SIFI 09.30.2014 10-Q3

 
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
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 o
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 November 3, 2014, there were 12,783,122 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):
 
 
 
 
 
 
 
Consolidated Balance Sheets at September 30, 2014 and December 31, 2013
 
 
 
 
 
 
Consolidated Statements of Operations for the three and nine months ended September 30, 2014 and 2013
 
 
 
 
 
 
Consolidated Statements of Comprehensive Income (Loss) for the three and nine months ended September 30, 2014 and 2013
 
 
 
 
 
 
Consolidated Statement of Changes in Shareholders’ Equity for the nine months ended September 30, 2014
 
 
 
 
 
 
Consolidated Statements of Cash Flows for the nine months ended September 30, 2014 and 2013
 
 
 
 
 
 
 
 
 
 
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)
 
September 30,
2014
 
December 31,
2013
ASSETS:
 
 
 
Cash and due from banks:
 
 
 
Noninterest-bearing
$
16,942

 
$
20,554

Interest-bearing
16,676

 
6,767

Total cash and cash equivalents
33,618

 
27,321

 
 
 
 
Available for sale securities, at fair value
170,777

 
170,220

Loans held for sale
1,123

 
1,764

Loans receivable (net of allowance for loan losses of $7,619 at September 30, 2014 and $6,916 at December 31, 2013)
1,041,071

 
1,047,410

Federal Home Loan Bank stock, at cost
10,333

 
13,109

Bank-owned life insurance
21,159

 
20,726

Premises and equipment, net
21,303

 
21,090

Goodwill and other intangibles
18,847

 
19,566

Accrued interest receivable
3,898

 
4,021

Deferred tax asset, net
9,633

 
9,705

Other real estate owned, net
1,361

 
2,429

Other assets
7,019

 
9,018

Total assets
$
1,340,142

 
$
1,346,379

 
 
 
 
LIABILITIES AND SHAREHOLDERS' EQUITY:
 

 
 

Liabilities:
 

 
 

Deposits:
 

 
 

Noninterest-bearing
$
140,992

 
$
139,428

Interest-bearing
856,847

 
845,321

Total deposits
997,839

 
984,749

 
 
 
 
Mortgagors' and investors' escrow accounts
1,794

 
3,214

Federal Home Loan Bank advances
154,148

 
176,272

Junior subordinated debt owed to unconsolidated trust
8,248

 
8,248

Accrued expenses and other liabilities
22,007

 
21,054

Total liabilities
1,184,036

 
1,193,537

 
 
 
 
Shareholders' Equity:
 

 
 

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

 
—

Common stock ($.01 par value; 35,000,000 shares authorized; 12,783,122 and 12,798,461 shares issued and outstanding at September 30, 2014 and December 31, 2013, respectively)
128

 
128

Additional paid-in-capital
125,369

 
125,277

Unallocated common shares held by ESOP
(4,248
)
 
(4,608
)
Unearned restricted shares
(1,422
)
 
(1,751
)
Retained earnings
36,546

 
34,644

Accumulated other comprehensive loss
(267
)
 
(848
)
Total shareholders' equity
156,106

 
152,842

Total liabilities and shareholders' equity
$
1,340,142

 
$
1,346,379

 

See accompanying notes to unaudited interim consolidated financial statements.

1


SI FINANCIAL GROUP, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In Thousands, Except Per Share Amounts / Unaudited)
 
Three Months Ended
September 30,
 
Nine Months Ended
September 30,
 
2014
 
2013
 
2014
 
2013
Interest and dividend income:
 
 
 
 
 
 
 
Loans, including fees
$
10,735

 
$
8,105

 
$
32,489

 
$
22,822

Securities:
 

 
 

 
 
 
 
Taxable interest
877

 
986

 
2,651

 
3,078

Tax-exempt interest
59

 
42

 
160

 
62

Dividends
46

 
8

 
143

 
15

Other
11

 
10

 
39

 
31

Total interest and dividend income
11,728

 
9,151

 
35,482

 
26,008

 
 
 
 
 
 
 
 
Interest expense:
 

 
 

 
 
 
 
Deposits
1,355

 
1,241

 
4,033

 
3,877

Federal Home Loan Bank advances
602

 
736

 
1,921

 
2,227

Subordinated debt and other borrowings
84

 
87

 
251

 
253

Total interest expense
2,041

 
2,064

 
6,205

 
6,357

 
 
 
 
 
 
 
 
Net interest income
9,687

 
7,087

 
29,277

 
19,651

 
 
 
 
 
 
 
 
Provision for loan losses
350

 
443

 
1,195

 
633

 
 
 
 
 
 
 
 
Net interest income after provision for loan losses
9,337

 
6,644

 
28,082

 
19,018

 
 
 
 
 
 
 
 
Noninterest income:
 

 
 

 
 
 
 
