XNAS:ONFC Oneida Financial Corp Quarterly Report 10-Q Filing - 6/30/2012

Effective Date 6/30/2012

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Table of Contents

 

 

 

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC  20549

 


 

FORM 10-Q

 

x      QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended June 30, 2012

 

OR

 

o         TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from                     to                     

 

Securities Exchange Act Number 001-34813

 

ONEIDA FINANCIAL CORP.

(Exact name of registrant as specified in its charter)

 

Maryland

 

80-0632920

(State or other jurisdiction of

 

(IRS Employer)

incorporation or organization)

 

Identification Number)

 

182 Main Street, Oneida, New York 13421

(Address of Principal Executive Offices)

 

(315) 363-2000

Registrant’s telephone number, including area code

 

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Sections 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No o

 

Indicate by check mark whether the Registrant is a large accelerated file, an accelerated filer, or a non-accelerated filer.  See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check One):

 

Large accelerated filer o

 

Accelerated filer o

 

 

 

Non-accelerated filer o

 

Smaller reporting company x

 

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act.). Yes o No x

 

APPLICABLE ONLY TO CORPORATE ISSUERS:

 

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: There were 6,809,596 shares of the Registrant’s common stock outstanding as of August 1, 2012.

 

 

 



Table of Contents

 

ONEIDA FINANCIAL CORP.

 

INDEX

 

 

 

Page

 

 

 

PART I. FINANCIAL INFORMATION

 

 

 

 

Item 1.

Financial Statements

1

 

 

 

 

Consolidated Statements of Condition (unaudited) As of June 30, 2012 and December 31, 2011

2

 

 

 

 

Consolidated Statements of Operations (unaudited) For the three and six months ended June 30, 2012 and 2011

3

 

 

 

 

Consolidated Statements of Comprehensive Income (Loss) (unaudited) For the three and six months ended June 30, 2012 and 2011

4

 

 

 

 

Consolidated Statements of Changes in Stockholders’ Equity (unaudited) For the six months ended June 30, 2012

5

 

 

 

 

Consolidated Statements of Cash Flows (unaudited) For the six months ended June 30, 2012 and 2011

6

 

 

 

 

Notes to Consolidated Financial Statements (unaudited)

7

 

 

 

Item 2.

Management’s Discussion and Analysis of Financial Condition And Results of Operations

29

 

 

 

Item 3.

Quantitative and Qualitative Disclosures about Market Risk

41

 

 

 

Item 4.

Controls and Procedures

41

 

 

 

PART II.

OTHER INFORMATION

42

 

 

 

Item 1.

Legal Proceedings

42

 

 

 

Item 1a.

Risk Factors

42

 

 

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

42

 

 

 

Item 3.

Defaults Upon Senior Securities

43

 

 

 

Item 4.

Mine Safety Disclosures

43

 

 

 

Item 5.

Other Information

43

 

 

 

Item 6.

Exhibits

43

 



Table of Contents

 

PART I. FINANCIAL INFORMATION

 

 

Item I.    Financial Statements

 

 

1



Table of Contents

 

ONEIDA FINANCIAL CORP. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CONDITION

At June 30, 2012 (unaudited) and December 31, 2011 (unaudited)

 

 

 

At June 30,

 

At December 31,

 

 

 

2012

 

2011

 

 

 

(in thousands, except share data)

 

ASSETS

 

 

 

 

 

Cash and due from banks

 

$

13,740

 

$

22,910

 

Federal funds sold

 

2,596

 

17,662

 

 

 

 

 

 

 

TOTAL CASH AND CASH EQUIVALENTS

 

16,336

 

40,572

 

 

 

 

 

 

 

Trading securities

 

7,687

 

7,010

 

Securities, available for sale

 

237,032

 

193,605

 

Securities, held to maturity (fair value $36,494 and $49,264 respectively)

 

34,738

 

47,199

 

 

 

 

 

 

 

Mortgage loans held for sale

 

833

 

688

 

 

 

 

 

 

 

Loans receivable

 

294,651

 

287,819

 

Deferred fees

 

927

 

997

 

Allowance for loan losses

 

(2,506

)

(2,900

)

 

 

 

 

 

 

LOANS RECEIVABLE, NET

 

293,072

 

285,916

 

 

 

 

 

 

 

Federal Home Loan Bank stock

 

2,364

 

2,102

 

Bank premises and equipment, net

 

21,005

 

21,380

 

Accrued interest receivable

 

2,325

 

2,226

 

Bank owned life insurance

 

17,196

 

16,978

 

Other assets

 

18,912

 

21,090

 

Goodwill

 

23,982

 

23,982

 

Other intangible assets

 

792

 

965

 

 

 

 

 

 

 

TOTAL ASSETS

 

$

676,274

 

$

663,713

 

 

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

Liabilities:

 

 

 

 

 

Interest bearing deposits

 

$

487,367

 

$

481,505

 

Non-interest bearing deposits

 

73,274

 

69,119

 

Borrowings

 

14,000

 

11,000

 

Other liabilities

 

11,216

 

14,128

 

