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EX-31.2 - SECTION 302 CFO CERTIFICATION - Citizens Community Bancorp Inc.czwi-20140630xex312.htm
EX-31.1 - SECTION 302 CEO CERTIFICATION - Citizens Community Bancorp Inc.czwi-20140630xex311.htm
EX-32.1 - SECTION 906 CEO AND CFO CERTIFICATION - Citizens Community Bancorp Inc.czwi-20140630xex321.htm


 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
FORM 10-Q
 
 
(Mark One)
x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2014
OR
¨
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from             to            
Commission file number 001-33003
 
 
CITIZENS COMMUNITY BANCORP, INC.
(Exact name of registrant as specified in its charter)
 
 
Maryland
 
20-5120010
(State or other jurisdiction of
incorporation or organization)
 
(IRS Employer
Identification Number)
2174 EastRidge Center, Eau Claire, WI 54701
(Address of principal executive offices)
715-836-9994
(Registrant’s telephone number, including area code)
 
 
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 filing requirements for the past 90 days.    Yes  x    No  ¨
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 (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  x    No  ¨
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
 
¨
 
Accelerated filer
 
¨
Non-accelerated filer
 
¨ (do not check if a smaller reporting company)
 
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  ¨ No  x
APPLICABLE ONLY TO CORPORATE ISSUERS
Indicate the number of shares outstanding of each of the registrant’s classes of common stock, as of the latest practicable date:
At August 11, 2014 there were 5,167,061 shares of the registrant’s common stock, par value $0.01 per share, outstanding.




CITIZENS COMMUNITY BANCORP, INC.
FORM 10-Q
June 30, 2014
INDEX
 
 
 
Page Number
 
 
Item 1.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Item 2.
 
Item 3.
 
Item 4.
 
Item 1.
 
Item 1A.
 
Item 2.
 
Item 3.
 
Item 4.
 
Item 5.
 
Item 6.
 

2



PART 1 – FINANCIAL INFORMATION

ITEM 1.
FINANCIAL STATEMENTS

CITIZENS COMMUNITY BANCORP, INC.
Consolidated Balance Sheets
June 30, 2014 (unaudited) and September 30, 2013
(derived from audited financial statements)
(in thousands, except share data)
 
June 30, 2014
 
September 30, 2013
Assets
 
 
 
Cash and cash equivalents
$
9,342

 
$
17,601

Other interest-bearing deposits
245

 
1,988

Investment securities (at fair value of $73,544 and $79,695)
73,493

 
79,695

Non-marketable equity securities, at cost
4,995

 
3,300

Loans receivable
464,577

 
440,863

Allowance for loan losses
(6,338
)
 
(6,180
)
Loans receivable, net
458,239

 
434,683

Office properties and equipment, net
3,969

 
4,835

Accrued interest receivable
1,396

 
1,469

Intangible assets
175

 
218

Foreclosed and repossessed assets, net
1,345

 
1,028

Other assets
11,573

 
9,704

TOTAL ASSETS
$
564,772

 
$
554,521

 
 
 
 
 
 
 
 
Liabilities and Stockholders’ Equity
 
 
 
Liabilities:
 
 
 
Deposits
$
439,818

 
$
447,398

Federal Home Loan Bank advances
64,891

 
50,000

Other liabilities
3,464

 
2,938

Total liabilities
508,173

 
500,336

 
 
 
 
Stockholders’ equity:
 
 
 
Common stock— $0.01 par value, authorized 30,000,000, 5,167,198 and 5,154,891 shares issued and outstanding, respectively
51

 
51

Additional paid-in capital
54,247

 
54,116

Retained earnings
3,448

 
2,473

Unearned deferred compensation
(241
)
 
(169
)
Accumulated other comprehensive loss
(906
)
 
(2,286
)
Total stockholders’ equity
56,599

 
54,185

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY
$
564,772

 
$
554,521

See accompanying condensed notes to unaudited consolidated financial statements.


3




CITIZENS COMMUNITY BANCORP, INC.
Consolidated Statements of Operations (unaudited)
Three and Nine Months Ended June 30, 2014 and 2013
(in thousands, except per share data)
 
Three Months Ended
 
Nine Months Ended
 
June 30, 2014
 
June 30, 2013
 
June 30, 2014
 
June 30, 2013
Interest and dividend income:
 
 
 
 
 
 
 
Interest and fees on loans
$
5,589

 
$
5,710

 
$
16,830

 
$
17,412

Interest on investments
381

 
263

 
1,097

 
1,029

Total interest and dividend income
5,970

 
5,973

 
17,927

 
18,441

Interest expense:
 
 
 
 
 
 
 
Interest on deposits
878

 
1,187

 
2,705

 
3,644

Interest on borrowed funds
168

 
111

 
486

 
392

Total interest expense
1,046

 
1,298

 
3,191

 
4,036

Net interest income before provision for loan losses
4,924

 
4,675

 
14,736

 
14,405

Provision for loan losses
455

 
750

 
1,535

 
2,415

Net interest income after provision for loan losses
4,469

 
3,925

 
13,201

 
11,990

Non-interest income:
 
 
 
 
 
 
 
Total fair value adjustments and other-than-temporary impairment

 
67

 
(78
)
 
73

Portion of loss recognized in other comprehensive income (before tax)

 
(193
)
 

 
(863
)
Net (loss) gain on sale of available for sale securities
(7
)
 
(56
)
 
(149
)
 
552

Net loss on available for sale securities
(7
)
 
(182
)
 
(227
)
 
(238
)
Service charges on deposit accounts
494

 
525

 
1,497

 
1,248

Loan fees and service charges
223

 
159

 
577

 
616

Other
211

 
187

 
582

 
519

Total non-interest income
921

 
689

 
2,429

 
2,145

Non-interest expense:
 
 
 
 
 
 
 
Salaries and related benefits
2,435

 
2,259

 
7,079

 
6,689

Occupancy
611

 
626

 
1,881

 
1,864

Office
442

 
350

 
1,102

 
1,079

Data processing
380

 
443

 
1,125

 
1,236

Amortization of core deposit intangible
14

 
15

 
43

 
42

Advertising, marketing and public relations
95

 
44

 
239

 
131

FDIC premium assessment
104

 
66

 
313

 
418

Professional services
(155
)
 
233

 
276

 
460

Other
572

 
323

 
1,700

 
989

Total non-interest expense
4,498

 
4,359

 
13,758

 
12,908

Income before provision for income tax
892

 
255

 
1,872

 
1,227

Provision for income taxes
334

 
89

 
690

 
468

Net income attributable to common stockholders
$
558

 
$
166

 
$
1,182

 
$
759

Per share information:
 
 
 
 
 
 
 
Basic earnings
$
0.11

 
$
0.03

 
$
0.23

 
$
0.15

Diluted earnings
$
0.11

 
$
0.03

 
$
0.23

 
$
0.15

Cash dividends paid
$

 
$

 
$
0.04

 
$
0.02

See accompanying condensed notes to unaudited consolidated financial statements.
 

