SIFI 03.31.2012 10-Q


 
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 March 31, 2012
OR
o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Transition Period from _______ to ______

 Commission File Number:  0-54241
 
SI FINANCIAL GROUP, INC.
(Exact name of registrant as specified in its charter)
__________________________________________________
Maryland
 
80-0643149
(State or other jurisdiction of incorporation or organization)
 
(I.R.S. Employer Identification No.)
 
803 Main Street, Willimantic, Connecticut
 
06226
(Address of principal executive offices)
 
(Zip Code)
 
(860) 423-4581
(Registrant’s telephone number, including area code)

Not Applicable
(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  o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (Section 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes  x No  o
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company.  See definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
 
Large Accelerated Filer o
Accelerated Filer x
 
 
Non-Accelerated Filer ¨     
Smaller Reporting Company o
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).   Yes o    No  x
 
As of  May 4, 2012, there were 10,575,776 shares of the registrant’s common stock outstanding.
 



SI FINANCIAL GROUP, INC.
TABLE OF CONTENTS
 
 
 
 
Page No.
 
 
 
 
PART I. FINANCIAL INFORMATION
 
 
 
 
 
Item 1.
 
Financial Statements (Unaudited):
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Item 2.
 
 
 
 
 
Item 3.
 
 
 
 
 
Item 4.
 
 
 
 
 
PART II. OTHER INFORMATION
 
 
 
 
 
Item 1.
 
 
 
 
 
Item 1A.
 
 
 
 
 
Item 2.
 
 
 
 
 
Item 3.
 
 
 
 
 
Item 4.
 
 
 
 
 
Item 5.
 
 
 
 
 
Item 6.
 
 
 
 
 
 
 




PART I.  FINANCIAL INFORMATION
Item 1.  Financial Statements.
SI FINANCIAL GROUP, INC.
CONSOLIDATED BALANCE SHEETS
(In Thousands, Except Share Amounts / Unaudited)
 
March 31,
2012
 
December 31,
2011
ASSETS:
 
 
 
Cash and due from banks:
 
 
 
Noninterest-bearing
$
13,911

 
$
13,980

Interest-bearing
43,877

 
34,432

Total cash and cash equivalents
57,788

 
48,412

 
 
 
 
Available for sale securities, at fair value
232,519

 
230,814

Loans held for sale
1,645

 
5,558

Loans receivable (net of allowance for loan losses of $5,378 at March 31, 2012 and $4,970 at December 31, 2011)
632,198

 
618,626

Federal Home Loan Bank stock, at cost
8,078

 
8,388

Bank-owned life insurance
9,085

 
9,012

Premises and equipment, net
11,789

 
12,651

Goodwill and other intangibles
3,459

 
4,105

Accrued interest receivable
3,473

 
3,539

Deferred tax asset, net
4,199

 
4,614

Other real estate owned, net
384

 
976

Prepaid FDIC deposit insurance assessment
1,774

 
1,974

Other assets
7,641

 
6,378

Total assets
$
974,032

 
$
955,047

 
 
 
 
LIABILITIES AND SHAREHOLDERS' EQUITY:
 

 
 

Liabilities:
 

 
 

Deposits:
 

 
 

Noninterest-bearing
$
88,079

 
$
85,958

Interest-bearing
633,108

 
615,968

Total deposits
721,187

 
701,926

 
 
 
 
Mortgagors' and investors' escrow accounts
1,750

 
3,291

Federal Home Loan Bank advances
100,069

 
100,069

Junior subordinated debt owed to unconsolidated trust
8,248

 
8,248

Accrued expenses and other liabilities
11,197

 
10,996

Total liabilities
842,451

 
824,530

 
 
 
 
Shareholders' Equity:
 

 
 

Preferred stock ($.01 par value; 1,000,000 shares authorized; none issued)
—

 
—

Common stock ($.01 par value; 35,000,000 shares authorized; 10,576,849 shares issued; 10,575,776 and 10,576,302 shares outstanding at March 31, 2012 and December 31, 2011, respectively)
106

 
106

Additional paid-in-capital
94,649

 
94,612

Unallocated common shares held by ESOP
(5,448
)
 
(5,568
)
Unearned restricted shares
(35
)
 
(38
)
Retained earnings
42,188

 
42,085

Accumulated other comprehensive income (loss)
132

 
(675
)
Treasury stock, at cost (1,073 and 547 shares at March 31, 2012 and December 31, 2011, respectively)
(11
)
 
(5
)
Total shareholders' equity
131,581

 
130,517

Total liabilities and shareholders' equity
$
974,032

 
$
955,047

 

See accompanying notes to unaudited interim consolidated financial statements.

1


SI FINANCIAL GROUP, INC.
CONSOLIDATED STATEMENTS OF INCOME
(In Thousands, Except Per Share Amounts / Unaudited)
 
Three Months Ended
March 31,
 
2012
 
2011
Interest and dividend income:
 
 
 
Loans, including fees
$
7,635

 
$
7,908

Securities:
 

 
 

Taxable interest
1,557

 
1,561

Tax-exempt interest
1

 
1

Dividends
16

 
20

Other
12

 
30

Total interest and dividend income
9,221

 
9,520

 
 
 
 
Interest expense:
 

 
 

Deposits
1,595

 
1,897

Federal Home Loan Bank advances
849

 
1,012

Subordinated debt
107

 
83

Total interest expense
2,551

 
2,992

 
 
 
 
Net interest income
6,670

 
6,528

 
 
 
 
Provision for loan losses
484

 
210

 
 
 
 
Net interest income after provision for loan losses
6,186

 
6,318

 
 
 
 
Noninterest income:
 

 
 

Total other-than-temporary impairment losses on securities
(409
)
 
—

Portion of losses recognized in other comprehensive income
373

 
—

Net impairment losses recognized in earnings
(36
)
 
—

Service fees
1,210

 
1,180

Wealth management fees
1,067

 
1,066

Increase in cash surrender value of bank-owned life insurance
72

 
72

Net gain on sale of securities
317

 
35

Mortgage banking
279

 
169

Net (loss) gain in fair value on trading securities and derivatives
(49
)
 
27

Net loss on disposal of equipment
—

 
(7
)
Net loss on disposal of SI Trust Servicing operations
(486
)
 
—

Other
387

 
107

Total noninterest income
2,761

 
2,649

 
 
 
 
Noninterest expenses:
 

 
 

Salaries and employee benefits
4,238

 
4,144

Occupancy and equipment
1,486

 
1,535

Computer and electronic banking services
993

 
956

Outside professional services
364

 
267

Marketing and advertising
152

 
160

Supplies
137

 
135

FDIC deposit insurance and regulatory assessments
272

 
305

Contribution to SI Financial Group Foundation
—

 
500

Other
708

 
711

Total noninterest expenses
8,350

 
8,713

 
 
 
 
Income before income tax provision
597

 
254

Income tax provision
194

 
45

Net income
$
403

 
$
209

 
 
 
 
Earnings per share:
 

 
 

Basic
$
0.04

 
$
0.02

Diluted
$
0.04

 
$
0.02

 See accompanying notes to unaudited interim consolidated financial statements.