 

 

 

 

 

 

TOTAL LIABILITIES

 

585,857

 

575,752

 

Oneida Financial Corp. Stockholders’ equity:

 

 

 

 

 

Preferred stock, 10,000,000 shares authorized

 

 

 

Common stock ($.01 par value; 30,000,000 shares authorized 6,809,596 and 6,915,570 issued)

 

68

 

69

 

Additional paid-in capital

 

42,357

 

43,396

 

Retained earnings

 

49,465

 

47,211

 

Accumulated other comprehensive loss

 

(976

)

(2,122

)

Treasury stock (at cost, 0 and 2,521 shares)

 

 

(20

)

Unallocated ESOP (78,956 and 78,956 shares)

 

(556

)

(632

)

 

 

 

 

 

 

Total Oneida Financial Corp stockholders’ equity

 

90,358

 

87,902

 

Noncontrolling interest

 

59

 

59

 

 

 

 

 

 

 

TOTAL STOCKHOLDERS’ EQUITY

 

90,417

 

87,961

 

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY

 

$

676,274

 

$

663,713

 

 

The accompanying notes are an integral part of the consolidated financial statements

 

2



Table of Contents

 

ONEIDA FINANCIAL CORP. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

For the Three and Six Months Ended June 30, 2012 (unaudited) and 2011 (unaudited)

 

 

 

Three Months Ended

 

Six Months Ended

 

 

 

June 30,

 

June 30,

 

June 30,

 

June 30,

 

 

 

2012

 

2011

 

2012

 

2011

 

 

 

(in thousands, except share and per share data)

 

INTEREST INCOME:

 

 

 

 

 

 

 

 

 

Interest and fees on loans

 

$

3,760

 

$

3,852

 

$

7,568

 

$

7,783

 

Interest on investment securities

 

1,903

 

2,117

 

3,710

 

4,115

 

Dividends on equity securities

 

70

 

60

 

140

 

122

 

Interest on federal funds sold and interest-earning deposits

 

7

 

5

 

13

 

13

 

Total interest and dividend income

 

5,740

 

6,034

 

11,431

 

12,033

 

INTEREST EXPENSE:

 

 

 

 

 

 

 

 

 

Core deposits

 

293

 

349

 

574

 

806

 

Time deposits

 

408

 

537

 

834

 

1,108

 

Borrowings

 

117

 

133

 

235

 

263

 

Note payable

 

2

 

2

 

3

 

4

 

Total interest expense

 

820

 

1,021

 

1,646

 

2,181

 

NET INTEREST INCOME

 

4,920

 

5,013

 

9,785

 

9,852

 

Less: Provision for loan losses

 

150

 

550

 

300

 

950

 

Net interest income after provision for loan losses

 

4,770

 

4,463

 

9,485

 

8,902

 

INVESTMENT GAINS (LOSSES):

 

 

 

 

 

 

 

 

 

Total other-than-temporary impairment losses

 

 

(108

)

 

(286

)

Portion of loss recognized in OCI (before taxes)

 

 

27

 

 

 

Net impairment losses

 

 

(81

)

 

(286

)

Net gains on securities

 

60

 

97

 

157

 

78

 

Changes in fair value of trading securities

 

241

 

393

 

677

 

823

 

Total investment gains

 

301

 

409

 

834

 

615

 

NON-INTEREST INCOME:

 

 

 

 

 

 

 

 

 

Commissions and fees on sales of non-banking products

 

5,420

 

5,084

 

10,923

 

10,029

 

Other operating income

 

1,115

 

1,222

 

2,439

 

2,314

 

Total non-interest income

 

6,535

 

6,306

 

13,362

 

12,343

 

NON-INTEREST EXPENSES:

 

 

 

 

 

 

 

 

 

Compensation and employee benefits

 

5,830

 

5,793

 

11,864

 

11,380

 

Occupancy expenses, net

 

1,128

 

1,204

 

2,334

 

2,418

 

Other operating expense

 

2,074

 

1,784

 

4,213

 

3,788

 

Total non-interest expenses

 

9,032

 

8,781

 

18,411

 

17,586

 

INCOME BEFORE INCOME TAXES

 

2,574

 

2,397

 

5,270

 

4,274

 

Provision for income taxes

 

675

 

637

 

1,367

 

1,037

 

NET INCOME

 

1,899

 

1,760

 

3,903

 

3,237

 

Less: net income attributable to noncontrolling interest

 

 

64

 

3

 

128

 

NET INCOME attributable to Oneida Financial Corp.

 

$

1,899

 

$

1,696

 

$

3,900

 

$

3,109

 

EARNINGS PER SHARE — BASIC

 

$

0.28

 

$

0.24

 

$

0.57

 

$

0.44

 

EARNINGS PER SHARE — DILUTED

 

$

0.28

 

$

0.24

 

$

0.57

 

$

0.44

 

 

The accompanying notes are an integral part of the consolidated financial statements.

