Document

 
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, 2016
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 4, 2016, there were 12,210,104 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, 2016 and December 31, 2015
 
 
 
 
 
 
Consolidated Statements of Income for the three and nine months ended September 30, 2016 and 2015
 
 
 
 
 
 
Consolidated Statements of Comprehensive Income for the three and nine months ended September 30, 2016 and 2015
 
 
 
 
 
 
Consolidated Statement of Changes in Shareholders’ Equity for the nine months ended September 30, 2016
 
 
 
 
 
 
Consolidated Statements of Cash Flows for the nine months ended September 30, 2016 and 2015
 
 
 
 
 
 
 
 
 
 
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,
2016
 
December 31,
2015
ASSETS:
 
 
 
Cash and due from banks:
 
 
 
Noninterest-bearing
$
14,924

 
$
14,373

Interest-bearing
48,433

 
26,405

Total cash and cash equivalents
63,357

 
40,778

 
 
 
 
Available for sale securities, at fair value
170,691

 
175,132

Loans held for sale
698

 
1,804

Loans receivable (net of allowance for loan losses of $11,471 at September 30, 2016 and $9,863 at December 31, 2015)
1,206,532

 
1,165,372

Federal Home Loan Bank stock, at cost
12,370

 
12,874

Federal Reserve Bank stock, at cost
3,624

 
3,621

Bank-owned life insurance
21,136

 
21,924

Premises and equipment, net
20,409

 
21,188

Goodwill and other intangibles
17,644

 
18,096

Accrued interest receivable
4,109

 
4,283

Deferred tax asset, net
8,554

 
8,961

Other real estate owned, net
1,397

 
1,088

Other assets
7,555

 
6,713

Total assets
$
1,538,076

 
$
1,481,834

 
 
 
 
LIABILITIES AND SHAREHOLDERS' EQUITY:
 

 
 

Liabilities:
 

 
 

Deposits:
 

 
 

Noninterest-bearing
$
178,968

 
$
163,893

Interest-bearing
957,976

 
894,124

Total deposits
1,136,944

 
1,058,017

 
 
 
 
Mortgagors' and investors' escrow accounts
2,178

 
3,508

Federal Home Loan Bank advances
208,588

 
234,595

Junior subordinated debt owed to unconsolidated trust
8,248

 
8,248

Accrued expenses and other liabilities
22,293

 
23,136

Total liabilities
1,378,251

 
1,327,504

 
 
 
 
Shareholders' Equity:
 

 
 

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

 
—

Common stock ($.01 par value; 35,000,000 shares authorized; 12,216,033 and 12,218,818 shares issued and outstanding at September 30, 2016 and December 31, 2015, respectively)
122

 
122

Additional paid-in-capital
125,433

 
124,997

Unallocated common shares held by ESOP
(3,288
)
 
(3,648
)
Unearned restricted shares
(434
)
 
(815
)
Retained earnings
37,233

 
33,864

Accumulated other comprehensive income (loss)
759

 
(190
)
Total shareholders' equity
159,825

 
154,330

Total liabilities and shareholders' equity
$
1,538,076

 
$
1,481,834

 

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
September 30,
 
Nine Months Ended
September 30,
 
2016
 
2015
 
2016
 
2015
Interest and dividend income:
 
 
 
 
 
 
 
Loans, including fees
$
11,579

 
$
11,278

 
$
34,656

 
$
32,823

Securities:
 

 
 

 
 
 
 
Taxable interest
855

 
766

 
2,601

 
2,253

Tax-exempt interest
14

 
14

 
42

 
63

Dividends
171

 
140

 
504

 
281

Other
84

 
19

 
217

 
57

Total interest and dividend income
12,703

 
12,217

 
38,020

 
35,477

 
 
 
 
 
 
 
 
Interest expense:
 

 
 

 
 
 
 
Deposits
1,703

 
1,403

 
4,907

 
4,150

Federal Home Loan Bank advances
790

 
846

 
2,480

 
2,124

Subordinated debt and other borrowings
48

 
84

 
141

 
251

Total interest expense
2,541

 
2,333

 
7,528

 
6,525

 
 
 
 
 
 
 
 
Net interest income
10,162

 
9,884

 
30,492

 
28,952

 
 
 
 
 
 
 
 
Provision for loan losses
880

 
1,017

 
1,773

 
1,712

 
 
 
 
 
 
 
 
Net interest income after provision for loan losses
9,282

 
8,867

 
28,719

 
27,240

 
 
 
 
 
 
 
 
Noninterest income:
 

 
 

 
 
 
 
Service fees
1,585

 
1,699

 
4,798

 
5,039

Wealth management fees
296

 
303

 
897

 
916

Increase in cash surrender value of bank-owned life insurance
136

 
146

 
413

 
449

Net gain on sales of securities
55

 
14

 
55

 
146

Mortgage banking
503

 
139

 
1,172

 
416

Net gain (loss) on fair value of derivatives
33

 
(7
)
 
