Financial statement schedules have been omitted because they are not applicable or not required or the required information is shown in the Consolidated Financial Statements or Notes thereto under "Part II - Item 8. Financial Statements and Supplementary Data."
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized on March 14, 2018.
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below on March 14, 2018 by the following persons on behalf of the registrant and in the capacities indicated.
DIME COMMUNITY BANCSHARES, INC. AND SUBSIDIARIES
DIME COMMUNITY BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars In Thousands except for share amounts)
1.
|
NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
|
Nature of Operations
- Dime Community Bancshares, Inc. (the "Holding Company" and together with its direct and indirect subsidiaries, the "Company") is a Delaware corporation organized by Dime Community Bank (
f/k/a
The Dime Savings Bank of Williamsburgh) (the "Bank") for the purpose of acquiring all of the capital stock of the Bank issued in the Bank's conversion to stock ownership on June 26, 1996. At December 31, 2017, the significant assets of the Holding Company were the capital stock of the Bank and investments retained by the Holding Company. The liabilities of the Holding Company were comprised primarily of a $113,612 subordinated notes payable maturing in 2027, and become callable commencing 2022. The Company is subject to the financial reporting requirements of the Securities Exchange Act of 1934, as amended.
The Bank was originally founded in 1864 as a New York State-chartered mutual savings bank, and currently operates as a New York State-chartered stock savings bank. Effective August 1, 2016, the Bank changed its name from The Dime Savings Bank of Williamsburgh to Dime Community Bank. The new name more accurately reflects the Bank’s evolving business model and emphasizes its broader geographic and business reach while retaining the Bank’s mission to be in and of the communities it serves, including the virtual on line community. The Bank has been a community-oriented financial institution providing financial services and loans for housing within its market areas.
The Holding Company neither owns nor leases any property, but instead uses the back office of the Bank, located in the Brooklyn Heights section of the borough of Brooklyn, New York. The Bank maintains its principal office in the Williamsburg section of the borough of Brooklyn, New York. As of December 31, 2017, the Bank had twenty-eight retail banking offices located throughout the boroughs of Brooklyn, Queens, and the Bronx, and in Nassau County and Suffolk, New York.
Summary of Significant Accounting Policies
– Management believes that the accounting and reporting policies of the Company conform to accounting principles generally accepted in the United States of America ("GAAP"). The following is a description of the significant policies.
Principles of Consolidation
- The accompanying consolidated financial statements include the accounts of the Holding Company and its subsidiaries (with the exception of its special purpose entity, Dime Community Capital Trust I, at December 31, 2016), and the Bank and its subsidiaries. All inter-company accounts and transactions have been eliminated in consolidation.
Use of Estimates -
To prepare consolidated financial statements in conformity with GAAP, management makes judgments, estimates and assumptions based on available information. These estimates and assumptions affect the amounts reported in the financial statements and the disclosures provided, and actual results could differ.
Cash and Cash Equivalents:
Cash and cash equivalents include cash and deposits with other financial institutions with maturities fewer than 90 days. Net cash flows are reported for customer loan and deposit transactions, and interest bearing deposits in other financial institutions.
Investment Securities and MBS
- Debt securities that have readily determinable fair values are carried at fair value unless they are held-to-maturity. Debt securities are classified as held-to-maturity and carried at amortized cost only if the Company has a positive intent and ability to hold them to maturity. If not classified as held-to-maturity, such securities are classified as securities available-for-sale or trading. Equity securities and mutual fund investments (fixed income or equity in nature) are classified as either available-for-sale or trading securities and carried at fair value. Unrealized holding gains or losses on securities available-for-sale that are deemed temporary are excluded from net income and reported net of income taxes as other comprehensive income or loss. While the Holding Company had a small portfolio of mutual fund investments designated as trading at both December 31, 2017 and December 31, 2016, neither the Holding Company nor the Bank actively acquires securities for the purpose of engaging in trading activities.
Interest income includes amortization of purchase premium or discount. Premiums and discounts on securities are amortized on the level-yield method without anticipating prepayments, except for MBS where prepayments are anticipated. Gains and losses on sales are recorded on the trade date and determined using the specific identification method.
The Company evaluates securities for OTTI at least quarterly, and more frequently when economic or market conditions warrant such an evaluation. In making its evaluation of OTTI for debt securities, the Company initially considers whether: (1) it intends to sell the security, or (2) it is more likely than not that it will be required to sell the security prior to recovery of its amortized cost basis. If either of these criteria is satisfied, an OTTI charge is recognized in the statement of income equal to the full amount of the decline in fair value below amortized cost. For debt securities, if neither of these criteria is satisfied, however, the Company does not expect to recover the entire amortized cost basis, an OTTI loss has occurred that must be separated into two categories: (a) the amount related to credit loss, and (b) the amount related to other factors. In assessing the level of OTTI attributable to credit loss, the Company compares the present value of expected cash flows to the amortized cost basis of the security. The portion of OTTI determined to result from credit-related factors is recognized through earnings, while the portion of the OTTI related to other factors is recognized in other comprehensive income. When OTTI is recognized on a debt security, its amortized cost basis is reduced to reflect the credit-related component.
In determining whether OTTI exists on an equity security, the Company considers the following: 1) the duration and severity of the impairment; 2) the Company’s ability and intent to hold the security until it recovers in value (as well as the likelihood of such a recovery in the near term); and 3) whether it is more likely than not that the Company will be required to sell such security before recovery of its individual amortized cost basis less any unrecognized loss. Should OTTI be determined to have occurred based upon this analysis, it is fully recognized through earnings.
Loans -
Loans that the Bank has the intent and ability to hold for the foreseeable future or until maturity or payoff are reported at the principal amount outstanding (as adjusted for any amounts charged-off), net of unearned fees or costs, unamortized premiums and the allowance for loan losses. Interest income on loans is recorded using the level yield method. Loan origination fees and certain direct loan origination costs are deferred and amortized as yield adjustments over the contractual loan terms. Past due status is based upon the contractual terms of the loan.
Accrual of interest is generally discontinued on a loan that meets any of the following three criteria: (i) full payment of principal or interest is not expected; (ii) principal or interest has been in default for a period of 90 days or more and the loan is not both deemed to be well secured and in the process of collection; or (iii) an election has otherwise been made to maintain the loan on a cash basis due to deterioration in the financial condition of the borrower. Such non-accrual determination practices are applied consistently to all loans regardless of their internal classification or designation. Upon entering non-accrual status, the Bank reverses all outstanding accrued interest receivable.
Management may elect to continue the accrual of interest when a loan that otherwise meets the criteria for non-accrual status is in the process of collection and the estimated fair value and cash flows of the underlying collateral property are sufficient to satisfy the outstanding principal balance (including any outstanding advances related to the loan) and accrued interest. Management may also elect to continue the accrual of interest on a loan that would otherwise meet the criteria for non-accrual status when its delinquency relates solely to principal amounts due, it is well secured and refinancing activities have commenced on the loan. Such elections have not been commonplace.
The Bank generally initiates foreclosure proceedings when a delinquent loan enters non-accrual status, and typically does not accept partial payments once foreclosure proceedings have commenced. During foreclosure proceedings, the Bank procures current appraisal information in order to prepare an estimate of the fair value of the underlying collateral. If a foreclosure action is instituted and the loan is not brought current, paid in full, or refinanced before the foreclosure action is completed, the property securing the loan is transferred to OREO status. The Bank generally utilizes all available remedies, such as note sales in lieu of foreclosure, in an effort to resolve non-accrual loans as quickly and prudently as possible in consideration of market conditions, the physical condition of the property and any other mitigating circumstances. In the event that a non-accrual loan is subsequently brought current, it is returned to accrual status once the doubt concerning collectability has been removed and the borrower has demonstrated performance in accordance with the loan terms and conditions for a period of at least six months.
A loan is considered impaired when, based on then current information and events, it is probable that the Company will be unable to collect all amounts due according to the contractual terms of the loan agreement. Factors considered by management in determining impairment include payment status, collateral value, and the probability of collecting scheduled principal and interest payments when due. Loans that experience insignificant payment delays or shortfalls generally are not classified as impaired. Management determines the significance of payment delays and 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 the amount of the shortfall in relation to the principal and interest owed.
Impairment is typically measured using the difference between the outstanding loan principal balance and either: 1) the likely realizable value of a note sale; 2) the fair value of the underlying collateral, net of likely disposal costs, if repayment is expected to come from liquidation of the collateral; or 3) the present value of estimated future cash flows (using the loan’s pre-modification rate for some performing troubled debt restructurings (“TDRs”)). If a TDR is substantially performing in accordance with its restructured terms, management will look to either the potential net liquidation proceeds of the underlying collateral property or the present value of the expected cash flows from the debt service in measuring impairment (whichever is deemed most appropriate under the circumstances). If a TDR has re-defaulted, generally the likely realizable net proceeds from either a note sale or the liquidation of the collateral is considered when measuring impairment. Measured impairment is either charged off immediately or, in limited instances, recognized as an allocated reserve within the allowance for loan losses. See Note 5 for a discussion of TDRs.
Allowance for Loan Losses and Reserve for Loan Commitments -
The allowance for loan losses is a valuation allowance for probable incurred credit losses. Loan losses are charged against the allowance when management believes the uncollectibility of a loan balance is confirmed. Subsequent recoveries, if any, are credited to the allowance. Management estimates the allowance balance required using past loan loss experience, the nature and volume of the portfolio, information about specific borrower situations and estimated collateral values, economic conditions, and other factors. Allocations of the allowance may be made for specific loans, but the entire allowance is available for any loan that, in management’s judgment, should be charged off.
Measured impairment is either charged off immediately or, in limited instances, recognized as an allocated reserve within the allowance for loan losses. All loans that are deemed to meet the definition of impaired are individually evaluated for impairment. Smaller balance homogeneous loans, such as condominium or cooperative apartment and one-to-four family residential real estate loans with balances less than or equal to the Fannie Mae (“FNMA”) conforming loan limits for high-cost areas such as the Bank's primary lending area ("FNMA Limits") and consumer loans, are collectively evaluated for impairment, and accordingly, not separately identified for impairment disclosures.
Loans for which the terms have been modified in a manner that meets the criteria of a TDR are deemed to be impaired and individually evaluated for impairment. If a TDR is substantially performing in accordance with its restructured terms, management will look to either the potential net liquidation proceeds of the underlying collateral property or the present value of the expected cash flows from the debt service in measuring impairment (whichever is deemed most appropriate under the circumstances). If a TDR has defaulted, the likely realizable net proceeds from either a note sale or the liquidation of collateral is generally considered when measuring impairment.
In determining both the specific and the general components of the allowance for loan losses, the Company has identified the following portfolio segments: 1) real estate and C&I loans; and 2) consumer loans. Consumer loans represent a nominal portion of the Company’s loan portfolio. Within these segments, the Bank analyzes the allowance based upon the underlying collateral type.
The underlying methodology utilized to assess the adequacy of the allowance for loan losses is summarized in Note 5.
The Bank maintains a separate reserve within other liabilities associated with commitments to fund future loans that have been accepted by the borrower. This reserve is determined based upon the historical loss experience of similar loans owned by the Bank at each period end. Any changes in this reserve amount are recognized through earnings as a component of non-interest expense.
Loans Held for Sale -
Mortgage loans originated and intended for sale in the secondary market, as well as identified problem loans which are subject to an executed note sale agreement, are carried at the lower of aggregate cost or net realizable proceeds. Multifamily residential and mixed-use loans sold are generally sold with servicing rights retained. During the year ended December 31, 2017 and 2016 the Bank re-classified certain problematic loans for which it had an executed pending note sale agreement as held for sale. Such loans are carried at the lower of cost or their expected net realizable proceeds.
Derivatives
– The Company has a derivative contract designated as a hedge of the variability of cash flows to be received or paid related to a recognized liability (“Cash Flow Hedge”). The gain or loss on the derivative is reported in other comprehensive income and is reclassified into earnings in the same periods during which the hedged transaction affects earnings. Changes in the fair value of derivatives that are not highly effective in hedging the changes in expected cash flows of the hedged item are recognized immediately in current earnings as non-interest income.
Net cash settlements on derivatives that qualify for hedge accounting are recorded in interest income or interest expense, based on the item being hedged. Net cash settlements on derivatives that do not qualify for hedge accounting are reported in non-interest income. Cash flows on hedges are classified in the cash flow statement the same as the cash flows of the items being hedged.
The Company formally documents the relationship between derivatives and hedged items, as well as the risk-management objective and the strategy for undertaking hedge transactions at the inception of the hedging relationship. This documentation includes linking cash flow hedges to specific liabilities on the balance sheet. The Company also formally assesses, both at the hedge’s inception and on an on-going basis, whether the derivative instruments that are used are highly effective in offsetting changes in or cash flows of the hedged items. The Company discontinues hedge accounting when it determines that the derivative is no longer effective in offsetting changes in cash flows of the hedged item, or treatment of the derivative as a hedge is no longer appropriate or intended.
When hedge accounting is discontinued, subsequent changes in fair value of the derivative are recorded as non-interest income. When a cash flow hedge is discontinued but the hedged cash flows are still expected to occur, gains or losses that were accumulated in other comprehensive income are amortized into earnings over the same periods which the hedged transaction will affect earnings.
OREO
- Properties acquired as a result of foreclosure on a mortgage loan or a deed in lieu of foreclosure are initially recorded at fair value less costs to sell when acquired, establishing a new cost basis. Physical possession of residential real estate collateralizing a consumer mortgage loan occurs when legal title is obtained upon completion of foreclosure or when the borrower conveys all interest in the property to satisfy the loan through execution of a deed in lieu of foreclosure or through a similar legal agreement. These assets are subsequently accounted for at the lower of cost or fair value less estimated costs to sell. Declines in the recorded balance subsequent to acquisition by the Company are recorded through expense. Operating costs after acquisition are expensed.
Premises and Fixed Assets, Net
- Land is stated at original cost. Buildings and furniture, fixtures and equipment are stated at cost less accumulated depreciation. Depreciation is computed by the straight-line method over the estimated useful lives of the properties as follows:
Buildings
|
2.22% to 2.50% per year
|
Leasehold improvements
|
Lesser of the useful life of the asset or the remaining non-cancelable terms of the related leases
|
Furniture, fixtures and equipment
|
10% per year
|
Premises Held for Sale –
Premises held for sale are carried at the lower of the recorded balance or their likely disposal value. Upon being re-classified as held for sale, depreciation is no longer recognized on these assets.
Accounting for Goodwill and Other Intangible Assets
– In January of 2017, the FASB issued ASU 2017-04, which eliminates step 2 of the impairment analysis. While this guidance is not effective until January 1, 2020, the Company has elected to early adopt this guidance as of January 1, 2018 for the annual evaluation of its goodwill for the year ended December 31, 2017. Based upon one reporting unit, the goodwill impairment test was performed on a consolidated basis by comparing the fair value of the reporting unit, calculated as the market capitalization of the Company, with its carrying amount (including goodwill). To the extent that the carrying amount of goodwill exceeds the implied fair value, an impairment charge must be recognized in an amount equal to the excess carrying amount over fair value. The impairment charge will be limited to the amount of goodwill allocated to that reporting unit. As of December 31, 2017 and 2016, the Company concluded that no impairment of goodwill existed. As of both December 31, 2017 and 2016, the Company had goodwill totaling $55,638.
Mortgage Servicing Rights ("MSR") –
When mortgage loans are sold with servicing retained, servicing rights are initially recorded at fair value with the income statement effect recorded in gains on sales of loans.
