NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE A
– SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The consolidated financial statements include the accounts of The First of Long Island Corporation and its wholly-owned subsidiary, The First National Bank of Long Island, and subsidiaries wholly-owned by the Bank, either directly or indirectly
: The First of Long Island Agency, Inc.; FNY Service Corp. (“FNY”); and The First of Long Island REIT, Inc. (“REIT”). The Corporation’s financial condition and operating results principally reflect those of the Bank and its subsidiaries. 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. 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 accounting and reporting policies of the Corporation reflect banking industry practice and conform to generally accepted accounting principles in the United States. The following is a summary of the Corporation
’s significant accounting policies.
Cash and
C
ash
E
quivalents
Cash and cash equivalents include cash and deposits with other financial institutions that generally mature within 90 days.
Investment Securities
Current accounting standards require that investment securities be classified as held-to-maturity,
available-for-sale or trading. The trading category is not applicable to any securities in the Bank's portfolio because the Bank does not buy or hold debt or equity securities principally for the purpose of selling in the near term. Held-to-maturity securities, or debt securities which the Bank has the intent and ability to hold to maturity, are reported at amortized cost. Available-for-sale securities, or debt and equity securities which are neither held-to-maturity securities nor trading securities, are reported at fair value, with unrealized gains and losses, net of the related income tax effect, included in other comprehensive income.
Interest income includes amortization
or accretion of purchase premium or discount. Premiums and discounts on securities are amortized or accreted on the level-yield method. Prepayments are anticipated for mortgage-backed securities. Premiums on municipal securities are amortized to the earlier of the stated maturity date or the first call date, while discounts on municipal securities are accreted to the stated maturity date. Realized gains and losses on the sale of securities are determined using the specific identification method.
Investment securities are evaluated for other-than-temporary impairment (“OTTI”) no less often than quarterly. In determining OTTI, management considers many factors, including: (1)
the length of time and the extent to which the fair value has been less than cost; (2) the financial condition and near-term prospects of the issuer; (3) whether the market decline was affected by macroeconomic conditions; and (4) whether management has the intent to sell the debt security or more likely than not will be required to sell the debt security before its anticipated recovery. The assessment of whether an other-than-temporary decline exists involves a high degree of subjectivity and judgment and is based on the information available to management at a point in time.
When OTTI occurs, management considers whether it intends to sell, or, more likely than not, will be required to sell a security in an unrealized loss position before recovery of its amortized cost basis. If either of these criteria is met, the entire difference between amortized cost and fair value is recognized in earnings. For securities that do not meet the aforementioned criteria, the amount of impairment recognized in earnings is limited to the amount related to credit losses, while impairment related to other factors is recognized in other comprehensive income.
Loans Held
-
for
-
Sale
Loan
s held-for-sale are carried at the lower of cost or fair value. Any subsequent declines in fair value below the initial carrying value are recorded as a valuation allowance established through a charge to noninterest income.
Loans and Allowance for Loan Losses
Loans that management has the intent and ability to hold for the foreseeable future or until maturity or payoff are reported at their outstanding principal balance less any chargeoffs and the allowance for loan losses and plus or minus net deferred loan costs and fees, respectively. Interest on loans is credited to income based on the principal amount outstanding. Direct loan origination costs, net of loan origination fees, are deferred and recognized in interest income using the level-yield method without anticipating prepayments.
The past due status of a loan is based on the contractual terms in the loan agreement. Unless a loan is well secured and in the process of collection, the accrual of interest income is discontinued when a loan becomes 90 days past due as to principal or interest payments. The accrual of interest income on a loan is also discontinued when it is determined that the borrower will not be able to make principal and interest payments according to the contractual terms of the current loan agreement. When the accrual of interest income is discontinued on a loan, any accrued but unpaid interest is reversed against current period income. Interest received on nonaccrual loans is accounted for on the cash basis or cost-recovery method until the loans qualify for return to an accrual status. Return to an accrual status occurs when all the principal and interest amounts contractually due are brought current and all future payments are reasonably assured.
The allowance for loan losses is established through provisions for loan losses charged against income. When available information confirms that specific loans, or portions thereof, are uncollectible, these amounts are charged against the allowance for loan losses, and subsequent recoveries, if any, are credited to the allowance.
The allowance for loan losses is an amount that management currently believes will be adequate to absorb probable incurred losses in the Bank
’s loan portfolio. The process for estimating credit losses and determining the allowance for loan losses as of any balance sheet date is subjective in nature and requires material estimates. Actual results could differ significantly from those estimates.
The allowance for loan losses is comprised of
specific reserves allocated to individually impaired loans plus estimated losses on pools of loans that are collectively reviewed. Although the allowance for loan losses has two separate components, one for impairment losses on individual loans and one for collective impairment losses on pools of loans, the entire allowance for loan losses is available to absorb realized losses as they occur whether they relate to individual loans or pools of loans.
E
stimated losses for loans individually deemed to be impaired are based on either the fair value of collateral or the discounted value of expected future cash flows. For all collateral dependent impaired loans, impairment losses are measured based on the fair value of the collateral. A loan is considered to be impaired when, based on current information and events, it is probable that the Bank will be unable to collect the scheduled principal and interest when due according to the contractual terms of the current loan agreement. Loans that experience insignificant payment delays and payment shortfalls are not automatically considered to be impaired. Management determines the significance of payment delays and payment shortfalls on a case-by-case basis, taking into consideration all of the circumstances surrounding the loan and the borrower, including the length of the delay, the reasons for the delay, the borrower’s prior payment record and financial condition and the amount of the shortfall in relation to the principal and interest owed. In estimating the fair value of real estate collateral, management utilizes appraisals or evaluations adjusted for costs to dispose and a distressed sale adjustment, if needed.
In addition to estimating losses for loans individually deemed to be impaired, management also estimates collective impairment losses for pools of loans that are not specifically reviewed.
Loan pools include: commercial and industrial loans; small business credit scored loans; owner-occupied commercial mortgages; multifamily commercial mortgages; other commercial mortgages; construction and land development loans; first-lien residential mortgages; junior-lien residential mortgages; first-lien home equity lines; junior-lien home equity lines; and consumer loans. The Bank’s highest average annualized loss experience over periods of 24, 36, 48 or 60 months is generally the starting point in determining its allowance for loan losses for each pool of loans. Management believes that this approach appropriately reflects losses from the current economic cycle and those incurred losses in the Bank’s loan portfolio. However, since future losses could vary significantly from those experienced in the past, on a quarterly basis management adjusts its historical loss experience to reflect current conditions. In doing so, management considers a variety of general qualitative factors and then subjectively determines the weight to assign to each in estimating losses. The factors include, among others: (1) delinquencies, (2) economic conditions as judged by things such as median home prices and commercial vacancy rates in the Bank’s service area and national and local unemployment levels, (3) trends in the nature and volume of loans, (4) concentrations of credit, (5) changes in lending policies and procedures, (6) experience, ability and depth of lending staff, (7) changes in the quality of the loan review function, (8) environmental risks, and (9) loan risk ratings. Substantially all of the Bank’s allowance for loan losses allocable to pools of loans that are collectively evaluated for impairment results from these qualitative adjustments to historical loss experience. Because of the nature of the qualitative factors and the difficulty in assessing their impact, management’s resulting estimate of losses may not accurately reflect actual losses in the portfolio.
Troubled debt restructurings are
by definition impaired loans and are generally reported at the present value of estimated future cash flows using the loan’s effective rate at inception. However, if a troubled debt restructuring is considered to be a collateral dependent loan, the loan is reported at the fair value of the collateral.
Transfers of Financial Assets
Transfers of financial assets are accounted for as sales when control over the assets has been relinquished. Control over transferred assets is deemed to be surrendered when the assets have been isolated from the Corporation, the transferee obtains the right (free of conditions that constrain it from taking advantage of that right) to pledge or exchange the transferred assets, and the Corporation does not maintain effective control over the transferred assets through an agreement to repurchase them before their maturity.
Bank Premises and Equipment
L
and is carried at cost. Other bank premises and equipment are carried at cost less accumulated depreciation and amortization. Buildings are depreciated using the straight-line method over their estimated useful lives, which range from thirty-one to forty years. Building and leasehold improvements are depreciated using the straight-line method over the remaining lives of the buildings or leases, as applicable, or their estimated useful lives, whichever is shorter. The lives of the respective leases range from five to twenty years. Furniture, fixtures and equipment are depreciated using the straight-line method over their estimated useful lives, which range from three to ten years. Land and building held-for-sale is included in Other Assets on the Corporation’s consolidated balance sheet and carried at the lower of cost or fair value.
Bank-owned Life Insurance
The Bank is the owner and beneficiary of insurance policies on the lives of certain officers.
Bank-owned life insurance (“BOLI”) is recorded at the amount that can be realized under the contract at the balance sheet date, which is the cash surrender value adjusted for other charges or amounts due that are probable at settlement, if any.
Restricted Stock
The Bank is a member of and
is required to own stock in the Federal Home Loan Bank of New York (“FHLB”) and the Federal Reserve Bank of New York (“FRB”). The amount of FHLB stock held is based on membership and the level of FHLB advances. The amount of FRB stock held is based on the Bank’s capital and surplus balances. These stocks do not have a readily determinable fair value, are carried at cost, classified as restricted stock and periodically evaluated for impairment based on the prospects for the ultimate recovery of cost. Cash dividends, if any, are reported as interest income on taxable investment securities.
Long-term Assets
Premises and equipment, intangible assets,
BOLI and other long-term assets, if any, are reviewed for impairment when events indicate that their carrying amount may not be recoverable from future undiscounted cash flows. If impaired, the assets are recorded at fair value.
Loan Commitments and Related Financial Instruments
Fi
nancial instruments include off-balance-sheet credit instruments, such as commitments to make loans, commercial letters of credit and standby letters of credit. The face amount of these items represents the exposure to loss, before considering collateral held or ability to repay. The Bank maintains a reserve for losses on off-balance-sheet credit exposures which is included in accrued expenses and other liabilities on the consolidated balance sheet. Off-balance-sheet credit instruments are recorded on the balance sheet when they are funded or drawn down.
Checking Deposits
Each of the Bank
’s commercial checking accounts has a related noninterest-bearing sweep account. The sole purpose of the sweep accounts is to reduce the reserve balances that the Bank is required to maintain with the FRB, and thereby increase funds available for investment. Although the sweep accounts are classified as savings accounts for regulatory purposes, they are included in checking deposits in the accompanying consolidated balance sheets.
Income Taxes
A current tax liability or asset is recognized for the estimated taxes payable or refundable on tax returns for the current year. A deferred tax liability or asset is recognized for the estimated future tax effects attributable to temporary differences and carryforwards. The measurement of deferred tax assets is reduced, if necessary, by the amount of any tax benefits that, based on available evidence, are not expected to be realized. The measurement of current and deferred tax liabilities and assets is based on provisions of the enacted tax law. The effects of future changes in tax laws or rates are not considered. The Corporation recognizes interest and/or penalties related to income tax matters in noninterest income or noninterest expense as appropriate.
Retirement Plans
Pension expense is the sum of service cost, interest cost
, amortization of prior service costs and actuarial gains and losses and plan expenses, net of the expected return on plan assets and participant contributions. Employee 401(k) plan expense is equal to the amount of matching contributions.
Loss Contingencies
Loss contingencies, including claims and legal actions arising in the ordinary course of business, are
recorded as liabilities when the likelihood of loss is probable and an amount or range of loss can be reasonably estimated.
Stockholders
’ Equity
Earnings Per Share
.
The Corporation calculates basic and diluted earnings per share (“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. Basic EPS excludes the dilutive effect of outstanding stock options and restricted stock units (“RSUs”) and is computed by dividing net income allocated to common stockholders by the weighted average number of common shares outstanding for the period. Diluted EPS reflects the potential dilution that could occur if outstanding stock options and RSUs were converted into shares of common stock that then shared in the earnings of the Corporation. Diluted EPS is computed by dividing net income allocated to common stockholders by the weighted average number of common shares and dilutive stock options and RSUs. There were no anti-dilutive stock options or RSUs at December 31, 2016 or 2014. Anti-dilutive stock options and RSUs at December 31, 2015 were de minimis. Other than the stock options and RSUs described in Note I, the Corporation has no securities that could be converted into common stock nor does the Corporation have any contracts that could result in the issuance of common stock.
The following table is a calculation of basic and diluted EPS for the periods indicated.
(dollars in thousands, except per share data)
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
Net income
|
|
$
|
30,880
|
|
|
$
|
25,890
|
|
|
$
|
23,014
|
|
Income allocated to participating securities (1)
|
|
|
127
|
|
|
|
-
|
|
|
|
-
|
|
Income allocated to common stockholders
|
|
$
|
30,753
|
|
|
$
|
25,890
|
|
|
$
|
23,014
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average:
|
|
|
|
|
|
|
|
|
|
|
|
|
Common shares
|
|
|
22,745,967
|
|
|
|
21,017,808
|
|
|
|
20,711,223
|
|
Dilutive stock options and restricted stock units (1)
|
|
|
271,929
|
|
|
|
244,452
|
|
|
|
220,658
|
|
|
|
|
23,017,896
|
|
|
|
21,262,260
|
|
|
|
20,931,881
|
|
Earnings per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
1.35
|
|
|
$
|
1.23
|
|
|
$
|
1.11
|
|
Diluted
|
|
|
1.34
|
|
|
|
1.22
|
|
|
|
1.10
|
|
(
1) RSUs awarded in 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 I for additional details on the RSUs awarded in 2016.
Shares Tendered Upon the Exercise of Stock Options and Withheld Upon the Vesting of RSUs
.
The amounts shown for 2016 and 2015 on the line captioned “Repurchase of common stock” in the Consolidated Statement of Changes in Stockholders’ Equity represents 13,393 and 12,227 shares, respectively, with a value of $370,000 and $287,000, respectively, withheld upon the conversion of RSUs. The amount shown for 2014 represents 518 shares with a value of $21,000 tendered upon the exercise of stock options and 8,725 shares with a value of $265,000 withheld upon the conversion of RSUs.
Stock Split
s
.
On October 27, 2016, the Corporation declared a 3-for-2 stock split. The stock split was effected through a 50% stock dividend. Additional shares issued as a result of the stock split were distributed on November 28, 2016 to stockholders of record on November 10, 2016, and are shown for 2016 on the line captioned “3-for-2 stock split” in the Consolidated Statement of Changes in Stockholders’ Equity. Share and per share amounts included in the consolidated financial statements and notes thereto have been adjusted as appropriate to reflect the effect of the split.