 

3



Table of Contents

 

ONEIDA FINANCIAL CORP. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

For the Three and Six Months Ended June 30, 2012 (unaudited) and 2011 (unaudited)

 

 

 

Three Months Ended

 

Six Months Ended

 

 

 

June 30,

 

June 30,

 

June 30,

 

June 30,

 

 

 

2012

 

2011

 

2012

 

2011

 

 

 

(In thousands)

 

 

 

 

 

Net income

 

$

1,899

 

$

1,760

 

$

3,903

 

$

3,237

 

 

 

 

 

 

 

 

 

 

 

Other comprehensive income (loss), net of tax:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net change in unrealized gains (losses):

 

 

 

 

 

 

 

 

 

Other-than-temporary impaired securities

 

 

 

 

 

 

 

 

 

Available for sale:

 

 

 

 

 

 

 

 

 

Unrealized losses on securities arising during period

 

 

(75

)

 

(103

)

Reclassification adjustment for losses included in net income

 

 

81

 

 

286

 

Net unrealized gains

 

 

6

 

 

183

 

Income tax effect

 

 

(2

)

 

(73

)

Net change in other-than temporary securities

 

 

4

 

 

110

 

 

 

 

 

 

 

 

 

 

 

Securities available for sale:

 

 

 

 

 

 

 

 

 

Unrealized gains on securities arising during period

 

2,349

 

5,120

 

1,997

 

5,430

 

Reclassification adjustment for (gains) included in net income

 

(60

)

(97

)

(157

)

(78

)

Net unrealized gains

 

2,289

 

5,023

 

1,840

 

5,352

 

Income tax effect

 

(916

)

(2,009

)

(736

)

(2,141

)

Net change in securities available for sale

 

1,373

 

3,014

 

1,104

 

3,211

 

 

 

 

 

 

 

 

 

 

 

Unrealized holding gains on securities net of tax

 

1,373

 

3,018

 

1,104

 

3,321

 

 

 

 

 

 

 

 

 

 

 

Change in unrealized loss on pension benefits

 

35

 

31

 

70

 

62

 

Income tax effect

 

(14

)

(13

)

(28

)

(26

)

Net change in pension benefits

 

21

 

18

 

42

 

36

 

 

 

 

 

 

 

 

 

 

 

Other comprehensive gain, net of tax

 

1,394

 

3,036

 

1,146

 

3,357

 

 

 

 

 

 

 

 

 

 

 

Comprehensive Income

 

3,293

 

4,796

 

5,049

 

6,594

 

 

 

 

 

 

 

 

 

 

 

Comprehensive income attributable to the noncontrolling interest

 

 

(64

)

(3

)

(128

)

 

 

 

 

 

 

 

 

 

 

Comprehensive income attributable to Oneida Financial Corp.

 

$

3,293

 

$

4,732

 

$

5,046

 

$

6,466

 

 

The accompanying notes are an integral part of the consolidated financial statements.

 

4



Table of Contents

 

ONEIDA FINANCIAL CORP. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

For the Six Months Ended June 30, 2012 (unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common Stock

 

Total Equity

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

Issued Under

 

Attributable

 

 

 

 

 

 

 

 

 

 

 

Additional

 

 

 

Other

 

 

 

Employee

 

To Oneida

 

Non-

 

 

 

 

 

Common Stock

 

Paid-In

 

Retained

 

Comprehensive

 

Treasury

 

Stock Plans

 

Financial

 

controlling

 

 

 

 

 

Shares

 

Amount

 

Capital

 

Earnings

 

Loss

 

Stock

 

Unearned

 

Corp.

 

Interest

 

Total

 

 

 

(In thousands, except number of shares)

 

Balance as of January 1, 2012

 

6,915,570

 

$

69

 

$

43,396

 

$

47,211

 

$

(2,122

)

$

(20

)

$

(632

)

$

87,902

 

$

59

 

$

87,961

 

Net income

 

 

 

 

3,900

 

 

 

 

3,900

 

3

 

3,903

 

Distributions to non-controlling interest

 

 

 

 

 

 

 

 

 

(3

)

(3

)

Other comprehensive income, net of tax

 

 

 

 

 

1,146

 

 

 

1,146

 

 

1,146

 

Common stock dividends: $0.24 per share

 

 

 

 

(1,646

)

 

 

 

(1,646

)

 

(1,646

)

Stock repurchased and retired

 

(105,974

)

(1

)

(1,058

)

 

 

20

 

 

(1,039

)

 

(1,039

)

Shares committed to be released under ESOP plans

 

 

 

19

 

 

 

 

76

 

95

 

 

95

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance as of June 30, 2012

 

6,809,596

 

$

68

 

$

42,357

 

$

49,465

 

$

(976

)

$

 

$

(556

)

$

90,358

 

$

59

 

$

90,417

 

 

The accompanying notes are an integral part of the consolidated financial statements.