48

 
(22
)
Net loss on disposal of equipment
(56
)
 
(17
)
 
(92
)
 
(37
)
Other
101

 
469

 
650

 
786

Total noninterest income
2,653

 
2,746

 
7,941

 
7,693

 
 
 
 
 
 
 
 
Noninterest expenses:
 

 
 

 
 
 
 
Salaries and employee benefits
4,992

 
4,986

 
14,813

 
15,059

Occupancy and equipment
1,670

 
1,816

 
5,116

 
5,660

Computer and electronic banking services
1,367

 
1,413

 
4,311

 
4,168

Outside professional services
403

 
436

 
1,417

 
1,410

Marketing and advertising
92

 
259

 
543

 
779

Supplies
130

 
149

 
419

 
441

FDIC deposit insurance and regulatory assessments
263

 
255

 
788

 
748

Core deposit intangible amortization
151

 
150

 
452

 
451

Other real estate owned operations
54

 
160

 
179

 
444

Other
490

 
521

 
1,420

 
1,452

Total noninterest expenses
9,612

 
10,145

 
29,458

 
30,612

 
 
 
 
 
 
 
 
Income before income tax provision
2,323

 
1,468

 
7,202

 
4,321

Income tax provision
767

 
494

 
2,377

 
1,421

Net income
$
1,556

 
$
974

 
$
4,825

 
$
2,900

 
 
 
 
 
 
 
 
Earnings per share:
 

 
 

 
 
 
 
Basic
$
0.13

 
$
0.08

 
$
0.41

 
$
0.24

Diluted
$
0.13

 
$
0.08

 
$
0.41

 
$
0.24

 

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 September 30,
 
Nine Months Ended September 30,
 
 
 
 
2016
 
2015
 
2016
 
2015
Net income
 
$
1,556

 
$
974

 
$
4,825

 
$
2,900

Other comprehensive income, net of tax:
 
 
 
 
 
 
 
 
Available for sale securities:
 
 
 
 
 
 
 
 
Net unrealized holding gains (losses)
 
(371
)
 
411

 
985

 
633

Reclassification adjustment for gains recognized in net income (1)
 
(36
)
 
(9
)
 
(36
)
 
(96
)
    Net unrealized holding gains (losses) on available for sale securities
 
(407
)
 
402

 
949

 
537

Net unrealized gain on interest-rate swap derivative
 
—

 
29

 
—

 
81

Other comprehensive income (loss)
 
(407
)
 
431

 
949

 
618

Comprehensive income
 
$
1,149

 
$
1,405

 
$
5,774

 
$
3,518

 
 
 
 
 
 
 
 
 
 
 
(1) Amounts are included in net gain on sales of securities in noninterest income on the consolidated statements of income. Income tax provision associated with the reclassification adjustment for both the three and nine months ended September 30, 2016 was $19,000 and for the three and nine months ended September 30, 2015 was $5,000 and $50,000, 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, 2016
(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
Income (Loss)
 
Total
Shareholders'
Equity
 
Shares
 
Dollars
 
 
 
 
 
 
Balance at December 31, 2015
12,218,818

 
$
122

 
$
124,997

 
$
(3,648
)
 
$
(815
)
 
$
33,864

 
$
(190
)
 
$
154,330

Comprehensive income
—

 
—

 
—

 
—

 
—

 
4,825

 
949

 
5,774

Cash dividends declared ($0.12 per share)
—

 
—

 
—

 
—

 
—

 
(1,417
)
 
—

 
(1,417
)
Equity incentive plans compensation
—

 
—

 
307

 
—

 
381

 
—

 
—

 
688

Allocation of 36,477 ESOP shares
—

 
—

 
138

 
360

 
—

 
—

 
—

 
498

Tax benefit from share-based compensation
—

 
—

 
14

 
—

 
—

 
—

 
—

 
14

Stock options exercised
5,092

 
—

 
37

 
—

 
—

 
—

 
—

 
37

Common shares repurchased
(7,877
)
 
—

 
(60
)
 
—

 
—

 
(39
)
 
—

 
(99
)
Balance at September 30, 2016
12,216,033

 
$
122

 
$
125,433

 
$
(3,288
)
 
$
(434
)
 
$
37,233

 
$
759

 
$
159,825

 
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,
 
2016
 
2015
Cash flows from operating activities:
 
 
 
Net income
$
4,825

 
$
2,900

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

Provision for loan losses
1,773

 
1,712

Employee stock ownership plan expense
498

 
425

Equity incentive plan expense
688

 
683

Excess tax benefit from share-based compensation
(14
)
 
