NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
1 - BASIS OF PRESENTATION
The accounting and reporting policies of The First of Long Island Corporation (“Corporation”) reflect banking industry practice and conform to generally accepted accounting principles in the United States. In preparing the consolidated financial statements, management is required to make estimates, such as the allowance for loan losses, and assumptions that affect the reported asset and liability balances, revenue and expense amounts, and the disclosure of contingent assets and liabilities. Actual results could differ significantly from those estimates.
The consolidated financial statements include the accounts of the Corporation and its wholly-owned subsidiary, The First National Bank of Long Island (“Bank”). The Bank has two wholly owned subsidiaries: FNY Service Corp., an investment company, and The First of Long Island Agency, Inc., a licensed insurance agency under the laws of the State of New York. The Bank and FNY Service Corp. jointly own another subsidiary, The First of Long Island REIT, Inc., a real estate investment trust. The consolidated entity is referred to as the “Corporation” and the Bank and its subsidiaries are collectively referred to as the “Bank.” All intercompany balances and amounts have been eliminated. For further information refer to the consolidated financial statements and notes thereto included in the Corporation's Annual Report on Form 10-K for the year ended December 31, 2015.
The consolidated financial information included herein as of and for the periods ended September 30, 2016 and 2015 is unaudited. However, such information reflects all adjustments which are, in the opinion of management, necessary for a fair statement of results for the interim periods. The December 31, 2015 consolidated balance sheet was derived from the Corporation's December 31, 2015 audited consolidated financial statements. When appropriate, items in the prior year financial statements are reclassified to conform to the current period presentation.
2 – EARNINGS PER SHARE
The following table is a reconciliation of basic and diluted earnings per share (“EPS”) for the periods indicated.
|
|
Nine Months Ended
September 30,
|
|
|
Three Months Ended
September 30,
|
|
(dollars in thousands, except per share data)
|
|
2016
|
|
|
2015
|
|
|
2016
|
|
|
2015
|
|
Net income
|
|
$
|
23,061
|
|
|
$
|
19,272
|
|
|
$
|
8,011
|
|
|
$
|
6,511
|
|
Income allocated to participating securities (1)
|
|
|
98
|
|
|
|
-
|
|
|
|
34
|
|
|
|
-
|
|
Income allocated to common stockholders
|
|
$
|
22,963
|
|
|
$
|
19,272
|
|
|
$
|
7,977
|
|
|
$
|
6,511
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common shares
|
|
|
14,958,631
|
|
|
|
13,982,485
|
|
|
|
15,664,908
|
|
|
|
14,029,990
|
|
Dilutive stock options and restricted stock units (1)
|
|
|
144,900
|
|
|
|
157,488
|
|
|
|
142,158
|
|
|
|
165,687
|
|
|
|
|
15,103,531
|
|
|
|
14,139,973
|
|
|
|
15,807,066
|
|
|
|
14,195,677
|
|
Earnings per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
1.54
|
|
|
$
|
1.38
|
|
|
$
|
.51
|
|
|
$
|
.46
|
|
Diluted
|
|
|
1.52
|
|
|
|
1.36
|
|
|
|
.50
|
|
|
|
.46
|
|
(1) Restricted stock units (“RSUs”) awarded in January 2016 accrue dividends at the same rate as the dividends declared by the Board of Directors on the Corporation’s common stock. For purposes of computing EPS, these RSUs are considered to participate with common stock in the earnings of the Corporation and, therefore, the Corporation is required to calculate basic and diluted EPS using the two-class method. Under the two-class method, net income for the period is allocated between common stockholders and participating securities according to dividends declared and participation rights in undistributed earnings. See Note 6 for additional details on the RSUs awarded in 2016.
3 - COMPREHENSIVE INCOME
Comprehensive income includes net income and other comprehensive income. Other comprehensive income includes revenues, expenses, gains and losses that under generally accepted accounting principles are included in comprehensive income but excluded from net income. Other comprehensive income for the Corporation consists of unrealized holding gains or losses on available-for-sale securities and changes in the funded status of the Bank’s defined benefit pension plan, both net of related income taxes. Accumulated other comprehensive income is recognized as a separate component of stockholders’ equity.
The components of other comprehensive income (loss) and the related tax effects are as follows:
|
|
Nine Months Ended
September 30,
|
|
|
Three Months Ended
September 30,
|
|
|
|
2016
|
|
|
2015
|
|
|
2016
|
|
|
2015
|
|
|
|
(in thousands)
|
|
Change in net unrealized holding gains on available-for-sale securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change arising during the period
|
|
$
|
7,320
|
|
|
$
|
(592
|
)
|
|
$
|
(5,160
|
)
|
|
$
|
5,144
|
|
Reclassification adjustment for gains included in net income (1)
|
|
|
(1,851
|
)
|
|
|
(1,125
|
)
|
|
|
(24
|
)
|
|
|
-
|
|
Change in net unrealized holding gains on available-for-sale securities
|
|
|
5,469
|
|
|
|
(1,717
|
)
|
|
|
(5,184
|
)
|
|
|
5,144
|
|
Tax effect
|
|
|
2,448
|
|
|
|
(706
|
)
|
|
|
(2,160
|
)
|
|
|
2,119
|
|
|
|
|
3,021
|
|
|
|
(1,011
|
)
|
|
|
(3,024
|
)
|
|
|
3,025
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in funded status of pension plan:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of net actuarial loss included in pension expense (2)
|
|
|
183
|
|
|
|
-
|
|
|
|
61
|
|
|
|
-
|
|
Tax effect
|
|
|
22
|
|
|
|
(37
|
)
|
|
|
23
|
|
|
|
-
|
|
|
|
|
161
|
|
|
|
37
|
|
|
|
38
|
|
|
|
-
|
|
Other comprehensive income (loss)
|
|
$
|
3,182
|
|
|
$
|
(974
|
)
|
|
$
|
(2,986
|
)
|
|
$
|
3,025
|
|
(1) Reclassification adjustment represents net realized gains arising from the sale of available-for-sale securities. The net realized gains are included in the consolidated statements of income in the line item, “Net gains on sales of securities.” See “Note 4 – Investment Securities” for the income tax expense related to the net realized gains, which is included in the consolidated statements of income in the line item, “Income tax expense.”
(2) Represents the amortization into expense of net actuarial loss relating to the Bank’s defined benefit pension plan. This item is included in net periodic pension cost (see Note 7) and in the consolidated statements of income in the line item, “Employee benefits.” The related income tax expense is included in the consolidated statements of income in the line item, “Income tax expense.”
The following table sets forth the components of accumulated other comprehensive income, net of tax:
|
|
|
|
|
|
Current
|
|
|
|
|
|
|
|
Balance
|
|
|
Period
|
|
|
Balance
|
|
|
|
12/31/15
|
|
|
Change
|
|
|
9/30/16
|
|
|
|
(in thousands)
|
|
Unrealized holding gains on available-for-sale securities
|
|
$
|
11,675
|
|
|
$
|
3,021
|
|
|
$
|
14,696
|
|
Unrealized actuarial losses on pension plan
|
|
|
(4,151
|
)
|
|
|
161
|
|
|
|
(3,990
|
)
|
Accumulated other comprehensive income, net of tax
|
|
$
|
7,524
|
|
|
$
|
3,182
|
|
|
$
|
10,706
|
|
4
- INVESTMENT SECURITIES
The following tables set forth the amortized cost and estimated fair values of the Bank’s investment securities.
|
|
September 30, 2016
|
|
|
|
|
|
|
|
Gross
|
|
|
Gross
|
|
|
|
|
|
|
|
Amortized
|
|
|
Unrealized
|
|
|
Unrealized
|
|
|
Fair
|
|
|
|
Cost
|
|
|
Gains
|
|
|
Losses
|
|
|
Value
|
|
|
|
(in thousands)
|
|
Held-to-Maturity Securities:
|
|
|
|
State and municipals
|
|
$
|
10,800
|
|
|
$
|
263
|
|
|
$
|
-
|
|
|
$
|
11,063
|
|
Pass-through mortgage securities
|
|
|
422
|
|
|
|
49
|
|
|
|
-
|
|
|
|
471
|
|
Collateralized mortgage obligations
|
|
|
693
|
|
|
|
46
|
|
|
|
-
|
|
|
|
739
|
|
|
|
$
|
11,915
|
|
|
$
|
358
|
|
|
$
|
-
|
|
|
$
|
12,273
|
|
Available-for-Sale Securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
State and municipals
|
|
$
|
443,691
|
|
|
$
|
21,991
|
|
|
$
|
(174
|
)
|
|
$
|
465,508
|
|
Pass-through mortgage securities
|
|
|
183,827
|
|
|
|
1,718
|
|
|
|
(85
|
)
|
|
|
185,460
|
|
Collateralized mortgage obligations
|
|
|
185,118
|
|
|
|
1,894
|
|
|
|
(246
|
)
|
|
|
186,766
|
|
|
|
$
|
812,636
|
|
|
$
|
25,603
|
|
|
$
|
(505
|
)
|
|
$
|
837,734
|
|
|
|
December 31, 2015
|
|
Held-to-Maturity Securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
State and municipals
|
|
$
|
12,922
|
|
|
$
|
410
|
|
|
$
|
-
|
|
|
$
|
13,332
|
|
Pass-through mortgage securities
|
|
|
576
|
|
|
|
67
|
|
|
|
-
|
|
|
|
643
|
|
Collateralized mortgage obligations
|
|
|
873
|
|
|
|
62
|
|
|
|
-
|
|
|
|
935
|
|
|
|
$
|
14,371
|
|
|
$
|
539
|
|
|
$
|
-
|
|
|
$
|
14,910
|
|
Available-for-Sale Securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
State and municipals
|
|
$
|
416,957
|
|
|
$
|
18,892
|
|
|
$
|
(156
|
)
|
|
$
|
435,693
|
|
Pass-through mortgage securities
|
|
|
148,402
|
|
|
|
810
|
|
|
|
(1,947
|
)
|
|
|
147,265
|
|
Collateralized mortgage obligations
|
|
|
152,712
|
|
|
|
2,720
|
|
|
|
(690
|
)
|
|
|
154,742
|
|
|
|
$
|
718,071
|
|
|
$
|
22,422
|
|
|
$
|
(2,793
|
)
|
|
$
|
737,700
|
|
At September 30, 2016 and December 31, 2015, investment securities with a carrying value of $431,879,000 and $405,769,000, respectively, were pledged as collateral to secure public deposits and borrowed funds.