4




CITIZENS COMMUNITY BANCORP, INC.
Consolidated Statements of Comprehensive Income (Loss) (unaudited)
Nine months ended June 30, 2014 and 2013
(in thousands, except per share data)
 
Nine Months Ended
 
June 30, 2014

 
June 30, 2013

Net income attributable to common stockholders
$
1,182

 
$
759

Other comprehensive income (loss), net of tax:
 
 
 
Securities available for sale
 
 
 
Net unrealized gains (losses) arising during period
1,422

 
(2,795
)
Reclassification adjustment for (losses) gains included in net income
(89
)
 
332

Change for realized losses on securities available for sale for other-than-temporary impairment (OTTI) write-down
47

 
474

Unrealized gains (losses) on securities
1,380

 
(1,989
)
Comprehensive income (loss)
$
2,562

 
$
(1,230
)

Reclassifications out of accumulated other comprehensive income for the nine months ended June 30, 2014 were as follows:

Details about Accumulated Other Comprehensive Income Components
 
Amounts Reclassified from Accumulated Other Comprehensive Income
(1)
Affected Line Item on the Statement of Operations
Unrealized gains and losses
 
 
 
 
Sale of securities
 
$
(149
)
 
Net (loss) gain on sale of available for sale securities
Realized losses on securities available
 
 
 
Total fair value adjustments and other-than-
for sale for OTTI write-down
 
(78
)
 
temporary impairment
 
 
(227
)
 
 
 
 
91

 
Benefit for income taxes
Total reclassifications for the period
 
(136
)
 
Net attributable to common shareholders


(1)    Amounts in parentheses indicate decreases to profit/loss.


See accompanying condensed notes to unaudited consolidated financial statements.


5




CITIZENS COMMUNITY BANCORP, INC.
Consolidated Statement of Changes in Stockholders’ Equity (unaudited)
Nine Months Ended June 30, 2014
(in thousands, except Shares)
 
 
 
 
 
Additional Paid-In Capital
 
Retained Earnings
 
Unearned Deferred Compensation
 
Accumulated Other Comprehensive Income (Loss)
 
Total Stockholders' Equity
 
Common Stock
 
 
 
 
 
 
Shares
 
Amount
 
 
 
 
 
Balance, October 1, 2013
5,154,891

 
$
51

 
$
54,116

 
$
2,473

 
$
(169
)
 
$
(2,286
)
 
$
54,185

Net Income
 
 
 
 
 
 
1,182

 
 
 
 
 
1,182

Other comprehensive income, net of tax
 
 
 
 
 
 
 
 
 
 
1,380

 
1,380

Surrender of vested shares - 2,693 shares
(2,693
)
 
 
 
(21
)
 
 
 
 
 
 
 
(21
)
Common stock awarded under the equity incentive plan
15,000

 
 
 
120

 
 
 
(120
)
 
 
 

Stock option expense
 
 
 
 
32

 
 
 
 
 
 
 
32

Amortization of restricted stock
 
 
 
 
 
 
 
 
48

 
 
 
48

Cash Dividends ($0.04 per share)
 
 
 
 
 
 
(207
)
 
 
 
 
 
(207
)
Balance, June 30, 2014
5,167,198

 
$
51

 
$
54,247

 
$
3,448

 
$
(241
)
 
$
(906
)
 
$
56,599

See accompanying condensed notes to unaudited consolidated financial statements.
 

6




CITIZENS COMMUNITY BANCORP, INC.
Consolidated Statements of Cash Flows (unaudited)
Nine Months Ended June 30, 2014 and 2013
(in thousands, except per share data)
 
Nine Months Ended
 
June 30, 2014

 
June 30, 2013

Cash flows from operating activities:
 
 
 
Net income attributable to common stockholders
$
1,182

 
$
759

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Net amortization of premium/discount on securities
768

 
763

Depreciation
748

 
805

Provision for loan losses
1,535

 
2,415

Net realized loss (gain) on sale of securities
149

 
(552
)
Other-than-temporary impairment on mortgage-backed securities
78

 
790

Amortization of core deposit intangible
43

 
42

Amortization of restricted stock
48

 
33

Stock based compensation expense
32

 
23

Loss on sale of office properties
326

 
16

Provision for deferred income taxes
1,002

 

Net gains from disposals of foreclosed properties
(63
)
 
(70
)
Provision for valuation allowance on foreclosed properties
61

 
67

(Increase) decrease in accrued interest receivable and other assets
(605
)
 
557

Increase (decrease) in other liabilities
526

 
(833
)
Total adjustments
4,648

 
4,056

Net cash provided by operating activities
5,830

 
4,815

Cash flows from investing activities:
 
 
 
Purchase of investment securities
(18,581
)
 
(59,164
)
Purchase of bank owned life insurance
(3,000
)
 
(3,000
)
Net decrease (increase) in interest-bearing deposits
1,743

 
(1,992
)
Proceeds from sale of securities available for sale
21,199

 
44,780

Principal payments on investment securities
4,888

 
8,001

Proceeds from sale of Federal Home Loan Bank (FHLB) stock

 
500

Purchase of Federal Reserve Bank Stock
(1,695
)
 

Proceeds from sale of foreclosed properties
1,286

 
1,368

Net increase in loans
(26,806
)
 
(14,083
)
Net capital expenditures
(356
)
 
(345
)
Net cash received from sale of office properties
150

 

Net cash used in investing activities
(21,172
)
 
(23,935
)
Cash flows from financing activities:
 
 
 
Net increase in Federal Home Loan Bank advances
14,891

 
3,700

Net (decrease) increase in deposits
(7,580
)
 
20,150

Surrender of restricted shares of common stock
(21
)
 
(4
)
Cash dividends paid
(207
)
 
(103
)
Net cash provided by financing activities
7,083

 
23,743

Net (decrease) increase in cash and cash equivalents
(8,259
)
 
4,623

Cash and cash equivalents at beginning of period
17,601

 
23,259

Cash and cash equivalents at end of period
$
9,342

 
$
27,882

Supplemental cash flow information:
 
 
 
Cash paid during the year for:
 
 
 
Interest on deposits
$
2,703

 
$
3,648

Interest on borrowings
$
584

 
$
419

Income taxes
$
84

 
$
788

Supplemental noncash disclosure:
 
 
 
Transfers from loans receivable to foreclosed and repossessed assets
$
1,715

 
$
1,616

See accompanying condensed notes to unaudited consolidated financial statements. 