On September 16, 2014, the Corporation declared a 3-for-2 stock split. The stock split was effected through a 50% stock dividend.
Additional shares issued as a result of the stock split were distributed on October 15, 2014 to stockholders of record on October 1, 2014, and are shown for 2014 on the line captioned “3-for-2 stock split” in the Consolidated Statement of Changes in Stockholders’ Equity. Issuance costs of $46,000 were charged to Surplus. Share and per share amounts included in the consolidated financial statements and notes thereto have been adjusted as appropriate to reflect the effect of the split.
Public Offering of Common Stock.
In May 2016, the Corporation sold 1,300,000 shares of its common stock (1,950,000 shares post-split) in an underwritten public offering at a price of $29.00 per share ($19.33 per share post-split). The net proceeds of the offering, after the underwriting discount and offering expenses paid by the Corporation, were $35,270,000.
Shareholder Protection Rights Plan.
The Corporation’s Shareholder Protection Rights Plan expired on August 1, 2016 and was not renewed by the Board of Directors.
Stock-based Compensation
The Corporation
’s stock-based compensation plans are described in Note I. Compensation cost is determined for stock options and RSUs issued to employees and non-employee directors based on the grant date fair value of the award.
For stock options, c
ompensation expense 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.
Compensation expense for performance-based RSUs is recognized over a three-year performance period
, which is usually the vesting period, and adjusted at the end of the performance period to reflect the actual number of shares of the Corporation’s common stock into which the RSUs will be converted. Compensation expense for service-based RSUs is recognized over the applicable service period, which is usually the vesting period. Compensation expense of $358,000 for RSUs awarded in 2014 with immediate vesting was recognized in full on the grant date. The Corporation accounts for forfeitures as they occur.
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
net 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:
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
|
|
(in thousands)
|
|
Change in net unrealized holding gains on available-for-sale securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Change arising during the period
|
|
$
|
(15,153
|
)
|
|
$
|
(1,851
|
)
|
|
$
|
18,068
|
|
Reclassification adjustment for gains included in net income (1)
|
|
|
(1,851
|
)
|
|
|
(1,183
|
)
|
|
|
(22
|
)
|
Change in net unrealized holding gains on available-for-sale securities
|
|
|
(17,004
|
)
|
|
|
(3,034
|
)
|
|
|
18,046
|
|
Tax effect
|
|
|
(6,983
|
)
|
|
|
(1,249
|
)
|
|
|
7,369
|
|
|
|
|
(10,021
|
)
|
|
|
(1,785
|
)
|
|
|
10,677
|
|
Change in funded status of pension plan:
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrecognized net gain (loss) arising during the period
|
|
|
1,199
|
|
|
|
(2,573
|
)
|
|
|
(2,597
|
)
|
Amortization of prior service cost included in pension expense (2)
|
|
|
-
|
|
|
|
-
|
|
|
|
16
|
|
Amortization of net actuarial loss included in pension expense (2)
|
|
|
244
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
1,443
|
|
|
|
(2,573
|
)
|
|
|
(2,581
|
)
|
Tax effect
|
|
|
550
|
|
|
|
(1,097
|
)
|
|
|
(1,027
|
)
|
|
|
|
893
|
|
|
|
(1,476
|
)
|
|
|
(1,554
|
)
|
Other comprehensive income (loss)
|
|
$
|
(9,128
|
)
|
|
$
|
(3,261
|
)
|
|
$
|
9,123
|
|
(1) Reclassification adjustment represents net realized gains arising from the sale of available-for-sale securities. These net realized gains are included in the consolidated statements of income in the line item, “Net gains on sales of securities.”
See “Note B – Investment Securities” for the income tax expense related to these net realized gains.
(2) Represents the amortization into expense of prior service cost and net actuarial loss relating to the Corporation
’s defined benefit pension plan. These items are included in net periodic pension cost (see “Note J – Retirement Plans”) and in the consolidated statements of income in the line item, “Employee benefits.” The income tax expense relating to these costs is included in the consolidated statements of income in the line item, “Income tax expense.”
T
he following sets forth the components of accumulated other comprehensive income (loss), net of tax:
|
|
|
|
|
|
Current
|
|
|
|
|
|
|
|
Balance
|
|
|
Period
|
|
|
Balance
|
|
|
|
12/31/15
|
|
|
Change
|
|
|
12/31/16
|
|
|
|
(in thousands)
|
|
Unrealized holding gains on available-for-sale securities
|
|
$
|
11,675
|
|
|
$
|
(10,021
|
)
|
|
$
|
1,654
|
|
Unrealized actuarial losses on pension plan
|
|
|
(4,151
|
)
|
|
|
893
|
|
|
|
(3,258
|
)
|
Total accumulated other comprehensive income (loss), net of tax
|
|
$
|
7,524
|
|
|
$
|
(9,128
|
)
|
|
$
|
(1,604
|
)
|
Operating Segments
While senior management monitors the revenue streams of the Bank
’s various products and services, the identifiable segments are not material and operations are managed and financial performance is evaluated on a company-wide basis. Accordingly, all of the financial operations of the Bank are aggregated in one reportable operating segment.
Investment Management Division
Assets held in a fiduciary capacity are not assets of the Corporation and, accordingly, are not included in the accompanying consolidated financial statements. The Investment Management Division records fees on the accrual basis.
Reclassifications
When appropriate,
items in the prior year financial statements are reclassified to conform to the current period presentation.
Adoption of New Accounting Standards
In June 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2014-12 “Accounting for Share-Based Payments When the Terms of an Award Provide That a Performance Target Could Be Achieved after the Requisite Service Period.” ASU 2014-12 provides guidance on the accounting for share-based payments in which the terms of an award provide that an employee can cease rendering service before the end of the period in which a performance target could be achieved and still be eligible to vest in the award if and when the performance target is achieved. The amendments in ASU 2014-12 were effective for interim and annual reporting periods beginning after December 15, 2015. Early adoption was permitted. The adoption of ASU 2014-12 on January 1, 2016 did not have a material impact on the Corporation
’s financial position, results of operations or 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. The Corporation adopted ASU
2016-09 in the fourth quarter of 2016 effective January 1, 2016. Adoption of the ASU increased 2016 net income through a credit to income tax expense in the amount of $385,000, or $.02 per share. The credit to income tax expense represents excess tax benefits arising from exercises of stock options and conversions of RSUs during 2016. Adoption of the ASU also impacted certain reporting practices and accounting policies of the Corporation. In particular, ASU 2016-09 allows an entity to either estimate the number of awards that are expected to vest or account for forfeitures as they occur. The Corporation has elected to account for forfeitures when they occur, which had an immaterial impact on our 2016 financial statements. In addition, the tax benefit of stock-based compensation transactions on the statement of cash flows is now classified as cash flows from operating activities rather than cash flows from financing activities. The Corporation elected to apply this change in cash flow classification guidance retrospectively and, therefore, prior period amounts of $336,000 and $224,000 for the years ended December 31, 2015 and 2014, respectively, have been reclassified to conform to the current period presentation.
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 FASB issued 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 continues to evaluate the impact that the amendments in ASU 2014-09 could have on the Corporation’s financial position, results of operations and disclosures. Management currently believes that implementation of ASU 2014-09 in 2018 will result in enhancements to certain revenue recognition disclosures, but that the amendments in the ASU will not have a material impact on the Corporation’s financial position or results of operations.
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. Upon implementation of the ASU, the Corporation’s assets and liabilities will increase due to the recognition of a lease asset and a lease obligation. Management is currently evaluating the impact that other aspects of ASU 2016-02 will have on the Corporation’s financial position, results of operations and disclosures.
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 2016-1
5 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.
NOTE B
– INVESTMENT SECURITIES
The following table
s set forth the amortized cost and estimated fair values of the Bank’s investment securities at December 31, 2016 and 2015.
|
|
2016
|
|
|
|
|
|
|
|
Gross
|
|
|
Gross
|
|
|
|
|
|
|
|
Amortized
|
|
|
Unrealized
|
|
|
Unrealized
|
|
|
Fair
|
|
|
|
Cost
|
|
|
Gains
|
|
|
Losses
|
|
|
Value
|
|
|
|
|
|
|
|
(in thousands)
|
|
|
|
|
|
Held-to-Maturity Securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
State and municipals
|
|
$
|
10,419
|
|
|
$
|
177
|
|
|
$
|
-
|
|
|
$
|
10,596
|
|
Pass-through mortgage securities
|
|
|
361
|
|
|
|
33
|
|
|
|
-
|
|
|
|
394
|
|
Collateralized mortgage obligations
|
|
|
607
|
|
|
|
40
|
|
|
|
-
|
|
|
|
647
|
|
|
|
$
|
11,387
|
|
|
$
|
250
|
|
|
$
|
-
|
|
|
$
|
11,637
|
|
Available-for-Sale Securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
State and municipals
|
|
$
|
444,154
|
|
|
$
|
10,137
|
|
|
$
|
(3,631
|
)
|
|
$
|
450,660
|
|
Pass-through mortgage securities
|
|
|
188,527
|
|
|
|
156
|
|
|
|
(2,874
|
)
|
|
|
185,809
|
|
Collateralized mortgage obligations
|
|
|
179,993
|
|
|
|
862
|
|
|
|
(2,025
|
)
|
|
|
178,830
|
|
|
|
$
|
812,674
|
|
|
$
|
11,155
|
|
|
$
|
(8,530
|
)
|
|
$
|
815,299
|
|
|
|
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 December 31, 201
6 and 2015, investment securities with a carrying value of $415,419,000 and $405,769,000, respectively, were pledged as collateral to secure public deposits and borrowed funds.
T
here were no holdings of securities of any one issuer, other than the U.S. Government and its agencies, in an amount greater than 10% of stockholders’ equity at December 31, 2016 and 2015.
Securities With Unrealized Losses.
The following tables set forth securities with unrealized losses at December 31, 2016 and 2015 presented by length of time the securities had been in a continuous unrealized loss position.
|
|
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
|
|
$
|
117,181
|
|
|
$
|
(3,631
|
)
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
117,181
|
|
|
$
|
(3,631
|
)
|
Pass-through mortgage securities
|
|
|
175,000
|
|
|
|
(2,874
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
175,000
|
|
|
|
(2,874
|
)
|
Collateralized mortgage obligations
|
|
|
125,424
|
|
|
|
(1,820
|
)
|
|
|
7,737
|
|
|
|
(205
|
)
|
|
|
133,161
|
|
|
|
(2,025
|
)
|
Total temporarily impaired
|
|
$
|
417,605
|
|
|
$
|
(8,325
|
)
|
|
$
|
7,737
|
|
|
$
|
(205
|
)
|
|
$
|
425,342
|
|
|
$
|
(8,530
|
)
|
|
|
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 December 31, 2016.
Sales of Available-for-Sale Securities.
Sales of available-for-sale securities were as follows:
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
|
|
(in thousands)
|
|
Proceeds
|
|
$
|
62,047
|
|
|
$
|
69,649
|
|
|
$
|
3,390
|
|
Gains
|
|
$
|
1,869
|
|
|
$
|
1,560
|
|
|
$
|
42
|
|
Losses
|
|
|
(18
|
)
|
|
|
(377
|
)
|
|
|
(20
|
)
|
Net gain
|
|
$
|
1,851
|
|
|
$
|
1,183
|
|
|
$
|
22
|
|
The
income tax expense related to these net realized gains was $772,000, $487,000 and $9,000 in 2016, 2015 and 2014, respectively, and is included in the consolidated statements of income in the line item, “Income tax expense.”
Sales of Held-to-Maturity Securities
.
During 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 2015, the Bank sold municipal securities that were classified as held-to-maturity securities.
These sales were in response to a significant deterioration in the creditworthiness of the issuers. The securities sold had a carrying value of $4,062,000 at the time of sale and the Bank realized a gain upon sale of $141,000.
During 2014, the Bank sold municipal and mortgage-backed securities
that were classified as held-to-maturity securities. The sales of municipal securities were in response to a significant deterioration in the creditworthiness of the issuers. The sales of mortgage-backed securities occurred after the Bank had collected at least 85% of the principal balance outstanding at acquisition of each security. The securities sold had a carrying value of $2,304,000 at the time of sale and the Bank realized a gain upon sale of $119,000.
Maturities.
The following table sets forth by maturity the amortized cost and fair value of the Bank’s state and municipal securities at December 31, 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 mortgage 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
|
|
$
|
4,799
|
|
|
$
|
4,833
|
|
After 1 through 5 years
|
|
|
4,732
|
|
|
|
4,865
|
|
After 5 through 10 years
|
|
|
888
|
|
|
|
898
|
|
After 10 years
|
|
|
-
|
|
|
|
-
|
|
Mortgage-backed securities
|
|
|
968
|
|
|
|
1,041
|
|
|
|
$
|
11,387
|
|
|
$
|
11,637
|
|
|
|
|
|
|
|
|
|
|
Available-for-Sale Securities:
|
|
|
|
|
|
|
|
|
Within one year
|
|
$
|
16,882
|
|
|
$
|
17,046
|
|
After 1 through 5 years
|
|
|
74,756
|
|
|
|
77,243
|
|
After 5 through 10 years
|
|
|
167,981
|
|
|
|
170,386
|
|
After 10 years
|
|
|
184,535
|
|
|
|
185,985
|
|
Mortgage-backed securities
|
|
|
368,520
|
|
|
|
364,639
|
|
|
|
$
|
812,674
|
|
|
$
|
815,299
|
|
NOTE C
– LOANS
The following tables set forth by
class of loans as of December 31, 2016 and 2015 the amount of loans individually and collectively evaluated for impairment and the portion of the allowance for loan losses allocable to such loans.
|
|
December 31, 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
|
|
$
|
131
|
|
|
$
|
125,907
|
|
|
$
|
126,038
|
|
|
$
|
-
|
|
|
$
|
1,408
|
|
|
$
|
1,408
|
|
Commercial mortgages (1):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Multifamily
|
|
|
-
|
|
|
|
610,385
|
|
|
|
610,385
|
|
|
|
-
|
|
|
|
6,119
|
|
|
|
6,119
|
|
Other
|
|
|
-
|
|
|
|
371,142
|
|
|
|
371,142
|
|
|
|
-
|
|
|
|
4,296
|
|
|
|
4,296
|
|
Owner-occupied
|
|
|
558
|
|
|
|
103,113
|
|
|
|
103,671
|
|
|
|
-
|
|
|
|
959
|
|
|
|
959
|
|
Residential mortgages:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Closed end
|
|
|
856
|
|
|
|
1,237,575
|
|
|
|
1,238,431
|
|
|
|
45
|
|
|
|
15,695
|
|
|
|
15,740
|
|
Revolving home equity
|
|
|
1,770
|
|
|
|
84,691
|
|
|
|
86,461
|
|
|
|
482
|
|
|
|
919
|
|
|
|
1,401
|
|
Consumer and other
|
|
|
-
|
|
|
|
9,293
|
|
|
|
9,293
|
|
|
|
-
|
|
|
|
134
|
|
|
|
134
|
|
|
|
$
|
3,315
|
|
|
$
|
2,542,106
|
|
|
$
|
2,545,421
|
|
|
$
|
527
|
|
|
$
|
29,530
|
|
|
$
|
30,057
|
|
|
|
December 31, 2015
|
|
Commercial and industrial
|
|
$
|
-
|
|
|
$
|
93,056
|
|
|
$
|
93,056
|
|
|
$
|
-
|
|
|
$
|
928
|
|
|
$
|
928
|
|
Commercial mortgages (1):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
(1) Certain loans were reclassified within the various classes of the commercial mortgages segment into multifamily at December 31, 2016.