Servicing assets are carried at the lower of cost or fair value and are amortized in proportion to, and over the period of, anticipated net servicing income. All separately recognized MSR are required to be initially measured at fair value, if practicable. The estimated fair value of loan servicing assets is determined by calculating the present value of estimated future net servicing cash flows, using assumptions of prepayments, defaults, servicing costs and discount rates derived based upon actual historical results for the Bank, or, in the absence of such data, from historical results for the Bank's peers. Capitalized loan servicing assets are stratified based on predominant risk characteristics of the underlying loans (
i.e.,
collateral, interest rate, servicing spread and maturity) for the purpose of evaluating impairment. A valuation allowance is then established in the event the recorded value of an individual stratum exceeds its fair value. The fair values of servicing rights are subject to significant fluctuations as a result of changes in estimated and actual prepayment speeds, default rates, and losses.
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 Company, 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 Company does not maintain effective control over the transferred assets through an agreement to repurchase them before their maturity.
BOLI
– BOLI is carried at the amount that can be realized under the insurance contract at the balance sheet date, which is the cash surrender value adjusted for other charges or amounts due that are probable at settlement. Increases in the contract value are recorded as non-interest income in the consolidated statements of operations and insurance proceeds received are recorded as a reduction of the contract value.
Income Taxes
– Income tax expense is the total of the current year income tax due or refundable and the change in deferred tax assets and liabilities. Deferred tax assets and liabilities are the expected future tax amounts for the temporary differences between carrying amounts and tax bases of assets and liabilities, computed using enacted tax rates. A valuation allowance, if needed, reduces deferred tax assets to the amount deemed more likely than not to be realized.
A tax position is recognized as a benefit only if it is "more likely than not" that the tax position would be sustained in a tax examination, with a tax examination being presumed to occur. The amount recognized is the largest amount of tax benefit that is greater than 50% likely of being realized on examination. For tax positions not satisfying the "more likely than not" test, no tax benefit is recorded. The Company recognizes interest and/or penalties related to tax matters in income tax expense. The Company had no unrecorded tax positions at December 31, 2017 or 2016.
Employee Benefits –
The Bank maintains the Dime Community Bank KSOP Plan (formerly known as the Dime Community Bank 401(k) Savings Plan (the “401(k) Plan”)) (the "KSOP") for substantially all of its employees, and the Retirement Plan of Dime Community Bank (the "Employee Retirement Plan"), both of which are tax qualified under the Internal Revenue Code.
The Bank also maintains the Postretirement Welfare Plan of Dime Community Bank (the "Postretirement Benefit Plan"), providing additional postretirement benefits to certain retirees, which requires accrual of postretirement benefits (such as health care benefits) during the years an employee provides services, a Retirement Plan for its outside Directors (the “Director Retirement Plan”), and the BMP that provides additional benefits to certain of its officers.
As the sponsor of a single employer defined benefit plan, the Company must do the following for the Employee Retirement Plan, a portion of the BMP, the Director Retirement Plan and the Postretirement Benefit Plan: (1) recognize the funded status of the benefit plans in its statements of financial condition, measured as the difference between plan assets at fair value (with limited exceptions) and the benefit obligation. For a pension plan, the benefit obligation is the projected benefit obligation; for any other postretirement benefit plan, such as a retiree health care
plan, the benefit obligation is the accumulated postretirement benefit obligation; (2) recognize as a component of other comprehensive income, net of tax, the gains or losses and prior service costs or credits that arise during the period but are not recognized as components of net periodic benefit or cost. Amounts recognized in accumulated other comprehensive income, including the gains or losses, prior service costs or credits, and the transition asset or obligation are adjusted as they are subsequently recognized as components of net periodic benefit cost; (3) measure defined benefit plan assets and obligations as of the date of the employer’s fiscal year-end statements of financial condition (with limited exceptions); and (4) disclose in the notes to financial statements additional information about certain effects on net periodic benefit cost for the next fiscal year that arise from delayed recognition of the gains or losses, prior service costs or credits, and transition asset or obligation.
The Holding Company and Bank maintained the ESOP. Compensation expense related to the ESOP is recorded during the period in which the shares become committed to be released to participants. The compensation expense is measured based upon the average fair market value of the stock during the period, and, to the extent that the fair value of the shares committed to be released differs from the original cost of such shares, the difference is recorded as an adjustment to additional paid-in capital. Cash dividends are paid on all ESOP shares, and reduce retained earnings accordingly. During the year ended December 31, 2017, the Company merged the assets of the ESOP into the 401(k) Plan, creating the KSOP.
The Holding Company and Bank maintain the Dime Community Bancshares, Inc. 2004 Stock Incentive Plan for Outside Directors, Officers and Employees and the Dime Community Bancshares, Inc. 2013 Equity and Incentive Plan (collectively the "Stock Plans"); which are discussed more fully in Note 18. Under the Stock Plans, compensation cost is recognized for stock options and restricted stock awards issued to employees based on the fair value of the awards at the date of grant. A Black-Scholes model is utilized to estimate the fair value of stock options, while the market price of the Holding Company’s common stock (“Common Stock”) at the date of grant is used for restricted stock awards. Compensation cost is recognized over the required service period, generally defined as the vesting period. For awards with graded vesting, compensation cost is recognized on a straight-line basis over the requisite service period for the entire award.
Basic and Diluted EPS
-
Basic EPS is computed by dividing net income by the weighted-average common shares outstanding during the reporting period. Diluted EPS is computed using the same method as basic EPS, but reflects the potential dilution that would occur if "in the money" stock options were exercised and converted into Common Stock, and likely aggregate Long-term Incentive Plan (“LTIP”) share payout. In determining the weighted average shares outstanding for basic and diluted EPS, treasury stock and unallocated ESOP shares are excluded and vested restricted stock award shares are included. Unvested restricted stock award shares are recognized as a special class of securities under ASC 260.
The following is a reconciliation of the numerator and denominator of basic EPS and diluted EPS for the periods indicated:
|
|
Year Ended December 31,
|
|
|
|
2017
|
|
|
2016
|
|
|
2015
|
|
Numerator:
|
|
|
|
|
|
|
|
|
|
Net Income per the Consolidated Statements of Operations
|
|
$
|
51,882
|
|
|
$
|
72,514
|
|
|
$
|
44,772
|
|
Less: Dividends paid on earnings allocated to participating securities
|
|
|
(131
|
)
|
|
|
(109
|
)
|
|
|
(136
|
)
|
Income attributable to Common Stock
|
|
$
|
51,751
|
|
|
$
|
72,405
|
|
|
$
|
44,636
|
|
Weighted average common shares outstanding, including participating securities
|
|
|
37,593,715
|
|
|
|
36,898,951
|
|
|
|
36,477,854
|
|
Less: weighted average participating securities
|
|
|
(163,056
|
)
|
|
|
(186,058
|
)
|
|
|
(245,037
|
)
|
Weighted average common shares outstanding
|
|
|
37,430,659
|
|
|
|
36,712,893
|
|
|
|
36,232,817
|
|
Basic EPS
|
|
$
|
1.38
|
|
|
$
|
1.97
|
|
|
$
|
1.24
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income attributable to Common Stock
|
|
$
|
51,751
|
|
|
$
|
72,405
|
|
|
$
|
44,636
|
|
Weighted average common shares outstanding
|
|
|
37,430,659
|
|
|
|
36,712,893
|
|
|
|
36,232,817
|
|
Weighted average common equivalent shares outstanding
|
|
|
79,790
|
|
|
|
51,193
|
|
|
|
89,516
|
|
Weighted average common and equivalent shares outstanding
|
|
|
37,510,449
|
|
|
|
36,764,086
|
|
|
|
36,322,333
|
|
Diluted EPS
|
|
$
|
1.38
|
|
|
$
|
1.97
|
|
|
$
|
1.23
|
|
Common stock equivalents resulting from the dilutive effect of "in-the-money" stock options are calculated based upon the excess of the average market value of the Common Stock over the exercise price of outstanding options.
There were no “out-of-the-money” stock options for the year ended December 31, 2017. There were approximately 77,432 and 126,172 weighted average options for the years ended December 31, 2016, and 2015, respectively, that were not considered in the calculation of diluted EPS since the sum of their exercise price and unrecognized compensation cost exceeded the average market value during the relevant period.
For information about the calculation of likely aggregate LTIP share payout, see Note 18.
Comprehensive Income
- Comprehensive income for the years ended December 31, 2017, 2016 and 2015 included changes in the unrealized gain or loss on available-for-sale securities, changes in the unfunded status of defined benefit plans, the non-credit component of OTTI, a transfer loss related to securities transferred from available-for-sale to held-to-maturity, and changes in the unrealized gain or loss on derivatives. Under GAAP, all of these items bypass net income and are typically reported as components of stockholders' equity. All comprehensive income adjustment items are presented net of applicable tax effect.
Comprehensive and accumulated comprehensive income are summarized in Note 2.
Disclosures about Segments of an Enterprise and Related Information
- The Company has one reportable segment, "Community Banking." All of the Company's activities are interrelated, and each activity is dependent and assessed based on the manner in which it supports the other activities of the Company. For example, lending is dependent upon the ability of the Bank to fund itself with retail deposits and other borrowings and to manage interest rate and credit risk. Accordingly, all significant operating decisions are based upon analysis of the Company as one operating segment or unit.
For the years ended December 31, 2017, 2016 and 2015, there was no customer that accounted for more than 10% of the Company's consolidated revenue.
Reclassification
– There have been no material reclassifications to prior year amounts to conform to their current presentation.
Recently Issued Accounting Standards -
In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2014-09,
Revenue from Contracts with Customers (Topic 606)
. ASU 2014-09 impacts any entity that either enters into contracts with customers to transfer goods or services, or that enters into contracts for the transfer of nonfinancial assets unless those contracts are within the scope of other standards (
e.g.,
insurance or lease contracts). Under ASU 2014-09, an entity is required to recognize revenue for the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. ASU 2014-09 also requires disclosure of sufficient information to enable users of financial statements to understand the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers, as well as qualitative and quantitative disclosure related to contracts with certain customers, significant judgments and changes in judgments, and assets recognized from the costs to obtain or fulfill a contract. In March 2016, the FASB issued ASU 2016-08,
Revenue from Contracts with Customers (Topic 606): Principal Versus Agent Consideration - Reporting Revenue Gross Versus Net
. The objective of the ASU is to align the recognition of revenue with the transfer of promised goods or services provided to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The amendments in this ASU affect the guidance in ASU 2014-09, which is not yet effective. In September 2017, the FASB issued ASU 2017-13,
Revenue Recognition (Topic 605), Revenue from Contracts with Customers (Topic 606), Leases (Topic 840), and Leases (Topic 842): Amendments to SEC Paragraphs Pursuant to the Staff Announcement at the July 20, 2017 EITF Meeting and Rescission of Prior SEC Staff Announcements and Observer Comments.
The amendments in ASU 2017-13 amends the early adoption date option for certain companies. Both ASU 2014-09 and the amendments are effective for public business entities for annual periods, and interim periods within those annual periods, beginning after
December 15, 2017.
The Company’s revenue primarily consists of net interest income and noninterest income. Interest income is explicitly excluded from the scope of the guidance. Other revenue streams excluded from the scope are revenues from financial instruments such as loans and securities. The Company’s only material in-scope revenue stream that is subject to Topic 606 is service fees on deposit accounts (including interchange fees). The Company has evaluated the impact of ASU 2014-09 and the amendments upon adoption as of January 1, 2018 and has concluded that there is not a material impact on its consolidated financial statements as the majority of the Company’s revenue streams are not within the scope of Topic 606. ASU 2014-09 will require additional disclosures beginning with the first quarter of 2018.
In January 2016, the FASB issued ASU 2016-01, an amendment to
Recognition and Measurement of Financial Assets and Financial Liabilities (Subtopic 825-10)
. The objectives of the ASU are to: (1) require equity investments to be measured at fair value, with changes in fair value recognized in net income, (2) simplify the impairment assessment of equity investments without readily determinable fair values, (3) eliminate the requirement to disclose methods and significant assumptions used to estimate fair value for financial instruments measured at amortized cost on the balance sheet, (4) require the use of the exit price notion when measuring the fair value of financial instruments, and (5) clarify the need for a valuation allowance on a deferred tax asset related to available-for-sale securities in combination with the entity’s other deferred tax assets. In February 2018, the FASB issued ASU 2018-03
, Technical Corrections and Improvements to Financial Instruments – Overall – Recognition and Measurement of Financial Assets and Liabilities,
an amendment to ASU 2016-01. The amendments clarify certain aspects of the guidance issued in ASU 2016-01. The amendments in these ASUs are effective for public business entities for annual periods, and interim periods within those annual periods, beginning after December 15, 2017. The Company has evaluated the impact of ASU 2016-01 and 2018-03 upon adoption as of January 1, 2018 and has concluded that there is not a material impact on its consolidated financial statements.
In February 2016, the FASB issued ASU 2016-02,
Leases (Topic 842)
. ASU 2016-02 requires companies that lease valuable assets to recognize on their balance sheets the assets and liabilities generated by contracts longer than a year. The amendments in this update are effective for annual periods, and interim periods within those annual periods, beginning after December 15, 2018, however, early adoption is permitted. The Company is evaluating the potential impact of ASU 2016-02 on its consolidated financial statements.
In June 2016, the FASB issued ASU No. 2016-13,
Financial Instruments – Credit Losses (Topic 326)
, which requires that the measurement of all expected credit losses for financial assets held at the reporting date be based on historical experience, current condition, and reasonable and supportable forecasts. Financial institutions and other organizations will now use forward-looking information to better inform their credit loss estimates. This guidance also amends the accounting for credit losses on available-for-sale debt securities and purchased financial assets with credit deterioration. For the Company, this guidance is effective for fiscal years and interim periods beginning after December 31, 2019. The Company has established a committee that is assessing system requirements, gathering data, and evaluating the impact of the ASU on its consolidated financial statements. The Company expects to recognize a one-time cumulative effect increase to the allowance for loan losses as of the beginning of the reporting period in which the ASU takes effect, however, cannot yet determine the magnitude of the impact on the consolidated financial statements.
In January 2017, the FASB issued ASU 2017-04
, Intangibles - Goodwill and Other (Topic 350).
ASU 2017-04 eliminates the second step in the goodwill impairment test which requires an entity to determine the implied fair value of the reporting unit's goodwill. Instead, an entity should recognize an impairment loss if the carrying value of the net assets assigned to the reporting unit exceeds the fair value of the reporting unit, with the impairment loss not to exceed the amount of goodwill allocated to the reporting unit. The standard is effective for the Company beginning January 1, 2020, with early adoption permitted for goodwill impairment tests performed after January 1, 2017. The Company adopted this standard for the year ended December 31, 2017 in conjunction with its goodwill impairment test analysis as of December 31, 2017. The adoption of ASU 2017-04 did not have a material impact on the Company’s consolidated financial statements.
In March 2017, the FASB issued ASU 2017-07,
Compensation – Retirement Benefits (Topic 715)
. ASU 2017-07 requires companies that offer employee defined pension plans, other postretirement benefit plans, or other types of benefit plans accounted for under Topic 715 to report the service cost component in the same line item or items as other compensation costs arising from services rendered by the pertinent employees during the period. The other components of net benefit cost are required to be presented in the income statement separately from the service cost component and outside a subtotal of income from operations, if one is presented. The amendments in this update are effective for annual periods, and interim periods within those annual periods, beginning after December 15, 2017, however, early adoption is permitted. The Company has evaluated the impact of ASU 2017-07 upon adoption as of January 1, 2018 and has concluded that there is not a material impact on its consolidated financial statements.