(5
)
Amortization of investment premiums and discounts, net
614

 
851

Amortization of loan premiums and discounts, net
1,041

 
1,457

Depreciation and amortization of premises and equipment
1,814

 
2,036

Amortization of core deposit intangible
452

 
451

Amortization of deferred debt issue costs
—

 
16

Net gain on sales of securities
(55
)
 
(146
)
Net (gain) loss on fair value of derivatives
(48
)
 
22

Deferred income tax (benefit) provision
(82
)
 
53

Loans originated for sale
(33,512
)
 
(18,807
)
Proceeds from sale of loans held for sale
35,144

 
19,524

Net gain on sales of loans held for sale
(958
)
 
(234
)
Net loss on disposal of equipment
92

 
37

Net (gain) loss on sales or write-downs of other real estate owned
(1
)
 
201

Increase in cash surrender value of bank-owned life insurance
(413
)
 
(449
)
Change in operating assets and liabilities:
 

 
 

Accrued interest receivable
174

 
(377
)
Other assets
(410
)
 
727

Accrued expenses and other liabilities
(781
)
 
33

Net cash provided by operating activities
10,841

 
11,110

 
 
 
 
Cash flows from investing activities:
 

 
 

Purchases of available for sale securities
(29,493
)
 
(35,450
)
Proceeds from sales of available for sale securities
8,014

 
9,703

Proceeds from maturities of and principal repayments on available for sale securities
26,799

 
22,719

Purchases of Federal Home Loan Bank stock
—

 
(2,088
)
Purchases of Federal Reserve Bank stock
(3
)
 
(3,621
)
Redemption of Federal Home Loan Bank stock
504

 
—

Loan principal originations, net
(11,155
)
 
(4,996
)
Purchases of loans
(33,660
)
 
(96,640
)
Proceeds from sales of other real estate owned
533

 
62

Purchases of premises and equipment
(1,127
)
 
(2,031
)
Proceeds from bank-owned life insurance
1,201

 
—

Net cash used in investing activities
(38,387
)
 
(112,342
)
 
 
 
 

5


SI FINANCIAL GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (Concluded)
(In Thousands / Unaudited)
 
Nine Months Ended
September 30,
 
2016
 
2015
Cash flows from financing activities:
 

 
 

Net increase in deposits
78,927

 
32,417

Net decrease in mortgagors' and investors' escrow accounts
(1,330
)
 
(1,654
)
Proceeds from Federal Home Loan Bank advances
24,000

 
120,478

Repayments of Federal Home Loan Bank advances
(50,007
)
 
(44,312
)
Excess tax benefit from share-based compensation
14

 
5

Cash dividends on common stock
(1,417
)
 
(1,444
)
Stock options exercised
37

 
708

Common shares repurchased
(99
)
 
(7,655
)
Net cash provided by financing activities
50,125

 
98,543

 
 
 
 
 
 
 
 
Net change in cash and cash equivalents
22,579

 
(2,689
)
Cash and cash equivalents at beginning of period
40,778

 
39,251

Cash and cash equivalents at end of period
$
63,357

 
$
36,562

 
 
 
 
Supplemental cash flow information:
 

 
 

Interest paid
$
7,559

 
$
6,490

Income taxes paid, net
2,284

 
989

Transfer of loans to other real estate owned
841

 
333

Stock options exercised by net-share settlement
—

 
2,563


 See accompanying notes to unaudited interim consolidated financial statements.

6
Table of Contents
SI FINANCIAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2016 AND 2015 AND DECEMBER 31, 2015

 
 
 
 
 
 


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 25 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.

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, 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, 2016 and for the three and nine months ended September 30, 2016 and 2015 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, 2015 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, 2016 are not necessarily indicative of the operating results for the year ending December 31, 2016 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, deferred income taxes and the impairment of long-lived assets.

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.


7
Table of Contents
SI FINANCIAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2016 AND 2015 AND DECEMBER 31, 2015

 
 
 
 
 
 

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.

Troubled Debt Restructurings
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 that would not otherwise be considered for a borrower with similar risk characteristics, such as reductions of interest rates, deferral of interest or principal payments, or maturity extensions due to the borrower’s financial condition, the modification is considered a TDR. Modified terms are dependent upon the financial position and needs of the individual borrower. If the modification agreement is violated, the loan is handled by the Company’s Collections Department for resolution, which may result in foreclosure.

Management considers all nonaccrual loans, with the exception of certain consumer loans, to be impaired. Also, all TDRs are initially classified as impaired and follow the Company's nonaccrual policy. If the loan was current prior to modification, nonaccrual status would not be required. If the loan was on nonaccrual prior to modification or if the payment amount significantly increases, the loan will remain on nonaccrual for a period of at least six months. Loans qualify for return to accrual status once the borrower has demonstrated the willingness and the ability to perform in accordance with the restructured terms of the loan agreement for a period of not less than six consecutive months. 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.