2


SI FINANCIAL GROUP, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In Thousands / Unaudited)

 
 
Three Months Ended March 31,
 
 
2012
 
2011
 
 
 
 
 
Net Income
 
$
403

 
$
209

Other comprehensive income, net of tax:
 
 
 
 
Net unrealized gain on available for sale securities:
 
 
 
 
Net unrealized holding gain on available for sale securities
 
627

 
499

Less: reclassification adjustment for gains recognized in net income
 
(209
)
 
(23
)
Plus: credit portion of OTTI losses recognized in net income
 
24

 
—

Plus: noncredit portion of OTTI gains on available for sale securities
 
360

 
80

Net unrealized holding gains on available for sale securities
 
802

 
556

Net unrealized gain on interest-rate swap derivative
 
5

 
49

Other comprehensive income
 
807

 
605

Comprehensive income
 
$
1,210

 
$
814

 
 
 
 
 
See accompanying notes to unaudited interim consolidated financial statements.

 



3


SI FINANCIAL GROUP, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
FOR THE THREE MONTHS ENDED MARCH 31, 2012
(In Thousands, Except Share Amounts / Unaudited)

 
Common Stock
 
Additional
Paid-in
Capital
 
Unallocated
Common
Shares Held
by ESOP
 
Unearned
Restricted
Shares
 
Retained
Earnings
 
Accumulated
Other
Comprehensive
Income (Loss)
 
Treasury
Stock
 
Total
Shareholders'
Equity
 
Shares
 
Dollars
 
 
 
 
 
 
 
Balance at December 31, 2011
10,576,849

 
$
106

 
$
94,612

 
$
(5,568
)
 
$
(38
)
 
$
42,085

 
$
(675
)
 
$
(5
)
 
$
130,517

Net income
—

 
—

 
—

 
—

 
—

 
403

 
—

 
—

 
403

Other comprehensive income
—

 
—

 
—

 
—

 
—

 
—

 
807

 
—

 
807

Cash dividends declared ($.03 per share)
—

 
—

 
—

 
—

 
—

 
(300
)
 
—

 
—

 
(300
)
Equity incentive plan compensation
—

 
—

 
26

 
—

 
3

 
—

 
—

 
—

 
29

Allocation of 12,159 ESOP shares
—

 
—

 
8

 
120

 
—

 
—

 
—

 
—

 
128

Tax benefit from share-based compensation
—

 
—

 
3

 
—

 
—

 
—

 
—

 
—

 
3

Treasury stock purchased (526 shares)
—

 
—

 
—

 
—

 
—

 
—

 
—

 
(6
)
 
(6
)
Balance at March 31, 2012
10,576,849

 
$
106

 
$
94,649

 
$
(5,448
)
 
$
(35
)
 
$
42,188

 
$
132

 
$
(11
)
 
$
131,581

 
See accompanying notes to unaudited interim consolidated financial statements.


4


SI FINANCIAL GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands / Unaudited)
 
Three Months Ended
March 31,
 
2012
 
2011
Cash flows from operating activities:
 
 
 
Net income
$
403

 
$
209

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

Provision for loan losses
484

 
210

Employee stock ownership plan expense
128

 
114

Equity incentive plan expense
29

 
20

Excess tax benefit from share-based compensation
(3
)
 
(2
)
Amortization of investment premiums and discounts, net
325

 
103

Amortization of loan premiums and discounts, net
206

 
204

Depreciation and amortization of premises and equipment
501

 
461

Amortization of core deposit intangible
3

 
5

Net gain on sale of securities
(317
)
 
(35
)
Net loss (gain) on trading securities and derivatives
49

 
(27
)
Loans originated for sale
(7,002
)
 
(14,249
)
Proceeds from sale of loans held for sale
11,049

 
19,785

Net loss on disposal of SI Trust Servicing operations
486

 
—

Net gain on sale of loans held for sale
(218
)
 
(124
)
Net loss on disposal of equipment
—

 
7

Net loss on sales or write-downs of other real estate owned
11

 
62

Increase in cash surrender value of bank-owned life insurance
(72
)
 
(72
)
Gain on bank-owned life insurance proceeds
—

 
(120
)
Other-than-temporary impairment losses on securities
36

 
—

Change in operating assets and liabilities:
 

 
 

Accrued interest receivable
66

 
(244
)
Other assets
(99
)
 
1,134

Accrued expenses and other liabilities
136

 
(608
)
Net cash provided by operating activities
6,201

 
6,833

 
 
 
 
Cash flows from investing activities:
 

 
 

Purchases of available for sale securities
(27,712
)
 
(47,374
)
Proceeds from sales of available for sale securities
9,336

 
1,065

Proceeds from maturities of and principal repayments on available for sale securities
18,150

 
9,917

Net (increase) decrease in loans
(14,381
)
 
14,633

Purchases of loans
—

 
(17,419
)
Proceeds from sale of other real estate owned
700

 
473

Purchases of premises and equipment
(335
)
 
(866
)
Proceeds from bank-owned life insurance
—

 
600

Net cash used in investing activities
(14,242
)
 
(38,971
)
 
 
 
 
Cash flows from financing activities:
 

 
 

Net increase in deposits
19,261

 
10,660

Net decrease in mortgagors' and investors' escrow accounts
(1,541
)
 
(1,634
)
Proceeds from Federal Home Loan Bank advances
—

 
14,000

Repayments of Federal Home Loan Bank advances
—

 
(19,000
)
Net proceeds from common stock offering
—

 
2,769

Excess tax benefit from share-based compensation
3

 
2

Purchase of shares by ESOP pursuant to reorganization
—

 
(3,141
)
Cash dividends on common stock
(300
)
 
(298
)
Treasury stock purchased
(6
)
 
(5
)
Net cash provided by financing activities
17,417

 
3,353

 
 
 
 

5


SI FINANCIAL GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (Concluded)
(In Thousands / Unaudited)
 
Three Months Ended
March 31,
 
2012
 
2011
Net change in cash and cash equivalents
9,376

 
(28,785
)
Cash and cash equivalents at beginning of period
48,412

 
78,321

Cash and cash equivalents at end of period
$
57,788

 
$
49,536

 
 
 
 
Supplemental cash flow information:
 

 
 

Interest paid
$
2,513

 
$
3,009

Income taxes paid, net
13

 
—

Transfer of stock offering escrow for issuance of common shares
—

 
47,556

Transfer of loans to other real estate owned
119

 
80


 See accompanying notes to unaudited interim consolidated financial statements.