In March 2017, the FASB issued ASU 2017-08,
Receivables – Nonrefundable Fees and Other Costs (Subtopic 310-20): Premium Amortization on Purchased Callable Debt Securities
. ASU 2017-08 shortens the amortization period for certain callable debt securities held at a premium. Specifically, the amendments require the premium to be amortized to the earliest call date. The amendments do not require an accounting change for securities held at a discount; the discount continues to be amortized to maturity. The amendments in this update are effective for annual periods, and interim periods within those annual periods, beginning after December 15, 2018, however, early adoption is permitted. The adoption of ASU 2017-08 will not have a material impact on the Company’s consolidated financial statements.
In May 2017, the FASB issued ASU 2017-09,
Compensation – Stock Compensation (Topic 718): Scope of Modification Accounting
. The amendments in ASU 2017-09 provide guidance on determining which changes to the terms and conditions of share-based payment awards require an entity to apply modification accounting. The amendments in this update are effective for annual periods, and interim periods within those annual periods, beginning after December 15, 2017, however, early adoption is permitted. The Company has evaluated the impact of ASU 2017-09 upon adoption as of January 1, 2018 and has concluded that there is not a material impact on its consolidated financial statements.
In August 2017, the FASB issued ASU 2017-12,
Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities
. The amendments in ASU 2017-02 refine and expand hedge accounting for both financial (e.g., interest rate) and commodity risks. The provisions in the amendment create more transparency around how economic results are presented, both on the face of the financial statements and in the footnotes. The amendment also makes certain targeted improvements to simplify the application of hedge accounting guidance. provide guidance on determining which changes to the terms and conditions of share-based payment awards require an entity to apply modification accounting. The amendments in this update are effective for annual periods, and interim periods within those annual periods, beginning after December 15, 2018, however, early adoption is permitted. The Company adopted this standard on January 1, 2018. The adoption of ASU 2017-12 did not have a material impact on the Company’s consolidated financial statements.
In February 2018, the FASB issued ASU 2018-02
, Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income.
The standard permits the reclassification of certain stranded income tax effects in accumulated other comprehensive income resulting from the Tax Cuts and Jobs Act of 2017 (the “Tax Act”) from accumulated other comprehensive income to retained earnings in each period in which the effect of the change in the U.S. federal corporate income tax rate in the Tax Act (or portion thereof) is recorded. The amount of the reclassification is the difference between the historical corporate income tax rate (35%) and the newly enacted 21% corporate income tax rate. The standard is effective for the Company beginning January 1, 2018. The Company adopted this standard for the year ended December 31, 2017 (see Note 2 – Other Comprehensive Income) for the impact on the Company’s consolidated financial statements as a result of adoption.
2.
|
OTHER COMPREHENSIVE INCOME (LOSS)
|
Activity in accumulated other comprehensive income (loss), net of tax, was as follows:
|
|
Held-to-
Maturity
and
Transferred
Securities
|
|
|
Available-
for-Sale
Securities
|
|
|
Defined Benefit
Plans
|
|
|
Derivative
Asset
|
|
|
Total
Accumulated
Other
Comprehensive
Income (Loss)
|
|
Balance as of January 1, 2016
|
|
$
|
(760
|
)
|
|
$
|
(122
|
)
|
|
$
|
(7,919
|
)
|
|
$
|
-
|
|
|
$
|
(8,801
|
)
|
Other comprehensive income (loss) before reclassifications
|
|
|
47
|
|
|
|
30
|
|
|
|
1,009
|
|
|
|
1,833
|
|
|
|
2,919
|
|
Amounts reclassified from accumulated other comprehensive income (loss)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(57
|
)
|
|
|
(57
|
)
|
Net other comprehensive income (loss) during the period
|
|
|
47
|
|
|
|
30
|
|
|
|
1,009
|
|
|
|
1,776
|
|
|
|
2,862
|
|
Balance as of December 31, 2016
|
|
|
(713
|
)
|
|
|
(92
|
)
|
|
|
(6,910
|
)
|
|
|
1,776
|
|
|
|
(5,939
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income before reclassifications
|
|
|
39
|
|
|
|
307
|
|
|
|
786
|
|
|
|
297
|
|
|
|
1,469
|
|
Amounts reclassified from accumulated other comprehensive income (loss)
|
|
|
674
|
|
|
|
20
|
|
|
|
733
|
|
|
|
155
|
|
|
|
1,542
|
|
Net other comprehensive income during the period
|
|
|
713
|
|
|
|
327
|
|
|
|
1,519
|
|
|
|
452
|
|
|
|
3,011
|
|
Reclassification of tax effects on other comprehensive income
(1)
|
|
|
-
|
|
|
|
50
|
|
|
|
(1,242
|
)
|
|
|
479
|
|
|
|
(713
|
)
|
Balance as of December 31, 2017
|
|
$
|
-
|
|
|
$
|
285
|
|
|
$
|
(6,633
|
)
|
|
$
|
2,707
|
|
|
$
|
(3,641
|
)
|
(1)
Represents the impact of adopting ASU 2018-02 allowing the reclassification of certain stranded income tax effects in accumulated other comprehensive income resulting from the Tax Cuts and Jobs Act of 2017 from accumulated other comprehensive income to retained earnings in each period in which the effect of the change in the U.S. federal corporate income tax rate in the Tax Cuts and Jobs Act of 2017 (the “Tax Act”) (or portion thereof) is recorded. The amount of the reclassification is the difference between the historical corporate income tax rate (35%) and the newly enacted 21% corporate income tax rate. The reclassification is as of and for the year ended December, 31, 2017; no prior period information has been retroactively adjusted as a result of implementing the ASU.
The before and after tax amounts allocated to each component of other comprehensive income (loss) are presented in the table below for the periods indicated.
|
|
For the year ended December 31,
|
|
|
2017
|
|
2016
|
|
2015
|
Change in unrealized holding loss on securities transferred to held-to-maturity:
|
|
|
|
|
|
|
Accretion (Amortization) of previously recognized non-credit component of OTTI
|
|
$20
|
|
$34
|
|
$(9)
|
Change in unrealized loss on securities transferred to held-to-maturity
|
|
50
|
|
51
|
|
125
|
Reclassification adjustment for net
gain
included in net gain on securities and other assets
|
|
1,229
|
|
-
|
|
-
|
Net change
|
|
1,299
|
|
85
|
|
116
|
Tax expense
|
|
586
|
|
38
|
|
50
|
Net change in unrealized holding loss on securities held-to-maturity and transferred securities
|
|
713
|
|
47
|
|
66
|
Change in unrealized holding gain on securities available-for-sale:
|
|
|
|
|
|
|
Change in net unrealized gain during the period
|
|
551
|
|
56
|
|
(176)
|
Reclassification adjustment for net losses (gains) included in net gain on securities
and other assets
|
|
36
|
|
-
|
|
(1,384)
|
Net change
|
|
587
|
|
56
|
|
(1,560)
|
Tax expense (benefit)
|
|
260
|
|
26
|
|
(702)
|
|
|
|
|
|
|
|
Net change in unrealized holding gain on securities available-for-sale
|
|
327
|
|
30
|
|
(858)
|
Change in pension and other postretirement obligations:
|
|
|
|
|
|
|
Reclassification adjustment for expense included in salaries and employee benefits expense
|
|
1,421
|
|
1,841
|
|
1,890
|
Change in the net actuarial gain or loss
|
|
1,337
|
|
-
|
|
(901)
|
Net change
|
|
2,758
|
|
1,841
|
|
989
|
Tax expense
|
|
1
,239
|
|
832
|
|
451
|
Net change in pension and other postretirement obligations
|
|
1,519
|
|
1,009
|
|
538
|
Change in unrealized loss on derivative asset:
|
|
|
|
|
|
|
Change in net unrealized loss during the period
|
|
511
|
|
3,205
|
|
-
|
Reclassification adjustment for expense included in interest expense
|
|
283
|
|
23
|
|
-
|
Net change
|
|
794
|
|
3,228
|
|
-
|
Tax expense
|
|
342
|
|
1,452
|
|
-
|
Net change in unrealized loss on derivative asset
|
|
452
|
|
1,776
|
|
-
|
Other comprehensive income (loss)
|
|
$3,
011
|
|
$2,862
|
|
$(254)
|
3.
|
INVESTMENT AND MORTGAGE-BACKED SECURITIES
|
The following tables summarize the major categories of securities owned by the Company (excluding trading securities) for the periods indicated:
|
|
At December 31, 2017
|
|
|
|
Amortized
Cost
|
|
|
Gross
Unrealized
Gains
|
|
|
Gross
Unrealized
Losses
|
|
|
Fair
Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment securities available-for-sale:
|
|
|
|
|
|
|
|
|
|
|
|
|
Registered Mutual Funds
|
|
$
|
3,779
|
|
|
$
|
311
|
|
|
$
|
(84
|
)
|
|
$
|
4,006
|
|
Pass-through MBS issued by Government Sponsored Entities (“GSEs”)
|
|
|
340,574
|
|
|
|
681
|
|
|
|
(376
|
)
|
|
|
340,879
|
|
Agency Collateralized Mortgage Obligation (“CMO”)
|
|
|
10,615
|
|
|
|
4
|
|
|
|
(114
|
)
|
|
|
10,505
|
|
Total investment securities available-for-sale
|
|
$
|
354,968
|
|
|
$
|
996
|
|
|
$
|
(574
|
)
|
|
$
|
355,390
|
|
|
|
At December 31, 2016
|
|
|
|
Amortized
Cost
(1)
|
|
|
Gross
Unrealized
Gains
|
|
|
Gross
Unrealized
Losses
|
|
|
Fair
Value
|
|
Investment securities held-to-maturity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pooled bank trust preferred securities (“TRUP CDOs”)
|
|
$
|
5,378
|
|
|
$
|
2,221
|
|
|
$
|
(303
|
)
|
|
$
|
7,296
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment securities available-for-sale:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Registered Mutual Funds
|
|
|
4,011
|
|
|
|
62
|
|
|
|
(178
|
)
|
|
|
3,895
|
|
Pass-through MBS issued by GSEs
|
|
|
360
|
|
|
|
12
|
|
|
|
-
|
|
|
|
372
|
|
Agency CMO
|
|
|
3,247
|
|
|
|
-
|
|
|
|
(61
|
)
|
|
|
3,186
|
|
Total investment securities available-for-sale
|
|
|
7,618
|
|
|
|
74
|
|
|
|
(239
|
)
|
|
|
7,453
|
|
Total investment securities
|
|
$
|
12,996
|
|
|
$
|
2,295
|
|
|
$
|
(542
|
)
|
|
$
|
14,749
|
|
(1)
Amount represents the purchase amortized / historical cost less any OTTI charges (credit or non-credit related) previously recognized. For the TRUP CDOs, amount is also net of the $755 unamortized portion of the unrealized loss that was recognized in accumulated other comprehensive loss on September 1, 2008 (the day on which these securities were transferred from available-for-sale to held-to-maturity).
Securities pledged at December 31, 2017 had a carrying amount of $28,738 were pledge as collateral for the Bank’s first loss guarantee (see Note 19). There were no pledged securities at December 31, 2016.
At December 31, 2017, the Company held $277,218 of investment securities available-for-sale guaranteed by Freddie Mac which represent an amount greater than 10% of stockholders’ equity. At December 31 2016, there were no holdings of investment securities of any one issuer in an amount greater than 10% of stockholders' equity.
At December 31, 2017, available-for-sale pass-through MBS issued by GSEs possessed a weighted average contractual maturity of 12.8 years and a weighted average estimated duration of 4.8 years. As of December 31, 2017, the available-for-sale agency CMO securities had a weighted average term to maturity of 16.3 years.
During the year ended December 31, 2017, the Company sold its entire portfolio of investment securities held-to-maturity consisting of six TRUP CDO securities, of which five were deemed to be OTTI. The TRUP CDO portfolio was sold as part of the Company’s strategy to take advantage of investment opportunities. The Company does not intend to classify any securities as held-to-maturity for the foreseeable future. The amortized cost of the TRUP CDO portfolio was $5,331 at the time of the sale. The amortized cost represents the purchase amortized/historical cost less $8,553 of OTTI charges previously recognized and $705 of the unamortized portion of unrealized losses that were recognized in accumulated other comprehensive loss on September 1, 2008 (the day on which these securities were transferred from available-for-sale to held-to-maturity). As a result of the sale, the pre-tax balances of both the unamortized portion of the unrealized losses at transfer to held-to-maturity of $705 and the unamortized portion of previous credit losses of $524 were reclassified out of accumulated comprehensive loss during the year ended December 31, 2017. Gross proceeds from the sale of the TRUP CDOs were $9,167 for the year ended December 31, 2017. Gross gains of $3,048 and gross losses of $441 were recognized on these sales. There were no sales of held-to-maturity securities during the year ended December 31, 2016.
Proceeds from the sales of available-for-sale pass-through MBS issued by GSEs totaled $15,000 during the year ended December 31, 2017. Gross losses of $36 were recognized on these sales. There were no sales of pass-through MBS issued by GSEs during the year ended December 31, 2016. Proceeds from the sales of available-for-sale pass-through MBS issued by GSEs totaled $24,307 during the year ended December 31, 2015. Gross gains of $1,395 and gross losses of $7 were recognized on these sales.
The tax benefit related to the loss on sales of MBS available-for-sale recognized during the year ended December 31, 2017 was $16, and the tax provisions related to the gains on sales of MBS available-for-sale recognized during the year ended December 31, 2015 was $624.
There were no sales of agency CMO securities available-for-sale during the years ended December 31, 2017, 2016 or 2015.
The Company holds both registered mutual funds (as investment securities available-for-sale) and trading securities as the underlying investments of the BMP, held in a rabbi trust. The Company may sell either registered mutual funds or trading securities on a periodic basis in order to pay retirement benefits to plan retirees. There are no gains or losses recognized from the sales of registered mutual funds or trading securities. A summary of the sales of registered mutual funds and trading securities is listed below for the periods indicated:
|
|
For the Year ended December 31,
|
|
|
|
2017
|
|
|
2016
|
|
|
2015
|
|
Proceeds:
|
|
|
|
|
|
|
|
|
|
Investment securities available for sale (Registered Mutual Funds)
|
|
$
|
377
|
|
|
$
|
-
|
|
|
$
|
2,070
|
|
Trading Securities
|
|
$
|
4,629
|
|
|
$
|
3,648
|
|
|
$
|
1,340
|
|
The remaining gain or loss on securities shown in the unaudited condensed consolidated statements of income during those periods resulted from market valuation changes or sales of trading securities.