7




CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1 – NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accompanying consolidated financial statements include the accounts of Citizens Community Bancorp, Inc. (the “Company”) and its wholly owned subsidiary, Citizens Community Federal N.A. (the "Bank"), and have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”) for interim financial statements. Citizens Community Bancorp was a successor to Citizens Community Federal as a result of a regulatory restructuring into the mutual holding company form, which was effective on March 29, 2004. Originally, Citizens Community Federal was a credit union. In December 2001, Citizens Community Federal converted to a federal mutual savings bank. In 2004, Citizens Community Federal reorganized into the mutual holding company form of organization. In 2006, Citizens Community Bancorp completed its second-step mutual to stock conversion.
On April 16, 2014, the U.S. Office of the Comptroller of the Currency (the "OCC"), the primary federal regulator for
Citizens Community Bancorp, Inc. and Citizens Community Federal, provided written notice to the Bank of the OCC's approval for the Bank to convert to a national banking association (a "National Bank") and operate under the title of Citizens Community Federal National Association ("Citizens Community Federal N.A."). The consummation of the conversion to a National Bank was effective as of May 31, 2014.
On April 18, 2014, Citizens Community Bancorp, Inc. received written notice from the Federal Reserve Bank of
Minneapolis (the "FRB") notifying the Company of the FRB's approval of the Company becoming a bank holding company as
a result of the proposed conversion of the Bank from a federally-chartered savings bank to a National Bank, which approval
was also effective as of May 31, 2014.
The consolidated income of the Company is principally derived from the income of the Bank, the Company’s wholly owned subsidiary. The Bank originates residential, commercial, agricultural, consumer and commercial and industrial (C&I) loans and accepts deposits from customers, primarily in Wisconsin, Minnesota and Michigan. The Bank operates 23 full-service offices; eight stand-alone locations and 15 branches predominantly located inside Walmart Supercenters.
The Bank is subject to competition from other financial institutions and non-financial institutions providing financial products. Additionally, the Bank is subject to the regulations of certain regulatory agencies and undergoes periodic examination by those regulatory agencies.
In preparing these consolidated financial statements, we evaluated the events and transactions that occurred through August 11, 2014, the date on which the financial statements were available to be issued. As of August 11, 2014, there were no subsequent events which required recognition or disclosure.
The accompanying consolidated interim financial statements are unaudited. However, in the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Unless otherwise stated, all amounts are in thousands.
Principles of Consolidation – The accompanying consolidated financial statements include the accounts of the Company and its wholly-owned subsidiary, Citizens Community Federal N.A. All significant inter-company accounts and transactions have been eliminated.
Use of Estimates – Preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”) requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying disclosures. These estimates are based on management’s best knowledge of current events and actions the Company may undertake in the future. Estimates are used in accounting for, among other items, fair value of financial instruments, the allowance for loan losses, valuation of acquired intangible assets, useful lives for depreciation and amortization, indefinite-lived intangible assets and long-lived assets, deferred tax assets, uncertain income tax positions and contingencies. Management does not anticipate any material changes to estimates made herein in the near term. Factors that may cause sensitivity to the aforementioned estimates include but are not limited to external market factors such as market interest rates and unemployment rates, changes to operating policies and procedures, and changes in applicable banking regulations. Actual results may ultimately differ from estimates, although management does not generally believe such differences would materially affect the consolidated financial statements in any individual reporting period.
Investment Securities; Held to Maturity and Available for Sale – Management determines the appropriate classification of investment securities at the time of purchase and reevaluates such designation as of the date of each statement of financial

8




position date. Securities are classified as held to maturity when the Company has the positive intent and ability to hold the securities to maturity. Held to maturity securities are stated at amortized cost. Investment securities not classified as held to maturity are classified as available for sale. Available for sale securities are stated at fair value, with unrealized holding gains and losses deemed other than temporarily impaired due to non-credit issues being reported in other comprehensive income (loss), net of tax. Unrealized losses deemed other-than-temporary due to credit issues are reported in the Company’s earnings in the period in which the losses arise. Interest income includes amortization of purchase premium or accretion of purchase discount. Amortization of premiums and accretion of discounts are recognized in interest income using the interest method over the estimated lives of the securities.
In estimating other-than-temporary impairment (OTTI), management considers: (1) the length of time and extent that fair value has been less than cost, (2) the financial condition and near-term prospects of the issuer, and (3) the Company’s ability and intent to hold the security for a period sufficient to allow for any anticipated recovery in fair value. The difference between the present values of the cash flows expected to be collected and the amortized cost basis is the credit loss. The credit loss is the portion of OTTI that is recognized in operations and is a reduction to the cost basis of the security. The portion of other-than-temporary impairment related to all other factors is included in other comprehensive income (loss), net of the related tax effect.
Loans – Loans that management has the intent and ability to hold for the foreseeable future or until maturity or payoff are reported at the principal balance outstanding, net of unearned interest, and net of deferred loan fees and costs. Interest income is accrued on the unpaid principal balance. Loan origination fees, net of certain direct origination costs, are deferred and recognized in interest income using the interest method without anticipating prepayments.
Interest income on commercial, mortgage and consumer loans is discontinued according to the following schedules:
Commercial loans, including Agricultural and C&I loans past due 90 days or more;
Closed end consumer loans past due 120 days or more; and
Real estate loans and open ended consumer loans past due 180 days or more.
Past due status is based on the contractual terms of the loan. In all cases, loans are placed on nonaccrual status or charged off at an earlier date if collection of principal or interest is considered doubtful. All interest accrued but not received for a loan placed on nonaccrual status is reversed against interest income. Interest received on such loans is accounted for on the cash basis or cost recovery method until qualifying for return to accrual status. Loans are returned to accrual status when payments are made that bring the loan account current with the contractual term of the loan and a 6 month payment history has been established. Interest on impaired loans considered troubled debt restructurings (“TDRs”) or substandard, less than 90 days delinquent, is recognized as income as it accrues based on the revised terms of the loan over an established period of continued payment. Substandard loans, as defined by the OCC, our primary banking regulator, are loans that are inadequately protected by the current sound worth and paying capacity of the obligor or of the collateral pledged, if any.
Real estate loans and open ended consumer loans are charged off to estimated net realizable value less estimated selling costs at the earlier of when (a) the loan is deemed by management to be uncollectible, or (b) the loan becomes past due 180 days or more. Closed end consumer loans are charged off to net realizable value at the earlier of when (a) the loan is deemed by management to be uncollectible, or (b) the loan becomes past due 120 days or more. Commercial loans, including Agricultural and C&I loans, are charged off to net realizable value at the earlier of when (a) the loan is deemed by management to be uncollectible, or (b) the loan becomes past due 90 days or more.
Allowance for Loan Losses – The allowance for loan losses (“ALL”) is a valuation allowance for probable and inherent credit losses in our loan portfolio. Loan losses are charged against the ALL when management believes that the collectability of a loan balance is unlikely. Subsequent recoveries, if any, are credited to the ALL. Management estimates the required ALL balance taking into account the following factors: past loan loss experience; the nature, volume and composition of the loan portfolio; known and inherent risks in the loan portfolio; information about specific borrowers’ ability to repay; estimated collateral values; current economic conditions; and other relevant factors determined by management. The ALL consists of specific and general components. The specific component relates to loans that are individually classified as impaired. The general component covers non-impaired loans and is based on historical loss experience adjusted for certain qualitative factors. The entire ALL balance is available for any loan that, in management’s judgment, should be charged off.
A loan is impaired when full payment under the loan terms is not expected. Impaired loans consist of all TDRs, as well as individual substandard loans not considered a TDR, when full payment under the loan terms is not expected. All TDRs are individually evaluated for impairment. See Note 3, “Loans, Allowance for Loan Losses and Impaired Loans” for more information on what we consider to be a TDR. If a TDR or substandard loan is deemed to be impaired, a specific ALL allocation is established so that the loan is reported, net, at either (a) the present value of estimated future cash flows using the