Total other-than-temporary impairment losses
—

 
—

 
—

 
(8
)
Portion of losses recognized in other comprehensive income/loss
—

 
—

 
—

 
—

Net impairment losses
—

 
—

 
—

 
(8
)
Service fees
1,762

 
1,515

 
5,265

 
3,964

Wealth management fees
293

 
302

 
926

 
846

Increase in cash surrender value of bank-owned life insurance
147

 
90

 
433

 
226

Net gain (loss) on sales of securities
—

 
(922
)
 
64

 
(919
)
Mortgage banking
81

 
69

 
396

 
919

Net gain on fair value of derivatives
78

 
18

 
69

 
191

Other
85

 
161

 
527

 
526

Total noninterest income
2,446

 
1,233

 
7,680

 
5,745

 
 
 
 
 
 
 
 
Noninterest expenses:
 

 
 

 
 
 
 
Salaries and employee benefits
4,897

 
4,394

 
15,128

 
12,923

Occupancy and equipment
1,883

 
1,417

 
5,852

 
4,104

Computer and electronic banking services
1,417

 
1,057

 
4,082

 
2,896

Outside professional services
420

 
298

 
1,422

 
948

Marketing and advertising
216

 
170

 
754

 
471

Supplies
146

 
110

 
465

 
316

FDIC deposit insurance and regulatory assessments
303

 
251

 
953

 
714

Merger expenses
—

 
1,305

 
—

 
2,198

Core deposit intangible amortization
150

 
55

 
463

 
55

Other real estate operations
72

 
83

 
303

 
402

Other
500

 
1,234

 
1,873

 
2,137

Total noninterest expenses
10,004

 
10,374

 
31,295

 
27,164

 
 
 
 
 
 
 
 
Income (loss) before income tax provision (benefit)
1,779

 
(2,497
)
 
4,467

 
(2,401
)
Income tax provision (benefit)
579

 
(755
)
 
1,447

 
(522
)
Net income (loss)
$
1,200

 
$
(1,742
)
 
$
3,020

 
$
(1,879
)
 
 
 
 
 
 
 
 
Earnings (loss) per share:
 

 
 

 
 
 
 
Basic
$
0.10

 
$
(0.17
)
 
$
0.25

 
$
(0.19
)
Diluted
$
0.10

 
$
(0.17
)
 
$
0.24

 
$
(0.19
)
 

See accompanying notes to unaudited interim consolidated financial statements.

2


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

 
 
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
 
 
2014
 
2013
 
2014
 
2013
Net income (loss)
 
$
1,200

 
$
(1,742
)
 
$
3,020

 
$
(1,879
)
Other comprehensive income (loss), net of tax:
 
 
 
 
 
 
 
 
Available for sale securities:
 
 
 
 
 
 
 
 
Net unrealized holding gains (losses)
 
(382
)
 
(631
)
 
546

 
(2,211
)
Reclassification adjustment for losses (gains) recognized in net income (loss) (1)
 
—

 
609

 
(42
)
 
607

Plus: credit portion of OTTI losses recognized in net loss (2)
 
—

 
—

 
—

 
5

Plus: noncredit portion of OTTI loss
 
—

 
163

 
—

 
124

Net unrealized gains (losses) on available for sale securities
 
(382
)
 
141

 
504

 
(1,475
)
 Net unrealized gain on interest-rate swap derivative
 
31

 
10

 
77

 
82

Other comprehensive income (loss)
 
(351
)
 
151

 
581

 
(1,393
)
Comprehensive income (loss)
 
$
849

 
$
(1,591
)
 
$
3,601

 
$
(3,272
)
 
 
 
 
 
 
 
 
 
 
(1) Amounts are included in net gain (loss) on the sales of securities in noninterest income on the consolidated statements of operations. Income tax expense (benefit) associated with the reclassification adjustment for the three and nine months ended September 30, 2014 was $0 and $22,000, respectively, and $(313,000) and $(312,000) for the three and nine months ended September 30, 2013, respectively.
(2) Amounts are included in net impairment losses recognized in noninterest income on the consolidated statements of operations. Income tax expense associated with the reclassification adjustment for both the three and nine months ended September 30, 2014 totaled $0, respectively, and amounted to $0 and $3,000, for the three and nine months ended September 30, 2013, respectively.


See accompanying notes to unaudited interim consolidated financial statements.

    
 



3


SI FINANCIAL GROUP, INC.
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2014
(In Thousands, Except Share Data / Unaudited)

 
Common Stock
 
Additional
Paid-in
Capital
 
Unallocated
Common
Shares Held
by ESOP
 
Unearned
Restricted
Shares
 
Retained
Earnings
 
Accumulated
Other
Comprehensive
Loss
 
Total
Shareholders'
Equity
 
Shares
 
Dollars
 
 
 
 
 
 
Balance at December 31, 2013
12,798,461

 
$
128

 
$
125,277

 
$
(4,608
)
 
$
(1,751
)
 
$
34,644

 
$
(848
)
 