6
Table of Contents
SI FINANCIAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2012 AND 2011 AND DECEMBER 31, 2011
 
 
 
 
 
 


NOTE 1.  NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Nature of Business
SI Financial Group, Inc. (the “Company”) is the holding company for Savings Institute Bank and Trust Company (the “Bank”).  Established in 1842, the Bank is a community-oriented financial institution headquartered in Willimantic, Connecticut.  The Bank provides a variety of financial services to individuals, businesses and municipalities through its twenty-one offices in eastern Connecticut.  Its primary products include savings, checking and certificate of deposit accounts, residential and commercial mortgage loans, commercial business loans and consumer loans.  In addition, wealth management services, which include trust, financial planning, life insurance and investment services, are offered to individuals and businesses through the Bank’s Connecticut offices.  The Company does not conduct any material business other than owning all of the stock of the Bank and making payments on the subordinated debentures held by the Company.

Effective January 12, 2011, the Company completed its public stock offering and the concurrent conversion of the Bank from the mutual holding company form of organization to the stock form of organization (the "Conversion"). A total of 6,544,493 shares of common stock were sold in the subscription and community offerings at $8.00 per share, including 392,670 shares purchased by the Savings Institute Bank and Trust Company Employee Stock Ownership Plan (the "ESOP").  Additional shares totaling 4,032,356 were issued in exchange for shares of the former SI Financial Group, Inc. at an exchange ratio of 0.8981.  Shares outstanding after the stock offering and the exchange totaled 10,576,849.  Proceeds received from the stock offering totaled $50.3 million, net of costs of $2.0 million. Earnings per share and the weighted average common shares outstanding reflect the conversion exchange ratio.

Principles of Consolidation
The accompanying consolidated financial statements include the accounts of the Company, its wholly-owned subsidiary, the Bank, and the Bank’s wholly-owned subsidiaries, 803 Financial Corp., SI Mortgage Company and SI Realty Company, Inc.  All significant intercompany accounts and transactions have been eliminated.

Basis of Financial Statement Presentation
The interim consolidated financial statements and related notes have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information, with the instructions to Form 10-Q and Rule 8-03 of Regulation S-X of the Securities and Exchange Commission (“SEC”) and general practices within the banking industry.  Accordingly, certain information and footnote disclosures required by GAAP for complete financial statements have been omitted.  Information in the accompanying interim consolidated financial statements and notes to the financial statements of the Company as of March 31, 2012 and for the three months ended March 31, 2012 and 2011 is unaudited.  These unaudited interim consolidated financial statements and related notes should be read in conjunction with the audited financial statements of the Company and the accompanying notes for the year ended December 31, 2011 contained in the Company’s Form 10-K.

In the opinion of management, the accompanying unaudited interim consolidated financial statements reflect all of the adjustments, consisting only of normal and recurring adjustments, necessary for a fair presentation of the financial condition, results of operations and cash flows as of and for the period covered herein.  The results of operations for the three months ended March 31, 2012 are not necessarily indicative of the operating results for the year ending December 31, 2012.

In preparing the consolidated financial statements, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities, and disclosures of contingent assets and liabilities, as of the date of the balance sheets and reported amounts of revenues and expenses for the periods presented.  Actual results could differ from those estimates. Material estimates that are particularly susceptible to significant change

7
Table of Contents
SI FINANCIAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2012 AND 2011 AND DECEMBER 31, 2011
 
 
 
 
 
 

in the near term relate to the determination of the allowance for loan losses, other-than-temporary impairment (“OTTI”) of securities, deferred income taxes and the valuation of intangible assets.
     
Reclassifications
Certain amounts in the Company’s 2011 consolidated financial statements have been reclassified to conform to the 2012 presentation.  Such reclassifications had no effect on net income.

Loans Receivable
Loans receivable are stated at current unpaid principal balances, net of the allowance for loan losses and deferred loan origination fees and costs.  Management has the ability and intent to hold its loans receivable for the foreseeable future or until maturity or pay-off.

A loan is impaired when, based on current information and events, it is probable the Company will be unable to collect all contractual principal and interest payments due in accordance with the 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. Impairment is measured on a loan by loan basis for residential and commercial mortgage loans and commercial business loans by either the present value of expected future cash flows discounted at the loan's effective interest rate or, as a practical expedient, at the loan's observable market price or the fair value of the collateral if the loan is collateral dependent.  Large groups of smaller balance homogeneous loans are collectively evaluated for impairment.  Accordingly, the Company does not typically identify individual consumer loans for impairment disclosures, unless such loans are subject to a troubled debt restructuring agreement.

The Company periodically may agree to modify the contractual terms of loans.  When a loan is modified and concessions have been made to the original contractual terms, such as reductions of interest rates or deferral of interest or principal payments due to the borrower’s financial condition, the modification is considered a troubled debt restructuring (“TDR”).  All TDRs are initially classified as impaired.

Management considers all nonaccrual loans and TDRs to be impaired.  In most cases, loan payments less than 90 days past due are considered minor collection delays and the related loans are generally not considered impaired.

Allowance for Loan Losses
The allowance for loan losses, a material estimate which could change significantly in the near-term, is established through a provision for loan losses charged to earnings to account for losses that are inherent in the loan portfolio and estimated to occur, and is maintained at a level that management considers adequate to absorb losses in the loan portfolio.  Loan losses are charged against the allowance for loan losses when management believes that the uncollectibility of the principal loan balance is confirmed.  Subsequent recoveries, if any, are credited to the allowance for loan losses when received.  In the determination of the allowance for loan losses, management may obtain independent appraisals for significant properties, if necessary.

Management's judgment in determining the adequacy of the allowance is inherently subjective as it requires estimates that are susceptible to significant revision as more information becomes available.  The allowance for loan losses is evaluated on a monthly basis by management and is based on the evaluation of the known and inherent risk characteristics and size and composition of the loan portfolio, the assessment of current economic and real estate market conditions, adverse situations that may affect the borrower’s ability to repay, estimated value of any underlying collateral, historical loan loss experience, the level of nonperforming loans, delinquencies, classified assets and loan charge-offs and evaluations of loans and other relevant factors.

8
Table of Contents
SI FINANCIAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2012 AND 2011 AND DECEMBER 31, 2011
 
 
 
 
 
 

The allowance for loan losses consists of the following key elements:

•
Specific allowance for identified impaired loans.  For loans that are identified as impaired, an allowance is established when the present value of expected cash flows (or observable market price of the loan or fair value of the collateral if the loan is collateral dependent) of the impaired loan is lower than the carrying value of that loan.