There were no holdings of any one issuer, other than the U.S. Government and its agencies, in an amount greater than 10% of stockholders’ equity at September 30, 2016 and December 31, 2015.
Securities With Unrealized Losses.
The following tables set forth securities with unrealized losses presented by the length of time the securities have been in a continuous unrealized loss position.
|
|
September 30, 2016
|
|
|
|
Less than
|
|
|
12 Months
|
|
|
|
|
|
|
|
|
|
|
|
12 Months
|
|
|
or More
|
|
|
Total
|
|
|
|
Fair
|
|
|
Unrealized
|
|
|
Fair
|
|
|
Unrealized
|
|
|
Fair
|
|
|
Unrealized
|
|
|
|
Value
|
|
|
Loss
|
|
|
Value
|
|
|
Loss
|
|
|
Value
|
|
|
Loss
|
|
|
|
(in thousands)
|
|
State and municipals
|
|
$
|
11,887
|
|
|
$
|
(174
|
)
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
11,887
|
|
|
$
|
(174
|
)
|
Pass-through mortgage securities
|
|
|
16,266
|
|
|
|
(85
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
16,266
|
|
|
|
(85
|
)
|
Collateralized mortgage obligations
|
|
|
58,707
|
|
|
|
(156
|
)
|
|
|
8,491
|
|
|
|
(90
|
)
|
|
|
67,198
|
|
|
|
(246
|
)
|
Total temporarily impaired
|
|
$
|
86,860
|
|
|
$
|
(415
|
)
|
|
$
|
8,491
|
|
|
$
|
(90
|
)
|
|
$
|
95,351
|
|
|
$
|
(505
|
)
|
|
|
December 31, 2015
|
|
State and municipals
|
|
$
|
13,148
|
|
|
$
|
(78
|
)
|
|
$
|
5,837
|
|
|
$
|
(78
|
)
|
|
$
|
18,985
|
|
|
$
|
(156
|
)
|
Pass-through mortgage securities
|
|
|
98,504
|
|
|
|
(1,348
|
)
|
|
|
27,365
|
|
|
|
(599
|
)
|
|
|
125,869
|
|
|
|
(1,947
|
)
|
Collateralized mortgage obligations
|
|
|
39,133
|
|
|
|
(305
|
)
|
|
|
12,743
|
|
|
|
(385
|
)
|
|
|
51,876
|
|
|
|
(690
|
)
|
Total temporarily impaired
|
|
$
|
150,785
|
|
|
$
|
(1,731
|
)
|
|
$
|
45,945
|
|
|
$
|
(1,062
|
)
|
|
$
|
196,730
|
|
|
$
|
(2,793
|
)
|
Because the unrealized losses reflected in the preceding tables are deemed by management to be attributable to changes in interest rates and not credit losses, and because management does not have the intent to sell these securities and it is not more likely than not that it will be required to sell these securities before their anticipated recovery, the Bank does not consider these securities to be other-than-temporarily impaired at September 30, 2016.
Sales of Available-for-Sale Securities.
Sales of available-for-sale securities were as follows:
|
|
Nine Months Ended September 30,
|
|
|
Three Months Ended September 30,
|
|
|
|
2016
|
|
|
2015
|
|
|
2016
|
|
|
2015
|
|
|
|
(in thousands)
|
|
Proceeds
|
|
$
|
62,047
|
|
|
$
|
66,140
|
|
|
$
|
21,058
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross gains
|
|
$
|
1,869
|
|
|
$
|
1,501
|
|
|
$
|
24
|
|
|
$
|
-
|
|
Gross losses
|
|
|
(18
|
)
|
|
|
(376
|
)
|
|
|
-
|
|
|
|
-
|
|
Net gain
|
|
$
|
1,851
|
|
|
$
|
1,125
|
|
|
$
|
24
|
|
|
$
|
-
|
|
Income tax expense related to the net realized gains was $772,000 and $463,000 for the nine months ended September 30, 2016 and September 30, 2015, respectively.
Sales of Held-to-Maturity Securities.
During the second quarter of 2016, the Bank sold one mortgage-backed security that was classified as held-to-maturity. The sale occurred after the Bank collected 85% or more of the principal outstanding at acquisition. The security sold had a carrying value of $106,000 at the time of sale and the Bank realized a gain upon sale of $17,000.
During the second quarter of 2015, the Bank sold one municipal security that was classified as held-to-maturity. The sale was in response to a significant deterioration in the creditworthiness of the issuer. The security sold had a carrying value of $235,000 at the time of sale and the Bank realized a gain upon sale of $8,000.
Maturities.
The following table sets forth by maturity the amortized cost and fair value of the Bank’s state and municipal securities at September 30, 2016 based on the earlier of their stated maturity or, if applicable, their pre-refunded date. The remaining securities in the Bank’s investment securities portfolio are mortgage-backed securities, consisting of pass-through securities and collateralized mortgage obligations. Although these securities are expected to have substantial periodic repayments they are reflected in the table below in aggregate amounts.
|
|
Amortized Cost
|
|
|
Fair Value
|
|
|
|
(in thousands)
|
|
Held-to-Maturity Securities:
|
|
|
|
Within one year
|
|
$
|
3,726
|
|
|
$
|
3,761
|
|
After 1 through 5 years
|
|
|
5,676
|
|
|
|
5,872
|
|
After 5 through 10 years
|
|
|
1,398
|
|
|
|
1,430
|
|
After 10 years
|
|
|
-
|
|
|
|
-
|
|
Mortgage-backed securities
|
|
|
1,115
|
|
|
|
1,210
|
|
|
|
$
|
11,915
|
|
|
$
|
12,273
|
|
Available-for-Sale Securities:
|
|
|
|
|
|
|
|
|
Within one year
|
|
$
|
16,339
|
|
|
$
|
16,535
|
|
After 1 through 5 years
|
|
|
65,687
|
|
|
|
68,893
|
|
After 5 through 10 years
|
|
|
168,525
|
|
|
|
177,243
|
|
After 10 years
|
|
|
193,140
|
|
|
|
202,837
|
|
Mortgage-backed securities
|
|
|
368,945
|
|
|
|
372,226
|
|
|
|
$
|
812,636
|
|
|
$
|
837,734
|
|
5
– LOANS
The following tables set forth by class of loans the amount of loans individually and collectively evaluated for impairment and the portion of the allowance for loan losses allocable to such loans.
