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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)
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):
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.
ONEIDA FINANCIAL CORP.
ONEIDA FINANCIAL CORP. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CONDITION At June 30, 2012 (unaudited) and December 31, 2011 (unaudited)
The accompanying notes are an integral part of the consolidated financial statements
ONEIDA FINANCIAL CORP. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS For the Three and Six Months Ended June 30, 2012 (unaudited) and 2011 (unaudited)
The accompanying notes are an integral part of the consolidated financial statements.
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)
The accompanying notes are an integral part of the consolidated financial statements.
ONEIDA FINANCIAL CORP. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY For the Six Months Ended June 30, 2012 (unaudited)
The accompanying notes are an integral part of the consolidated financial statements.
ONEIDA FINANCIAL CORP. AND SUBSIDIARIES CONSOLIDATED STATEMENT OF CASH FLOWS For the Six Months Ended June 30, 2012 (unaudited) and 2011 (unaudited)
The accompanying notes are an integral part of the consolidated financial statements.
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:
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:
Note C — Investment Securities and Mortgage-Backed Securities (Continued)
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.
Gains (losses) on securities were as follows for the three and six months ended:
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
December 31, 2011
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.
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.
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:
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