t71925_10q.htm
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 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 September 30, 2011
OR
o
|
Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
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For the transition period from _______________ to ______________________
Commission File No. 001-52751
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FSB Community Bankshares, Inc. |
|
(Exact name of registrant as specified in its charter) |
|
|
United States |
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74-3164710 |
|
|
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(State or other jurisdiction of
incorporation or organization) |
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(I.R.S. Employer
Identification Number) |
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45 South Main Street, Fairport, New York |
|
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14450 |
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|
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(Address of Principal Executive Offices) |
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Zip Code |
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(585) 223-9080
(Registrant’s telephone number)
(Former name or former address, if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 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 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 filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” 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
(Do not check if smaller reporting company)
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
As of November 14, 2011 there were 1,785,000 shares of the Registrant’s common stock, par value $0.10 per share, outstanding, 946,050 of which were held by FSB Community Bankshares, MHC, the Registrant’s mutual holding company.
FSB Community Bankshares, Inc.
FORM 10-Q
Index
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Page
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Part I. Financial Information
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Item 1.
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Consolidated Financial Statements (unaudited)
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Consolidated Balance Sheets as of September 30, 2011 and December 31, 2010
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1
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Consolidated Statements of Income for the Three Months Ended September 30, 2011 and 2010
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2
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Consolidated Statements of Income for the Nine months Ended September 30, 2011 and 2010
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3
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Consolidated Statements of Stockholders’ Equity for the Nine months Ended September 30, 2011 and 2010
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4
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Consolidated Statements of Cash Flows for the Nine months Ended September 30, 2011 and 2010
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5
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Notes to Consolidated Financial Statements
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6
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Item 2.
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Management’s Discussion and Analysis of Financial Condition and Results of Operations
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21
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Item 3.
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Quantitative and Qualitative Disclosures about Market Risk
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33
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Item 4.
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Controls and Procedures
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33
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Part II. Other Information
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Item 1.
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Legal Proceedings
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34
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Item 1A.
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Risk Factors
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34
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Item 2.
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Unregistered Sales of Equity Securities and Use of Proceeds
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34
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Item 3.
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Defaults upon Senior Securities
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34
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Item 4.
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[Removed and Reserved]
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34
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Item 5.
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Other Information
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34
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Item 6.
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Exhibits
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35
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Signature Page
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36
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Part I. Financial Information
Item 1. Consolidated Financial Statements
FSB COMMUNITY BANKSHARES, INC.
Consolidated Balance Sheets
September 30, 2011 and December 31, 2010 (unaudited)
(Dollars in thousands, except share data)
|
|
|
|
|
|
|
Assets
|
|
|
|
|
|
|
Cash and due from banks
|
|
$ |
733 |
|
|
$ |
561 |
|
Interest-earning demand deposits
|
|
|
11,092 |
|
|
|
7,273 |
|
Cash and Cash Equivalents
|
|
|
11,825 |
|
|
|
7,834 |
|
|
|
|
|
|
|
|
|
|
Securities available for sale
|
|
|
60,340 |
|
|
|
72,634 |
|
Securities held to maturity (fair value 2011 $7,333; 2010 $7,305)
|
|
|
7,096 |
|
|
|
7,183 |
|
Investment in FHLB stock
|
|
|
1,404 |
|
|
|
1,513 |
|
Loans held for sale
|
|
|
1,688 |
|
|
|
342 |
|
Loans receivable, net of allowance for loan losses (2011 $406; 2010 $384)
|
|
|
121,384 |
|
|
|
114,477 |
|
Bank owned life insurance
|
|
|
3,235 |
|
|
|
3,144 |
|
Accrued interest receivable
|
|
|
776 |
|
|
|
888 |
|
Premises and equipment, net
|
|
|
3,203 |
|
|
|
2,705 |
|
Prepaid FDIC premium
|
|
|
470 |
|
|
|
579 |
|
Other assets
|
|
|
1,142 |
|
|
|
1,108 |
|
Total Assets
|
|
$ |
212,563 |
|
|
$ |
212,407 |
|
|
|
|
|
|
|
|
|
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Liabilities & Stockholders’ Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits:
|
|
|
|
|
|
|
|
|
Non-interest-bearing
|
|
$ |
4,092 |
|
|
$ |
3,705 |
|
Interest-bearing
|
|
|
160,386 |
|
|
|
158,701 |
|
Total Deposits
|
|
|
164,478 |
|
|
|
162,406 |
|
|
|
|
|
|
|
|
|
|
Borrowings
|
|
|
24,191 |
|
|
|
26,732 |
|
Advances from borrowers for taxes and insurance
|
|
|
975 |
|
|
|
1,926 |
|
Official bank checks
|
|
|
1,380 |
|
|
|
363 |
|
Other liabilities
|
|
|
650 |
|
|
|
488 |
|
Total Liabilities
|
|
|
191,674 |
|
|
|
191,915 |
|
|
|
|
|
|
|
|
|
|
Stockholders’ Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred Stock- no par value- 1,000,000 shares authorized; no shares issued and outstanding
|
|
|
- |
|
|
|
- |
|
Common Stock- $0.10 par value – 10,000,000 shares authorized; 1,785,000 shares issued and outstanding
|
|
|
179 |
|
|
|
179 |
|
Additional paid-in-capital
|
|
|
7,265 |
|
|
|
7,269 |
|
Retained earnings
|
|
|
13,533 |
|
|
|
13,537 |
|
Accumulated other comprehensive income |
|
|
446 |
|
|
|
67 |
|
Unearned ESOP shares – at cost
|
|
|
(534 |
) |
|
|
(560 |
) |
Total Stockholders’ Equity
|
|
|
20,889 |
|
|
|
20,492 |
|
|
|
|
|
|
|
|
|
|
Total Liabilities and Stockholders’ Equity
|
|
$ |
212,563 |
|
|
$ |
212,407 |
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements
|
|
|
|
|
|
|
|
|
FSB COMMUNITY BANKSHARES, INC.
