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Table of Contents

 

 

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, 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 000-54422

 

 

CARROLL BANCORP, INC.

(Exact name of registrant as specified in its charter)

 

 

 

MARYLAND   27-5463184

(State or other jurisdiction of

incorporation or organization)

 

(IRS Employer

Identification No.)

1321 Liberty Road, Sykesville, Maryland 21784

(Address of principal executive offices) (Zip Code)

(410) 795-1900

(Registrant’s telephone number, including area code)

 

(Former name, former address and former fiscal year, 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 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 (§223.405 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.

 

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

Indicate the number shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: 488,409 shares of common stock outstanding at November 7, 2014.

 

 

 


Table of Contents

CARROLL BANCORP, INC.

Form 10-Q

Table of Contents

 

         Page  

PART I - FINANCIAL INFORMATION

  

Item 1.

 

Financial Statements:

  
 

Consolidated Statements of Financial Condition as of September 30, 2014 (unaudited) and December 31, 2013

     3   
 

Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 2014 and 2013 (unaudited)

     4   
 

Consolidated Statements of Comprehensive Income (Loss) for the Three and Nine Months Ended September 30, 2014 and 2013 (unaudited)

     5   
 

Consolidated Statements of Changes in Stockholders’ Equity for the Nine Months Ended September 30, 2014 and 2013 (unaudited)

     6   
 

Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2014 and 2013 (unaudited)

     7   
 

Notes to Consolidated Financial Statements (unaudited)

     8   

Item 2.

 

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

     31   

Item 3.

 

Quantitative and Qualitative Disclosures about Market Risk

     44   

Item 4.

 

Controls and Procedures

     44   

PART II - OTHER INFORMATION

  

Item 1.

 

Legal Proceedings

     44   

Item 1A.

 

Risk Factors

     44   

Item 2.

 

Unregistered Sales of Equity Securities and Use of Proceeds

     44   

Item 3.

 

Defaults Upon Senior Securities

     44   

Item 4.

 

Mine Safety Disclosures

     44   

Item 5.

 

Other Information

     44   

Item 6.

 

Exhibits

     45   

SIGNATURES

     46   

 

2


Table of Contents

PART I – FINANCIAL INFORMATION

 

Item 1. Financial Statements

Carroll Bancorp, Inc. and Subsidiary

Consolidated Statements of Financial Condition

 

     September 30,
2014
    December 31,
2013
 
     (unaudited)     (audited)  

Assets:

    

Cash and due from banks

   $ 1,192,131      $ 1,310,430   

Interest-bearing deposits with depository institutions

     3,107,599        3,718,884   
  

 

 

   

 

 

 

Cash and cash equivalents

     4,299,730        5,029,314   

Certificates of deposit with depository institutions

     3,103,781        1,856,469   

Securities available for sale, at fair value

     10,277,657        11,877,088   

Securities held to maturity (fair value September 30, 2014 $1,261,726)

     1,256,409        —     

Loans, net of allowance for loan losses - September 30, 2014 $710,000 and December 31, 2013 $682,000

     89,249,516        83,492,498   

Accrued interest receivable

     277,138        279,661   

Other equity securities, at cost

     605,596        496,696   

Bank-owned life insurance

     2,036,916        1,992,367   

Premises and equipment, net

     1,297,079        1,401,502   

Foreclosed assets

     52,964        462,005   

Other assets

     407,227        825,131   
  

 

 

   

 

 

 

Total Assets

   $ 112,864,013      $ 107,712,731   
  

 

 

   

 

 

 

Liabilities:

    

Deposits

    

Noninterest-bearing

   $ 6,287,465      $ 4,866,188   

Interest-bearing

     87,758,797        86,897,767   
  

 

 

   

 

 

 

Total deposits

     94,046,262        91,763,955   

Federal Home Loan Bank Advances

     8,000,000        7,365,350   

Other liabilities

     259,372        167,728   
  

 

 

   

 

 

 

Total liabilities

     102,305,634        99,297,033   
  

 

 

   

 

 

 

Stockholders’ Equity:

    

Preferred Stock (par value $0.01); authorized 1,000,000 shares; no shares issued and outstanding

     —          —     

Common Stock (par value $0.01); authorized 9,000,000 shares; issued and outstanding 488,409 shares at September 30, 2014 and 359,456 at December 31, 2013

     4,884        3,595   

Additional paid-in capital

     4,883,098        2,897,054   

Unallocated ESOP shares

     (303,287     (183,319

Unallocated RSP shares

     (193,931     (133,947

Retained earnings

     6,199,763        5,927,209   

Accumulated other comprehensive loss

     (32,148     (94,894
  

 

 

   

 

 

 

Total stockholders’ equity

     10,558,379        8,415,698   
  

 

 

   

 

 

 

Total liabilities and stockholders’ equity

   $ 112,864,013      $ 107,712,731   
  

 

 

   

 

 

 

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

 

3


Table of Contents

Carroll Bancorp, Inc. and Subsidiary

Consolidated Statements of Operations

(unaudited)

 

    For the Three Months Ended
September 30,
    For the Nine Months Ended
September 30,
 
    2014     2013     2014     2013  

Interest income:

       

Loans

  $ 1,062,940      $ 1,038,234      $ 3,130,842      $ 3,136,931   

Securities available for sale

    44,389        40,962        147,483        100,228   

Securities held to maturity

    5,133        —          5,133        —     

Certificates of deposit

    8,994        9,699        17,537        28,780   

Interest-earning deposits

    4,983        4,110        18,358        13,785   
 

 

 

   

 

 

   

 

 

   

 

 

 

Total interest income

    1,126,439        1,093,005        3,319,353        3,279,724   

Interest expense:

       

Deposits

    130,391        162,869        403,234        554,898   

Borrowings

    30,382        30,394        89,199        89,924   
 

 

 

   

 

 

   

 

 

   

 

 

 

Total interest expense

    160,773        193,263        492,433        644,822   
 

 

 

   

 

 

   

 

 

   

 

 

 

Net interest income

    965,666        899,742        2,826,920        2,634,902   

Provision for loan losses

    3,533        936        14,449        83,740   
 

 

 

   

 

 

   

 

 

   

 

 

 

Net interest income after provision for loan losses

    962,133        898,806        2,812,471        2,551,162   
 

 

 

   

 

 

   

 

 

   

 

 

 

Non-interest income:

       

Gain on sale of securities

    —          —          11,374        16,594   

Gain on loans held for sale

    —          —          855        6,535   

Income (loss) on sale/writedown of OREO

    —          —          (2,632     (8,613

Increase in cash surrender value - life insurance

    14,957        16,091        44,549        47,453   

Customer service fees

    21,959        24,295        66,589        62,567   

Loan fee income

    4,831        14,752        21,336        47,037   

Other income

    2,704        2,700        11,684        7,982   
 

 

 

   

 

 

   

 

 

   

 

 

 

Total non-interest income

    44,451        57,838        153,755        179,555   

Non-interest expense:

       

Salaries and employee benefits

    412,916        390,325        1,278,799        1,155,795   

Premises and equipment

    88,960        76,477        258,666        233,579   

Data processing

    107,289        122,644        331,013        312,241   

Professional fees

    65,924        82,632        217,333        237,861   

FDIC insurance

    16,438        22,889        52,807        67,805   

Directors’ fees

    38,100        36,575        114,325        106,675   

Corporate insurance

    10,445        9,471        31,397        27,910   

Printing and office supplies

    7,774        11,154        23,186        33,145   

Other operating expenses

    71,961        95,944        229,567        302,150   
 

 

 

   

 

 

   

 

 

   

 

 

 

Total non-interest expenses

    819,807        848,111        2,537,093        2,477,161   

Income before income tax expense

    186,777        108,533        429,133        253,556   

Income tax expense

    69,296        45,632        156,579        78,786   
 

 

 

   

 

 

   

 

 

   

 

 

 

Net income

  $ 117,481      $ 62,901      $ 272,554      $ 174,770   
 

 

 

   

 

 

   

 

 

   

 

 

 

Basic earnings per share

  $ 0.26      $ 0.19      $ 0.67      $ 0.52   
 

 

 

   

 

 

   

 

 

   

 

 

 

Diluted earnings per share

  $ 0.25      $ 0.19      $ 0.64      $ 0.52   
 

 

 

   

 

 

   

 

 

   

 

 

 

Basic weighted average shares outstanding

    446,191        329,263        409,793        334,322   
 

 

 

   

 

 

   

 

 

   

 

 

 

Diluted weighted average shares outstanding

    462,393        329,263        423,983        334,322   
 

 

 

   

 

 

   

 

 

   

 

 

 

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

 

4


Table of Contents

Carroll Bancorp, Inc. and Subsidiary

Consolidated Statements of Comprehensive Income (Loss)

(unaudited)

 

    For the Three Months Ended
September 30,
    For the Nine Months Ended
September 30,
 
    2014     2013     2014     2013  

Net income

  $ 117,481      $ 62,901      $ 272,554      $ 174,770   

Other comprehensive income (loss), before income tax:

       

Securities available for sale:

       

Net unrealized holding gains (losses)arising during the period

    (29,753     99,539        115,952        (153,007

Less reclassification adjustment for gains on the sale of securities available for sale included in net income

    —          —          11,374        16,594   
 

 

 

   

 

 

   

 

 

   

 

 

 

Other comprehensive income (loss), before income tax

    (29,753     99,539        104,578        (169,601

Income tax effect

    (11,901     39,816        41,832        (67,841
 

 

 

   

 

 

   

 

 

   

 

 

 

Other comprehensive income (loss), net of tax

    (17,852     59,723        62,746        (101,760
 

 

 

   

 

 

   

 

 

   

 

 

 

Total comprehensive income

  $ 99,629      $ 122,624      $ 335,300      $ 73,010   
 

 

 

   

 

 

   

 

 

   

 

 

 

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

 

5


Table of Contents

Carroll Bancorp, Inc. and Subsidiary

Consolidated Statements of Changes in Stockholders’ Equity

For the Nine Months Ended September 30, 2014 and 2013

(unaudited)

 

    Common
Stock
    Additional
Paid-in
Capital
    Unallocated
ESOP
Shares
    Unallocated
RSP
Shares
    Retained
Earnings
    Accumulated
Other
Comprehensive
Income (Loss)
    Total  

Balances at January 1, 2014

  $ 3,595      $ 2,897,054      $ (183,319   $ (133,947   $ 5,927,209      $ (94,894   $ 8,415,698   

Net income

            272,554          272,554   

Other comprehensive income

              62,746        62,746   

RSP compensation

      26,364                26,364   

Rights offering:

             

Issuance of 124,982 shares of common stock net of offering costs

    1,249        1,896,184                1,897,433   

ESOP purchase of 7,498 shares

        (119,968           (119,968

RSP purchase of 3,749 shares

          (59,984         (59,984

Warrants exercised

    40        63,496                63,536   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balances at September 30, 2014

  $ 4,884      $ 4,883,098      $ (303,287   $ (193,931   $ 6,199,763      $ (32,148   $ 10,558,379   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balances at January 1, 2013

  $ 3,595      $ 2,884,039      $ (194,103   $ —        $ 5,705,419      $ 68,881      $ 8,467,831   

Net income

            174,770          174,770   

Other comprehensive loss

              (101,760     (101,760

Common stock acquired by RSP

          (133,947         (133,947
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balances at September 30, 2013

  $ 3,595      $ 2,884,039      $ (194,103   $ (133,947   $ 5,880,189      $ (32,879   $ 8,406,894   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

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

 

6


Table of Contents

Carroll Bancorp, Inc. and Subsidiary

Consolidated Statements of Cash Flows

(unaudited)

 

     For the Nine Months Ended September 30,  
     2014     2013  

Cash flows from operating activities:

    

Net income

   $ 272,554      $ 174,770   

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

    

Gain on sale of securities available for sale

     (11,374     (16,594

Gain on sale of loans held for sale

     (855     (6,535

Origination of loans held for sale

     (76,000     (367,000

Proceeds from sale of loans held for sale

     76,855        373,535   

Amortization and accretion of securities

     105,601        169,264   

Amortization of deferred loan origination costs, net of fees

     40,726        26,789   

Provision for loan losses

     14,449        83,740   

Loan loss recoveries

     13,551        64   

Provision for loss on real estate acquired through foreclosure

     —          10,000   

Loss (gain) on sale of real estate acquired through foreclosure

     2,632        (1,387

Depreciation of premises and equipment

     118,901        106,795   

Increase in cash surrender value of bank-owned life insurance

     (44,549     (47,453

ESOP compensation expense

     13,500        8,100   

RSP compensation expense

     26,364        —     

Decrease in deferred tax assets

     156,579        78,749   

Decrease in accrued interest receivable

     2,523        24,407   

Decrease in other assets

     219,494        229,956   

Increase in other liabilities

     78,144        58,506   
  

 

 

   

 

 

 

Net cash provided operating activities

     1,009,095        905,706   

Cash flows from investing activities:

    

Purchase of securities available for sale

     (3,783,915     (4,778,216

Purchase of securities held to maturity

     (1,256,500     —     

Proceeds from sales and redemptions of securities available for sale

     4,148,823        2,064,570   

Principal collected on securities available for sale

     1,247,653        2,544,206   

Purchase of certificates of deposits

     (1,499,685     —     

Redemption of certificates of deposit

     249,685        —     

Increase in loans

     (5,825,744     (5,907,796

Purchase of premises and equipment

     (14,478     (182,668

Redemption of other equity securities

     26,100        21,300   

Purchase of other equity securities

     (135,000     (67,500

Capitalized costs on real estate acquired through foreclosure

     —          (2,281

Proceeds from the sale of real estate acquired through foreclosure

     406,408        212,888   
  

 

 

   

 

 

 

Net cash used by investing activities

     (6,436,653     (6,095,497

Cash flows from financing activities:

    

Increase in deposits

     2,282,307        3,723,514   

Proceeds from FHLB advances

     5,000,000        6,500,000   

Repayment of FHLB advances

     (4,365,350     (5,500,000

Proceeds from rights offering

     1,897,433        —     

Proceeds from warrant exercise

     63,536        —     

Loan to purchase common stock for the ESOP

     (119,968     —     

Purchase common stock for RSP

     (59,984     (133,947
  

 

 

   

 

 

 

Net cash provided by financing activities

     4,697,974        4,589,567   
  

 

 

   

 

 

 

Net decrease in cash and cash equivalents

     (729,584     (600,224

Cash and cash equivalents, beginning balance

     5,029,314        4,871,174   
  

 

 

   

 

 

 

Cash and cash equivalents, ending balance

   $ 4,299,730      $ 4,270,950   
  

 

 

   

 

 

 

Supplemental disclosure of cash flow information:

    

Interest paid

   $ 491,301      $ 645,425   

Income taxes (refund) paid

   $ —        $ (30,859

Supplemental schedule of noncash investing and financing activities:

    

Foreclosed real estate acquired in settlement of loans

   $ —        $ 225,000   

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

 

7


Table of Contents

CARROLL BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

 

Note 1. Summary of Significant Accounting Policies

Organization and Nature of Operations

Carroll Bancorp, Inc. a Maryland corporation (the “Company”) was incorporated on February 18, 2011, to serve as the holding company for Carroll Community Bank (the “Bank”), a state chartered commercial bank. On October 12, 2011, in accordance with a plan of conversion adopted by its Board of Directors and approved by its members, the Bank converted from a Maryland chartered mutual savings bank to a state chartered commercial bank. The conversion was accomplished through formation of the Company to serve as the holding company of the Bank, the sale and issuance of 359,456 shares of common stock at a price of $10.00 per share, through which the Company received proceeds of $2,671,758, net of offering expenses and employee stock ownership plan (“ESOP”) shares of $922,803, and the issuance of shares of common stock of the Bank to the Company. Approximately 85% of the net proceeds of the offering, or $2,456,000, were contributed by the Company to the Bank in return for 100% of the issued and outstanding shares of common stock of the Bank. In connection with the conversion, the Bank’s Board of Directors adopted an ESOP which subscribed for 6% of the number of shares, or 21,567 shares, of common stock sold in the offering. The Company’s common stock began trading on the Over the Counter Bulletin Board under the symbol “CROL” on October 12, 2011.