•
General valuation allowance.  The general component represents a valuation allowance on the remainder of the loan portfolio, after excluding impaired loans.  For this portion of the allowance, loans are segregated by category and assigned an allowance percentage based on historical loan loss experience adjusted for qualitative factors stratified by the following loan segments:  residential one- to four-family, multi-family and commercial real estate, construction, commercial business and consumer. Management uses a rolling average of historical losses based on the time frame appropriate to capture relevant loss data for each loan segment.  This historical loss factor is adjusted for the following qualitative factors: levels/trends in delinquencies; level of loan charge-offs and nonperforming loans; trends in terms of volume, nature and terms of loans; effects of changes in risk selection, underwriting standards and other changes in lending policies, procedures and practices; experience/ability and depth of lending management and staff and national and local economic trends and conditions.

The qualitative factors are determined based on the following various risk characteristics for each loan segment. Risk characteristics relevant to each portfolio segment are as follows:

Residential – One- to Four-Family – The Bank primarily originates conventional loans with loan-to-value ratios less than 95% and generally originates loans with loan-to-value ratios in excess of 80% only when secured by first liens on owner-occupied one- to four-family residences.  Loans with loan-to-value ratios in excess of 80% generally require private mortgage insurance or additional collateral. All loans in this segment are collateralized by owner-occupied residential real estate and repayment is dependent on the credit quality of the individual borrower.  The overall health of the economy, including unemployment rates and housing prices, will have an effect on the credit quality of this segment.

Multi-family and Commercial – Loans in this segment are originated for the purpose of acquiring, developing, improving or refinancing multi-family and commercial real estate where the property is the primary collateral securing the loan, and the income generated from the property is the primary repayment source.  The underlying cash flows generated by the properties are adversely impacted by a downturn in the economy as evidenced by increased vacancy rates, which in turn, will have an effect on the credit quality in this segment.  Payments on loans secured by income-producing properties often depend on the successful operation and management of the properties.  Management continually monitors the cash flows of these loans.

Construction – This segment includes loans to individuals, and to a lesser extent builders, to finance the construction of residential dwellings.  The Bank also originates construction loans for commercial development projects.  Upon the completion of construction, the loan generally converts to a permanent mortgage loan.  Credit risk is affected by cost overruns, time to sell at an adequate price and market conditions.

Commercial Business – Loans in this segment are made to businesses and are generally secured by assets of the business.  Repayment is expected from the cash flows of the business.  A weakened economy and reduced viability of the industry in which the customer operates will have a negative impact on the credit quality in this segment. To a lesser extent, the Bank finances capital improvements for condominium associations which are secured by the assigned rights to levy special assessments.


9
Table of Contents
SI FINANCIAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2012 AND 2011 AND DECEMBER 31, 2011
 
 
 
 
 
 

Consumer – Loans in this segment primarily include home equity lines of credit (representing both first and second liens) and indirect automobile loans and, to a lesser extent, loans secured by marketable securities, passbook or certificate accounts, motorcycles, automobiles and recreational vehicles, as well as unsecured loans.  Consumer loan collections depend on the borrower’s continuing financial stability, and therefore are more likely to be adversely affected by job loss, divorce, illness or personal bankruptcy.
 
In computing the allowance for loan losses, we do not assign a general valuation allowance to the Small Business Administration (“SBA”) and United States Department of Agriculture (“USDA”) loans that we purchase as such loans are fully guaranteed.  These loans are included in commercial business loans.
 
The majority of the Company's loans are collateralized by real estate located in eastern Connecticut. To a lesser extent, certain commercial real estate loans are secured by collateral located outside of our primary market area. Accordingly, the collateral value of a substantial portion of the Company's loan portfolio and real estate acquired through foreclosure is susceptible to changes in market conditions.
 
Although management believes that it uses the best information available to establish the allowance for loan losses, future adjustments to the allowance for loan losses may be necessary and the Company’s results of operations could be adversely affected if circumstances differ substantially from the assumptions used in making the determinations.  Furthermore, while management believes it has established the allowance for loan losses in conformity with GAAP, our regulators, in reviewing the loan portfolio, may request us to increase our allowance for loan losses based on judgments different from ours.  In addition, because future events affecting borrowers and collateral cannot be predicted with certainty, the existing allowance for loan losses may not be adequate or increases may be necessary should the quality of any loans deteriorate as a result of the factors discussed above.  Any material increase in the allowance for loan losses would adversely affect the Company’s financial condition and results of operations.

Interest and Fees on Loans
Interest on loans is accrued and included in net interest income based on contractual rates applied to principal amounts outstanding.  Accrual of interest is discontinued when loan payments are 90 days or more past due, based on contractual terms, or when, in the judgment of management, collectibility of the loan or loan interest becomes uncertain.  Subsequent recognition of income occurs only to the extent payment is received subject to management's assessment of the collectibility of the remaining interest and principal.  A nonaccrual loan is restored to accrual status when it is no longer delinquent and collectibility of interest and principal is no longer in doubt and the borrower has made regular payments in accordance with the terms of the loan over a period of at least six months.  Interest collected on nonaccrual loans is recognized only to the extent cash payments are received, and may be recorded as a reduction to principal if the collectibility of the principal balance of the loan is unlikely.

Loan origination fees and direct loan origination costs are deferred, and the net amount is recognized as an adjustment of the related loan's yield utilizing the interest method over the contractual life of the loan.

Recent Accounting Pronouncements
Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements – In May 2011, the Financial Accounting Standards Board ("FASB") amended its standard related to fair value measurement and disclosure requirements in accordance with GAAP and International Financial Reporting Standards.  The amendments (1) change the wording used to describe many of the requirements in GAAP for measuring fair value and for disclosing information about fair value measurement, (2) clarify the intent of the application of existing fair value measurement requirements and (3) change the requirements for measuring fair value and for disclosing information about fair value.  The amendments are not intended to change the application of existing requirements for fair value measurement.  The amendments should be applied prospectively effective during the first interim and annual periods beginning after December 15, 2011.  The adoption of these amendments did not

10
Table of Contents
SI FINANCIAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2012 AND 2011 AND DECEMBER 31, 2011
 
 
 
 
 
 

have a material impact on the Company’s consolidated financial statements.

Presentation of Comprehensive Income – In June 2011, the FASB amended its standard related to the presentation of comprehensive income.  Under this amendment, an entity will have the option to present the total of comprehensive income, the components of net income and the components of other comprehensive income in a single continuous statement or in two separate but consecutive statements.  The Company adopted this amendment as of December 31, 2011 with the presentation of separate consolidated statements of comprehensive income.

Testing of Goodwill for Impairment – In September 2011, the FASB amended its standard related to how entities test goodwill for impairment.  Under this amendment, an entity is now permitted to first assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount as a basis for determining whether it is necessary to perform the two-step goodwill impairment test.  If after assessing the totality of events and circumstances, an entity determines it is not more likely than not that the fair value of the reporting unit is less than its carrying amount, then performing the two-step impairment test is unnecessary.  Under this amendment, an entity is no longer permitted to carry forward its detailed calculation of a reporting unit’s fair value from a prior year.  The amendments in this update are effective for annual and interim goodwill impairment tests performed for fiscal years beginning after December 15, 2011.  The Company adopted this amendment as of December 31, 2011 and it did not have a material impact on the Company’s consolidated financial statements.