Consolidated Statements of Income
Three Months Ended September 30, 2011 and 2010 (unaudited)
(Dollars in thousands, except per share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest and Dividend Income
|
|
|
|
|
|
|
Loans
|
|
$ |
1,555 |
|
|
$ |
1,614 |
|
Securities – taxable
|
|
|
219 |
|
|
|
285 |
|
Securities – tax exempt
|
|
|
14 |
|
|
|
3 |
|
Mortgage-backed securities
|
|
|
195 |
|
|
|
218 |
|
Other
|
|
|
2 |
|
|
|
7 |
|
Total Interest and Dividend Income
|
|
|
1,985 |
|
|
|
2,127 |
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
|
|
|
|
|
|
Deposits
|
|
|
456 |
|
|
|
590 |
|
Borrowings
|
|
|
223 |
|
|
|
293 |
|
Total Interest Expense
|
|
|
679 |
|
|
|
883 |
|
|
|
|
|
|
|
|
|
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Net Interest Income
|
|
|
1,306 |
|
|
|
1,244 |
|
Provision for Loan Losses
|
|
|
7 |
|
|
|
8 |
|
Net Interest Income After Provision
|
|
|
|
|
|
|
|
|
for Loan Losses
|
|
|
1,299 |
|
|
|
1,236 |
|
|
|
|
|
|
|
|
|
|
Other Income
|
|
|
|
|
|
|
|
|
Service fees
|
|
|
53 |
|
|
|
56 |
|
Fee income
|
|
|
36 |
|
|
|
10 |
|
Realized gain on sale of securities
|
|
|
111 |
|
|
|
95 |
|
Increase in cash surrender value of bank owned life insurance
|
|
|
30 |
|
|
|
34 |
|
Realized gain on sale of loans
|
|
|
100 |
|
|
|
155 |
|
Mortgage fee income
|
|
|
70 |
|
|
|
59 |
|
Other
|
|
|
26 |
|
|
|
33 |
|
Total Other Income
|
|
|
426 |
|
|
|
442 |
|
|
|
|
|
|
|
|
|
|
Other Expense
|
|
|
|
|
|
|
|
|
Salaries and employee benefits
|
|
|
983 |
|
|
|
894 |
|
Occupancy expense
|
|
|
192 |
|
|
|
151 |
|
Data processing costs
|
|
|
33 |
|
|
|
27 |
|
Advertising
|
|
|
44 |
|
|
|
39 |
|
Equipment expense
|
|
|
140 |
|
|
|
107 |
|
Electronic banking
|
|
|
24 |
|
|
|
22 |
|
Directors’ fees
|
|
|
31 |
|
|
|
30 |
|
Mortgage fees and taxes
|
|
|
93 |
|
|
|
61 |
|
FDIC premium expense
|
|
|
(23 |
) |
|
|
58 |
|
Other expense
|
|
|
187 |
|
|
|
168 |
|
Total Other Expenses
|
|
|
1,704 |
|
|
|
1,557 |
|
|
|
|
|
|
|
|
|
|
Income Before Income Taxes
|
|
|
21 |
|
|
|
121 |
|
|
|
|
|
|
|
|
|
|
Provision (Benefit) for Income Taxes
|
|
|
(5 |
) |
|
|
29 |
|
|
|
|
|
|
|
|
|
|
Net Income
|
|
$ |
26 |
|
|
$ |
92 |
|
Earnings per common share – basic and diluted
|
|
$ |
0.02 |
|
|
$ |
0.05 |
|
See accompanying notes to consolidated financial statements
|
|
|
|
|
|
|
|
|
FSB COMMUNITY BANKSHARES, INC.
Consolidated Statements of Income
Nine months Ended September 30, 2011 and 2010 (unaudited)
(Dollars in thousands, except per share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest and Dividend Income
|
|
|
|
|
|
|
Loans
|
|
$ |
4,599 |
|
|
$ |
4,809 |
|
Securities – taxable
|
|
|
726 |
|
|
|
1,124 |
|
Securities – tax exempt
|
|
|
38 |
|
|
|
3 |
|
Mortgage-backed securities
|
|
|
650 |
|
|
|
634 |
|
Other
|
|
|
6 |
|
|
|
12 |
|
Total Interest and Dividend Income
|
|
|
6,019 |
|
|
|
6,582 |
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
|
|
|
|
|
|
Deposits
|
|
|
1,422 |
|
|
|
1,978 |
|
Borrowings
|
|
|
676 |
|
|
|
973 |
|
Total Interest Expense
|
|
|
2,098 |
|
|
|
2,951 |
|
|
|
|
|
|
|
|
|
|
Net Interest Income
|
|
|
3,921 |
|
|
|
3,631 |
|
Provision for Loan Losses
|
|
|
22 |
|
|
|
14 |
|
Net Interest Income After Provision
|
|
|
|
|
|
|
|
|
for Loan Losses
|
|
|
3,899 |
|
|
|
3,617 |
|
|
|
|
|
|
|
|
|
|
Other Income
|
|
|
|
|
|
|
|
|
Service fees
|
|
|
141 |
|
|
|
173 |
|
Fee income
|
|
|
45 |
|
|
|
36 |
|
Realized gain on sale of securities
|
|
|
135 |
|
|
|
87 |
|
Realized loss on sale of real estate owned
|
|
|
- |
|
|
|
(5 |
) |
Increase in cash surrender value of bank owned life insurance
|
|
|
91 |
|
|
|
99 |
|
Realized gain on sale of loans
|
|
|
225 |
|
|
|
238 |
|
Mortgage fee income
|
|
|
166 |
|
|
|
141 |
|
Other
|
|
|
94 |
|
|
|
94 |
|
Total Other Income
|
|
|
897 |
|
|
|
863 |
|
|
|
|
|
|
|
|
|
|
Other Expense
|
|
|
|
|
|
|
|
|
Salaries and employee benefits
|
|
|
2,666 |
|
|
|
2,308 |
|
Occupancy expense
|
|
|
548 |
|
|
|
450 |
|
Data processing costs
|
|
|
82 |
|
|
|
70 |
|
Advertising
|
|
|
141 |
|
|
|
133 |
|
Equipment expense
|
|
|
380 |
|
|
|
314 |
|
Electronic banking
|
|
|
70 |
|
|
|
59 |
|
Directors’ fees
|
|
|
98 |
|
|
|
85 |
|
Mortgage fees and taxes
|
|
|
185 |
|
|
|
178 |
|
FDIC premium expense
|
|
|
121 |
|
|
|
174 |
|
Other expense
|
|
|
568 |
|
|
|
523 |
|
Total Other Expenses
|
|
|
4,859 |
|
|
|
4,294 |
|
|
|
|
|
|
|
|
|
|
Income (Loss ) Before Income Taxes
|
|
|
(63 |
) |
|
|
186 |
|
|
|
|
|
|
|
|
|
|
Provision (Benefit) for Income Taxes
|
|
|
(59 |
) |
|
|
26 |
|
|
|
|
|
|
|
|
|
|
Net Income (Loss)
|
|
$ |
(4 |
) |
|
$ |
160 |
|
Earnings (Loss) per common share – basic and diluted
|
|
$ |
(0.00 |
) |
|
$ |
0.09 |
|
See accompanying notes to consolidated financial statements
|
|
|
|
|
|
|
|
|
FSB COMMUNITY BANKSHARES, INC.
