sale
(carried at fair value) are determined by matrix pricing, which is a mathematical technique used widely in the industry to value
debt securities without relying exclusively on quoted market prices for the specific securities but rather relying on the securities’
relationship to other benchmark quoted prices and is a Level 2 measurement.
Investment in FHLBNY Stock
The carrying value of FHLBNY stock approximates
its fair value based on the redemption provisions of the FHLBNY stock, resulting in a Level 2 classification.
Loans, Net
The fair values of loans held in portfolio
are estimated using discounted cash flow analyses, using market rates at the balance sheet date that reflect the credit and interest
rate-risk inherent in the loans, resulting in a Level 3 classification. Projected future cash flows are calculated based upon contractual
maturity or call dates, projected repayments, and prepayments of principal. Generally, for variable rate loans that reprice frequently
and with no significant change in credit risk, fair values are based on carrying values.
Accrued Interest Receivable and Payable and Advances from
Borrowers for Taxes and Insurance
The carrying amount approximates fair
value.
Deposits
The fair values disclosed for demand deposits
(e.g., NOW accounts, non-interest checking, regular savings and certain types of money market accounts) are, by definition, equal
to the amount payable on demand at the reporting date (i.e., their carrying amounts), resulting in a Level 1 classification. The
carrying amounts for variable-rate certificates of deposit approximate their fair values at the reporting date, resulting in a
Level 1 classification. Fair values for fixed-rate certificates of deposit are estimated using a discounted cash flow calculation
that applies market interest rates currently being offered on certificates to a schedule of aggregated expected monthly maturities
on time deposits, resulting in a Level 2 classification.
Advances and borrowings from FHLB
The fair values of FHLB long-term borrowings
are estimated using discounted cash flow analyses, based on the quoted rates for new FHLB advances with similar credit risk characteristics,
terms and remaining maturity, resulting in a Level 2 classification.
|
|
Fair Value
|
|
Carrying
|
|
|
Fair
|
|
|
|
Hierarchy
|
|
Amount
|
|
|
Value
|
|
|
|
(In Thousands of Dollars)
|
December 31, 2019:
|
|
|
|
|
|
|
|
|
Financial assets:
|
|
|
|
|
|
|
|
|
|
|
Cash and due from banks
|
|
Level 1
|
|
$
|
3,094
|
|
|
$
|
3,094
|
|
Securities available-for-sale
|
|
Level 2
|
|
|
27,959
|
|
|
|
27,959
|
|
Investment in FHLB stock
|
|
Level 2
|
|
|
2,820
|
|
|
|
2,820
|
|
Loans, net
|
|
Level 3
|
|
|
164,388
|
|
|
|
160,972
|
|
Accrued interest receivable
|
|
Level 1
|
|
|
799
|
|
|
|
799
|
|
SENECA FINANCIAL CORP. AND SUBSIDIARIES
Notes
to the consolidated Financial Statements
FOR
THE years ended december 31, 2019 and 2018
11. FAIR VALUE MEASUREMENT AND FAIR VALUE OF FINANCIAL INSTRUMENTS — (Continued)
|
|
Fair Value
|
|
Carrying
|
|
|
Fair
|
|
|
|
Hierarchy
|
|
Amount
|
|
|
Value
|
|
|
|
(In Thousands of Dollars)
|
Financial liabilities:
|
|
|
|
|
|
|
|
|
|
|
Deposits
|
|
Level 1/2
|
|
|
151,911
|
|
|
|
150,792
|
|
Advances and borrowings from FHLB
|
|
Level 2
|
|
|
32,900
|
|
|
|
32,900
|
|
Accrued interest payable
|
|
Level 1
|
|
|
106
|
|
|
|
106
|
|
Advances from borrowers for taxes and insurance
|
|
Level 1
|
|
|
2,234
|
|
|
|
2,234
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2018:
|
|
|
|
|
|
|
|
|
|
|
Financial assets:
|
|
|
|
|
|
|
|
|
|
|
Cash and due from banks
|
|
Level 1
|
|
$
|
3,470
|
|
|
$
|
3,470
|
|
Securities available-for-sale
|
|
Level 2
|
|
|
26,174
|
|
|
|
26,174
|
|
Investment in FHLB stock
|
|
Level 2
|
|
|
2,622
|
|
|
|
2,622
|
|
Loans, net
|
|
Level 3
|
|
|
154,650
|
|
|
|
150,337
|
|
Accrued interest receivable
|
|