The following tables present the activity in the allowance for loan losses for the years ended December 31, 201
6, 2015 and 2014.
|
|
Balance at
1/1/16
|
|
|
Chargeoffs
|
|
|
Recoveries
|
|
|
Provision for
Loan Losses (Credit)
|
|
|
Balance at
12/31/16
|
|
|
|
(in thousands)
|
|
Commercial and industrial
|
|
$
|
928
|
|
|
$
|
445
|
|
|
$
|
4
|
|
|
$
|
921
|
|
|
$
|
1,408
|
|
Commercial mortgages:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Multifamily
|
|
|
6,858
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(739
|
)
|
|
|
6,119
|
|
Other
|
|
|
3,674
|
|
|
|
-
|
|
|
|
-
|
|
|
|
622
|
|
|
|
4,296
|
|
Owner-occupied
|
|
|
1,047
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(88
|
)
|
|
|
959
|
|
Residential mortgages:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Closed end
|
|
|
13,639
|
|
|
|
259
|
|
|
|
9
|
|
|
|
2,351
|
|
|
|
15,740
|
|
Revolving home equity
|
|
|
1,016
|
|
|
|
-
|
|
|
|
12
|
|
|
|
373
|
|
|
|
1,401
|
|
Consumer and other
|
|
|
94
|
|
|
|
5
|
|
|
|
5
|
|
|
|
40
|
|
|
|
134
|
|
|
|
$
|
27,256
|
|
|
$
|
709
|
|
|
$
|
30
|
|
|
$
|
3,480
|
|
|
$
|
30,057
|
|
|
|
Balance at
1/1/15
|
|
|
Chargeoffs
|
|
|
Recoveries
|
|
|
Provision for
Loan Losses (Credit)
|
|
|
Balance at
12/31/15
|
|
|
|
(in thousands)
|
|
Commercial and industrial
|
|
$
|
838
|
|
|
$
|
166
|
|
|
$
|
7
|
|
|
$
|
249
|
|
|
$
|
928
|
|
Commercial mortgages:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Multifamily
|
|
|
7,207
|
|
|
|
91
|
|
|
|
27
|
|
|
|
(285
|
)
|
|
|
6,858
|
|
Other
|
|
|
2,340
|
|
|
|
1
|
|
|
|
39
|
|
|
|
1,296
|
|
|
|
3,674
|
|
Owner-occupied
|
|
|
1,023
|
|
|
|
-
|
|
|
|
-
|
|
|
|
24
|
|
|
|
1,047
|
|
Residential mortgages:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Closed end
|
|
|
10,599
|
|
|
|
7
|
|
|
|
9
|
|
|
|
3,038
|
|
|
|
13,639
|
|
Revolving home equity
|
|
|
1,121
|
|
|
|
67
|
|
|
|
5
|
|
|
|
(43
|
)
|
|
|
1,016
|
|
Consumer and other
|
|
|
93
|
|
|
|
37
|
|
|
|
-
|
|
|
|
38
|
|
|
|
94
|
|
|
|
$
|
23,221
|
|
|
$
|
369
|
|
|
$
|
87
|
|
|
$
|
4,317
|
|
|
$
|
27,256
|
|
|
|
Balance at
1/1/14
|
|
|
Chargeoffs
|
|
|
Recoveries
|
|
|
Provision for
Loan Losses (Credit)
|
|
|
Balance at
12/31/14
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
|
|
|
|
|
|
|
|
|
Commercial and industrial
|
|
$
|
808
|
|
|
$
|
96
|
|
|
$
|
2
|
|
|
$
|
124
|
|
|
$
|
838
|
|
Commercial mortgages:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Multifamily
|
|
|
7,348
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(141
|
)
|
|
|
7,207
|
|
Other
|
|
|
1,501
|
|
|
|
37
|
|
|
|
-
|
|
|
|
876
|
|
|
|
2,340
|
|
Owner-occupied
|
|
|
1,191
|
|
|
|
400
|
|
|
|
-
|
|
|
|
232
|
|
|
|
1,023
|
|
Residential mortgages:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Closed end
|
|
|
8,607
|
|
|
|
121
|
|
|
|
3
|
|
|
|
2,110
|
|
|
|
10,599
|
|
Revolving home equity
|
|
|
1,240
|
|
|
|
173
|
|
|
|
4
|
|
|
|
50
|
|
|
|
1,121
|
|
Consumer and other
|
|
|
153
|
|
|
|
7
|
|
|
|
9
|
|
|
|
(62
|
)
|
|
|
93
|
|
|
|
$
|
20,848
|
|
|
$
|
834
|
|
|
$
|
18
|
|
|
$
|
3,189
|
|
|
$
|
23,221
|
|
For individually impaired loans, t
he following tables set forth by class of loans at December 31, 2016, 2015 and 2014 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 years ended December 31, 2016, 2015 and 2014. 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.
|
|
2016
|
|
|
|
|
|
|
|
Unpaid
|
|
|
|
|
|
|
Average
|
|
|
Interest
|
|
|
|
Recorded
|
|
|
Principal
|
|
|
Related
|
|
|
Recorded
|
|
|
Income
|
|
|
|
Investment
|
|
|
Balance
|
|
|
Allowance
|
|
|
Investment
|
|
|
Recognized
|
|
|
|
(in thousands)
|
|
With no related allowance recorded:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial and industrial
|
|
$
|
131
|
|
|
$
|
131
|
|
|
$
|
-
|
|
|
$
|
134
|
|
|
$
|
1
|
|
Commercial mortgages - owner-occupied
|
|
|
558
|
|
|
|
636
|
|
|
|
-
|
|
|
|
575
|
|
|
|
-
|
|
Residential mortgages:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Closed end
|
|
|
230
|
|
|
|
313
|
|
|
|
-
|
|
|
|
245
|
|
|
|
-
|
|
Revolving home equity
|
|
|
280
|
|
|
|
279
|
|
|
|
-
|
|
|
|
280
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
With an allowance recorded:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential mortgages:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Closed end
|
|
|
626
|
|
|
|
634
|
|
|
|
45
|
|
|
|
641
|
|
|
|
29
|
|
Revolving home equity
|
|
|
1,490
|
|
|
|
1,491
|
|
|
|
482
|
|
|
|
1,493
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial and industrial
|
|
|
131
|
|
|
|
131
|
|
|
|
-
|
|
|
|
134
|
|
|
|
1
|
|
Commercial mortgages - owner-occupied
|
|
|
558
|
|
|
|
636
|
|
|
|
-
|
|
|
|
575
|
|
|
|
-
|
|
Residential mortgages:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Closed end
|
|
|
856
|
|
|
|
947
|
|
|
|
45
|
|
|
|
886
|
|
|
|
29
|
|
Revolving home equity
|
|
|
1,770
|
|
|
|
1,770
|
|
|
|
482
|
|
|
|
1,773
|
|
|
|
-
|
|
|
|
$
|
3,315
|
|
|
$
|
3,484
|
|
|
$
|
527
|
|
|
$
|
3,368
|
|
|
$
|
30
|
|
|
|
2015
|
|
|
|
|
|
|
|
Unpaid
|
|
|
|
|
|
|
Average
|
|
|
Interest
|
|
|
|
Recorded
|
|
|
Principal
|
|
|
Related
|
|
|
Recorded
|
|
|
Income
|
|
|
|
Investment
|
|
|
Balance
|
|
|
Allowance
|
|
|
Investment
|
|
|
Recognized
|
|
|
|
(in thousands)
|
|
With no related allowance recorded:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial mortgages - owner-occupied
|
|
$
|
594
|
|
|
$
|
654
|
|
|
$
|
-
|
|
|
$
|
612
|
|
|
$
|
-
|
|
Residential mortgages:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Closed end
|
|
|
306
|
|
|
|
405
|
|
|
|
-
|
|
|
|
530
|
|
|
|
-
|
|
Revolving home equity
|
|
|
522
|
|
|
|
521
|
|
|
|
-
|
|
|
|
525
|
|
|
|
6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
With an allowance recorded:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential mortgages - closed end
|
|
|
3,491
|
|
|
|
3,494
|
|
|
|
428
|
|
|
|
3,555
|
|
|
|
89
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial mortgages - owner-occupied
|
|
|
594
|
|
|
|
654
|
|
|
|
-
|
|
|
|
612
|
|
|
|
-
|
|
Residential mortgages:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Closed end
|
|
|
3,797
|
|
|
|
3,899
|
|
|
|
428
|
|
|
|
4,085
|
|
|
|
89
|
|
Revolving home equity
|
|
|
522
|
|
|
|
521
|
|
|
|
-
|
|
|
|
525
|
|
|
|
6
|
|
|
|
$
|
4,913
|
|
|
$
|
5,074
|
|
|
$
|
428
|
|
|
$
|
5,222
|
|
|
$
|
95
|
|
|
|
2014
|
|
With no related allowance recorded:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial and industrial
|
|
$
|
16
|
|
|
$
|
16
|
|
|
$
|
-
|
|
|
$
|
25
|
|
|
$
|
2
|
|
Commercial mortgages:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Multifamily
|
|
|
303
|
|
|
|
368
|
|
|
|
-
|
|
|
|
321
|
|
|
|
-
|
|
Owner-occupied
|
|
|
630
|
|
|
|
663
|
|
|
|
-
|
|
|
|
641
|
|
|
|
-
|
|
Residential mortgages:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Closed end
|
|
|
216
|
|
|
|
270
|
|
|
|
-
|
|
|
|
230
|
|
|
|
-
|
|
Revolving home equity
|
|
|
376
|
|
|
|
372
|
|
|
|
-
|
|
|
|
376
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
With an allowance recorded:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential mortgages - closed end
|
|
|
867
|
|
|
|
893
|
|
|
|
60
|
|
|
|
891
|
|
|
|
27
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial and industrial
|
|
|
16
|
|
|
|
16
|
|
|
|
-
|
|
|
|
25
|
|
|
|
2
|
|
Commercial mortgages:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Multifamily
|
|
|
303
|
|
|
|
368
|
|
|
|
-
|
|
|
|
321
|
|
|
|
-
|
|
Owner-occupied
|
|
|
630
|
|
|
|
663
|
|
|
|
-
|
|
|
|
641
|
|
|
|
-
|
|
Residential mortgages:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Closed end
|
|
|
1,083
|
|
|
|
1,163
|
|
|
|
60
|
|
|
|
1,121
|
|
|
|
27
|
|
Revolving home equity
|
|
|
376
|
|
|
|
372
|
|
|
|
-
|
|
|
|
376
|
|
|
|
-
|
|
|
|
$
|
2,408
|
|
|
$
|
2,582
|
|
|
$
|
60
|
|
|
$
|
2,484
|
|
|
$
|
29
|
|
Aging of Loans
. The following tables present the aging of the recorded investment in loans by class of loans.
|
|
December 31, 2016
|
|
|
|
|
|
|
|
|
|
|
|
Past Due
|
|
|
|
|
|
|
Total Past
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
90 Days or
|
|
|
|
|
|
|
Due Loans &
|
|
|
|
|
|
|
|
|
|
|
|
30-59 Days
|
|
|
60-89 Days
|
|
|
More and
|
|
|
Nonaccrual
|
|
|
Nonaccrual
|
|
|
|
|
|
|
Total
|
|
|
|
Past Due
|
|
|
Past Due
|
|
|
Still Accruing
|
|
|
Loans
|
|
|
Loans
|
|
|
Current
|
|
|
Loans
|
|
|
|
(in thousands)
|
|
Commercial and industrial
|
|
$
|
224
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
224
|
|
|
$
|
125,814
|
|
|
$
|
126,038
|
|
Commercial mortgages:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Multifamily
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
610,385
|
|
|
|
610,385
|
|
Other
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
371,142
|
|
|
|
371,142
|
|
Owner-occupied
|
|
|
-
|
|
|
|
-
|
|
|
|
621
|
|
|
|
558
|
|
|
|
1,179
|
|
|
|
102,492
|
|
|
|
103,671
|
|
Residential mortgages:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Closed end
|
|
|
881
|
|
|
|
-
|
|
|
|
-
|
|
|
|
230
|
|
|
|
1,111
|
|
|
|
1,237,320
|
|
|
|
1,238,431
|
|
Revolving home equity
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,770
|
|
|
|
1,770
|
|
|
|
84,691
|
|
|
|
86,461
|
|
Consumer and other
|
|
|
1
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1
|
|
|
|
9,292
|
|
|
|
9,293
|
|
|
|
$
|
1,106
|
|
|
$
|
-
|
|
|
$
|
621
|
|
|
$
|
2,558
|
|
|
$
|
4,285
|
|
|
$
|
2,541,136
|
|
|
$
|
2,545,421
|
|
|
|
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
|
|
The
loans in the preceding table that are past due 90 days or more and still accruing are well secured and in the process of collection.
There were no loans in the process of foreclosure nor did t
he Bank hold any foreclosed residential real estate property at December 31, 2016 or 2015.
Troubled Debt Restructurings.