Consolidated Statements of Stockholders’ Equity
Nine months Ended September 30, 2011 and 2010 (unaudited)
(Dollars in thousands)
|
|
|
|
|
Additional
Paid in
Capital
|
|
|
|
|
|
Accumulated Other Comprehensive Income
|
|
|
|
|
|
|
|
Balance – January 1, 2010
|
|
$ |
179 |
|
|
$ |
7,275 |
|
|
$ |
13,317 |
|
|
$ |
174 |
|
|
$ |
(595 |
) |
|
$ |
20,350 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
- |
|
|
|
- |
|
|
|
160 |
|
|
|
- |
|
|
|
- |
|
|
|
160 |
|
Change in net unrealized gain on securities available for sale, net of reclassification adjustment and taxes
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
364 |
|
|
|
- |
|
|
|
364 |
|
Total Comprehensive Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
524 |
|
ESOP shares committed to be released (2,624 shares)
|
|
|
- |
|
|
|
(4 |
) |
|
|
- |
|
|
|
- |
|
|
|
27 |
|
|
|
23 |
|
Balance – September 30, 2010
|
|
$ |
179 |
|
|
$ |
7,271 |
|
|
$ |
13,477 |
|
|
$ |
538 |
|
|
$ |
(568 |
) |
|
$ |
20,897 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance – January 1, 2011
|
|
$ |
179 |
|
|
$ |
7,269 |
|
|
$ |
13,537 |
|
|
$ |
67 |
|
|
$ |
(560 |
) |
|
$ |
20,492 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
- |
|
|
|
- |
|
|
|
(4 |
) |
|
|
- |
|
|
|
- |
|
|
|
(4 |
) |
Change in net unrealized gain on securities available for sale, net of reclassification adjustment and taxes
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
379 |
|
|
|
- |
|
|
|
379 |
|
Total Comprehensive Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
375 |
|
ESOP shares committed to be released (2,624 shares)
|
|
|
- |
|
|
|
(4 |
) |
|
|
- |
|
|
|
- |
|
|
|
26 |
|
|
|
22 |
|
Balance – September 30, 2011
|
|
$ |
179 |
|
|
$ |
7,265 |
|
|
$ |
13,533 |
|
|
$ |
446 |
|
|
$ |
(534 |
) |
|
$ |
20,889 |
|
See accompanying notes to consolidated financial statements
FSB COMMUNITY BANKSHARES, INC.
Consolidated Statements of Cash Flows
Nine months Ended September 30, 2011 and 2010 (unaudited)
(Dollars in thousands)
|
|
|
|
|
|
|
|
|
|
|
Cash Flows From Operating Activities
|
|
|
|
|
|
|
Net income (loss)
|
|
$ |
(4 |
) |
|
$ |
160 |
|
Adjustments to reconcile net income (loss) to net cash provided by (used by) operating activities:
|
|
|
|
|
|
|
|
|
Net amortization of premiums and discounts on investments
|
|
|
565 |
|
|
|
743 |
|
Gain on sale of securities available for sale
|
|
|
(135 |
) |
|
|
(97 |
) |
Loss on sale of securities held to maturity
|
|
|
- |
|
|
|
10 |
|
Gain on sale of loans
|
|
|
(225 |
) |
|
|
(238 |
) |
Proceeds from loans sold
|
|
|
2,706 |
|
|
|
7,377 |
|
Loans originated for sale
|
|
|
(3,827 |
) |
|
|
(7,834 |
) |
Amortization of net deferred loan origination costs
|
|
|
8 |
|
|
|
23 |
|
Amortization of premium on FHLB advances
|
|
|
150 |
|
|
|
- |
|
Depreciation and amortization
|
|
|
305 |
|
|
|
238 |
|
Provision for loan losses
|
|
|
22 |
|
|
|
14 |
|
Expense related to ESOP
|
|
|
22 |
|
|
|
23 |
|
Deferred income tax (benefit) expense
|
|
|
(75 |
) |
|
|
1 |
|
Earnings on investment in bank owned life insurance
|
|
|
(91 |
) |
|
|
(99 |
) |
Decrease in accrued interest receivable
|
|
|
112 |
|
|
|
147 |
|
Decrease in prepaid FDIC premium
|
|
|
109 |
|
|
|
162 |
|
Decrease (increase) in other assets
|
|
|
(34 |
) |
|
|
271 |
|
Decrease in other liabilities
|
|
|
43 |
|
|
|
29 |
|
Loss on sale of real estate owned
|
|
|
- |
|
|
|
5 |
|
Net Cash Provided By (Used By) Operating Activities
|
|
|
(349 |
) |
|
|
935 |
|
|
|
|
|
|
|
|
|
|
Cash Flows From Investing Activities
|
|
|
|
|
|
|
|
|
Purchases of securities available for sale
|
|
|
(35,078 |
) |
|
|
(80,230 |
) |
Proceeds from maturities and calls of securities available for sale
|
|
|
38,108 |
|
|
|
71,800 |
|
Proceeds from sales of securities available for sale
|
|
|
3,024 |
|
|
|
3,188 |
|
Proceeds from principal paydowns on securities available for sale
|
|
|
6,394 |
|
|
|
5,494 |
|
Purchases of securities held to maturity
|
|
|
(434 |
) |
|
|
(510 |
) |
Proceeds from sales of securities held to maturity
|
|
|
- |
|
|
|
686 |
|
Proceeds from principal paydowns on securities held to maturity
|
|
|
510 |
|
|
|
387 |
|
Net decrease (increase) in loans
|
|
|
(6,937 |
) |
|
|
2,387 |
|
Redemption of FHLB stock
|
|
|
109 |
|
|
|
278 |
|
Proceeds from sales of foreclosed real estate
|
|
|
- |
|
|
|
74 |
|
Purchase of premises and equipment
|
|
|
(803 |
) |
|
|
(216 |
) |
Net Cash Provided By Investing Activities
|
|
|
4,893 |
|
|
|
3,338 |
|
|
|
|
|
|
|
|
|
|
Cash Flows From Financing Activities
|
|
|
|
|
|
|
|
|
Net increase in deposits
|
|
|
2,072 |
|
|
|
5,839 |
|
Proceeds from borrowings
|
|
|
4,000 |
|
|
|
13,238 |
|
Repayments on borrowings
|
|
|
(6,691 |
) |
|
|
(19,028 |
) |
Net decrease in advances from borrowers for taxes and insurance
|
|
|
(951 |
) |
|
|
(1,106 |
) |
Net increase in official bank checks
|
|
|
1,017 |
|
|
|
1,449 |
|
Net Cash Provided By (Used By) Financing Activities
|
|
|
(553 |
) |
|
|
392 |
|
|
|
|
|
|
|
|
|
|
Net Increase in Cash and Cash Equivalents
|
|
|
3,991 |
|
|
|
4,665 |
|
|
|
|
|
|
|
|
|
|
Cash and Cash Equivalents- Beginning
|
|
|
7,834 |
|
|
|
5,965 |
|
|
|
|
|
|
|
|
|
|
Cash and Cash Equivalents- Ending
|
|
$ |
11,825 |
|
|
$ |
10,630 |
|
|
|
|
|
|
|
|
Supplementary Cash Flows Information
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest paid
|
|
$ |
2,108 |
|
|
$ |
3,002 |
|
|
|
|
|
|
|
|
|
|
Income taxes paid
|
|
$ |
- |
|
|
$ |
- |
|
See accompanying notes to consolidated financial statements
Notes to Consolidated Financial Statements
Note 1-Basis of Presentation
The accompanying unaudited consolidated financial statements of FSB Community Bankshares, Inc. and its wholly owned subsidiary Fairport Savings Bank (collectively, the “Company”) have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and the applicable instructions to Form 10-Q and Regulation S-X. Accordingly, they do not include all of the information and footnotes necessary for a complete presentation of consolidated financial position, results of operations, and cash flows in conformity with generally accepted accounting principles. In the opinion of management, all adjustments, consisting of normal recurring accruals, considered necessary for a fair presentation have been included.