Level 1
|
|
|
771
|
|
|
|
771
|
|
Financial liabilities:
|
|
|
|
|
|
|
|
|
|
|
Deposits
|
|
Level 1/2
|
|
|
143,975
|
|
|
|
139,742
|
|
Advances and borrowings from FHLB
|
|
Level 2
|
|
|
28,350
|
|
|
|
28,350
|
|
Accrued interest payable
|
|
Level 1
|
|
|
62
|
|
|
|
62
|
|
Advances from borrowers for taxes and insurance
|
|
Level 1
|
|
|
2,127
|
|
|
|
2,127
|
|
The carrying amounts and estimated fair values
of the Company’s financial instruments at December 31, 2019 and December 31, 2018 are as follows:
Assets Measured at Fair Value on a Nonrecurring Basis
In addition to disclosure of the fair value
of assets on a recurring basis, ASC Topic 820 requires disclosures for assets and liabilities measured at fair value on a nonrecurring
basis, such as impaired assets and foreclosed real estate. Loans are generally not recorded at fair value on a recurring basis.
Periodically, the Company records nonrecurring adjustments to the carrying value of loans based on fair value measurements for
partial charge-offs of the uncollectible portions of these loans. Nonrecurring adjustments also include certain impairment amounts
for collateral-dependent loans calculated as required by ASC Topic 310, “Receivables — Loan Impairment”
when establishing the allowance for loan losses. Impaired loans are those in which the Company has measured impairment generally
based on the fair value of the loan’s collateral less estimated selling costs. Fair value of real estate collateral is generally
determined based upon independent third-party appraisals of the properties, which consider sales prices of similar properties in
the proximate vicinity or by discounting expected cash flows from the properties by an appropriate risk adjusted discount rate.
Management may adjust the appraised values as deemed appropriate. Fair values of collateral other than real estate is based on
an estimate of the liquidation proceeds. Impaired loans and foreclosed real estate are included as Level 3 fair values, based upon
the lowest level of input that is significant to the fair value measurements. The fair value consists of the asset balances net
of a valuation allowance.
SENECA FINANCIAL CORP. AND SUBSIDIARIES
Notes
to the consolidated Financial Statements
FOR
THE years ended december 31, 2019 and 2018
11. FAIR VALUE MEASUREMENT AND FAIR VALUE OF FINANCIAL INSTRUMENTS — (Continued)
For assets measured at fair value on a nonrecurring
basis, the fair value measurements by level within the fair value hierarchy used at December 31, 2019 and 2018 were as follows:
|
|
Total
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
|
(In Thousands of Dollars)
|
|
December 31, 2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
Impaired loans
|
|
$
|
310
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
310
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2018:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impaired loans
|
|
$
|
742
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
742
|
|
The following table presents additional quantitative
information about assets measured at fair value on a nonrecurring basis and for which Level 3 inputs were used to determine fair
value:
|
|
Quantitative Information about Level 3
Fair Value Measurements
|
|
|
|
|
|
|
Valuation
Techniques
|
|
Unobservable
Input
|
|
Adjustment
|
Impaired loans
|
|
Lower of appraisal of collateral
or asking price less selling costs
|
|
Appraisal adjustments
|
|
10%
|
|
|
|
|
Costs to sell
|
|
10%
|
Foreclosed real estate
|
|
Market valuation of property
|
|
Costs to sell
|
|
10%
|
At December 31, 2019 and 2018, the fair value
consists of loan balances of $327,000 and $780,000, respectively, net of a valuation allowance of
$17,000 and $38,000, respectively.
At December 31, 2019 and 2018, there was
no foreclosed real estate whose value was written down utilizing Level 3 inputs.