The following table summarizes the gross unrealized losses and fair value of investment securities aggregated by investment category and the length of time the securities were in a continuous unrealized loss position for the periods indicated:
|
|
At December 31, 2017
|
|
|
|
Less than 12
Consecutive Months
|
|
|
12 Consecutive
Months or Longer
|
|
|
Total
|
|
|
|
Fair
Value
|
|
|
Unrealized
Losses
|
|
|
Fair
Value
|
|
|
Unrealized
Losses
|
|
|
Fair
Value
|
|
|
Unrealized
Losses
|
|
Investment securities available-for-sale:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Registered Mutual Funds
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
2,591
|
|
|
$
|
84
|
|
|
$
|
2,591
|
|
|
$
|
84
|
|
Pass through MBS issued by GSEs
|
|
|
137,664
|
|
|
|
376
|
|
|
|
-
|
|
|
|
-
|
|
|
|
137,664
|
|
|
|
376
|
|
Agency CMO
|
|
|
4,901
|
|
|
|
45
|
|
|
|
3,168
|
|
|
|
69
|
|
|
|
8,069
|
|
|
|
114
|
|
|
|
At December 31, 2016
|
|
|
|
Less than 12
Consecutive Months
|
|
|
12 Consecutive
Months or Longer
|
|
|
Total
|
|
|
|
Fair
Value
|
|
|
Unrealized
Losses
|
|
|
Fair
Value
|
|
|
Unrealized
Losses
|
|
|
Fair
Value
|
|
|
Unrealized
Losses
|
|
Investment securities held-to-maturity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TRUP CDOs
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
2,439
|
|
|
$
|
303
|
|
|
$
|
2,439
|
|
|
$
|
303
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment securities available-for-sale:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Registered Mutual Funds
|
|
|
1,308
|
|
|
|
47
|
|
|
|
1,747
|
|
|
|
131
|
|
|
|
3,055
|
|
|
|
178
|
|
Agency CMO
|
|
|
3,186
|
|
|
|
61
|
|
|
|
-
|
|
|
|
-
|
|
|
|
3,186
|
|
|
|
61
|
|
TRUP CDOs That Have Maintained an Unrealized Holding Loss for 12 or More Consecutive Months
The Company sold its TRUP CDOs portfolio during the year ended December 31, 2017. At December 31, 2016, there were two TRUP CDOs with unrealized holding losses 12 or more consecutive months. The impairment of one of those TRUP CDOs was deemed temporary, as management believed that the full recorded balance of the investments would be realized. In making this determination, management considered the following at December 31, 2016:
|
·
|
Based upon an internal review of the collateral backing the TRUP CDOs portfolio, which accounted for current and prospective deferrals, the securities could reasonably be expected to continue making all contractual payments
|
|
·
|
There were no cash or working capital requirements nor contractual or regulatory obligations that would compel the Company to sell these securities prior to their forecasted recovery or maturity
|
|
·
|
The securities have a pool of underlying issuers comprised primarily of banks
|
|
·
|
None of the securities have exposure to real estate investment trust issued debt (which has experienced high default rates)
|
|
·
|
The securities feature either a mandatory auction or a de-leveraging mechanism that could result in principal repayments to the Bank prior to the stated maturity of the security
|
|
·
|
The securities are adequately collateralized
|
The unrealized loss on the second TRUP CDO with unrealized holding losses for 12 or more consecutive months was considered to be other than temporary. See below for a discussion of OTTI.
TRUP CDOs with OTTI
On September 1, 2008, the Bank transferred eight TRUP CDOs (
i.e.
, investment securities primarily secured by the preferred debt obligations of a pool of U.S. banks with a small portion secured by debt obligations of insurance companies) with an amortized cost of $19,922 from its available-for-sale portfolio to its held-to-maturity portfolio. Based upon the lack of an orderly market for these securities, management determined that a formal election to hold them to maturity was consistent with its initial investment decision. On the date of transfer, the unrealized loss of $8,420 on these securities continued to be recognized as a component of accumulated other comprehensive loss within the Company's consolidated stockholders' equity (net of income tax benefit), and was expected to be amortized over the remaining average life of the securities
.
Activity related to
amortization of unrealized
transfer loss
previously recognized upon transfer of TRUP CDOs to held to maturity securities
was as follows:
|
|
For the Year Ended
December 31,
|
|
|
|
2017
|
|
|
2016
|
|
Cumulative balance at the beginning of the period
|
|
$
|
756
|
|
|
$
|
807
|
|
Amortization
|
|
|
(50
|
)
|
|
|
(51
|
)
|
Reduction for previous credit losses realized on securities sold
|
|
|
(706
|
)
|
|
|
-
|
|
Cumulative balance at end of the period
|
|
$
|
-
|
|
|
$
|
756
|
|
As of each reporting period through June 30, 2017, the Company applied the protocol established by ASC 320-10-65 in order to determine whether OTTI existed for its TRUP CDOs and/or to measure, for TRUP CDOs that were determined to be other than temporarily impaired, the credit related and non-credit related components of OTTI. The Company sold its entire TRUP CDO portfolio in August of 2017. As of the date of the sale of the TRUP CDO portfolio, five TRUP CDOs were determined to meet the criteria for OTTI based upon this analysis, and no additional OTTI charges were recognized.
The following table provides a reconciliation of the pre-tax OTTI charges recognized on the Company's TRUP CDOs:
|
|
At or for the Year Ended December 31, 2017
|
|
|
|
Credit Related OTTI
Recognized in Earnings
|
|
|
Non-Credit OTTI
Recognized in
Accumulated Other
Comprehensive Loss
|
|
|
Total OTTI
Charge
|
|
Cumulative pre-tax balance at the beginning of the period
|
|
$
|
8,613
|
|
|
$
|
544
|
|
|
$
|
9,157
|
|
Amortization of previously recognized OTTI
|
|
|
(60
|
)
|
|
|
(20
|
)
|
|
|
(80
|
)
|
Reductions for previous credit losses realized on securities sold during the year
|
|
|
(8,553
|
)
|
|
|
(524
|
)
|
|
|
(9,077
|
)
|
Cumulative pre-tax balance at end of the period
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
|
At or for the Year Ended
December 31, 2016
|
|
|
At or for the Year Ended
December 31, 2015
|
|
|
|
Credit
Related
OTTI
Recognized
in Earnings
|
|
|
Non-Credit OTTI
Recognized in
Accumulated
Other
Comprehensive
Loss
|
|
|
Total
OTTI
Charge
|
|
|
Credit Related
OTTI
Recognized
in Earnings
|
|
|
Non-Credit OTTI
Recognized in
Accumulated
Other
Comprehensive
Loss
|
|
|
Total
OTTI Charge
|
|
Cumulative pre-tax balance at the beginning of the period
|
|
$
|
8,717
|
|
|
$
|
578
|
|
|
$
|
9,295
|
|
|
$
|
8,945
|
|
|
$
|
569
|
|
|
$
|
9,514
|
|
(Amortization) Accretion of previously recognized OTTI
|
|
|
(104
|
)
|
|
|
(34
|
)
|
|
|
(138
|
)
|
|
|
(228
|
)
|
|
|
9
|
|
|
|
(219
|
)
|
Cumulative pre-tax balance at end of the period
|
|
$
|
8,613
|
|
|
$
|
544
|
|
|
$
|
9,157
|
|
|
$
|
8,717
|
|
|
$
|
578
|
|
|
$
|
9,295
|
|
There was no activity related to OTTI charges recognized on the Company's registered mutual funds during the year ended December 31, 2017, 2016, or 2015.
4.
|
LOANS RECEIVABLE AND CREDIT QUALITY
|
Loans are reported at the principal amount outstanding (as adjusted for any amounts charged-off), net of unearned fees or costs, unamortized premiums and the allowance for loan losses. Interest income on loans is recorded using the level yield method. Under this method, discount accretion and premium amortization are included in interest income. Loan origination fees and certain direct loan origination costs are deferred and amortized as yield adjustments over the contractual loan terms.
Credit Quality Indicators
On a quarterly basis, the Company categorizes loans into risk categories based on relevant information about the ability of borrowers to service their debt, such as: current financial information, historical payment experience, credit structure, loan documentation, public information, and current economic trends, among other factors. The Company analyzes loans individually by classifying them as to credit risk. This analysis includes all loans, such as multifamily residential, mixed-use residential (
i.e.,
loans in which the aggregate rental income of the underlying collateral property is generated from both residential and commercial units, but 50% or more of such income is generated from the residential units), mixed-use commercial real estate (
i.e.
,
loans in which the aggregate rental income of the underlying collateral property is generated from both residential and commercial units, but over 50% of such income is generated from the commercial units), commercial real estate, acquisition, development and construction (“ADC”), C&I, as well as all one-to four family residential and cooperative and condominium apartment loans. Prior to the year ended December 31, 2017, the analysis of one-to-four family residential and cooperative and condominium apartment loans included only loans with balances in excess of the FNMA Limits that were deemed to meet the definition of impaired. The Company uses the following definitions for risk ratings:
Special Mention –
Loans classified as special mention have a potential weakness that deserves management's close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the loan or of the Bank's credit position at some future date.
Substandard –
Loans classified as substandard are inadequately protected by the current net worth and paying capacity of the obligor or of 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.
Doubtful –
Loans classified as doubtful have all the weaknesses inherent in those classified as substandard, with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of then existing facts, conditions, and values, highly questionable and improbable.
The Bank had no loans classified as doubtful at December 31, 2017 or December 31, 2016. All real estate loans not classified as Special Mention or Substandard were deemed pass loans at both December 31, 2017 and December 31, 2016.
The following is a summary of the credit risk profile of real estate loans (including deferred costs) by internally assigned grade as of the dates indicated:
|
|
Balance at December 31, 2017
|
|
|
|
Pass
|
|
|
Special
Mention
|
|
|
Substandard
|
|
|
Doubtful
|
|
|
Total
|
|
Real Estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
One-to-four family residential, including condominium and cooperative apartment
|
|
$
|
62,042
|
|
|
$
|
178
|
|
|
$
|
875
|
|
|
$
|
-
|
|
|
$
|
63,095
|
|
Multifamily residential and residential mixed-use
|
|
|
4,374,388
|
|
|
|
6,326
|
|
|
|
466
|
|
|
|
-
|
|
|
|
4,381,180
|
|
Commercial mixed-use real estate
|
|
|
396,647
|
|
|
|
-
|
|
|
|
4,908
|
|
|
|
-
|
|
|
|
401,555
|
|
Commercial real estate
|
|
|
602,448
|
|
|
|
1,897
|
|
|
|
4,703
|
|
|
|
-
|
|
|
|
609,048
|
|
ADC
|
|
|
9,189
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
9,189
|
|
Total real estate
|
|
|
5,444,714
|
|
|
|
8,401
|
|
|
|
10,952
|
|
|
|
-
|
|
|
|
5,464,067
|
|
C&I
|
|
|
136,671
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
136,671
|
|
Total Real Estate and C&I
|
|
$
|
5,581,385
|
|
|
$
|
8,401
|
|
|
$
|
10,952
|
|
|
$
|
-
|
|
|
$
|
5,600,738
|
|
|
|
Balance at December 31, 2016
|
|
|
|
Pass
|
|
|
Special
Mention
|
|
|
Substandard
|
|
|
Doubtful
|
|
|
Total
|
|
Real Estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
One-to-four family residential, including condominium and cooperative apartment
|
|
$
|
72,325
|
|
|
$
|
212
|
|
|
$
|
1,485
|
|
|
$
|
-
|
|
|
$
|
74,022
|
|
Multifamily residential and residential mixed-use
|
|
|
4,589,838
|
|
|
|
3,488
|
|
|
|
7,200
|
|
|
|
-
|
|
|
|
4,600,526
|
|
Commercial mixed-use real estate
|
|
|
398,139
|
|
|
|
535
|
|
|
|
5,465
|
|
|
|
-
|
|
|
|
404,139
|
|
Commercial real estate
|
|
|
546,568
|
|
|
|
525
|
|
|
|
7,227
|
|
|
|
-
|
|
|
|
554,320
|
|
Total Real Estate
|
|
$
|
5,606,870
|
|
|
$
|
4,760
|
|
|
$
|
21,377
|
|
|
$
|
-
|
|
|
$
|
5,633,007
|
|
The credit risk profile of C&I loans as of December 31, 2016 was included in the analysis of consumer loans. For consumer loans, the Company evaluates credit quality based on payment activity. Consumer loans that are 90 days or more past due are placed on non-accrual status, while all remaining consumer loans are classified and evaluated as performing.
The following is a summary of the credit risk profile of consumer loans by internally assigned grade:
|
|
At December 31,
|
|
|
|
2017
|
|
|
2016
(1)
|
|
Performing
|
|
$
|
1,375
|
|
|
$
|
3,414
|
|
Non-accrual
|
|
|
4
|
|
|
|
1
|
|
Total
|
|
$
|
1,379
|
|
|
$
|
3,415
|
|
(1)
|
Included in the balance of consumer loans at December 31, 2016 are $2,058 of C&I loans. Subsequent to December 31, 2016, C&I loans were evaluated based on risk ratings and included in the preceding credit risk profile table.
|
The following is a summary of the past due status of the Company's investment in loans (excluding accrued interest) as of the dates indicated:
|
|
At December 31, 2017
|
|
|
|
30 to 59
Days Past
Due
|
|
|
60 to 89
Days Past
Due
|
|
|
Accruing
Loans 90
Days or
More Past
Due
|
|
|
Non-
accrual
(1)
|
|
|
Total Past
Due
|
|
|
Current
|
|
|
Total Loans
|
|
Real Estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
One-to-four family residential, including condominium and cooperative apartment
|
|
$
|
10
|
|
|
$
|
23
|
|
|
$
|
6,397
|
|
|
$
|
436
|
|
|
$
|
6,866
|
|
|
$
|
56,229
|
|
|
$
|
63,095
|
|
Multifamily residential and residential mixed-use
|
|
|
-
|
|
|
|
-
|
|
|
|
1,669
|
|
|
|
-
|
|
|
|
1,669
|
|
|
|
4,379,511
|
|
|
|
4,381,180
|
|
Commercial mixed-use real estate
|
|
|
-
|
|
|
|
-
|
|
|
|
520
|
|
|
|
93
|
|
|
|
613
|
|
|
|
400,942
|
|
|
|
401,555
|
|
Commercial real estate
|
|
|
-
|
|
|
|
-
|
|
|
|
11,349
|
|
|
|
-
|
|
|
|
11,349
|
|
|
|
597,699
|
|
|
|
609,048
|
|
ADC
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
9,189
|
|
|
|
9,189
|
|
Total real estate
|
|
$
|
10
|
|
|
$
|
23
|
|
|
$
|
19,935
|
|
|
$
|
529
|
|
|
$
|
20,497
|
|
|
$
|
5,443,570
|
|
|
$
|
5,464,067
|
|
C&I
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
136,671
|
|
|
$
|
136,671
|
|
Consumer
|
|
$
|
4
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
4
|
|
|
$
|
8
|
|
|
$
|
1,371
|
|
|
$
|
1,379
|
|
(1)
Includes all loans on non-accrual status regardless of the number of days such loans were delinquent as of December 31, 2017.
|
|
At December 31, 2016
|
|
|
|
30 to 59
Days Past
Due
|
|
|
60 to 89
Days Past
Due
|
|
|
Accruing
Loans 90
Days or
More Past
Due
|
|
|
Non-
accrual
(1)
|
|
|
Total Past
Due
|
|
|
Current
|
|
|
Total Loans
|
|
Real Estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
One-to-four family residential, including condominium and cooperative apartment
|
|
$
|
188
|
|
|
$
|
-
|
|
|
$
|
1,513
|
|
|
$
|
1,012
|
|
|
$
|
2,713
|
|
|
$
|
71,309
|
|
|
$
|
74,022
|
|
Multifamily residential and residential mixed-use
|
|
|
-
|
|
|
|
-
|
|
|
|
1,557
|
|
|
|
2,675
|
|
|
|
4,232
|
|
|
|
4,596,294
|
|
|
|
4,600,526
|
|
Commercial mixed-use real estate
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
549
|
|
|
|
549
|
|
|
|
403,590
|
|
|
|
404,139
|
|
Commercial real estate
|
|
|
1,732
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,732
|
|
|
|
552,588
|
|
|
|
554,320
|
|
Total real estate
|
|
$
|
1,920
|
|
|
$
|
-
|
|
|
$
|
3,070
|
|
|
$
|
4,236
|
|
|
$
|
9,226
|
|
|
$
|
5,623,781
|
|
|
$
|
5,633,007
|
|
Consumer
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
1
|
|
|
$
|
1
|
|
|
$
|
3,414
|
|
|
$
|
3,415
|
|
(1)
Includes all loans on non-accrual status regardless of the number of days such loans were delinquent as of December 31, 2016.