9




loan’s existing rate; or (b) at the fair value of any collateral, less estimated disposal costs, if repayment is expected solely from the underlying collateral of the loan. For TDRs less than 90+ days past due, and certain TDRs that are less than 90+ days delinquent, the likelihood of the loan migrating to over 90 days past due is also taken into account when determining the specific ALL allocation. Large groups of smaller balance homogeneous loans, such as non-TDR commercial, consumer and residential real estate loans, are collectively evaluated for impairment, and accordingly, are not separately identified for impairment disclosures.
Foreclosed and Repossessed Assets, net – Assets acquired through foreclosure or repossession, are initially recorded at fair value, less estimated costs to sell, which establishes a new cost basis. If the fair value declines subsequent to foreclosure or repossession, a valuation allowance is recorded through expense. Costs incurred after acquisition are expensed, and are included in non-interest expense, other on the Consolidated Statements of Operations. Foreclosed and repossessed asset balances were $1,345 and $1,028 at June 30, 2014 and September 30, 2013, respectively.
Income Taxes – The Company accounts for income taxes in accordance with the Financial Accounting Standards Board (FASB) Accounting Standards Codification (“ASC”) Topic 740, “Income Taxes.” Under this guidance, deferred taxes are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates that will apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized as income or expense in the period that includes the enactment date. See Note 6, "Income Taxes" for details on the Company’s income taxes.
The Company regularly reviews the carrying amount of its net deferred tax assets to determine if the establishment of a valuation allowance is necessary. If based on the available evidence, it is more likely than not that all or a portion of the Company’s net deferred tax assets will not be realized in future periods, a deferred tax valuation allowance would be established. Consideration is given to various positive and negative factors that could affect the realization of the deferred tax assets. In evaluating this available evidence, management considers, among other things, historical performance, expectations of future earnings, the ability to carry back losses to recoup taxes previously paid, the length of statutory carry forward periods, any experience with utilization of operating loss and tax credit carry forwards not expiring, tax planning strategies and timing of reversals of temporary differences. Significant judgment is required in assessing future earnings trends and the timing of reversals of temporary differences. Accordingly, the Company’s evaluation is based on current tax laws as well as management’s expectations of future performance.
Earnings Per Share – Basic earnings per common share is net income or loss divided by the weighted average number of common shares outstanding during the period. Diluted earnings per common share include the dilutive effect of additional potential common shares issuable during the period, consisting of stock options outstanding under the Company’s stock incentive plans.
Reclassifications – Certain items previously reported were reclassified for consistency with the current presentation.
Recent Accounting Pronouncements - In May, 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update ("ASU") 2014-09 - "Revenue from Contracts with Customers (Topic 606). ASU 2014-09 is intended to clarify and simplify revenue recognition principles, develop a common revenue standard across industries and accounting frameworks, and improve the usefulness and consistency of revenue reporting. For public entities, ASU 2014-09 is effective on a retrospective basis for the annual periods, and interim periods within those annual periods, beginning after December 15, 2016. Early adoption is not permitted. The Company expects the adoption of ASU 2014-09 to have no material effect on the Company's results of operations, financial position or cash flows.
In January, 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update ("ASU") 2014-04 - "Receivables - Troubled Debt Restructurings by Creditors (Subtopic 310-40): Reclassification of Residential Real Estate Collateralized Consumer Mortgage Loans upon Foreclosure (a consensus of the FASB Emerging Issues Task Force)". ASU 2014-04 is intended to improve consistency among reporting entities by clarifying when an in substance foreclosure occurs, that is, when a creditor should derecognize a loan and recognize the corresponding collateral real estate as a separate asset. For public entities, ASU 2014 is effective for the annual periods, and interim periods within those annual periods, beginning after December 15, 2014. Early adoption is permitted. The Company expects the adoption of ASU 2014-04 to have no material effect on the Company's results of operations, financial position or cash flows.