The preparation of 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 financial statements and the reported amounts of revenues and expenses during the reported periods. 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, the evaluation of other-than-temporary impairment of investment securities, and the valuation of deferred tax assets. For additional information and disclosures required under GAAP, reference is made to the Company’s Annual Report on Form 10-K for the period ended December 31, 2010 (the “Form 10-K”) filed with the Securities and Exchange Commission (“SEC”) on March 31, 2011.
The unaudited consolidated financial statements and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” should be read in conjunction with the Company’s audited consolidated financial statements for the year ended December 31, 2010, included in the Form 10-K filed with the SEC on March 31, 2011.
Operating results for the three and nine months ended September 30, 2011 are not necessarily indicative of the results that may be expected for the year ending December 31, 2011.
The consolidated financial statements at September 30, 2011 and December 31, 2010 and for the three and nine months ended September 30, 2011 and 2010 include the accounts of the Company, Fairport Savings Bank (the “Bank”) and the Bank’s wholly-owned subsidiary, Oakleaf Services Corporation (“Oakleaf”). All inter-company balances and transactions have been eliminated in consolidation. Certain amounts from prior periods may have been reclassified, when necessary, to conform to current period presentation. Such reclassifications had no impact on net income (loss) or stockholders’ equity.
The Company has evaluated subsequent events through the date these consolidated financial statements were issued. On October 26, 2011 the Bank opened its fifth full service branch location in Perinton, NY.
Note 2-Fair Value Measurement and Disclosure
Management uses its best judgment in estimating the fair value of the Company’s financial instruments; however, there are inherent weaknesses in any estimation technique. Therefore, for substantially all financial instruments, the fair value estimates herein are not necessarily indicative of the amounts the Company could have realized in a sale transaction on the dates indicated. The estimated fair value amounts have been measured as of their respective reporting dates 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 these financial instruments subsequent to the respective reporting dates may be different than the amounts reported at each reporting date.
Note 2--Fair Value Measurement and Disclosure (Continued)
A fair value hierarchy that prioritizes the inputs to valuation methods is 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.
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 assets measured at fair value on a recurring basis, the fair value measurements by level within the fair value hierarchy used are as follows at September 30, 2011 and at December 31, 2010:
September 30, 2011
Securities Available for Sale:
(In Thousands)
|
|
Total
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
U.S. Government and agency obligations
|
|
$ |
27,042 |
|
|
$ |
- |
|
|
$ |
27,042 |
|
|
$ |
- |
|
Mortgage-backed securities - residential
|
|
|
29,779 |
|
|
|
- |
|
|
|
29,779 |
|
|
|
- |
|
SBA pools
|
|
|
3,519 |
|
|
|
- |
|
|
|
3,519 |
|
|
|
- |
|
Total Available for Sale Securities
|
|
$ |
60,340 |
|
|
$ |
- |
|
|
$ |
60,340 |
|
|
$ |
- |
|
|
|
December 31, 2010
Securities Available for Sale:
(In Thousands)
|
|
Total
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
U.S. Government and agency obligations
|
|
$ |
39,336 |
|
|
$ |
8,014 |
|
|
$ |
31,322 |
|
|
$ |
- |
|
Mortgage-backed securities - residential
|
|
|
29,361 |
|
|
|
1,673 |
|
|
|
27,688 |
|
|
|
- |
|
SBA pools
|
|
|
3,937 |
|
|
|
- |
|
|
|
3,937 |
|
|
|
- |
|
Total Available for Sale Securities
|
|
$ |
72,634 |
|
|
$ |
9,687 |
|
|
$ |
62,947 |
|
|
$ |
- |
|
There was one mortgage-backed security for $1.7 million transferred out of level 1 securities available for sale to level 2 securities available for sale during the nine months ended September 30, 2011, as a result of the lack of availability of observable market data used in the securities’ pricing obtained through independent pricing services or dealer market participants. There were six U.S. Government and agency obligations for $8.0 million called during the nine months ended September 30, 2011 that were measured as level 1 securities available for sale at December 31, 2010. No assets or liabilities have been measured on a non-recurring basis at or for the nine months ended September 30, 2011 or at or for the year ended December 31, 2010.
Accounting guidance requires disclosure of 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 defined 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 assets and liabilities are excluded from the disclosure requirements. Accordingly, the aggregate fair value amounts presented do not represent the underlying value of the Company.
Note 2--Fair Value Measurement and Disclosure (Continued)
The following methods and assumptions were used by the Company in estimating its fair value disclosures for financial instruments at September 30, 2011 and December 31, 2010:
Cash, Due from Banks, and Interest-Earning Demand Deposits
The carrying amounts of these assets approximate their fair values.
Investment Securities
The fair value of securities available for sale (carried at fair value) and held to maturity (carried at amortized cost) are determined by obtaining quoted market prices on nationally recognized securities exchanges (Level 1), or matrix pricing (Level 2), which is a mathematical technique used widely in the banking industry to value debt securities without relying exclusively on quoted market prices for the specific securities but rather by relying on the securities’ relationship to other benchmark quoted prices. For certain securities which are not traded in active markets or are subject to transfer restrictions, valuations are adjusted to reflect illiquidity and/or non-transferability, and such adjustments are based on observable market based assumptions (Level 3). In the absence of such evidence, management’s best estimate is used. Management’s best estimate consists of both internal and external support on certain Level 3 investments. Internal cash flow models using a present value formula that includes assumptions market participants would use along with indicative exit pricing obtained from broker/dealers (where available) are used to support fair values of certain Level 3 investments. The Company had no Level 3 investment securities at September 30, 2011 or at December 31, 2010.
Investment in FHLB Stock
The carrying value of Federal Home Loan Bank (“FHLB”) stock approximates its fair value based on the restricted nature of the FHLB stock.
Loans
The fair values of loans held to maturity 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. 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.
Mortgage loans held for sale in the secondary market are carried at the lower of cost or fair value. Separate determinations of fair value for residential and commercial loans are made on an aggregate basis. Fair value is determined based solely on the effect of changes in secondary market interest rates and yield requirements from the commitment date to the date of the financial statements. Realized gains and losses on sales are computed using the specific identification method.