$
152,842

Comprehensive income
—

 
—

 
—

 
—

 
—

 
3,020

 
581

 
3,601

Cash dividends declared ($0.09 per share)
—

 
—

 
—

 
—

 
—

 
(1,107
)
 
—

 
(1,107
)
Equity incentive plan compensation
—

 
—

 
230

 
—

 
329

 
—

 
—

 
559

Allocation of 36,477 ESOP shares
—

 
—

 
56

 
360

 
—

 
—

 
—

 
416

Tax benefit from share-based compensation
—

 
—

 
4

 
—

 
—

 
—

 
—

 
4

Stock options exercised
51,806

 
—

 
552

 
—

 
—

 
—

 
—

 
552

Common shares repurchased
(67,145
)
 
—

 
(750
)
 
—

 
—

 
(11
)
 
—

 
(761
)
Balance at September 30, 2014
12,783,122

 
$
128

 
$
125,369

 
$
(4,248
)
 
$
(1,422
)
 
$
36,546

 
$
(267
)
 
$
156,106

 
See accompanying notes to unaudited interim consolidated financial statements.


4


SI FINANCIAL GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands / Unaudited)
 
Nine Months Ended
September 30,
 
2014
 
2013
Cash flows from operating activities:
 
 
 
Net income (loss)
$
3,020

 
$
(1,879
)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
 
 
 

Provision for loan losses
1,195

 
633

Employee stock ownership plan expense
416

 
417

Equity incentive plan expense
559

 
576

Excess tax benefit from share-based compensation
(4
)
 
(4
)
Amortization of investment premiums and discounts, net
724

 
921

Amortization of loan premiums and discounts, net
1,051

 
1,071

Depreciation and amortization of premises and equipment
1,921

 
1,355

Amortization of core deposit intangible
463

 
55

Amortization of deferred debt issue costs
79

 
227

Net loss (gain) on sales of securities
(64
)
 
919

Net gain on fair value of derivatives
(69
)
 
(191
)
Deferred income tax benefit
28

 
67

Loans originated for sale
(12,633
)
 
(36,927
)
Proceeds from sale of loans held for sale
13,353

 
40,464

Net gain on sales of loans held for sale
(201
)
 
(735
)
Net gain on sales of loans held for investment
—

 
(201
)
Net loss on sales or write-downs of other real estate owned
67

 
25

Increase in cash surrender value of bank-owned life insurance
(433
)
 
(226
)
Impairment charge on long-lived assets
175

 
—

Other-than-temporary impairment losses on securities
—

 
8

Change in operating assets and liabilities:
 

 
 

Accrued interest receivable
123

 
42

Other assets
1,947

 
(2,008
)
Accrued expenses and other liabilities
1,143

 
1,974

Net cash provided by operating activities
12,860

 
6,583

 
 
 
 
Cash flows from investing activities:
 

 
 

Purchases of available for sale securities
(24,626
)
 
(40,863
)
Proceeds from sales of available for sale securities
1,109

 
13,108

Proceeds from maturities of and principal repayments on available for sale securities
23,063

 
31,786

Redemption of Federal Home Loan Bank stock
2,776

 
325

Loan principal collections, net of originations
42,628

 
28,811

Purchases of loans
(38,643
)
 
(20,115
)
Net cash paid from acquisition of Newport Bancorp, Inc.
—

 
(8,935
)
Proceeds from sales of loans held for investment
—

 
3,189

Proceeds from sales of other real estate owned
1,109

 
1,255

Purchases of premises and equipment
(2,134
)
 
(1,868
)
Net cash provided by investing activities
5,282

 
6,693

 
 
 
 

5


SI FINANCIAL GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (Concluded)
(In Thousands / Unaudited)
 
Nine Months Ended
September 30,
 
2014
 
2013
Cash flows from financing activities:
 

 
 

Net increase in deposits
13,090

 
7,971

Net decrease in mortgagors' and investors' escrow accounts
(1,420
)
 
(1,738
)
Proceeds from Federal Home Loan Bank advances
10,000

 
40,000

Repayments of Federal Home Loan Bank advances
(32,203
)
 
(44,000
)
Excess tax benefit from share-based compensation
4

 
4

Cash dividends on common stock
(1,107
)
 
(860
)
Stock options exercised
552

 
15

Common shares repurchased
(761
)
 
(9
)
Net cash provided by (used in) financing activities
(11,845
)
 
1,383

 
 
 
 
 
 
 
 
Net change in cash and cash equivalents
6,297

 
14,659

Cash and cash equivalents at beginning of period
27,321

 
37,689

Cash and cash equivalents at end of period
$
33,618

 
$
52,348

 
 
 
 
Supplemental cash flow information:
 

 
 

Interest paid
$
6,234

 
$
6,146

Income taxes paid, net
(555
)
 
1,312

Transfer of loans to other real estate owned
108

 
1,407


 See accompanying notes to unaudited interim consolidated financial statements.

6
Table of Contents
SI FINANCIAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2014 AND 2013 AND DECEMBER 31, 2013
 
 
 
 
 
 


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-six offices in eastern Connecticut and Rhode Island. 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 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.