In accordance with applicable regulations at the time of the conversion from a mutual holding company to a stock holding company, the Bank substantially restricted retained earnings by establishing a liquidation account. The liquidation account is maintained for the benefit of eligible account holders who keep their accounts at the Bank after conversion. The liquidation account is reduced annually to the extent that eligible account holders have reduced their qualifying deposits. Subsequent increases will not restore an eligible account holder’s interest in the liquidation account. In the event of a complete liquidation of the Bank, and only in such event, each account holder will be entitled to receive a distribution from the liquidation account in an amount proportionate to the adjusted qualifying account balances then held. The Bank may not pay dividends if those dividends would reduce equity capital below the required liquidation account amount.

On March 26, 2014, pursuant to its rights offering, the Company issued 124,982 shares and warrants (“Units”) at $16.00 per Unit resulting in gross proceeds of $1,999,712. After taking into consideration the offering costs and the Units purchased by the share-based compensation plans, $1,800,000 was contributed to the Bank. The warrants give the holder the right to purchase one-half of a share of common stock at a price of $16.00 per whole share. If fully exercised an additional 62,491 shares of common stock could be issued. The warrants expire on March 20, 2017.

The Bank is headquartered in Sykesville, Maryland and is a community-oriented financial institution providing financial services to individuals, families and businesses through two banking offices located in Sykesville and Westminster, Maryland. The Bank is subject to the regulation, examination and supervision by the State of Maryland Department of Licensing and Regulation and the Federal Deposit Insurance Corporation (“FDIC”), our deposit insurer. Its primary deposits are certificate of deposit, savings and demand accounts and its primary lending products are residential and commercial real estate loans.

Basis of Presentation

The consolidated financial statements include the accounts of the Company and its wholly owned subsidiary, the Bank. All significant intercompany balances and transactions between the Company and the Bank have been eliminated. The Bank has one subsidiary which holds foreclosed real estate.

The accompanying unaudited consolidated financial statements have been prepared in accordance with U.S. GAAP for interim financial information and are presented in accordance with the instructions for Form 10-Q. Accordingly, they do not include all of the information and notes required by U.S. GAAP for complete financial statements. In the opinion of management, all adjustments considered necessary for a fair presentation are of a normal and recurring nature and have been included. The balances as of December 31, 2013 have been derived from audited financial statements. There have been no significant changes to the Company’s accounting policies as disclosed in the Form 10-K for the year ended December 31, 2013.

Operating results for the three and nine months ended September 30, 2014 are not necessarily indicative of the results that may be expected for the year ending December 31, 2014 or any other interim period. The consolidated financial statements presented in this report should be read in conjunction with audited consolidated financial statements and the accompanying notes filed on Form 10-K for the year ended December 31, 2013.

 

8


Table of Contents

Use of Estimates

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 consolidated financial statements and the reported amounts of revenue and expenses during the reported period. Actual results could differ from those estimates.

Material estimates that are particularly susceptible to significant change relate to the determination of the allowance for losses on loans and the valuation of real estate acquired in foreclosure or in satisfaction of loans. In connection with the determination of the allowance for losses on loans and foreclosed real estate, management obtains independent appraisals for significant properties.

Reclassifications

Certain prior year amounts have been reclassified to conform to the current year method of presentation. Such reclassifications have no effect on net income.

Recent Accounting Pronouncements

In January 2014, the FASB issued ASU 2014-04, Receivables – Troubled Debt Restructurings By Creditors (Subtopic 310-40) – Reclassification of Residential Real Estate Collateralized Consumer Mortgage Loans Upon Foreclosure. This amendment clarifies the circumstances under which an in substance repossession or foreclosure is deemed to occur determining when all or a portion of the loan should be derecognized and the real estate property received should be recognized. The amendment is effective for annual and interim periods beginning after December 15, 2014. Early adoption is permitted.

Other than the disclosures contained within these statements, the Company has determined that all other recently issued accounting pronouncements will not have a material impact on its consolidated financial statements or do not apply to its operations.

 

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Note 2. Securities

The amortized cost and fair value of securities available for sale and held to maturity at September 30, 2014 and December 31, 2013 are as follows:

 

    At September 30, 2014  
    Amortized
Cost
    Gross
Unrealized
Gains
    Gross
Unrealized
Losses
    Estimated
Fair Value
 

Securities available for sale:

       

Residential mortgage-backed securities

  $ 10,054,262      $ 22,500      $ 74,573      $ 10,002,189   

Municipal bonds

    276,976        1,042        2,550        275,468   
 

 

 

   

 

 

   

 

 

   

 

 

 
  $ 10,331,238      $ 23,542      $ 77,123      $ 10,277,657   
 

 

 

   

 

 

   

 

 

   

 

 

 

Securities held to maturity:

       

Municipal bonds

  $ 500,000      $ 2,620      $ 490      $ 502,130   

Corporate bonds

    756,409        4,830        1,643        759,596   
 

 

 

   

 

 

   

 

 

   

 

 

 
  $   1,256,409      $   7,450      $     2,133      $   1,261,726   
 

 

 

   

 

 

   

 

 

   

 

 

 

 

    At December 31, 2013  
    Amortized
Cost
    Gross
Unrealized
Gains
    Gross
Unrealized
Losses
    Estimated
Fair Value
 

Securities available for sale:

       

US government agency securities

  $ 1,001,000      $ 1,170      $ —        $ 1,002,170   

Residential mortgage-backed securities

    9,977,056        26,370        174,381        9,829,045   

Asset-backed securities (SLMA)

    775,320        1,273        7        776,586   

Municipal bonds

    281,869        —          12,582        269,287   
 

 

 

   

 

 

   

 

 

   

 

 

 
  $ 12,035,245      $ 28,813      $ 186,970      $ 11,877,088   
 

 

 

   

 

 

   

 

 

   

 

 

 

The Bank had no private label residential mortgage-backed securities at September 30, 2014 and December 31, 2013 or during the nine months or year then ended, respectively.

 

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The amortized cost and fair value of securities available for sale and held to maturity at September 30, 2014 and December 31, 2013, by contractual maturity, are shown below. Expected maturities for residential mortgage-backed securities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.

 

    At September 30, 2014  
    Securities available for sale     Securities held to maturity  
    Amortized Cost     Estimated Fair
Value
    Amortized Cost     Estimated Fair
Value
 

Under 1 year

  $ —        $ —        $ —        $ —     

Over 1 year through 5 years

    110,206        107,656        —          —     

After 5 years through 10 years

    1,947,275        1,963,042        756,409        759,596   

Over 10 years

    8,273,757        8,206,959        500,000        502,130   
 

 

 

   

 

 

   

 

 

   

 

 

 
  $ 10,331,238      $ 10,277,657      $ 1,256,409      $ 1,261,726   
 

 

 

   

 

 

   

 

 

   

 

 

 
    At December 31, 2013  
    Securities available for sale     Securities held to maturity  
    Amortized Cost     Estimated Fair
Value
    Amortized Cost     Estimated Fair
Value
 

Under 1 year

  $ —        $ —        $ —        $ —     

Over 1 year through 5 years

    1,747,113        1,749,556        —          —     

After 5 years through 10 years

    1,692,291        1,699,707        —          —     

Over 10 years

    8,595,841        8,427,825        —          —     
 

 

 

   

 

 

   

 

 

   

 

 

 
  $ 12,035,245      $ 11,877,088      $ —        $ —     
 

 

 

   

 

 

   

 

 

   

 

 

 

The Bank sold and redeemed $4.1 million and $2.1 million, respectively, in securities available for sale during the nine months ended September 30, 2014 and 2013. From those sale transactions, the Bank recognized gross realized gains of $11,374 and $16,594 respectively, for the same periods.

 

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Securities with gross unrealized losses at September 30, 2014 and December 31, 2013, aggregated by investment category and length of time individual securities have been in a continual loss position, are as follows:

 

    At September 30, 2014  
    Less than 12 Months     12 Months or More     Total  
    Estimated
Fair Value
    Gross
Unrealized
Losses
    Estimated
Fair Value
    Gross
Unrealized
Losses
    Estimated
Fair Value
    Gross
Unrealized
Losses
 

Securities available for sale:

           

Residential mortgage-backed securities

  $ 2,679,985      $ 4,971      $ 4,142,301      $ 69,602      $ 6,822,286      $ 74,573   

Municipal bonds

    —          —          107,656        2,550        107,656        2,550   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
  $ 2,679,985      $ 4,971      $ 4,249,957      $ 72,152      $ 6,929,942      $ 77,123   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Securities held to maturity:

           

Municipal bonds

  $ 249,510      $ 490      $ —        $ —        $ 249,510      $ 490   

Corporate bonds

    250,845        1,643        —          —          250,845        1,643   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
  $ 500,355      $ 2,133      $ —        $ —        $ 500,355      $ 2,133   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
    At December 31, 2013  
    Less than 12 Months     12 Months or More     Total  
    Estimated
Fair Value
    Gross
Unrealized
Losses
    Estimated
Fair Value
    Gross
Unrealized
Losses
    Estimated
Fair Value
    Gross
Unrealized
Losses
 

Securities available for sale:

           

Residential mortgage-backed securities

  $ 8,674,466      $ 174,381      $ —        $ —        $ 8,674,466      $ 174,381   

Asset-backed securities (SLMA)

    29,200        7        —          —          29,200        7   

Municipal bonds

    269,287        12,582        —          —          269,287        12,582   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
  $ 8,972,953      $ 186,970      $ —        $ —        $ 8,972,953      $ 186,970   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

The carrying amount of securities pledged as collateral for uninsured public fund deposits was $1.8 million and $1.4 million, respectively, at September 30, 2014 and December 31, 2013.

 

Note 3. Loans

Loans at September 30, 2014 and December 31, 2013 are summarized as follows:

 

    At September 30, 2014     At December 31, 2013  
    Balance     Percent
of Total
    Balance     Percent
of Total
 

Residential owner occupied - first lien

  $ 36,133,676        40.2   $ 37,954,506        45.2

Residential owner occupied - junior lien

    5,532,906        6.2     5,703,159        6.8

Residential non-owner occupied (investor)

    8,937,816        10.0     8,400,861        10.0

Commercial owner occupied

    10,251,161        11.3     8,479,176        10.1

Other commercial loans

    28,510,451        31.8     23,279,588        27.7

Consumer loans

    421,319        0.5     207,757        0.2
 

 

 

   

 

 

   

 

 

   

 

 

 

Total loans

    89,787,329        100.0     84,025,047        100.0
   

 

 

     

 

 

 

Net deferred fees, costs and purchase premiums

    172,187          149,451     

Allowance for loan losses

    (710,000       (682,000  
 

 

 

     

 

 

   

Total loans, net

  $ 89,249,516        $ 83,492,498     
 

 

 

     

 

 

   

Our residential one- to four-family first lien mortgage loan portfolio is pledged as collateral for our advances with Federal Home Loan Bank of Atlanta (“FHLB”).

 

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Note 4. Credit Quality of Loans and Allowance for Loan Losses

Company policies, consistent with regulatory guidelines, provide for the classification of loans that are considered to be of lesser quality as substandard, doubtful, or loss. A loan 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 loans include those loans characterized by the distinct possibility that the Company will sustain some loss if the deficiencies are not corrected. Loans classified as doubtful have all of the weaknesses inherent in those classified 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. Loans (or portions of loans) classified as loss are those considered uncollectible and of such little value that their continuance as assets is not warranted. Loans 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.

The Company maintains an allowance for loan losses at an amount estimated to equal all credit losses incurred in our loan portfolio that are both probable and reasonable to estimate at a balance sheet date. Our determination as to the classification of our assets is subject to review by the Maryland Commissioner of Financial Regulation and the FDIC. We regularly review our asset portfolio to determine whether any assets require classification in accordance with applicable regulations.

The Company provides for loan losses based upon the consistent application of our documented allowance for loan loss methodology. All loan losses are charged to the allowance for loan losses and all recoveries are credited to it. Additions to the allowance for loan losses are provided by charges to income based on various factors which, in our judgment, deserve current recognition in estimating probable losses. We regularly review the loan portfolio and make provisions for loan losses in order to maintain the allowance for loan losses in accordance with GAAP. The allowance for loan losses consists primarily of two components:

 

  1) specific allowances are established for loans classified as impaired. For impaired loans, an allowance is established when the net realizable value (collateral value less costs to sell) of the loan is lower than the carrying amount of the loan. The amount of impairment provided for as a specific allowance is represented by the deficiency, if any, between the underlying collateral value and the carrying value of the loan. Impaired loans for which the estimated fair value of the loan, or the loan’s observable market price or the fair value of the underlying collateral, if the loan is collateral dependent, exceeds the carrying value of the loan are not considered in establishing specific allowances for loan losses; and

 

  2) general allowances are established for loan losses on a segment basis for loans that do not meet the definition of impaired loans. The segments are grouped into similar risk characteristics, primarily loan type and regulatory classification. We apply an estimated loss rate to each loan segment. The loss rates applied are based upon our loss experience adjusted, as appropriate, for the qualitative factors discussed below. This evaluation is inherently subjective, as it requires material estimates that may be susceptible to significant revisions based upon changes in economic and real estate market conditions.