Accrued Interest Receivable and Payable
The carrying amount of accrued interest receivable and payable 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). The carrying amounts for variable-rate certificates of deposit approximate their fair values at the reporting date. 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.
Note 2--Fair Value Measurement and Disclosure (Continued)
Borrowings
The fair values of FHLB 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.
Off-Balance Sheet Instruments
The fair values for off-balance sheet financial instruments (lending commitments and lines of credit) are estimated using the fees currently charged to enter into similar agreements, taking into account market interest rates, the remaining terms and present credit worthiness of the counterparties. Such fees were not material at September 30, 2011 and December 31, 2010.
The carrying amounts and estimated fair values of the Company’s financial instruments at September 30, 2011 and December 31, 2010 are as follows:
|
|
September 30, 2011
|
|
|
December 31, 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In Thousands)
|
|
Financial assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and due from banks
|
|
$ |
733 |
|
|
$ |
733 |
|
|
$ |
561 |
|
|
$ |
561 |
|
Interest-earning demand deposits
|
|
|
11,092 |
|
|
|
11,092 |
|
|
|
7,273 |
|
|
|
7,273 |
|
Securities available for sale
|
|
|
60,340 |
|
|
|
60,340 |
|
|
|
72,634 |
|
|
|
72,634 |
|
Securities held to maturity
|
|
|
7,096 |
|
|
|
7,333 |
|
|
|
7,183 |
|
|
|
7,305 |
|
Investment in FHLB stock
|
|
|
1,404 |
|
|
|
1,404 |
|
|
|
1,513 |
|
|
|
1,513 |
|
Loans held for sale
|
|
|
1,688 |
|
|
|
1,688 |
|
|
|
342 |
|
|
|
342 |
|
Loans, net
|
|
|
121,384 |
|
|
|
128,473 |
|
|
|
114,477 |
|
|
|
116,350 |
|
Accrued interest receivable
|
|
|
776 |
|
|
|
776 |
|
|
|
888 |
|
|
|
888 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits
|
|
|
164,478 |
|
|
|
163,648 |
|
|
|
162,406 |
|
|
|
161,165 |
|
Borrowings
|
|
|
24,191 |
|
|
|
22,695 |
|
|
|
26,732 |
|
|
|
25,107 |
|
Accrued interest payable
|
|
|
58 |
|
|
|
58 |
|
|
|
68 |
|
|
|
68 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Off-balance sheet instruments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commitments to extend credit
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
The amortized cost and estimated fair value of securities with gross unrealized gains and losses at September 30, 2011 and at December 31, 2010 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In Thousands)
|
|
September 30, 2011:
|
|
|
|
|
|
|
|
|
|
|
|
|
Available for Sale:
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Government and agency obligations
|
|
$ |
26,909 |
|
|
$ |
152 |
|
|
$ |
(19 |
) |
|
$ |
27,042 |
|
Mortgage-backed securities - residential
|
|
|
29,263 |
|
|
|
519 |
|
|
|
(3 |
) |
|
|
29,779 |
|
SBA pools
|
|
|
3,492 |
|
|
|
27 |
|
|
|
- |
|
|
|
3,519 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
59,664 |
|
|
$ |
698 |
|
|
$ |
(22 |
) |
|
$ |
60,340 |
|
Held to Maturity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage-backed securities-residential
|
|
$ |
4,405 |
|
|
$ |
162 |
|
|
$ |
- |
|
|
$ |
4,567 |
|
State and Municipal securities
|
|
|
2,691 |
|
|
|
75 |
|
|
|
- |
|
|
|
2,766 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
7,096 |
|
|
$ |
237 |
|
|
$ |
- |
|
|
$ |
7,333 |
|
December 31, 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
Available for Sale:
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Government and agency obligations
|
|
$ |
39,764 |
|
|
$ |
32 |
|
|
$ |
(460 |
) |
|
$ |
39,336 |
|
Mortgage-backed securities - residential
|
|
|
28,882 |
|
|
|
539 |
|
|
|
(60 |
) |
|
|
29,361 |
|
SBA pools
|
|
|
3,886 |
|
|
|
51 |
|
|
|
- |
|
|
|
3,937 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
72,532 |
|
|
$ |
622 |
|
|
$ |
(520 |
) |
|
$ |
72,634 |
|
Held to Maturity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage-backed securities – residential
|
|
$ |
4,918 |
|
|
$ |
182 |
|
|
$ |
- |
|
|
$ |
5,100 |
|
State and Municipal securities
|
|
|
2,265 |
|
|
|
- |
|
|
|
(60 |
) |
|
|
2,205 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
7,183 |
|
|
$ |
182 |
|
|
$ |
(60 |
) |
|
$ |
7,305 |
|
Mortgage-backed securities consist of securities that are issued by Fannie Mae (“FNMA”), Freddie Mac (“FHLMC”), Ginnie Mae (“GNMA”), and Federal Farm Credit Bank (“FFCB”) and are collateralized by residential mortgages.
The amortized cost and estimated fair value by contractual maturity of debt securities at September 30, 2011 are shown below. Actual maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations.
Note 3 – Securities (continued)
|
|
Available for Sale
|
|
|
Held to Maturity
|
|
|
|
Amortized
Cost
|
|
|
Estimated
Fair Value
|
|
|
Amortized
Cost
|
|
|
Estimated
Fair Value
|
|
|
|
(In Thousands)
|
|
|
(In Thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Due in one year or less
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
- |
|
Due after one year through five years
|
|
|
2,500 |
|
|
|
2,531 |
|
|
|
1,177 |
|
|
|
1,197 |
|
Due after five years through ten years
|
|
|
11,893 |
|
|
|
11,979 |
|
|
|
1,514 |
|
|
|
1,569 |
|
Due after ten years
|
|
|
12,516 |
|
|
|
12,532 |
|
|
|
- |
|
|
|
- |
|
Mortgage-backed securities – residential
|
|
|
29,263 |
|
|
|
29,779 |
|
|
|
4,405 |
|
|
|
4,567 |
|
SBA pools
|
|
|
3,492 |
|
|
|
3,519 |
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
59,664 |
|
|
$ |
60,340 |
|
|
$ |
7,096 |
|
|
$ |
7,333 |
|
For the nine months ended September 30, 2011 there was a $24,000 gross realized gain on sale of mortgage-backed securities available for sale resulting from proceeds of $1.4 million and a $111,000 gross realized gain on sale of U.S. government agency securities available for sale resulting from proceeds of $1.6 million. For the nine months ended September 30, 2010 there was a $10,000 gross realized loss on sale of mortgage-backed securities held to maturity resulting from proceeds of $686,000, a $2,000 gross realized gain on sale of FHLMC common stock available for sale resulting from proceeds of $11,000, and a $95,000 gross realized gain on sale of U.S. government agency securities available for sale resulting from proceeds of $3.2 million. In accordance with accounting guidance, the Company was able to sell securities classified as held to maturity after the Company had already collected a substantial portion (at least 85%) of the principal outstanding at acquisition due either to prepayments or to scheduled principal and interest payments on the debt securities.