Accruing Loans 90 Days or More Past Due:
The Bank continued accruing interest on fourteen real estate loans with an aggregate outstanding balance of $19,935 at December 31, 2017, and four real estate loans with an aggregate outstanding balance of $3,070 at December 31, 2016, all of which were 90 days or more past due on their respective contractual maturity dates. These loans continued to make monthly payments consistent with their initial contractual amortization schedule exclusive of the balloon payments due at maturity. These loans were well secured and were expected to be refinanced, and, therefore, remained on accrual status and were deemed performing assets at the dates indicated above.
TDRs
The following table summarizes outstanding TDRs by underlying collateral type as of the dates indicated:
|
|
As of December 31, 2017
|
|
|
As of December 31, 2016
|
|
|
|
No. of Loans
|
|
|
Balance
|
|
|
No. of Loans
|
|
|
Balance
|
|
One-to-four family residential, including condominium and cooperative apartment
|
|
|
1
|
|
|
$
|
22
|
|
|
|
2
|
|
|
$
|
407
|
|
Multifamily residential and residential mixed-use
|
|
|
3
|
|
|
|
619
|
|
|
|
3
|
|
|
|
658
|
|
Commercial mixed-use real estate
|
|
|
1
|
|
|
|
4,174
|
|
|
|
1
|
|
|
|
4,261
|
|
Commercial real estate
|
|
|
1
|
|
|
|
3,296
|
|
|
|
1
|
|
|
|
3,363
|
|
Total real estate
|
|
|
6
|
|
|
$
|
8,111
|
|
|
|
7
|
|
|
$
|
8,689
|
|
Accrual status for TDRs is determined separately for each TDR in accordance with the Bank’s policies for determining accrual or non-accrual status. At the time an agreement is entered into between the Bank and the borrower that results in the Bank's determination that a TDR has been created, the loan can be on either accrual or non-accrual status. If a loan is on non-accrual status at the time it is restructured, it continues to be classified as non-accrual until the borrower has demonstrated compliance with the modified loan terms for a period of at least six months. Conversely, if at the time of restructuring the loan is performing (and accruing); it will remain accruing throughout its restructured period, unless the loan subsequently meets any of the criteria for non-accrual status under the Bank’s policy and agency regulations. There were no TDRs on non-accrual status at December 31, 2017 or 2016.
The Company has not restructured any C&I or troubled consumer loans, as its consumer loan portfolio has not experienced any problem issues warranting restructuring. Therefore, all TDRs were collateralized by real estate at both December 31, 2017 and December 31, 2016.
There were no loans modified in a manner that met the criteria of a TDR during the year ended December 31, 2017 or 2015. The Company modified one one-to-four family residential loan in a manner that met the criteria of a TDR during the year ended December 31, 2016. The outstanding recorded investment pre-modification and post-modification totaled $33.
The Bank's allowance for loan losses at December 31, 2017 and 2016 included no allocated reserve associated with TDRs. Activity related to reserves associated with TDRs was immaterial during the years ended December 31, 2017 and 2016.
As of December 31, 2017 and December 31, 2016, the Bank had no loan commitments to borrowers with outstanding TDRs.
A TDR is considered to be in payment default once it is 90 days contractually past due under the modified terms. All TDRs are considered impaired loans and are evaluated individually for measurable impairment, if any.
There were no TDRs which defaulted within twelve months following the modification during the years ended December 31, 2017, 2016 or 2015 (thus no significant impact to the allowance for loan losses during those periods).
The Bank may grant short term extensions ranging from 6 to 12 months on certain loans to borrowers. These loans do not meet the definition of a TDR as they are modifications to borrowers who are not experiencing financial difficulty.
Impaired Loans
A loan is considered impaired when, based on then current information and events, it is probable that all contractual amounts due will not be collected in accordance with the terms of the loan. Factors considered by management in determining impairment include payment status, collateral value, and the probability of collecting scheduled principal and interest payments when due. Loans that experience insignificant payment delays or shortfalls generally are not classified as impaired. Management determines the significance of payment delays and 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 the amount of the shortfall in relation to the principal and interest owed.
The Bank considers TDRs and all non-accrual loans, except non-accrual one-to-four family loans in less than the FNMA Limits, to be impaired. Non-accrual one-to-four family loans equal to or less than the FNMA Limits, as well as all consumer loans, are considered homogeneous loan pools and are not required to be evaluated individually for impairment unless considered a TDR.
Impairment is typically measured using the difference between the outstanding loan principal balance and either: 1) the likely realizable value of a note sale; 2) the fair value of the underlying collateral, net of likely disposal costs, if repayment is expected to come from liquidation of the collateral; or 3) the present value of estimated future cash flows (using the loan’s pre-modification rate for certain performing TDRs). If a TDR is substantially performing in accordance with its restructured terms, management will look to either the potential net liquidation proceeds of the underlying collateral or the present value of the expected cash flows from the debt service in measuring impairment (whichever is deemed most appropriate under the circumstances). If a TDR has re-defaulted, generally the likely realizable net proceeds from either a note sale or the liquidation of the collateral is considered when measuring impairment. Measured impairment is either charged off immediately or, in limited instances, recognized as an allocated reserve within the allowance for loan losses.
Please refer to Note 5 for tabular information related to impaired loans.
5.
|
ALLOWANCE FOR LOAN LOSSES
|
The allowance for loan losses consists of specific and general components. At December 31, 2017, the Bank’s periodic evaluation of its allowance for loan losses (specific or general) was comprised of two primary components: (1) impaired loans and (2) pass graded loans. At December 31, 2016, the Bank’s periodic evaluation of its allowance for loan losses (specific or general) was comprised of four primary components: (1) impaired loans; (2) non-impaired substandard loans; (3) non-impaired special mention loans; and (4) pass graded loans. Within these components, the Company has identified the following portfolio segments for purposes of assessing its allowance for loan losses (specific or general): (1) real estate loans; and (2) consumer loans. Consumer loans were evaluated in aggregate as of both December 31, 2017 and December 31, 2016.
Real Estate and C&I Loans
Impaired Loan Component
All loans that are deemed to meet the definition of impaired are individually evaluated for impairment. Impairment is typically measured using the difference between the outstanding loan principal balance and either: (1) the likely realizable value of a note sale; (2) the fair value of the underlying collateral, net of likely disposal costs, if repayment is expected to come from liquidation of the collateral; or (3) the present value of estimated future cash flows (using the loan's pre-modification rate in the case of certain performing TDRs). For impaired loans on non-accrual status, either of the initial two measurements is utilized.
All TDRs are considered impaired loans and are evaluated individually for measurable impairment, if any. If a TDR is substantially performing in accordance with its restructured terms, management will look to either the present value of the expected cash flows from the debt service or the potential net liquidation proceeds of the underlying collateral in measuring impairment (whichever is deemed most appropriate under the circumstances). If a TDR has re-defaulted, the likely realizable net proceeds from either a note sale or the liquidation of the collateral are generally considered when measuring impairment. While measured impairment is generally charged off immediately, impairment attributed to a reduction in the present value of expected cash flows of a performing TDR is generally reflected as an allocated reserve within the allowance for loan losses. At December 31, 2017 and December 31, 2016, there were no allocated reserves related to TDRs within the allowance for loan losses.
Smaller balance homogeneous real estate loans, such as condominium or cooperative apartment and one-to-four family residential real estate loans with balances equal to or less than the FNMA Limits, are collectively evaluated for impairment, and accordingly, are not separately identified for impairment disclosures.
Non-Impaired Loan Component
During the year ended December 31, 2016 the Bank refined the calculation of the allowance for loan losses associated with non-impaired loans using third party software purchased by the Bank. The software model is substantially similar to the previous model used by the Bank whereby the primary drivers of the calculation are historical charge-offs by loan type and certain qualitative elements.
The historical loss look-back period for Substandard and Special Mention non-impaired loans was expanded from the previously used twelve month period to a forty-eight month period, which is aligned with the same historical loss look-back period used for all Pass-graded loans. Management has evaluated the impact of these changes and concluded that they are not material to the overall allowance for non-impaired loans.
The Bank initially looks to the underlying collateral type when determining the allowance for loan losses associated with pass graded real estate loans. The following underlying collateral types are analyzed separately: 1) one- to four family residential and condominium or cooperative apartments; 2) multifamily residential and residential mixed use; 3) commercial mixed use real estate, 4) commercial real estate; and 5) construction and land acquisition. Within the analysis of each underlying collateral type, the following elements are additionally considered and provided weighting in determining the allowance for loan losses for pass graded real estate loans:
|
(i)
|
Charge-off experience (including peer charge-off experience)
|
|
(iii)
|
Underwriting standards or experience
|
|
(vi)
|
Nature and volume of the portfolio
|
|
(vii)
|
Changes in the quality and scope of the loan review function
|
The following is a brief synopsis of the manner in which each element is considered:
(i) Charge-off experience - Loans within the pass graded loan portfolio are segmented by significant common characteristics, against which historical loss rates are applied to reflect probable incurred loss percentages. The Bank also reviews and considers the charge-off experience of peer banks in its lending marketplace in order to determine the existence of potential losses that could take a longer period to flow through its allowance for loan losses.
(ii) Economic conditions - At both December 31, 2017 and December 31, 2016, the Bank assigned a loss allocation to its entire pass graded real estate loan portfolio based, in part, upon a review of economic conditions affecting the local real estate market. Specifically, the Bank considered both the level of, and recent trends in: 1) the local and national unemployment rate, 2) residential and commercial vacancy rates, 3) real estate sales and pricing, and 4) delinquencies in the Bank’s loan portfolio.
(iii) Underwriting standards or experience - Underwriting standards are reviewed to ensure that changes in the Bank's lending policies and practices are adequately evaluated for risk and reflected in its analysis of potential credit losses. Loss expectations associated with changes in the Bank’s lending policies and practices, if any, are then incorporated into the methodology.
(iv) Loan concentrations - The Bank regularly reviews its loan concentrations (borrower, collateral type and location) in order to ensure that heightened risk has not evolved that has not been captured through other factors. The risk component of loan concentrations is regularly evaluated for reserve adequacy.
(v) Regulatory climate – Consideration is given to public statements made by the banking regulatory agencies that have a potential impact on the Bank’s loan portfolio and allowance for loan losses.
(vi) Nature and volume of the portfolio – The Bank considers any significant changes in the overall nature and volume of its loan portfolio.
(vii) Changes in the quality and scope of the loan review function – The Bank considers the potential impact upon its allowance for loan losses of any adverse change in the quality and scope of the loan review function.
Consumer Loans
Due to their small individual balances, the Bank does not evaluate individual consumer loans for impairment. Loss percentages are applied to aggregate consumer loans based upon both their delinquency status and loan type. These loss percentages are derived from a combination of the Company’s historical loss experience and/or nationally published loss data on such loans. Consumer loans in excess of 120 days delinquent are typically fully charged off against the allowance for loan losses.