|
|
September 30, 2016
|
|
|
|
Loans
|
|
|
Allowance for Loan Losses
|
|
|
|
Individually Evaluated for Impairment
|
|
|
Collectively Evaluated for Impairment
|
|
|
Ending Balance
|
|
|
Individually Evaluated for Impairment
|
|
|
Collectively Evaluated for Impairment
|
|
|
Ending Balance
|
|
|
|
(in thousands)
|
|
Commercial and industrial
|
|
$
|
1,000
|
|
|
$
|
116,973
|
|
|
$
|
117,973
|
|
|
$
|
-
|
|
|
$
|
1,351
|
|
|
$
|
1,351
|
|
Commercial mortgages:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Multifamily
|
|
|
-
|
|
|
|
545,354
|
|
|
|
545,354
|
|
|
|
-
|
|
|
|
5,671
|
|
|
|
5,671
|
|
Other
|
|
|
-
|
|
|
|
387,107
|
|
|
|
387,107
|
|
|
|
-
|
|
|
|
4,559
|
|
|
|
4,559
|
|
Owner-occupied
|
|
|
567
|
|
|
|
121,302
|
|
|
|
121,869
|
|
|
|
-
|
|
|
|
1,186
|
|
|
|
1,186
|
|
Residential mortgages:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Closed end
|
|
|
1,203
|
|
|
|
1,179,443
|
|
|
|
1,180,646
|
|
|
|
46
|
|
|
|
14,922
|
|
|
|
14,968
|
|
Revolving home equity
|
|
|
280
|
|
|
|
85,704
|
|
|
|
85,984
|
|
|
|
-
|
|
|
|
924
|
|
|
|
924
|
|
Consumer and other
|
|
|
-
|
|
|
|
5,976
|
|
|
|
5,976
|
|
|
|
-
|
|
|
|
100
|
|
|
|
100
|
|
|
|
$
|
3,050
|
|
|
$
|
2,441,859
|
|
|
$
|
2,444,909
|
|
|
$
|
46
|
|
|
$
|
28,713
|
|
|
$
|
28,759
|
|
|
|
December 31, 2015
|
|
Commercial and industrial
|
|
$
|
-
|
|
|
$
|
93,056
|
|
|
$
|
93,056
|
|
|
$
|
-
|
|
|
$
|
928
|
|
|
$
|
928
|
|
Commercial mortgages:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Multifamily
|
|
|
-
|
|
|
|
572,322
|
|
|
|
572,322
|
|
|
|
-
|
|
|
|
6,858
|
|
|
|
6,858
|
|
Other
|
|
|
-
|
|
|
|
348,909
|
|
|
|
348,909
|
|
|
|
-
|
|
|
|
3,674
|
|
|
|
3,674
|
|
Owner-occupied
|
|
|
594
|
|
|
|
114,506
|
|
|
|
115,100
|
|
|
|
-
|
|
|
|
1,047
|
|
|
|
1,047
|
|
Residential mortgages:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Closed end
|
|
|
3,797
|
|
|
|
1,021,418
|
|
|
|
1,025,215
|
|
|
|
428
|
|
|
|
13,211
|
|
|
|
13,639
|
|
Revolving home equity
|
|
|
522
|
|
|
|
87,326
|
|
|
|
87,848
|
|
|
|
-
|
|
|
|
1,016
|
|
|
|
1,016
|
|
Consumer and other
|
|
|
-
|
|
|
|
5,733
|
|
|
|
5,733
|
|
|
|
-
|
|
|
|
94
|
|
|
|
94
|
|
|
|
$
|
4,913
|
|
|
$
|
2,243,270
|
|
|
$
|
2,248,183
|
|
|
$
|
428
|
|
|
$
|
26,828
|
|
|
$
|
27,256
|
|
The following tables present the activity in the allowance for loan losses for the nine and three months ended September 30, 2016 and 2015.
|
|
Balance at
1/1/16
|
|
|
Chargeoffs
|
|
|
Recoveries
|
|
|
Provision for Loan
Losses (Credit)
|
|
|
Balance at
9/30/16
|
|
|
|
(in thousands)
|
|
Commercial and industrial
|
|
$
|
928
|
|
|
$
|
-
|
|
|
$
|
4
|
|
|
$
|
419
|
|
|
$
|
1,351
|
|
Commercial mortgages:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Multifamily
|
|
|
6,858
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(1,187
|
)
|
|
|
5,671
|
|
Other
|
|
|
3,674
|
|
|
|
-
|
|
|
|
-
|
|
|
|
885
|
|
|
|
4,559
|
|
Owner-occupied
|
|
|
1,047
|
|
|
|
-
|
|
|
|
-
|
|
|
|
139
|
|
|
|
1,186
|
|
Residential mortgages:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Closed end
|
|
|
13,639
|
|
|
|
32
|
|
|
|
9
|
|
|
|
1,352
|
|
|
|
14,968
|
|
Revolving home equity
|
|
|
1,016
|
|
|
|
-
|
|
|
|
12
|
|
|
|
(104
|
)
|
|
|
924
|
|
Consumer and other
|
|
|
94
|
|
|
|
5
|
|
|
|
5
|
|
|
|
6
|
|
|
|
100
|
|
|
|
$
|
27,256
|
|
|
$
|
37
|
|
|
$
|
30
|
|
|
$
|
1,510
|
|
|
$
|
28,759
|
|
|
|
Balance at
7/1/16
|
|
|
Chargeoffs
|
|
|
Recoveries
|
|
|
Provision for Loan Losses (Credit)
|
|
|
Balance at
9/30/16
|
|
|
|
(in thousands)
|
|
Commercial and industrial
|
|
$
|
1,174
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
177
|
|
|
$
|
1,351
|
|
Commercial mortgages:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Multifamily
|
|
|
6,346
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(675
|
)
|
|
|
5,671
|
|
Other
|
|
|
3,828
|
|
|
|
-
|
|
|
|
-
|
|
|
|
731
|
|
|
|
4,559
|
|
Owner-occupied
|
|
|
1,175
|
|
|
|
-
|
|
|
|
-
|
|
|
|
11
|
|
|
|
1,186
|
|
Residential mortgages:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Closed end
|
|
|
14,148
|
|
|
|
32
|
|
|
|
1
|
|
|
|
851
|
|
|
|
14,968
|
|
Revolving home equity
|
|
|
913
|
|
|
|
-
|
|
|
|
-
|
|
|
|
11
|
|
|
|
924
|
|
Consumer and other
|
|
|
93
|
|
|
|
5
|
|
|
|
-
|
|
|
|
12
|
|
|
|
100
|
|
|
|
$
|
27,677
|
|
|
$
|
37
|
|
|
$
|
1
|
|
|
$
|
1,118
|
|
|
$
|
28,759
|
|
|
|
Balance at
1/1/15
|
|
|
Chargeoffs
|
|
|
Recoveries
|
|
|
Provision for Loan Losses (Credit)
|
|
|
Balance at
9/30/15
|
|
|
|
(in thousands)
|
|
Commercial and industrial
|
|
$
|
838
|
|
|
$
|
-
|
|
|
$
|
6
|
|
|
$
|
61
|
|
|
$
|
905
|
|
Commercial mortgages:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Multifamily
|
|
|
7,207
|
|
|
|
88
|
|
|
|
-
|
|
|
|
(304
|
)
|
|
|
6,815
|
|
Other
|
|
|
2,340
|
|
|
|
-
|
|
|
|
2
|
|
|
|
521
|
|
|
|
2,863
|
|
Owner-occupied
|
|
|
1,023
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(74
|
)
|
|
|
949
|
|
Residential mortgages:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Closed end
|
|
|
10,599
|
|
|
|
-
|
|
|
|
9
|
|
|
|
2,319
|
|
|
|
12,927
|
|
Revolving home equity
|
|
|
1,121
|
|
|
|
-
|
|
|
|
5
|
|
|
|
(158
|
)
|
|
|
968
|
|
Consumer and other
|
|
|
93
|
|
|
|
37
|
|
|
|
-
|
|
|
|
37
|
|
|
|
93
|
|
|
|
$
|
23,221
|
|
|
$
|
125
|
|
|
$
|
22
|
|
|
$
|
2,402
|
|
|
$
|
25,520
|
|
|
|
Balance at
7/1/15
|
|
|
Chargeoffs
|
|
|
Recoveries
|
|
|
Provision for Loan Losses (Credit)
|
|
|
Balance at
9/30/15
|
|
|
|
(in thousands)
|
|
Commercial and industrial
|
|
$
|
986
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
(81
|
)
|
|
$
|
905
|
|
Commercial mortgages:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Multifamily
|
|
|
7,030
|
|
|
|
21
|
|
|
|
-
|
|
|
|
(194
|
)
|
|
|
6,815
|
|
Other
|
|
|
2,263
|
|
|
|
-
|
|
|
|
1
|
|
|
|
599
|
|
|
|
2,863
|
|
Owner-occupied
|
|
|
1,007
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(58
|
)
|
|
|
949
|
|
Residential mortgages:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Closed end
|
|
|
12,114
|
|
|
|
-
|
|
|
|
-
|
|
|
|
813
|
|
|
|
12,927
|
|
Revolving home equity
|
|
|
1,021
|
|
|
|
-
|
|
|
|
5
|
|
|
|
(58
|
)
|
|
|
968
|
|
Consumer and other
|
|
|
70
|
|
|
|
5
|
|
|
|
-
|
|
|
|
28
|
|
|
|
93
|
|
|
|
$
|
24,491
|
|
|
$
|
26
|
|
|
$
|
6
|
|
|
$
|
1,049
|
|
|
$
|
25,520
|
|
For individually impaired loans, the following tables set forth by class of loans at September 30, 2016 and December 31, 2015 the recorded investment, unpaid principal balance and related allowance. The tables also set forth the average recorded investment of individually impaired loans and interest income recognized while the loans were impaired during the nine and three months ended September 30, 2016 and 2015. The recorded investment is the unpaid principal balance of the loans less any interest payments applied to principal and any direct chargeoffs plus or minus net deferred loan costs and fees. Any principal and interest payments received on nonaccrual impaired loans are applied to the recorded investment in the loans. The Bank recognizes interest income on other impaired loans using the accrual method of accounting.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended
|
|
|
Three Months Ended
|
|
|
|
September 30, 2016
|
|
|
September 30, 2016
|
|
|
September 30, 2016
|
|
|
|
|
|
|
|
Unpaid
|
|
|
|
|
|
|
Average
|
|
|
Interest
|
|
|
Average
|
|
|
Interest
|
|
|
|
Recorded
|
|
|
Principal
|