A restructuring constitutes a troubled debt restructuring when the restructuring 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 of 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.
The following table presents information about loans modified in troubled debt restructurings during the year
s ended December 31, 2016 and 2015. The Bank did not modify any loans in troubled debt restructurings during 2014.
|
|
|
|
|
|
Outstanding
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Recorded Investment
|
|
|
Interest Rates
|
|
|
|
Number
|
|
|
Pre-
|
|
|
Post-
|
|
|
Pre-
|
|
|
Post-
|
|
|
|
of Loans
|
|
|
Modification
|
|
|
Modification
|
|
|
Modification
|
|
|
Modification
|
|
|
|
|
|
|
|
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
2016:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial and industrial
|
|
|
2
|
|
|
$
|
1,131
|
|
|
$
|
1,131
|
|
|
5.00%
|
and
|
6.75%
|
|
|
5.00%
|
and
|
6.75%
|
|
Residential mortgages - closed end
|
|
|
1
|
|
|
|
109
|
|
|
|
109
|
|
|
|
3.95%
|
|
|
|
|
3.95%
|
|
|
|
|
|
3
|
|
|
$
|
1,240
|
|
|
$
|
1,240
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2015:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential mortgages:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Closed end
|
|
|
1
|
|
|
$
|
2,713
|
|
|
$
|
2,713
|
|
|
|
5.25%
|
|
|
|
|
4.00%
|
|
|
Revolving home equity
|
|
|
1
|
|
|
|
245
|
|
|
|
245
|
|
|
|
5.25%
|
|
|
|
|
4.00%
|
|
|
|
|
|
2
|
|
|
$
|
2,958
|
|
|
$
|
2,958
|
|
|
|
|
|
|
|
|
|
|
|
The 2016
troubled debt restructurings include the modification of a $1.0 million commercial and industrial loan into a new time loan with a maturity of December 31, 2016. The loan was subsequently repaid during 2016. The 2015 restructurings involved two loans to a single borrower and resulted in a charge to the provision for loan losses at the time of restructuring of $332,000. The post-modification interest rates for all of the 2016 and 2015 restructurings in the table above were lower than the current market rate for new debt with similar risk.
At December 31, 201
6, 2015 and 2014, the Bank had an allowance for loan losses of $45,000, $395,000 and $60,000, respectively, allocated to specific troubled debt restructurings. The Bank had no commitments to lend additional amounts to loans that were classified as troubled debt restructurings.
There were no troubled debt restructurings for which there was a payment default during
2016 and 2015 that were modified during the twelve-month period prior to default. There were two troubled debt restructurings for which there were payment defaults during 2014 that were modified during the twelve-month period prior to default. The restructured loans were owner-occupied commercial mortgage loans with an aggregate outstanding recorded investment of $630,000 at December 31, 2014 and no specifically allocated allowance for loan losses. A loan is considered to be in payment default once it is 90 days contractually past due under the modified terms.
Loan
s
Held
-
for
-
Sale
.
The December 31, 2015 consolidated balance sheet includes loans held-for-sale at their estimated fair value of $105,000. The Bank recorded chargeoffs totaling $74,000 against the allowance for loan losses at the time the loans were transferred to held-for-sale. These loans were sold in 2016 at a loss of $5,000. There were no loans held-for-sale at December 31, 2016.
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 Corporation 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 risk rating and review 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
things, 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
and other consumer 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 680 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 real estate 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.
|
|
December 31, 2016
|
|
|
|
Internally Assigned Risk Rating
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Special
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pass
|
|
|
Watch
|
|
|
Mention
|
|
|
Substandard
|
|
|
Doubtful
|
|
|
Total
|
|
|
|
(in thousands)
|
|
Commercial and industrial
|
|
$
|
125,097
|
|
|
$
|
810
|
|
|
$
|
-
|
|
|
$
|
131
|
|
|
$
|
-
|
|
|
$
|
126,038
|
|
Commercial mortgages:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Multifamily
|
|
|
603,103
|
|
|
|
-
|
|
|
|
7,282
|
|
|
|
-
|
|
|
|
-
|
|
|
|
610,385
|
|
Other
|
|
|
369,740
|
|
|
|
1,402
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
371,142
|
|
Owner-occupied
|
|
|
102,725
|
|
|
|
389
|
|
|
|
-
|
|
|
|
557
|
|
|
|
-
|
|
|
|
103,671
|
|
|
|
$
|
1,200,665
|
|
|
$
|
2,601
|
|
|
$
|
7,282
|
|
|
$
|
688
|
|
|
$
|
-
|
|
|
$
|
1,211,236
|
|
|
|
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 t
he 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.
|
|
December 31, 2016
|
|
|
|
Internally Assigned Risk Rating
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Special
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pass
|
|
|
Watch
|
|
|
Mention
|
|
|
Substandard
|
|
|
Doubtful
|
|
|
Total
|
|
|
|
(in thousands)
|
|
Residential mortgages:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Closed end
|
|
$
|
1,236,152
|
|
|
$
|
982
|
|
|
$
|
441
|
|
|
$
|
856
|
|
|
$
|
-
|
|
|
$
|
1,238,431
|
|
Revolving home equity
|
|
|
84,189
|
|
|
|
-
|
|
|
|
501
|
|
|
|
1,771
|
|
|
|
-
|
|
|
|
86,461
|
|
Consumer and other
|
|
|
8,614
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
8,614
|
|
|
|
$
|
1,328,955
|
|
|
$
|
982
|
|
|
$
|
942
|
|
|
$
|
2,627
|
|
|
$
|
-
|
|
|
$
|
1,333,506
|
|
|
|
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
|
|
D
eposit account overdrafts were $679,000 and $29
0,000
at December 31, 2016 and 2015, respectively. They are not assigned a risk rating and are therefore excluded from consumer loans in the above tables.
Loans to Directors and Executive Officers.
Certain directors, including their immediate families and companies in which they are principal owners, and executive officers were loan customers of the Bank during 2016 and 2015. The aggregate outstanding amount of these loans was $99,000 and $187,000 at December 31, 2016 and 2015, respectively. During 2016, no new loans were made to such persons. Repayments totaled $88,000 in 2016. There were no loans to directors or executive officers that were nonaccrual at December 31, 2016 or 2015
.
NOTE D
– PREMISES AND EQUIPMENT
Bank premises and equipment consist of the following:
|
|
December 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
|
(in thousands)
|
|
Land
|
|
$
|
8,466
|
|
|
$
|
6,352
|
|
Buildings and improvements
|
|
|
21,660
|
|
|
|
20,894
|
|
Leasehold improvements
|
|
|
11,808
|
|
|
|
10,263
|
|
Furniture and equipment
|
|
|
29,016
|
|
|
|
26,196
|
|
Construction in process
|
|
|
1,911
|
|
|
|
2,208
|
|
|
|
|
72,861
|
|
|
|
65,913
|
|
Accumulated depreciation and amortization
|
|
|
(38,500
|
)
|
|
|
(35,583
|
)
|
|
|
$
|
34,361
|
|
|
$
|
30,330
|
|
NOTE E
– DEPOSITS
The following table sets forth the remaining maturities of the Bank
’s time deposits.
|
|
Less than
|
|
|
$100,000 or
|
|
|
|
|
|
|
|
$100,000
|
|
|
More
|
|
|
Total
|
|
|
|
(in thousands)
|
|
2017
|
|
$
|
16,708
|
|
|
$
|
38,382
|
|
|
$
|
55,090
|
|
2018
|
|
|
12,457
|
|
|
|
27,442
|
|
|
|
39,899
|
|
2019
|
|
|
35,070
|
|
|
|
53,761
|
|
|
|
88,831
|
|
2020
|
|
|
6,330
|
|
|
|
9,987
|
|
|
|
16,317
|
|
2021
|
|
|
19,119
|
|
|
|
33,367
|
|
|
|
52,486
|
|
Thereafter
|
|
|
12,055
|
|
|
|
15,979
|
|
|
|
28,034
|
|
|
|
$
|
101,739
|
|
|
$
|
178,918
|
|
|
$
|
280,657
|
|
The total amount of time deposits
that meet or exceed the FDIC insurance limit of $250,000 at December 31, 2016 and 2015 was $63.3 million and $74.3 million, respectively. Deposits from executive officers, directors and their affiliates at December 31, 2016 and 2015 were approximately $4.9 million and $8.5 million, respectively.
NOTE F
– BORROWED FUNDS
The following table summarizes borrowed funds at December 31, 201
6 and 2015.
|
|
December 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
|
(in thousands)
|
|
Short-term borrowings:
|
|
|
|
|
|
|
|
|
Securities sold under repurchase agreements
|
|
$
|
7,012
|
|
|
$
|
11,502
|
|
Federal Home Loan Bank advances
|
|
|
200,000
|
|
|
|
200,000
|
|
|
|
|
207,012
|
|
|
|
211,502
|
|
Long-term debt:
|
|
|
|
|
|
|
|
|
Securities sold under repurchase agreements
|
|
|
5,000
|
|
|
|
35,000
|
|
Federal Home Loan Bank advances
|
|
|
374,212
|
|
|
|
330,712
|
|
|
|
|
379,212
|
|
|
|
365,712
|
|
|
|
$
|
586,224
|
|
|
$
|
577,214
|
|
Accrued interest payable on borrowed funds is included in “accrued expenses and other liabilities” in the Consolidated Balance Sheets and amounted to $
598,000 and $672,000 at December 31, 2016 and 2015, respectively.
Securities Sold Under Repurchase Agreements.
Securities sold under repurchase agreements are fixed rate financing arrangements with remaining contractual maturities of up to two years as of December 31, 2016. At maturity, the securities underlying the agreements will be returned to the Bank. These agreements are subject to counterparty risk arising from the Bank’s pledge of securities collateral in excess of the amount borrowed. This risk is monitored on an ongoing basis through the Bank’s existing Correspondent Concentration Risk Policy.
The following table sets forth information concerning securities sold under repurchase agreements.
|
|
2016
|
|
|
2015
|
|
|
|
(dollars in thousands)
|
|
Average daily balance during the year
|
|
$
|
24,403
|
|
|
$
|
51,297
|
|
Average interest rate during the year
|
|
|
2.58
|
%
|
|
|
3.44
|
%
|
Maximum month-end balance during the year
|
|
$
|
47,938
|
|
|
$
|
56,903
|
|
Weighted average interest rate at year-end
|
|
|
2.30
|
%
|
|
|
3.40
|
%
|
The following table sets forth as of December 31, 201
6 the contractual maturities and weighted average interest rates of securities sold under repurchase agreements for each of the next five years. There are no securities sold under repurchase agreements with contractual maturities after 2018. All of the repurchase agreements are callable as of December 31, 2016.
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
Average
|
|
Contractual Maturity (dollars in thousands)
|
|
Amount
|
|
|
Rate
|
|
|
|
|
|
|
|
|
|
|
Overnight
|
|
$
|
7,012
|
|
|
|
.05
|
%
|
2018
|
|
|
5,000
|
|
|
|
5.45
|
|
|
|
$
|
12,012
|
|
|
|
2.30
|
%
|
Overnight repurchase agreements
at December 31, 2016 are collateralized by $3.5 million of municipal securities and repurchase agreements due in 2018 are collateralized by $6.2 million of mortgage-backed securities.
Federal Home Loan Bank Advances.
FHLB advances are collateralized by a blanket lien on residential and commercial mortgages with a lendable value of $1.7 billion at December 31, 2016 and residential and commercial mortgages with a lendable value of $1.5 billion at December 31, 2015. Each advance is non-amortizing and, for those advances with a term greater than one day, subject to a prepayment penalty.
The following table sets forth information concerning FHLB advances.
|
|
2016
|
|
|
2015
|
|
|
|
(dollars in thousands)
|
|
Average daily balance during the year
|
|
$
|
408,151
|
|
|
$
|
367,897
|
|
Average interest rate during the year
|
|
|
1.70
|
%
|
|
|
1.69
|
%
|
Maximum month-end balance during the year
|
|
$
|
574,212
|
|
|
$
|
530,712
|
|
Weighted average interest rate at year-end
|
|
|
1.45
|
%
|
|
|
1.33
|
%
|
The following table sets forth as of December 31, 201
6 the contractual maturities and weighted average interest rates of FHLB advances for each of the next five years and the period thereafter.
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
Average
|
|
Contractual Maturity (dollars in thousands)
|
|
Amount
|
|
|
Rate
|
|
|
|
|
|
|
|
|
|
|
Overnight
|
|
$
|
200,000
|
|
|
|
.74
|
%
|
|
|
|
|
|
|
|
|
|
2017
|
|
|
27,050
|
|
|
|
1.51
|
|
2018
|
|
|
96,450
|
|
|
|
1.71
|
|
2019
|
|
|
73,500
|
|
|
|
1.91
|
|
2020
|
|
|
70,250
|
|
|
|
1.85
|
|
2021
|
|
|
34,225
|
|
|
|
1.85
|
|
After 2021
|
|
|
72,737
|
|
|
|
2.04
|
|
|
|
|
374,212
|
|
|
|
1.84
|
|
|
|
$
|
574,212
|
|
|
|
1.45
|
%
|
Other Borrowings.
The Bank had no other borrowings at December 31, 2016 or 2015, or at any time during 2016. In 2015, the average balance of other borrowings amounted to $178,000, with an average interest rate of .43%. The funds were borrowed to test the Bank’s credit lines at the FRB discount window and a commercial bank.