Impaired classification may be removed after a year following the restructure if the borrower demonstrates compliance with the modified terms and the restructuring agreement specifies an interest rate equal to that which would be provided to a borrower with similar risk characteristics at the time of restructuring.

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 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, when 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

8
Table of Contents
SI FINANCIAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2016 AND 2015 AND DECEMBER 31, 2015

 
 
 
 
 
 

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 amount 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 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: changes in lending policies and procedures, including changes in underwriting standards and collection, charge-off and recovery practices; changes in international, national, regional and local economic and business conditions and developments that affect the collectibility of the portfolio, including the condition of various market segments; changes in the size and composition of the loan portfolio and in the terms of the loans; changes in the experience, ability and depth of lending management and other relevant staff; changes in the volume and severity of past due loans, the amount of nonaccrual loans and the amount and severity of adversely classified or graded loans; changes in the quality of the loan review system; changes in the underlying collateral for collateral-dependent loans; the existence and effect of any concentrations of credit and changes in the level of such concentrations; the effect of other external factors such as competition and legal and regulatory requirements on the level of estimated credit losses in the portfolio.

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 to acquire, develop, improve or refinance 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 can be impacted by the economy as evidenced by increased vacancy rates. 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

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SI FINANCIAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2016 AND 2015 AND DECEMBER 31, 2015

 
 
 
 
 
 

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 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. Additionally, the Bank purchases medical loans primarily out of our market area from a company specializing in medical loan originations, which are secured by medical equipment.

•
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 with concentrations in Massachusetts and New Hampshire. 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 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

10
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SI FINANCIAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2016 AND 2015 AND DECEMBER 31, 2015

 
 
 
 
 
 

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 related 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.

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 is allocated to common stock, additional paid-in capital and retained earnings balances.

Recent Accounting Pronouncements
Revenue from Contracts with Customers (Topic 606) - In May 2014, the Financial Accounting Standards Board ("FASB") issued guidance that improves the revenue recognition requirements for contracts with customers. The core principle of the guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. To achieve the core principle, a company should apply a five step approach to revenue recognition. In August 2015, the FASB delayed the effective date for this guidance for one year to fiscal years beginning after December 15, 2017, and we do not expect this to have a material impact on our financial statements.

Interest - Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs - In April 2015, FASB issued guidance simplifying the presentation of debt issuance costs. The amended guidance requires debt issuance costs related to a recognized debt liability be presented on the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. The amended guidance was applied on a retrospective basis and effective for fiscal years, and interim periods within those years, that began after December 15, 2015. The adoption of the amended guidance on January 1, 2016 did not have a material impact on the Company’s consolidated financial statements.

Interest - Imputation of Interest (Subtopic 835-30): Presentation and Subsequent Measurement of Debt Issuance Costs Associated with Line-of-Credit Arrangements - In August 2015, the FASB issued amended guidance pursuant to the SEC Staff Announcement at the June 18, 2015 Emerging Issues Task Force meeting that the update issued in April 2015 does not address presentation or subsequent measurement of debt issuance costs related to line-of-credit arrangements. Given the absence of authoritative guidance within the previous update for debt issuance costs related to line-of-credit-arrangements, the SEC staff would not object to an entity deferring and presenting debt issuance costs as an asset and subsequently amortizing the deferred debt issuance costs ratably over the term of the line-of-credit arrangement, regardless of whether there were any outstanding borrowings on the line-of-credit arrangement. The adoption of the amended guidance on January 1, 2016 did not have a material impact on the Company’s consolidated financial statements.

Financial Instruments (Subtopic 825-10): In January 2016, the FASB issued guidance addressing certain aspects of recognition, measurement, presentation and disclosure of financial instruments. Targeted improvements to generally accepted accounting principles include the requirement for equity investments (except those accounted

11
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SI FINANCIAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2016 AND 2015 AND DECEMBER 31, 2015

 
 
 
 
 
 

for under the equity method of accounting or those that result in consolidation of the investee) to be measured at fair value with changes in fair value recognized in net income and the elimination of the requirement for public business entities to disclose the methods and significant assumptions used to estimate the fair value for financial instruments measured at amortized cost. The amendments in this update are effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. The Company does not expect the adoption of this guidance to have a material impact on its consolidated financial statements.