No securities were pledged to secure public deposits or for any other purpose required or permitted by law at September 30, 2011 or at December 31, 2010.
The following table shows gross unrealized losses and fair value, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position, at September 30, 2011 and December 31, 2010:
Note 3 – Securities (continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In Thousands)
|
|
September 30, 2011:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available for Sale
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Government and agency obligations
|
|
$ |
3,537 |
|
|
$ |
6 |
|
|
$ |
3,360 |
|
|
$ |
13 |
|
|
$ |
6,897 |
|
|
$ |
19 |
|
Mortgaged-backed securities - residential
|
|
|
2,144 |
|
|
|
3 |
|
|
|
- |
|
|
|
- |
|
|
|
2,144 |
|
|
|
3 |
|
Held to Maturity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
State and Municipal securities
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
5,681 |
|
|
$ |
9 |
|
|
$ |
3,360 |
|
|
$ |
13 |
|
|
$ |
9,041 |
|
|
$ |
22 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available for Sale
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Government and agency obligations
|
|
$ |
24,757 |
|
|
$ |
460 |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
24,757 |
|
|
$ |
460 |
|
Mortgaged-backed securities - residential
|
|
|
8,387 |
|
|
|
60 |
|
|
|
- |
|
|
|
- |
|
|
|
8,387 |
|
|
|
60 |
|
Held to Maturity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
State and Municipal securities
|
|
|
1,875 |
|
|
|
60 |
|
|
|
- |
|
|
|
- |
|
|
|
1,875 |
|
|
|
60 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
35,019 |
|
|
$ |
580 |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
35,019 |
|
|
$ |
580 |
|
Management evaluates securities for other-than-temporary impairment at least quarterly, and more frequently when economic or market concerns warrant such evaluation. Consideration is given to (1) the length of time and the extent to which the fair value has been less than the 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, (5) the presence of credit enhancements, if any, including the guarantee of the federal government or any of its agencies, and (6) whether the Company intends to sell or more likely than not be required to sell the debt securities. In the nine month period ended September 30, 2011 and the year ended December 31, 2010, the Company did not record an other-than-temporary impairment charge.
At September 30, 2011, four U.S. Government and agency securities and two mortgage-backed securities were in a continuous unrealized loss position for less than twelve months. At September 30, 2011, four U.S. Government agency securities were in a continuous unrealized loss position for twelve months or more. The U.S. Government and agency securities and mortgage-backed securities 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 more than likely not be required to sell these securities prior to recovery or maturity, no declines are deemed to be other-than-temporary.
Note 4 – Loans and The Allowance for Loan Losses
Net loans at September 30, 2011 and December 31, 2010 consist of the following:
|
|
|
|
|
|
|
|
|
(In Thousands)
|
|
Real estate loans:
|
|
|
|
|
|
|
Secured by one-to-four residential
|
|
$ |
107,804 |
|
|
$ |
102,295 |
|
Home equity lines of credit
|
|
|
9,073 |
|
|
|
8,900 |
|
Secured by multifamily residential
|
|
|
1,355 |
|
|
|
1,165 |
|
Construction
|
|
|
966 |
|
|
|
652 |
|
Commercial
|
|
|
2,143 |
|
|
|
1,395 |
|
Other
|
|
|
75 |
|
|
|
73 |
|
|
|
|
|
|
|
|
|
|
Total Loans
|
|
|
121,416 |
|
|
|
114,480 |
|
|
|
|
|
|
|
|
|
|
Net deferred loan origination costs
|
|
|
374 |
|
|
|
381 |
|
Allowance for loan losses
|
|
|
(406 |
) |
|
|
(384 |
) |
|
|
|
|
|
|
|
|
|
Net Loans
|
|
$ |
121,384 |
|
|
$ |
114,477 |
|
An analysis of activity in the allowance for loan losses for the nine months ended September 30, 2011 and 2010 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at January 1
|
|
$ |
384 |
|
|
$ |
368 |
|
Provision for loan losses
|
|
|
22 |
|
|
|
13 |
|
Loans charged-off
|
|
|
- |
|
|
|
- |
|
Recoveries
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
Balance at September 30
|
|
$ |
406 |
|
|
$ |
381 |
|
The loan portfolio is segmented into commercial and consumer loans. Commercial loans consist of commercial real estate. Consumer loans consist of the following classes: residential real estate, construction, home equity lines of credit, and other consumer.
The Bank’s primary lending activity is the origination of one-to-four residential real estate mortgage loans. At September 30, 2011, $107.8 million, or 88.8%, of the total loan portfolio consisted of one-to-four residential real estate mortgage loans compared to $102.3 million, or 89.4%, of the total loan portfolio at December 31, 2010. The Bank offers fixed-rate and adjustable-rate residential real estate mortgage loans with maturities of up to 30 years and maximum loan amounts generally of up to $750,000.
The Bank currently offers fixed-rate conventional mortgage loans with terms of up to 30 years that are fully amortizing with monthly loan payments, and adjustable-rate mortgage loans that provide an initial fixed interest rate for one, three, five, seven or ten years and that amortize over a period of up to 30 years. The Bank originates fixed-rate mortgage loans with terms of less than 15 years, but at rates applicable to 15-year loans. The Bank originates fixed-rate bi-weekly mortgage loans with terms of up to 30 years that are fully amortizing with bi-weekly loan payments, and “interest only” loans where the borrower pays interest for an initial period (ten years) after which the loan converts to a fully amortizing loan.
Note 4 – Loans and The Allowance for Loan Losses (continued)
Management actively monitors the interest rate risk position to determine the desired level of investment in fixed-rate mortgages. Depending on market interest rates and the Bank’s capital and liquidity position, all newly originated longer term fixed-rate residential mortgage loans may be retained, or, all or a portion of such loans may be sold in the secondary mortgage market to government sponsored entities such as Freddie Mac or other purchasers.
The Bank originates residential, first mortgage loans with the assistance of computer-based underwriting engines licensed from Fannie Mae and/or Freddie Mac. Appraisals of real estate collateral are contracted directly with independent appraisers and not through appraisal management companies. The Bank’s appraisal management policy and procedure is in accordance with all rules and best practice guidance from the Bank’s primary regulator. Credit scoring, using FICO, is employed in the ultimate judgmental credit decision by the Bank’s underwriting staff. The Bank does not use third party contract underwriting services. Residential mortgage loans include fixed and variable interest rate loans secured by one to four family homes generally located in Monroe, Ontario, and Wayne counties of New York State. The Bank’s ability to be repaid on such loans is closely linked to the economic and real estate market conditions in this region. Underwriting policies generally adhere to Fannie Mae and Freddie Mac guidelines for loan requests of conforming and non-conforming amounts. In deciding whether to originate each residential mortgage, the Bank considers the qualifications of the borrower as well as the value of the underlying property.