The following table presents data regarding the allowance for loan losses activity for the periods indicated:
|
|
|
|
|
Real Estate Loans
|
|
|
|
|
|
|
|
|
|
One-to-Four
Family Residential,
Including
Condominium and
Cooperative
Apartment
|
|
|
Multifamily
Residential and
Residential Mixed
Use
|
|
|
Commercial Mixed
Use
Real Estate
|
|
|
Commercial Real
Estate
|
|
|
ADC
|
|
|
Total Real
Estate
|
|
|
|
C&I
|
|
|
Consumer Loans
|
|
Beginning balance as of January 1, 2015
|
|
$
|
150
|
|
|
$
|
13,852
|
|
|
$
|
1,644
|
|
|
$
|
2,823
|
|
|
$
|
-
|
|
|
$
|
18,469
|
|
|
$
|
-
|
|
|
$
|
24
|
|
Provision (credit) for loan losses
|
|
|
222
|
|
|
|
309
|
|
|
|
21
|
|
|
|
(1,880
|
)
|
|
|
-
|
|
|
|
(1,328
|
)
|
|
|
-
|
|
|
|
(2
|
)
|
Charge-offs
|
|
|
(115
|
)
|
|
|
(48
|
)
|
|
|
(37
|
)
|
|
|
(7
|
)
|
|
|
-
|
|
|
|
(207
|
)
|
|
|
-
|
|
|
|
(2
|
)
|
Recoveries
|
|
|
6
|
|
|
|
5
|
|
|
|
24
|
|
|
|
1,525
|
|
|
|
-
|
|
|
|
1,560
|
|
|
|
-
|
|
|
|
-
|
|
Ending balance as of December 31, 2015
|
|
$
|
263
|
|
|
$
|
14,118
|
|
|
$
|
1,652
|
|
|
$
|
2,461
|
|
|
$
|
-
|
|
|
$
|
18,494
|
|
|
$
|
-
|
|
|
$
|
20
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision (credit) for loan losses
|
|
|
(48
|
)
|
|
|
2,473
|
|
|
|
58
|
|
|
|
(366
|
)
|
|
|
-
|
|
|
|
2,117
|
|
|
|
-
|
|
|
|
1
|
|
Charge-offs
|
|
|
(79
|
)
|
|
|
(92
|
)
|
|
|
(12
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
(183
|
)
|
|
|
-
|
|
|
|
(3
|
)
|
Recoveries
|
|
|
9
|
|
|
|
56
|
|
|
|
-
|
|
|
|
23
|
|
|
|
-
|
|
|
|
88
|
|
|
|
-
|
|
|
|
2
|
|
Ending balance as of December 31, 2016
|
|
$
|
145
|
|
|
$
|
16,555
|
|
|
$
|
1,698
|
|
|
$
|
2,118
|
|
|
$
|
-
|
|
|
$
|
20,516
|
|
|
$
|
-
|
|
|
$
|
20
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision (credit) for loan losses
|
|
|
(28
|
)
|
|
|
(1,313
|
)
|
|
|
(314
|
)
|
|
|
29
|
|
|
|
123
|
|
|
|
(1,503
|
)
|
|
|
2,021
|
|
|
|
2
|
|
Charge-offs
|
|
|
(16
|
)
|
|
|
(104
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(120
|
)
|
|
|
-
|
|
|
|
(4
|
)
|
Recoveries
|
|
|
15
|
|
|
|
81
|
|
|
|
4
|
|
|
|
-
|
|
|
|
-
|
|
|
|
100
|
|
|
|
-
|
|
|
|
1
|
|
Ending balance as of December 31, 2017
|
|
$
|
116
|
|
|
$
|
15,219
|
|
|
$
|
1,388
|
|
|
$
|
2,147
|
|
|
$
|
123
|
|
|
$
|
$18,993
|
|
|
$
|
2,021
|
|
|
$
|
19
|
|
The following tables present the balance in the allowance for loan losses and the recorded investment in loans by portfolio segment and based on impairment method as of the periods indicated:
|
|
At or for the Year Ended December 31, 2017
|
|
|
|
|
|
|
Real Estate Loans
|
|
|
|
|
|
Consumer
Loans
|
|
|
|
One-to-Four
Family
Residential,
Including
Condominium
and
Cooperative
Apartment
|
|
|
Multifamily
Residential
and
Residential
Mixed-Use
|
|
|
Commercial
Mixed-Use
Real Estate
|
|
|
Commercial
Real Estate
|
|
|
ADC
|
|
|
Total Real
Estate
|
|
|
|
C&I
|
|
Allowance for loan losses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending allowance balance:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Individually evaluated for impairment
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
Collectively evaluated for impairment
|
|
|
116
|
|
|
|
15,219
|
|
|
|
1,388
|
|
|
|
2,147
|
|
|
|
123
|
|
|
|
18,993
|
|
|
|
2,021
|
|
|
|
19
|
|
Total ending allowance balance
|
|
$
|
116
|
|
|
$
|
15,219
|
|
|
$
|
1,388
|
|
|
$
|
2,147
|
|
|
$
|
123
|
|
|
$
|
18,993
|
|
|
$
|
2,021
|
|
|
$
|
19
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Individually evaluated for impairment
|
|
$
|
22
|
|
|
$
|
619
|
|
|
$
|
4,267
|
|
|
$
|
3,296
|
|
|
$
|
-
|
|
|
$
|
8,204
|
|
|
$
|
-
|
|
|
$
|
-
|
|
Collectively evaluated for impairment
|
|
|
63,073
|
|
|
|
4,380,561
|
|
|
|
397,288
|
|
|
|
605,752
|
|
|
|
9,189
|
|
|
|
5,455,863
|
|
|
|
136,671
|
|
|
|
1,379
|
|
Total ending loans balance
|
|
$
|
63,095
|
|
|
$
|
4,381,180
|
|
|
$
|
401
,555
|
|
|
$
|
609,048
|
|
|
$
|
9,189
|
|
|
$
|
5,464,067
|
|
|
$
|
136,671
|
|
|
$
|
1,379
|
|
|
|
|
|
|
At or for the Year Ended December 31, 2016
|
|
|
|
|
|
|
Real Estate Loans
|
|
|
Consumer
Loans
|
|
|
|
One-to-Four Family
Residential,
Including
Condominium and
Cooperative
Apartment
|
|
|
Multifamily
Residential and
Residential
Mixed-Use
|
|
|
Commercial
Mixed-Use Real
Estate
|
|
|
Commercial
Real Estate
|
|
|
Total Real
Estate
|
|
|
|
|
Allowance for loan losses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending allowance balance:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Individually evaluated for impairment
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
Collectively evaluated for impairment
|
|
|
145
|
|
|
|
16,555
|
|
|
|
1,698
|
|
|
|
2,118
|
|
|
|
20,516
|
|
|
|
20
|
|
Total ending allowance balance
|
|
$
|
145
|
|
|
$
|
16,555
|
|
|
$
|
1,698
|
|
|
$
|
2,118
|
|
|
$
|
20,516
|
|
|
$
|
20
|
|
Loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Individually evaluated for impairment
|
|
$
|
407
|
|
|
$
|
3,333
|
|
|
|
4,810
|
|
|
$
|
3,363
|
|
|
$
|
11,913
|
|
|
$
|
-
|
|
Collectively evaluated for impairment
|
|
|
73,615
|
|
|
|
4,597,193
|
|
|
|
399,329
|
|
|
|
550,957
|
|
|
|
5,621,094
|
|
|
|
3,415
|
|
Total ending loans balance
|
|
$
|
74,022
|
|
|
$
|
4,600,526
|
|
|
$
|
404,139
|
|
|
$
|
554,320
|
|
|
$
|
5,633,007
|
|
|
$
|
3,415
|
|
There were no impaired real estate loans with a related allowance recorded for the years ended December 31, 2017 or 2016. The following tables summarize impaired real estate loans with no related allowance recorded as of the periods indicated (by collateral type within the real estate loan segment):
|
|
For the Year Ended December 31, 2017
|
|
|
For the Year Ended December 31, 2016
|
|
|
|
Unpaid
Principal
Balance
|
|
|
Recorded
Investment
(1)
|
|
|
Related
Allowance
|
|
|
Unpaid
Principal
Balance
|
|
|
Recorded
Investment
(1)
|
|
|
Related
Allowance
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
With no related allowance recorded:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
One-to-four Family Residential, Including Condominium and Cooperative Apartment
|
|
$
|
22
|
|
|
$
|
22
|
|
|
$
|
-
|
|
|
$
|
407
|
|
|
$
|
407
|
|
|
$
|
-
|
|
Multifamily Residential and Residential Mixed Use
|
|
|
619
|
|
|
|
619
|
|
|
|
-
|
|
|
|
3,333
|
|
|
|
3,333
|
|
|
|
-
|
|
Commercial Mixed Use Real Estate
|
|
|
4,267
|
|
|
|
4,267
|
|
|
|
-
|
|
|
|
4,810
|
|
|
|
4,810
|
|
|
|
-
|
|
Commercial Real Estate
|
|
|
3,296
|
|
|
|
3,296
|
|
|
|
-
|
|
|
|
3,363
|
|
|
|
3,363
|
|
|
|
-
|
|
Total with no related allowance recorded
|
|
$
|
8,204
|
|
|
$
|
8,204
|
|
|
$
|
-
|
|
|
$
|
11,913
|
|
|
$
|
11,913
|
|
|
$
|
-
|
|
(1)
The recorded investment excludes accrued interest receivable and loan origination fees, net, due to immateriality.
The following table presents information for impaired loans for the periods indicated:
|
|
For the Year Ended
December 31, 2017
|
|
|
For the Year Ended
December 31, 2016
|
|
|
For the Year Ended
December 31, 2015
|
|
|
|
Average
Recorded
Investment
(1)
|
|
|
Interest
Income
Recognized
|
|
|
Average
Recorded
Investment
(1)
|
|
|
Interest
Income
Recognized
|
|
|
Average
Recorded
Investment
(1)
|
|
|
Interest
Income
Recognized
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
With no related allowance recorded:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
One-to-four Family Residential, Including Condominium and Cooperative Apartment
|
|
$
|
325
|
|
|
$
|
30
|
|
|
$
|
443
|
|
|
$
|
53
|
|
|
$
|
601
|
|
|
$
|
44
|
|
Multifamily Residential and Residential Mixed Use
|
|
|
2,222
|
|
|
|
85
|
|
|
|
2,515
|
|
|
|
183
|
|
|
|
1,095
|
|
|
|
71
|
|
Commercial Mixed Use Real Estate
|
|
|
4,485
|
|
|
|
174
|
|
|
|
4,468
|
|
|
|
176
|
|
|
|
4,379
|
|
|
|
176
|
|
Commercial Real Estate
|
|
|
3,330
|
|
|
|
133
|
|
|
|
3,437
|
|
|
|
136
|
|
|
|
5,470
|
|
|
|
140
|
|
Total with no related allowance recorded
|
|
|
10,362
|
|
|
|
422
|
|
|
|
10,863
|
|
|
|
548
|
|
|
|
11,545
|
|
|
|
431
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
With related allowance recorded:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
One- to Four Family Residential, Including Condominium and Cooperative Apartment
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Multifamily Residential and Residential Mixed Use
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Commercial Mixed Use Real Estate
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Commercial Real Estate
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,100
|
|
|
|
97
|
|
Total with related allowance recorded
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,100
|
|
|
|
97
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance
|
|
$
|
10,362
|
|
|
$
|
422
|
|
|
$
|
10,863
|
|
|
$
|
548
|
|
|
$
|
12,645
|
|
|
$
|
528
|
|
|
(1)
|
The recorded investment excludes accrued interest receivable and loan origination fees, net, due to immateriality.
|
During the year ended December 31, 2017, the Bank completed a securitization of $280,186 of its multifamily loans through a Federal Home Loan Mortgage Corporation (“FHLMC”) sponsored “Q-deal” securitization completed in December 2017.
As a result of the securitization, the Company recognized a gain of $1,261 from the sale of loans.
Four classes of FHLMC guaranteed structured pass-through certificates were issued and purchased entirely by the Bank. As part of the securitization transaction, the Bank entered into a Servicing Agreement, general representations and warranties, and reimbursement obligations.
Servicing responsibilities on loan sales generally include obligations to collect and remit payments of principal and interest, provide foreclosure services, manage payments of tax and insurance, and otherwise administer the underlying loans. In connection with the securitization transaction, FHLMC was designated as the master servicer and appointed the Company to perform sub-servicing responsibilities, which generally include the servicing responsibilities described above with exception to the servicing of foreclosed or defaulted loans. The overall management, servicing, and resolution of defaulted loans and foreclosed loans are separately designated to the special servicer, a third party institution that is independent of the master servicer and the Company. The master servicer has the right to terminate the Company in its role as sub-servicer and direct such responsibilities accordingly.
General representations and warranties associated with loan sales and securitization sales require the Company to uphold various assertions that pertain to the underlying loans at the time of the transaction, including, but not limited to, compliance with relevant laws and regulations, absence of fraud, enforcement of liens, no environmental damages, and maintenance of relevant environmental insurance. Such representations and warranties are limited to those that do not meet the quality represented at the transaction date and do not pertain to a decline in value or future payment defaults. In circumstances where the Company breaches its representations and warranties, the Company would generally be required to cure such instances through a repurchase or substitution of the subject loan(s).
With respect to the securitization transaction, the Company also has continuing involvement through a reimbursement agreement executed with Freddie Mac. To the extent the ultimate resolution of defaulted loans results in contractual principal and interest payments that are deficient, the Company is obligated to reimburse FHLMC for such amounts, not to exceed 10% of the original principal amount of the loans comprising the securitization pool at the closing date. The Bank recognized a liability of $420 as of December 31, 2017 for the exposure to the reimbursement agreement with FHLMC.
7.
|
MORTGAGE SERVICING ACTIVITIES
|
The Bank services loans for others having principal balances outstanding of approximately $337,483 and $21,079 at December 31, 2017 and 2016, respectively. Mortgage loans serviced for others are not reported as assets. Servicing loans for others generally consists of collecting mortgage payments, maintaining escrow accounts, disbursing payments to investors, paying taxes and insurance and processing foreclosure. In connection with loans serviced for others, the Bank held borrowers' escrow balances of approximately $3,107 and $206 at December 31, 2017 and 2016, respectively.
There are no restrictions on the Company's consolidated assets or liabilities related to loans sold with servicing rights retained. Upon sale of these loans, the Company recorded an MSR
in other assets
, and has elected to account for the MSR under the "amortization method" prescribed under GAAP. MSR activity prior to the year December 31, 2017 was not material. At December 31, 2017, there is no associated valuation allowance for MSRs. The activity for MSRs for the period indicated is as follows:
|
|
Year Ended
December 31,
2017
|
|
Beginning of the year
|
|
$
|
152
|
|
Additions
|
|
$
|
1,491
|
|
Amortized to expense
|
|
|
(49
|
)
|
End of year
|
|
$
|
1,594
|
|
The fair-value of servicing rights was $1,594 at year-end 2017. Fair value at December 31, 2017 was determined using a discount rate of 12.0%, prepayment speeds ranging from 16% to 20%, depending on the stratification of the specific servicing right, and a weighted average default rate of 1.30%.
8.
|
PREMISES AND FIXED ASSETS, NET AND PREMISES HELD FOR SALE
|
The following is a summary of premises and fixed assets, net and premises held for sale:
|
|
At December 31,
|
|
|
|
2017
|
|
|
2016
|
|
Land
|
|
$
|
1,600
|
|
|
$
|
1,600
|
|
Buildings
|
|
|
10,828
|
|
|
|
11,972
|
|
Leasehold improvements
|
|
|
22,657
|
|
|
|
18,590
|
|
Furniture, fixtures and equipment
|
|
|
20,095
|
|
|
|
14,964
|
|
Premises and fixed assets, gross
|
|
$
|
55,180
|
|
|
$
|
47,126
|
|
Less: accumulated depreciation and amortization
|
|
|
(30,854
|
)
|
|
|
(28,721
|
)
|
Premises and fixed assets, net
|
|
$
|
24,326
|
|
|
$
|
18,405
|
|
Premises held for sale
(1)
|
|
$
|
-
|
|
|
$
|
1,379
|
|
(1)
At December 31, 2016 the Company had executed a contract of sale on real estate with a net book value of $1,379.
Depreciation and amortization expense amounted to approximately $3,310, $2,223 and $2,604 during the years ended December 31, 2017, 2016 and 2015, respectively.
During the year ended December 31, 2017, the Company completed the sale of premises held for sale with an aggregate recorded balance of $1,379 at December 31, 2016. Net proceeds from the sale were $11,791, and a gain of $10,412 was recognized on the sale. During the year ended December 31, 2016, the Company completed the sale of premises held for sale with an aggregate recorded balance of $8,799 at December 31, 2015. Proceeds from the sale were $75,899, and a gain of $68,183 was recognized on the sale. There were no sales of premises and fixed assets during the year ended December 31, 2015.
The Bank is a Savings Bank Member of the FHLBNY. Membership requires the purchase of shares of FHLBNY capital stock at $100 per share. The Bank owned 596,959 shares and 444,439 shares at December 31, 2017 and 2016, respectively. The Bank recorded dividend income on the FHLBNY capital stock of $2,555, $2,501 and $2,226 during the years ended December 31, 2017, 2016 and 2015, respectively.
Deposits are summarized as follows:
|
|
At December 31, 2017
|
|
|
At December 31, 2016
|
|
|
|
Effective
Cost
|
|
|
Liability
|
|
|
Effective
Cost
|
|
|
Liability
|
|
Savings accounts
|
|
|
0.07
|
%
|
|
$
|
362,092
|
|
|
|
0.05
|
%
|
|
$
|
366,921
|
|
Certificates of deposit ("CDs")
|
|
|
1.47
|
|
|
|
1,091,887
|
|
|
|
1.47
|
|
|
|
1,048,465
|
|
Money market accounts
|
|
|
0.96
|
|
|
|
2,517,439
|
|
|
|
0.86
|
|
|
|
2,576,081
|
|
Interest bearing checking accounts
|
|
|
0.08
|
|
|
|
124,283
|
|
|
|
0.08
|
|
|
|
106,525
|
|
Non-interest bearing checking accounts
|
|
|
-
|
|
|
|
307,746
|
|
|
|
-
|
|
|
|
297,434
|
|
TOTAL
|
|
|
0.91
|
%
|
|
$
|
4,403,447
|
|
|
|
0.86
|
%
|
|
$
|
4,395,426
|
|
The following table presents a summary of scheduled maturities of CDs outstanding at December 31, 2017:
|
|
Maturing
Balance
|
|
|
Weighted
Average
Interest
Rate
|
|
2018
|
|
$
|
579,781
|
|
|
|
1.32
|
%
|
2019
|
|
|
408,703
|
|
|
|
1.58
|
|
2020
|
|
|
65,884
|
|
|
|
1.53
|
|
2021
|
|
|
18,818
|
|
|
|
1.58
|
|
2022
|
|
|
16,197
|
|
|
|
1.64
|
|
2023 and beyond
|
|
|
2,504
|
|
|
|
1.59
|
|
TOTAL
|
|
$
|
1,091,887
|
|
|
|
1.44
|
%
|
CDs that met or exceeded the Federal Deposit Insurance Corporation (“FDIC”) Insurance limit of two-hundred and fifty thousand dollars were approximately $179,307 and $203,308 at December 31, 2017 and 2016, respectively.
11.
|
DERIVATIVES AND HEDGING ACTIVITIES
|
Cash Flow Hedges of Interest Rate Risk
The Company’s objectives in using interest rate derivatives are to add stability to interest expense and to manage its exposure to interest rate movements. To accomplish this objective, the Company primarily uses interest rate swaps as part of its interest rate risk management strategy. Interest rate swaps designated as cash flow hedges involve the receipt of variable amounts from a counterparty in exchange for the Company making fixed-rate payments over the life of the agreements without exchange of the underlying notional amount.