|
|
Related
|
|
|
Recorded
|
|
|
Income
|
|
|
Recorded
|
|
|
Income
|
|
|
|
Investment
|
|
|
Balance
|
|
|
Allowance
|
|
|
Investment
|
|
|
Recognized
|
|
|
Investment
|
|
|
Recognized
|
|
|
|
(in thousands)
|
|
With no related allowance recorded:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial and industrial
|
|
$
|
1,000
|
|
|
$
|
1,000
|
|
|
$
|
-
|
|
|
$
|
1,158
|
|
|
$
|
1
|
|
|
$
|
1,100
|
|
|
$
|
1
|
|
Commercial mortgages - owner occupied
|
|
|
567
|
|
|
|
641
|
|
|
|
-
|
|
|
|
579
|
|
|
|
-
|
|
|
|
570
|
|
|
|
-
|
|
Residential mortgages:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Closed end
|
|
|
569
|
|
|
|
689
|
|
|
|
-
|
|
|
|
589
|
|
|
|
-
|
|
|
|
573
|
|
|
|
-
|
|
Revolving home equity
|
|
|
280
|
|
|
|
279
|
|
|
|
-
|
|
|
|
280
|
|
|
|
-
|
|
|
|
280
|
|
|
|
(5
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
With an allowance recorded:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential mortgages - closed end
|
|
|
634
|
|
|
|
642
|
|
|
|
46
|
|
|
|
645
|
|
|
|
22
|
|
|
|
637
|
|
|
|
7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial and industrial
|
|
|
1,000
|
|
|
|
1,000
|
|
|
|
-
|
|
|
|
1,158
|
|
|
|
1
|
|
|
|
1,100
|
|
|
|
1
|
|
Commercial mortgages - owner occupied
|
|
|
567
|
|
|
|
641
|
|
|
|
-
|
|
|
|
579
|
|
|
|
-
|
|
|
|
570
|
|
|
|
-
|
|
Residential mortgages:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Closed end
|
|
|
1,203
|
|
|
|
1,331
|
|
|
|
46
|
|
|
|
1,234
|
|
|
|
22
|
|
|
|
1,210
|
|
|
|
7
|
|
Revolving home equity
|
|
|
280
|
|
|
|
279
|
|
|
|
-
|
|
|
|
280
|
|
|
|
-
|
|
|
|
280
|
|
|
|
(5
|
)
|
|
|
$
|
3,050
|
|
|
$
|
3,251
|
|
|
$
|
46
|
|
|
$
|
3,251
|
|
|
$
|
23
|
|
|
$
|
3,160
|
|
|
$
|
3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended
|
|
|
Three Months Ended
|
|
|
|
December 31, 2015
|
|
|
September 30, 2015
|
|
|
September 30, 2015
|
|
|
|
|
|
|
|
Unpaid
|
|
|
|
|
|
|
Average
|
|
|
Interest
|
|
|
Average
|
|
|
Interest
|
|
|
|
Recorded
|
|
|
Principal
|
|
|
Related
|
|
|
Recorded
|
|
|
Income
|
|
|
Recorded
|
|
|
Income
|
|
|
|
Investment
|
|
|
Balance
|
|
|
Allowance
|
|
|
Investment
|
|
|
Recognized
|
|
|
Investment
|
|
|
Recognized
|
|
|
|
(in thousands)
|
|
With no related allowance recorded:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial mortgages:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Multifamily
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
1,889
|
|
|
$
|
-
|
|
|
$
|
1,883
|
|
|
$
|
-
|
|
Owner-occupied
|
|
|
594
|
|
|
|
654
|
|
|
|
-
|
|
|
|
617
|
|
|
|
-
|
|
|
|
606
|
|
|
|
-
|
|
Residential mortgages:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Closed end
|
|
|
306
|
|
|
|
405
|
|
|
|
-
|
|
|
|
365
|
|
|
|
-
|
|
|
|
351
|
|
|
|
-
|
|
Revolving home equity
|
|
|
522
|
|
|
|
521
|
|
|
|
-
|
|
|
|
574
|
|
|
|
4
|
|
|
|
572
|
|
|
|
4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
With an allowance recorded:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial and industrial
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
81
|
|
|
|
1
|
|
|
|
74
|
|
|
|
1
|
|
Residential mortgages - closed end
|
|
|
3,491
|
|
|
|
3,494
|
|
|
|
428
|
|
|
|
3,424
|
|
|
|
63
|
|
|
|
3,373
|
|
|
|
42
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial and industrial
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
81
|
|
|
|
1
|
|
|
|
74
|
|
|
|
1
|
|
Commercial mortgages:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Multifamily
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,889
|
|
|
|
-
|
|
|
|
1,883
|
|
|
|
-
|
|
Owner-occupied
|
|
|
594
|
|
|
|
654
|
|
|
|
-
|
|
|
|
617
|
|
|
|
-
|
|
|
|
606
|
|
|
|
-
|
|
Residential mortgages:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Closed end
|
|
|
3,797
|
|
|
|
3,899
|
|
|
|
428
|
|
|
|
3,789
|
|
|
|
63
|
|
|
|
3,724
|
|
|
|
42
|
|
Revolving home equity
|
|
|
522
|
|
|
|
521
|
|
|
|
-
|
|
|
|
574
|
|
|
|
4
|
|
|
|
572
|
|
|
|
4
|
|
|
|
$
|
4,913
|
|
|
$
|
5,074
|
|
|
$
|
428
|
|
|
$
|
6,950
|
|
|
$
|
68
|
|
|
$
|
6,859
|
|
|
$
|
47
|
|
Aging of Loans
. The following tables present the aging of the recorded investment in loans by class of loans.
|
|
September 30, 2016
|
|
|
|
|
|
|
|
|
|
|
|
Past Due
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
90 Days or
|
|
|
|
|
|
|
Total Past
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
More and
|
|
|
|
|
|
Due Loans &
|
|
|
|
|
|
|
|
|
|
|
30-59 Days
Past Due
|
|
|
60-89 Days
Past Due
|
|
|
Still
Accruing
|
|
|
Nonaccrual
Loans
|
|
|
Nonaccrual
Loans
|
|
|
Current
|
|
|
Total
Loans
|
|
|
|
(in thousands)
|
|
Commercial and industrial
|
|
$
|
125
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
125
|
|
|
$
|
117,848
|
|
|
$
|
117,973
|
|
Commercial mortgages:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Multifamily
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
545,354
|
|
|
|
545,354
|
|
Other
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
387,107
|
|
|
|
387,107
|
|
Owner-occupied
|
|
|
619
|
|
|
|
-
|
|
|
|
-
|
|
|
|
567
|
|
|
|
1,186
|
|
|
|
120,683
|
|
|
|
121,869
|
|
Residential mortgages:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Closed end
|
|
|
252
|
|
|
|
-
|
|
|
|
-
|
|
|
|
569
|
|
|
|
821
|
|
|
|
1,179,825
|
|
|
|
1,180,646
|
|
Revolving home equity
|
|
|
490
|
|
|
|
-
|
|
|
|
-
|
|
|
|
280
|
|
|
|
770
|
|
|
|
85,214
|
|
|
|
85,984
|
|
Consumer and other
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
5,976
|
|
|
|
5,976
|
|
|
|
$
|
1,486
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
1,416
|
|
|
$
|
2,902
|
|
|
$
|
2,442,007
|
|
|
$
|
2,444,909
|
|
|
|
December 31, 2015
|
|
Commercial and industrial
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
93,056
|
|
|
$
|
93,056
|
|
Commercial mortgages:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Multifamily
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
572,322
|
|
|
|
572,322
|
|
Other
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
348,909
|
|
|
|
348,909
|
|
Owner-occupied
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
594
|
|
|
|
594
|
|
|
|
114,506
|
|
|
|
115,100
|
|
Residential mortgages:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Closed end
|
|
|
991
|
|
|
|
-
|
|
|
|
-
|
|
|
|
456
|
|
|
|
1,447
|
|
|
|
1,023,768
|
|
|
|
1,025,215
|
|
Revolving home equity
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
280
|
|
|
|
280
|
|
|
|
87,568
|
|
|
|
87,848
|
|
Consumer and other
|
|
|
12
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
12
|
|
|
|
5,721
|
|
|
|
5,733
|
|
|
|
$
|
1,003
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
1,330
|
|
|
$
|
2,333
|
|
|
$
|
2,245,850
|
|
|
$
|
2,248,183
|
|
There were no loans in the process of foreclosure at September 30, 2016 or December 31, 2015. The Bank did not hold any foreclosed residential real estate property at September 30, 2016 or December 31, 2015.
Troubled Debt Restructurings.
A restructuring constitutes a troubled debt restructuring when it includes a concession by the Bank and the borrower is experiencing financial difficulty. In order to determine whether a borrower is experiencing financial difficulty, an evaluation is performed as to the probability that the borrower will be in payment default on any of its debt in the foreseeable future without the modification. The Bank performs the evaluation under its internal underwriting policy.