10




NOTE 2 – FAIR VALUE ACCOUNTING
ASC Topic 820-10, “Fair Value Measurements and Disclosures” establishes a fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The statement describes three levels of inputs that may be used to measure fair value:
Level 1- Quoted prices (unadjusted) for identical assets or liabilities in active markets that the Company has the ability to access as of the measurement date.
Level 2- Significant other observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data.
Level 3- Significant unobservable inputs that reflect the Company’s assumptions about the factors that market participants would use in pricing an asset or liability.
A financial instrument’s categorization within the valuation hierarchy is based upon the lowest level of input within the valuation hierarchy that is significant to the fair value measurement.
The fair value of securities available for sale is determined by obtaining market price quotes from independent third parties wherever such quotes are available (Level 1 inputs) or matrix pricing, which is a mathematical technique widely used in the industry to value debt securities without relying exclusively on quoted prices for the specific securities but rather by relying on the securities’ relationship to other benchmark quoted securities (Level 2 inputs). Where such quotes are not available, the Company utilizes independent third party valuation analysis to support the Company’s estimates and judgments in determining fair value (Level 3 inputs).
Assets Measured on a Recurring Basis
Level 3 assets measured on a recurring basis are certain investments for which little or no market activity exists or whose value of the underlying collateral is not market observable. Management’s valuation uses both observable as well as unobservable inputs to assist in the Level 3 valuation of mortgage backed securities held by the Bank, employing a methodology that considers future cash flows along with risk-adjusted returns. The inputs in this methodology are as follows: ability and intent to hold to maturity, mortgage underwriting rates, market prices/conditions, loan type, loan-to-value ratio, strength of borrower, loan age, delinquencies, prepayment/cash flows, liquidity, expected future cash flows, rating agency actions, and a discount rate, which is assumed to be approximately equal to the coupon rate for each security. As of June 30, 2014, the Company held no Level 3 securities measured on a recurring basis. The following tables present the financial instruments measured at fair value on a recurring basis as of June 30, 2014 and September 30, 2013:
 
Fair
Value
 
Quoted Prices in
Active Markets
for Identical
Instruments
(Level 1)
 
Significant
Other
Observable
Inputs
(Level 2)
 
Significant
Unobservable
Inputs
(Level 3)
June 30, 2014
 
 
 
 
 
 
 
Investment securities:
 
 
 
 
 
 
 
U.S. government agency obligations
$
22,215

 
$

 
$
22,215

 
$

Obligations of states and political subdivisions
11,982

 

 
11,982

 

Mortgage-backed securities
30,038

 

 
30,038

 

Non-agency mortgage-backed securities

 

 

 

Federal Agricultural Mortgage Corporation
61

 

 
61

 

Total
$
64,296

 
$

 
$
64,296

 
$

September 30, 2013
 
 
 
 
 
 
 
Investment securities:
 
 
 
 
 
 
 
U.S. government agency obligations
$
27,866

 
$

 
$
27,866

 
$

Obligations of states and political


 


 


 


subdivisions
10,970

 

 
10,970

 

Mortgage-backed securities
39,633

 

 
39,633

 

Non-agency mortgage-backed securities
1,226

 

 

 
1,226

Total
$
79,695

 
$

 
$
78,469

 
$
1,226


11




The following table presents a reconciliation of non-agency mortgage-backed securities held by the Bank measured at fair value on a recurring basis using significant unobservable inputs (Level 3) for the nine months ended June 30, 2014 and 2013: 
 
Nine Months Ended
 
June 30, 2014
 
June 30, 2013
Balance beginning of period
$
1,226

 
$
6,586

Total gains or losses (realized/unrealized):
 
 
 
Included in earnings
(274
)
 
(790
)
Included in other comprehensive loss
615

 
1,074

Sales
(1,321
)
 
(3,802
)
Payments, accretion and amortization
(246
)
 
(1,697
)
Balance end of period
$

 
$
1,371

Assets Measured on a Nonrecurring Basis
The following tables present the financial instruments measured at fair value on a nonrecurring basis as of June 30, 2014 and September 30, 2013:
 
Fair
Value
 
Quoted Prices in
Active Markets
for Identical
Instruments
(Level 1)
 
Significant
Other
Observable
Inputs
(Level 2)
 
Significant
Unobservable
Inputs
(Level  3)
June 30, 2014
 
 
 
 
 
 
 
Foreclosed and repossessed assets, net
$
1,345

 
$

 
$

 
$
1,345

Loans restructured in a TDR
6,130

 

 

 
6,130

Total
$
7,475

 
$

 
$

 
$
7,475

September 30, 2013
 
 
 
 
 
 
 
Foreclosed and repossessed assets, net
$
1,028

 
$

 
$

 
$
1,028

Loans restructured in a TDR
8,618

 

 

 
8,618

Total
$
9,646

 
$

 
$

 
$
9,646

The fair value of TDRs was determined by obtaining independent third party appraisals and/or internally developed collateral valuations to support the Company’s estimates and judgments in determining the fair value of the underlying collateral supporting TDRs.
The fair value of foreclosed and repossessed assets was determined by obtaining market price quotes from independent third parties wherever such quotes are available. Where such quotes are not available, the Company utilizes independent third party appraisals to support the Company’s estimates and judgments in determining fair value for such assets.
Fair Values of Financial Instruments
ASC 825-10 and ASC 270-10, Interim Disclosures about Fair Value Financial Instruments, require disclosures about fair value financial instruments and significant assumptions used to estimate fair value. The estimated fair values of financial instruments not previously disclosed are determined as follows:
Cash and Cash Equivalents
Due to their short-term nature, the carrying amounts of cash and cash equivalents are considered to be a reasonable estimate of fair value.
Other Interest-Bearing Deposits
Fair value of interest bearing deposits is estimated based on their carrying amounts.



12




Non-marketable Equity Securities, at cost
Non-marketable equity securities are comprised of Federal Home Loan Bank stock and Federal Reserve Bank stock carried at cost, which is its redeemable fair value since the market for each category of this stock is restricted.
Loans Receivable, net
Fair value is estimated for portfolios of loans with similar financial characteristics. Loans are segregated by type such as real estate, commercial and consumer. The fair value of loans is calculated by discounting scheduled cash flows through the estimated maturity date using market discount rates reflecting the credit and interest rate risk inherent in the loan. The estimate of maturity is based on the Bank’s repayment schedules for each loan classification.
Accrued Interest Receivable and Payable
Due to their short-term nature, the carrying amounts of accrued interest receivable and payable, respectively, are considered to be a reasonable estimate of fair value.
Deposits
The fair value of deposits with no stated maturity, such as demand deposits, savings accounts, and money market accounts, is the amount payable on demand at the reporting date. The fair value of fixed rate certificate accounts is calculated by using discounted cash flows applying interest rates currently being offered on similar certificates.
Federal Home Loan Bank Advances
The fair value of long-term borrowed funds is estimated using discounted cash flows based on the Bank’s current incremental borrowing rates for similar borrowing arrangements. The carrying value of short-term borrowed funds approximates its fair value.
Off-Balance-Sheet Instruments
The fair value of off-balance sheet commitments would be estimated using the fees currently charged to enter into similar agreements, taking into account the remaining terms of the agreements, the current interest rates, and the present creditworthiness of the customers. Since this amount is immaterial to the Company’s consolidated financial statements, no amounts for fair value are presented.
The carrying amount and estimated fair value of the Company's financial instruments as of the dates indicated below were as follows:
 