The allowance for loan losses is maintained at a level to provide for losses that are probable and can be reasonably estimated. Management’s periodic evaluation of the adequacy of the allowance is based on the Company’s past loan loss experience, known and inherent losses in the portfolio, adverse situations that may affect the borrower’s ability to repay, the estimated value of any underlying collateral, composition of the loan portfolio, current economic conditions and other relevant factors. This evaluation is inherently subjective as it requires material estimates that may be susceptible to significant change, including the amounts and timing of future cash flows expected to be received on impaired loans.

The adjustments to historical loss experience are based on our evaluation of several qualitative factors, including:

 

    changes in the types of loans in the loan portfolio and the size of the segment to the entire loan portfolio;

 

    changes in the levels of concentration of credit;

 

    changes in the number and amount of non-accrual loans, classified loans, past due loans and troubled debt restructurings and other loan modifications;

 

    changes in the experience, ability and depth of lending personnel;

 

    changes in the quality of the loan review system and the degree of Board oversight;

 

    changes in lending policies and procedures;

 

    changes in national, state and local economic trends and business conditions; and

 

    changes in external factors such as competition and legal and regulatory oversight.

 

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A loan is considered past due or delinquent when a contractual payment is not paid on the day it is due. A loan is considered impaired when, based on current information and events, it is probable that the Bank will be unable to collect the scheduled payments of principal or interest when due according to the contractual terms of the loan agreement. Factors considered by management in determining impairment include payment status, collateral value and the probability of collecting scheduled principal and interest payments when due. Loans that experience insignificant payment delays and payment shortfalls generally are not classified as impaired. Management determines the significance of payment delays and payment shortfalls on a case-by-case basis, taking into consideration all of the circumstances surrounding the loan and the borrower, including the length of the delay, the reasons for the delay, the borrower’s prior payment record and the amount of the shortfall in relation to the principal and interest owed. Impairment is determined on a loan by loan basis for all loans secured by real estate.

The Bank’s charge-off policy states after all collection efforts have been exhausted, the loan is deemed to be a loss and the loss amount has been determined, the loss amount will be charged to the established allowance for loan losses. Loans secured by real estate, either residential or commercial, are evaluated for loss potential at the 60 day past due threshold. At no later than 90 days past due the loan is placed on nonaccrual status and a specific reserve is established if the net realizable value in less than the principal value of the loan balance(s). Once the actual loss value has been determined, a charge-off to the allowance for loan losses for the amount of the loss is taken. Each loss is evaluated on its specific facts regarding the appropriate timing to recognize the loss. Unsecured loans are charged-off to the allowance for loan losses at the 90 day past due threshold or when an actual loss has been determined whichever is earlier.

We evaluate the allowance for loan losses based upon the combined total of the specific and general components. Generally when the loan portfolio increases, absent other factors, the allowance for loan loss methodology results in a higher dollar amount of estimated probable losses than would be the case without the increase. Generally when the loan portfolio decreases, absent other factors, the allowance for loan loss methodology results in a lower dollar amount of estimated probable losses than would be the case without the decrease.

Commercial real estate loans generally have greater credit risks compared to one- to four-family residential mortgage loans, as they typically involve larger loan balances concentrated with single borrowers or groups of related borrowers. In addition, the payment experience on loans secured by income-producing properties typically depends on the successful operation of the related business and thus may be subject to a greater extent to adverse conditions in the real estate market and in the general economy. Therefore, we expect that the percentage of the allowance for loan losses as a percentage of the loan portfolio will increase going forward as we continue our focus on the origination of commercial real estate loans.

 

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The following tables summarize the activity in the allowance for loan losses by portfolio segment for the three and nine months ended September 30, 2014 and 2013.

 

    For the Three Months Ended September 30, 2014  
    Residential
owner
occupied -
first lien
    Residential
owner
occupied -
junior lien
    Residential
non-owner
occupied
(investor)
    Commercial
owner
occupied
    Other
commercial
loans
    Consumer
loans
    Total  

Allowance for loan losses:

             

Beginning balance

  $ 239,485      $ 25,946      $ 70,257      $ 82,757      $ 280,555      $ —        $ 699,000   

Charge-offs

    —          —          —          —          —          —          —     

Recoveries

    4,619        —          2,848        —          —          —          7,467   

Provision

    (12,466     180        (2,748     (748     19,315        —          3,533   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Ending Balance

  $ 231,638      $ 26,126      $ 70,357      $ 82,009      $ 299,870      $ —        $ 710,000   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
    For the Three Months Ended September 30, 2013  
    Residential
owner
occupied -
first lien
    Residential
owner
occupied -
junior lien
    Residential
non-owner
occupied
(investor)
    Commercial
owner
occupied
    Other
commercial
loans
    Consumer
loans
    Total  

Allowance for loan losses:

             

Beginning balance

  $ 253,831      $ 26,465      $ 88,372      $ 70,349      $ 254,983      $ —        $ 694,000   

Charge-offs

    —          —          —          —          —          —          —     

Recoveries

    64        —          —          —          —          —          64   

Provision

    3,113        (260     (6,553     1,232        3,404        —          936   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Ending Balance

  $ 257,008      $ 26,205      $ 81,819      $ 71,581      $ 258,387      $ —        $ 695,000   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
    For the Nine Months Ended September 30, 2014  
    Residential
owner
occupied -
first lien
    Residential
owner
occupied -
junior lien
    Residential
non-owner
occupied
(investor)
    Commercial
owner
occupied
    Other
commercial
loans
    Consumer
loans
    Total  

Allowance for loan losses:

             

Beginning balance

  $ 244,288      $ 26,704      $ 70,334      $ 72,751      $ 267,923      $ —        $ 682,000   

Charge-offs

    —          —          —          —          —          —          —     

Recoveries

    10,303        —          3,248        —          —          —          13,551   

Provision

    (22,953     (578     (3,225     9,258        31,947        —          14,449   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Ending Balance

  $ 231,638      $ 26,126      $ 70,357      $ 82,009      $ 299,870      $ —        $ 710,000   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
    For the Nine Months Ended September 30, 2013  
    Residential
owner
occupied -
first lien
    Residential
owner
occupied -
junior lien
    Residential
non-owner
occupied
(investor)
    Commercial
owner
occupied
    Other
commercial
loans
    Consumer
loans
    Total  

Allowance for loan losses:

             

Beginning balance

  $ 310,865      $ 25,152      $ 235,381      $ 69,436      $ 218,166      $ —        $ 859,000   

Charge-offs

    247,804        —          —          —          —          —          247,804   

Recoveries

    64        —          —          —          —          —          64   

Provision

    193,883        1,053        (153,562     2,145        40,221        —          83,740   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Ending Balance

  $ 257,008      $ 26,205      $ 81,819      $ 71,581      $ 258,387      $ —        $ 695,000   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

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The following tables set forth the balance of the allowance for loan losses by portfolio segment, disaggregated by impairment methodology, which is then further segregated by amounts evaluated for impairment collectively and individually at September 30, 2014 and December 31, 2013:

 

    At September 30, 2014  
    Residential
owner
occupied -
first lien
    Residential
owner
occupied -
junior lien
    Residential
non-owner
occupied
(investor)
    Commercial
owner
occupied
    Other
commercial
loans
    Consumer
loans
    Total  

Allowance for loan losses:

             

Ending balance

  $ 231,638      $ 26,126      $ 70,357      $ 82,009      $ 299,870      $ —        $ 710,000   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Ending balance: individually evaluated for impairment

  $ —        $ —        $ —        $ —        $ —        $ —        $ —     
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Ending balance: collectively evaluated for impairment

  $ 231,638      $ 26,126      $ 70,357      $ 82,009      $ 299,870      $ —        $ 710,000   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Loans:

             

Ending balance

  $ 36,133,676      $ 5,532,906      $ 8,937,816      $ 10,251,161      $ 28,510,451      $ 421,319      $ 89,787,329   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Ending balance: individually evaluated for impairment

  $ 472,192      $ 9,417      $ 117,370      $ —        $ —        $ —        $ 598,979   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Ending balance: collectively evaluated for impairment

  $ 35,661,484      $ 5,523,489      $ 8,820,446      $ 10,251,161      $ 28,510,451      $ 421,319      $ 89,188,350   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

    At December 31, 2013  
    Residential
owner
occupied -
first lien
    Residential
owner
occupied -
junior lien
    Residential
non-owner
occupied
(investor)
    Commercial
owner
occupied
    Other
commercial
loans
    Consumer
loans
    Total  

Allowance for loan losses:

             

Ending balance

  $ 244,288      $ 26,704      $ 70,334      $ 72,751      $ 267,923      $ —        $ 682,000   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Ending balance: individually evaluated for impairment

  $ —        $ —        $ —        $ —        $ —        $ —        $ —     
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Ending balance: collectively evaluated for impairment

  $ 244,288      $ 26,704      $ 70,334      $ 72,751      $ 267,923      $ —        $ 682,000   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Loans:

             

Ending balance

  $ 37,954,506      $ 5,703,159      $ 8,400,861      $ 8,479,176      $ 23,279,588      $ 207,757      $ 84,025,047   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Ending balance: individually evaluated for impairment

  $ 181,186      $ 9,417      $ 125,206      $ —        $ 733,229      $ —        $ 1,049,038   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Ending balance: collectively evaluated for impairment

  $ 37,773,320      $ 5,693,742      $ 8,275,655      $ 8,479,176      $ 22,546,359      $ 207,757      $ 82,976,009   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

The allowance for loan losses allocated to each portfolio segment is not necessarily indicative of future losses in any particular portfolio segment and does not restrict the use of the allowance to absorb losses in other portfolio segments.

 

16


Table of Contents

The following tables are a summary of the loan portfolio quality indicators by portfolio segment at September 30, 2014 and December 31, 2013:

 

     At September 30, 2014  
     Residential
owner
occupied -
first lien
     Residential
owner
occupied -
junior lien
     Residential
non-owner
occupied
(investor)
     Commercial
owner
occupied
     Other
commercial
loans
     Consumer
loans
     Total  

Pass

   $ 35,661,484       $ 5,523,489       $ 8,321,480       $ 10,251,161       $ 28,140,419       $ 421,319       $ 88,319,352   

Special Mention

     —           —           —           —           —           —           —     

Substandard

     472,192         9,417         616,336         —           370,032         —           1,467,977   

Doubtful

     —           —           —           —           —           —           —     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 36,133,676       $ 5,532,906       $ 8,937,816       $ 10,251,161       $ 28,510,451       $ 421,319       $ 89,787,329   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

     At December 31, 2013  
     Residential
owner
occupied -
first lien
     Residential
owner
occupied -
junior lien
     Residential
non-owner
occupied
(investor)
     Commercial
owner
occupied
     Other
commercial
loans
     Consumer
loans
     Total  

Pass

   $ 37,773,320       $ 5,693,742       $ 7,789,131       $ 8,479,176       $ 22,546,359       $ 207,757       $ 82,489,485   

Special Mention

     —           —           —           —           —           —           —     

Substandard

     181,186         9,417         611,730         —           733,229         —           1,535,562   

Doubtful

     —           —           —           —           —           —           —     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 37,954,506       $ 5,703,159       $ 8,400,861       $ 8,479,176       $ 23,279,588       $ 207,757       $ 84,025,047   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Management uses a ten point internal risk rating system to monitor the credit quality of the overall loan portfolio. The first six categories are considered not criticized and are aggregated as a “Pass” rating.

 

  Pass (risk ratings 1-6) – risk ratings one to four are deemed “acceptable”. Risk rating five is “acceptable with care” and risk rating six is a “watch credit”.

 

  Special mention (risk rating 7) - a special mention asset has potential weaknesses that deserve management’s close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the asset or in the institution’s credit position at some future date. Special mention assets are not adversely classified and do not expose the Bank to sufficient risk to warrant adverse classification.

 

  Substandard (risk rating 8) - substandard loans are inadequately protected by the current sound worth and paying capacity of the obligor or of the collateral pledged, if any. Loans so classified must have a well defined weakness or weaknesses that jeopardize the liquidation of the debt. They are characterized by the distinct possibility that the Bank will sustain some loss if the deficiencies are not corrected.

 

  Doubtful (risk rating 9) - loans classified as doubtful have all the weaknesses inherent in those classified as Substandard with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently known facts, conditions and values, highly questionable and improbable.

 

  Loss (risk rating 10) - loans classified as loss are considered uncollectible and of such little value that their continuance as assets is not warranted. This classification does not mean that the loan has absolutely no recovery or salvage value but rather it is not practical or desirable to defer writing off this basically worthless asset even though partial recovery may occur in the future.

Loans classified special mention, substandard, doubtful or loss are reviewed at least quarterly to determine their appropriate classification. Non-classified commercial loan relationships greater than $50,000 are reviewed annually. Non-classified residential mortgage loans and consumer loans are not evaluated unless a specific event occurs to raise the awareness of possible credit deterioration.