During the nine months ended September 30, 2016 the Bank modified a commercial and industrial loan in a troubled debt restructuring. The modification involved restructuring a $1.0 million line of credit into a new time loan. The new time loan has a maturity of December 31, 2016 and a rate of interest that is lower than the current market rate for new debt with similar risk.
During the nine months ended September 30, 2015, the Bank modified two loans to a single borrower in a troubled debt restructuring. The loans were a first lien residential mortgage with a pre and post-modification outstanding recorded investment of $2.7 million and a junior lien residential mortgage with a pre and post-modification outstanding recorded investment of $245,000. The restructuring reduced the interest rate on each loan from 5.25% to 4.00%, which is lower than the current market rate for new debt with similar risk. The restructuring resulted in a charge to the provision for loan losses of $332,000.
At September 30, 2016 and December 31, 2015, the Bank had an allowance for loan losses of $46,000 and $395,000, respectively, allocated to specific troubled debt restructurings. The Bank had no commitments to lend additional amounts in connection with loans that were classified as troubled debt restructurings.
There were no troubled debt restructurings for which there was a payment default during the nine months ended September 30, 2016 and 2015 that were modified during the twelve-month period prior to default. A loan is considered to be in payment default once it is 90 days contractually past due under the modified terms.
Risk Characteristics
.
Credit risk within the Bank’s loan portfolio primarily stems from factors such as borrower size, geographic concentration, industry concentration, real estate values, local and national economic conditions and environmental impairment of properties securing mortgage loans. The Bank’s commercial loans, including those secured by mortgages, are primarily made to small and medium-sized businesses. Such loans sometimes involve a higher degree of risk than those to larger companies because such businesses may have shorter operating histories, higher debt-to-equity ratios and may lack sophistication in internal record keeping and financial and operational controls. In addition, most of the Bank’s loans are made to businesses and consumers on Long Island and in the boroughs of New York City, and a large percentage of these loans are mortgage loans secured by properties located in those areas. The primary source of repayment for multifamily loans is cash flows from the underlying properties, a substantial portion of which are rent stabilized or rent controlled. Such cash flows are dependent on the strength of the local economy.
Credit Quality Indicators.
The Bank categorizes loans into risk categories based on relevant information about the borrower’s ability to service their debt including, but not limited to, current financial information for the borrower and any guarantors, payment experience, credit underwriting documentation, public records and current economic trends.
Commercial and industrial loans and commercial mortgage loans are risk rated utilizing a ten point rating system. The ten point risk rating system is described hereinafter.
Internally
Assigned
Risk Rating
|
|
|
|
|
|
1 – 2
|
|
Cash flow is of high quality and stable. Borrower has very good liquidity and ready access to traditional sources of credit. This category also includes loans to borrowers secured by cash and/or marketable securities within approved margin requirements.
|
3 – 4
|
|
Cash flow quality is strong, but shows some variability. Borrower has good liquidity and asset quality. Borrower has access to traditional sources of credit with minimal restrictions.
|
5 – 6
|
|
Cash flow quality is acceptable but shows some variability. Liquidity varies with operating cycle and assets provide an adequate margin of protection. Borrower has access to traditional sources of credit, but generally on a secured basis.
|
7
|
|
Watch - Cash flow has a high degree of variability and subject to economic downturns. Liquidity is strained and the ability of the borrower to access traditional sources of credit is diminished.
|
8
|
|
Special Mention - The borrower has potential weaknesses that deserve management’s close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the loan or in the Bank’s credit position at some future date. Special mention assets are not adversely classified and do not expose the Bank to risk sufficient to warrant adverse classification.
|
9
|
|
Substandard - Loans are inadequately protected by the current sound worth and paying capacity of the borrower or the collateral pledged, if any. Loans so classified have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. They are characterized by the distinct possibility that the Bank will sustain some loss if the deficiencies are not corrected.
|
10
|
|
Doubtful - Loans have all the inherent weaknesses of those classified substandard with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions and values, highly questionable and improbable.
|
Risk ratings on commercial and industrial loans and commercial mortgages are initially assigned by the lending officer together with any necessary approval authority. The ratings are periodically reviewed and evaluated based upon borrower contact, credit department review or independent loan review.
The Bank's Loan Policy establishes requirements for the annual review of commercial real estate and commercial and industrial loans. The requirements include details of the scope of coverage and selection process based on loan-type and risk rating. Among other requirements, at least 60% of the recorded investment of commercial real estate loans as of December 31 of the prior year must be reviewed annually. The frequency of the review of other loans is determined by the Bank’s ongoing assessments of the borrower’s condition.
Residential mortgage loans, revolving home equity lines, other consumer loans and small business credit scored loans are risk rated utilizing a three point rating system. In most cases, the borrower’s credit score dictates the risk rating. However, regardless of credit score, loans that are on management’s watch list or have been criticized or classified by management are assigned a risk rating of 3. A credit score is a tool used in the Bank’s loan approval process, and a minimum score of 700 is generally required for new loans. Credit scores for each borrower are updated at least annually. The risk ratings along with their definitions are as follows:
Internally
Assigned
Risk Rating
|
|
|
1
|
|
Credit score is equal to or greater than 680.
|
2
|
|
Credit score is 635 to 679.
|
3
|
|
Credit score is below 635 or, regardless of credit score, the loan has been classified, criticized or placed on watch.
|
The following tables present the recorded investment in commercial and industrial loans and commercial mortgage loans by class of loans and risk rating. Loans shown as Pass are all loans other than those risk rated Watch, Special Mention, Substandard or Doubtful.
|
|
September 30, 2016
|
|
|
|
Internally Assigned Risk Rating
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Special
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pass
|
|
|
Watch
|
|
|
Mention
|
|
|
Substandard
|
|
|
Doubtful
|
|
|
Total
|
|
|
|
(in thousands)
|
|
Commercial and industrial
|
|
$
|
116,838
|
|
|
$
|
135
|
|
|
$
|
-
|
|
|
$
|
1,000
|
|
|
$
|
-
|
|
|
$
|
117,973
|
|
Commercial mortgages:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Multifamily
|
|
|
538,029
|
|
|
|
-
|
|
|
|
7,325
|
|
|
|
-
|
|
|
|
-
|
|
|
|
545,354
|
|
Other
|
|
|
385,692
|
|
|
|
1,415
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
387,107
|
|
Owner-occupied
|
|
|
120,894
|
|
|
|
408
|
|
|
|
-
|
|
|
|
567
|
|
|
|
-
|
|
|
|
121,869
|
|
|
|
$
|
1,161,453
|
|
|
$
|
1,958
|
|
|
$
|
7,325
|
|
|
$
|
1,567
|
|
|
$
|
-
|
|
|
$
|
1,172,303
|
|
|
|
December 31, 2015
|
|
Commercial and industrial
|
|
$
|
91,950
|
|
|
$
|
1,106
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
93,056
|
|
Commercial mortgages:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Multifamily
|
|
|
567,467
|
|
|
|
-
|
|
|
|
4,855
|
|
|
|
-
|
|
|
|
-
|
|
|
|
572,322
|
|
Other
|
|
|
346,419
|
|
|
|
900
|
|
|
|
-
|
|
|
|
1,590
|
|
|
|
-
|
|
|
|
348,909
|
|
Owner-occupied
|
|
|
110,641
|
|
|
|
3,865
|
|
|
|
-
|
|
|
|
594
|
|
|
|
-
|
|
|
|
115,100
|
|
|
|
$
|
1,116,477
|
|
|
$
|
5,871
|
|
|
$
|
4,855
|
|
|
$
|
2,184
|
|
|
$
|
-
|
|
|
$
|
1,129,387
|
|
The following tables present the recorded investment in residential mortgage loans, home equity lines and other consumer loans by class of loans and risk rating. Loans shown as Pass are all loans other than those risk rated Watch, Special Mention, Substandard or Doubtful.
|
|
September 30, 2016
|
|
|
|
Internally Assigned Risk Rating
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Special
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pass
|
|
|
Watch
|
|
|
Mention
|
|
|
Substandard
|
|
|
Doubtful
|
|
|
Total
|
|
|
|
(in thousands)
|
|
Residential mortgages:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Closed end
|
|
$
|
1,178,452
|
|
|
$
|
991
|
|
|
$
|
-
|
|
|
$
|
1,203
|
|
|
$
|
-
|
|
|
$
|
1,180,646
|
|
Revolving home equity
|
|
|
85,704
|
|
|
|
-
|
|
|
|
-
|
|
|
|
280
|
|
|
|
-
|
|
|
|
85,984
|
|
Consumer and other
|
|
|
5,627
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
5,627
|
|
|
|
$
|
1,269,783
|
|
|
$
|
991
|
|
|
$
|
-
|
|
|
$
|
1,483
|
|
|
$
|
-
|
|
|
$
|
1,272,257
|
|
|
|
December 31, 2015
|
|
Residential mortgages:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Closed end
|
|
$
|
1,020,393
|
|
|
$
|
1,025
|
|
|
$
|
-
|
|
|
$
|
3,797
|
|
|
$
|
-
|
|
|
$
|
1,025,215
|
|
Revolving home equity
|
|
|
87,326
|
|
|
|
-
|
|
|
|
-
|
|
|
|
522
|
|
|
|
-
|
|
|
|
87,848
|
|
Consumer and other
|
|
|
5,443
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
5,443
|
|
|
|
$
|
1,113,162
|
|
|
$
|
1,025
|
|
|
$
|
-
|
|
|
$
|
4,319
|
|
|
$
|
-
|
|
|
$
|
1,118,506
|
|
Deposit account overdrafts were $349,000 and $290,000 at September 30, 2016 and December 31, 2015, respectively. Overdrafts are not assigned a risk rating and are therefore excluded from consumer loans in the tables above.