NOTE G
– INCOME TAXES
The Corporation, the Bank and the Bank
’s subsidiaries, except for the REIT, file a consolidated federal income tax return. Income taxes charged to earnings in 2016, 2015 and 2014 had effective tax rates of 22.7%, 22.4% and 20.9%, respectively. The following table sets forth a reconciliation of the statutory Federal income tax rate to the Corporation’s effective tax rate.
|
|
Year Ended December 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
Statutory federal income tax rate
|
|
|
35.0
|
%
|
|
|
35.0
|
%
|
|
|
35.0
|
%
|
State and local income taxes, net of federal income tax benefit
|
|
|
.9
|
|
|
|
2.1
|
|
|
|
2.4
|
|
Tax-exempt income, net of disallowed cost of funding
|
|
|
(12.7
|
)
|
|
|
(14.9
|
)
|
|
|
(16.4
|
)
|
Excess tax benefit of stock-based compensation (1)
|
|
|
(.7
|
)
|
|
|
-
|
|
|
|
-
|
|
Other
|
|
|
.2
|
|
|
|
.2
|
|
|
|
(.1
|
)
|
|
|
|
22.7
|
%
|
|
|
22.4
|
%
|
|
|
20.9
|
%
|
|
(1)
|
Reflects the adoption of ASU 2016-09 effective January 1, 2016.
|
Provision for Income Taxes
. The following table sets forth the components of the provision for income taxes.
|
|
Year Ended December 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
|
|
(in thousands)
|
|
Current:
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
7,407
|
|
|
$
|
7,473
|
|
|
$
|
4,943
|
|
State and local
|
|
|
409
|
|
|
|
874
|
|
|
|
1,746
|
|
|
|
|
7,816
|
|
|
|
8,347
|
|
|
|
6,689
|
|
Deferred:
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
|
1,114
|
|
|
|
(1,059
|
)
|
|
|
61
|
|
State and local
|
|
|
119
|
|
|
|
178
|
|
|
|
(655
|
)
|
|
|
|
1,233
|
|
|
|
(881
|
)
|
|
|
(594
|
)
|
|
|
$
|
9,049
|
|
|
$
|
7,466
|
|
|
$
|
6,095
|
|
Net Deferred Tax Liability
. The following table sets forth the components of the Corporation’s net deferred tax liability.
|
|
December 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
|
(in thousands)
|
|
Deferred tax assets:
|
|
|
|
|
|
|
|
|
Allowance for loan losses and off-balance-sheet credit exposure
|
|
$
|
12,613
|
|
|
$
|
11,301
|
|
Interest on nonperforming loans
|
|
|
75
|
|
|
|
109
|
|
Accrued bonuses
|
|
|
622
|
|
|
|
414
|
|
Accrued legal settlement
|
|
|
21
|
|
|
|
-
|
|
Stock-based compensation
|
|
|
1,548
|
|
|
|
1,465
|
|
Supplemental executive retirement expense
|
|
|
24
|
|
|
|
36
|
|
Directors' retirement expense
|
|
|
66
|
|
|
|
65
|
|
Accrued rent expense
|
|
|
277
|
|
|
|
240
|
|
Depreciation
|
|
|
567
|
|
|
|
442
|
|
Asset writedown
|
|
|
70
|
|
|
|
-
|
|
|
|
|
15,883
|
|
|
|
14,072
|
|
Valuation allowance
|
|
|
-
|
|
|
|
-
|
|
|
|
|
15,883
|
|
|
|
14,072
|
|
Deferred tax liabilities:
|
|
|
|
|
|
|
|
|
Prepaid pension
|
|
|
7,144
|
|
|
|
5,785
|
|
Unrealized gains on available-for-sale securities
|
|
|
1,101
|
|
|
|
8,084
|
|
Deferred loan costs
|
|
|
6,840
|
|
|
|
5,186
|
|
Prepaid expenses
|
|
|
141
|
|
|
|
84
|
|
REIT spillover dividend and other
|
|
|
725
|
|
|
|
138
|
|
|
|
|
15,951
|
|
|
|
19,277
|
|
Net deferred tax liability
|
|
$
|
68
|
|
|
$
|
5,205
|
|
The Corporation had no unrecognized tax benefits at December 31, 201
6, 2015 and 2014, and has not taken any tax positions for which it is reasonably possible that unrecognized tax benefits will significantly increase within the next twelve months.
The Corporation is subject to U.S. federal, New York
State, Connecticut, New Jersey and New York City income taxes. The Corporation’s federal, state and local income tax returns are subject to examination by the taxing authorities for years after 2012. In 2012, New York State completed an examination of the Corporation’s and FNY’s tax returns for calendar years 2007, 2008 and 2009 and proposed no changes to the returns. In 2011, New York City completed an examination of the Corporation’s tax returns for calendar years 2007 and 2008 and proposed no changes to the returns. The Corporation did not incur any amounts for interest and penalties due taxing authorities for calendar years 2016, 2015 or 2014.
NOTE H
– REGULATORY MATTERS
Minimum
Regulatory Capital Requirements
.
On January 1, 2015, the Corporation and the Bank became subject to the Basel III regulatory capital requirements issued by the Federal Reserve Board and the Office of the Comptroller of the Currency. These requirements are intended to ensure that the Corporation and the Bank maintain minimum ratios of Tier 1 Capital to average assets as well as Common Equity Tier 1 Capital, Tier 1 Capital and Total Capital to risk weighted assets. Failure to meet the minimum capital requirements can result in certain mandatory and possibly additional discretionary actions by the regulators that, if undertaken, could have a direct material effect on the financial statements of the Corporation and Bank.
Basel III includes guidelines with respect to the
components of regulatory capital and calculation of risk weighted assets for balance sheet assets and liabilities and off-balance-sheet positions. As part of the initial adoption of Basel III, the Corporation and the Bank elected to exclude accumulated other comprehensive income components from Tier 1 and Total regulatory capital.
Basel III
sets forth new prompt corrective action (“PCA”) requirements for all banks and establishes a capital conservation buffer and multi-year capital ratio phase-in schedule with full phase-in by 2019. The Corporation and the Bank exceeded the Basel III minimum capital adequacy requirements, including the capital conservation buffer of .625% applicable to the Bank for 2016, and the Bank was well capitalized under the PCA provisions at December 31, 2016. The Corporation’s and the Bank’s actual capital amounts and ratios under the Basel III rules at December 31, 2016 and 2015 are presented in the table below.
|
|
2016
|
|
|
|
|
|
|
|
|
|
|
|
Minimum
|
|
|
Minimum To Be Well
|
|
|
|
|
|
|
|
|
|
|
|
Capital Adequacy
|
|
|
Capitalized Under Prompt
|
|
|
|
Actual Capital
|
|
|
Requirement
|
|
|
Corrective Action Provisions
|
|
(dollars in thousands)
|
|
Amount
|
|
|
Ratio
|
|
|
Amount
|
|
|
Ratio
|
|
|
Amount
|
|
|
Ratio
|
|
Tier 1 Capital to Average Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
|
|
$
|
307,214
|
|
|
|
8.89
|
%
|
|
$
|
138,249
|
|
|
|
4.00
|
%
|
|
|
N/A
|
|
|
|
N/A
|
|
Bank
|
|
|
307,491
|
|
|
|
8.90
|
|
|
|
138,224
|
|
|
|
4.00
|
|
|
$
|
172,781
|
|
|
|
5.00
|
%
|
Common Equity Tier 1 to Risk Weighted Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
|
|
|
307,214
|
|
|
|
14.70
|
|
|
|
94,032
|
|
|
|
4.50
|
|
|
|
N/A
|
|
|
|
N/A
|
|
Bank
|
|
|
307,491
|
|
|
|
14.72
|
|
|
|
94,022
|
|
|
|
4.50
|
|
|
|
135,809
|
|
|
|
6.50
|
|
Tier 1 Capital to Risk Weighted Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
|
|
|
307,214
|
|
|
|
14.70
|
|
|
|
125,377
|
|
|
|
6.00
|
|
|
|
N/A
|
|
|
|
N/A
|
|
Bank
|
|
|
307,491
|
|
|
|
14.72
|
|
|
|
125,362
|
|
|
|
6.00
|
|
|
|
167,150
|
|
|
|
8.00
|
|
Total Capital to Risk Weighted Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
|
|
|
333,384
|
|
|
|
15.95
|
|
|
|
167,169
|
|
|
|
8.00
|
|
|
|
N/A
|
|
|
|
N/A
|
|
Bank
|
|
|
333,658
|
|
|
|
15.97
|
|
|
|
167,150
|
|
|
|
8.00
|
|
|
|
208,937
|
|
|
|
10.00
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2015
|
|
Tier 1 Capital to Average Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
|
|
$
|
243,192
|
|
|
|
7.98
|
%
|
|
$
|
121,940
|
|
|
|
4.00
|
%
|
|
|
N/A
|
|
|
|
N/A
|
|
Bank
|
|
|
241,516
|
|
|
|
7.92
|
|
|
|
121,938
|
|
|
|
4.00
|
|
|
$
|
152,422
|
|
|
|
5.00
|
%
|
Common Equity Tier 1 to Risk Weighted Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
|
|
|
243,192
|
|
|
|
12.92
|
|
|
|
84,673
|
|
|
|
4.50
|
|
|
|
N/A
|
|
|
|
N/A
|
|
Bank
|
|
|
241,516
|
|
|
|
12.84
|
|
|
|
84,660
|
|
|
|
4.50
|
|
|
|
122,286
|
|
|
|
6.50
|
|
Tier 1 Capital to Risk Weighted Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
|
|
|
243,192
|
|
|
|
12.92
|
|
|
|
112,897
|
|
|
|
6.00
|
|
|
|
N/A
|
|
|
|
N/A
|
|
Bank
|
|
|
241,516
|
|
|
|
12.84
|
|
|
|
112,880
|
|
|
|
6.00
|
|
|
|
150,506
|
|
|
|
8.00
|
|
Total Capital to Risk Weighted Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
|
|
|
266,760
|
|
|
|
14.18
|
|
|
|
150,530
|
|
|
|
8.00
|
|
|
|
N/A
|
|
|
|
N/A
|
|
Bank
|
|
|
265,080
|
|
|
|
14.09
|
|
|
|
150,506
|
|
|
|
8.00
|
|
|
|
188,133
|
|
|
|
10.00
|
|
Other Matters.
A principal source of funds for dividend payments to shareholders is dividends received from the Bank. Banking regulations limit the amount of dividends that may be paid by the Bank without prior approval of regulatory agencies. Under these regulations, the amount of dividends that the Bank may pay in any calendar year is limited to the current year’s net profits, combined with the retained net profits of the preceding two years, subject to the minimum capital requirements described above. During 2017, the Bank could, without prior approval, declare dividends of approximately $46,510,000 plus any 2017 net profits retained to the date of the dividend declaration.
Regulation D of the Board of Governors of The Federal Reserve System requires banks to maintain reserves against certain deposit balances. The Bank
’s average reserve requirement for 2016 was approximately $24,536,000.
NOTE
I
– 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. Almost all of the awards granted to date under the 2014 Plan are RSUs. All awards granted under the 2014 Plan will immediately vest upon an involuntary termination following 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
2,250,000 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 2,250,000 shares may be issued pursuant to the exercise of stock options or SARs. A maximum of 787,500 shares may be issued as restricted stock awards or RSUs. At December 31, 2016, 2,030,208 shares of common stock remain available for issuance of awards under the 2014 Plan of which 548,778 shares remain available for issuance as restricted stock awards or RSUs.
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.
Vesting of
RSUs
Granted Under the
2014 Plan
.
In the fourth quarter of 2014, the Board of Directors awarded 20,735 RSUs under the 2014 Plan with immediate vesting.
During 2015,
112,868 RSUs were awarded under the 2014 Plan of which 4,486 shares vested upon the retirement of two non-employee directors, 13,076 were forfeited and 95,306 remain outstanding at December 31, 2016. The outstanding awards include 88,775 performance-based RSUs with vesting based on the financial performance of the Corporation in 2017 and 6,531 RSUs that will vest at the end of a three-year service-based vesting period.
During
2016, 107,274 RSUs were awarded under the 2014 Plan of which 3,286 shares vested upon the retirement of two non-employee directors, 9,732 shares were forfeited and 94,256 remain outstanding at December 31, 2016. All RSUs awarded in 2016 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 73,732 performance-based RSUs with vesting based on the financial performance of the Corporation in 2018, 15,274 RSUs that will vest in equal annual installments at the end of one, two and three years of service and 5,250 RSUs that will vest at the end of a three-year service-based vesting period.
In January 2017, the Board of Directors awarded 91,079 RSUs under the 2014 Plan, including 59,083 performance-based RSUs with vesting based on the financial performance of the Corporation in 201
9, 31,696 RSUs that will vest in equal annual installments at the end of one, two and three years of service and 300 RSUs that will vest at the end of a three-year service-based vesting period.
Vesting of
RSUs
Granted Under the
2006 Plan
.
All awards granted under the 2006 Plan immediately vest in the event of a change in control, retirement, total and permanent disability, as defined, or death. In January and February 2014, the Board of Directors awarded 75,221 RSUs under the 2006 Plan of which 55,448 remain outstanding at December 31, 2016. The outstanding RSUs include 52,635 performance-based RSUs that vested based on the financial performance of the Corporation in 2016 and were convertible into common stock of the Corporation on December 31, 2016 and 2,813 RSUs that will vest in 2017 at the end of a three year service-based vesting period.
Vesting of Stock Options.
Stock options granted under both the 2014 and 2006 Plans have a five year vesting period and a ten year term. Stock options 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. The grant date fair value of RSUs awarded through December 31, 2015 is equal to the market price of the shares underlying the awards on the grant date, discounted for dividends that are not paid on these RSUs. The fair values of awards made in 2016, 2015 and 2014, as well as the assumptions utilized in determining such values, is presented below.
|
|
2016
|
|
|
|
Performance-Based
|
|
|
Service-Based
|
|
|
Immediate
|
|
|
|
Vesting
|
|
|
Vesting
|
|
|
Vesting
|
|
Grant date fair value
|
|
$
|
18.17
|
|
|
$18.17
|
to
|
$22.17
|
|
|
|
-
|
|
Market price on grant date
|
|
$
|
18.17
|
|
|
$18.17
|
to
|
$22.17
|
|
|
|
-
|
|
|
|
2015
|
|
Grant date fair value
|
|
$
|
14.12
|
|
|
$15.61
|
to
|
$16.94
|
|
|
|
-
|
|
Market price on grant date
|
|
$
|
15.63
|
|
|
$17.13
|
to
|
$18.51
|
|
|
|
-
|
|
Expected annual dividend
|
|
$
|
0.51
|
|
|
$0.51
|
to
|
$0.53
|
|
|
|
-
|
|
Expected term (in years)
|
|
|
3.0
|
|
|
|
3.0
|
|
|
|
|
-
|
|
Risk-free interest rate
|
|
|
.21
|
%
|
|
.28%
|
to
|
.38%
|
|
|
|
-
|
|
|
|
2014
|
|
Grant date fair value
|
|
$
|
17.33
|
|
|
$17.33
|
to
|
$17.79
|
|
|
$
|
17.27
|
|
Market price on grant date
|
|
$
|
18.71
|
|
|
|
$18.71
|
|
|
|
$
|
17.27
|
|
Expected annual dividend
|
|
$
|
0.46
|
|
|
|
$0.46
|
|
|
|
|
-
|
|
Expected term (in years)
|
|
|
3.0
|
|
|
2.0
|
to
|
3.0
|
|
|
|
-
|
|
Risk-free interest rate
|
|
|
.13
|
%
|
|
|
.13%
|
|
|
|
|
-
|
|
Fair Value of Stock Options.