Once a loan is foreclosed, the fair value
of the real estate continues to be evaluated based upon the market value of the repossessed real estate originally securing the
loan. At December 31, 2019 and 2018, the Company did not have foreclosed real estate.
12. COMMITMENTS AND CONTINGENCIES
The Company is at times, and in the ordinary
course of business, subject to legal actions. Management believes that losses, if any, resulting from current legal actions will
not have a material adverse effect on the Company’s consolidated financial condition or results of operations.
The Company is a party to financial instruments
with off-balance sheet risk in the normal course of business to meet the financing needs of its customers. These financial instruments
include commitments to extend credit and involve, to varying degrees, elements of credit, market, and interest rate risk more than
the amounts recognized in the consolidated statements of financial condition.
The Company’s exposure to credit loss
in the event of nonperformance by the other party to the financial instrument for loan commitments is represented by the contractual
amount of these instruments. The Company uses the same credit policies in making commitments as it does for on-balance sheet instruments.
SENECA FINANCIAL CORP. AND SUBSIDIARIES
Notes
to the consolidated Financial Statements
FOR
THE years ended december 31, 2019 and 2018
12. COMMITMENTS AND CONTINGENCIES — (Continued)
As of the dates indicated, the following
financial instruments were outstanding whose contract amounts represent credit risk:
|
|
December 31,
|
|
|
|
2019
|
|
|
2018
|
|
|
|
(In Thousands of Dollars)
|
|
Commitments to Grant Loans
|
|
$
|
816
|
|
|
$
|
2,698
|
|
Unfunded Commitments Under Lines of Credit
|
|
$
|
5,887
|
|
|
$
|
5,349
|
|
Commitments to extend credit are agreements
to lend to a customer if there is no violation of any conditions established in the contract. Commitments generally have fixed
expiration dates or other termination clauses. Since some of the commitments are expected to expire without being drawn upon, the
total commitment amounts do not necessarily represent future cash requirements. The amount of collateral obtained, if deemed necessary
by the Company, is based on management’s credit evaluation of the customer.
Unfunded commitments under commercial lines
of credit, revolving credit lines and overdraft protection agreements are commitments for possible future extensions of credit
to existing customers. These lines of credit are uncollateralized and usually do not contain a specified maturity date and may
not be drawn upon to the total extent to which the Company is committed.
13. REGULATORY CAPITAL REQUIREMENTS
The Bank is subject to various regulatory
capital requirements administered by federal banking agencies. Failure to meet minimum capital requirements can initiate certain
mandatory, and possibly additional discretionary, actions by regulators, which if undertaken, could have a direct material effect
on the Company’s financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective
action, the Bank must meet specific capital guidelines that involve quantitative measures of the Bank’s assets, liabilities,
and certain off-balance-sheet items as calculated under regulatory accounting practices.
The final rules implementing Basel Committee
on Banking Supervision’s capital guidelines for U.S. banks (Basel III rules) became effective for the Bank on January 1,
2015 with full compliance with all the requirements being phased in over a multi-year schedule, and fully phased in by January
1, 2019.
The Bank’s capital amounts and classifications
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 Bank to maintain minimum amounts and ratios set forth in the table below of total, Tier
1, and Tier 1 common equity capital (as defined in the regulations) to risk weighted assets (as defined), and of Tier 1 capital
to average assets (as defined). Management believes, as of December 31, 2019 and 2018, that the Bank met all capital adequacy requirements
to which it is subject.