Leases (Topic 842): In February 2016, the FASB issued amended guidance to increase transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet and disclosing key information about leasing arrangements. Disclosures are required by lessees and lessors to meet the objective of enabling users of financial statements to assess the amount, timing and uncertainty of cash flows arising from leases. In transition, lessees and lessors are required to recognize and measure leases at the beginning of the earliest period presented using a modified retrospective approach. The modified retrospective approach includes a number of optional practical expedients that entities may elect to apply. An entity that elects to apply the practical expedients will, in effect, continue to account for leases that commence before the effective date in accordance with previous GAAP unless the lease is modified, except that lessees are required to recognize a right-of-use asset and a lease liability for all operating leases at each reporting date based on the present value of the remaining minimum rental payments that were tracked and disclosed under previous GAAP. The amendments in this update are effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. The Company is still reviewing the impact the adoption of this guidance will have on its consolidated financial statements.

Compensation - Stock Compensation (Topic 718): In March 2016, the FASB issued guidance to simplify the accounting for share-based payment transactions, including the income tax consequences of such transactions. Under the provisions of the update, the income tax consequences of excess tax benefits and deficiencies should be recognized in income tax expense in the reporting period in which the awards vest. Currently, excess tax benefits or deficiencies impact shareholders' equity directly to the extent there is a cumulative excess tax benefit. In the event that a tax deficiency has occurred during the reporting period and a cumulative tax benefit does not exist, the tax deficiency is recognized in income tax expense under current GAAP. The update also provides entities may continue to estimate forfeitures in accounting for stock based compensation or recognize them as they occur. The provisions of this update become effective for interim and annual periods beginning after December 15, 2016. The update requires a modified retrospective transition under which cumulative effect to equity will be recognized in the period of adoption. The Company does not expect the adoption of this guidance to have a material impact on its consolidated financial statements.

Financial Instruments - Credit Losses (Topic 326): In June 2016, the FASB issued guidance that significantly changes how entities will measure credit losses for most financial assets and certain other instruments that aren't measured at fair value through net income. The update will replace today's "incurred loss" approach with an "expected loss" model. The new model, referred to as the current expected credit loss ("CECL") model, will apply to (1) financial assets subject to credit losses and measured at amortized cost and (2) certain off-balance sheet credit exposures. This includes, but is not limited to, loans, leases, held-to-maturity securities, loan commitments and financial guarantees. The CECL model does not apply to available for sale ("AFS") debt securities. For AFS debt securities with unrealized losses, entities will measure credit losses in a manner similar to current accounting guidance, except that losses will be recognized as allowances rather than reductions in the amortized cost of the securities. The update also simplifies the accounting model for purchased credit-impaired debt securities and loans. Disclosure requirements under the update have been expanded to include the entity's assumptions, models and methods for estimating the allowance for loan and lease losses. In addition, entities will need to disclose the amortized cost balance for each class of financial asset by credit quality indicator, disaggregated by year of origination. The update is effective for interim and annual reporting periods beginning after December 15, 2019; early adoption is permitted for interim and annual periods beginning after December 15, 2018. The update

12
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SI FINANCIAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2016 AND 2015 AND DECEMBER 31, 2015

 
 
 
 
 
 

requires a modified retrospective transition under which a cumulative effect to equity will be recognized in the period of adoption. The Company is currently evaluating the impact the adoption of this guidance will have on its consolidated financial statements.

Statement of Cash Flows - Classification of Certain Cash Receipts and Cash Payments (Topic 230): In August 2016, the FASB issued guidance to reduce the existing diversity in practice in how certain cash receipts and cash payments are presented and classified in the statement of cash flows. This update provides guidance on eight specific cash flow issues. The update is effective for fiscal years beginning after December 15, 2017, and for interim periods within those fiscal years. Early adoption is permitted, including adoption in an interim period. The amendments in this update should be applied using a retrospective transition method to each period presented. The Company does not expect the adoption of this guidance to have a material impact on its 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. Repurchased common 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 anti-dilutive common shares outstanding of 157,391 and 153,391 for the three and nine months ended September 30, 2016, respectively, and 321,793 and 342,819 for the three and nine months ended September 30, 2015, respectively.

The computation of earnings per share is as follows:
 
Three Months Ended
September 30,
 
Nine Months Ended
September 30,
 
2016
 
2015
 
2016
 
2015
 
(Dollars in Thousands, Except Per Share Amounts)
Net income
$
1,556

 
$
974

 
$
4,825

 
$
2,900

 
 
 
 
 
 
 
 
Weighted average common shares outstanding:
 

 
 

 
 
 
 
Basic
11,815,313

 
11,793,218

 
11,802,574

 
12,036,573

Effect of dilutive stock options
53,334

 
21,713

 
57,369

 
28,485

Diluted
11,868,647

 
11,814,931

 
11,859,943

 
12,065,058

 
 
 
 
 
 
 
 
Earnings per share:
 

 
 

 
 
 
 
Basic
$
0.13

 
$
0.08

 
$
0.41

 
$
0.24

Diluted
$
0.13

 
$
0.08

 
$
0.41

 
$
0.24



13
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SI FINANCIAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2016 AND 2015 AND DECEMBER 31, 2015