Adjustable-rate mortgage loans generally present different credit risks than fixed-rate mortgage loans primarily because the underlying debt service payments of the borrowers increase as interest rates increase, thereby increasing the potential for default. Interest-only loans present different credit risks than fully amortizing loans, as the principal balance of the loan does not decrease during the interest-only period. As a result, the Bank’s exposure to loss of principal in the event of default does not decrease during this period.
The Bank offers home equity lines of credit, which are primarily secured by a second mortgage on one-to-four-family residences. At September 30, 2011, home equity lines of credit totaled $9.1 million, or 7.5%, of total loans receivable compared to $8.9 million, or 7.7%, of total loans receivable at December 31, 2010.
The underwriting standards for home equity lines of credit include a determination of the applicant’s credit history, an assessment of the applicant’s ability to meet existing obligations, the value of the collateral securing the loan, and payments on the proposed loan. The combined loan-to-value ratio (first and second mortgage liens) for home equity lines of credit is generally limited to 90%. The Company originates home equity lines of credit without application fees or borrower-paid closing costs. Home equity lines of credit are offered with adjustable-rates of interest indexed to the prime rate, as reported in The Wall Street Journal.
Multi-family residential loans generally are secured by rental properties. Multi-family real estate loans are offered with fixed and adjustable interest rates. Loans secured by multi-family real estate totaled $1.4 million, or 1.1%, of the total loan portfolio at September 30, 2011, compared to $1.2 million, or 1.0%, of the total loan portfolio at December 31, 2010. Multi-family real estate loans are originated for terms of up to 20 years. Adjustable-rate multi-family real estate loans are tied to the average yield on U.S. Treasury securities, subject to periodic and lifetime limitations on interest rate changes.
Loans secured by multi-family real estate generally involve a greater degree of credit risk than one-to four-family residential mortgage loans and carry larger loan balances. This increased credit risk is a result of several factors including: the concentration of principal in a limited number of loans and borrowers, the effects of general economic conditions on income producing properties, and the increased difficulty of evaluating and monitoring these types of loans. Furthermore, the repayment of loans secured by multi-family real estate typically depends upon the successful operation of the real estate property securing the loans. If the cash flow from the project is reduced, the borrower’s ability to repay the loan may be impaired.
Note 4 – Loans and The Allowance for Loan Losses (continued)
The Bank originates construction loans for the purchase of developed lots and for the construction of single-family residences. At September 30, 2011, construction loans totaled $966,000, or 0.8%, of total loans receivable compared to $652,000, or 0.6%, at December 31, 2010. At September 30, 2011, the additional unadvanced portion of these construction loans totaled $299,000 compared to $357,000 of additional unadvanced portion of construction loans at December 31, 2010. Construction loans are offered to individuals for the construction of their personal residences by a qualified builder.
Before making a commitment to fund a construction loan, we require an appraisal of the property by an independent licensed appraiser. We generally also review and inspect each property before disbursement of funds during the term of the construction loan.
Construction financing generally involves greater credit risk than long-term financing on improved, owner-occupied real estate. Risk of loss on a construction loan depends largely upon the accuracy of the initial estimate of the value of the property at completion of construction compared to the estimated cost (including interest) of construction and other assumptions. If the estimate of construction cost proves to be inaccurate, we may be required to advance additional funds beyond the amount originally committed in order to protect the value of the property. Moreover, if the estimated value of the completed project proves to be inaccurate, the borrower may hold a property with a value that is insufficient to assure full repayment of the loan.
Commercial real estate loans are secured by office buildings, mixed use properties, places of worship, and other commercial properties. At September 30, 2011, $2.1 million, or 1.7%, of our total loan portfolio consisted of commercial real estate loans compared to $1.4 million, or 1.2%, of our total loan portfolio at December 31, 2010.
The Company generally originates adjustable-rate commercial real estate loans with maximum terms of up to 15 years. The maximum loan-to-value ratio of commercial real estate loans is 70%.
Loans secured by commercial real estate generally are larger than one-to-four-family residential loans and involve greater credit risk. Commercial real estate loans often involve large loan balances to single borrowers or groups of related borrowers. Repayment of these loans depends to a large degree on the results of operations and management of the properties securing the loans or the businesses conducted on such property, and may be affected to a greater extent by adverse conditions in the real estate market or the economy in general. Accordingly, the nature of these loans makes them more difficult for management to monitor and evaluate.
The Company offers a variety of other loans secured by property other than real estate. At September 30, 2011, these other loans totaled $75,000, or 0.1%, of the total loan portfolio compared to other loans totaling $73,000, or 0.1%, of the total loan portfolio at December 31, 2010. These loans include automobile, passbook, overdraft protection and unsecured loans. Due to the relative immateriality of other loans, the Company’s risk associated with these loans is not considered significant.
Note 4 – Loans and The Allowance for Loan Losses (continued)
The following table sets forth the allowance for loan losses allocated by loan class and the activity in our allowance for loan losses for the three months ended September 30, 2011. The allowance for loan losses allocated to each class is not necessarily indicative of future losses in any particular class and does not restrict the use of the allowance to absorb losses in other classes.
|
|
Secured by 1-4
family
residential
|
|
|
Secured by multifamily residential
|
|
|
Construction
|
|
|
Commercial
|
|
|
Home
Equity
|
|
|
Other/ Unallocated
|
|
|
Total
|
|
|
|
(In thousands)
|
|
Allowance for Loan Losses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning Balance June 30, 2011
|
|
$ |
277 |
|
|
$ |
8 |
|
|
$ |
1 |
|
|
$ |
20 |
|
|
$ |
45 |
|
|
$ |
48 |
|
|
$ |
399 |
|
Charge Offs
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Recoveries
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Provisions
|
|
|
6 |
|
|
|
2 |
|
|
|
4 |
|
|
|
1 |
|
|
|
3 |
|
|
|
(9 |
) |
|
|
7 |
|
Ending Balance September 30, 2011 (1)
|
|
$ |
283 |
|
|
$ |
10 |
|
|
$ |
5 |
|
|
$ |
21 |
|
|
$ |
48 |
|
|
$ |
39 |
|
|
$ |
406 |
|
(1)All Loans are collectively evaluated for impairment.