June 30, 2014
 
September 30, 2013
 
Carrying
Amount
 
Estimated
Fair
Value
 
Carrying
Amount
 
Estimated
Fair
Value
Financial assets:
 
 
 
 
 
 
 
Cash and cash equivalents
$
9,342

 
$
9,342

 
$
17,601

 
$
17,601

Interest-bearing deposits
245

 
245

 
1,988

 
1,988

Investment Securities
73,493

 
73,544

 
79,695

 
79,695

Non-marketable equity securities, at cost
4,995

 
4,995

 
3,300

 
3,300

Loans receivable, net
458,239

 
473,598

 
434,683

 
448,846

Accrued interest receivable
1,396

 
1,396

 
1,469

 
1,469

Financial liabilities:
 
 
 
 
 
 
 
Deposits
$
439,818

 
$
443,707

 
$
447,398

 
$
451,255

FHLB advances
64,891

 
65,206

 
50,000

 
49,676

Accrued interest payable
12

 
12

 
11

 
11

NOTE 3 – LOANS, ALLOWANCE FOR LOAN LOSSES AND IMPAIRED LOANS
The ALL represents management’s estimate of probable and inherent credit losses in the Bank’s loan portfolio. Estimating the amount of the ALL requires the exercise of significant judgment and the use of estimates related to the amount and timing of expected future cash flows on impaired loans, estimated losses on pools of homogeneous loans

13




based on historical loss experience, and consideration of other qualitative factors such as current economic trends and conditions, all of which may be susceptible to significant change.
There are many factors affecting the ALL; some are quantitative, while others require qualitative judgment. The process for determining the ALL (which management believes adequately considers potential factors which result in probable credit losses), includes subjective elements and, therefore, may be susceptible to significant change. To the extent actual outcomes differ from management estimates, additional provision for loan losses could be required that could adversely affect the Company’s earnings or financial position in future periods. Allocations of the ALL may be made for specific loans but the entire ALL is available for any loan that, in management’s judgment, should be charged-off or for which an actual loss is realized.
Changes in the ALL by loan type for the periods presented below were as follows:
 
Real Estate
 
Consumer and Other
 
Total
Nine Months Ended June 30, 2014:
 
 
 
 
 
Allowance for Loan Losses:
 
 
 
 
 
Beginning balance, October 1, 2013
$
2,541

 
$
3,639

 
$
6,180

Charge-offs
(1,025
)
 
(573
)
 
(1,598
)
Recoveries
22

 
199

 
221

Provision
1,108

 
427

 
1,535

Ending balance, June 30, 2014
$
2,646

 
$
3,692

 
$
6,338

Allowance for Loan Losses at June 30, 2014:
 
 
 
 
 
Amount of Allowance for Loan Losses arising from loans individually evaluated for impairment
$
610

 
$
208

 
$
818

Amount of Allowance for Loan Losses arising from loans collectively evaluated for impairment
$
2,036

 
$
3,484

 
$
5,520

Loans Receivable as of June 30, 2014:
 
 
 
 
 
Ending balance
$
264,749

 
$
199,828

 
$
464,577

Ending balance: individually evaluated for impairment
$
7,481

 
$
1,221

 
$
8,702

Ending balance: collectively evaluated for impairment
$
257,268

 
$
198,607

 
$
455,875

 
Real Estate
 
Consumer and Other
 
Total
Year ended September 30, 2013
 
 
 
 
 
Allowance for Loan Losses:
 
 
 
 
 
Beginning balance, October 1, 2012
$
2,287

 
$
3,458

 
$
5,745

Charge-offs
(1,525
)
 
(1,494
)
 
(3,019
)
Recoveries
36

 
275

 
311

Provision
1,743

 
1,400

 
3,143

Ending balance, September 30, 2013
$
2,541

 
$
3,639

 
$
6,180

Allowance for Loan Losses at September 30, 2013:
 
 
 
 
 
Amount of Allowance for Loan Losses arising from loans individually evaluated for impairment
$
667

 
$
316

 
$
983

Amount of Allowance for Loan Losses arising from loans collectively evaluated for impairment
$
1,874

 
$
3,323

 
$
5,197

Loans Receivable as of September 30, 2013:
 
 
 
 
 
Ending balance
264,388

 
176,475

 
$
440,863

Ending balance: individually evaluated for impairment
3,659

 
907

 
$
4,566

Ending balance: collectively evaluated for impairment
$
260,729

 
$
175,568

 
$
436,297

The Bank has originated substantially all loans currently recorded on the Company’s accompanying consolidated balance sheet, except as noted below.
During October 2012, the Bank entered into an agreement to purchase short term consumer loans from a third party on an ongoing basis. Pursuant to the ongoing loan purchase agreement, a restricted reserve account was established at 3% of the outstanding consumer loan balances purchased up to a maximum of $1,000, with such percentage amount of the

14




loans being deposited into a segregated reserve account. The funds in the reserve account are to be released to compensate the Bank for any purchased loans that are ultimately charged off. As of June 30, 2014, the balance of the consumer loans purchased was $29,063. The balance in the cash reserve account was $883, which is included in Deposits on the accompanying consolidated balance sheet. To date, none of the purchased loans have been charged off.
Loans receivable by loan type as of the end of the periods shown below were as follows:
 
Real Estate Loans
 
Consumer and Other Loans
 
Total Loans
 
June 30, 2014
 
September 30, 2013
 
June 30, 2014
 
September 30, 2013
 
June 30, 2014
 
September 30, 2013
Performing loans
 
 
 
 
 
 
 
 
 
 
 
Performing TDR loans
$
5,062

 
$
6,254

 
$
837

 
$
1,101

 
$
5,899

 
$
7,355

Performing loans other
258,602

 
255,951

 
198,694

 
174,949

 
457,296

 
430,900

Total performing loans
263,664

 
262,205

 
199,531

 
176,050

 
463,195

 
438,255

 
 
 
 
 
 
 
 
 
 
 
 
Nonperforming loans (1)
 
 
 
 
 
 
 
 
 
 
 