On September 6, 2013, the Company acquired Newport Bancorp, Inc. ("Newport"), and its wholly-owned subsidiary, Newport Federal Savings Bank. The acquisition added six full-service banking offices in eastern Connecticut and Rhode Island.

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, 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 10.01 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 September 30, 2014 and for the three and nine months ended September 30, 2014 and 2013 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, 2013 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 periods covered herein. The results of operations for the three and nine months ended September 30, 2014 are not necessarily indicative of the operating results for the year ending December 31, 2014 or for any other period.

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 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 impairment of long-lived assets.
     

7
Table of Contents
SI FINANCIAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2014 AND 2013 AND DECEMBER 31, 2013
 
 
 
 
 
 

Reclassifications
Amounts in the Company’s prior year consolidated financial statements are reclassified to conform to the current year presentation.  Such reclassifications have 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 ("TDR") 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 TDR.

Management considers all nonaccrual loans, with the exception of certain consumer loans, to be impaired. Also, all TDRs are initially classified as 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 and trends of nonperforming loans, delinquencies, classified assets and loan charge-offs and evaluations of loans and other relevant factors.

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

8
Table of Contents
SI FINANCIAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2014 AND 2013 AND DECEMBER 31, 2013
 
 
 
 
 
 

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, classified loans, nonaccrual loans, troubled debt restructurings and other loan modifications; trends in nature, volume and terms of loans; existence and effect of/or changes in the level of credit concentrations; effects of changes in lending policies, procedures and practices, including underwriting standards and collection, charge-off and recovery practices; changes in the quality of loan review and degree of oversight; experience, ability and depth of lending management and staff; national, regional and local economic trends and conditions and impact on the value of underlying collateral for collateral dependent loans; effect of external factors, including legal and regulatory requirements.

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, correct estimates of the sale price of the property, 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. The Bank also provides loans to investors in the time share industry, which are secured by consumer receivables, and provides loans for capital improvements to condominium associations, which are secured by the assigned rights to levy special assessments to condominium owners.

9
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SI FINANCIAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2014 AND 2013 AND DECEMBER 31, 2013
 
 
 
 
 
 


Consumer – Loans in this segment primarily include home equity lines of credit (representing both first and second liens), 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. See Note 4 for details.
 
The majority of the Company's loans are collateralized by real estate located in eastern Connecticut and Rhode Island. 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 local 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, direct loan origination costs and loan purchase premiums 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. In addition, discounts related to fair value adjustments for loans receivable acquired in a business combination or asset purchase are accreted into earnings over the contractual term as an adjustment of the loan's yield. The Company periodically evaluates the cash flows expected to be collected for loans acquired with deteriorated credit quality. Changes in the expected cash flows compared to the expected cash flows as of the date of acquisition may impact the accretable yield or result in a charge to the provision for loan losses to the extent of a shortfall.


10
Table of Contents
SI FINANCIAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2014 AND 2013 AND DECEMBER 31, 2013
 
 
 
 
 
 

Common Share Repurchases
The Company is chartered in the state of Maryland. Maryland law does not provide for treasury shares, rather shares repurchased by the Company constitute authorized but unissued shares. GAAP states that accounting for treasury stock shall conform to state law. Therefore, the cost of shares repurchased by the Company has been allocated to common stock, additional paid-in capital and retained earnings balances.

Recent Accounting Pronouncements
Receivables - Troubled Debt Restructurings by Creditors (Subtopic 310-40): Reclassification of Residential Real Estate Collateralized Consumer Mortgage Loans upon Foreclosure. In January 2014, the Financial Accounting Standards Board ("FASB") issued amended guidance that clarifies when a creditor should be considered to have received physical possession of residential real estate property collateralizing a consumer mortgage loan such that the loan receivable should be derecognized and the real estate property recognized. The amended guidance clarifies that an in substance repossession or foreclosure occurs, and a creditor is considered to have received physical possession of residential real estate property collateralizing a consumer mortgage loan, upon either (1) the creditor obtaining legal title to the residential real estate property upon completion of a foreclosure or (2) the borrower conveying all interest in the residential real estate property to the creditor to satisfy that loan through completion of a deed in lieu of foreclosure or through a similar legal agreement. In addition, the amended guidance requires interim and annual disclosures of both (1) the amount of foreclosed residential real estate property held by the creditor and (2) the recorded investment in consumer mortgage loans collateralized by residential real estate property that are in the process of foreclosure according to local requirements of the applicable jurisdiction. The amended guidance may be applied prospectively or through a modified retrospective approach and is effective for fiscal years, and interim periods within those years, beginning after December 15, 2014, with early adoption permitted. The adoption of the amended guidance is not expected to have a material impact on the Company’s consolidated financial statements.