 
 
 
 
 
 

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, 2016 and December 31, 2015 are as follows:
 
 
September 30, 2016
 
 
Amortized
Cost
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 
Fair
Value
 
 
(In Thousands)
Debt securities:
 
 
 
 
 
 
 
U.S. Government and agency obligations
$
66,367

 
$
531

 
$
(582
)
 
$
66,316

Government-sponsored enterprises
11,282

 
296

 
—

 
11,578

Mortgage-backed securities:(1)
 
 
 

 
 

 
 
Agency - residential
85,482

 
1,044

 
(221
)
 
86,305

Non-agency - residential
100

 
—

 
(5
)
 
95

Corporate debt securities
1,000

 
—

 
—

 
1,000

Collateralized debt obligation
1,158

 
—

 
(8
)
 
1,150

Obligations of state and political subdivisions
1,000

 
—

 
—

 
1,000

Tax-exempt securities
3,152

 
95

 
—

 
3,247

Total available for sale securities
$
169,541

 
$
1,966

 
$
(816
)
 
$
170,691

 
 
 
 
 
 
 
 
 
(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.
 
 
December 31, 2015
 
 
Amortized
Cost
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 
Fair
Value
 
 
(In Thousands)
Debt securities:
 
 
 
 
 
 
 
U.S. Government and agency obligations
$
71,142

 
$
242

 
$
(388
)
 
$
70,996

Government-sponsored enterprises
25,313

 
95

 
(5
)
 
25,403

Mortgage-backed securities:(1)
 
 
 
 
 
 
 

Agency - residential
72,248

 
680

 
(962
)
 
71,966

Non-agency - residential
116

 
—

 
(4
)
 
112

Corporate debt securities
1,000

 
—

 
—

 
1,000

Collateralized debt obligation
1,156

 
—

 
(10
)
 
1,146

Obligations of state and political subdivisions
1,270

 
1

 
—

 
1,271

Tax-exempt securities
3,175

 
64

 
(1
)
 
3,238

Total available for sale securities
$
175,420

 
$
1,082

 
$
(1,370
)
 
$
175,132

 
 
 
 
 
 
 
 
 
(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, 2016 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.

14
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SI FINANCIAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2016 AND 2015 AND DECEMBER 31, 2015

 
 
 
 
 
 

 
 
Amortized
Cost
 
Fair
Value
 
(In Thousands)
Within 1 year
$
2,497

 
$
2,507

After 1 but within 5 years
31,319

 
31,667

After 5 but within 10 years
8,563

 
8,618

After 10 years
41,580

 
41,499

 
83,959

 
84,291

Mortgage-backed securities
85,582

 
86,400

Total debt securities
$
169,541

 
$
170,691


The following is a summary of realized gains and losses on the sales of securities for the three and nine months ended September 30, 2016 and 2015:
 
Three Months Ended
September 30,
 
Nine Months Ended
September 30,
 
2016
 
2015
 
2016
 
2015
 
(In Thousands)
Gross gains on sales
$
55

 
$
14

 
$
55

 
$
169

Gross losses on sales
—

 
—

 
—

 
(23
)
Net gain on sales of securities
$
55

 
$
14

 
$
55

 
$
146


Proceeds from the sale of available for sale securities were $8.0 million for both the three and nine months ended September 30, 2016, respectively, and $0 and $9.7 million for the three and nine months ended September 30, 2015, respectively.

The following tables present information pertaining to securities with gross unrealized losses at September 30, 2016 and December 31, 2015, 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, 2016
Fair
Value
 
Unrealized
Losses
 
Fair
Value
 
Unrealized
Losses
 
Fair
Value
 
Unrealized
Losses
 
(In Thousands)
U.S. Government and agency obligations
$
10,731

 
$
96

 
$
20,476

 
$
486

 
$
31,207

 
$
582

Mortgage-backed securities:
 

 
 

 
 

 
 

 
 

 
 

Agency - residential
29,660

 
77

 
10,511

 
144

 
40,171

 
221

Non-agency - residential
—

 
—

 
95

 
5

 
95

 
5

Collateralized debt obligation
—

 
—

 
1,150

 
8

 
1,150

 
8

Total
$
40,391

 
$
173

 
$
32,232

 
$
643

 
$
72,623

 
$
816



15
Table of Contents
SI FINANCIAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2016 AND 2015 AND DECEMBER 31, 2015

 
 
 
 
 
 

 
Less Than 12 Months
 
12 Months or More
 
Total
December 31, 2015
Fair
Value
 
Unrealized
Losses
 
Fair
Value
 
Unrealized
Losses
 
Fair
Value
 
Unrealized
Losses
 
(In Thousands)
U.S. Government and agency obligations
$
9,374

 
$
36

 
$
18,715

 
$
352

 
$
28,089

 
$
388

Government-sponsored enterprises
8,454

 
5

 
—

 
—

 
8,454

 
5

Mortgage-backed securities:
 