SENECA FINANCIAL CORP. AND SUBSIDIARIES
Notes
to the consolidated Financial Statements
FOR
THE years ended december 31, 2019 and 2018
13. REGULATORY CAPITAL REQUIREMENTS — (Continued)
As of December 31, 2019, the most recent
notification from the Office of the Comptroller of the Currency categorized the Bank as well capitalized under the regulatory framework
for prompt corrective action. To be categorized as well capitalized, the Bank must maintain minimum total risk- based, Tier 1 risk-based,
Tier 1 common equity risk-based and Tier 1 leverage ratios as set forth in the table below. There are no conditions or events since
that notification that management believes have changed the Bank’s category. The Bank’s actual capital amounts and
ratios as of December 31, 2019 and 2018, are as follows:
|
|
Actual
|
|
|
Capital Adequacy
Purposes
|
|
|
To be Well Capitalized
Under Prompt and
Corrective Action
Provisions
|
|
|
Minimum Capital
Adequacy with Buffer
|
|
|
|
Amount
|
|
|
Ratio
|
|
|
Amount
|
|
|
Ratio
|
|
|
Amount
|
|
|
Ratio
|
|
|
Amount
|
|
|
Ratio
|
|
|
|
(In Thousands of Dollars)
|
|
As of December 31, 2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total core capital to risk weighted assets
|
|
$
|
22,427
|
|
|
|
16.32
|
%
|
|
$
|
10,992
|
|
|
|
8.00
|
%
|
|
$
|
13,740
|
|
|
|
10.00
|
%
|
|
$
|
14,427
|
|
|
|
10.50
|
%
|
Tier 1 capital to risk weighted assets
|
|
|
21,186
|
|
|
|
15.42
|
%
|
|
|
8,244
|
|
|
|
6.00
|
%
|
|
|
10,992
|
|
|
|
8.00
|
%
|
|
|
11,679
|
|
|
|
8.50
|
%
|
Tier 1 common equity to risk weighted assets
|
|
|
21,186
|
|
|
|
15.42
|
%
|
|
|
6,183
|
|
|
|
4.50
|
%
|
|
|
8,931
|
|
|
|
6.50
|
%
|
|
|
9,618
|
|
|
|
7.00
|
%
|
Tier 1 capital to assets
|
|
|
21,186
|
|
|
|
10.10
|
%
|
|
|
8,394
|
|
|
|
4.00
|
%
|
|
|
10,493
|
|
|
|
5.00
|
%
|
|
|
10,493
|
|
|
|
5.00
|
%
|
As of December 31, 2018:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total core capital to risk weighted assets
|
|
$
|
21,128
|
|
|
|
17.51
|
%
|
|
$
|
9,655
|
|
|
|
8.00
|
%
|
|
$
|
12,069
|
|
|
|
10.00
|
%
|
|
$
|
12,673
|
|
|
|
10.50
|
%
|
Tier 1 capital to risk weighted assets
|
|
|
19,894
|
|
|
|
16.48
|
%
|
|
|
7,242
|
|
|
|
6.00
|
%
|
|
|
9,655
|
|
|
|
8.00
|
%
|
|
|
10,259
|
|
|
|
8.50
|
%
|
Tier 1 common equity to risk weighted assets
|
|
|
19,894
|
|
|
|
16.48
|
%
|
|
|
5,431
|
|
|
|
4.50
|
%
|
|
|
7,845
|
|
|
|
6.50
|
%
|
|
|
8,448
|
|
|
|
7.00
|
%
|
Tier 1 capital to assets
|
|
|
19,894
|
|
|
|
10.27
|
%
|
|
|
7,745
|
|
|
|
4.00
|
%
|
|
|
9,681
|
|
|
|
5.00
|
%
|
|
|
9,681
|
|
|
|
5.00
|
%
|
14. EARNINGS PER SHARE COMMON
Basic earnings per share is calculated by
dividing net income available to common stockholders by the weighted average number of common shares outstanding during the period.
Net income available to common stockholders is net income to the Company. The Company has granted 47,500 stock options to Directors
and Officers and, during the twelve months ended December 31, 2019 had no potentially dilutive common stock equivalents. Unallocated
common shares held by the ESOP are not included in the weighted-average number of common shares outstanding for purposes of calculating
earnings per common share until they are committed to be released.