6 - STOCK-BASED COMPENSATION
On April 22, 2014, the stockholders of the Corporation approved the 2014 Equity Incentive Plan (“2014 Plan”). Upon approval of the 2014 Plan, no further awards could be made under the 2006 Stock Compensation Plan (“2006 Plan”).
2014 Plan.
Under the 2014 Plan, awards may be granted to employees and non-employee directors as non-qualified stock options (“NQSOs”), stock appreciation rights (“SARs”), restricted stock awards, RSUs, or any combination thereof, any of which may be subject to performance-based vesting conditions. Awards may also be granted to employees as incentive stock options (“ISOs”). The exercise price of ISOs and NQSOs granted under the 2014 Plan may not be less than the fair market value of the Corporation’s common stock on the date the stock option is granted. The 2014 Plan is administered by the Compensation Committee of the Board of Directors. Awards granted to date under the 2014 Plan are substantially comprised of RSUs. All awards granted under the 2014 Plan will immediately vest in the event of a change in control, total and permanent disability, as defined, or death, and with certain exceptions will immediately vest in the event of retirement, as defined.
The Corporation has 1,500,000 shares of common stock reserved for awards under the 2014 Plan. Awards granted under the 2006 Plan that expire or are forfeited after April 22, 2014 will be added to the number of shares of common stock reserved for issuance of awards under the 2014 Plan. All of the 1,500,000 shares may be issued pursuant to the exercise of stock options or SARs. A maximum of 525,000 shares may be issued as restricted stock awards or RSUs. At September 30, 2016, 1,356,973 shares of common stock remain available for issuance of awards under the 2014 Plan of which 369,353 shares remain available for issuance as restricted stock awards or RSUs.
In January 2016, the Board of Directors awarded 68,010 RSUs under the 2014 Plan of which 2,190 shares vested upon the retirement of two non-employee directors and 65,820 remain outstanding at September 30, 2016. These RSUs accrue dividends at the same rate as the dividends declared by the Board of Directors on the Corporation’s common stock. The accrued dividends are payable upon vesting of the awards. The outstanding awards include 55,640 performance-based RSUs with vesting based on the financial performance of the Corporation in 2018 and 10,180 RSUs that will vest in equal annual installments at the end of one, two and three years of service.
2006 Plan.
The 2006 Plan was approved by the stockholders of the Corporation on April 18, 2006. The 2006 Plan permitted the granting of stock options, SARs, restricted stock awards and RSUs to employees and non-employee directors. Under the terms of the 2006 Plan, stock options and SARs could not have an exercise price that was less than 100% of the fair market value of one share of the underlying common stock on the date of grant. Through December 31, 2011, equity grants to executive officers and directors under the 2006 Plan consisted of a combination of NQSOs and RSUs, while equity grants to other officers consisted solely of NQSOs. Beginning in 2012, equity grants under the 2006 Plan consisted solely of RSUs. Stock options granted under the 2006 Plan have a five year vesting period and a ten year term. All awards granted under the 2006 Plan will immediately vest in the event of a change in control, retirement, total and permanent disability, as defined, or death.
Fair Value of RSUs.
The grant date fair value of RSUs awarded in 2016 is equal to the market price of the shares underlying the awards on the grant date. For RSUs awarded prior to 2016, the grant date fair value is equal to the market price of the shares underlying the awards on the grant date, discounted for dividends that are not paid or accrued on these RSUs.
Fair Value of Stock Options.
The grant date fair value of option awards is estimated on the date of grant using the Black-Scholes option pricing model.
Compensation Expense
.
Compensation expense for performance-based RSUs is recognized over a three-year performance period and adjusted periodically to reflect the estimated number of shares of the Corporation’s common stock into which the RSUs will ultimately be convertible. However, for performance-based RSUs that provide for immediate vesting in the event of retirement, if the period between the grant date and the grantee’s eligible retirement date is less than three years, compensation expense is recognized ratably over this shorter period without regard to performance. Compensation expense for service-based RSUs is recognized over the applicable service-based vesting period with acceleration, as appropriate, based on a grantee’s eligible retirement date.
Compensation expense for stock options is recognized ratably over the five-year vesting period or the period from the grant date to the participant’s eligible retirement date, whichever is shorter.
The Corporation recorded compensation expense for share-based payments of $1,316,000 and $1,053,000 and recognized related income tax benefits of $552,000 and $434,000 for the nine months ended September 30, 2016 and 2015, respectively.
Stock Option Activity.
The following table presents a summary of options outstanding under the Corporation’s stock-based compensation plans as of September 30, 2016, and changes during the nine month period then ended.
|
|
|
|
|
|
|
|
|
|
Weighted-
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-
|
|
|
Average
|
|
|
Aggregate
|
|
|
|
|
|
|
|
Average
|
|
|
Remaining
|
|
|
Intrinsic
|
|
|
|
Number of
|
|
|
Exercise
|
|
|
Contractual
|
|
|
Value
|
|
|
|
Options
|
|
|
Price
|
|
|
Term (yrs.)
|
|
|
(in thousands)
|
|
Outstanding at January 1, 2016
|
|
|
231,444
|
|
|
$
|
15.96
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(47,513
|
)
|
|
|
16.38
|
|
|
|
|
|
|
|
|
|
Forfeited or expired
|
|
|
(3,875
|
)
|
|
|
15.12
|
|
|
|
|
|
|
|
|
|
Outstanding at September 30, 2016
|
|
|
180,056
|
|
|
$
|
15.87
|
|
|
|
2.64
|
|
|
$
|
3,112
|
|
Exercisable at September 30, 2016
|
|
|
179,656
|
|
|
$
|
15.85
|
|
|
|
2.63
|
|
|
$
|
3,109
|
|
All options outstanding at
September
30, 2016 are either fully vested or expected to vest. The total intrinsic value of options exercised during the first nine months of 2016 and 2015 was $644,000 and $401,000, respectively.
RSU Activity.
The following table presents a summary of RSUs outstanding under the Corporation’s stock-based compensation plans as of
September
30, 2016 and changes during the nine month period then ended.
|
|
|
|
|
|
|
|
|
|
Weighted-
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-
|
|
|
Average
|
|
|
Aggregate
|
|
|
|
|
|
|
|
Average
|
|
|
Remaining
|
|
|
Intrinsic
|
|
|
|
Number of
|
|
|
Grant-Date
|
|
|
Contractual
|
|
|
Value
|
|
|
|
RSUs
|
|
|
Fair Value
|
|
|
Term (yrs.)
|
|
|
(in thousands)
|
|
Outstanding at January 1, 2016
|
|
|
157,351
|
|
|
$
|
21.83
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
68,010
|
|
|
|
27.26
|
|
|
|
|
|
|
|
|
|
Converted
|
|
|
(51,754
|
)
|
|
|
19.68
|
|
|
|
|
|
|
|
|
|
Outstanding at September 30, 2016
|
|
|
173,607
|
|
|
$
|
24.60
|
|
|
|
1.43
|
|
|
$
|
5,755
|
|
Vested and Convertible at September 30, 2016
|
|
|
-
|
|
|
$
|
-
|
|
|
|
-
|
|
|
$
|
-
|
|
The number of RSUs in the table represents the maximum number of shares of the Corporation’s common stock into which the RSUs can be converted. All of the RSUs outstanding at
September
30, 2016 are currently expected to vest and become convertible in the future. The total intrinsic value of RSUs converted during the first nine months of 2016 and 2015 was $1,445,000 and $965,000, respectively.
Unrecognized Compensation Cost.
As of
September
30, 2016, there was $1,787,000 of total unrecognized compensation cost related to non-vested equity awards comprised of $3,000 for stock options and $1,784,000 for RSUs. The total cost is expected to be recognized over a weighted-average period of 1.7 years, which is based on weighted-average periods of 3.7 years and 1.7 years for stock options and RSUs, respectively.
Cash Received and Tax Benefits Realized.
Cash received from stock option exercises for the nine months ended September 30, 2016 and 2015 was $778,000 and $524,000, respectively. The actual tax benefits realized for the tax deductions from stock option exercises for the nine months ended September 30, 2016 and 2015 were $259,000 and $157,000, respectively.
Other.
No cash was used to settle stock options during the first nine months of 2016 or 2015. The Corporation uses newly issued shares to settle stock option exercises and for the conversion of RSUs.