Nonperforming TDR loans
177

 
1,187

 
54

 
76

 
231

 
1,263

Nonperforming loans other
908

 
996

 
243

 
349

 
1,151

 
1,345

Total nonperforming loans
$
1,085

 
$
2,183

 
$
297

 
$
425

 
$
1,382

 
$
2,608

Total loans
$
264,749

 
$
264,388

 
$
199,828

 
$
176,475

 
$
464,577

 
$
440,863

(1)
Nonperforming loans are either 90+ days past due or nonaccrual.
An aging analysis of the Company’s real estate, consumer and other loans and purchased third party loans as of June 30, 2014 and September 30, 2013, respectively, was as follows:
 
1 Month
Past Due
 
2 Months
Past Due
 
Greater
Than
3 Months
 
Total
Past Due
 
Current
 
Total
Loans
 
Recorded
Investment >
3 months and
Accruing
June 30, 2014
 
 
 
 
 
 
 
 
 
 
 
 
 
Real estate loans
$
310

 
$
1,051

 
$
851

 
$
2,212

 
$
262,537

 
$
264,749

 
$
424

Consumer and other loans
361

 
115

 
100

 
576

 
170,189

 
170,765

 
33

Purchased third party loans
156

 
99

 
77

 
332

 
28,731

 
29,063

 
77

Total
$
827

 
$
1,265

 
$
1,028

 
$
3,120

 
$
461,457

 
$
464,577

 
$
534

September 30, 2013
 
 
 
 
 
 
 
 
 
 
 
 
 
Real estate loans
$
2,057

 
$
351

 
$
1,905

 
$
4,313

 
$
260,075

 
$
264,388

 
$
371

Consumer and other loans
746

 
121

 
214

 
1,081

 
155,416

 
156,497

 
80

Purchased third party loans
112

 
66

 
32

 
210

 
19,768

 
19,978

 
32

Total
$
2,915

 
$
538

 
$
2,151

 
$
5,604

 
$
435,259

 
$
440,863

 
$
483


15




At June 30, 2014, the Company has identified $6,130 of TDR loans and $2,572 of substandard loans as impaired, totaling $8,702, which includes $5,899 of performing TDR loans. A loan is identified as impaired when, based on current information and events, it is probable that the Bank will be unable to collect all amounts due according to the contractual terms of the loan agreement. Performing TDRs consist of loans that have been modified and are performing in accordance with the modified terms for a sufficient length of time, generally six months, or loans that were modified on a proactive basis. A summary of the Company’s impaired loans as of June 30, 2014 and September 30, 2013 was as follows:
 
With No Related Allowance Recorded
 
With An Allowance Recorded
 
Totals
 
Real Estate
 
Consumer and Other
 
Total
 
Real Estate
 
Consumer and Other
 
Total
 
Real Estate
 
Consumer and Other
 
Total
Recorded investment at June 30, 2014
$
4,551

 
$
472

 
$
5,023

 
$
2,930

 
$
749

 
$
3,679

 
$
7,481

 
$
1,221

 
$
8,702

Unpaid balance at June 30, 2014
4,551

 
472

 
5,023

 
2,930

 
749

 
3,679

 
7,481

 
1,221

 
8,702

Recorded investment at September 30, 2013
5,349

 
771

 
6,120

 
3,659

 
907

 
4,566

 
9,008

 
1,678

 
10,686

Unpaid balance at September 30, 2013
5,349

 
771

 
6,120

 
3,659

 
907

 
4,566

 
9,008

 
1,678

 
10,686

Average recorded investment; nine months ended June 30, 2014
4,816

 
634

 
5,450

 
3,372

 
846

 
4,218

 
8,188

 
1,480

 
9,668

Average recorded investment; twelve months ended September 30, 2013
4,185

 
609

 
4,794

 
4,197

 
993

 
5,190

 
8,382

 
1,602

 
9,984

Interest income received; nine months ended June 30, 2014
112

 
27

 
139

 
59

 
16

 
75

 
171

 
43

 
214

Interest income received; twelve months ended September 30, 2013
202

 
71

 
273

 
69

 
40

 
109

 
271

 
111

 
382


16




Troubled Debt Restructuring – A TDR includes a loan modification where a borrower is experiencing financial difficulty and the Bank grants a concession to that borrower that the Bank would not otherwise consider except for the borrower’s financial difficulties. Concessions include an extension of loan terms, renewals of existing balloon loans, reductions in interest rates and consolidating existing Bank loans at modified terms. A TDR may be either on accrual or nonaccrual status based upon the performance of the borrower and management’s assessment of collectability. If a TDR is placed on nonaccrual status, it remains there until a sufficient period of performance under the restructured terms has occurred at which time it is returned to accrual status. There were 5 delinquent TDRs, greater than 60 days past due, with a recorded investment of $333 at June 30, 2014, compared to 11 such loans with a recorded investment of $1,102 at September 30, 2013. A summary of loans by loan type modified in a troubled debt restructuring as of June 30, 2014 and June 30, 2013, and during each of the nine months then ended, and as of September 30, 2013 and during the twelve months then ended was as follows:
 
Real Estate
 
Consumer and Other
 
Total
June 30, 2014 and
 
 
 
 
 
Nine Months then Ended:
 
 
 
 
 
Accruing / Performing:
 
 
 
 
 
Beginning balance
$
6,254

 
$
1,101

 
$
7,355

Principal payments
(718
)
 
(218
)
 
(936
)
Charge-offs
(41
)
 
(30
)
 
(71
)
Advances

 

 

New restructured (1)
40

 
24

 
64

Class transfers (2)

 

 

Transfers between accrual/non-accrual
(473
)
 
(40
)
 
(513
)
Ending balance
$
5,062

 
$
837

 
$
5,899

Non-accrual / Non-performing:
 
 
 
 
 
Beginning balance
$
1,187

 
$
76

 
$
1,263

Principal payments
(1,087
)
 
(34
)
 
(1,121
)
Charge-offs
(414
)
 
(49
)
 
(463
)
Advances
3

 

 
3

New restructured (1)

 
16

 
16

Class transfers (2)
15

 
5

 
20

Transfers between accrual/non-accrual
473

 
40

 
513

Ending balance
$
177

 
$
54

 
$
231

Totals:
 
 
 
 
 
Beginning balance
$
7,441

 
$
1,177

 
$
8,618

Principal payments
(1,805
)
 
(252
)
 
(2,057
)
Charge-offs
(455
)
 
(79
)
 
(534
)
Advances
3

 

 
3

New restructured (1)
40

 
40

 
80

Class transfers (2)
15

 
5

 
20

Transfers between accrual/non-accrual

 

 

Ending balance
$
5,239

 
$
891

 
$
6,130

(1)
“New restructured” represent loans restructured during the current period that met TDR criteria in accordance with the Bank’s policy at the time of the restructuring.
(2)
“Class transfers” represent previously restructured loans that met TDR criteria per the Bank’s policy for the first time during the current period.