The grant date fair value of options was estimated on the date of grant using the Black-Scholes option pricing model. Expected volatility was based on historical volatility for the expected term of the options. The Corporation used historical data to estimate the expected term of options granted. The risk-free interest rate was the implied yield at the time of grant on U.S. Treasury zero-coupon issues with a remaining term equal to the expected term of the options.
Compensation Expense
.
The Corporation recorded compensation expense for share-based payments of $1,517,000, $1,319,000 and $1,511,000 in 2016, 2015 and 2014, respectively, and related income tax benefits of $637,000, $543,000 and $614,000, respectively.
Stock Option Activity
.
The following table presents a summary of options outstanding under the Corporation’s stock-based compensation plans as of December 31, 2016 and changes during the year 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
|
|
|
347,179
|
|
|
$
|
10.64
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(84,102
|
)
|
|
|
10.76
|
|
|
|
|
|
|
|
|
|
Forfeited or expired
|
|
|
(5,815
|
)
|
|
|
10.08
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2016
|
|
|
257,262
|
|
|
$
|
10.61
|
|
|
|
2.36
|
|
|
$
|
4,615
|
|
Exercisable at December 31, 2016
|
|
|
256,662
|
|
|
$
|
10.60
|
|
|
|
2.35
|
|
|
$
|
4,608
|
|
All options o
utstanding at December 31, 2016 are either fully vested or expected to vest. The total intrinsic value of options exercised in 2016, 2015 and 2014 was $853,000, $602,000 and $723,000, respectively.
RS
U
Activity
. The following table presents a summary of RSUs outstanding under the Corporation’s stock-based compensation plans as of December 31, 2016 and changes during the year 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
|
|
|
236,037
|
|
|
$
|
14.55
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
107,274
|
|
|
|
18.29
|
|
|
|
|
|
|
|
|
|
Converted
|
|
|
(77,629
|
)
|
|
|
13.12
|
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
(20,672
|
)
|
|
|
16.03
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2016
|
|
|
245,010
|
|
|
$
|
16.52
|
|
|
|
1.19
|
|
|
$
|
6,995
|
|
Vested and Convertible at December 31, 2016
|
|
|
52,635
|
|
|
$
|
17.33
|
|
|
|
-
|
|
|
$
|
1,503
|
|
The number of RSUs in the table represents the maximum number of shares
of common stock of the Corporation into which the RSUs can be converted. RSUs outstanding at December 31, 2016 include 52,635 RSUs that were vested and convertible into common stock at year-end and 192,375 RSUs that are currently expected to vest and become convertible in the future. The total intrinsic value of RSUs converted in 2016, 2015 and 2014 was $1,445,000, $965,000 and $706,000, respectively.
Unrecognized Compensation Cost.
As of December 31, 2016, there was $1,366,000 of total unrecognized compensation cost related to non-vested equity awards comprised of $3,000 for options and $1,363,000 for RSUs. The total cost is expected to be recognized over a weighted-average period of 1.57 years which is based on weighted average periods of 3.43 years and 1.57 years for options and RSUs, respectively.
Cash Received and Tax Benefits Realized.
Cash received from option exercises in 2016, 2015 and 2014, was $906,000, $707,000 and $1,055,000, respectively. Tax benefits from stock option exercises were $356,000, $240,000 and $232,000 in 2016, 2015 and 2014, respectively.
Other.
No cash was used to settle stock options in 2016, 2015 or 2014. The Corporation uses newly issued shares to settle stock option exercises and for the conversion of RSUs.
NOTE
J
– RETIREMENT PLANS
The Bank has a 401(k) plan, defined benefit pension plan and supplemental executive retirement plan. Employees are immediately eligible to participate in the 401(k) plan provided they are at least 18 years of age. Participants may elect to contribute, on a tax-deferred basis, up to 100% of gross compensation, as defined, subject to the limitations of Section 401(k) of the Internal Revenue Code. The Bank may, at its sole discretion, make matching contributions to each participant's account based on the amount of the participant's tax deferred contributions. Participants are fully vested in their elective contributions and, after five years of participation in the 401(k) plan, are fully vested (20% vesting per year) in the matching contributions, if any, made by the Bank. The Bank
’s expense for matching contributions was $396,000, $397,000 and $349,000 for 2016, 2015 and 2014, respectively.
The Bank has a defined benefit pension plan (“Pension Plan” or “Plan”). Through December 20, 2013, the provisions of the Plan were governed by the rules and regulations contained in the Prototype Plan of the New York State Bankers
’ Retirement System (“Retirement System”) and the Retirement System Adoption Agreement executed by the Bank. On December 20, 2013, the Bank withdrew from the New York State Bankers’ Retirement System and simultaneously formed an internal management committee (the “Committee”) to oversee the affairs of the Plan and act as named fiduciary. The Committee retained Vanguard Group, Inc., including its subsidiaries and affiliates (“Vanguard”), to act as discretionary investment agent, trustee and custodian for the Plan. Vanguard formulated investment recommendations customized to meet the Committee’s objectives and, after approval by the Committee, such investment recommendations were incorporated into the investment guidelines and policies contained in the investment management agreement between the Bank and Vanguard (the “Investment Management Agreement”). Subsequently, the Committee adopted a formal Investment Policy Statement which includes, among other things, the investment guidelines and policies contained in the Investment Management Agreement. The Investment Policy Statement is periodically revised by the Committee as deemed appropriate.
Employees are eligible to participate in the Pension Plan after attaining 21 years of age and completing 12 full months of service. Pension benefits are generally based on a percentage of average annual compensation during the period of creditable service. The Bank makes contributions to the Pension Plan which, when taken together with participant contributions equal to 2% of their compensation, will be sufficient to fund these benefits. The Bank
’s funding method, the unit credit actuarial cost method, is consistent with the funding requirements of applicable federal laws and regulations which set forth both minimum required and maximum tax deductible contributions. Employees become fully vested after four years of participation in the Pension Plan (no vesting occurs during the four-year period).
Significant Actuarial Assumptions
.
The following table sets forth the significant actuarial assumptions used to determine the benefit obligation at December 31, 2016, 2015 and 2014 and the benefit cost for each of the Plan years then ended.
The decrease in the discount rate from 4.54% in 2015 to 4.40% in 2016 increased the projected benefit obligation at December 31, 2016 by $643,000. The increase in the discount rate from 4.02% in 2014 to 4.54% in 2015 decreased the projected benefit obligation at December 31, 2015 by $2,915,000.
In calculating the benefit obligation at December 31, 2016, the mortality table previously utilized, RP-2014 Healthy Annuitant/Employee Mortality Table with Projection Scale MP-2015, was
updated to reflect Projection Scale MP-2016. The updated mortality table decreased the projected benefit obligation at December 31, 2016 by approximately $536,000. In addition, a change in the withdrawal assumption from the T-3 table of the Pension Actuary’s Handbook to the 2003 SOA Pension Plan Turnover Table decreased the projected benefit obligation at December 31, 2016 by $157,000. In calculating the benefit obligation at December 31, 2015, the mortality table was updated from RP-2014 Healthy Annuitant/Employee Mortality Table with Projection Scale MP-2014 to reflect Projection Scale MP-2015. The updated mortality table decreased the projected benefit obligation at December 31, 2015 by approximately $270,000.
Weighted average assumptions used to determine the benefit obligation at year end
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
Discount rate
|
|
|
4.40%
|
|
|
|
4.54%
|
|
|
|
4.02%
|
|
Rate of increase in compensation levels
|
|
|
3.50%
|
|
|
|
3.50%
|
|
|
|
3.50%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average assumptions used to determine net pension cost
|
|
|
|
|
|
|
|
|
|
|
|
|
Discount rate
|
|
|
4.54%
|
|
|
|
4.02%
|
|
|
|
5.07%
|
|
Rate of increase in compensation levels
|
|
|
3.50%
|
|
|
|
3.50%
|
|
|
|
3.50%
|
|
Expected long-term rate of return on plan assets
|
|
|
6.00%
|
|
|
|
6.00%
|
|
|
|
6.50%
|
|
Net Pension Cost.
The following table sets forth the components of net periodic pension cost.
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
|
|
(in thousands)
|
|
Service cost plus expected expenses and net of expected plan participant contributions
|
|
$
|
1,142
|
|
|
$
|
1,189
|
|
|
$
|
1,115
|
|
Interest cost
|
|
|
1,584
|
|
|
|
1,408
|
|
|
|
1,407
|
|
Expected return on plan assets
|
|
|
(2,953
|
)
|
|
|
(3,086
|
)
|
|
|
(3,009
|
)
|
Amortization of net actuarial loss
|
|
|
244
|
|
|
|
-
|
|
|
|
-
|
|
Amortization of prior service cost
|
|
|
-
|
|
|
|
-
|
|
|
|
16
|
|
Net pension cost (credit)
|
|
$
|
17
|
|
|
$
|
(489
|
)
|
|
$
|
(471
|
)
|
The net actuarial loss for the defined benefit plan that will be amortized from accumulated other comprehensive income into net periodic pension cost in 201
7 is $18,000. Prior service cost had been fully amortized from accumulated other comprehensive income into net periodic pension cost as of December 31, 2014.
Funded Status of the Plan.
The following table sets forth the change in the projected benefit obligation and Plan assets for each year and, as of the end of each year, the funded status of the Plan and accumulated benefit obligation.
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
|
|
(in thousands)
|
|
Change in projected benefit obligation:
|
|
|
|
|
|
|
|
|
|
|
|
|
Projected benefit obligation at beginning of year
|
|
$
|
35,684
|
|
|
$
|
35,787
|
|
|
$
|
28,650
|
|
Service cost
|
|
|
1,283
|
|
|
|
1,267
|
|
|
|
1,051
|
|
Interest cost
|
|
|
1,584
|
|
|
|
1,408
|
|
|
|
1,407
|
|
Benefits paid
|
|
|
(1,364
|
)
|
|
|
(1,288
|
)
|
|
|
(1,160
|
)
|
Assumption changes
|
|
|
(50
|
)
|
|
|
(3,185
|
)
|
|
|
6,302
|
|
Experience loss (gain) and other
|
|
|
(121
|
)
|
|
|
1,695
|
|
|
|
(463
|
)
|
Projected benefit obligation at end of year
|
|
|
37,016
|
|
|
|
35,684
|
|
|
|
35,787
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in fair value of plan assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value of plan assets at beginning of year
|
|
|
50,021
|
|
|
|
52,208
|
|
|
|
47,182
|
|
Actual return on plan assets
|
|
|
3,919
|
|
|
|
(1,071
|
)
|
|
|
6,009
|
|
Employer contributions
|
|
|
1,553
|
|
|
|
-
|
|
|
|
-
|
|
Plan participant contributions
|
|
|
301
|
|
|
|
270
|
|
|
|
251
|
|
Benefits paid
|
|
|
(1,365
|
)
|
|
|
(1,288
|
)
|
|
|
(1,160
|
)
|
Expenses
|
|
|
(97
|
)
|
|
|
(98
|
)
|
|
|
(74
|
)
|
Fair value of plan assets at end of year
|
|
|
54,332
|
|
|
|
50,021
|
|
|
|
52,208
|
|
Funded status at end of year
|
|
$
|
17,316
|
|
|
$
|
14,337
|
|
|
$
|
16,421
|
|
Accumulated Benefit Obligation
|
|
$
|
34,451
|
|
|
$
|
32,716
|
|
|
$
|
33,403
|
|
During 2016, the Bank
made a contribution into the Plan of $1,553,000 representing the maximum tax-deductible contribution allowable under the Internal Revenue Code. The Bank has no minimum required pension contribution for the Plan year ending September 30, 2017 and it cannot make a tax-deductible contribution for the tax year beginning January 1, 2017.
Plan Assets
. The objective for the Plan’s assets is to generate long-term investment returns from both income and capital appreciation which outpaces the rate of inflation, while maintaining sufficient liquidity to ensure the Plan’s ability to pay all anticipated benefit and expense obligations when due. The Plan will maintain a de minimis amount of cash equivalents, with the remaining assets allocated across two broadly-defined financial asset categories: (1) equity, both domestic and international; and (2) fixed income of various durations and issuer type. The goal of the equity allocation is to supplement the Bank’s contributions to the Plan when the Plan is underfunded and increase surplus when the Plan is overfunded. The fixed income component will include longer-duration bonds designed to match and hedge the characteristics of the Plan’s liabilities. Cash equivalents, under normal circumstances, will be temporary holdings for the purpose of paying expenses and monthly benefits.
For fixed income investments: (1) the minimum average credit quality shall be investment grade (Standard & Poor
’s BBB or Moody’s Baa) or higher; and (2) no more than 5% of the portfolio may be invested in securities with ratings below investment grade, and none may be rated below investment grade at the time of purchase.