 

5


 


Table of Contents

 

ONEIDA FINANCIAL CORP. AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF CASH FLOWS

For the Six Months Ended June 30, 2012 (unaudited) and 2011 (unaudited)

 

 

 

Six Months Ended

 

 

 

June 30,

 

 

 

2012

 

2011

 

 

 

(in thousands)

 

Operating Activities:

 

 

 

 

 

Net income

 

$

3,903

 

$

3,237

 

Adjustments to reconcile net income to net cash provided by operating activities:

 

 

 

 

 

Depreciation and amortization

 

910

 

893

 

Amortization of premiums/discounts on securities, net

 

406

 

364

 

Net change in fair value of trading securities

 

(677

)

(823

)

Provision for loan losses

 

300

 

950

 

Loss on impairment of securities

 

 

286

 

ESOP shares earned

 

95

 

82

 

Loss on write down or sale of foreclosed assets

 

66

 

80

 

Gain on securities, net

 

(157

)

(78

)

Gain on sale of loans, net

 

(289

)

(127

)

Income tax payable

 

(211

)

(430

)

Accrued interest receivable

 

(99

)

(33

)

Other assets

 

1,638

 

7

 

Other liabilities

 

(3,827

)

(2,091

)

Earnings on bank owned life insurance

 

(218

)

(277

)

Origination of loans held for sale

 

(11,505

)

(6,811

)

Proceeds from sales of loans

 

11,649

 

7,512

 

 

 

 

 

 

 

Net cash used in operating activities

 

1,984

 

2,741

 

 

 

 

 

 

 

Investing Activities:

 

 

 

 

 

Purchase of securities available for sale

 

(91,697

)

(27,512

)

Proceeds from sale of securities available for sale

 

6,913

 

27,403

 

Maturities and calls of securities available for sale

 

35,753

 

18,412

 

Principal collected on securities available for sale

 

8,278

 

6,264

 

Purchase of securities held to maturity

 

(3,302

)

(35,025

)

Maturities and call of securities held to maturity

 

11,655

 

1,027

 

Principal collected on securities held to maturity

 

4,024

 

1,760

 

Proceeds from sale of trading securities

 

 

845

 

Purchase of FHLB stock

 

(862

)

(384

)

Redemption of FHLB stock

 

600

 

325

 

Net (increase) decrease in loans

 

(7,607

)

243

 

Purchase of bank premises and equipment

 

(362

)

(847

)

Proceeds from the sale of foreclosed property

 

71

 

202

 

Purchase of employee benefits company

 

 

(94

)

Purchase of insurance company

 

 

(362

)

 

 

 

 

 

 

Net cash used in investing activities

 

(36,536

)

(7,743

)

 

 

 

 

 

 

Financing Activities:

 

 

 

 

 

Net increase (decrease) in demand deposit, savings, money market, super now and escrow

 

12,076

 

(1,037

)

Net decrease in time deposits

 

(2,059

)

(5,427

)

Proceeds from borrowings

 

3,000

 

 

Dividends on preferred stock of subsidiary held by noncontrolling interest

 

(3

)

(128

)

Repurchase and retirement of common shares

 

(1,039

)

 

Cash dividends

 

(1,659

)

(1,719

)

Stock issued/repurchase — noncontrolling interest

 

 

(1

)

 

 

 

 

 

 

Net cash provided by (used in) financing activities

 

10,316

 

(8,312

)

 

 

 

 

 

 

Decrease in cash and cash equivalents

 

(24,236

)

(13,314

)

Cash and cash equivalents at beginning of period

 

40,572

 

33,741

 

Cash and cash equivalents at end of period

 

$

16,336

 

$

20,427

 

 

 

 

 

 

 

Supplemental disclosures of cash flow information:

 

 

 

 

 

Cash paid for interest

 

$

1,647

 

$

2,188

 

Cash paid for income taxes

 

1,575

 

1,465

 

 

 

 

 

 

 

Supplemental noncash disclosures:

 

 

 

 

 

Transfer of loans to other real estate

 

151

 

487

 

Dividends declared and unpaid

 

817

 

860

 

Notes payable issued in connection with acquisition

 

 

362

 

Purchase of securities not settled

 

1,000

 

 

 

The accompanying notes are an integral part of the consolidated financial statements.

 

6



Table of Contents

 

ONEIDA FINANCIAL CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

JUNE 30, 2012

 

Note A — Basis of Presentation

 

The accompanying unaudited consolidated financial statements include Oneida Financial Corp. (the “Company”), a Maryland corporation and its wholly owned subsidiary, Oneida Savings Bank (the “Bank”) as of June 30, 2012 and December 31, 2011 and for the three and six month periods ended June 30, 2012 and 2011.  All inter-company accounts and transactions have been eliminated in consolidation.  The accompanying unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and with the instructions to Form 10-Q.  Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statements.  The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates, assumptions, and judgments that affect the amounts reported in the financial statements and accompanying notes.  These estimates, assumptions, and judgments are based on information available through the date of the filing of the financial statements; accordingly, as this information changes, the financial statements could reflect different estimates, assumptions, and judgments.  Certain policies inherently have a greater reliance on the use of estimates, assumptions, and judgments and as such have a greater possibility of producing results that could be materially different than originally reported.  Based on the valuation techniques used and the sensitivity of financial statement amounts to the methods, assumptions, and estimates underlying those amounts, management has identified the determination of the allowance for loan losses, the fair value of trading securities and investment securities and the evaluation of other-than-temporary impairment on securities whose fair value is less than amortized cost to be the accounting areas that require the most subjective or complex judgments, and as such could be most subject to revision as new information becomes available.  Actual results could differ from those estimates.  In the opinion of management, the unaudited consolidated financial statements include all necessary adjustments, consisting of normal recurring accruals, necessary for a fair presentation for the periods presented.  The results of operations for the three months and six months ended June 30, 2012 are not necessarily indicative of the results to be achieved for the remainder of 2012.  On July 7, 2010, Oneida Financial MHC completed its second step conversion to stock form.  At that date, Oneida Financial Corp., a Maryland corporation, became the stock holding company of the Bank.  Oneida Financial Corp., a Federal corporation, was merged with and into Oneida Financial Corp., a Maryland corporation.