17




 
Real Estate
 
Consumer and Other
 
Total
June 30, 2013 and
 
 
 
 
 
Nine Months then Ended:
 
 
 
 
 
Accruing / Performing:
 
 
 
 
 
Beginning balance
$
5,751

 
$
1,055

 
$
6,806

Principal payments
(353
)
 
(231
)
 
(584
)
Charge-offs
(55
)
 
(4
)
 
(59
)
Advances
17

 
3

 
20

New restructured (1)
149

 
182

 
331

Class transfers (2)
701

 
112

 
813

Transfers between accrual/non-accrual
(465
)
 

 
(465
)
Ending balance
$
5,745

 
$
1,117

 
$
6,862

Non-accrual / Non-performing:
 
 
 
 
 
Beginning balance
$
1,259

 
$
70

 
$
1,329

Principal payments
(524
)
 
(64
)
 
(588
)
Charge-offs
(156
)
 
(13
)
 
(169
)
Advances
12

 
3

 
15

New restructured (1)

 
1

 
1

Class transfers (2)
282

 
217

 
499

Transfers between accrual/non-accrual
465

 

 
465

Ending balance
$
1,338

 
$
214

 
$
1,552

Totals:
 
 
 
 
 
Beginning balance
$
7,010

 
$
1,125

 
$
8,135

Principal payments
(877
)
 
(295
)
 
(1,172
)
Charge-offs
(211
)
 
(17
)
 
(228
)
Advances
29

 
6

 
35

New restructured (1)
149

 
183

 
332

Class transfers (2)
983

 
329

 
1,312

Transfers between accrual/non-accrual

 

 

Ending balance
$
7,083

 
$
1,331

 
$
8,414

(1)
“New restructured” represent loans restructured during the current period that met TDR criteria in accordance with the Bank’s policy at the time of the restructuring.
(2)
“Class transfers” represent previously restructured loans that met TDR criteria per the Bank’s policy for the first time during the current period.

18




 
Real Estate
 
Consumer and Other
 
Total
September 30, 2013 and
 
 
 
 
 
Twelve Months then Ended:
 
 
 
 
 
Accruing / Performing:
 
 
 
 
 
Beginning balance
$
5,751

 
$
1,055

 
$
6,806

Principal payments
(397
)
 
(388
)
 
(785
)
Charge-offs
(131
)
 
(42
)
 
(173
)
Advances
21

 
7

 
28

New restructured (1)
181

 
191

 
372

Class transfers (2)
1,294

 
263

 
1,557

Transfers between accrual/non-accrual
(465
)
 
15

 
(450
)
Ending balance
$
6,254

 
$
1,101

 
$
7,355

Non-accrual / Non-performing:
 
 
 
 
 
Beginning balance
$
1,259

 
$
70

 
$
1,329

Principal payments
(557
)
 
(86
)
 
(643
)
Charge-offs
(248
)
 
(24
)
 
(272
)
Advances
13

 
3

 
16

New restructured (1)

 
1

 
1

Class transfers (2)
255

 
127

 
382

Transfers between accrual/non-accrual
465

 
(15
)
 
450

Ending balance
$
1,187

 
$
76

 
$
1,263

Totals:
 
 
 
 
 
Beginning balance
$
7,010

 
$
1,125

 
$
8,135

Principal payments
(954
)
 
(474
)
 
(1,428
)
Charge-offs
(379
)
 
(66
)
 
(445
)
Advances
34

 
10

 
44

New restructured (1)
181

 
192

 
373

Class transfers (2)
1,549

 
390

 
1,939

Transfers between accrual/non-accrual

 

 

Ending balance
$
7,441

 
$
1,177

 
$
8,618

(1)
“New restructured” represent loans restructured during the current period that met TDR criteria in accordance with the Bank’s policy at the time of the restructuring.
(2)
“Class transfers” represent previously restructured loans that met TDR criteria per the Bank’s policy for the first time during the current period.
 
June 30, 2014
 
September 30, 2013
 
Number of
Modifications
 
Recorded
Investment
 
Number of
Modifications
 
Recorded
Investment
Troubled debt restructurings:
 
 
 
 
 
 
 
Real estate
49

 
$
5,239

 
62

 
$
7,441

Consumer and other
58

 
891

 
90

 
1,177

Total troubled debt restructurings
107

 
$
6,130

 
152

 
$
8,618

As an integral part of their examination process, various regulatory agencies review the Bank’s ALL. Such agencies may require that changes in the ALL be recognized when such regulators’ credit evaluations differ from those of our management based on information available to the regulators at the time of their examinations.


19




NOTE 4 – INVESTMENT SECURITIES
The amortized cost, estimated fair value and related unrealized gains and losses on securities available for sale and held to maturity as of June 30, 2014 and September 30, 2013, respectively, were as follows:
Available for sale securities
Amortized
Cost
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 
Estimated
Fair Value
June 30, 2014
 
 
 
 
 
 
 
U.S. government agency obligations
$
23,257

 
$

 
$
1,042

 
$
22,215

Obligations of states and political subdivisions
12,309

 
10

 
337

 
11,982

Mortgage-backed securities
30,234

 
148

 
344

 
30,038

Non-agency mortgage-backed securities

 

 

 

Federal Agricultural Mortgage Corporation
71

 

 
10

 
61

Total available for sale securities
$
65,871

 
$
158

 
$
1,733

 
$
64,296

 
 
 
 
 
 
 
 
September 30, 2013
 
 
 
 
 
 
 
U.S. government agency obligations
$
29,702

 
$

 
$
1,836

 
$
27,866

Obligations of states and political subdivisions
11,647

 

 
677

 
10,970

Mortgage-backed securities
40,378

 
140

 
885

 
39,633

Non-agency mortgage-backed securities
1,842

 

 
616

 
1,226

Total available for sale securities
$
83,569

 
$
140

 
$
4,014

 
$
79,695

Held to maturity securities
Amortized
Cost
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 
Estimated
Fair Value
June 30, 2014
 
 
 
 
 
 
 
Obligations of states and political subdivisions
1,471

 
1

 
7

 
1,465

Mortgage-backed securities
$
7,726

 
$
58

 
$
1

 
7,783

Total held to maturity securities
$
9,197

 
$
59

 
$
8

 
$
9,248

 
 
 
 
 
 
 
 
September 30, 2013