 
 

 
 

 
 

 
 

 
 

Agency - residential
21,956

 
129

 
27,210

 
833

 
49,166

 
962

Non-agency - residential
—

 
—

 
112

 
4

 
112

 
4

Collateralized debt obligation
—

 
—

 
1,146

 
10

 
1,146

 
10

Tax-exempt securities
582

 
1

 
—

 
—

 
582

 
1

Total
$
40,366

 
$
171

 
$
47,183

 
$
1,199

 
$
87,549

 
$
1,370


At September 30, 2016, 36 debt securities with gross unrealized losses had aggregate depreciation of 1.10% of the Company’s amortized cost basis. The unrealized losses are primarily related to the Company’s U.S. Government and agency obligations and agency mortgage-backed securities. There were no investments deemed other-than-temporarily impaired for the three and nine months ended September 30, 2016 and 2015. 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 not other-than-temporarily impaired at September 30, 2016.

U.S. Government and Agency Obligations and Mortgage-backed Securities - Agency - Residential. The unrealized losses on the Company’s U.S. Government and agency obligations and mortgage-backed agency-residential securities related primarily to a widening of the rate spread to comparable treasury securities. The Company does not expect these securities to settle at a price less than the par value of the securities.

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 loss was identified.

Collateralized Debt Obligation. The unrealized loss on the Company's collateralized debt obligation relates to one investment in a pooled trust preferred security ("PTPS") which management does not believe will suffer from any credit-related losses, based on its senior credit profile. The unrealized loss on this security is caused by the low interest rate environment as this security reprices quarterly to the three-month LIBOR and market spreads on similar newly issued securities have increased.














16
Table of Contents
SI FINANCIAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2016 AND 2015 AND DECEMBER 31, 2015

 
 
 
 
 
 

NOTE 4.  LOANS RECEIVABLE AND ALLOWANCE FOR LOAN LOSSES

Loan Portfolio
The composition of the Company’s loan portfolio at September 30, 2016 and December 31, 2015 is as follows:
 
 
 
September 30, 2016
 
December 31, 2015
 
 
(In Thousands)
Real estate loans:
 
 
 
Residential - 1 to 4 family
$
408,271

 
$
417,458

Multi-family and commercial
414,516

 
385,341

Construction
36,276

 
21,786

Total real estate loans
859,063

 
824,585

 
 
 
 
 
Commercial business loans:
 

 
 

SBA and USDA guaranteed
124,857

 
145,238

Time share
45,465

 
55,192

Condominium association
22,556

 
21,986

Medical loans
24,918

 
23,445

Other
82,851

 
45,588

Total commercial business loans
300,647

 
291,449

 
 
 
 
 
Consumer loans:
 

 
 

Home equity
53,852

 
53,779

Indirect automobile
714

 
1,741

Other
1,716

 
1,946

Total consumer loans
56,282

 
57,466

 
 
 
 
 
Total loans
1,215,992

 
1,173,500

 
 
 
 
 
Deferred loan origination costs, net of fees
2,011

 
1,735

Allowance for loan losses
(11,471
)
 
(9,863
)
Loans receivable, net
$
1,206,532

 
$
1,165,372


The Company purchased commercial business loans totaling $33.7 million during the nine months ended September 30, 2016. For the twelve months ended December 31, 2015, the Company purchased commercial business loans totaling $113.2 million.


17
Table of Contents
SI FINANCIAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2016 AND 2015 AND DECEMBER 31, 2015

 
 
 
 
 
 

Allowance for Loan Losses
Changes in the allowance for loan losses for the three and nine months ended September 30, 2016 and 2015 are as follows:
Three Months Ended
September 30, 2016
Residential -
1 to 4 Family
 
Multi-family
and Commercial
 
Construction
 
Commercial
Business
 
Consumer
 
Total
 
(In Thousands)
Balance at beginning of period
$
1,026

 
$
5,420

 
$
798

 
$
2,693

 
$
706

 
$
10,643

Provision for loan losses
106

 
183

 
141

 
442

 
8

 
880

Loans charged-off
(38
)
 
(22
)
 
—

 
—

 
(4
)
 
(64
)
Recoveries of loans previously charged-off
—

 
1

 
—

 
10

 
1

 
12

Balance at end of period
$
1,094

 
$
5,582

 
$
939

 
$
3,145

 
$
711

 
$
11,471

 
 
 
 
 
 
 
 
 
 
 
 