The effective portion of changes in the fair value of derivatives designated and that qualify as cash flow hedges is recorded in Accumulated Other Comprehensive Loss and is subsequently reclassified into earnings in the period that the hedged forecasted transaction affects earnings. During the years ended December 31, 2017 and 2016, such derivatives were used to hedge the variability in cash flows associated with wholesale borrowings, i.e., FHBLNY advances. The ineffective portion of the change in fair value of the derivatives is recognized directly in earnings. During the years ended December 31, 2017 and 2016, the Company did not record any hedge ineffectiveness.
Amounts reported in accumulated other comprehensive loss related to derivatives are reclassified to interest expense as interest payments are paid on the Company’s liabilities. During the next twelve months, the Company estimates that $525 will be reclassified as an increase to interest expense.
The table below presents the fair value of the Company’s derivative financial instruments as well as their classification on the Consolidated Statement of Financial Condition:
|
|
At December 31, 2017
|
|
|
At December 31, 2016
|
|
|
|
Count
|
|
|
Notional
Amount
|
|
|
Fair Value
Assets
|
|
|
Fair Value
Liabilities
|
|
|
Count
|
|
|
Notional
Amount
|
|
|
Fair Value
Assets
|
|
|
Fair Value
Liabilities
|
|
Included in other assets/(liabilities):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swaps related to
FHLBNY advances
|
|
|
7
|
|
|
$
|
135,000
|
|
|
$
|
4,041
|
|
|
$
|
-
|
|
|
|
4
|
|
|
$
|
90,000
|
|
|
$
|
3,228
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average pay rates
|
|
|
|
|
|
|
1.46
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1.24
|
%
|
|
|
|
|
|
|
|
|
Weighted average receive rates
|
|
|
|
|
|
|
1.51
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0.95
|
%
|
|
|
|
|
|
|
|
|
Weighted average maturity
|
|
|
|
|
|
4.29 years
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5.32 years
|
|
|
|
|
|
|
|
|
|
The table below presents the effect of the Company’s derivative financial instruments as the amount of gain or (loss) on the Consolidated Statements of Income for the periods indicated:
|
|
At or for the Year
Ended December 31,
|
|
|
|
2017
|
|
|
2016
|
|
Interest rate products
|
|
|
|
|
|
|
Effective portion:
|
|
|
|
|
|
|
Amount of gain (loss) recognized in other comprehensive income
|
|
$
|
511
|
|
|
$
|
3,205
|
|
Amount of gain or (loss) reclassified from other comprehensive income into interest expense
|
|
|
283
|
|
|
|
23
|
|
Ineffective Portion:
|
|
|
|
|
|
|
|
|
Amount of gain or (loss) recognized in other non-interest expense
|
|
|
-
|
|
|
|
-
|
|
The Company’s agreements with each of its derivative counterparties state that if the Company defaults on any of its indebtedness, it could also be declared in default on its derivative obligations and could be required to terminate its derivative positions with the counterparty.
The Company’s agreements with certain of its derivative counterparties state that if the Bank fails to maintain its status as a well-capitalized institution, the Bank could be required to terminate its derivative positions with the counterparty.
As of December 31, 2017, the termination value of derivatives in a net liability position, which includes accrued interest but excludes any adjustment for nonperformance risk, related to these agreements was $4,026. If the Company had breached any of the above provisions at December 31, 2017, it could have been required to settle its obligations under the agreements at the termination value and would have been required to pay any additional amounts due in excess of amounts previously posted as collateral with the respective counterparty. There were no provisions breached for the period ended December 31, 2017.
The Bank had borrowings from the FHLBNY (''Advances'') totaling
$1,170,000 and $831,125 at December 31, 2017 and 2016, respectively, all of which were fixed rate. The average interest cost of FHLBNY Advances was 1.63%, 1.45%, and 1.65% during the years ended December 31, 2017, 2016 and 2015, respectively. The average interest rate on outstanding FHLBNY Advances was 1.67% and 1.57% at December 31, 2017 and 2016, respectively. In accordance with its Advances, Collateral Pledge and Security Agreement with the FHLBNY, the Bank was eligible to borrow up to $1,770,671 as of December 31, 2017 and $2,096,600 as of December 31, 2016, and maintained sufficient qualifying collateral, as defined by the FHLBNY, with the FHLBNY (principally real estate loans), to secure Advances in excess of its borrowing limit at both December 31, 2017 and 2016. Certain FHLBNY Advances may contain call features that may be exercised by the FHLBNY. At December 31, 2017 there were no callable Advances. Prepayment penalties were associated with all fixed-rate Advances outstanding as of December 31, 2017 and 2016.
There were no prepayments of FHLBNY Advances during the years ended December 31, 2017 or 2016. During the year ended December 31, 2015, the Company prepaid $25,000 of FHLBNY Advances, incurring a prepayment cost of $1,362. The prepayment cost was recognized in interest expense.
The following table presents a summary of scheduled maturities of FHLBNY Advances outstanding at December 31, 2017:
|
|
Maturing
Balance
|
|
|
Weighted Average
Interest Rate
|
|
2018
|
|
|
667,100
|
|
|
|
1.57
|
|
2019
|
|
|
186,150
|
|
|
|
1.68
|
|
2020
|
|
|
263,750
|
|
|
|
1.85
|
|
2021
|
|
|
53,000
|
|
|
|
2.03
|
|
TOTAL
|
|
$
|
1,170,000
|
|
|
|
1.67
|
%
|
13.
|
SUBORDINATED NOTES PAYABLE
|
During the year ended December 31, 2017, the Holding Company issued $115,000 of fixed-to-floating rate subordinated notes due June 2027, which become callable commencing on June 15, 2022. The notes will mature on June 15, 2027 (the “Maturity Date”). From and including June 13, 2017 until but excluding June 15, 2022, interest will be paid semi-annually in arrears on each June 15 and December 15 at a fixed annual interest rate equal to 4.50%. From and including June 15, 2022 to, but excluding, the Maturity Date or earlier redemption date, the interest rate shall reset quarterly to an annual interest rate equal to the then-current three-month LIBOR plus 266 basis points, payable quarterly in arrears. Debt issuance cost directly associated with subordinated debt offering was capitalized and netted with subordinated notes payable on the Consolidated Statements of Financial Condition. Interest expense related to the subordinated debt was $2,927 during the year ended December 31, 2017.
14.
|
TRUST PREFERRED SECURITIES PAYABLE
|
On March 19, 2004, the Holding Company completed an offering of trust preferred securities through Dime Community Capital Trust I, an unconsolidated special purpose entity formed for the purpose of the offering. The trust preferred securities bear a fixed interest rate of 7.0%, mature on April 14, 2034, and became callable without penalty at any time on or after April 15, 2009. The outstanding balance of the trust preferred securities was $70,680 at December 31, 2016.
During the year ended December 31, 2017, the Company redeemed its $70,680 of trust preferred securities borrowings at par from third parties. The Company recognized a $1,272 loss from extinguishment of debt from the acceleration of the remaining unamortized deferred origination costs.
Interest expense recorded on the trust preferred securities totaled $2,708, $5,024, and $5,024 during the years ended December 31, 2017, 2016 and 2015, respectively.
The Company's consolidated Federal, State and City income tax provisions were comprised of the following:
|
|
Year Ended
December 31, 2017
|
|
|
Year Ended
December 31, 2016
|
|
|
Year Ended
December 31, 2015
|
|
|
|
Federal
|
|
|
State
and City
|
|
|
Total
|
|
|
Federal
|
|
|
State
and City
|
|
|
Total
|
|
|
Federal
|
|
|
State
and City
|
|
|
Total
|
|
Current
|
|
$
|
20,818
|
|
|
$
|
5,523
|
|
|
$
|
26,341
|
|
|
$
|
42,834
|
|
|
$
|
17,026
|
|
|
$
|
59,860
|
|
|
$
|
21,127
|
|
|
$
|
3,235
|
|
|
$
|
24,362
|
|
Deferred
|
|
|
8,334
|
|
|
|
2,181
|
|
|
|
10,515
|
|
|
|
702
|
|
|
|
395
|
|
|
|
1,097
|
|
|
|
2,269
|
|
|
|
4,614
|
|
|
|
6,883
|
|
TOTAL
|
|
$
|
29,152
|
|
|
$
|
7,704
|
|
|
$
|
36,856
|
|
|
$
|
43,536
|
|
|
$
|
17,421
|
|
|
$
|
60,957
|
|
|
$
|
23,396
|
|
|
$
|
7,849
|
|
|
$
|
31,245
|
|
The preceding table excludes tax effects recorded directly to stockholders’ equity in connection with unrealized gains and losses on securities available-for-sale (including losses on such securities upon their transfer to held-to-maturity), stock-based compensation plans for years prior to 2017, and adjustments to other comprehensive income relating to the minimum pension liability, unrecognized gains of pension and other postretirement obligations and changes in the non-credit component of OTTI. These tax effects are disclosed as part of the presentation of the consolidated Statements of Changes in Stockholders’ Equity and Comprehensive Income.
The provision for income taxes differed from that computed at the Federal statutory rate as follows:
|
|
Year Ended December 31,
|
|
|
|
2017
|
|
|
2016
|
|
|
2015
|
|
Tax at Federal statutory rate
|
|
$
|
31,058
|
|
|
$
|
46,715
|
|
|
$
|
26,606
|
|
State and local taxes, net of federal income tax benefit
|
|
|
5,008
|
|
|
|
11,323
|
|
|
|
5,102
|
|
ESOP acceleration expense
|
|
|
-
|
|
|
|
3,962
|
|
|
|
-
|
|
Benefit plan differences
|
|
|
(535
|
)
|
|
|
(54
|
)
|
|
|
(59
|
)
|
Adjustments for prior period returns and tax items
|
|
|
84
|
|
|
|
(13
|
)
|
|
|
590
|
|
Investment in BOLI
|
|
|
(776
|
)
|
|
|
(957
|
)
|
|
|
(842
|
)
|
Enactment of federal tax reform
|
|
|
3,135
|
|
|
|
-
|
|
|
|
-
|
|
Equity based compensation
|
|
|
(1,283
|
)
|
|
|
-
|
|
|
|
-
|
|
Other, net
|
|
|
165
|
|
|
|
(19
|
)
|
|
|
(152
|
)
|
TOTAL
|
|
$
|
36,856
|
|
|
$
|
60,957
|
|
|
$
|
31,245
|
|
Effective tax rate
|
|
|
41.53
|
%
|
|
|
45.67
|
%
|
|
|
41.10
|
%
|
Deferred tax assets and liabilities are recorded for temporary differences between the book and tax bases of assets and liabilities. The components of Federal, State and City deferred income tax assets and liabilities were as follows:
|
|
At December 31,
|
|
Deferred tax assets:
|
|
2017
|
|
|
2016
|
|
Allowance for loan losses
|
|
$
|
6,836
|
|
|
$
|
9,203
|
|
Employee benefit plans
|
|
|
7,148
|
|
|
|
15,630
|
|
Tax effect of purchase accounting fair value adjustments
|
|
|
307
|
|
|
|
453
|
|
Other
|
|
|
2,135
|
|
|
|
1,756
|
|
Total deferred tax assets
|
|
|
16,426
|
|
|
|
27,042
|
|
Deferred tax liabilities:
|
|
|
|
|
|
|
|
|
Tax effect of other components of income on investment securities and MBS
|
|
|
1,474
|
|
|
|
766
|
|
Difference in book and tax carrying value of fixed assets
|
|
|
20
|
|
|
|
776
|
|
Difference in book and tax basis of unearned loan fees
|
|
|
2,837
|
|
|
|
3,021
|
|
Difference in book and tax basis of deferred income from REIT subsidiary
|
|
|
2,262
|
|
|
|
-
|
|
Other
|
|
|
605
|
|
|
|
214
|
|
Total deferred tax liabilities
|
|
|
7,198
|
|
|
|
4,777
|
|
Net deferred tax asset (recorded in other assets)
|
|
$
|
9,228
|
|
|
$
|
22,265
|
|
On December 22, 2017, the President signed into law the Tax Act. The Tax Act amends the Internal Revenue Code to reduce tax rates and modify policies, credits, and deductions for individuals and business. For businesses, the Tax Act reduces the corporate federal tax rate from a maximum rate of 35% to a flat rate of 21%. The rate reduction took effect January 1, 2018.
Under generally accepted accounting principles, the Company uses the asset and liability method of accounting for income taxes. Under this method, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis. Deferred tax assets and liabilities are measured using enacted tax rates expected to be recovered or settled. As of a result of the reduction in the corporate income tax rate from 35% to 21%, the Company recorded tax expense of $3,135 during the year ended December 31, 2017.
Also on December 22, 2017, the U.S. Securities and Exchange Commission (“SEC”) released Staff Accounting Bulletin No. 118 (“SAB 118”) to address any uncertainty or diversity of views in practice in accounting for the income tax effects of the Act in situations where a registrant does not have the necessary information available, prepared, or analyzed in reasonable detail to complete this accounting in the reporting period that includes the enactment date. SAB 118 allows for a measurement period not to extend beyond one year from the Tax Act’s enactment date to complete the necessary accounting.
The Company recorded provisional adjustments but have not completed our accounting for income tax effects for certain elements of the Tax Act, such as the accelerated depreciation which allows for full expensing of qualified property purchased and placed into service after September 27, 2017.
The Company has made no adjustments to deferred tax assets representing future deductions for accrued compensation that may be subject to new limitations under Internal Revenue Code 162(m) which, generally, limits the annual deduction for certain compensation paid to certain employees to $1 million. There is uncertainty in applying the newly-enacted rules to existing contracts, and the Company is seeking further clarifications before completing our analysis.
The Company will complete and record the income tax effects of these provisional items during the period the necessary information becomes available. This measurement period will not extend beyond December 22, 2018.
No valuation allowances were recognized on deferred tax assets during the years ended December 31, 2017 or 2016, since, at each period end, it was deemed more likely than not that the deferred tax assets would be fully realized.
At December 31, 2017 and 2016, the Bank had accumulated bad debt reserves totaling $15,158 for which no provision for income tax was required to be recorded. These bad debt reserves could be subject to recapture into taxable income under certain circumstances, including a distribution of the bad debt benefits to the Holding Company or the failure of the Bank to qualify as a bank for federal income tax purposes. Should the reserves as of December 31, 2017 be fully recaptured, the Bank would recognize $6,844 in additional income tax expense. Should the reserves as of December 31, 2016 be fully recaptured, the Bank would recognize $6,844, calculated prior to the enactment of the Tax Act, in additional income tax expense.
The Company expects to take no action in the foreseeable future that would require the establishment of a tax liability associated with these bad debt reserves.
The Company is subject to regular examination by various tax authorities in jurisdictions in which it conducts significant business operations. The Company regularly assesses the likelihood of additional examinations in each of the tax jurisdictions resulting from ongoing assessments.
Under current accounting rules, all tax positions adopted are subjected to two levels of evaluation. Initially, a determination is made, based on the technical merits of the position, as to whether it is more likely than not that a tax position will be sustained upon examination, including resolution of any related appeals or litigation processes. In conducting this evaluation, management is required to presume that the position will be examined by the appropriate taxing authority possessing full knowledge of all relevant information. The second level of evaluation is the measurement of a tax position that satisfies the more-likely-than-not recognition threshold. This measurement is performed in order to determine the amount of benefit to recognize in the financial statements. The tax position is measured at the largest amount of benefit that is greater than 50% likely to be realized upon ultimate settlement. The Company had no unrecognized tax benefits as of December 31, 2017 or 2016. The Company does not anticipate any material change to unrecognized tax benefits during the year ending December 31, 2018.
As of December 31, 2017, the tax years ended December 31, 2014, 2015 2016, and 2017 remained subject to examination by all of the Company's relevant tax jurisdictions. The Company is currently not under audit any taxing jurisdictions.