Receivables - Troubled Debt Restructurings by Creditors (Subtopic 310-40): Classification of Certain Government-Guaranteed Mortgage Loans upon Foreclosure - In August 2014, the FASB issued amended guidance that addresses the diversity in practice regarding the classification and measurement of foreclosed loans which were part of a government-sponsored loan guarantee program (e.g. HUD, FHA, VA). The amended guidance outlines certain criteria that, if met, the loan (residential or commercial) should be derecognized and a separate other receivable should be recorded upon foreclosure at the amount of the loan balance (principal and interest) expected to be recovered from the guarantor. This amended guidance will be effective for annual reporting periods beginning after December 15, 2014, including interim periods within that reporting period. Early adoption is permitted, provided the entity has adopted Receivables - Troubled Debt Restructurings by Creditors (Subtopic 310-40):  Reclassification of Residential Real Estate Collateralized Consumer Mortgage Loans upon Foreclosure. The amended guidance should be adopted either prospectively or on a modified retrospective basis. The Company is assessing the impact that these amendments will have on its consolidated financial statements, but does not currently anticipate that it will have a material impact.

NOTE 2.  EARNINGS (LOSS) PER SHARE

Basic earnings (loss) per share is calculated by dividing the net income (loss) 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 (loss) per share since the shares participate in dividends and the rights to the dividends are non-forfeitable. Diluted earnings (loss) per share is computed in a manner similar to basic earnings (loss) 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. Repurchased common shares

11
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SI FINANCIAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2014 AND 2013 AND DECEMBER 31, 2013
 
 
 
 
 
 

and unallocated common shares held by the Bank’s ESOP are not deemed outstanding for earnings (loss) 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 (loss) per share calculations. The Company had anti-dilutive common shares outstanding of 677,590 and 485,459 for the three and nine months ended September 30, 2014, respectively, and 534,492 and 595,761 for the three and nine months ended September 30, 2013, respectively.

The computation of earnings (loss) per share is as follows:
 
Three Months Ended
September 30,
 
Nine Months Ended
September 30,
 
2014
 
2013
 
2014
 
2013
 
(Dollars in Thousands, Except Per Share Data)
Net income (loss)
$
1,200

 
$
(1,742
)
 
$
3,020

 
$
(1,879
)
 
 
 
 
 
 
 
 
Weighted average common shares outstanding:
 

 
 

 
 
 
 
Basic
12,310,368

 
10,310,210

 
12,315,829

 
9,814,017

Effect of dilutive stock options
23,065

 
—

 
38,382

 
—

Diluted
12,333,433

 
10,310,210

 
12,354,211

 
9,814,017

 
 
 
 
 
 
 
 
Earnings (loss) per share:
 

 
 

 
 
 
 
Basic
$
0.10

 
$
(0.17
)
 
$
0.25

 
$
(0.19
)
Diluted
$
0.10

 
$
(0.17
)
 
$
0.24

 
$
(0.19
)

NOTE 3.  SECURITIES

Available for sale securities:
The amortized cost, gross unrealized gains and losses and fair values of available for sale securities at September 30, 2014 and December 31, 2013 are as follows:
 
 
September 30, 2014
 
 
Amortized
Cost
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 
Fair
Value
 
 
(In Thousands)
Debt securities:
 
 
 
 
 
 
 
U.S. Government and agency obligations
$
63,021

 
$
338

 
$
(236
)
 
$
63,123

Government-sponsored enterprises
24,492

 
78

 
(136
)
 
24,434

Mortgage-backed securities:(1)
 
 
 

 
 

 
 

Agency - residential
70,260

 
887

 
(1,383
)
 
69,764

Non-agency - residential
375

 
15

 
(3
)
 
387

Corporate debt securities
1,000

 
8

 
—

 
1,008

Collateralized debt obligation
1,187

 
1

 
—

 
1,188

Obligations of state and political subdivisions
4,041

 
172

 
(27
)
 
4,186

Tax-exempt securities
6,610

 
82

 
(5
)
 
6,687

Total available for sale securities
$
170,986

 
$
1,581

 
$
(1,790
)
 
$
170,777

 
 
 
 
 
 
 
 
 
(1) 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 any of the GSEs or the U.S. Government.

12
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SI FINANCIAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2014 AND 2013 AND DECEMBER 31, 2013
 
 
 
 
 
 

 
 
December 31, 2013
 
 
Amortized
Cost
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 
Fair
Value
 
 
(In Thousands)
Debt securities:
 
 
 
 
 
 
 
U.S. Government and agency obligations
$
54,228

 
$
485

 
$
(168
)
 
$
54,545

Government-sponsored enterprises
26,551

 
134

 
(393
)
 
26,292

Mortgage-backed securities:(1)
 
 
 
 
 
 
 

Agency - residential
77,037

 
889

 
(1,809
)
 
76,117

Non-agency - residential
530

 
26

 
(2
)
 
554

Corporate debt securities
3,708

 
90

 
—

 
3,798

Collateralized debt obligation
1,210

 
—

 
(19
)
 
1,191

Obligations of state and political subdivisions
4,063

 
141

 
(81
)
 
4,123

Tax-exempt securities
3,841

 
—

 
(266
)
 
3,575

Foreign government securities
25

 
—

 
—

 
25

Total available for sale securities
$
171,193

 
$
1,765

 
$
(2,738
)
 
$
170,220

 
 
 
 
 
 
 
 
 
(1) Agency securities refer to debt obligations issued or guaranteed by government corporations or GSEs.  Non-agency securities, or private-label securities, are the sole obligation of their issuer and are not guaranteed by any of the GSEs or the U.S. Government.