SENECA FINANCIAL CORP. AND SUBSIDIARIES
Notes
to the consolidated Financial Statements
FOR
THE years ended december 31, 2019 and 2018
14. EARNINGS PER SHARE COMMON — (Continued)
The following table sets forth the calculation of
basic and diluted earnings per share.
|
|
Year ended December 31,
|
|
(Dollars in Thousands Except per Share Data)
|
|
2019
|
|
|
2018
|
|
|
|
(In thousands of dollars except per
share data)
|
|
Basic and diluted earnings per common share:
|
|
|
|
|
|
|
Net income available to common stockholders
|
|
$
|
1,117
|
|
|
$
|
850
|
|
Weighted average common shares outstanding basic and diluted
|
|
|
1,863,957
|
|
|
|
1,904,516
|
|
|
|
$
|
0.60
|
|
|
$
|
0.45
|
|
15. NON-INTEREST INCOME
During the twelve months ended December 31,
2018, the Company adopted the amendments of ASU 2014-09 — Revenue from Contracts with Customers (Topic
606) and all subsequent ASUs that modified Topic 606. The Company has included the following tables regarding the Company’s
non-interest income for the periods presented.
|
|
For the year ended December 31,
|
|
|
|
2019
|
|
|
2018
|
|
|
|
(Dollars in Thousands)
|
|
Service fees
|
|
|
|
|
|
|
|
|
Deposit related fees
|
|
$
|
38
|
|
|
$
|
50
|
|
Loan servicing income
|
|
|
94
|
|
|
|
85
|
|
Total service fees
|
|
|
132
|
|
|
|
135
|
|
Income from financial services
|
|
|
|
|
|
|
|
|
Securities commission income
|
|
|
285
|
|
|
|
251
|
|
Insurance commission income
|
|
|
15
|
|
|
|
17
|
|
Total insurance and securities commission income
|
|
|
300
|
|
|
|
268
|
|
Card income
|
|
|
|
|
|
|
|
|
Debit card interchange fee income
|
|
|
94
|
|
|
|
81
|
|
ATM fees
|
|
|
19
|
|
|
|
12
|
|
Insufficient fund fees
|
|
|
154
|
|
|
|
70
|
|
Total card and insufficient funds income
|
|
|
267
|
|
|
|
163
|
|
Realized gain on sale of residential mortgage loans, avaliable for sale securities and fixed assets
|
|
|
|
|
|
|
|
|
Realized gain on sales of residential mortgage loans
|
|
|
60
|
|
|
|
30
|
|
Realized net gain on available-for-sales securities
|
|
|
7
|
|
|
|
-
|
|
Realized gain on sale of fixed assets
|
|
|
9
|
|
|
|
-
|
|
Bank owned life insurance
|
|
|
54
|
|
|
|
56
|
|
Other miscellaneous income
|
|
|
26
|
|
|
|
20
|
|
Total non-interest income
|
|
$
|
855
|
|
|
$
|
672
|
|
SENECA FINANCIAL CORP. AND SUBSIDIARIES
Notes
to the consolidated Financial Statements
FOR
THE years ended december 31, 2019 and 2018
15. NON-INTEREST INCOME — (Continued)
The following is a discussion of key revenues
within the scope of the new revenue guidance:
|
•
|
Service fees — Revenue from fees on deposit accounts is earned at the time that the charge is assessed
to the customer’s account. Fee waivers are discretionary and usually reversed within the same reporting period as assessed.
|
|
•
|
Fee income — Fee income is earned through commissions and is satisfied over the time which the fee has
been assessed.
|
|
•
|
Card income and insufficient funds fees — Card income consists of interchange fees from consumer debit
card networks and other card related services. Interchange rates are set by the card networks. Interchange fees are based on purchase
volumes and other factors and are recognized as transactions occur. Insufficient funds fees are satisfied at the time the charge
is assessed to the customer’s account.
|
|
•
|
Realized gains on sale of residential mortgage loans and available-for-sale securities are realized at the time the transaction
occurs.
|
16. Parent company
only financial information
The following condensed financial statements
summarize the financial position and results of operations and cash flows of the parent savings and loan holding company, Seneca
Financial Corp., as of December 31, 2019, and 2018 and for the years then ended.