 

17


Table of Contents

The following tables set forth certain information with respect to our loan delinquencies by portfolio segment at September 30, 2014 and December 31, 2013:

 

     At September 30, 2014  
     Residential
owner
occupied -
first lien
     Residential
owner
occupied -
junior lien
     Residential
non-owner
occupied
(investor)
     Commercial
owner
occupied
     Other
commercial
loans
     Consumer
loans
     Total  

Current

   $ 35,549,879       $ 5,523,489       $ 8,937,816       $ 10,251,161       $ 28,510,451       $ 421,319       $ 89,194,115   

30-59 days past due

     111,605         —           —           —           —           —           111,605   

60-89 days past due

     —           —           —           —           —           —           —     

Greater than 90 days past due

     472,192         9,417         —           —           —           —           481,609   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total past due

     583,797         9,417         —           —           —           —           593,214   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 36,133,676       $ 5,532,906       $ 8,937,816       $ 10,251,161       $ 28,510,451       $ 421,319       $ 89,787,329   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

     At December 31, 2013  
     Residential
owner
occupied -
first lien
     Residential
owner
occupied -
junior lien
     Residential
non-owner
occupied
(investor)
     Commercial
owner
occupied
     Other
commercial
loans
     Consumer
loans
     Total  

Current

   $ 37,290,317       $ 5,693,742       $ 8,400,861       $ 8,479,176       $ 23,279,588       $ 207,757       $ 83,351,441   

30-59 days past due

     396,903         9,417         —           —           —           —           406,320   

60-89 days past due

     266,280         —           —           —           —           —           266,280   

Greater than 90 days past due

     1,006         —           —           —           —           —           1,006   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total past due

     664,189         9,417         —           —           —           —           673,606   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 37,954,506       $ 5,703,159       $ 8,400,861       $ 8,479,176       $ 23,279,588       $ 207,757       $ 84,025,047   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

18


Table of Contents

The following tables are a summary of impaired loans by portfolio segment at September 30, 2014 and December 31, 2013:

 

                                                                                                                             
     At September 30, 2014  
     Residential
owner
occupied -
first lien
     Residential
owner
occupied -
junior lien
     Residential
non-owner
occupied
(investor)
     Commercial
owner
occupied
     Other
commercial
loans
     Consumer
loans
     Total  

With no related allowance recorded:

                    

Recorded Investment

   $ 472,192       $ 9,417       $ 117,370       $ —         $ —         $ —         $ 598,979   

Unpaid Principal Balance

     472,192         9,417         117,370         —           —           —           598,979   

With an allowance recorded:

                    

Recorded Investment

   $ —         $ —         $ —         $ —         $ —         $ —         $ —     

Unpaid Principal Balance

     —           —           —           —           —           —           —     

Related Allowance

     —           —           —           —           —           —           —     

Total impaired loans:

                    

Recorded Investment

   $ 472,192       $ 9,417       $ 117,370       $ —         $ —         $ —         $ 598,979   

Unpaid Principal Balance

     472,192         9,417         117,370         —           —           —           598,979   

Related Allowance

     —           —           —           —           —           —           —     

 

                                                                                                                             
     At December 31, 2013  
     Residential
owner
occupied -
first lien
     Residential
owner
occupied -
junior lien
     Residential
non-owner
occupied
(investor)
     Commercial
owner
occupied
     Other
commercial
loans
     Consumer
loans
     Total  

With no related allowance recorded:

                    

Recorded Investment

   $ 181,186       $ 9,417       $ 125,206       $ —         $ 733,229       $ —         $ 1,049,038   

Unpaid Principal Balance

     181,186         9,417         125,206         —           733,229         —           1,049,038   

With an allowance recorded:

                    

Recorded Investment

   $ —         $ —         $ —         $ —         $ —         $ —         $ —     

Unpaid Principal Balance

     —           —           —           —           —           —           —     

Related Allowance

     —           —           —           —           —           —           —     

Total impaired loans:

                    

Recorded Investment

   $ 181,186       $ 9,417       $ 125,206       $ —         $ 733,229       $ —         $ 1,049,038   

Unpaid Principal Balance

     181,186         9,417         125,206         —           733,229         —           1,049,038   

Related Allowance

     —           —           —           —           —           —           —     

 

19


Table of Contents

The following tables present by portfolio segment, information related to the average recorded investment and the interest income foregone and recognized on impaired loans for the three and nine months ended September 30, 2014 and 2013:

 

                                                                                                        
     For the Three Months Ended September 30, 2014  
     Residential
owner
occupied -
first lien
     Residential
owner
occupied -
junior lien
     Residential
non-owner
occupied
(investor)
     Commercial
owner
occupied
     Other
commercial
loans
     Consumer
loans
     Total  

With no related allowance recorded:

                    

Average recorded investment

   $ 326,186       $ 9,417       $ 118,852       $ —         $ —         $ —         $ 454,455   

Interest income that would have been recognized

     13,725         101         —           —           —           —           13,826   

Interest income recognized (cash basis)

     5,984         —           —           —           —           —           5,984   

Interest income foregone (recovered)

     7,741         101         —           —           —           —           7,842   

With an allowance recorded:

                    

Average recorded investment

   $ —         $ —         $ —         $ —         $ —         $ —         $ —     

Interest income that would have been recognized

     —           —           —           —           —           —           —     

Interest income recognized (cash basis)

     —           —           —           —           —           —           —     

Interest income foregone (recovered)

     —           —           —           —           —           —           —     

Total impaired loans:

                    

Average recorded investment

   $ 326,186       $ 9,417       $ 118,852       $ —         $ —         $ —         $ 454,455   

Interest income that would have been recognized

     13,725         101         —           —           —           —           13,826   

Interest income recognized (cash basis)

     5,984         —           —           —           —           —           5,984   

Interest income foregone (recovered)

     7,741         101         —           —           —           —           7,842   

 

                                                                                                        
     For the Three Months Ended September 30, 2013  
     Residential
owner
occupied -
first lien
     Residential
owner
occupied -
junior lien
     Residential
non-owner
occupied
(investor)
     Commercial
owner
occupied
     Other
commercial
loans
     Consumer
loans
     Total  

With no related allowance recorded:

                    

Average recorded investment

   $ 431,098       $ 4,733       $ 127,669       $ —         $ —         $ —         $ 563,500   

Interest income that would have been recognized

     4,085         44         982         —           —           —           5,111   

Interest income recognized (cash basis)

     —           —           982         —           —           —           982   

Interest income foregone (recovered)

     4,085         44         —           —           —           —           4,129   

With an allowance recorded:

                    

Average recorded investment

   $ —         $ —         $ 90,211       $ —         $ —         $ —         $ 90,211   

Interest income that would have been recognized

     —           —           1,657         —           —           —           1,657   

Interest income recognized (cash basis)

     —           —           —           —           —           —           —     

Interest income foregone (recovered)

     —           —           1,657         —           —           —           1,657   

Total impaired loans:

                    

Average recorded investment

   $ 431,098       $ 4,733       $ 217,880       $ —         $ —         $ —         $ 653,711   

Interest income that would have been recognized

     4,085         44         2,639         —           —           —           6,768   

Interest income recognized (cash basis)

     —           —           982         —           —           —           982   

Interest income foregone (recovered)

     4,085         44         1,657         —           —           —           5,786   

 

20


Table of Contents
                                                                                                        
     For the Nine Months Ended September 30, 2014  
     Residential
owner
occupied -
first lien
     Residential
owner
occupied -
junior lien
     Residential
non-owner
occupied
(investor)
     Commercial
owner
occupied
     Other
commercial
loans
    Consumer
loans
     Total  

With no related allowance recorded:

                   

Average recorded investment

   $ 253,503       $ 9,417       $ 121,340       $ —         $ 183,307      $ —         $ 567,567   

Interest income that would have been recognized

     17,279         298         —           —           4,934        —           22,511   

Interest income recognized (cash basis)

     5,984         —           —           —           7,805        —           13,789   

Interest income foregone (recovered)

     11,295         298         —           —           (2,871     —           8,722   

With an allowance recorded:

                   

Average recorded investment

   $ —         $ —         $ —         $ —         $ —        $ —         $ —     

Interest income that would have been recognized

     —           —           —           —           —          —           —     

Interest income recognized (cash basis)

     —           —           —           —           —          —           —     

Interest income foregone (recovered)

     —           —           —           —           —          —           —     

Total impaired loans:

                   

Average recorded investment

   $ 253,503       $ 9,417       $ 121,340       $ —         $ 183,307      $ —         $ 567,567   

Interest income that would have been recognized

     17,279         298         —           —           4,934        —           22,511   

Interest income recognized (cash basis)

     5,984         —           —           —           7,805        —           13,789   

Interest income foregone (recovered)

     11,295         298         —           —           (2,871     —           8,722   

 

                                                                                                        
     For the Nine Months Ended September 30, 2013  
     Residential
owner
occupied -
first lien
     Residential
owner
occupied -
junior lien
     Residential
non-owner
occupied
(investor)
     Commercial
owner
occupied
     Other
commercial
loans
     Consumer
loans
     Total  

With no related allowance recorded:

                    

Average recorded investment

   $ 349,510       $ 2,366       $ 96,500       $ —         $ —         $ —         $ 448,376   

Interest income that would have been recognized

     18,987         44         1,947         —           —           —           20,978   

Interest income recognized (cash basis)

     —           —           1,947         —           —           —           1,947   

Interest income foregone (recovered)

     18,987         44         —           —           —           —           19,031   

With an allowance recorded:

                    

Average recorded investment

   $ 183,402       $ —         $ 45,106       $ —         $ —         $ —         $ 228,508   

Interest income that would have been recognized

     5,390         —           3,947         —           —           —           9,337   

Interest income recognized (cash basis)

     —           —           —           —           —           —           —     

Interest income foregone (recovered)

     5,390         —           3,947         —           —           —           9,337   

Total impaired loans:

                    

Average recorded investment

   $ 532,912       $ 2,366       $ 141,606       $ —         $ —         $ —         $ 676,884   

Interest income that would have been recognized

     24,377         44         5,894         —           —           —           30,315   

Interest income recognized (cash basis)

     —           —           1,947         —           —           —           1,947   

Interest income foregone (recovered)

     24,377         44         3,947         —           —           —           28,368   

 

21


Table of Contents

The following table is a summary of performing and nonperforming impaired loans by portfolio segment at September 30, 2014 and December 31, 2013:

 

     At September 30,
2014
     At December 31,
2013
 

Performing loans:

     

Impaired performing loans:

     

Residential owner occupied - first lien

   $ —         $ —     

Residential owner occupied - junior lien

     —           —     

Residential non-owner occupied (investor)

     —           —     

Commercial owner occupied

     —           —     

Other commercial loans

     —           —     

Consumer loans

     —           —     

Troubled debt restructurings:

     

Residential owner occupied - first lien

     —           78,601   

Residential owner occupied - junior lien

     —           —     

Residential non-owner occupied (investor)

     117,370         —     

Commercial owner occupied

     —           —     

Other commercial loans

     —           —     

Consumer loans

     —           —     
  

 

 

    

 

 

 

Total impaired performing loans

     117,370         78,601   
  

 

 

    

 

 

 

Nonperforming loans:

     

Impaired nonperforming loans:

     

Residential owner occupied - first lien

     472,192         181,186   

Residential owner occupied - junior lien

     9,417         9,417   

Residential non-owner occupied (investor)

     —           —     

Commercial owner occupied

     —           —     

Other commercial loans

     —           733,229   

Consumer loans

     —           —     

Troubled debt restructurings:

     

Residential owner occupied - first lien

     —           —     

Residential owner occupied - junior lien

     —           —     

Residential non-owner occupied (investor)

     —           125,206   

Commercial owner occupied

     —           —     

Other commercial loans

     —           —     

Consumer loans

     —           —     
  

 

 

    

 

 

 

Total impaired nonperforming loans:

     481,609         1,049,038   
  

 

 

    

 

 

 

Total impaired loans

   $ 598,979       $ 1,127,639   
  

 

 

    

 

 

 

Troubled debt restructurings. Loans may be periodically modified in a troubled debt restructuring (“TDR”) to make concessions to help a borrower remain current on the loan and/or to avoid foreclosure. Generally we do not forgive principal or interest on a loan or modify the interest rate to below market rates. When we modify loans in a TDR, we evaluate any possible impairment similar to any other impaired loans. If we determine that the value of the restructured loan is less than the recorded investment in the loan, impairment is recognized through a specific allowance estimate or a charge-off to the allowance.

If a restructured loan was nonperforming prior to the restructuring, the restructured loan will remain a nonperforming loan. After a period of six months and if the restructured loan is in compliance with its modified terms, the loan will become a performing loan. If a restructured loan was performing prior to the restructuring, the restructured loan will remain a performing loan. A performing TDR will no longer be reported as a TDR in calendar years after the year of the restructuring if the effective interest rate is equal or greater than the market rate for credits with comparable risk.

The Company has no commitments to loan additional funds to borrowers whose loans have been restructured.

 

22


Table of Contents

The following table is a summary of impaired loans that were modified pursuant to a TDR during the three and nine months ended September 30, 2014 and 2013:

 

Loan Type

   Number of
Contracts
     Pre-
Modification
Outstanding
Recorded
Investment
     Post-
Modification
Outstanding
Recorded
Investment
 
     During the Three Months Ended September 30, 2014  

Residential non-owner occupied (investor)

     —         $ —         $ —     
     During the Three Months Ended September 30, 2013  

Residential non-owner occupied (investor)

     —         $ —         $ —     
     During the Nine Months Ended September 30, 2014  

Residential non-owner occupied (investor)

     —         $ —         $ —     
     During the Nine Months Ended September 30, 2013  

Residential non-owner occupied (investor)

     1       $ 127,675       $ 130,664   

There were no defaults on any TDRs (that were restructured within the previous twelve months) during the nine months ending September 30, 2014 or September 30, 2013.

 

Note 5. Deposits

Deposits were comprised of the following at September 30, 2014 and December 31, 2013:

 

     At September 30, 2014     At December 31, 2013  
     Balance      Percent of
Total
    Balance      Percent of
Total
 

Non-interest bearing checking

   $ 6,287,465         6.7   $ 4,866,188         5.3

Interest-bearing checking

     4,611,985         4.9     5,306,684         5.8

Savings

     2,222,555         2.4     2,144,938         2.3

Premium savings

     21,410,744         22.8     22,440,482         24.4

IRA savings

     7,376,910         7.8     8,423,727         9.2

Money market

     11,126,032         11.8     10,880,101         11.9

Certificates of deposit

     41,010,571         43.6     37,701,835         41.1
  

 

 

    

 

 

   

 

 

    

 

 

 

Total deposits

   $ 94,046,262         100.0   $ 91,763,955         100.0
  

 

 

    

 

 

   

 

 

    

 

 

 

 

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Table of Contents

Certificates of deposit scheduled maturities are as follows:

 

     At September 30, 2014      At December 31, 2013  

Period to Maturity:

     

Less than or equal to one year

   $ 17,478,312       $ 10,088,619   

More than one to two years

     5,511,202         9,778,501   

More than two to three years

     8,502,737         3,932,122   

More than three to four years

     6,489,270         6,438,083   

More than four to five years

     3,029,050         7,464,510   
  

 

 

    

 

 

 

Total certificates of deposit

   $ 41,010,571       $ 37,701,835   
  

 

 

    

 

 

 

Deposit accounts in the Bank are insured by the FDIC, generally up to a maximum of $250,000 per separately insured depositor.

 

Note 6. Fair Value Measurements

The FASB issued Accounting Standards Codification (“ASC”) Topic 825 “Financial Instruments” which provides guidance on the fair value option for financial assets and liabilities. This guidance permits entities to measure many financial instruments and certain other items at fair value. The objective is to improve financial reporting by providing entities with the opportunity to mitigate volatility in reported earnings caused by measuring related assets and liabilities differently without having to apply complex hedge accounting provisions. The election to use the fair value option is available when an entity first recognizes a financial asset or financial liability or upon entering into a commitment. Subsequent changes must be recorded in earnings.

Simultaneously with the adoption of ASC 825, the Bank adopted ASC 820, Fair Value Measurement. ASC 820 clarifies that fair value is an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. Under ASC 820, fair value measurements are not adjusted for transaction costs. ASC 820 establishes a fair value hierarchy that prioritizes the inputs to valuation techniques 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 under ASC 820 are described below.

Level 1 Valuations for assets and liabilities traded in active exchange markets. Valuations are obtained from readily available pricing sources for market transactions involving identical assets or liabilities.

Level 2 Valuations for assets and liabilities traded in less active dealer or broker markets. Valuations are obtained from third party pricing services for identical or comparable assets or liabilities which use observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities, quoted prices in active markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

Level 3 Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

A financial instrument’s level within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement.