The following table sets forth the allowance for loan losses allocated by loan class and the activity in our allowance for loan losses for the nine months ended September 30, 2011. The allowance for loan losses allocated to each class is not necessarily indicative of future losses in any particular class and does not restrict the use of the allowance to absorb losses in other classes.
|
|
Secured
by 1-4
family
residential
|
|
|
Secured by multifamily residential
|
|
|
Construction
|
|
|
Commercial
|
|
|
Home
Equity
|
|
|
Other/ Unallocated
|
|
|
Total
|
|
|
|
(In thousands)
|
|
Allowance for Loan Losses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning Balance December 31, 2010
|
|
$ |
242 |
|
|
$ |
9 |
|
|
$ |
3 |
|
|
$ |
14 |
|
|
$ |
55 |
|
|
$ |
61 |
|
|
$ |
384 |
|
Charge Offs
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Recoveries
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Provisions
|
|
|
41 |
|
|
|
1 |
|
|
|
2 |
|
|
|
7 |
|
|
|
(7 |
) |
|
|
(22 |
) |
|
|
22 |
|
Ending Balance September 30, 2011 (1)
|
|
$ |
283 |
|
|
$ |
10 |
|
|
$ |
5 |
|
|
$ |
21 |
|
|
$ |
48 |
|
|
$ |
39 |
|
|
$ |
406 |
|
(1)All Loans are collectively evaluated for impairment.
The Bank’s policies, consistent with regulatory guidelines, provide for the classification of loans that are considered to be of lesser quality as substandard, doubtful, or loss assets. An asset is considered substandard if it is inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any. Substandard assets include those assets characterized by the distinct possibility that we will sustain some loss if the deficiencies are not corrected. Assets classified as doubtful have all of the weaknesses inherent in those classified as substandard with the added characteristic that the weaknesses present make collection or liquidation in full, on the basis of currently existing facts, conditions and values, highly questionable and improbable. Assets (or portions of assets) classified as loss are those considered uncollectible and of such little value that their continuance as assets is not warranted. Assets that do not expose us to risk sufficient to warrant classification in one of the aforementioned categories, but which possess potential weaknesses that deserve our close attention, are required to be designated as special mention. All other assets are categorized as pass.
Note 4 – Loans and The Allowance for Loan Losses (continued)
When the Bank classifies assets as either pass, special mention, substandard, or doubtful, we allocate a portion of the related general loss allowances to such assets as we deem prudent. The allowance for loan losses is the amount estimated by management as necessary to absorb credit losses incurred in the loan portfolio that are both probable and reasonably estimable at the balance sheet date. Our determination as to the classification of our assets and the amount of our loss allowances are subject to review by the Bank’s principal federal regulator, which prior to July 21, 2011 was the Office of Thrift Supervision and was succeeded by the Office of the Comptroller of the Currency (OCC), which can require that we establish additional loss allowances. We regularly review our asset portfolio to determine whether any assets require classification in accordance with applicable regulations.
At and for the nine and twelve months ended September 30, 2011 and December 31, 2010, respectively, there were no loans considered to be impaired. At September 30, 2011 and December 31, 2010 we had no troubled debt restructurings.
The following table presents the risk category of loans by class at September 30, 2011:
(In thousands)
|
|
Pass
|
|
|
Special
Mention
|
|
|
Substandard
|
|
|
Doubtful
|
|
|
Total
|
|
One-to-four residential
|
|
$ |
107,426 |
|
|
|
- |
|
|
$ |
378 |
|
|
|
- |
|
|
$ |
107,804 |
|
Home equity lines of credit
|
|
|
9,049 |
|
|
|
- |
|
|
|
24 |
|
|
|
- |
|
|
|
9,073 |
|
Multi-family residential
|
|
|
1,355 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
1,355 |
|
Construction
|
|
|
966 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
966 |
|
Commercial
|
|
|
2,143 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
2,143 |
|
Other loans
|
|
|
75 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
75 |
|
Total
|
|
$ |
121,014 |
|
|
|
- |
|
|
$ |
402 |
|
|
|
- |
|
|
$ |
121,416 |
|
The following table presents the risk category of loans by class at December 31, 2010:
(In thousands)
|
|
Pass
|
|
|
Special
Mention
|
|
|
Substandard
|
|
|
Doubtful
|
|
|
Total
|
|
One-to-four residential
|
|
$ |
102,238 |
|
|
|
- |
|
|
$ |
57 |
|
|
|
- |
|
|
$ |
102,295 |
|
Home equity lines of credit
|
|
|
8,784 |
|
|
|
- |
|
|
|
116 |
|
|
|
- |
|
|
|
8,900 |
|
Multi-family residential
|
|
|
1,165 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
1,165 |
|
Construction
|
|
|
652 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
652 |
|
Commercial
|
|
|
1,395 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
1,395 |
|
Other loans
|
|
|
73 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
73 |
|
Total
|
|
$ |
114,307 |
|
|
|
- |
|
|
$ |
173 |
|
|
|
- |
|
|
$ |
114,480 |
|
The Bank had $325,000 in nonaccrual loans, comprised of one one-to-four residential property, and no foreclosed assets at September 30, 2011, and no nonaccrual loans or foreclosed assets at December 31, 2010. There were no loans that were past due 90 days or more and still accruing interest at September 30, 2011 and December 31, 2010. Interest on non-accrual loans that would have been earned if loans were accruing interest was $18,093 for the nine months ended September 30, 2011 and $1,176 for the nine months ended September 30, 2010.
Note 4 – Loans and The Allowance for Loan Losses (continued)
Delinquent Loans. The following table sets forth an analysis of the age of the loan delinquencies by type and by amount past due as of September 30, 2011 and December 31, 2010.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in thousands)
|
|
At September 30, 2011
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
One-to-four residential
|
|
$ |
- |
|
|
$ |
53 |
|
|
$ |
325 |
|
|
$ |
378 |
|
|
$ |
107,426 |
|
|
$ |
107,804 |
|
Home equity lines of credit
|
|
|
24 |
|
|
|
- |
|
|
|
- |
|
|
|
24 |
|
|
|
9,049 |
|
|
|
9,073 |
|
Multi-family residential
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
1,355 |
|
|
|
1,355 |
|
Construction
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
966 |
|
|
|
966 |
|
Commercial
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
2,143 |
|
|
|
2,143 |
|
Other loans
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
75 |
|
|
|
75 |
|
Total
|
|
$ |
24 |
|
|
$ |
53 |
|
|
$ |
325 |
|
|
$ |
402 |
|
|
$ |
121,014 |
|
|
$ |
121,416 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31, 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
One-to-four residential
|
|
$ |
57 |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
57 |
|
|
$ |
102,238 |
|
|
$ |
102,295 |
|
Home equity lines of credit
|
|
|
116 |
|
|
|
- |
|
|
|
- |
|
|
|
116 |
|
|
|
8,784 |
|
|
|
8,900 |
|
Multi-family residential
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
1,165 |
|
|
|
1,165 |
|
Construction
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
652 |
|
|
|
652 |
|
Commercial
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
1,395 |
|
|
|
1,395 |
|
Other loans
|
|
|
- |
|
|
|
- |
|
|