Disclosures about Offsetting Assets and Liabilities – In December 2011, the FASB amended its standard related to disclosure requirements for offsetting assets and liabilities. Under this amendment, an entity will be required to disclose both gross and net information about both instruments and transactions eligible for offset in the statement of financial position and instruments and transactions subject to an agreement similar to a master netting arrangement. This scope would include derivatives, sale and repurchase agreements and reverse sale and repurchase agreements, and securities borrowing and securities lending arrangements. The amendments in this update are effective for annual reporting periods beginning on or after January 1, 2013, and interim periods within those annual periods. An entity should provide the disclosures required by these amendments retrospectively for all comparative periods presented. The adoption of this amendment is not expected to have a material impact on the Company's consolidated financial statements.

NOTE 2.  EARNINGS PER SHARE

Basic earnings per share is calculated by dividing the net income available to common shareholders by the weighted average number of common shares outstanding during the period.  Unvested restricted shares are considered outstanding in the computation of basic earnings per share since the shares participate in dividends and the rights to the dividends are non-forfeitable.  Diluted earnings per share is computed in a manner similar to basic earnings per share except that the weighted average number of common shares outstanding is increased to include the incremental common shares (as computed using the treasury stock method) that would have been outstanding if all potentially dilutive common stock equivalents were issued during the period.  The Company’s common stock equivalents relate solely to stock options.  Treasury shares and unallocated common shares held by the Bank’s ESOP are not deemed outstanding for earnings per share calculations.
 
Anti-dilutive shares are common stock equivalents with weighted average exercise prices in excess of the weighted average market value for the periods presented, and are not considered in diluted earnings per share calculations. The Company had 343,807 and 416,677 anti-dilutive common shares outstanding for the three months ended March 31, 2012 and 2011, respectively.


11
Table of Contents
SI FINANCIAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2012 AND 2011 AND DECEMBER 31, 2011
 
 
 
 
 
 

The computation of earnings per share is as follows:
 
Three Months Ended
March 31,
 
2012
 
2011
 
(In Thousands, Except Share Amounts)
Net income
$
403

 
$
209

 
 
 
 
Weighted average common shares outstanding:
 

 
 

Basic
9,971,292

 
10,114,324

Effect of dilutive stock options
27,023

 
18,751

Diluted
9,998,315

 
10,133,075

 
 
 
 
Earnings per share:
 

 
 

Basic
$
0.04

 
$
0.02

Diluted
$
0.04

 
$
0.02


NOTE 3.  SECURITIES

Available for sale securities:
The amortized cost, gross unrealized gains and losses and approximate fair values of available for sale securities at March 31, 2012 and December 31, 2011 are as follows:
 
 
March 31, 2012
 
 
Amortized
Cost (1)
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 
Fair
Value
 
 
(In Thousands)
Debt securities:
 
 
 
 
 
 
 
U.S. Government and agency obligations
$
81,230

 
$
802

 
$
(40
)
 
$
81,992

Government-sponsored enterprises
26,335

 
450

 
(5
)
 
26,780

Mortgage-backed securities:(2)
 
 
 

 
 

 
 

Agency - residential
90,009

 
2,871

 
(183
)
 
92,697

Non-agency - residential
7,052

 
46

 
(429
)
 
6,669

Non-agency - HELOC
2,964

 
—

 
(511
)
 
2,453

Corporate debt securities
11,574

 
254

 
(165
)
 
11,663

Collateralized debt obligations
6,206

 
—

 
(2,728
)
 
3,478

Obligations of state and political subdivisions
6,318

 
289

 
—

 
6,607

Tax-exempt securities
70

 
1

 
—

 
71

Foreign government securities
75

 
—

 
—

 
75

Total debt securities
231,833

 
4,713

 
(4,061
)
 
232,485

Equity securities:
 

 
 

 
 

 
 

Equity securities - financial services
33

 
1

 
—

 
34

Total available for sale securities
$
231,866

 
$
4,714

 
$
(4,061
)
 
$
232,519

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(1) Net of OTTI write-downs recognized in earnings.
(2) Agency securities refer to debt obligations issued or guaranteed by government corporations or government-sponsored enterprises (“GSEs”).  Non-agency securities, or private-label securities, are the sole obligation of their issuer and are not guaranteed by one of the GSEs or the U.S. Government.

12
Table of Contents
SI FINANCIAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2012 AND 2011 AND DECEMBER 31, 2011
 
 
 
 
 
 

 
December 31, 2011
 
Amortized
Cost (1)
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 
Fair
Value
 
(In Thousands)
Debt securities:
 
 
 
 
 
 
 
U.S. Government and agency obligations
$
88,917

 
$
770

 
$
(100
)
 
$
89,587

Government-sponsored enterprises
17,204

 
462

 
—

 
17,666

Mortgage-backed securities:(2)


 


 


 
 

Agency - residential
85,552

 
3,070

 
(178
)
 
88,444

Non-agency - residential
7,766

 
21

 
(899
)
 
6,888

Non-agency - HELOC
3,097

 
—

 
(559
)
 
2,538

Corporate debt securities
14,094

 
240

 
(287
)
 
14,047

Collateralized debt obligations
6,275

 
—

 
(3,358
)
 
2,917

Obligations of state and political subdivisions
6,488

 
278

 
—

 
6,766

Tax-exempt securities
70

 
1

 
—

 
71

Foreign government securities
75

 
—

 
—

 
75

Total debt securities
229,538

 
4,842

 
(5,381
)
 
228,999

Equity securities:


 


 


 
 

Equity securities - financial services
228

 
1

 
(24
)
 
205

Equity securities - other
1,609

 
96

 
(95
)
 
1,610

Total equity securities
1,837

 
97

 
(119
)
 
1,815

Total available for sale securities
$
231,375

 
$
4,939

 
$
(5,500
)
 
$
230,814

 
 
(1) Net of OTTI write-downs recognized in earnings.
(2) Agency securities refer to debt obligations issued or guaranteed by government corporations or government-sponsored enterprises (“GSEs”).  Non-agency securities, or private-label securities, are the sole obligation of their issuer and are not guaranteed by one of the GSEs or the U.S. Government.

The amortized cost and fair value of debt securities by contractual maturities at March 31, 2012 are presented below.  Actual maturities of mortgage-backed securities ("MBS") may differ from contractual maturities because the mortgages underlying the securities may be called or repaid without any penalties.  Because mortgage-backed securities are not due at a single maturity date, they are not included in the maturity categories in the following maturity summary.
 