The types of instruments valued based on quoted market prices in active markets include most U.S. government and agency securities, liquid mortgage products, active listed equities and most money market securities. Such instruments are generally classified within Level 1 or Level 2 of the fair value hierarchy. As required by ASC 820, the Bank does not adjust the quoted price for such instruments.

The types of instruments valued based on quoted prices in markets that are not active, broker or dealer quotations, or alternative pricing sources with reasonable levels of price transparency include most investment-grade and high-yield corporate bonds, less liquid mortgage products, less liquid equities, state, municipal and provincial obligations, and certain physical commodities. Such instruments are generally classified within Level 2 of the fair value hierarchy.

Level 3 is for positions that 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 generally based on available market evidence. In the absence of such evidence, management’s best estimate is used.

 

24


Table of Contents

Impaired loans are evaluated and valued at the time the loan is identified as impaired, at the lower of cost or market value. Market value is measured based on the value of the collateral securing these loans and is classified within Level 3 in the fair value hierarchy. Collateral may be real estate and/or business assets including equipment, inventory and/or accounts receivable. The value of real estate collateral is determined based on an appraisal by qualified licensed appraisers hired by the Company. The value of business equipment, inventory and accounts receivable collateral is based on the net book value on the business’ financial statements and, if necessary, discounted based on management’s review and analysis. Appraised and reported values may be discounted based on management’s historical knowledge, changes in market conditions from the time of valuation, and/or management’s expertise and knowledge of the client and client’s business. Impaired loans are reviewed and evaluated on at least a quarterly basis for additional impairment and are adjusted accordingly, based on the same factors identified above.

Foreclosed assets are adjusted for fair value upon transfer of loans to foreclosed assets. Subsequently, foreclosed assets are carried at the lower of carrying value or fair value. Fair value is based upon independent market prices, appraised value of the collateral or management’s estimation of the value of the collateral. When the fair value of the collateral is based on an observable market price or a current appraised value, the Bank records the foreclosed asset as nonrecurring Level 2. When an appraised value is not available or management determines the fair value of the collateral is further impaired below the appraised value and there is no observable market prices, the Bank records the foreclosed asset as nonrecurring Level 3.

The following table presents a summary of financial assets measured at fair value on a recurring basis at September 30, 2014 and December 31, 2013:

 

     At September 30, 2014  
     Carrying Value      Quoted Prices in
Active Markets for
Identical Assets
Level 1
     Significant Other
Observable Inputs
Level 2
     Significant
Unobservable
Inputs
Level 3
 

Residential mortgage-backed securities

   $ 10,002,189       $ —         $ 10,002,189       $ —     

Municipal bonds

     275,468         —           275,468         —     
  

 

 

    

 

 

    

 

 

    

 

 

 

Total securities available for sale

   $ 10,277,657       $ —         $ 10,277,657       $ —     
  

 

 

    

 

 

    

 

 

    

 

 

 
     At December 31, 2013  
     Carrying Value      Quoted Prices in
Active Markets for
Identical Assets
Level 1
     Significant Other
Observable Inputs
Level 2
     Significant
Unobservable
Inputs
Level 3
 

US government agency securities

   $ 1,002,170       $ —         $ 1,002,170       $ —     

Residential mortgage-backed securities

     9,829,045         —           9,829,045         —     

Asset-backed securities (SLMA)

     776,586         —           776,586         —     

Municipal bonds

     269,287         —           269,287         —     
  

 

 

    

 

 

    

 

 

    

 

 

 

Total securities available for sale

   $ 11,877,088       $ —         $ 11,877,088       $ —     
  

 

 

    

 

 

    

 

 

    

 

 

 

 

25


Table of Contents

The following table presents a summary of financial assets measured at fair value on a non-recurring basis at September 30, 2014 and December 31, 2013:

 

     At September 30, 2014  
     Carrying Value      Quoted Prices in
Active Markets for
Identical Assets
Level 1
     Significant Other
Observable Inputs
Level 2
     Significant
Unobservable
Inputs
Level 3
 

Residential owner occupied - first lien

   $ 472,192       $ —         $ —         $ 472,192   

Residential owner occupied - junior lien

     9,417         —           —           9,417   

Residential non-owner occupied (investor)

     117,370         —           —           117,370   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total nonperforming impaired loans

   $ 598,979       $ —         $ —         $ 598,979   
  

 

 

    

 

 

    

 

 

    

 

 

 

Foreclosed real estate

   $ 52,964       $ —         $ —         $ 52,964   
  

 

 

    

 

 

    

 

 

    

 

 

 
     At December 31, 2013  
     Carrying Value      Quoted Prices in
Active Markets for
Identical Assets
Level 1
     Significant Other
Observable Inputs
Level 2
     Significant
Unobservable
Inputs
Level 3
 

Residential owner occupied - first lien

   $ 181,186       $ —         $ —         $ 181,186   

Residential owner occupied - junior lien

     9,417         —           —           9,417   

Residential non-owner occupied (investor)

     125,206         —           —           125,206   

Other commercial loans

     733,229         —           —           733,229   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total nonperforming impaired loans

   $ 1,049,038       $ —         $ —         $ 1,049,038   
  

 

 

    

 

 

    

 

 

    

 

 

 

Foreclosed real estate

   $ 462,005       $ —         $ —         $ 462,005   
  

 

 

    

 

 

    

 

 

    

 

 

 

The following table shows a reconciliation of the beginning and ending balances for Level 3 assets:

 

     Impaired Loans     Foreclosed
Real Estate
 

Balance, January 1, 2013

   $ 677,648      $ 788,619   

Total realized and unrealized losses included in net income

     (264,659     (65,333

Settlements

     (38,859     (652,781

Transfers in and/or out of Level 3

     674,908        391,500   
  

 

 

   

 

 

 

Balance, December 31, 2013

   $ 1,049,038      $ 462,005   

Total realized and unrealized losses included in net income

     —          (2,632

Settlements

     (745,071     (406,409

Transfers in and/or out of Level 3

     295,012        —     
  

 

 

   

 

 

 

Balance, September 30, 2014

   $ 598,979      $ 52,964   
  

 

 

   

 

 

 

The methods and assumptions used to estimate the fair values, including items in the above tables, are included in the disclosures that follow.

Certificates of Deposit with Depository Institutions (Carried at Cost). The carrying amounts of the certificates of deposit approximate fair value.

Securities Available for Sale (Carried at Fair Value). Where quoted prices are available in an active market, securities available for sale are classified within Level 1 of the valuation hierarchy. Level 1 would include highly liquid government bonds, mortgage products and exchange-traded equities. If quoted market prices are not available, securities available for sale are classified within level 2 and fair value values are estimated by using pricing models, quoted prices of securities with similar characteristics, or discounted cash flow. Level 2 would include U.S. agency securities, mortgage-backed securities, obligations

 

26


Table of Contents

of states and political subdivisions and certain corporate, asset-backed and other securities. In certain cases where there is limited activity or less transparency around inputs to the valuation, securities available for sale are classified within Level 3 of the valuation hierarchy.

Loans, Net of Allowance for Loan Losses (Carried at Cost). The fair values of loans are estimated using discounted cash flow analyses, using market rates at the statement of condition 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 with no significant change in credit risk, fair values are based on carrying values. Impaired loans are measured at an observable market price (if available), or at fair value of the loan’s collateral (if the loan is collateral dependent). When the loan is dependent on collateral, fair value of collateral is determined by an appraisal or independent valuation, which is then adjusted for the estimated cost to sell. Impaired loans allocated to the allowance for loan losses are measured at the lower of cost or fair value on a nonrecurring basis.

Foreclosed Assets (Carried at Lower of Cost or Fair Value Less Estimated Selling Costs). Fair values of foreclosed assets are measured at fair value less cost to sell. The valuation of the fair value measurement follows GAAP. Foreclosed assets are measured on a nonrecurring basis.

Bank-Owned Life Insurance (Carried at Surrender Value). The carrying amount of the life insurance policies is based on the accumulated cash surrender value of each policy.

Other Equity Securities (Carried at Cost). The carrying amount of Federal Home Loan Bank and correspondent bank stock approximates fair value, and considers the limited marketability of such securities.

Deposits (Carried at Cost). The fair values disclosed for demand deposits (e.g., interest and non-interest checking, passbook 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). Fair values for certificates of deposit are estimated using a discounted cash flow calculation that applies interest rates currently being offered in the market on certificates to a schedule of aggregated expected monthly maturities.

Federal Home Loan Bank Advances (Carried at Cost). Fair values of FHLB advances are estimated using discounted cash flows analysis, based on quoted prices for new FHLB advances with similar credit risk characteristics, terms and remaining maturity. These prices obtained from this active market represent a market value that is deemed to represent the transfer price if the liability were assumed by a third party.

Off- Balance Sheet Financial Instruments (Disclosures at Cost). Fair values for off-balance sheet financial instruments (lending commitments and letters of credit) are based on fees currently charged in the market to enter into similar agreements, taking into account the remaining terms of the agreements and the counterparties’ credit standing. The fair value of these instruments is not material.

 

27


Table of Contents

The estimated fair values of the Company’s financial instruments were as follows:

 

     At September 30, 2014  
     Carrying
Amount
     Fair Value      Quoted Prices
in Active
Markets for
Identical
Assets
Level 1
     Significant
Other
Observable
Inputs
Level 2
     Significant
Unobservable
Inputs
Level 3
 

Financial instruments - assets:

              

Certificates of deposit with depository institutions

   $ 3,103,781       $ 3,103,781       $ —         $ 3,103,781       $ —     

Securities available for sale

     10,277,657         10,277,657         —           10,277,657         —     

Securities held to maturity

     1,256,409         1,261,725         —           1,261,725         —     

Loans, net of allowance for loan losses

     89,249,516         90,994,000         —           —           90,994,000   

Foreclosed assets

     52,964         52,964         —           —           52,964   

Bank-owned life insurance

     2,036,916         2,036,916         —           2,036,916         —     

Other equity securities

     605,596         605,596         —           —           605,596   

Financial instruments - liabilities:

              

Deposits

   $ 94,046,262       $ 93,903,000       $ —         $ 93,903,000       $ —     

Federal Home Loan Bank Advances

     8,000,000         8,175,000         —           8,175,000         —     

Financial instruments - off-balance sheet

   $ —         $ —         $ —         $ —         $ —     
     At December 31, 2013  
     Carrying
Amount
     Fair Value      Quoted Prices
in Active
Markets for
Identical
Assets
Level 1
     Significant
Other
Observable
Inputs
Level 2
     Significant
Unobservable
Inputs
Level 3
 

Financial instruments - assets:

              

Certificates of deposit with depository institutions

   $ 1,856,469       $ 1,856,469       $ —         $ 1,856,469       $ —     

Securities available for sale

     11,877,088         11,877,088         —           11,877,088         —     

Loans, net of allowance for loan losses

     83,492,498         85,164,000         —           —           85,164,000   

Foreclosed assets

     462,005         462,005         —           —           462,005   

Bank-owned life insurance

     1,992,367         1,992,367         —           1,992,367         —     

Other equity securities

     496,696         496,696         —           —           496,696   

Financial instruments - liabilities:

              

Deposits

   $ 91,763,955       $ 91,674,000       $ —         $ 91,674,000       $ —     

Federal Home Loan Bank Advances

     7,365,350         7,610,000         —           7,610,000         —     

Financial instruments - off-balance sheet

   $ —         $ —         $ —         $ —         $ —     

 

Note 7. Stockholders’ Equity

Federal and state banking regulations place certain restrictions on dividends paid to the Company by the Bank, and loans or advances made by the Bank to the Company. For a Maryland chartered bank, dividends may be paid out of undivided profits or, with the prior approval of the Maryland Commissioner of Financial Regulation, from surplus in excess of 100% of required capital stock. If, however, the surplus of a Maryland bank is less than 100% of its required capital stock, cash dividends may not be paid in excess of 90% of net earnings. Loans and advances are limited to 10% of the Bank’s capital and surplus on a secured basis. In addition, the payment of dividends by the Bank would be prohibited if the effect thereof would cause the Bank’s capital to be reduced below minimum capital requirements. The Company’s ability to pay dividends is dependent on the Bank’s ability to pay dividends to the Company.

On February 20, 2013, the Board of Directors authorized the Company to repurchase up to 10,783 shares of common stock for the 2011 Employee Recognition and Retention Plan and Trust. As of June 18, 2013 all 10,783 shares were repurchased at an aggregate expenditure of $134,000, or $12.42 per share. The shares will be held in trust for the allocation to employees and non-employee directors as directed by the Compensation Committee of the Board.

 

28


Table of Contents

On March 26, 2014, pursuant to its rights offering, the Company issued 124,982 shares and warrants (“Units”) at $16.00 per Unit resulting in gross proceeds of $1,999,712. After taking into consideration the offering costs and the shares purchased by the share-based compensation plans, $1,800,000 was contributed to the Bank. The warrants give the holder the right to purchase one-half of a share of common stock at a price of $16.00 per whole share. If fully exercised an additional 62,491 shares of common stock could be issued. The warrants expire on March 20, 2017.

The Bank is subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material effect on the Company’s financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Bank must meet specific capital guidelines that involve quantitative measures of its assets, liabilities and certain off-balance-sheet items as calculated under regulatory accounting practices. The capital amounts and classifications are also subject to qualitative judgments by the regulators about components, risk weightings, and other factors.

Quantitative measures established by regulation to ensure capital adequacy require the Bank to maintain minimum amounts and ratios (set forth in the following table) of total and Tier I capital to risk weighted assets, core capital to adjusted tangible assets and tangible capital to tangible assets. Management believes, as of September 30, 2014, the Bank met all capital adequacy requirements to which it is subject.

As of October 2012, the most recent notification from the Bank’s regulators, the Bank was categorized as well capitalized under the regulatory framework for prompt corrective action. To be categorized as well capitalized, an institution must maintain minimum ratios as set forth in the following table. There are no conditions or events since the notification that management believes have changed the Bank’s category.