Parent Only Condensed Balance Sheets
|
|
December 31,
|
|
|
|
2019
|
|
|
2018
|
|
|
|
(In Thousands of Dollars)
|
|
Assets
|
|
|
|
|
|
|
|
|
Cash in bank subsidiary
|
|
$
|
1,215
|
|
|
$
|
1,895
|
|
Investments in subsidiaries, at underlying equity
|
|
|
19,088
|
|
|
|
16,710
|
|
Loan receivable - ESOP
|
|
|
745
|
|
|
|
759
|
|
Other assets
|
|
|
63
|
|
|
|
47
|
|
Total assets
|
|
$
|
21,111
|
|
|
$
|
19,411
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Stockholders' Equity
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
Other liabilities
|
|
$
|
42
|
|
|
$
|
-
|
|
Total liabilities
|
|
|
42
|
|
|
|
-
|
|
Stockholders' equity:
|
|
|
|
|
|
|
|
|
Total stockholders' equity
|
|
|
21,069
|
|
|
|
19,411
|
|
Total liabilities and stockholders' equity
|
|
$
|
21,111
|
|
|
$
|
19,411
|
|
SENECA FINANCIAL CORP. AND SUBSIDIARIES
Notes
to the consolidated Financial Statements
FOR
THE years ended december 31, 2019 and 2018
16. Parent company
only financial information — (Continued)
Parent Only Condensed Statements of Income
|
|
Year Ended
|
|
|
|
December
31,
|
|
|
|
2019
|
|
|
2018
|
|
|
|
(In Thousands of Dollars)
|
|
Interest income:
|
|
|
|
|
|
|
|
|
Income on ESOP loan
|
|
$
|
31
|
|
|
$
|
31
|
|
Total interest income
|
|
|
31
|
|
|
|
31
|
|
|
|
|
|
|
|
|
|
|
Non-interest expenses:
|
|
|
|
|
|
|
|
|
Professional fees
|
|
|
151
|
|
|
|
75
|
|
Other non-interest expense
|
|
|
12
|
|
|
|
86
|
|
Total non-interest expense
|
|
|
163
|
|
|
|
161
|
|
|
|
|
|
|
|
|
|
|
Loss before taxes
|
|
|
(132
|
)
|
|
|
(130
|
)
|
|
|
|
|
|
|
|
|
|
Income tax (expense) benefit
|
|
|
(21
|
)
|
|
|
21
|
|
Loss before equity in undistributed earnings of Bank
|
|
|
(153
|
)
|
|
|
(109
|
)
|
|
|
|
|
|
|
|
|
|
Equity in undistributed earnings of Bank
|
|
|
1,270
|
|
|
|
959
|
|
Net income
|
|
$
|
1,117
|
|
|
$
|
850
|
|
Parent Only Statement of Cash Flows
|
|
Year Ended
|
|
|
|
December 31,
|
|
|
|
2019
|
|
|
2018
|
|
|
|
(In Thousands of Dollars)
|
|
Cash flows from operating activities:
|
|
$
|
1,117
|
|
|
$
|
850
|
|
Net income
|
|
|
|
|
|
|
|
|
Adjustments to reconcile net income to net cash provided by operating activities:
|
|
|
|
|
|
|
|
|
Equity in undistributed income of Bank
|
|
|
(1,270
|
)
|
|
|
(959
|
)
|
Increase in other assets
|
|
|
(16
|
)
|
|
|
(36
|
)
|
Stock based compensation expense
|
|
|
12
|
|
|
|
-
|
|
Increase (decrease) in other liabilities
|
|
|
42
|
|
|
|
(53
|
)
|
Net used in operating activities
|
|
|
(115
|
)
|
|
|
(198
|
)
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
Payments received on ESOP loan
|
|
|
14
|
|
|
|
14
|
|
Net cash used in investing activities
|
|
|
14
|
|
|
|
14
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
Repurchase of shares into treasury stock
|
|
|
(579
|
)
|
|
|
-
|
|
Net cash provided by financing activities
|
|
|
(579
|
)
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Net change in cash and cash equivalents
|
|
|
(680
|
)
|
|
|
(184
|
)
|
Cash and cash equivalents -beginning of year
|
|
|
1,895
|
|
|
|
2,079
|
|
Cash and cash equivalents - end of year
|
|
$
|
1,215
|
|
|
$
|
1,895
|
|