 
Amortized
Cost
 
Fair
Value
 
(In Thousands)
Within 1 year
$
3,824

 
$
3,874

After 1 but within 5 years
35,498

 
36,118

After 5 but within 10 years
12,484

 
12,548

After 10 years
80,002

 
78,126

 
131,808

 
130,666

Mortgage-backed securities
100,025

 
101,819

Total debt securities
$
231,833

 
$
232,485



13
Table of Contents
SI FINANCIAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2012 AND 2011 AND DECEMBER 31, 2011
 
 
 
 
 
 

The following is a summary of realized gains and losses on the sale of securities for the three months ended March 31, 2012 and 2011:
 
Three Months Ended March 31,
 
2012
 
2011
 
(In Thousands)
Gross gains on sales
$
370

 
$
35

Gross losses on sales
(53
)
 
—

Net gain on sale of securities
$
317

 
$
35

 
Proceeds from the sale of available for sale securities were $9.3 million and $1.1 million for the three months ended March 31, 2012 and 2011, respectively.

The following tables present information pertaining to securities with gross unrealized losses at March 31, 2012 and December 31, 2011, aggregated by investment category and length of time the individual securities have been in a continuous unrealized loss position.
 
 
Less Than 12 Months
 
12 Months Or More
 
Total
March 31, 2012:
Fair
Value
 
Unrealized
Losses
 
Fair
Value
 
Unrealized
Losses
 
Fair
Value
 
Unrealized
Losses
 
(In Thousands)
U.S. Government and agency obligations
$
7,807

 
$
33

 
$
3,829

 
$
7

 
$
11,636

 
$
40

Government sponsored enterprises
5,935

 
5

 
—

 
—

 
5,935

 
5

Mortgage-backed securities:
 

 
 

 
 

 
 

 
 

 
 

Agency - residential
18,298

 
146

 
1,005

 
37

 
19,303

 
183

Non-agency - residential
—

 
—

 
5,597

 
429

 
5,597

 
429

Non-agency - HELOC
—

 
—

 
2,453

 
511

 
2,453

 
511

Corporate debt securities
2,783

 
146

 
981

 
19

 
3,764

 
165

Collateralized debt obligations
—

 
—

 
3,478

 
2,728

 
3,478

 
2,728

Total
$
34,823

 
$
330

 
$
17,343

 
$
3,731

 
$
52,166

 
$
4,061


 
Less Than 12 Months
 
12 Months Or More
 
Total
December 31, 2011:
Fair
Value
 
Unrealized
Losses
 
Fair
Value
 
Unrealized
Losses
 
Fair
Value
 
Unrealized
Losses
 
(In Thousands)
U.S. Government and agency obligations
$
32,390

 
$
94

 
$
415

 
$
6

 
$
32,805

 
$
100

Mortgage-backed securities:
 

 
 

 
 

 
 

 
 

 
 

Agency - residential
8,241

 
111

 
1,969

 
67

 
10,210

 
178

Non-agency - residential
—

 
—

 
5,305

 
899

 
5,305

 
899

Non-agency - HELOC
—

 
—

 
2,538

 
559

 
2,538

 
559

Corporate debt securities
3,482

 
234

 
946

 
53

 
4,428

 
287

Collateralized debt obligations
—

 
—

 
2,917

 
3,358

 
2,917

 
3,358

Equity securities - financial services
169

 
24

 
—

 
—

 
169

 
24

Equity services - other
708

 
95

 
—

 
—

 
708

 
95

Total
$
44,990

 
$
558

 
$
14,090

 
$
4,942

 
$
59,080

 
$
5,500



14
Table of Contents
SI FINANCIAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2012 AND 2011 AND DECEMBER 31, 2011
 
 
 
 
 
 

For debt securities with OTTI losses, the Company estimated the portion of loss attributable to credit using a discounted cash flow model in accordance with applicable guidance.  Significant inputs for the non-agency mortgage-backed securities included the estimated cash flows of the underlying collateral based on key assumptions, such as default rate, loss severity and prepayment rate.  Assumptions used can vary widely from loan to loan, and are influenced by such factors as loan interest rate, geographical location of the borrower, borrower characteristics and collateral type.  Significant inputs for the collateralized debt obligations included estimated cash flows and prospective deferrals, defaults and recoveries based on the underlying seniority status and subordination structure of the pooled trust preferred debt tranche at the time of measurement.  Prospective deferral, default and recovery estimates affecting projected cash flows were based on an analysis of the underlying financial condition of the individual issuers, with consideration of the account’s capital adequacy, credit quality, lending concentrations and other factors.  All cash flow estimates were based on the securities’ tranche structure and contractual rate and maturity terms.  The Company utilized the services of an independent third-party valuation firm to obtain information about the structure in order to determine how the underlying collateral cash flows will be distributed to each security issued from the structure.  The present value of the expected cash flows was compared to the Company’s holdings to determine the credit-related impairment loss, if any.

To the extent that continued changes in interest rates, credit movements and other factors that influence fair value of investments occur, the Company may be required to record additional impairment charges for OTTI in future periods.

At March 31, 2012, twenty-eight debt securities with gross unrealized losses had aggregate depreciation of 7.22% of the Company’s amortized cost basis.  The majority of the unrealized losses related to the Company’s collateralized debt obligations and non-agency mortgage-backed securities. The Company recognized net impairment losses on securities of $36,000 for the three months ended March 31, 2012 and did not recognize net impairment losses on securities for the three months ended March 31, 2011.  The following summarizes, by security type, the basis for management’s determination during the preparation of the financial statements of whether the applicable investments within the Company’s securities portfolio were other-than-temporarily impaired at March 31, 2012.

Debt Securities:
U.S. Government and Agency Obligations and Government-Sponsored Enterprises.  The unrealized losses on the Company’s U.S. Government and agency obligations and government-sponsored enterprises related primarily to a widening of the rate spread to comparable treasury securities.  The contractual terms of these investments do not permit the issuer to settle the securities at a price less than the amortized cost basis of the investments.  Because the decline in market value is attributable to changes in interest rates and not credit quality, and because the Company does not intend to sell these securities and it is not more likely than not that the Company will be required to sell the securities before their anticipated recovery, which may be maturity, the Company did not consider these securities to be other-than-temporarily impaired at March 31, 2012.

Mortgage-backed Securities - Agency - Residential. The unrealized losses on the Company’s agency–residential mortgage-backed securities were caused by increases in the rate spread to comparable treasury securities. The Company does not expect these securities to settle at a price less than the amortized cost basis of the investments.  Because the Company does not intend to sell the investments and it is not more likely than not that the Company will be required to sell the investments before the recovery of their amortized cost basis, which may be at maturity, the Company did not consider these investments to be other-than-temporarily impaired at March 31, 2012.
 