 

The data in the consolidated statements of condition for December 31, 2011 was derived from the audited financial statements included in the Company’s 2011 Annual Report on Form 10-K.  That data, along with the interim financial information presented in the consolidated statement of condition, statements of operations, comprehensive income, changes in stockholders’ equity and cash flows should be read in conjunction with the 2011 consolidated financial statements, including the notes thereto included in the Company’s Annual Report on Form 10-K.

 

Amounts in the prior period’s consolidated financial statements are reclassified when necessary to conform with the current period’s presentation.  Reclassifications did not impact prior period’s net income or stockholders’ equity.

 

Note B — Earnings per Share

 

Basic earnings per share is net income available to common shareholders divided by the weighted average number of common shares outstanding during the period. ESOP shares are considered outstanding for the calculation unless unearned.  Diluted earnings per common share includes the dilutive effect of additional potential common shares issuable using the treasury stock method.

 

Earnings per common share have been computed based on the following for the three months and six months ended June 30, 2012 and 2011:

 

 

 

Three Months Ended

 

Six Months Ended

 

 

 

June 31

 

June 31,

 

June 31,

 

June 31,

 

 

 

2012

 

2011

 

2012

 

2011

 

Basic

 

 

 

 

 

 

 

 

 

Net earnings allocated to common stock

 

$

1,898,792

 

$

1,696,050

 

$

3,900,420

 

$

3,109,037

 

 

 

 

 

 

 

 

 

 

 

Weighted average common shares outstanding

 

6,882,354

 

7,162,273

 

6,897,702

 

7,162,273

 

Less: Average unallocated ESOP shares

 

74,156

 

113,323

 

76,530

 

115,657

 

Weighted average shares

 

$

6,808,198

 

$

7,048,950

 

$

6,821,172

 

$

7,046,616

 

 

 

 

 

 

 

 

 

 

 

Basic earnings per share

 

$

0.28

 

$

0.24

 

$

0.57

 

$

0.44

 

 

 

 

 

 

 

 

 

 

 

Diluted

 

 

 

 

 

 

 

 

 

Net earnings allocated to common stock

 

$

1,898,792

 

$

1,696,050

 

$

3,900,420

 

$

3,109,037

 

 

 

 

 

 

 

 

 

 

 

Weighted average common shares outstanding for basic earnings per common share

 

6,808,198

 

7,048,950

 

6,821,172

 

7,046,616

 

Add: Dilutive effects of assumed exercise of stock options

 

 

 

 

 

Weighted average shares and dilutive potential common shares

 

6,808,198

 

7,048,950

 

6,821,172

 

7,046,616

 

 

 

 

 

 

 

 

 

 

 

Diluted earnings per common share

 

$

0.28

 

$

0.24

 

$

0.57

 

$

0.44

 

 

7



Table of Contents

 

Note B — Earnings per Share (Continued)

 

There were no potentially dilutive securities outstanding for the three months and six months ended June 30, 2012 and June 30, 2011.

 

Note C — Investment Securities and Mortgage-Backed Securities

 

Investment securities and mortgage-backed securities consist of the following at June 30, 2012 and December 31, 2011:

 

 

 

June 30, 2012

 

 

 

Amortized

 

Gross Unrealized

 

Fair

 

 

 

Cost

 

Gains

 

Losses

 

Value

 

 

 

 

 

(In thousands)

 

 

 

 

 

Available-for-sale portfolio:

 

 

 

 

 

 

 

 

 

Investment Securities

 

 

 

 

 

 

 

 

 

Debt securities:

 

 

 

 

 

 

 

 

 

U. S. Agencies

 

$

41,492

 

$

270

 

$

(4

)

$

41,758

 

Corporate

 

34,740

 

764

 

(2,018

)

33,486

 

Agency asset backed securities

 

5,871

 

17

 

(16

)

5,872

 

Trust preferred securities

 

5,916

 

 

(2,268

)

3,648

 

State and municipal

 

42,832

 

2,619

 

 

45,451

 

Small business administration

 

12,628

 

295

 

(1

)

12,922

 

 

 

$

 143,479

 

$

3,965

 

$

(4,307

)

$

143,137

 

Mortgage-Backed Securities

 

 

 

 

 

 

 

 

 

Fannie Mae

 

$

32,547

 

$

1,149

 

$

(4

)

$

33,692

 

Freddie Mac

 

24,438

 

214

 

(7

)

24,645

 

Government National Mortgage Assoc.