7 - DEFINED BENEFIT PENSION PLAN
The following table sets forth the components of net periodic pension cost.
|
|
Nine Months Ended
|
|
|
Three Months Ended
|
|
|
|
September 30,
|
|
|
September 30,
|
|
|
|
2016
|
|
|
2015
|
|
|
2016
|
|
|
2015
|
|
|
|
(in thousands)
|
|
Service cost plus expected expenses and net of
expected plan participant contributions
|
|
$
|
857
|
|
|
$
|
892
|
|
|
$
|
285
|
|
|
$
|
297
|
|
Interest cost
|
|
|
1,188
|
|
|
|
1,055
|
|
|
|
396
|
|
|
|
351
|
|
Expected return on plan assets
|
|
|
(2,215
|
)
|
|
|
(2,314
|
)
|
|
|
(738
|
)
|
|
|
(770
|
)
|
Amortization of net actuarial loss
|
|
|
183
|
|
|
|
-
|
|
|
|
61
|
|
|
|
-
|
|
Net pension cost (credit)
|
|
$
|
13
|
|
|
$
|
(367
|
)
|
|
$
|
4
|
|
|
$
|
(122
|
)
|
The Bank makes cash contributions to the pension plan (“Plan”) which comply with the funding requirements of applicable Federal laws and regulations. For funding purposes, the laws and regulations set forth both minimum required and maximum tax-deductible contributions. The Bank had no minimum required pension contribution for the Plan year ending September 30, 2016 and its maximum tax-deductible contribution for the tax year beginning January 1, 2016 is $1,553,000. Management has not yet determined the amount, if any, that the Bank will contribute to the Plan in 2016.
8 - FAIR VALUE OF FINANCIAL INSTRUMENTS
Financial Instruments Recorded at Fair Value
. When measuring fair value, the Corporation uses a fair value hierarchy, which is designed to maximize the use of observable inputs and minimize the use of unobservable inputs. The hierarchy involves three levels of inputs that may be used to measure fair value:
Level 1: Quoted prices (unadjusted) in active markets for identical assets or liabilities that the Corporation has the ability to access at the measurement date.
Level 2: Significant other observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets or liabilities in markets that are not active; or inputs other than quoted prices that are observable or can be corroborated by observable market data.
Level 3: Significant unobservable inputs that reflect the Corporation’s own assumptions about the assumptions that market participants would use in pricing an asset or liability.
The Corporation deems transfers between levels of the fair value hierarchy to have occurred on the date of the event or change in circumstance that caused the transfer. There were no transfers between levels of the fair value hierarchy during the nine months ended September 30, 2016 or 2015.
The fair values of the Corporation’s investment securities designated as available-for-sale at September 30, 2016 and December 31, 2015 are set forth in the tables that follow. These values are determined on a recurring basis using matrix pricing (Level 2 inputs). Matrix pricing, which is a mathematical technique widely used in the industry to value debt securities, does not rely exclusively on quoted prices for the specific securities but rather on the relationship of such securities to other benchmark quoted securities.
|
|
|
|
|
|
Fair Value Measurements Using:
|
|
|
|
|
|
|
|
Quoted Prices
|
|
|
Significant
|
|
|
|
|
|
|
|
|
|
|
|
in Active
|
|
|
Other
|
|
|
Significant
|
|
|
|
|
|
|
|
Markets for
|
|
|
Observable
|
|
|
Unobservable
|
|
|
|
|
|
|
|
Identical Assets
|
|
|
Inputs
|
|
|
Inputs
|
|
|
|
Total
|
|
|
(Level 1)
|
|
|
(Level 2)
|
|
|
(Level 3)
|
|
|
|
(in thousands)
|
|
September 30, 2016:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-Sale Securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
State and municipals
|
|
$
|
465,508
|
|
|
$
|
-
|
|
|
$
|
465,508
|
|
|
$
|
-
|
|
Pass-through mortgage securities
|
|
|
185,460
|
|
|
|
-
|
|
|
|
185,460
|
|
|
|
-
|
|
Collateralized mortgage obligations
|
|
|
186,766
|
|
|
|
-
|
|
|
|
186,766
|
|
|
|
-
|
|
|
|
$
|
837,734
|
|
|
$
|
-
|
|
|
$
|
837,734
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2015:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-Sale Securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
State and municipals
|
|
$
|
435,693
|
|
|
$
|
-
|
|
|
$
|
435,693
|
|
|
$
|
-
|
|
Pass-through mortgage securities
|
|
|
147,265
|
|
|
|
-
|
|
|
|
147,265
|
|
|
|
-
|
|
Collateralized mortgage obligations
|
|
|
154,742
|
|
|
|
-
|
|
|
|
154,742
|
|
|
|
-
|
|
|
|
$
|
737,700
|
|
|
$
|
-
|
|
|
$
|
737,700
|
|
|
$
|
-
|
|
Assets measured at fair value on a nonrecurring basis at December 31, 2015, are set forth in the table that follows. There were no such assets at September 30, 2016. Real estate appraisals utilized in measuring the fair value of impaired loans may employ a single valuation approach or a combination of approaches including comparable sales and the income approach. Adjustments are routinely made in the appraisal process by the independent appraisers to adjust for differences between the comparable sales and income data available. In arriving at fair value, the Corporation adjusts the value set forth in the appraisal by deducting costs to sell and a distressed sale adjustment, if needed. The adjustments made by the appraisers and the Corporation are deemed to be significant unobservable inputs and therefore result in a Level 3 classification of the inputs used for determining the fair value of impaired loans. Because the Corporation has a small amount of impaired loans measured at fair value, the impact of unobservable inputs on the Corporation’s financial statements is not material.
|
|
|
|
|
|
Fair Value Measurements Using:
|
|
|
|
|
|
|
|
Quoted Prices
|
|
|
Significant
|
|
|
|
|
|
|
|
|
|
|
|
in Active
|
|
|
Other
|
|
|
Significant
|
|
|
|
|
|
|
|
Markets for
|
|
|
Observable
|
|
|
Unobservable
|
|
|
|
|
|
|
|
Identical Assets
|
|
|
Inputs
|
|
|
Inputs
|
|
|
|
Total
|
|
|
(Level 1)
|
|
|
(Level 2)
|
|
|
(Level 3)
|
|
|
|
(in thousands)
|
|
December 31, 2015:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential mortgages held-for-sale:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Closed end
|
|
$
|
25
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
25
|
|
Revolving home equity
|
|
|
80
|
|
|
|
-
|
|
|
|
-
|
|
|
|
80
|
|
|
|
$
|
105
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
105
|
|
Impaired loan:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential mortgage - closed end
|
|
$
|
119
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
119
|
|
The impaired loan set forth in the preceding table had a principal balance of $152,000 at December 31, 2015, and a valuation allowance of $33,000. During the nine and three months ended September 30, 2016, the Corporation recorded credit provisions for loan losses of $33,000 and $24,000, respectively, for impaired loans measured at fair value. During the nine and three months ended September 30, 2015 the Corporation recorded credit provisions of $6,000 and $0 for impaired loans measured at fair value.
The residential mortgage loans held-for-sale at December 31, 2015 in the preceding table were accounted for on a nonaccrual basis and carried at fair value. These loans were sold during the first quarter of 2016 at a loss of $5,000.
Financial Instruments Not Recorded at Fair Value.
Fair value estimates are made at a specific point in time. Such estimates are generally subjective in nature and dependent upon a number of significant assumptions associated with each financial instrument or group of similar financial instruments, including estimates of discount rates, risks associated with specific financial instruments, estimates of future cash flows, and relevant available market information. Changes in assumptions could significantly affect the estimates. In addition, fair value estimates do not reflect the value of anticipated future business, premiums or discounts that could result from offering for sale at one time the Corporation’s entire holdings of a particular financial instrument, or the tax consequences of realizing gains or losses on the sale of financial instruments.