Mortgage-backed Securities - Non-agency - Residential.  Despite significant improvement in the market, these securities continue to trade well below historic levels, particularly those backed by jumbo or hybrid loan collateral.  In particular, four non-agency mortgage-backed securities displayed market pricing significantly below

15
Table of Contents
SI FINANCIAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2012 AND 2011 AND DECEMBER 31, 2011
 
 
 
 
 
 

book value or were rated below investment grade at March 31, 2012.  At March 31, 2012, management evaluated credit rating details for the tranche, as well as credit information on subordinate tranches, potential future credit losses and loss analyses.  Additionally, management reviewed reports prepared by an independent third party for certain non-agency mortgage-backed securities. The Company previously recorded OTTI losses on two of the non-agency mortgage-backed securities totaling $1.1 million related to credit.  The Company recorded additional impairment losses totaling $36,000 on these two non-agency mortgage-backed securities as of March 31, 2012.

The following table details the Company's non-agency residential mortgage-backed security holdings that are rated below investment grade as of March 31, 2012:
Security
 
Class (1)
 
Amortized
Cost
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 
Fair
Value
 
Lowest
Credit
Rating (2)
 
Total
Credit-
Related
OTTI (3)
 
Credit
Support
Coverage
Ratios (4)
(Dollars in Thousands)
MBS 1
 
SSNR, AS
 
$
2,117

 
$
—

 
$
(390
)
 
$
1,727

 
CCC
 
$
110

 
0.78
MBS 2
 
SSUP, AS
 
—

 
18

 
—

 
18

 
D
 
1,071

 
0.00
MBS 3
 
PT, AS
 
278

 
—

 
—

 
278

 
CCC
 
—

 
2.41
MBS 4
 
CSTR
 
3,632

 
—

 
(39
)
 
3,593

 
BB-
 
—

 
12.00
 
 
 
 
$
6,027

 
$
18

 
$
(429
)
 
$
5,616

 
 
 
$
1,181

 
 
 
 
(1) Class definitions:  PT – Pass Through, AS – Accelerated, SSNR – Super Senior, SSUP – Senior Support and CSTR – Collateral Strip Interest.
(2) The Company utilized credit ratings provided by Moody’s, S&P and Fitch in its evaluation of issuers.
(3) The OTTI amounts provided in the table represent cumulative credit loss amounts through March 31, 2012.
(4) The credit support coverage ratio, which is the ratio that determines the multiple of credit support, is based on assumptions for the performance of loans within the delinquency pipeline.  The assumptions used are:  current collateral support/((60 day delinquencies x .60) + (90 day delinquencies x .70) + (foreclosures x 1.00) + (other real estate x 1.00)) x .40 for loss severity.

Mortgage-backed Securities - Non-agency - HELOC.  The unrealized loss on the Company’s non-agency - HELOC mortgage-backed security is related to one security whose market has been illiquid.  This security is collateralized by home equity lines of credit secured by first and second liens and insured by Financial Security Assurance.  At March 31, 2012, management evaluated credit rating details, collateral support and loss analyses.  All of the unrealized losses on this security relate to factors other than credit.  Because the Company does not intend to sell this security and it is not more likely than not that the Company will be required to sell this security before the recovery of its amortized cost basis, which may be at maturity, the Company did not record an impairment loss at March 31, 2012.

Corporate Debt Securities. Substantially all of the corporate debt securities are rated investment-grade, including those in an unrealized loss position. Various factors were considered in assessing whether the Company expects to recover the amortized cost of corporate debt securities including, but not limited to, the strength of issuer credit ratings, the financial condition of guarantors and the length of time and the extent to which a security's fair value has been less than its amortized cost. Of the $165,000 in gross unrealized losses related to corporate debt securities, only $19,000 related to securities that have been in an unrealized loss position for 12 months or more. Based on management's assessment, the Company expects to recover the entire amortized cost basis of all corporate debt securities that were in an unrealized loss position as of March 31, 2012.

Collateralized Debt Obligations.  The unrealized losses on the Company’s collateralized debt obligations related to investments in pooled trust preferred securities (“PTPS”).  The PTPS market has stabilized at depressed market values as a result of market saturation. Transactions for PTPS have been limited and have occurred primarily as a result of distressed or forced liquidation sales.  The securities were widely held by hedge funds and European

16
Table of Contents
SI FINANCIAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2012 AND 2011 AND DECEMBER 31, 2011
 
 
 
 
 
 

banks and used to offset interest rate exposure tied to LIBOR.  As the positions have unwound, an excess supply of these securities have saturated the market.

Management evaluated current credit ratings, credit support and stress testing for future defaults related to the Company’s PTPS.  Management also reviewed analytics provided by the trustee and independent OTTI reviews and associated cash flow analyses performed by an independent third party.  The unrealized losses on the Company’s PTPS investments were caused by a lack of liquidity, credit downgrades and decreasing credit support.  The increased number of bank and insurance company failures has decreased the level of credit support for these investments.  A number of lower tranche income issues have foregone payments or have received payment in kind through increased principal allocations.  However, the number of deferring securities has been decreasing and a number of reinstatements have occurred recently.  Based on the existing credit profile of the remainder of the Company's PTPS investments, management does not believe that these investments will suffer from any further credit-related losses. Because the Company does not intend to sell the investments and it is not more likely than not that the Company will be required to sell the investments before recovery of their amortized cost basis, which may be at maturity, the Company did not record additional impairment losses at March 31, 2012.  

The following table details the Company's collateralized debt obligations that are rated below investment grade as of March 31, 2012:
Security
 
Class
 
Amortized
Cost
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 
Fair
Value
 
Lowest
Credit
Rating (1)
 
Total
Credit-
Related
OTTI (2)
 
% of Current
Performing
Collateral
Coverage
(Dollars in Thousands)
CDO 1
 
B1
 
$
1,000

 
$
—

 
$
(772
)
 
$
228

 
CCC-
 
$
—

 
103.3
CDO 2
 
B3
 
1,000

 
—

 
(762
)
 
238

 
CCC-
 
—

 
103.3
CDO 3
 
A2
 
2,578

 
—

 
(765
)
 
1,813

 
CCC-
 
62

 
114.7
CDO 4
 
A1
 
1,628

 
—

 
(429
)
 
1,199

 
CCC
 
—

 
149.1
 
 
 
 
$
6,206

 
$
—

 
$
(2,728
)
 
$
3,478

 
 
 
$
62

 
 
 
 
(1) The Company utilized credit ratings provided by Moody’s, S&P and Fitch in its evaluation of issuers.
(2) The OTTI amounts provided in the table represent cumulative credit loss amounts through March 31, 2012.

The following table presents a roll-forward of the balance of credit losses on the Company’s debt securities for which a portion of OTTI was recognized in other comprehensive income for the three months ended March 31, 2012 and 2011.
 