 

32,692

 

1,025

 

(23

)

33,694

 

Collateralized Mortgage Obligations

 

1,847

 

41

 

(24

)

1,864

 

 

 

$

 91,524

 

$

2,429

 

$

(58

)

$

93,895

 

Total available-for-sale

 

$

235,003

 

$

6,394

 

$

(4,365

)

$

237,032

 

 

 

 

June 30, 2012

 

 

 

Amortized

 

Gross Unrecognized

 

Fair

 

 

 

Cost

 

Gains

 

Losses

 

Value

 

 

 

 

 

(In thousands)

 

 

 

 

 

Held-to-maturity portfolio:

 

 

 

 

 

 

 

 

 

Investment Securities

 

 

 

 

 

 

 

 

 

Debt securities:

 

 

 

 

 

 

 

 

 

U. S. Agencies

 

$

2,000

 

$

53

 

$

 

$

2,053

 

State and municipal

 

10,555

 

915

 

 

11,470

 

Small business administration

 

448

 

5

 

 

453

 

 

 

$

 13,003

 

$

973

 

$

 

$

13,976

 

Mortgage-Backed Securities

 

 

 

 

 

 

 

 

 

Fannie Mae

 

$

12,184

 

$

468

 

$

 

$

12,652

 

Freddie Mac

 

3,896

 

120

 

 

4,016

 

Government National Mortgage Assoc.

 

5,655

 

195

 

 

5,850

 

 

 

$

21,735

 

$

783

 

$

 

$

22,518

 

Total held-to-maturity

 

$

34,738

 

$

1,756

 

$

 

$

36,494

 

 

8



Table of Contents

 

Note C — Investment Securities and Mortgage-Backed Securities (Continued)

 

 

 

December 31, 2011

 

 

 

Amortized

 

Gross Unrealized

 

Fair

 

 

 

Cost

 

Gains

 

Losses

 

Value

 

 

 

 

 

(In thousands)

 

 

 

Available-for-sale portfolio:

 

 

 

 

 

 

 

 

 

Investment Securities

 

 

 

 

 

 

 

 

 

Debt securities:

 

 

 

 

 

 

 

 

 

U. S. Agencies

 

$

30,422

 

$

173

 

$

(17

)

$

30,578

 

Corporate

 

33,306

 

395

 

(2,225

)

31,476

 

Agency asset backed securities

 

1,919

 

 

(15

)

1,904

 

Trust preferred securities

 

6,266

 

 

(2,651

)

3,615

 

State and municipal

 

45,524

 

2,510

 

 

48,034

 

Small business administration

 

9,996

 

160

 

(5

)

10,151

 

 

 

$

 127,433

 

$

3,238

 

$

(4,913

)

$

125,758

 

Mortgage-Backed Securities

 

 

 

 

 

 

 

 

 

Fannie Mae

 

$

34,619

 

$

819

 

$

 

$

35,438

 

Freddie Mac

 

7,161

 

222

 

 

7,383

 

Government National Mortgage Assoc.

 

22,124

 

893

 

 

23,017

 

Collateralized Mortgage Obligations

 

2,079

 

19

 

(89

)

2,009

 

 

 

$

 65,983

 

$

1,953

 

$

(89

)

$

67,847

 

Total available-for-sale

 

$

193,416

 

$

5,191

 

$

(5,002

)

$

193,605

 

 

 

 

December 31, 2011

 

 

 

Amortized

 

Gross Unrecognized

 

Fair

 

 

 

Cost

 

Gains

 

Losses

 

Value

 

 

 

 

 

(In thousands)

 

 

 

Held-to-maturity portfolio:

 

 

 

 

 

 

 

 

 

Investment Securities

 

 

 

 

 

 

 

 

 

Debt securities:

 

 

 

 

 

 

 

 

 

U. S. Agencies

 

$

13,627

 

$

193

 

$

 

$

13,820

 

State and municipal

 

8,161

 

1,102

 

 

9,263

 

Small business administration

 

503

 

5

 

 

508

 

 

 

$

 22,291

 

$

1,300

 

$

 

$

23,591

 

 

 

 

 

 

 

 

 

 

 

Mortgage-Backed Securities

 

 

 

 

 

 

 

 

 

Fannie Mae

 

$

14,132

 

$

450

 

$

 

$

14,582

 

Freddie Mac

 

4,631

 

112

 

 

4,743

 

Government National Mortgage Assoc.

 

6,145

 

203

 

 

6,348

 

 

 

$

 24,908

 

$

765

 

$

 

$

25,673

 

Total held-to-maturity

 

$

47,199

 

$

2,065

 

$

 

$

49,264

 

 

The amortized cost and fair value of the investment securities portfolio at June 30, 2012 are shown by contractual maturities.  Expected maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.