The amortized cost and fair value of debt securities by contractual maturities at September 30, 2014 are presented below. Maturities are based on the final contractual payment dates, and do not reflect the impact of potential prepayments or early redemptions. Because mortgage-backed securities ("MBS") 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
$
6,268

 
$
6,292

After 1 but within 5 years
39,057

 
39,040

After 5 but within 10 years
17,169

 
17,222

After 10 years
37,857

 
38,072

 
100,351

 
100,626

Mortgage-backed securities
70,635

 
70,151

Total debt securities
$
170,986

 
$
170,777


The following is a summary of realized gains and losses on the sales of securities for the three and nine months ended September 30, 2014 and 2013:
 
Three Months Ended
September 30,
 
Nine Months Ended
September 30,
 
2014
 
2013
 
2014
 
2013
 
(In Thousands)
Gross gains on sales
$
—

 
$
37

 
$
64

 
$
40

Gross losses on sales
—

 
(959
)
 
—

 
(959
)
Net gain (loss) on sales of securities
$
—

 
$
(922
)
 
$
64

 
$
(919
)


13
Table of Contents
SI FINANCIAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2014 AND 2013 AND DECEMBER 31, 2013
 
 
 
 
 
 

Proceeds from the sale of available for sale securities were $1.1 million for the nine months ended September 30, 2014 and $12.1 million and $13.1 million for the three and nine months ended September 30, 2013, respectively. There were no security sales for the three months ended September 30, 2014.

The following tables present information pertaining to securities with gross unrealized losses at September 30, 2014 and December 31, 2013, 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
September 30, 2014
Fair
Value
 
Unrealized
Losses
 
Fair
Value
 
Unrealized
Losses
 
Fair
Value
 
Unrealized
Losses
 
(In Thousands)
U.S. Government and agency obligations
$
22,003

 
$
59

 
$
12,910

 
$
177

 
$
34,913

 
$
236

Government sponsored enterprises
5,630

 
9

 
5,852

 
127

 
11,482

 
136

Mortgage-backed securities:
 

 
 

 
 

 
 

 
 

 
 

Agency - residential
8,558

 
115

 
32,777

 
1,268

 
41,335

 
1,383

Non-agency - residential
—

 
—

 
135

 
3

 
135

 
3

Obligations of state and political subdivisions
—

 
—

 
1,219

 
27

 
1,219

 
27

Tax-exempt securities
—

 
—

 
1,148

 
5

 
1,148


5

Total
$
36,191

 
$
183

 
$
54,041

 
$
1,607

 
$
90,232

 
$
1,790


 
Less Than 12 Months
 
12 Months Or More
 
Total
December 31, 2013
Fair
Value
 
Unrealized
Losses
 
Fair
Value
 
Unrealized
Losses
 
Fair
Value
 
Unrealized
Losses
 
(In Thousands)
U.S. Government and agency obligations
$
21,921

 
$
142

 
$
883

 
$
26

 
$
22,804

 
$
168

Government-sponsored enterprises
12,376

 
393

 
—

 
—

 
12,376

 
393

Mortgage-backed securities:
 

 
 

 
 

 
 

 
 

 
 

Agency - residential
38,119

 
1,772

 
2,686

 
37

 
40,805

 
1,809

Non-agency - residential
169

 
2

 
—

 
—

 
169

 
2

Collateralized debt obligation
—

 
—

 
1,191

 
19

 
1,191

 
19

Obligations of state and political subdivisions
1,187

 
81

 
—

 
—

 
1,187

 
81

Tax-exempt securities
3,575

 
266

 
—

 
—

 
3,575

 
266

Total
$
77,347

 
$
2,656

 
$
4,760

 
$
82

 
$
82,107

 
$
2,738


At September 30, 2014, forty-three debt securities with gross unrealized losses had aggregate depreciation of approximately 1.95% of the Company’s amortized cost basis. The majority of the unrealized losses are related to the Company’s agency MBS. There were no investments deemed other-than-temporarily impaired for the three and nine months ended September 30, 2014. Impairment charges recognized on investments deemed other-than-temporarily impaired were $0 and $8,000 for the three and nine months ended September 30, 2013. The following summarizes, by security type, the basis for management’s determination during the preparation of the financial statements that the applicable investments within the Company’s securities portfolio were not other-than-temporarily impaired at September 30, 2014.