Reasonable precautions are taken to avoid excessive concentrations to protect the portfolio against unfavorable outcomes within an asset class. Specifically the following guidelines are in place:
●
|
With the exception of fixed income investments explicitly guaranteed by the U.S. government, no single investment security shall represent more than 5% of total Plan assets; and
|
●
|
With the exception of passively managed investment vehicles seeking to match the returns of broadly diversified market indices or diversified investment vehicles chosen specifically to hedge the interest rate risk embedded in Plan liabilities, no single investment pool or investment company (mutual fund) shall comprise more than 10% of total plan assets.
|
The portfolio will be rebalanced to the target asset allocation, if needed, no less often than quarterly. Unless expressly authorized in writing by the Committee, the following investing activities are prohibited:
●
|
Purchasing securities on margin;
|
●
|
Pledging or hypothecating securities, except for loans of securities that are fully collateralized;
|
●
|
Purchasing or selling derivative securities for speculation or leverage; and
|
●
|
Engaging in investment strategies that have the potential to amplify or distort the risk of loss beyond a level that is reasonably expected given the objectives of the portfolio.
|
The Plan
’s actual asset allocations, target allocations and expected long-term rates of return by asset category at December 31, 2016 and 2015 are set forth in the tables that follow.
|
|
December 31, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
|
|
|
Average Expected
|
|
|
|
Target
|
|
|
Percentage of
|
|
|
Long-term
|
|
|
|
Allocation
|
|
|
Plan Assets
|
|
|
Rates of Return
|
|
Cash equivalents
|
|
0%
|
-
|
1%
|
|
|
|
.2
|
%
|
|
|
<1.00%
|
|
|
Equity mutual funds
|
|
15%
|
-
|
25%
|
|
|
|
19.8
|
%
|
|
5.35%
|
to
|
11.40%
|
|
Fixed income mutual funds
|
|
75%
|
-
|
85%
|
|
|
|
80.0
|
%
|
|
3.15%
|
to
|
4.20%
|
|
|
|
|
|
|
|
|
|
100.0
|
%
|
|
3.55%
|
to
|
5.60%
|
|
|
|
December 31, 2015
|
|
Cash equivalents
|
|
0%
|
-
|
1%
|
|
|
|
.2
|
%
|
|
|
<1.00%
|
|
|
Equity mutual funds
|
|
15%
|
-
|
25%
|
|
|
|
19.6
|
%
|
|
5.80%
|
to
|
11.70%
|
|
Fixed income mutual funds
|
|
75%
|
-
|
85%
|
|
|
|
80.2
|
%
|
|
3.55%
|
to
|
4.55%
|
|
|
|
|
|
|
|
|
|
100.0
|
%
|
|
3.95%
|
to
|
5.95%
|
|
The ranges for the weighted average expected long-term rates of return for equity funds, bond funds and total plan assets set forth in the preceding table represent expected 25
th
to 75
th
percentile returns provided by Vanguard. For these purposes Vanguard utilizes a proprietary capital markets model (the “model”) developed and maintained by Vanguard’s primary investment research and advice teams. The model forecasts distributions of future returns for a wide array of broad asset classes. The theoretical and empirical foundation of the model is that the returns of various asset classes reflect the compensation investors require for bearing different types of systematic risk. At the core of the model are estimates of the dynamic statistical relationship between risk factors and asset returns, obtained from statistical analysis based on available historical monthly financial and economic data.
At December 31, 2016, the equity and fixed income components of Plan assets consist of the following Vanguard institutional funds:
Equity
●
|
Vanguard Total Stock Market Index Fund (VITSX). This fund seeks to track the performance of the Center for Research in Security Prices (“CRSP”) U.S. Total Market Index. The fund is passively managed using index sampling and consists of large, small and mid-cap equity securities diversified across growth and value styles.
|
●
|
Vanguard Total International Stock Index Fund (VTSNX). This fund seeks to track the performance of the Financial Times Stock Exchange (“FTSE”) Global All Cap ex U.S. Index. The fund is passively managed and includes broad exposure across developed and emerging non-U.S. equity markets.
|
Fixed Income
●
|
Vanguard Long-Term Investment-Grade Fund (VWETX). This fund seeks high and sustainable current income. Investments are selected using a fundamental, bottom-up credit selection process and consist of long-term, high-quality bonds broadly diversified by issuer and industry sector.
|
●
|
Vanguard Long-Term Bond Index Fund (VBLLX). This fund seeks high current income with high credit quality and to track the performance of the Barclays U.S. Long Government/Credit Float Adjusted Index. The fund is passively managed using index sampling and includes diversified exposure to long-term, investment-grade U.S. bond market instruments. Obligations of the U.S. government make up a significant portion of the fund’s holdings.
|
Fair Value of Plan Assets.
The fair value of the Plan assets at December 31, 2016 and 2015, by asset category, is summarized below.
|
|
|
|
|
|
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, 2016:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash equivalents:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vanguard Prime Money Market Mutual Fund
|
|
$
|
107
|
|
|
$
|
-
|
|
|
$
|
107
|
|
|
$
|
-
|
|
Total cash equivalents
|
|
|
107
|
|
|
|
-
|
|
|
|
107
|
|
|
|
-
|
|
Equity mutual funds:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vanguard Total Stock Market Index Fund (VITSX)
|
|
|
5,997
|
|
|
|
5,997
|
|
|
|
-
|
|
|
|
-
|
|
Vanguard Total International Stock Index Fund (VTSNX)
|
|
|
4,777
|
|
|
|
4,777
|
|
|
|
-
|
|
|
|
-
|
|
Total equity funds
|
|
|
10,774
|
|
|
|
10,774
|
|
|
|
-
|
|
|
|
-
|
|
Fixed income mutual funds:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vanguard Long-Term Investment Grade Fund (VWETX)
|
|
|
26,075
|
|
|
|
26,075
|
|
|
|
-
|
|
|
|
-
|
|
Vanguard Long-Term Bond Index Fund (VBLLX)
|
|
|
17,376
|
|
|
|
17,376
|
|
|
|
-
|
|
|
|
-
|
|
Total fixed income mutual funds
|
|
|
43,451
|
|
|
|
43,451
|
|
|
|
-
|
|
|
|
-
|
|
Total Plan Assets
|
|
$
|
54,332
|
|
|
$
|
54,225
|
|
|
$
|
107
|
|
|
$
|
-
|
|
December 31, 2015:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash equivalents:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vanguard Prime Money Market Mutual Fund
|
|
$
|
98
|
|
|
$
|
-
|
|
|
$
|
98
|
|
|
$
|
-
|
|
Total cash equivalents
|
|
|
98
|
|
|
|
-
|
|
|
|
98
|
|
|
|
-
|
|
Equity mutual funds:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vanguard Total Stock Market Index Fund (VITSX)
|
|
|
5,392
|
|
|
|
5,392
|
|
|
|
-
|
|
|
|
-
|
|
Vanguard Total International Stock Index Fund (VTSNX)
|
|
|
4,416
|
|
|
|
4,416
|
|
|
|
-
|
|
|
|
-
|
|
Total equity funds
|
|
|
9,808
|
|
|
|
9,808
|
|
|
|
-
|
|
|
|
-
|
|
Fixed income mutual funds:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vanguard Long-Term Investment Grade Fund (VWETX)
|
|
|
24,053
|
|
|
|
24,053
|
|
|
|
-
|
|
|
|
-
|
|
Vanguard Long-Term Bond Index Fund (VBLLX)
|
|
|
16,062
|
|
|
|
16,062
|
|
|
|
-
|
|
|
|
-
|
|
Total fixed income mutual funds
|
|
|
40,115
|
|
|
|
40,115
|
|
|
|
-
|
|
|
|
-
|
|
Total Plan Assets
|
|
$
|
50,021
|
|
|
$
|
49,923
|
|
|
$
|
98
|
|
|
$
|
-
|
|
The fair values of the Vanguard mutual funds represent their net asset values (“NAV”) at December 31, 2016 and 2015. On an ongoing basis, the Plan has the ability to readily redeem its investments in these funds at their NAV per share with no advance notification.
The definitions of Level 1, 2 and 3 fair value measurements are included in Note M to these consolidated financial statements.
At both December 31, 2016 and 2015, the Plan
’s cash and cash equivalents amounted to .2% of the Plan’s total assets and represented investments in the Vanguard Prime Money Market Mutual Fund.
Estimated Future Benefit Payments.
The following benefit payments, which reflect expected future service as appropriate, are expected to be made by the Plan.
Year
|
|
|
Amount
|
|
|
|
|
|
|
(in thousands)
|
|
|
2017
|
|
|
|
$
|
1,576
|
|
|
2018
|
|
|
|
|
1,702
|
|
|
2019
|
|
|
|
|
1,798
|
|
|
2020
|
|
|
|
|
2,034
|
|
|
2021
|
|
|
|
|
2,145
|
|
2022
|
-
|
2026
|
|
|
|
12,699
|
|
The Bank
’s Supplemental Executive Retirement Plan (“SERP”) currently covers the Bank’s Chief Executive Officer (“CEO”). The benefit under the SERP is equal to the additional amount that the CEO would be entitled to under the Pension and 401(k) plans in the absence of Internal Revenue Code limitations. SERP expense was $197,000, $271,000 and $133,000 in 2016, 2015 and 2014, respectively.
NOTE
K
– OTHER OPERATING EXPENSES
Expenses included in other operating expenses that exceed one percent of the aggregate of total interest income and noninterest income in one or more of the years shown are as follows:
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
|
|
(in thousands)
|
|
Computer services
|
|
$
|
2,631
|
|
|
$
|
2,212
|
|
|
$
|
1,970
|
|
FDIC assessment
|
|
|
1,379
|
|
|
|
1,472
|
|
|
|
1,278
|
|
Consultants
|
|
|
1,337
|
|
|
|
576
|
|
|
|
498
|
|
Marketing
|
|
|
1,053
|
|
|
|
877
|
|
|
|
927
|
|
NOTE
L
– COMMITMENTS AND CONTINGENT LIABILITIES
Financial Instruments With Off-Balance-
Sheet Risk.
In the normal course of business, the Bank enters into various types of off-balance-sheet arrangements to meet the financing needs of its customers. These off-balance-sheet financial instruments include commitments to extend credit, standby letters of credit and commercial letters of credit. These instruments involve varying degrees of credit risk in excess of the amount recognized in the consolidated balance sheets and expose the Bank to credit loss in the event of nonperformance by the Bank’s customers. The Bank's exposure to credit loss is represented by the contractual notional amount of these instruments. The Bank uses the same credit policies in making commitments to extend credit, and generally uses the same credit policies for letters of credit, as it does for on-balance sheet instruments such as loans.
At December 31, 201
6 and 2015, financial instruments whose contract amounts represent credit risk are as follows:
|
|
2016
|
|
|
2015
|
|
|
|
Fixed
|
|
|
Variable
|
|
|
Fixed
|
|
|
Variable
|
|
|
|
Rate
|
|
|
Rate
|
|
|
Rate
|
|
|
Rate
|
|
|
|
(in thousands)
|
|
Commitments to extend credit
|
|
$
|
67,289
|
|
|
$
|
264,404
|
|
|
$
|
13,092
|
|
|
$
|
235,368
|
|
Standby letters of credit
|
|
|
5,596
|
|
|
|
-
|
|
|
|
5,758
|
|
|
|
-
|
|
A c
ommitment to extend credit is a legally binding agreement to lend to a customer as long as there is no violation of any condition established in the contract. Unused home equity lines are the largest component of the Bank’s variable rate loan commitments. Since some of the commitments to extend credit and letters of credit are expected to expire without being drawn upon and, with respect to unused home equity lines, can be frozen, reduced or terminated by the Bank based on the financial condition of the borrower, the total commitment amounts do not necessarily represent future cash requirements. Home equity lines generally expire ten years from their date of origination, other real estate loan commitments generally expire within 60 days and commercial loan commitments generally expire within one year. At December 31, 2016, the Bank’s fixed rate loan commitments are to make loans with interest rates ranging from 3.00% to 4.75% and maturities of five years or more. The amount of collateral obtained, if any, by the Bank upon extension of credit is based on management’s credit evaluation of the borrower. Collateral held varies but may include mortgages on commercial and residential real estate, security interests in business assets, equipment, deposit accounts with the Bank or other financial institutions and securities.
Standby letters of credit are conditional commitments issued by the Bank to assure the performance or financial obligations of a customer to a third party. The Bank's standby letters of credit extend through
December 2017. The credit risk involved in issuing standby letters of credit is essentially the same as that involved in extending loans to customers. The Bank generally holds collateral and/or obtains personal guarantees supporting these commitments. The extent of collateral held for these commitments at December 31, 2016 varied from 0% to 100% of the contractual notional amount of each instrument, with the average amount of collateral totaling 80% of the aggregate outstanding notional amount. Standby letters of credit are considered financial guarantees and are recorded at fair value.
Employment Contracts
.
At December 31, 2016, the chief executive officer, senior executive vice president and certain of the Bank’s executive vice presidents had employment contracts with the Corporation under which they are entitled to severance compensation in the event of an involuntary termination of employment or resignation of employment following a change in control. The terms of these contracts currently range from eighteen months to three years. Unless the Corporation gives written notice of non-extension within the time frames set forth in the contracts, the contracts are automatically extended at the expiration of each year for a new period ranging from eighteen months to three years. The current aggregate annual salaries provided for in these contracts is $1,655,500.
Lease Commitments.
At December 31, 2016, minimum annual rental commitments under non-cancelable operating leases are as follows:
Year
|
|
Amount
|
|
|
|
(in thousands)
|
|
2017
|
|
$
|
2,139
|
|
2018
|
|
|
1,916
|
|
2019
|
|
|
1,750
|
|
2020
|
|
|
1,611
|
|
2021
|
|
|
1,432
|
|
Thereafter
|
|
|
4,375
|
|
|
|
$
|
13,223
|
|
The Bank has various renewal options on the above leases. Rent expense, including amounts paid for real estate taxes and common area maintenance, was
$2,085,000, $1,885,000 and $1,733,000 in 2016, 2015 and 2014, respectively.
Related Party Leases.
Buildings occupied by two of the Bank’s branch offices are leased from a director of the Corporation and the Bank. The leases expire on October 31, 2017 and December 31, 2019 with options to renew. The Bank expects to renew both leases prior to their expiration. Aggregate base rent expense for these leases, plus a proportionate share of real estate taxes on one of the leased properties, amounted to approximately $78,000 for each of the years ending December 31, 2016, 2015 and 2014. The Corporation believes that the terms of the leases are comparable to competitive terms that could have been obtained from an unrelated third party.
Litigation.
The Corporation is a named defendant in several legal actions incidental to the business. For some of these actions there is a possibility that the Corporation will sustain a financial loss. Management believes that none of the possible losses are material.
NOTE
M
– 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 in either 2016 or 2015.