 

 

 

Available for Sale

 

Held to Maturity

 

 

 

Amortized

 

Fair

 

Amortized

 

Fair

 

 

 

Cost

 

Value

 

Cost

 

Value

 

 

 

 

 

(In thousands)

 

 

 

Within one year

 

$

3,597

 

$

3,621

 

$

2,688

 

$

2,695

 

After one year through five years

 

20,809

 

21,099

 

2,383

 

2,542

 

After five years through ten years

 

48,285

 

49,931

 

7,046

 

7,715

 

After ten years

 

70,788

 

68,486

 

886

 

1,024

 

Total

 

$

 143,479

 

$

 143,137

 

$

  13,003

 

$

  13,976

 

 

Gains (losses) on securities were as follows for the three and six months ended:

 

 

 

Three Months Ended

 

Six Months Ended

 

 

 

June 30, 2012

 

June 30, 2011

 

June 30, 2012

 

June 30, 2011

 

 

 

(In thousands)

 

(In thousands)

 

Proceeds

 

$

 

$

21,724

 

$

6,913

 

$

27,403

 

Gross Gains

 

$

60

 

$

376

 

$

157

 

$

382

 

Gross Losses

 

$

 

$

(279

)

$

 

$

(304

)

 

9



Table of Contents

 

Note C — Investment Securities and Mortgage-Backed Securities (Continued)

 

Securities with unrealized losses at June 30, 2012 and December 31, 2011, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position, are as follows:

 

June 30, 2012

 

 

 

Less than 12 Months

 

More than 12 Months

 

Total

 

 

 

Fair

 

Unrealized

 

Fair

 

Unrealized

 

Fair

 

Unrealized

 

Description of Securities

 

Value

 

Loss

 

Value

 

Loss

 

Value

 

Loss

 

 

 

 

 

 

 

(In thousands)

 

 

 

 

 

 

 

U.S. Agency

 

$

995

 

$

(4

)

$

 

$

 

$

995

 

$

(4

)

Corporate

 

10,130

 

(510

)

6,482

 

(1,508

)

16,612

 

(2,018

)

Agency asset backed securities

 

3,883

 

(16

)

 

 

3,883

 

(16

)

Trust preferred securities

 

 

 

3,648

 

(2,268

)

3,648

 

(2,268

)

State and municipal

 

 

 

 

 

 

 

Small business administration

 

962

 

(1

)

5

 

 

967

 

(1

)

Fannie Mae

 

1,502

 

(4

)

 

 

 

1,502

 

(4

)

Freddie Mac

 

5,291

 

(7

)

 

 

5,291

 

(7

)

Government National Mortgage Assoc

 

9,412

 

(23

)

 

 

9,412

 

(23

)

Collateralized mortgage obligations

 

 

 

756

 

(24

)

756

 

(24

)

Total securities available-for-sale in an unrealized loss position

 

$

32,175

 

$

(565

)

$

10,891

 

$

(3,800

)

$

43,066

 

$

(4,365

)

 

December 31, 2011

 

 

 

Less than 12 Months

 

More than 12 Months

 

Total

 

 

 

Fair

 

Unrealized

 

Fair

 

Unrealized

 

Fair

 

Unrealized

 

Description of Securities

 

Value

 

Loss

 

Value

 

Loss

 

Value

 

Loss

 

 

 

 

 

 

 

(In thousands)

 

 

 

 

 

 

 

U.S. Agency

 

$

3,981

 

$

(17

)

$

 

$

 

$

3,981

 

$

(17

)

Corporate

 

14,644

 

(587

)

6,352

 

(1,638

)

20,996

 

(2,225

)

Agency asset backed securities

 

1,904

 

(15

)

 

 

1,904

 

(15

)

Trust preferred securities

 

 

 

3,615

 

(2,651

)

3,615

 

(2,651

)

State and municipals

 

 

 

 

 

 

 

Small business administration

 

1,047

 

(5

)

5

 

 

1,052

 

(5

)

Fannie Mae

 

 

 

 

 

 

 

Freddie Mac

 

 

 

 

 

 

 

Ginnie Mae

 

 

 

 

 

 

 

Collateralized mortgage obligations

 

 

 

724

 

(89

)

724

 

(89

)

Total securities available-for-sale in an unrealized loss position

 

$

21,576

 

$

(624

)

$

10,696

 

$

(4,378

)

$

32,272

 

$

(5,002

)

 

Declines in the fair value of securities below their cost that are other-than-temporary are reflected as realized losses.  The Company evaluates securities for other-than-temporary impairment (“OTTI”) on at least a quarterly basis, and more frequently when economic or market conditions warrant such an evaluation.  For securities in an unrealized loss position, management considers the extent and duration of the unrealized loss, and the financial condition and near-term prospects of the issuer. Management also assesses whether it intends to sell, or it is more likely than not that it will be required to sell, a security in an unrealized loss position before recovery of its amortized cost basis.  If either of the criteria regarding intent or requirement to sell is met, the entire difference between amortized cost and fair value is recognized as impairment through earnings.  For debt securities that do not meet the aforementioned criteria, the amount of the impairment is split into two components as follows:  1) OTTI related to credit loss, which must be recognized in the income statement and 2) OTTI related to other factors, which is recognized in other comprehensive income.  The credit loss is defined as the difference between the present value of the cash flows to be collected and the amortized cost basis.