14
Table of Contents
SI FINANCIAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2014 AND 2013 AND DECEMBER 31, 2013
 
 
 
 
 
 

U.S. Government and Agency Obligations. The unrealized losses on the Company’s U.S. Government and agency obligations related primarily to a widening of the rate spread to comparable treasury securities. 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 at maturity, the Company did not consider these securities to be other-than-temporarily impaired at September 30, 2014.

Government Sponsored Enterprises. The unrealized losses on the Company's government sponsored enterprises were also caused by interest rate movement. The contractual cash flows of these investments are guaranteed by a government sponsored agency. Accordingly, it is expected that the securities would not be settled at a price less than the amortized cost of our investment. As a result of (1) the decline in market value being attributable to changes in interest rates and not credit quality, (2) the Company's position that it does not intend to sell these securities and (3) it is not more likely than not that the Company will be required to sell the securities before their anticipated recovery, which may be at maturity, the Company did not consider these securities to be other-than-temporarily impaired at September 30, 2014.

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 September 30, 2014.

Mortgage-backed Securities - Non-agency - Residential. The unrealized losses on the Company's non-agency - residential mortgage-backed securities relate to one investment which has been evaluated by management and no potential credit losses were identified. 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 maturity, the Company did not consider this investment to be other-than-temporarily impaired at September 30, 2014.
 
Obligations of State and Political Subdivisions. The unrealized losses on the Company's obligations of state and political subdivisions relate to two investments in municipal general obligation bonds purchased during the second quarter of 2013. The unrealized loss was mainly attributable to the widening of interest rate spreads for these securities since their purchase date. Management monitors the financial data of the individual municipalities to ensure that they meet minimum credit standards. Since 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 these securities before recovery of their amortized cost basis, which may be at maturity, the Company did not record impairment losses at September 30, 2014.

Tax-exempt Securities. The unrealized losses on the Company's tax-exempt securities relate to one municipal general obligation bond purchased during the second quarter of 2013. The unrealized loss was mainly attributable to the widening of interest rate spread for this security since its purchase date. Management monitors the financial data of the individual municipality to ensure that it meets minimum credit standards. Since 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 recovery of its amortized cost basis, which may be at maturity, the Company did not record an impairment loss at September 30, 2014.





15
Table of Contents
SI FINANCIAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2014 AND 2013 AND DECEMBER 31, 2013
 
 
 
 
 
 

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 (loss) for the three and nine months ended September 30, 2014 and 2013.
 
Three Months Ended
September 30,
 
Nine Months Ended
September 30,
 
2014
 
2013
 
2014
 
2013
 
(In Thousands)
Balance at beginning of period
$
—

 
$
267

 
$
—

 
$
259

Amounts related to credit for which OTTI losses were not previously recognized
—

 
—

 
—

 
8

Reduction for securities sold during the period (realized)
—

 
(205
)
 
—

 
(205
)
Balance at end of period
$
—

 
$
62

 
$
—

 
$
62



16
Table of Contents
SI FINANCIAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2014 AND 2013 AND DECEMBER 31, 2013
 
 
 
 
 
 

NOTE 4.  LOANS RECEIVABLE AND ALLOWANCE FOR LOAN LOSSES

Loan Portfolio
The composition of the Company’s loan portfolio at September 30, 2014 and December 31, 2013 is as follows:
 
 
 
September 30, 2014
 
December 31, 2013
 
 
(In Thousands)
Real estate loans:
 
 
 
Residential - 1 to 4 family
$
434,766

 
$
449,812

Multi-family and commercial
294,177

 
285,660

Construction
13,416

 
10,162

Total real estate loans
742,359

 
745,634

 
 
 
 
 
Commercial business loans:
 

 
 

SBA and USDA guaranteed
118,524

 
137,578

Time share
42,090

 
28,615

Condominium association
20,517

 
18,442

Other
68,592

 
69,705

Total commercial business loans
249,723

 
254,340

 
 
 
 
 
Consumer loans:
 

 
 

Home equity
48,677

 
44,284

Indirect automobile
4,329

 
6,354

Other
2,003

 
2,116

Total consumer loans
55,009

 
52,754

 
 
 
 
 
Total loans
1,047,091

 
1,052,728

 
 
 
 
 
Deferred loan origination costs, net of fees
1,599

 
1,598

Allowance for loan losses
(7,619
)
 
(6,916
)
Loans receivable, net
$
1,041,071

 
$
1,047,410


The Company purchased commercial loans totaling $38.6 million during the nine months ended September 30, 2014. For the twelve months ended December 31, 2013, the Company purchased commercial business loans totaling $23.0 million.