Nine Months Ended
September 30, 2016
Residential -
1 to 4 Family
 
Multi-family
and Commercial
 
Construction
 
Commercial
Business
 
Consumer
 
Total
 
(In Thousands)
Balance at beginning of period
$
1,036

 
$
5,033

 
$
516

 
$
2,625

 
$
653

 
$
9,863

Provision for loan losses
150

 
485

 
423

 
534

 
181

 
1,773

Loans charged-off
(120
)
 
(46
)
 
—

 
(68
)
 
(124
)
 
(358
)
Recoveries of loans previously charged-off
28

 
110

 
—

 
54

 
1

 
193

Balance at end of period
$
1,094

 
$
5,582

 
$
939

 
$
3,145

 
$
711

 
$
11,471


Three Months Ended
September 30, 2015
Residential -
1 to 4 Family
 
Multi-family
and Commercial
 
Construction
 
Commercial
Business
 
Consumer
 
Total
 
(In Thousands)
Balance at beginning of period
$
986

 
$
3,766

 
$
434

 
$
2,618

 
$
633

 
$
8,437

Provision (credit) for loan losses
30

 
666

 
(7
)
 
322

 
6

 
1,017

Loans charged-off
—

 
(136
)
 
—

 
(140
)
 
—

 
(276
)
Recoveries of loans previously charged-off
41

 
22

 
—

 
5

 
—

 
68

Balance at end of period
$
1,057

 
$
4,318

 
$
427

 
$
2,805

 
$
639

 
$
9,246

 
 
 
 
 
 
 
 
 
 
 
 
Nine Months Ended
September 30, 2015
Residential -
1 to 4 Family
 
Multi-family
and Commercial
 
Construction
 
Commercial
Business
 
Consumer
 
Total
 
(In Thousands)
Balance at beginning of period
$
955

 
$
3,607

 
$
254

 
$
2,382

 
$
599

 
$
7,797

Provision for loan losses
74

 
843

 
173

 
582

 
40

 
1,712

Loans charged-off
(46
)
 
(156
)
 
—

 
(165
)
 
—

 
(367
)
Recoveries of loans previously charged-off
74

 
24

 
—

 
6

 
—

 
104

Balance at end of period
$
1,057

 
$
4,318

 
$
427

 
$
2,805

 
$
639

 
$
9,246




18
Table of Contents
SI FINANCIAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2016 AND 2015 AND DECEMBER 31, 2015

 
 
 
 
 
 

Further information pertaining to the allowance for loan losses at September 30, 2016 and December 31, 2015 is as follows:
September 30, 2016
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
$
306

 
$
256

 
$
—

 
$
—

 
$
52

 
$
614

Allowance for loans individually or collectively evaluated and not deemed to be impaired
788

 
5,326

 
939

 
3,145

 
659

 
10,857

Allowance for loans acquired with deteriorated credit quality
—

 
—

 
—

 
—

 
—

 
—

Total loan loss allowance
$
1,094

 
$
5,582

 
$
939

 
$
3,145

 
$
711

 
$
11,471

 
 
 
 
 
 
 
 
 
 
 
 
Loans individually evaluated and deemed to be impaired
$
6,331

 
$
7,279

 
$
—

 
$
1,035

 
$
473

 
$
15,118

Loans individually or collectively evaluated and not deemed to be impaired
401,544

 
404,272

 
36,276

 
299,612

 
55,809

 
1,197,513

Amount of loans acquired with deteriorated credit quality
396

 
2,965

 
—

 
—

 
—

 
3,361

Total loans
$
408,271

 
$
414,516

 
$
36,276

 
$
300,647

 
$
56,282

 
$
1,215,992

 
December 31, 2015
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
$
303

 
$
35

 
$
—

 
$
—

 
$
—

 
$
338

Allowance for loans individually or collectively evaluated and not deemed to be impaired
733

 
4,998

 
516

 
2,625

 
653

 
9,525

Allowance for loans acquired with deteriorated credit quality
—

 
—

 
—

 
—

 
—

 
—

Total loan loss allowance
$
1,036

 
$
5,033

 
$
516

 
$
2,625

 
$
653

 
$
9,863

 
 
 
 
 
 
 
 
 
 
 
 
Loans individually evaluated and deemed to be impaired
$
6,354

 
$
3,750

 
$
—

 
$
356

 
$
158

 
$
10,618

Loans individually or collectively evaluated and not deemed to be impaired
410,699

 
377,503

 
21,786

 
291,093

 
57,308

 
1,158,389

Amount of loans acquired with deteriorated credit quality
405

 
4,088

 
—

 
—

 
—

 
4,493

Total loans
$
417,458

 
$
385,341

 
$
21,786

 
$
291,449

 
$
57,466

 
$
1,173,500



19
Table of Contents
SI FINANCIAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2016 AND 2015 AND DECEMBER 31, 2015