 

In order to determine OTTI for purchased beneficial interests that, on the purchase date, were not highly rated, the Company compares the present value of the remaining cash flows as estimated at the preceding evaluation date to the current expected remaining cash flows.  OTTI is deemed to have occurred if there is an adverse change in the remaining expected future cash flows.

 

As of June 30, 2012, the Company’s security portfolio consisted of 360 securities, 44 of which were in an unrealized loss position. The majority of the unrealized losses are related to the Company’s agency, mortgage-backed securities, corporate and trust preferred securities as discussed below.

 

10



Table of Contents

 

Note C — Investment Securities and Mortgage-Backed Securities (Continued)

 

U.S. Agency and Agency Mortgage-Backed Securities

 

Fannie Mae, Freddie Mac, Ginnie Mae and the Small Business Administration guarantee the contractual cash flows of our agency and mortgage-backed securities. Fannie Mae and Freddie Mac are institutions which the government has affirmed its commitment to support.  Our Ginnie Mae mortgage-backed securities are backed by the full faith and credit of the U.S. Government.  All of the agency mortgage-backed securities are residential mortgage-backed securities. At June 30, 2012, of the sixteen U.S. Government sponsored enterprise agency and mortgage-backed securities in an unrealized loss position in our available-for-sale portfolio, only one was in a continuous unrealized loss position for 12 months or more.  The unrealized losses at June 30, 2012 were primarily attributable to changes in interest rates and illiquidity and not credit quality.  The Company does not have the intent to sell these agency and mortgage-backed securities and it is likely that it will not be required to sell the securities before their anticipated recovery. The Company does not consider these securities to be other-than-temporarily impaired at June 30, 2012.

 

Non-Agency Collateralized Mortgage Obligations.

 

All of our non-agency collateralized mortgage obligations carry various amounts of credit enhancements. These securities were purchased based on the underlying loan characteristics such as loan to value ratio, credit scores, property type, location and the level of credit enhancement.  Current characteristics of each security are reviewed regularly by management.  If the level of credit loss coverage is sufficient, it indicates that we will receive all of the originally scheduled cash flows.

 

At June 30, 2012, the one non-agency collateralized mortgage obligation in an unrealized loss position was in a continuous unrealized loss position more than 12 months.  It was rated Aaa or better at the time of purchase.  Including the security just disclosed, the Bank currently has two obligations totaling $1.3 million that based on the expected cash flows, delinquencies and credit support the Company has considered impaired and are currently below investment grade.  There was no impairment recorded for the first half of 2012.  The total impairment recorded during 2011 was $75,334; $50,888 of which was recorded in the second quarter of 2011.  The securities remain classified as available-for-sale at June 30, 2012.

 

Corporate Debt and Agency Asset Backed Securities

 

At June 30, 2012, of the eighteen corporate debt securities in an unrealized loss position, five were in a continuous unrealized loss position of 12 months or more.  We have assessed these securities and determined that the decline in fair value was temporary. In making this determination, we considered the period of time the securities were in a loss position, the percentage decline in comparison with the securities’ amortized cost, the financial condition of the issuer, and the delinquency or default rates based on the applicable bond ratings.  In addition, we do not have the intent to sell these securities and it is not more likely than not that we will be required to sell these securities before the recovery of their amortized cost basis, which may be at maturity.  Included in the five securities whose unrealized loss position exceeds 12 months was a $2.5 million Strats-Goldman Sachs Corporation obligation, maturing February 15, 2034 which is a variable rate note based on the 6 month libor.  The current rate on the security is 1.74%.  The unrealized loss was $1,184,075 and $1,190,000 at June 30, 2012 and December 31, 2011, respectively.  In addition to the items noted above, we reviewed capital ratios, public filings of the issuer and related trust documents in the review of the unrealized loss.  The Strats-Goldman Sachs Corporation obligation is paying as agreed.  The other four securities in a continuous unrealized loss position were finance sector corporate debt securities all rated above investment grade with variable interest rates that have maturities ranging from 2015 to 2020.  The Company does not consider these securities to be other-than-temporarily impaired at June 30, 2012.

 

Trust Preferred Securities

 

The Company currently has $3.6 million invested in nine trust preferred securities as of June 30, 2012 whose unrealized losses have been in a continuous loss position exceeding 12 months or more.  All of the trust preferred securities are pooled issuances. Of the $3.6 million, $949,000 have variable rates of interest.  All of the securities are on nonaccrual as of June 30, 2012.  The unrealized losses at June 30, 2012 and December 31, 2011 on the nine securities totaled $2.3 million and $2.7 million respectively.

 

11



Table of Contents

 

Note C — Investment Securities and Mortgage-Backed Securities (Continued)

 

The following table provides detailed information related to the trust preferred securities held as of June 30, 2012:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Expected