The Bank’s actual capital amounts and ratios at September 30, 2014 and December 31, 2013 are presented in the table below:

 

     At September 30, 2014  
     Actual     For Capital Adequacy
Purposes
    To be well Capitalized
Under Prompt Corrective
Action Provisions
 
     Amount      Ratio     Amount      Ratio     Amount      Ratio  

Total risk-based capital (to risk-weighted assets)

   $ 10,889,349         14.8   $ 5,892,414         8.0   $ 7,365,517         10.0

Tier 1 capital (to risk-weighted assets)

     10,179,349         13.8     2,946,207         4.0     4,419,310         6.0

Tier 1 capital (to average assets)

     10,179,349         9.3     4,395,206         4.0     5,494,007         5.0

Tangible capital (to tangible assets)

     10,147,201         9.0     1,692,885         1.5     N/A         N/A   

 

     At December 31, 2013  
     Actual     For Capital Adequacy
Purposes
    To be well Capitalized
Under Prompt Corrective
Action Provisions
 
     Amount      Ratio     Amount      Ratio     Amount      Ratio  

Total risk-based capital (to risk-weighted assets)

   $ 8,716,319         12.9   $ 5,415,783         8.0   $ 6,769,729         10.0

Tier 1 capital (to risk-weighted assets)

     8,034,319         11.9     2,707,892         4.0     4,061,837         6.0

Tier 1 capital (to average assets)

     8,034,319         7.4     4,319,973         4.0     5,399,967         5.0

Tangible capital (to tangible assets)

     8,109,425         7.5     1,615,691         1.5     N/A         N/A   

 

29


Table of Contents

The following table presents a reconciliation of the Company’s consolidated equity as determined using U.S. GAAP and the Bank’s regulatory capital amounts:

 

     At September 30,
2014
    At December 31,
2013
 

Consolidated GAAP equity

   $ 10,558,379      $ 8,415,698   

Consolidated equity in excess of Bank equity

     (411,178     (306,273
  

 

 

   

 

 

 

Bank GAAP equity - Tangible capital

     10,147,201        8,109,425   

Less:

    

Accumulated other comprehensive income (loss), net of tax

     (32,148     (94,894

Disallowed deferred tax assets

     —          170,000   
  

 

 

   

 

 

 

Tier 1 capital

     10,179,349        8,034,319   

Plus:

    

Allowance for loan losses (1.25% of risk-weighted assets)

     710,000        682,000   
  

 

 

   

 

 

 

Total risk-based capital

   $ 10,889,349      $ 8,716,319   
  

 

 

   

 

 

 

 

Note 8. Earnings Per Share

Basic earnings per share is computed by dividing net income by the weighted average number of common shares outstanding for the period exclusive of unallocated ESOP shares. Granted unvested restricted stock and stock options are regarded as potential common stock and are considered in the diluted earnings per share calculations to the extent they would have a dilutive effect if converted to common stock, computed by using the Treasury Stock method.

The calculation of net income per common share for the three and nine months ended September 30, 2014 and 2013 are as follows:

 

     For the Three
Months Ended
September 30,
2014
     For the Three
Months Ended
September 30,
2013
     For the Nine
Months Ended
September 30,
2014
     For the Nine
Months Ended
September 30,
2013
 

Net Income available to common shareholders

   $ 117,481       $ 62,901       $ 272,554       $ 174,770   
  

 

 

    

 

 

    

 

 

    

 

 

 

Weighted average number of shares used in:

           

Basic earnings per share

     446,191         329,263         409,793         334,322   

Adjustment for common share equivalents

     16,202         0         14,190         0   
  

 

 

    

 

 

    

 

 

    

 

 

 

Diluted earnings per share

     462,393         329,263         423,983         334,322   

Basic net income per common share

   $ 0.26       $ 0.19       $ 0.67       $ 0.52   
  

 

 

    

 

 

    

 

 

    

 

 

 

Diluted net income per common share

   $ 0.25       $ 0.19       $ 0.64       $ 0.52   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

30


Table of Contents

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

This section is intended to help readers understand our financial performance through a discussion of the factors affecting our financial condition at September 30, 2014 and December 31, 2013. This section should be read in conjunction with the consolidated financial statements and accompanying notes that appear elsewhere in this Form 10-Q.

Some of the matters discussed below include forward-looking statements within the meaning of the federal securities laws. Forward-looking statements often use words such as “may,” “will,” “believe,” “expect,” “estimate,” “anticipate,” “continue” or other words of similar meaning. You can also identify them by the fact that they do not relate strictly to historical or current facts. Our actual results and the actual outcome of our expectations and strategies could be materially different from those anticipated or estimated for the reasons discussed under the heading “Forward-Looking Statements.”

Carroll Bancorp, Inc.

Carroll Bancorp, Inc., which we sometimes refer to as “the Company,” is a Maryland corporation that owns 100% of the outstanding common stock of Carroll Community Bank, which we sometimes refer to as “the Bank.” On October 12, 2011, we completed our initial public offering of common stock in connection with the Bank’s conversion from a state-chartered mutual savings bank to a state-chartered commercial bank, a stock form of organization. We sold 359,456 shares of common stock at $10.00 per share raising $3.6 million of gross proceeds. Carroll Bancorp, Inc. has not engaged in any significant business activity other than owning the common stock of and maintaining deposits in the Bank, and lending funds to the employee stock ownership plan (“ESOP”) trust.

On March 26, 2014, pursuant to its rights offering, the Company issued 124,982 Units, with each Unit consisting of one share of common stock and one warrant, for a purchase price of $16.00 per Unit resulting in gross proceeds of $1,999,712. After taking into consideration the offering costs and the Units purchased by the share-based compensation plans, the Company contributed the net proceeds of $1,800,000 to the Bank. The warrants give the holder the right to purchase one-half of a share of common stock at a price of $16.00 per whole share. If the warrants are fully exercised, the Company will issue up to an additional 62,491 shares of common stock. The warrants expire on March 20, 2017.

Carroll Community Bank

Carroll Community Bank is a state-chartered commercial bank headquartered in Sykesville, Maryland. The Bank was organized in 1870 as Sykesville Perpetual Building Association. The Association was chartered in 1887 and re-chartered and reorganized in 1907 when it became Sykesville Building Association of Carroll County. In October 1985 the Association was chartered as a federal mutual savings association. On September 12, 1988 the business name changed from Sykesville Building Association of Carroll County to Sykesville Federal Savings Association. In July 2010, Sykesville Federal Savings Association converted from a federal savings association to a Maryland-chartered mutual savings bank and changed its name to Carroll Community Bank. On October 12, 2011, the Bank converted from a state-chartered mutual savings bank to a state-chartered commercial bank, a stock form of organization, pursuant to its plan of conversion of which the formation of Carroll Bancorp, Inc. and the completion of its initial public offering of common stock was a part.

Overview

Our business consists primarily of attracting and accepting deposits from the general public in the areas surrounding our offices and investing those deposits, together with funds generated from operations, primarily in residential mortgage and commercial real estate loans. We have recently increased and intend to continue our focus on commercial real estate loans and related products. In this regard we offer demand deposit accounts, remote deposit capture and business internet banking to support the business community. We are committed to meeting the credit needs of our community, consistent with safe and sound operations.

Our results of our operation depend mainly on our net interest income, which is the difference between the interest income we earn on our loan and investment portfolios and the interest expense we pay on deposits and borrowings. Results of operations are also affected by provisions for loan losses, non-interest income and non-interest expense. Our non-interest expense consists primarily of compensation and employee benefits, as well as office occupancy, data processing expenses, deposit insurance and general administrative expenses.

Our operations are significantly affected by general economic and competitive conditions, particularly with respect to changes in interest rates, government policies and actions of regulatory authorities. Future changes in applicable law, regulations or government policies may materially affect our financial condition and results of operations.

The economic crisis that began in late 2007 negatively affected real estate lending in our market area. The number of housing units sold in Carroll and Howard Counties has declined from the pre-2008 levels. These declines negatively affected our ability to make loans in the residential real estate markets, both with respect to the number of loans and the amount of such

 

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loans. The declines also affected our ability to make loans in the commercial real estate market, although to a lesser extent. Beginning in 2011 and continuing through the third quarter of 2014, we have seen signs of an improving residential and commercial real estate market and we anticipate that as market conditions slowly return to a more normal level, there will be increased lending opportunities.

The following table summarizes the highlights of our financial performance for the three and nine months ended September 30, 2014 compared to the three and nine months ended September 30, 2013 (amounts in the table may not match those discussed in the balance of this section due to rounding):

 

(unaudited)    For the Three Months Ended September 30,  
(Dollars in thousands, except per share data)    2014     2013     $ Change     % Change  

Net income

   $ 117      $ 63      $ 54        85.7

Basic earnings per share

     0.26        0.19        0.07        36.8

Diluted earnings per share

     0.25        0.19        0.06        31.6

Interest income

     1,127        1,093        34        3.1

Interest expense

     161        193        (32     -16.6

Net interest income

     966        900        66        7.3

Noninterest income

     44        58        (14     -24.1

Noninterest expense

     820        848        (28     -3.3

Average Loans

     87,607        82,995        4,612        5.6

Average Earning Assets

     104,317        99,437        4,880        4.9

Average Interest-Bearing Liabilities

     93,542        92,212        1,330        1.4

Return on average assets (annualized)

     0.42     0.24    

Return on average equity (annualized)

     4.44     2.98    

Net interest margin

     3.67     3.59    

 

     For the Nine Months Ended September 30,  
     2014     2013     $ Change     % Change  

Net income

   $ 273      $ 175      $ 98        56.0

Basic earnings per share

     0.67        0.52        0.15        28.8

Diluted earnings per share

     0.64        0.52        0.12        23.1

Interest income

     3,319        3,280        39        1.2

Interest expense

     492        645        (153     -23.7

Net interest income

     2,827        2,635        192        7.3

Noninterest income

     154        180        (26     -14.4

Noninterest expense

     2,537        2,477        60        2.4

Average Loans

     86,503        81,959        4,544        5.5

Average Earning Assets

     103,323        98,878        4,445        4.5

Average Interest-Bearing Liabilities

     93,692        92,055        1,637        1.8

Return on average assets (annualized)

     0.33     0.22    

Return on average equity (annualized)

     3.70     2.76    

Net interest margin

     3.66     3.56    

 

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Average Balances and Yields

The following tables set forth average balance sheets, average yields and rates, and certain other information for the periods indicated. No tax-equivalent yield adjustments were made, as we held insignificant balances of tax-advantaged interest-earning assets during the periods indicated. All average balances are daily average balances. Non-accrual loans were included in the computation of average balances, but have been reflected in the table as loans carrying a zero yield. The yields set forth below include the effect of net deferred costs, discounts and premiums that are amortized or accreted to interest income.

 

     For the Three Months Ended September 30,  
     2014     2013  
(Dollars in thousands)    Average
Outstanding
Balance
    Interest      Yield /
Rate
    Average
Outstanding
Balance
    Interest      Yield /
Rate
 

Interest-earning assets:

              

Loans

   $ 87,607      $ 1,063         4.81   $ 82,995      $ 1,038         4.96

Investment securities

     10,778        50         1.84     11,541        41         1.41

Certificates of deposit

     2,873        9         1.24     2,600        10         1.53

Interest earning deposits

     3,059        5         0.65     2,301        4         0.69
  

 

 

   

 

 

      

 

 

   

 

 

    

Total interest-earning assets

     104,317        1,127         4.28     99,437        1,093         4.36
    

 

 

        

 

 

    

Noninterest-earning assets

     5,563             6,641        
  

 

 

        

 

 

      

Total assets

   $ 109,880           $ 106,078        
  

 

 

        

 

 

      

Interest-bearing liabilities:

              

Savings accounts

   $ 31,859        18         0.22   $ 34,331        28         0.32

Certificates of deposit

     38,408        102         1.05     35,932        121         1.34

Money market accounts

     11,679        10         0.34     10,131        13         0.51

Now accounts

     5,080        1         0.08     4,726        1         0.08
  

 

 

   

 

 

      

 

 

   

 

 

    

Total interest-bearing deposits

     87,026        131         0.60     85,120        163         0.76

Federal Home Loan Bank advances

     6,516        30         1.83     7,092        30         1.68
  

 

 

   

 

 

      

 

 

   

 

 

    

Total interest-bearing liabilities

     93,542        161         0.68     92,212        193         0.83
    

 

 

        

 

 

    

Noninterest-bearing deposits

     5,587             5,336        

Noninterest-bearing liabilities

     244             168        
  

 

 

        

 

 

      

Total liabilities

     99,373             97,716        

Equity

     10,507             8,362        
  

 

 

        

 

 

      

Total liabilities and capital

   $ 109,880           $ 106,078        
  

 

 

        

 

 

      

Net interest income

     $ 966           $ 900      
    

 

 

        

 

 

    

Net interest rate spread (1)

          3.60          3.53

Net interest-earning assets (2)

   $ 10,775           $ 7,225        
  

 

 

        

 

 

      

Net interest margin (3)

          3.67          3.59

Average interest-earning assets to interest-bearing liabilities

     111.52          107.84     

 

(1)  Net interest rate spread represents the difference between the yield on average interest-earning assets and the cost of average interest-bearing liabilities.
(2)  Net interest-earning assets represent total interest-earning assets less total interest-bearing liabilities.
(3)  Net interest margin represents net interest income divided by average total interest-earning assets.

 

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     For the Nine Months Ended September 30,  
     2014     2013  
(Dollars in thousands)    Average
Outstanding
Balance
    Interest      Yield /
Rate
    Average
Outstanding
Balance
    Interest      Yield /
Rate
 

Interest-earning assets:

              

Loans

   $ 86,503      $ 3,131         4.84   $ 81,959      $ 3,137         5.12

Investment securities

     10,725        153         1.91     11,223        100         1.19

Certificates of deposit

     2,225        17         1.02     2,600        29         1.49

Interest earning deposits

     3,870        18         0.62     3,096        14         0.60
  

 

 

   

 

 

      

 

 

   

 

 

    

Total interest-earning assets

     103,323        3,319         4.29     98,878        3,280         4.44
    

 

 

        

 

 

    

Noninterest-earning assets

     5,849             6,429        
  

 

 

        

 

 

      

Total assets

   $ 109,172           $ 105,307        
  

 

 

        

 

 

      

Interest-bearing liabilities:

              

Savings accounts

   $ 32,675        62         0.25   $ 35,134        100         0.38

Certificates of deposit

     38,255        303         1.06     36,238        408         1.51

Money market accounts

     11,433        35         0.41     9,512        44         0.62

Now accounts

     5,224        3         0.08     4,341        3         0.09
  

 

 

   

 

 

      

 

 

   

 

 

    

Total interest-bearing deposits

     87,587        403         0.62     85,225        555         0.87

Federal Home Loan Bank advances

     6,105        89         1.95     6,830        90         1.76
  

 

 

   

 

 

      

 

 

   

 

 

    

Total interest-bearing liabilities

     93,692        492         0.70     92,055        645         0.94
    

 

 

        

 

 

    

Noninterest-bearing deposits

     5,415             4,652        

Noninterest-bearing liabilities

     220             139        
  

 

 

        

 

 

      

Total liabilities

     99,327             96,846        

Equity

     9,845             8,461        
  

 

 

        

 

 

      

Total liabilities and capital

   $ 109,172           $ 105,307        
  

 

 

        

 

 

      

Net interest income

     $ 2,827           $ 2,635      
    

 

 

        

 

 

    

Net interest rate spread (1)

          3.59          3.50

Net interest-earning assets (2)

   $ 9,631           $ 6,823        
  

 

 

        

 

 

      

Net interest margin (3)

          3.66          3.56

Average interest-earning assets to interest-bearing liabilities

     110.28          107.41     

 

(1)  Net interest rate spread represents the difference between the yield on average interest-earning assets and the cost of average interest-bearing liabilities.
(2)  Net interest-earning assets represent total interest-earning assets less total interest-bearing liabilities.
(3)  Net interest margin represents net interest income divided by average total interest-earning assets.