The following table sets forth the carrying amounts and estimated fair values of financial instruments that are not recorded at fair value in the Corporation’s financial statements at September 30, 2016 and December 31, 2015.
|
Level of
|
|
September 30, 2016
|
|
|
December 31, 2015
|
|
|
Fair Value
|
|
Carrying
|
|
|
|
|
|
|
Carrying
|
|
|
|
|
|
|
Hierarchy
|
|
Amount
|
|
|
Fair Value
|
|
|
Amount
|
|
|
Fair Value
|
|
|
|
|
(in thousands)
|
|
Financial Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
Level 1
|
|
$
|
48,858
|
|
|
$
|
48,858
|
|
|
$
|
39,635
|
|
|
$
|
39,635
|
|
Held-to-maturity securities
|
Level 2
|
|
|
10,322
|
|
|
|
10,680
|
|
|
|
12,366
|
|
|
|
12,905
|
|
Held-to-maturity securities
|
Level 3
|
|
|
1,593
|
|
|
|
1,593
|
|
|
|
2,005
|
|
|
|
2,005
|
|
Loans
|
Level 3
|
|
|
2,416,150
|
|
|
|
2,424,991
|
|
|
|
2,220,808
|
|
|
|
2,203,418
|
|
Restricted stock
|
Level 1
|
|
|
27,106
|
|
|
|
27,106
|
|
|
|
28,435
|
|
|
|
28,435
|
|
Accrued interest receivable:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment securities
|
Level 2
|
|
|
4,756
|
|
|
|
4,756
|
|
|
|
4,403
|
|
|
|
4,403
|
|
Loans
|
Level 3
|
|
|
6,142
|
|
|
|
6,142
|
|
|
|
5,501
|
|
|
|
5,501
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Checking deposits
|
Level 1
|
|
|
789,644
|
|
|
|
789,644
|
|
|
|
777,994
|
|
|
|
777,994
|
|
Savings, NOW and money market deposits
|
Level 1
|
|
|
1,542,366
|
|
|
|
1,542,366
|
|
|
|
1,195,968
|
|
|
|
1,195,968
|
|
Time deposits
|
Level 2
|
|
|
292,874
|
|
|
|
299,555
|
|
|
|
310,713
|
|
|
|
313,331
|
|
Short-term borrowings
|
Level 1
|
|
|
101,522
|
|
|
|
101,522
|
|
|
|
211,502
|
|
|
|
211,502
|
|
Long-term debt
|
Level 2
|
|
|
379,212
|
|
|
|
384,543
|
|
|
|
365,712
|
|
|
|
364,935
|
|
Accrued interest payable:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Checking, savings, NOW and money
market deposits
|
Level 1
|
|
|
142
|
|
|
|
142
|
|
|
|
43
|
|
|
|
43
|
|
Time deposits
|
Level 2
|
|
|
50
|
|
|
|
50
|
|
|
|
3,224
|
|
|
|
3,224
|
|
Short-term borrowings
|
Level 1
|
|
|
1
|
|
|
|
1
|
|
|
|
3
|
|
|
|
3
|
|
Long-term debt
|
Level 2
|
|
|
570
|
|
|
|
570
|
|
|
|
669
|
|
|
|
669
|
|
The following methods and assumptions are used by the Corporation in measuring the fair value of financial instruments disclosed in the preceding table.
Cash and cash equivalents
. The recorded book value of cash and cash equivalents is their fair value.
Investment securities.
Fair values are based on quoted prices for similar assets in active markets or derived principally from observable market data.
Loans
. The total loan portfolio is divided into three segments: (1) residential mortgages; (2) commercial mortgages and commercial loans; and (3) consumer loans. Each segment is further divided into pools of loans with similar financial characteristics (i.e. product type, fixed versus variable rate, time to rate reset, length of term, conforming versus nonconforming). Cash flows for each pool, including estimated prepayments if applicable, are discounted utilizing market or internal benchmarks which management believes are reflective of current market rates for similar loan products. The discounted value of the cash flows is reduced by the related allowance for loan losses to arrive at an estimate of fair value.
Restricted stock
. The recorded book value of Federal Home Loan Bank stock and Federal Reserve Bank stock is their fair value because the stock is redeemable at cost.
Deposit liabilities
. The fair value of deposits with no stated maturity, such as checking deposits, money market deposits, NOW accounts and savings deposits, is equal to their recorded book value. The fair value of time deposits is based on the discounted value of contractual cash flows. The discount rate is equivalent to the rate at which the Bank could currently replace these deposits with wholesale borrowings from the Federal Home Loan Bank.
Borrowed funds
. For short-term borrowings maturing within ninety days, the recorded book value is a reasonable estimate of fair value. The fair value of long-term debt is based on the discounted value of contractual cash flows. The discount rate is equivalent to the rate at which the Bank could currently replace these borrowings with wholesale borrowings from the Federal Home Loan Bank.
Accrued interest receivable and payable
. For these short-term instruments, the recorded book value is a reasonable estimate of fair value.
Off-balance-sheet items.
The fair value of off-balance sheet items is not considered to be material.
9 - IMPACT OF ISSUED BUT NOT YET EFFECTIVE ACCOUNTING STANDARDS
The pronouncements discussed in this section are not intended to be an all-inclusive list, but rather only those pronouncements that could potentially have an impact on the Corporation’s financial position, results of operations or disclosures.
In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2014-09 “Revenue from Contracts with Customers.” The amendments in ASU 2014-09 provide a comprehensive framework for addressing revenue recognition issues that can be applied to all contracts with customers. While the guidance in ASU 2014-09 supersedes most existing industry-specific revenue recognition accounting guidance, much of a bank’s revenue comes from financial instruments such as debt securities and loans that are scoped-out of the guidance. The amendments in ASU 2014-09 also include improved disclosures to enable users of financial statements to better understand the nature, amount, timing and uncertainty of revenue that is recognized. For public entities such as the Corporation, ASU 2014-09, as amended, is effective for interim and annual reporting periods beginning after December 15, 2017. Early adoption is permitted for interim and annual reporting periods beginning after December 15, 2016. Management is currently evaluating the impact that the amendments in ASU 2014-09 could have on the Corporation’s financial position, results of operations and disclosures, but does not currently believe that such impact will be material.
In January 2016, the FASB issued ASU 2016-01 “Financial Instruments – Overall.” The amendments in ASU 2016-01 are intended to improve the recognition, measurement, presentation and disclosure of financial assets and liabilities to provide users of financial statements with information that is more useful for decision-making purposes. Among other changes, ASU 2016-01 would require equity securities to be measured at fair value with changes in fair value recognized through net income, but would allow equity securities that do not have readily determinable fair values to be remeasured at fair value either upon the occurrence of an observable price change or upon identification of an impairment. The amendments would simplify the impairment assessment of such equity securities and would require enhanced disclosure about these investments. ASU 2016-01 would also require separate presentation of financial assets and liabilities by measurement category and type of instrument, such as securities or loans, on the balance sheet or in the notes, and would eliminate certain other disclosures relating to the methods and assumptions used to estimate fair value. For public entities such as the Corporation, the amendments in ASU 2016-01 are effective for interim and annual reporting periods beginning after December 15, 2017. Early adoption is not permitted. ASU 2016-01 is not expected to have a material impact on the Corporation’s financial position, results of operations or disclosures.
In February 2016, the FASB issued ASU 2016-02 “Leases.” ASU 2016-02 affects any entity that enters into a lease and is intended to increase the transparency and comparability of financial statements among organizations. The ASU requires, among other changes, a lessee to recognize on its balance sheet a lease asset and a lease liability for those leases previously classified as operating leases. The lease asset would represent the right to use the underlying asset for the lease term and the lease liability would represent the discounted value of the required lease payments to the lessor. The ASU would also require entities to disclose key information about leasing arrangements. ASU 2016-02 is effective for interim and annual reporting periods beginning after December 15, 2018. Early adoption is permitted. Management is currently evaluating the impact that ASU 2016-02 will have on the Corporation’s financial position, results of operations and disclosures.
In March 2016, the FASB issued ASU 2016-09 “Improvements to Employee Share-Based Payment Accounting.” ASU 2016-09 affects any entity that issues share-based payment awards to its employees. The ASU involves the simplification of several aspects of the accounting for employee share-based payment transactions, including income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. ASU 2016-09 is effective for interim and annual reporting periods beginning after December 15, 2016. Early adoption is permitted.
The Corporation may decide to early adopt ASU 2016-09 in the fourth quarter of 2016, effective as of January 1, 2016. Among other things, early adoption would increase 2016 net income through a credit to income tax expense and a debit to surplus in an amount ranging between $300,000 and $400,000.
In June 2016, the FASB issued ASU 2016-13 “Measurement of Credit Losses on Financial Instruments.” ASU 2016-13 affects entities holding financial assets that are not accounted for at fair value through net income, including loans, debt securities, and other financial assets. The ASU requires financial assets measured at amortized cost basis to be presented at the net amount expected to be collected by recording an allowance for credit losses. ASU 2016-13 is effective for interim and annual reporting periods beginning after December 15, 2019. Early adoption is permitted beginning after December 15, 2018, including interim periods within those fiscal years. Management is currently evaluating the impact that ASU 2016-13 will have on the Corporation’s financial position, results of operations and disclosures.
In August 2016, the FASB issued ASU 2016-15 “Classification of Certain Cash Receipts and Cash Payments.” ASU 2016-15 affects all entities that are required to present a statement of cash flows under Topic 230, Statement of Cash Flows, and other Topics, addressing eight specific cash flow issues with the objective of reducing diversity in practice. ASU 2016-13 is effective for interim and annual reporting periods beginning after December 15, 2017. Early adoption is permitted, including adoption in an interim period. ASU 2016-15 is not expected to have a material impact on the Corporation’s financial position, results of operations or disclosures.
10
– SUBSEQUENT EVENT
On October 27, 2016, the Corporation announced a 3-for-2 stock split. The stock split will be effected through a 50% stock dividend. The additional shares that will be issued as a result of the stock split will be distributed on November 28, 2016 to shareholders of record on November 10, 2016.
No adjustments have been made to the equity accounts of the Corporation or to share and per share amounts included in the unaudited consolidated financial statements and notes thereto as of September 30, 2016 to reflect the effect of the split.