17
Table of Contents
SI FINANCIAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2014 AND 2013 AND DECEMBER 31, 2013
 
 
 
 
 
 

Allowance for Loan Losses
Changes in the allowance for loan losses for the three and nine months ended September 30, 2014 and 2013 are as follows:
Three Months Ended
September 30, 2014
Residential -
1 to 4 Family
 
Multi-family
and Commercial
 
Construction
 
Commercial
Business
 
Consumer
 
Total
 
(In Thousands)
Balance at beginning of period
$
984

 
$
3,465

 
$
221

 
$
2,208

 
$
567

 
$
7,445

Provision for loan losses
123

 
135

 
26

 
21

 
45

 
350

Loans charged-off
(137
)
 
(1
)
 
—

 
—

 
(42
)
 
(180
)
Recoveries of loans previously charged-off
—

 
—

 
—

 
1

 
3

 
4

Balance at end of period
$
970

 
$
3,599

 
$
247

 
$
2,230

 
$
573

 
$
7,619

 
 
 
 
 
 
 
 
 
 
 
 
Nine Months Ended
September 30, 2014
Residential -
1 to 4 Family
 
Multi-family
and Commercial
 
Construction
 
Commercial
Business
 
Consumer
 
Total
 
(In Thousands)
Balance at beginning of period
$
975

 
$
3,395

 
$
169

 
$
1,875

 
$
502

 
$
6,916

Provision for loan losses
281

 
347

 
78

 
364

 
125

 
1,195

Loans charged-off
(317
)
 
(144
)
 
—

 
(13
)
 
(75
)
 
(549
)
Recoveries of loans previously charged-off
31

 
1

 
—

 
4

 
21

 
57

Balance at end of period
$
970

 
$
3,599

 
$
247

 
$
2,230

 
$
573

 
$
7,619


Three Months Ended
September 30, 2013
Residential -
1 to 4 Family
 
Multi-family
and Commercial
 
Construction
 
Commercial
Business
 
Consumer
 
Total
 
(In Thousands)
Balance at beginning of period
$
999

 
$
2,947

 
$
30

 
$
1,531

 
$
500

 
$
6,007

Provision for loan losses
99

 
11

 
83

 
231

 
19

 
443

Loans charged-off
(128
)
 
—

 
—

 
—

 
(10
)
 
(138
)
Recoveries of loans previously charged-off
1

 
1

 
—

 
2

 
6

 
10

Balance at end of period
$
971

 
$
2,959

 
$
113

 
$
1,764

 
$
515

 
$
6,322

 
 
 
 
 
 
 
 
 
 
 
 
Nine Months Ended
September 30, 2013
Residential -
1 to 4 Family
 
Multi-family
and Commercial
 
Construction
 
Commercial
Business
 
Consumer
 
Total
 
(In Thousands)
Balance at beginning of period
$
1,125

 
$
3,028

 
$
22

 
$
1,735

 
$
477

 
$
6,387

Provision for loan losses
401

 
56

 
91

 
27

 
58

 
633

Loans charged-off
(586
)
 
(197
)
 
—

 
—

 
(71
)
 
(854
)
Recoveries of loans previously charged-off
31

 
72

 
—

 
2

 
51

 
156

Balance at end of period
$
971

 
$
2,959

 
$
113

 
$
1,764

 
$
515

 
$
6,322




18
Table of Contents
SI FINANCIAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2014 AND 2013 AND DECEMBER 31, 2013
 
 
 
 
 
 

Further information pertaining to the allowance for loan losses at September 30, 2014 and December 31, 2013 is as follows:
September 30, 2014
Residential -
1 to 4 Family
 
Multi-family
and Commercial
 
Construction
 
Commercial
Business
 
Consumer
 
Total
 
(In Thousands)
Allowance for loans individually evaluated and deemed to be impaired
$
314

 
$
131

 
$
—

 
$
75

 
$
—

 
$
520

Allowance for loans individually or collectively evaluated and not deemed to be impaired
656

 
3,468

 
247

 
2,155

 
573

 
7,099

Allowance for loans acquired with deteriorated credit quality
—

 
—

 
—

 
—

 
—

 
—

Total allowance for loan losses
$
970

 
$
3,599

 
$
247

 
$
2,230

 
$
573

 
$
7,619

 
 
 
 
 
 
 
 
 
 
 
 
Loans individually evaluated and deemed to be impaired
$
5,222

 
$
1,971

 
$
—

 
$
765

 
$
—

 
$
7,958

Loans individually or collectively evaluated and not deemed to be impaired
429,169

 
287,943

 
13,416

 
248,597

 
55,009

 
1,034,134

Amount of loans acquired with deteriorated credit quality
375

 
4,263

 
—

 
361

 
—

 
4,999

Total loans
$
434,766

 
$
294,177

 
$
13,416

 
$
249,723

 
$
55,009

 
$
1,047,091

 
December 31, 2013
Residential -
1 to 4 Family
 
Multi-family
and Commercial
 
Construction
 
Commercial
Business
 
Consumer
 
Total
 
(In Thousands)
Allowance for loans individually evaluated and deemed to be impaired
$
341

 
$
185

 
$
—

 
$
4

 
$
—

 
$
530

Allowance for loans individually or collectively evaluated and not deemed to be impaired
634

 
3,210

 
169

 
1,871

 
502

 
6,386

Allowance for loans acquired with deteriorated credit quality
—

 
—

 
—