 

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Rate/Volume Analysis

The following table presents the effects of changing volumes and rates on our net interest income for the periods indicated. The volume column shows the effects attributable to changes in volume (change in volume multiplied by old rate), the rate column shows the effects attributable to changes in rate (change in rate multiplied by old volume) and the rate/volume column shows the effects attributable to changes in rate and volume (change in rate multiplied by change in volume).

 

     For the Three Months Ended September 30,
2014 vs 2013
 
     Increase (Decrease) Due to        
(in thousands)    Volume     Rate     Rate/
Volume
    Total Increase
(Decrease)
 

Interest income from:

        

Loans

   $ 58      $ (31   $ (2   $ 25   

Investment securities

     (3     13        (1     9   

Certificates of deposit

     1        (2     —          (1

Interest earning deposits

     1        —          —          1   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total interest income (1)

     54        (19     (1     34   
  

 

 

   

 

 

   

 

 

   

 

 

 

Interest expense on:

        

Savings accounts

     (2     (8     —          (10

Certificates of deposit

     8        (25     (2     (19

Money market accounts

     2        (4     (1     (3

Now accounts

     —          —          —          —     
  

 

 

   

 

 

   

 

 

   

 

 

 

Total interest-bearing deposits

     4        (35     (1     (32

Federal Home Loan Bank advances

     (2     2        —          —     
  

 

 

   

 

 

   

 

 

   

 

 

 

Total interest expense (1)

     3        (34     (1     (32
  

 

 

   

 

 

   

 

 

   

 

 

 

Change in net interest income

   $ 51      $ 15      $ —        $ 66   
  

 

 

   

 

 

   

 

 

   

 

 

 

 

(1) The volume, rate and rate/volume variances presented for each component will not add to the variances presented on totals of interest income and interest expense due to shifts from period-to-period in the relative mix of interest-earning assets and interest-bearing liabilities.

 

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     For the Nine Months Ended September 30,
2014 vs 2013
 
     Increase (Decrease) Due to        
(in thousands)    Volume     Rate     Rate/
Volume
    Total Increase
(Decrease)
 

Interest income from:

        

Loans

   $ 174      $ (170   $ (10   $ (6

Investment securities

     (4     60        (3     53   

Certificates of deposit

     (4     (9     1        (12

Interest earning deposits

     4        —          —          4   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total interest income (1)

     148        (104     (5     39   
  

 

 

   

 

 

   

 

 

   

 

 

 

Interest expense on:

        

Savings accounts

     (7     (33     2        (38

Certificates of deposit

     23        (121     (7     (105

Money market accounts

     9        (15     (3     (9

Now accounts

     —          —          —          —     
  

 

 

   

 

 

   

 

 

   

 

 

 

Total interest-bearing deposits

     15        (163     (4     (152

Federal Home Loan Bank advances

     (10     9        —          (1
  

 

 

   

 

 

   

 

 

   

 

 

 

Total interest expense (1)

     12        (162     (3     (153
  

 

 

   

 

 

   

 

 

   

 

 

 

Change in net interest income

   $ 136      $ 58      $ (2   $ 192   
  

 

 

   

 

 

   

 

 

   

 

 

 

 

(1) The volume, rate and rate/volume variances presented for each component will not add to the variances presented on totals of interest income and interest expense due to shifts from period-to-period in the relative mix of interest-earning assets and interest-bearing liabilities.

Comparison of Results of Operations for the Three Months Ended September 30, 2014 and September 30, 2013

General. Net income increased by $54,000 to $117,000 for the three months ended September 30, 2014 compared to net income of $63,000 for the same period in 2013. The increase in net income for the three month period is attributable to higher net interest income and lower non-interest expenses partially offset by lower non-interest income.

Net Interest Income. Net interest income is determined by the interest rate spread (i.e., the difference between the yields earned on interest-earning assets and the rates paid on interest-bearing liabilities) and the relative amounts of interest-earning assets and interest-bearing liabilities. Net interest income increased by $66,000, or 7.3%, during the three months ended September 30, 2014 compared to the same period in 2013, primarily due to the growth in interest income on loans and the decline of interest expense on deposits. Our net interest rate spread increased to 3.60% for the three months ended September 30, 2014 compared to 3.53% for the three months ended September 30, 2013.

Interest Income. Interest income increased slightly remaining at $1.1 million for the three months ended September 30, 2014 and 2013. Average earning assets increased by $4.9 million to $104.3 million for the three months ended September 30, 2014 from $99.4 million for the three months ended September 30, 2013. This growth was partially offset by the decline in yield on our earning assets to 4.28% for the three months ended September 30, 2014 from 4.36% for the three months ended September 30, 2013.

Interest Expense. Interest expense decreased by $32,000, or 16.6%, to $161,000 for the three months ended September 30, 2014 compared to $193,000 for the three months ended September 30, 2013. This decrease was almost entirely attributable to a decline in interest expense on interest-bearing deposits as the average rate paid dropped by 16 basis points, or 21.1%, slightly offset by an increase in the average balance of interest-bearing deposits of $1.9 million, or 2.2%. The decrease in average rates was primarily attributable to the decline of interest rates on certificates of deposit and savings accounts. The average rate on certificates of deposit dropped to 1.05% during the three months ended September 30, 2014 from 1.34% during the three months ended September 30, 2013 and the average rate on savings accounts dropped to 0.22% during the three months ended September 30, 2014 from 0.32% during the three months ended September 30, 2013. The continued historically low level of market interest rates has enabled us to renew maturing certificates of deposit at significantly lower interest rates and reprice our non-maturing interest bearing accounts to lower rates.

 

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Provision for Loan Losses. We establish a provision for loan losses, which is charged to operations, in order to maintain the allowance for loan losses at a level we consider necessary to absorb credit losses incurred in the loan portfolio that are both probable and reasonably estimable at the balance sheet date. In determining the level of the allowance for loan losses we consider past and current loss experience, evaluations of real estate collateral, current economic conditions, volume and type of lending, adverse situations that may affect a borrower’s ability to repay a loan and the levels of nonperforming loans. The amount of the allowance is based on estimates and actual losses may vary from such estimates as more information becomes available or economic conditions change. This evaluation is inherently subjective as it requires estimates that are susceptible to significant revision as circumstances change as more information becomes available. The allowance for loan losses is assessed on a quarterly basis and provisions are made for loan losses as required in order to maintain the allowance.

Based on management’s evaluation of the above factors, the provision for loan losses was $4,000 for the three months ended September 30, 2014 compared to $1,000 for the three months ended September 30, 2013. The low level of loan loss provision is due to loan balances remaining relatively flat during each of the comparable periods. In 2014 we also collected $7,000 in recoveries on previously charged-off loans. Management believes, to the best of their knowledge, that all known losses as of September 30, 2014 have been recorded.

The allowance for loan losses represented 0.79% of gross loans at September 30, 2014, 0.81% of gross loans as of December 31, 2013 and 0.83% at September 30, 2013. Based on our analysis and the historical performance of the loan portfolio, we believe the allowance appropriately reflects the inherit risk of loss in our loan portfolio.

Non-Interest Income. Non-interest income was $44,000 for the three months ended September 30, 2014 compared to $58,000 for the same period in 2013. The $14,000 decrease in non-interest income is primarily attributable to a $10,000 decrease in collection of loan fees due to lower late fee and loan processing fee collections.

Non-Interest Expenses. Non-interest expenses decreased by $28,000, or 3.3%, to $820,000 for the three months ended September 30, 2014 compared to $848,000 during the same period in 2013. The decrease was primarily due to a $24,000, or 25.0%, decrease in other operating expenses resulting from a decline of $12,000 in OREO repair and maintenance costs and a $15,000 decrease in advertising and marketing expenditures. In addition, data processing expense decreased by $15,000, or 12.5%, due to 2013 including the costs to convert to a new core processing platform and professional fees decreased by $17,000, or 20.2%, due primarily to lower legal expenditures. These items were partially offset by a $23,000, or 5.8%, increase in salaries and employee benefits due primarily to a new employee performance based incentive program and costs related to our stock based compensation programs and a $12,000, or 16.3%, increase in premises and equipment expenses as a result of higher levels of depreciation for security related equipment and improvements.

Income Tax Expense. Income tax expense amounted to $69,000 and $46,000, respectively, for the three months ended September 30, 2014 and 2013 resulting in effective tax rates of 37.1% and 42.0%, respectively. Our effective tax rate is influenced by the relation of tax exempt income from bank owned life insurance relative to pre-tax income.

 

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Comparison of Results of Operations for the Nine Months Ended September 30, 2014 and September 30, 2013

General. Net income increased by $98,000 to $273,000 for the nine months ended September 30, 2014 compared to $175,000 for the same period in 2013. The increase in net income for the nine month period is attributable to higher net interest income and a lower provision for loan losses, partially offset by an increase in non-interest expenses and a decrease in non-interest income.

Net Interest Income. Net interest income increased by $192,000, or 7.3%, during the nine months ended September 30, 2014 compared to the same period in 2013, due primarily to growth in investment securities interest income and the continued decline in interest expense. Our net interest rate spread increased to 3.59% for the nine months ended September 30, 2014 compared to 3.50% for the nine months ended September 30, 2013.

Interest Income. Interest income increased slightly remaining at $3.3 million for the nine months ended September 30, 2014 and 2013. Average earning assets increased by $4.4 million to $103.3 million for the nine months ended September 30, 2014 from $98.9 million for the nine months ended September 30, 2013. This growth was offset by the decline in yield on our earning assets to 4.29% for the nine months ended September 30, 2014 from 4.44% for the nine months ended September 30, 2013.

Interest Expense. Interest expense decreased by $153,000, or 23.7%, to $492,000 for the nine months ended September 30, 2014 compared to $645,000 for the nine months ended September 30, 2013. This decrease was attributable almost entirely to a decline in interest expense on interest-bearing deposits as the average rate paid on interest-bearing deposits dropped by 25 basis points, or 28.7%, slightly offset by an increase in the average balance of interest-bearing deposits of $2.4 million, or 2.8%. The decline in average rates was primarily attributable to the decline of interest rates on certificates of deposit and, to lesser extent, savings accounts. The average rate on certificates of deposit dropped to 1.06% during the nine months ended September 30, 2014 from 1.51% during the nine months ended September 30, 2013, while the average rate on savings accounts dropped to 0.25% during the nine months ended September 30, 2014 from 0.38% during the nine months ended September 20, 2013. The continued historically low level of market interest rates has enabled us to renew maturing certificates of deposit at significantly lower interest rates and reprice our non-maturing interest bearing accounts to lower rates.

Provision for Loan Losses. The provision for loan losses was $14,000 for the nine months ended September 30, 2014 compared to $84,000 for the nine months ended September 30, 2013. The decrease in the provision for loan losses was due to 2013 including an increase in our historical loss factors as a result of a charge-off and a specific reserve for a nonperforming investor residential mortgage loan. In both of the periods, loan growth and the increase in our commercial loan mix within the loan portfolio contributed to the amount of provision recorded.

Non-Interest Income. Non-interest income was $154,000 for the nine months ended September 30, 2014 compared to $180,000 for the same period in 2013. The $26,000, or 14.4%, decrease in non-interest income was primarily attributable to a $26,000 decrease in loan fees due to lower late fee and loan processing fee collections, a $10,000 decrease in deposit service fees, a $6,000 decrease in gains on the sale of loans and a $5,000 decrease on the sale of securities available for sale during the nine months ended September 30, 2014 compared to the nine months ended September 30, 2013. These items were partially offset by higher ATM fees of $13,000 and a decrease of $6,000 from losses on the sale of OREO.

Non-Interest Expenses. Non-interest expense increased by $60,000, or 2.4%, remaining at $2.5 million for the nine months ended September 30, 2014 and 2013. The increase was due to a $123,000, or 10.6%, increase in salaries and employee benefits due primarily to a new employee incentive program and costs related to our stock based compensation programs, a $25,000, or 10.7% increase in premises and equipment expenses as a result of higher levels of depreciation for security related equipment and improvements, and an increase in data processing due to post conversion costs related to our core processing system and higher transaction volumes. These items were partially offset by a decrease of $33,000 in OREO and loan workout expenses, a $24,000 decrease in advertising and marketing expenditures and a $21,000 decrease in professional fees due to a lower level of legal expenditures. In addition, the nine months ended September 30, 2013 included expenses of $11,000 in post robbery security expenditures and $7,000 in fraudulent check losses for which there was no corresponding expenditures during the 2014 period.

Income Tax Expense. Income tax expense amounted to $157,000 and $79,000, respectively, for the nine months ended September 30, 2014 and 2013 resulting in effective tax rates of 36.5% and 31.1%, respectively. Our effective tax rate is influenced by the relation of tax exempt income from bank owned life insurance relative to pre-tax income.

 

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Comparison of Financial Condition at September 30, 2014 and December 31, 2013.

Assets. Total assets increased by $5.2 million, or 4.8%, to $112.9 million at September 30, 2014 compared to $107.7 million at December 31, 2013, primarily due to funding provided by the increase in capital resulting from the rights offering in early 2014 and a $2.3 million increase in deposits.

Loans. Loan balances increased by $5.8 million, or 6.9%, to $90.0 million at September 30, 2014 compared to $84.2 million at December 31, 2013. New loan balances of $15.1 million recorded during the nine months ending September 30, 2014 were partially offset by loan payoffs of $5.2 million and scheduled principal repayments of $4.1 million. Included in the new loan balances were $3.4 million of loan participations sold we bought back during the second quarter due to the increase in our loans to one borrower limit after the rights offering.

Nonperforming Loans and Assets. Our nonperforming loans and assets were $482,000 and $535,000, respectively, at September 30, 2014 compared to $1.0 million and $1.5 million, respectively, at December 31, 2013. The ratio of nonperforming loans to total loans was 0.54% at September 30, 2014 compared to 1.25% at December 31, 2013. In addition, our ratio of nonperforming assets was 0.47% as of September 30, 2014 compared to 1.40% as of December 31, 2013.

Deposits. Deposits increased by $2.3 million, or 2.5%, to $94.0 million at September 30, 2014 from $91.8 million at December 31, 2013. Certificates of deposit increased by $3.3 million, or 8.8%, consisting mainly of brokered deposits to meet our short-term funding needs and checking account deposits increased by $727,000, or 7.1%. We continue to focus our efforts on improving our funding mix and increasing core deposits especially non-interest and interest bearing checking deposits.