The fair values of the Corporation
’s investment securities designated as available-for-sale at December 31, 2016 and 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)
|
|
Available-for-Sale Securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2016:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
State and municipals
|
|
$
|
450,660
|
|
|
$
|
-
|
|
|
$
|
450,660
|
|
|
$
|
-
|
|
Pass-through mortgage securities
|
|
|
185,809
|
|
|
|
-
|
|
|
|
185,809
|
|
|
|
-
|
|
Collateralized mortgage obligations
|
|
|
178,830
|
|
|
|
-
|
|
|
|
178,830
|
|
|
|
-
|
|
|
|
$
|
815,299
|
|
|
$
|
-
|
|
|
$
|
815,299
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2015:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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, 201
6 and 2015, are set forth in the table that follows. 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 when appropriate. 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, 2016:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impaired loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential mortgages - closed end
|
|
$
|
1,009
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
1,009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2015:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential mortgages held-for-sale:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Closed end
|
|
$
|
25
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
25
|
|
Revolving home equity
|
|
|
80
|
|
|
|
-
|
|
|
|
-
|
|
|
|
80
|
|
|
|
$
|
105
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
105
|
|
Impaired loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential mortgages - closed end
|
|
$
|
119
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
119
|
|
The impaired loans set forth in the preceding table had principal balances of $
1,491,000 and $152,000 at December 31, 2016 and 2015, respectively, and valuation allowances of $482,000 and $33,000, respectively. During the years ended December 31, 2016, 2015 and 2014, the Corporation recorded provisions (credit) for loan losses of $449,000, $27,000 and $(14,000), respectively, 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 in 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 December 31, 2016 and 2015.
|
Level of
|
|
December 31, 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
|
|
$
|
36,929
|
|
|
$
|
36,929
|
|
|
$
|
39,635
|
|
|
$
|
39,635
|
|
Held-to-maturity securities
|
Level 2
|
|
|
9,904
|
|
|
|
10,154
|
|
|
|
12,366
|
|
|
|
12,905
|
|
Held-to-maturity securities
|
Level 3
|
|
|
1,483
|
|
|
|
1,483
|
|
|
|
2,005
|
|
|
|
2,005
|
|
Loans
|
Level 3
|
|
|
2,514,355
|
|
|
|
2,472,849
|
|
|
|
2,220,808
|
|
|
|
2,203,418
|
|
Restricted stock
|
Level 1
|
|
|
31,763
|
|
|
|
31,763
|
|
|
|
28,435
|
|
|
|
28,435
|
|
Accrued interest receivable:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment securities
|
Level 2
|
|
|
4,564
|
|
|
|
4,564
|
|
|
|
4,403
|
|
|
|
4,403
|
|
Loans
|
Level 3
|
|
|
6,418
|
|
|
|
6,418
|
|
|
|
5,501
|
|
|
|
5,501
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Checking deposits
|
Level 1
|
|
|
808,311
|
|
|
|
808,311
|
|
|
|
777,994
|
|
|
|
777,994
|
|
Savings, NOW and money market deposits
|
Level 1
|
|
|
1,519,749
|
|
|
|
1,519,749
|
|
|
|
1,195,968
|
|
|
|
1,195,968
|
|
Time deposits
|
Level 2
|
|
|
280,657
|
|
|
|
282,024
|
|
|
|
310,713
|
|
|
|
313,331
|
|
Short-term borrowings
|
Level 1
|
|
|
207,012
|
|
|
|
207,012
|
|
|
|
211,502
|
|
|
|
211,502
|
|
Long-term debt
|
Level 2
|
|
|
379,212
|
|
|
|
375,003
|
|
|
|
365,712
|
|
|
|
364,935
|
|
Accrued interest payable:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Checking, savings, NOW and money market deposits
|
Level 1
|
|
|
160
|
|
|
|
160
|
|
|
|
43
|
|
|
|
43
|
|
Time deposits
|
Level 2
|
|
|
25
|
|
|
|
25
|
|
|
|
3,224
|
|
|
|
3,224
|
|
Short-term borrowings
|
Level 1
|
|
|
8
|
|
|
|
8
|
|
|
|
3
|
|
|
|
3
|
|
Long-term debt
|
Level 2
|
|
|
590
|
|
|
|
590
|
|
|
|
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) and 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 FHLB stock and FRB 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 FHLB.
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 FHLB.
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.
NOTE
N
– PARENT COMPANY FINANCIAL INFORMATION
Condensed financial information for the Corporation (parent company only) is as follows:
CONDENSED BALANCE SHEETS
|
|
December 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
|
(in thousands)
|
|
Assets:
|
|
|
|
|
|
|
|
|
Cash and due from banks
|
|
$
|
1,372
|
|
|
$
|
2,351
|
|
Investment in subsidiary bank, at equity
|
|
|
306,107
|
|
|
|
249,260
|
|
Prepaid income taxes
|
|
|
123
|
|
|
|
719
|
|
Deferred income tax benefits
|
|
|
1,548
|
|
|
|
1,464
|
|
Other assets
|
|
|
68
|
|
|
|
4
|
|
|
|
$
|
309,218
|
|
|
$
|
253,798
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
Other liabilities
|
|
$
|
20
|
|
|
$
|
39
|
|
Cash dividends payable
|
|
|
3,368
|
|
|
|
2,823
|
|
|
|
|
3,388
|
|
|
|
2,862
|
|
|
|
|
|
|
|
|
|
|
Stockholders' equity:
|
|
|
|
|
|
|
|
|
Common stock
|
|
|
2,370
|
|
|
|
1,412
|
|
Surplus
|
|
|
101,738
|
|
|
|
56,931
|
|
Retained earnings
|
|
|
203,326
|
|
|
|
185,069
|
|
|
|
|
307,434
|
|
|
|
243,412
|
|
Accumulated other comprehensive income (loss), net of tax
|
|
|
(1,604
|
)
|
|
|
7,524
|
|
|
|
|
305,830
|
|
|
|
250,936
|
|
|
|
$
|
309,218
|
|
|
$
|
253,798
|
|
CONDENSED STATEMENTS OF INCOME
|
|
Year ended December 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
|
|
(in thousands)
|
|
Income:
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends from subsidiary bank
|
|
$
|
4,500
|
|
|
$
|
7,500
|
|
|
$
|
6,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
Salaries
|
|
|
1,517
|
|
|
|
1,319
|
|
|
|
1,511
|
|
Other operating expenses
|
|
|
376
|
|
|
|
541
|
|
|
|
409
|
|
|
|
|
1,893
|
|
|
|
1,860
|
|
|
|
1,920
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
|
2,607
|
|
|
|
5,640
|
|
|
|
4,080
|
|
Income tax benefit
|
|
|
(1,181
|
)
|
|
|
(832
|
)
|
|
|
(759
|
)
|
Income before undistributed earnings of subsidiary bank
|
|
|
3,788
|
|
|
|
6,472
|
|
|
|
4,839
|
|
Equity in undistributed earnings
|
|
|
27,092
|
|
|
|
19,418
|
|
|
|
18,175
|
|
Net income
|
|
$
|
30,880
|
|
|
$
|
25,890
|
|
|
$
|
23,014
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income
|
|
$
|
21,752
|
|
|
$
|
22,629
|
|
|
$
|
32,137
|
|
CONDENSED STATEMENTS OF CASH FLOWS
|
|
Year ended December 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
|
|
(in thousands)
|
|
Cash Flows From Operating Activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
30,880
|
|
|
$
|
25,890
|
|
|
$
|
23,014
|
|
Adjustments to reconcile net income to net cash provided by operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Undistributed earnings of subsidiary bank
|
|
|
(27,092
|
)
|
|
|
(19,418
|
)
|
|
|
(18,175
|
)
|
Deferred income tax credit
|
|
|
(84
|
)
|
|
|
(278
|
)
|
|
|
(289
|
)
|
Tax benefit of stock-based compensation
|
|
|
-
|
|
|
|
336
|
|
|
|
224
|
|
Stock-based compensation expense
|
|
|
1,517
|
|
|
|
1,319
|
|
|
|
1,511
|
|
(Increase) decrease in prepaid income taxes
|
|
|
596
|
|
|
|
(362
|
)
|
|
|
139
|
|
(Increase) decrease in other assets
|
|
|
(64
|
)
|
|
|
38
|
|
|
|
(41
|
)
|
Increase (decrease) in other liabilities
|
|
|
(19
|
)
|
|
|
39
|
|
|
|
(12
|
)
|
Net cash provided by operating activities
|
|
|
5,734
|
|
|
|
7,564
|
|
|
|
6,371
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Flows From Investing Activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments for investments in and advances to subsidiaries
|
|
|
(38,883
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Flows From Financing Activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Repurchase and retirement of common stock
|
|
|
(370
|
)
|
|
|
(287
|
)
|
|
|
(286
|
)
|
Proceeds from exercise of stock options
|
|
|
906
|
|
|
|
707
|
|
|
|
1,055
|
|
Proceeds from issuance of common stock, net
|
|
|
43,712
|
|
|
|
3,870
|
|
|
|
2,185
|
|
Cash dividends paid
|
|
|
(12,078
|
)
|
|
|
(10,759
|
)
|
|
|
(9,736
|
)
|
Net cash provided by (used in) financing activities
|
|
|
32,170
|
|
|
|
(6,469
|
)
|
|
|
(6,782
|
)
|
Net increase (decrease) in cash and cash equivalents*
|
|
|
(979
|
)
|
|
|
1,095
|
|
|
|
(411
|
)
|
Cash and cash equivalents, beginning of year
|
|
|
2,351
|
|
|
|
1,256
|
|
|
|
1,667
|
|
Cash and cash equivalents, end of year
|
|
$
|
1,372
|
|
|
$
|
2,351
|
|
|
$
|
1,256
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental Schedule of Noncash Financing Activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash dividends payable
|
|
$
|
3,368
|
|
|
$
|
2,823
|
|
|
$
|
2,642
|
|
*
Cash and cash equivalents is defined as cash and due from banks and includes, among other things, the checking and money market accounts with the Corporation’s wholly-owned bank subsidiary.
NOTE
O
– QUARTERLY FINANCIAL DATA (Unaudited)
|
|
First
|
|
|
Second
|
|
|
Third
|
|
|
Fourth
|
|
|
|
|
|
|
|
Quarter
|
|
|
Quarter
|
|
|
Quarter
|
|
|
Quarter
|
|
|
Total
|
|
|
|
(in thousands, except per share data)
|
|
2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
$
|
25,107
|
|
|
$
|
25,681
|
|
|
$
|
26,232
|
|
|
$
|
27,103
|
|
|
$
|
104,123
|
|
Interest expense
|
|
|
4,406
|
|
|
|
4,408
|
|
|
|
4,541
|
|
|
|
4,647
|
|
|
|
18,002
|
|
Net interest income
|
|
|
20,701
|
|
|
|
21,273
|
|
|
|
21,691
|
|
|
|
22,456
|
|
|
|
86,121
|
|
Provision for loan losses
|
|
|
253
|
|
|
|
139
|
|
|
|
1,118
|
|
|
|
1,970
|
|
|
|
3,480
|
|
Noninterest income before net securities gains
|
|
|
1,754
|
|
|
|
1,887
|
|
|
|
1,990
|
|
|
|
1,880
|
|
|
|
7,511
|
|
Net gains on sales of securities
|
|
|
-
|
|
|
|
1,844
|
|
|
|
24
|
|
|
|
-
|
|
|
|
1,868
|
|
Noninterest expense before debt extinguishment costs
|
|
|
12,431
|
|
|
|
13,116
|
|
|
|
11,974
|
|
|
|
12,814
|
|
|
|
50,335
|
|
Debt extinguishment costs
|
|
|
-
|
|
|
|
1,756
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,756
|
|
Income before income taxes
|
|
|
9,771
|
|
|
|
9,993
|
|
|
|
10,613
|
|
|
|
9,552
|
|
|
|
39,929
|
|
Income tax expense
|
|
|
2,136
|
|
|
|
2,264
|
|
|
|
2,615
|
|
|
|
2,034
|
|
|
|
9,049
|
|
Net income
|
|
|
7,635
|
|
|
|
7,729
|
|
|
|
7,998
|
|
|
|
7,518
|
|
|
|
30,880
|
|
Earnings per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
.36
|
|
|
|
.34
|
|
|
|
.34
|
|
|
|
.32
|
|
|
|
1.35
|
|
Diluted
|
|
|
.35
|
|
|
|
.34
|
|
|
|
.34
|
|
|
|
.31
|
|
|
|
1.34
|
|
Comprehensive income (loss)
|
|
|
10,566
|
|
|
|
10,966
|
|
|
|
5,012
|
|
|
|
(4,792
|
)
|
|
|
21,752
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
$
|
22,058
|
|
|
$
|
22,667
|
|
|
$
|
22,903
|
|
|
$
|
24,507
|
|
|
$
|
92,135
|
|
Interest expense
|
|
|
4,252
|
|
|
|
4,173
|
|
|
|
3,970
|
|
|
|
4,134
|
|
|
|
16,529
|
|
Net interest income
|
|
|
17,806
|
|
|
|
18,494
|
|
|
|
18,933
|
|
|
|
20,373
|
|
|
|
75,606
|
|
Provision for loan losses
|
|
|
411
|
|
|
|
942
|
|
|
|
1,049
|
|
|
|
1,915
|
|
|
|
4,317
|
|
Noninterest income before net securities gains
|
|
|
1,956
|
|
|
|
1,950
|
|
|
|
1,819
|
|
|
|
1,709
|
|
|
|
7,434
|
|
Net gains on sales of securities
|
|
|
-
|
|
|
|
1,133
|
|
|
|
-
|
|
|
|
191
|
|
|
|
1,324
|
|
Noninterest expense before debt extinguishment costs
|
|
|
11,147
|
|
|
|
10,958
|
|
|
|
11,382
|
|
|
|
12,120
|
|
|
|
45,607
|
|
Debt extinguishment costs
|
|
|
-
|
|
|
|
1,084
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,084
|
|
Income before income taxes
|
|
|
8,204
|
|
|
|
8,593
|
|
|
|
8,321
|
|
|
|
8,238
|
|
|
|
33,356
|
|
Income tax expense
|
|
|
1,719
|
|
|
|
2,317
|
|
|
|
1,810
|
|
|
|
1,620
|
|
|
|
7,466
|
|
Net income
|
|
|
6,485
|
|
|
|
6,276
|
|
|
|
6,511
|
|
|
|
6,618
|
|
|
|
25,890
|
|
Earnings per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
.31
|
|
|
|
.30
|
|
|
|
.31
|
|
|
|
.31
|
|
|
|
1.23
|
|
Diluted
|
|
|
.31
|
|
|
|
.30
|
|
|
|
.31
|
|
|
|
.31
|
|
|
|
1.22
|
|
Comprehensive income
|
|
|
8,092
|
|
|
|
670
|
|
|
|
9,536
|
|
|
|
4,331
|
|
|
|
22,629
|
|
Adoption of ASU
2016-09 effective January 1, 2016 increased (decreased) quarterly net income for the first through the fourth quarters of 2016 by $205,000, $109,000, ($13,000) and $84,000, respectively.