 
Three Months Ended March 31,
 
2012
 
2011
 
(In Thousands)
Balance at beginning of period
$
1,207

 
$
1,093

Additional credit losses for which OTTI losses were previously recognized
36

 
—

Balance at end of period
$
1,243

 
$
1,093

 

17
Table of Contents
SI FINANCIAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2012 AND 2011 AND DECEMBER 31, 2011
 
 
 
 
 
 

NOTE 4.  LOANS RECEIVABLE AND ALLOWANCE FOR LOAN LOSSES

The composition of the Company’s loan portfolio at March 31, 2012 and December 31, 2011 is as follows:
 
 
March 31, 2012
 
December 31,
2011
 
(In Thousands)
Real estate loans:
 
 
 
Residential - 1 to 4 family
$
246,964

 
$
247,426

Multi-family and commercial
172,518

 
158,384

Construction
15,069

 
12,290

Total real estate loans
434,551

 
418,100

 
 
 
 
Commercial business loans:
 

 
 

SBA and USDA guaranteed
124,054

 
127,359

Other
41,672

 
40,442

Total commercial business loans
165,726

 
167,801

 
 
 
 
Consumer loans:
 

 
 

Home equity
27,809

 
27,425

Indirect automobile
5,335

 
5,733

Other
2,458

 
2,824

Total consumer loans
35,602

 
35,982

 
 
 
 
Total loans
635,879

 
621,883

 
 
 
 
Deferred loan origination costs, net of fees
1,697

 
1,713

Allowance for loan losses
(5,378
)
 
(4,970
)
Loans receivable, net
$
632,198

 
$
618,626

 
Allowance for Loan Losses
The following table summarizes the changes in the allowance for loan losses by portfolio segment for the three months ended March 31, 2012 and 2011:

March 31, 2012
Residential -
1 to 4 Family
 
Multi-family
and Commercial
 
Construction
 
Commercial
Business
 
Consumer
 
Total
 
(In Thousands)
Balance at beginning of period
$
759

 
$
2,337

 
$
280

 
$
1,148

 
$
446

 
$
4,970

Provision for loan losses
37

 
340

 
88

 
(22
)
 
41

 
484

Loans charged-off
(63
)
 
—

 
—

 
—

 
(19
)
 
(82
)
Recoveries of loans previously charged-off
2

 
1

 
—

 
1

 
2

 
6

Balance at end of period
$
735

 
$
2,678

 
$
368

 
$
1,127

 
$
470

 
$
5,378



18
Table of Contents
SI FINANCIAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2012 AND 2011 AND DECEMBER 31, 2011
 
 
 
 
 
 

March 31, 2011
Residential -
1 to 4 Family
 
Multi-family
and Commercial
 
Construction
 
Commercial
Business
 
Consumer
 
Total
 
(In Thousands)
Balance at beginning of period
$
915

 
$
2,700

 
$
64

 
$
790

 
$
330

 
$
4,799

Provision for loan losses
81

 
(70
)
 
109

 
(15
)
 
105

 
210

Loans charged-off
(289
)
 
(32
)
 
(83
)
 
(31
)
 
(14
)
 
(449
)
Recoveries of loans previously charged-off
—

 
—

 
—

 
3

 
—

 
3

Balance at end of period
$
707

 
$
2,598

 
$
90

 
$
747

 
$
421

 
$
4,563


Further information pertaining to the allowance for loan losses at March 31, 2012 and December 31, 2011 is as follows:
March 31, 2012
Residential -
1 to 4 Family
 
Multi-family
and Commercial
 
Construction
 
Commercial
Business
 
Consumer
 
Total
 
(In Thousands)
Allowance for loans deemed to be impaired and individually evaluated
$
11

 
$
237

 
$
—

 
$
75

 
$
27

 
$
350

Allowance for loans not deemed to be impaired and collectively evaluated
724

 
2,441

 
368

 
1,052

 
443

 
5,028

Total loan loss allowance
$
735

 
$
2,678

 
$
368

 
$
1,127

 
$
470

 
$
5,378

 
 
 
 
 
 
 
 
 
 
 
 
Loans deemed to be impaired and individually evaluated
$
5,365

 
$
9,679

 
$
—

 
$
625

 
$
316

 
$
15,985

Loans not deemed to be impaired and collectively evaluated
241,599

 
162,839

 
15,069

 
165,101

 
35,286

 
619,894

Total loans
$
246,964

 
$
172,518

 
$
15,069

 
$
165,726

 
$
35,602

 
$
635,879

 
December 31, 2011
Residential -
1 to 4 Family
 
Multi-family
and Commercial
 
Construction
 
Commercial
Business
 
Consumer
 
Total
 
(In Thousands)
Allowance for loans deemed to be impaired and individually evaluated
$
33

 
$
107

 
$
—

 
$
105

 
$
—

 
$
245

Allowance for loans not deemed to be impaired and collectively evaluated
726

 
2,230

 
280

 
1,043

 
446

 
4,725

Total loan loss allowance
$
759

 
$
2,337

 
$
280

 
$
1,148

 
$
446

 
$
4,970

 
 
 
 
 
 
 
 
 
 
 
 
Loans deemed to be impaired and individually evaluated
$
5,590

 
$
8,650

 
$
—

 
$
654

 
$
316

 
$
15,210

Loans not deemed to be impaired and collectively evaluated
241,836

 
149,734

 
12,290

 
167,147

 
35,666

 
606,673

Total loans
$
247,426

 
$
158,384

 
$
12,290

 
$
167,801

 
$
35,982

 
$
621,883


19
Table of Contents
SI FINANCIAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2012 AND 2011 AND DECEMBER 31, 2011
 
 
 
 
 
 

Past Due Loans
The following represents an aging of loans at March 31, 2012 and December 31, 2011:
 
March 31, 2012
30-59
Days
Past Due
 
60-89
Days
Past Due
 
90 Days or More
Past Due
 
Total 30
Days or More
Past Due
 
Current
 
Total
Loans
 
(In Thousands)
Real Estate:
 

 
 

 
 
 
 
 
 
 
 
Residential - 1 to 4 family
$
3,584

 
$
20

 
$
3,641

 
$
7,245

 
$
239,719

 
$
246,964

Multi-family and commercial
242

 
1,412

 
2,479

 
4,133

 
168,385

 
172,518

Construction
—

 
—

 
—

 
—

 
15,069

 
15,069

Commercial Business:
 

 
 

 
 

 
 

 
 

 
 

SBA and USDA guaranteed
2,542

 
933

 
—

 
3,475

 
120,579

 
124,054

Other
—

 
—

 
595

 
595

 
41,077

 
41,672

Consumer:
 

 
 

 
 

 
 

 
 

 
 

Home equity
163

 
281

 
269

 
713

 
27,096

 
27,809

Indirect automobile
11