Stockholders’ Equity. Stockholders’ equity increased by $2.1 million, or 25.5%, to $10.6 million at September 30, 2014 from $8.4 million at December 31, 2013. The increase was a result of the successful closing of our rights offering in early 2014. Gross proceeds were approximately $2.0 million before expenses and Units purchased by our shared-based compensation plans.

Liquidity and Capital Resources

Liquidity is the ability to meet current and future financial obligations. Our primary sources of funds consist of deposit inflows, loan repayments, the sale of securities available for sale, short-term lines of credit with correspondent banks and advances from the Federal Home Loan Bank of Atlanta. While maturities and scheduled amortization of loans and securities are predictable sources of funds, deposit flows and mortgage prepayments are greatly influenced by general interest rates, economic conditions and competition. Our Asset/Liability Committee is responsible for establishing and monitoring our liquidity targets and strategies in order to ensure that sufficient liquidity exists for meeting the borrowing needs and deposit withdrawals of our customers as well as unanticipated contingencies. We believe that we have enough sources of liquidity to satisfy our short- and long-term liquidity needs as of September 30, 2014.

We regularly monitor and adjust our investments in liquid assets based upon our assessment of:

 

  (i) expected loan demand;

 

  (ii) expected deposit flows and borrowing maturities;

 

  (iii) yields available on interest-earning deposits and securities; and

 

  (iv) the objectives of our asset and liability management program.

Excess liquid assets are invested generally in interest-earning deposits and short-term securities.

Our most liquid assets are cash and cash equivalents. The level of these assets is dependent on our operating, financing, lending and investing activities during any given period as reported in our statement of cash flows included in our financial statements. At September 30, 2014, cash and cash equivalents totaled $4.3 million.

Our cash flows are derived from operating activities, investing activities and financing activities as reported in our statements of cash flows included in our financial statements.

At September 30, 2014, we had $1.5 million in loan origination commitments outstanding and $6.5 million in unused available lines of credit. Certificates of deposit due within one year of September 30, 2014 totaled $17.5 million, or 18.6% of total deposits. If these deposits do not remain with us, we may be required to seek other sources of funds, including loan and securities sales, acquiring brokered deposits, Federal Home Loan Bank advances and draws on our short-term lines of credit with correspondent banks. Depending on market conditions, we may be required to pay higher rates on our deposits or other borrowings than we currently pay on the certificates of deposit due on or before September 30, 2015. We believe, however, based on historical experience and current market interest rates that we will retain upon maturity a large portion of our certificates of deposit with maturities of one year or less as of September 30, 2014.

 

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Our primary investing activity is originating loans. During the nine months ended September 30, 2014, we recorded $15.1 million in new loan balances.

Financing activities consist primarily of activity in deposit accounts. We experienced a net increase in deposits during the nine months ended September 30, 2014 of $2.3 million, or 2.5%. Deposit flows are affected by the overall level of interest rates, the interest rates and products offered by us and our local competitors, and by other factors.

Liquidity management is both a daily and long-term function of business management. If we require funds beyond our ability to generate them internally, borrowing agreements exist with the Federal Home Loan Bank of Atlanta, which provide an additional source of funds. Federal Home Loan Bank advances totaled $8.0 million at September 30, 2014 and we had the ability to borrow up to an additional $3.0 million from the Federal Home Loan Bank of Atlanta and $10.5 million from correspondent banks under short-term line of credit agreements. In addition, our Board of Directors has approved the use of brokered deposits, up to 15% of total deposits, as a funding source. At September 30, 2014, we had $5.7 million in brokered CDs and the ability to acquire up to $8.3 million in additional brokered deposits.

Carroll Bancorp, Inc. is a separate legal entity from the Bank and has to provide for its own liquidity to pay its operating expenses and other financial obligations. Virtually all of the Company’s revenue will be interest earned on the loan to the ESOP and stock dividends received from the Bank when the Bank begins paying dividends.

Under Maryland law, the Bank will be permitted to declare a cash dividend, after providing for due or accrued expenses, losses, interest, and taxes, from its undivided profits or, with the prior approval of the Maryland Commissioner of Financial Regulation, from its surplus in excess of 100% of its required capital stock. Also, if the Bank’s surplus is less than 100% of its required capital stock, cash dividends may not be paid in excess of 90% of net earnings. In addition to these specific restrictions, the bank regulatory agencies have the ability to prohibit or limit proposed dividends if such regulatory agencies determine the payment of such dividends would result in the Bank being in an unsafe and unsound condition.

Carroll Community Bank is subject to various regulatory capital requirements, including a risk-based capital measure. The risk-based capital guidelines include both a definition of capital and a framework for calculating risk-weighted assets by assigning balance sheet assets and off-balance sheet items to broad risk categories. At September 30, 2014, Carroll Community Bank exceeded all regulatory capital requirements. Carroll Community Bank is considered “well capitalized” under regulatory guidelines. See Note 7 of the accompanying consolidated financial statements for additional information.

Off-Balance Sheet Arrangements, Commitments and Aggregate Contractual Obligations

Commitments. We are party to financial instruments with off-balance sheet risk in the normal course of business to meet the financial needs of our customers. These financial instruments are limited to commitments to originate loans and involve, to varying degrees, elements of credit, interest rate, and liquidity risk. These do not represent unusual risks and management does not anticipate any losses which would have a material effect on us.

 

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Outstanding loan commitments and available lines of credit at September 30, 2014 and December 31, 2013 are as follows:

 

(in thousands)    At September 30,
2014
     At December 31,
2013
 

Commitments to extend credit:

     

Consumer loans

   $ 50       $ 207   

Commercial loans

     1,413         3,583   
  

 

 

    

 

 

 
     1,463         3,790   
  

 

 

    

 

 

 

Commitments under available lines of credit:

     

Consumer loans

     4,348         4,366   

Commercial loans

     2,109         2,845   
  

 

 

    

 

 

 
     6,457         7,211   
  

 

 

    

 

 

 

Standby letter of credit

     79         —     
  

 

 

    

 

 

 
     
  

 

 

    

 

 

 

Total Commitments

   $ 7,999       $ 11,001   
  

 

 

    

 

 

 

Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. We generally require collateral to support financial instruments with credit risk on the same basis as we do for balance sheet instruments. Management generally bases the collateral required on the credit evaluation of the counterparty. Commitments generally have interest rates fixed at current market rates, expiration dates or other termination clauses and may require payment of a fee. Available credit lines represent the unused portion of lines of credit previously extended and available to the customer so long as there is no violation of any contractual condition. These lines generally have variable interest rates. Since we expect many of the commitments to expire without being drawn upon, and since it is unlikely that customers will draw upon their lines of credit in full at any time, the total commitment amount or line of credit amount does not necessarily represent future cash requirements. We evaluate each customer’s credit-worthiness on a case-by-case basis. Because we conservatively underwrite these facilities at inception, we have not had to withdraw any commitments. We are not aware of any loss that we would incur by funding our commitments or lines of credit.

The credit risks involved in these financial instruments are essentially the same as that involved in extending loan facilities to customers. No amount has been recognized in the statement of financial condition at September 30, 2014 or December 31, 2013 as a liability for credit loss related to these commitments.

Impact of Inflation and Changing Prices

Our financial statements and related notes have been prepared in accordance with U.S. GAAP. U.S. GAAP generally requires the measurement of financial position and operating results in terms of historical dollars without consideration of changes in the relative purchasing power of money over time due to inflation. The impact of inflation is reflected in the increased cost of our operations. Unlike industrial companies, our assets and liabilities are primarily monetary in nature. As a result, changes in market interest rates have a greater impact on performance than the effects of inflation.

Critical Accounting Policies

During the three months ended September 30, 2014, there was no significant change in our critical accounting policies or the application of critical accounting policies as disclosed in our Annual Report on Form 10-K for the year ended December 31, 2013.

Our accounting and financial reporting policies conform to accounting principles generally accepted in the United States of America and to general practices within the banking industry. Accordingly, the financial statements require management to exercise significant judgment or discretion or make significant assumptions based on the information available that have, or could have, a material impact on the amounts reported in the financial statements and accompanying notes. We base these estimates, assumptions, and judgments on the information available as of the date of the financial statements; accordingly, as this information changes, the financial statements could reflect different estimates, assumptions and judgments. These estimates, assumptions and judgments are necessary when financial instruments are required to be recorded at fair value or when the decline in the value of an asset carried on the statement of financial condition at historic cost requires an impairment write-down or a valuation reserve to be established. In reviewing and understanding financial information for us, you are encouraged to read and understand the significant accounting policies used in preparing our financial statements.

 

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Based on the valuation techniques used and the sensitivity of financial statement amounts to the methods, assumptions, and estimates underlying those amounts, management has identified the determination of the provision for loan losses as the accounting area that requires the most subjective or complex judgments, and as such could be most subject to revision as new information becomes available. Management has significant discretion in making the judgments inherent in the determination of the provision and allowance for loan losses, including in connection with the valuation of collateral and the financial condition of the borrower, and in establishing loss ratios and risk ratings. The establishment of allowance factors is a continuing exercise and allowance factors may change over time, resulting in an increase or decrease in the amount of the provision or allowance based upon the same volume and classification of loans.

Changes in allowance factors or in management’s interpretation of those factors will have a direct impact on the amount of the provision, and a corresponding effect on income and assets. Also, errors in management’s perception and assessment of the allowance factors could result in the allowance not being adequate to cover losses in the portfolio, and may result in additional provisions or charge-offs, which would adversely affect income and capital. For additional information regarding the allowance for loan losses, see Note 4 of the accompanying consolidated financial statements.

 

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Forward-Looking Statements

This Quarterly Report on Form 10-Q contains forward-looking statements as defined in Section 21E of the Securities Exchange Act of 1934 (“Exchange Act”), which can be identified by the use of words such as “estimate,” “project,” “believe,” “intend,” “anticipate,” “plan,” “seek,” “expect,” “will,” “may” and words of similar meaning. These forward-looking statements include, but are not limited to:

 

    statements about our business plans, prospects and operating strategies; particularly with respect to (i) continuing our focus on commercial real estate lending and related products, (ii) increasing core deposits and improving our funding mix, and (iii) retention of maturing certificates of deposit;

 

    statement regarding increased lending opportunities as market conditions return to a more normal level;

 

    statements with respect to the impact of off-balance sheet arrangements;

 

    statements regarding adequate liquidity for our short- and long-term needs;

 

    statements with respect to our allowance for loan losses, the adequacy thereof and that all known loan losses have been recorded and expected changes in the allowance; and

 

    statement regarding the impact of pending legal proceedings.

These forward-looking statements are based on our current beliefs and expectations and are inherently subject to significant business, economic and competitive uncertainties and contingencies, many of which are beyond our control. In addition, these forward-looking statements are subject to assumptions with respect to future business strategies and decisions that are subject to change. We are under no duty to and do not take any obligation to update any forward-looking statements after the date of this filing.

The following factors, among others, could cause actual results to differ materially from the anticipated results or other expectations expressed in the forward-looking statements:

 

    general economic conditions, either nationally or in our market area, that are worse than expected;

 

    competition among depository and other financial institutions;

 

    inflation and changes in the interest rate environment that reduce our margins or reduce the fair value of financial instruments;

 

    changes in laws or government regulations or policies affecting financial institutions, including changes in regulatory fees and capital requirements;

 

    changes in consumer spending, borrowing and savings habits;

 

    changes in accounting policies and practices, as may be adopted by the bank regulatory agencies, the Financial Accounting Standards Board, the Securities and Exchange Commission (“SEC”) and the Public Company Accounting Oversight Board; and

 

    changes in competitive, governmental, regulatory, technological and other factors which may affect us specifically or the banking industry and other risk and uncertainties discussed in this report and in other SEC filings we may make.

Because of these and a wide variety of other uncertainties, our actual future results may be materially different from the results indicated by these forward-looking statements. You should not put undue reliance on any forward-looking statements. All forward-looking statements speak only as of the date of this report on Form 10-Q, and we undertake no obligation to update the forward-looking statements to reflect factual assumptions, circumstances or events that have changed after we have made the forward-looking statements.

 

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Item 3. Quantitative and Qualitative Disclosures About Market Risk

Not applicable.

 

Item 4. Controls and Procedures

We maintain disclosure controls and procedures (as that term is defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) that are designed to provide material information about the Company to the chief executive officer, the chief financial officer, and others within the Company so that information may be recorded, processed, summarized, and reported as required under the SEC’s rules and forms. The Company’s chief executive officer and chief financial officer have evaluated the effectiveness of the Company’s disclosure controls and procedures as of the end of the period covered by this report and, based on that evaluation, have each concluded that such disclosure controls and procedures are effective as of September 30, 2014.

There have been no changes in the Company’s internal control over financial reporting (as defined in Rule 13a-15 under the Exchange Act) during the quarter ended September 30, 2014, that have materially affected or are reasonably likely to materially affect, the internal control over financial reporting.

PART II – OTHER INFORMATION

 

Item 1. Legal Proceedings

We are not involved in any legal proceedings the outcome of which we believe would be material to our financial condition or results of operations.

 

Item 1A. Risk Factors

There have been no material changes in the risk factors from those disclosed in our Annual Report on Form 10-K for the year ended December 31, 2013.

 

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

None.

 

Item 3. Defaults upon Senior Securities

None.

 

Item 4. Mine Safety Disclosures

Not applicable.

 

Item 5. Other Information

None.

 

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Item 6. Exhibits

 

  31.1    Rule 13a-14(a) Certification by the Principal Executive Officer
  31.2    Rule 13a-14(a) Certification by the Principal Financial Officer
  32.1    Certification by the Principal Executive Officer of the periodic financial reports, required by Section 906 of the Sarbanes-Oxley Act of 2002
  32.2    Certification by the Principal Financial Officer of the periodic financial reports, required by Section 906 of the Sarbanes-Oxley Act of 2002
101.INS    XBRL Instance Document
101.SCH    XBRL Taxonomy Extension Schema Document
101.CAL    XBRL Taxonomy Extension Calculation Linkbase Document
101.LAB    XBRL Taxonomy Extension Label Linkbase Document
101.PRE    XBRL Taxonomy Extension Presentation Linkbase Document
101.DEF    XBRL Taxonomy Extension Definition Linkbase Document

 

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

      CARROLL BANCORP, INC.
Date: November 10, 2014     By:  

/s/ Russell J. Grimes

      Russell J. Grimes
    President, Chief Executive Officer and Director
    (Principal Executive Officer)
Date: November 10, 2014     By:  

/s/ Michael J. Gallina

      Michael J. Gallina
    Chief Financial Officer
    (Principal Financial and Accounting Officer)

 

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