16.
|
KSOP [FORMERLY THE ESOP AND 401(K) PLAN]
|
The Holding Company adopted the ESOP in connection with the Bank's June 26, 1996 conversion to stock ownership. The ESOP borrowed $11,638 from the Holding Company and used the funds to purchase 3,927,825 shares of Common Stock. The loan was originally to be repaid principally from the Bank's discretionary contributions to the ESOP over a period of time not to exceed 10 years from the date of the conversion. Effective July 1, 2000, the loan agreement was amended to extend the repayment period to thirty years from the date of the conversion, with the right of optional prepayment.
Shares purchased with the loan proceeds are held in a suspense account for allocation among participants as the loan is repaid. Shares released from the ESOP suspense account are allocated among participants on the basis of compensation, as defined in the plan, in the year of allocation. ESOP distributions vest at a rate of 25% per year of service, beginning after two years, with full vesting after five years or upon attainment of age 65, death, disability, retirement or a "change of control" of the Holding Company as defined in the ESOP.
During the year ended December 31, 2016, the ESOP returned 140,260 shares from the suspense account to the Holding Company to pay off the outstanding $2,819 balance of the ESOP loan remaining after the 2016 annual share allocation. In conjunction with the prepayment of the outstanding loan balance, the remaining 563,127 shares were allocated to active participants in the plan as of December 31, 2016, resulting in a one-time, non-cash, non-tax deductible expense of $11,319 which was recorded in stock benefit plan compensation expense.
ESOP benefit expense is recorded based upon the fair value of the award shares. There was no ESOP expense recorded for the year ended December 31, 2017. ESOP expenses totaled $1,783 and $1,754, for the years ended December 31, 2016 and 2015, respectively. Included in ESOP expense were dividends on unallocated Common Stock that were paid to participants. These dividends totaled $438 and $481 during the years ended December 31, 2016 and 2015, respectively.
The Bank also maintains the 401(k) Plan, which covers substantially all of its employees. During the year ended December 31, 2017, the Company merged the assets of the ESOP into the 401(k) Plan, creating the Dime Community Bank KSOP. The KSOP owned participant investments in Common Stock for the accounts of participants totaling $56,741 at December 31, 2017. The former 401(k) Plan owned participant investments in Common Stock totaling $11,723 and at December 31, 2016.
The Bank made discretionary contributions totaling $1,689, $638 and $692 to eligible KSOP [and former 401(k) Plan] participants during the years ended December 31, 2017, 2016 and 2015, respectively. In 2017, this included safe harbor contributions of 3% made to eligible employees as well as an additional 3% discretionary contribution made to eligible employees. In 2016 and 2015 this included safe harbor contributions of 3% made to eligible employees. These contributions were recognized as a component of salaries and employee benefits expense.
17.
|
EMPLOYEE BENEFIT PLANS
|
Employee Retirement Plan
The Bank sponsors the Employee Retirement Plan, a tax-qualified, noncontributory, defined-benefit retirement plan. Prior to April 1, 2000, substantially all full-time employees of at least 21 years of age were eligible for participation after one year of service. Effective April 1, 2000, the Bank froze all participant benefits under the Employee Retirement Plan. For the years ended December 31, 2017 and 2016, the Bank used December 31
st
as its measurement date for the Employee Retirement Plan.
The funded status of the Employee Retirement Plan was as follows:
|
|
At December 31,
|
|
|
|
2017
|
|
|
2016
|
|
Accumulated benefit obligation at end of period
|
|
$
|
26,029
|
|
|
$
|
25,297
|
|
Reconciliation of Projected benefit obligation:
|
|
|
|
|
|
|
|
|
Projected benefit obligation at beginning of period
|
|
$
|
25,297
|
|
|
$
|
25,396
|
|
Interest cost
|
|
|
936
|
|
|
|
979
|
|
Actuarial loss
|
|
|
1,284
|
|
|
|
215
|
|
Benefit payments
|
|
|
(1,488
|
)
|
|
|
(1,293
|
)
|
Projected benefit obligation at end of period
|
|
|
26,029
|
|
|
|
25,297
|
|
|
|
|
|
|
|
|
|
|
Plan assets at fair value (investments in trust funds managed by trustee)
|
|
|
|
|
|
|
|
|
Balance at beginning of period
|
|
|
23,355
|
|
|
|
22,676
|
|
Return on plan assets
|
|
|
3,477
|
|
|
|
1,957
|
|
Contributions
|
|
|
17
|
|
|
|
15
|
|
Benefit payments
|
|
|
(1,488
|
)
|
|
|
(1,293
|
)
|
Balance at end of period
|
|
|
25,361
|
|
|
|
23,355
|
|
Funded status at end of year
|
|
$
|
(668
|
)
|
|
$
|
(1,942
|
)
|
The net periodic cost for the Employee Retirement Plan included the following components:
|
|
Year Ended December 31,
|
|
|
|
2017
|
|
|
2016
|
|
|
2015
|
|
Interest cost
|
|
$
|
936
|
|
|
$
|
979
|
|
|
$
|
998
|
|
Expected return on plan assets
|
|
|
(1,579
|
)
|
|
|
(1,532
|
)
|
|
|
(1,656
|
)
|
Amortization of unrealized loss
|
|
|
1,287
|
|
|
|
1,551
|
|
|
|
1,677
|
|
Net periodic cost
|
|
$
|
644
|
|
|
$
|
998
|
|
|
$
|
1,019
|
|
The change in accumulated other comprehensive income (loss) that resulted from the Employee Retirement Plan is summarized as follows:
|
|
At December 31,
|
|
|
|
2017
|
|
|
2016
|
|
Balance at beginning of period
|
|
$
|
(10,240
|
)
|
|
$
|
(12,001
|
)
|
Amortization of unrealized loss
|
|
|
1,287
|
|
|
|
1,551
|
|
Gain (Loss) recognized during the year
|
|
|
613
|
|
|
|
210
|
|
Balance at the end of the period
|
|
$
|
(8,340
|
)
|
|
$
|
(10,240
|
)
|
Period end component of accumulated other comprehensive loss, net of tax
|
|
$
|
5,610
|
|
|
$
|
5,613
|
|
Major assumptions utilized to determine the net periodic cost of the Employee Retirement Plan benefit obligations were as follows:
|
|
At or for the Year Ended December 31,
|
|
|
|
2017
|
|
|
2016
|
|
|
2015
|
|
Discount rate used for net periodic cost
|
|
|
3.82
|
%
|
|
|
3.98
|
%
|
|
|
3.72
|
%
|
Discount rate used to determine benefit obligation at period end
|
|
|
3.38
|
|
|
|
3.82
|
|
|
|
3.98
|
|
Expected long-term return on plan assets used for net periodic cost
|
|
|
7.00
|
|
|
|
7.00
|
|
|
|
7.00
|
|
Expected long-term return on plan assets used to determine benefit obligation at period end
|
|
|
7.00
|
|
|
|
7.00
|
|
|
|
7.00
|
|
The Employee Retirement Plan assets are invested in two diversified investment portfolios of the Pentegra Retirement Trust (the “Trust”). The Trust, a private placement investment trust, has been granted discretion by the Bank to determine the appropriate strategic asset allocations (as governed by its Investment Policy Statement) to meet estimated plan liabilities.
The Employee Retirement Plan’s asset allocation targets holding 66% of assets in equity securities via investment in the Long-Term Growth Equity Portfolio (“LTGE”), 32% in intermediate-term investment grade bonds via investment in the Long-Term Growth Fixed-Income Portfolio (“LTGFI”), and 2% in a cash equivalents portfolio (for liquidity). Asset rebalancing is performed at least annually, with interim adjustments when the investment mix varies in excess of 10% from the target.
The LTGE is a diversified portfolio of six registered mutual funds and seven common collective trust funds. The LTGE holds a diversified mix of equity funds in order to gain exposure to the U.S. and non-U.S. equity markets. The common collective investment funds held by the LTGE were privately offered, and the Employee Retirement Plan's investment in these common collective investment funds was therefore valued by the fund managers of each respective fund based on the Employee Retirement Plan’s proportionate share of units of beneficial interest in the respective funds. All of the common collective investment funds are audited, and the overwhelming majority of assets held in these funds (which derive the unit value of the common collective investment funds) are actively traded in established marketplaces. The six registered mutual funds held by the LTGE are all actively traded on national securities exchanges and are valued at their quoted market prices.
The LTGFI is a diversified portfolio that invests in four intermediate-term bond funds, all of which are registered mutual funds. These mutual funds are actively traded on national securities exchanges and are valued at their quoted market prices.
The investment goal is to achieve investment results that will contribute to the proper funding of the Employee Retirement Plan by exceeding the rate of inflation over the long-term. In addition, investment managers for the trust function managing the assets of the Employee Retirement Plan are expected to provide a reasonable return on investment. Performance volatility is also monitored. Risk and volatility are further managed by the distinct investment objectives of each of the trust funds and the diversification within each fund.
The weighted average allocation by asset category of the assets of the Employee Retirement Plan was summarized as follows:
|
|
At December 31,
|
|
|
|
2017
|
|
|
2016
|
|
Asset Category
|
|
|
|
|
|
|
Equity securities
|
|
|
66
|
%
|
|
|
62
|
%
|
Debt securities (bond mutual funds)
|
|
|
32
|
|
|
|
36
|
|
Cash equivalents
|
|
|
2
|
|
|
|
2
|
|
Total
|
|
|
100
|
%
|
|
|
100
|
%
|
The allocation percentages in the above table were consistent with future planned allocation percentages as of December 31, 2017 and 2016, respectively.
The following tables present a summary of the Employee Retirement Plan’s investments measured at fair value on a recurring basis by level within the fair value hierarchy, as of the dates indicated. (See Note 20 for a discussion of the fair value hierarchy).
|
|
Fair Value Measurements at December 31, 2017
|
|
|
|
|
Description
|
|
Quoted Prices
in Active
Markets for
Identical Assets
(Level 1)
|
|
|
Significant
Other
Observable
Inputs (Level 2)
|
|
|
Significant
Unobservable
Inputs
(Level 3)
|
|
|
Total
|
|
Mutual Funds (all registered and publicly traded) :
|
|
|
|
|
|
|
|
|
|
|
|
|
Domestic Large Cap
|
|
$
|
3,228
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
3,228
|
|
Domestic Mid Cap
|
|
|
1,344
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,344
|
|
Domestic Small Cap
|
|
|
513
|
|
|
|
-
|
|
|
|
-
|
|
|
|
513
|
|
International Equity
|
|
|
3,198
|
|
|
|
-
|
|
|
|
-
|
|
|
|
3,198
|
|
Fixed Income
|
|
|
8,133
|
|
|
|
-
|
|
|
|
-
|
|
|
|
8,133
|
|
Cash equivalents
|
|
|
510
|
|
|
|
-
|
|
|
|
-
|
|
|
|
510
|
|
Common collective investment funds:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Domestic Large Cap
|
|
|
-
|
|
|
|
5,246
|
|
|
|
-
|
|
|
|
5,246
|
|
Domestic Mid Cap
|
|
|
-
|
|
|
|
702
|
|
|
|
-
|
|
|
|
702
|
|
Domestic Small Cap
|
|
|
-
|
|
|
|
1,527
|
|
|
|
-
|
|
|
|
1,527
|
|
International Equity
|
|
|
-
|
|
|
|
960
|
|
|
|
-
|
|
|
|
960
|
|
Total Plan Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
25,361
|
|
|
|
Fair Value Measurements at December 31, 2016
|
|
|
|
|
Description
|
|
Quoted Prices
in Active
Markets for
Identical Assets
(Level 1)
|
|
|
Significant
Other
Observable
Inputs (Level 2)
|
|
|
Significant
Unobservable
Inputs
(Level 3)
|
|
|
Total
|
|
Mutual Funds (all registered and publicly traded) :
|
|
|
|
|
|
|
|
|
|
|
|
|
Domestic Large Cap
|
|
|
|
|
|
|
|
|
|
|
|
|
Domestic Mid Cap
|
|
$
|
2,627
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
2,627
|
|
Domestic Small Cap
|
|
|
1,189
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,189
|
|
International Equity
|
|
|
485
|
|
|
|
-
|
|
|
|
-
|
|
|
|
485
|
|
Fixed Income
|
|
|
2,657
|
|
|
|
-
|
|
|
|
-
|
|
|
|
2,657
|
|
Cash equivalents
|
|
|
8,408
|
|
|
|
-
|
|
|
|
-
|
|
|
|
8,408
|
|
Common collective investment funds:
|
|
|
366
|
|
|
|
-
|
|
|
|
-
|
|
|
|
366
|
|
Domestic Large Cap
|
|
|
|
|
|
|
4,784
|
|
|
|
-
|
|
|
|
4,784
|
|
Domestic Mid Cap
|
|
|
-
|
|
|
|
638
|
|
|
|
-
|
|
|
|
638
|
|
Domestic Small Cap
|
|
|
-
|
|
|
|
1,405
|
|
|
|
-
|
|
|
|
1,405
|
|
International Equity
|
|
|
-
|
|
|
|
796
|
|
|
|
-
|
|
|
|
796
|
|
Total Plan Assets
|
|
|
-
|
|
|
|
|
|
|
|
-
|
|
|
$
|
23,355
|
|
The expected long-term rate of return assumptions on Employee Retirement Plan assets were established based upon historical returns earned by equities and fixed income securities, adjusted to reflect expectations of future returns as applied to the Employee Retirement Plan's target allocation of asset classes. Equities and fixed income securities were assumed to earn real annual rates of return in the ranges of 1% to 10% and 0% to 6%, respectively. The long-term inflation rate was estimated to be 2.5%. When these overall return expectations were applied to the Employee Retirement Plan's target allocation, the expected annual rate of return was determined to be 7.00% at both December 31, 2017 and 2016.
The Bank contributed $17 to the Employee Retirement Plan during the year ended December 31, 2017. The Bank expects to make contributions in the amount of $17 to the Employee Retirement Plan during the year ending December 31, 2018.
Benefit payments are anticipated to be made as follows:
|
|
Amount
|
|
2018
|
|
|
1,626
|
|
2019
|
|
|
1,616
|
|
2020
|
|
|
1,598
|
|
2021
|
|
|
1,576
|
|
2022
|
|
|
1,559
|
|
2023 to 2027
|
|
|
7,523
|
|
BMP and Director Retirement Plan
The Holding Company and Bank maintain the BMP, which exists in order to compensate executive officers for any curtailments in benefits due to statutory limitations on benefit plans. As of December 31, 2017 and 2016, the BMP had investments, held in a rabbi trust, in the Common Stock of $5,018 and $11,981, respectively. Benefit accruals under the defined benefit portion of the BMP were suspended on April 1, 2000, when they were suspended under the Employee Retirement Plan.
Effective July 1, 1996, the Company established the Director Retirement Plan to provide benefits to each eligible outside director commencing upon the earlier of termination of Board service or at age 75. The Director Retirement Plan was frozen on March 31, 2005, and only outside directors serving prior to that date are eligible for benefits.
As of December 31, 2017 and 2016, the Bank used December 31
st
as its measurement date for both the BMP and Director Retirement Plan.
The combined funded status of the defined benefit portions of the BMP and the Director Retirement Plan was as follows:
|
|
At December 31,
|
|
|
|
2017
|
|
|
2016
|
|
Accumulated benefit obligation at end of period
|
|
$
|
10,364
|
|
|
$
|
11,351
|
|
Reconciliation of projected benefit obligation:
|
|
|
|
|
|
|
|
|
Projected benefit obligation at beginning of period
|
|
$
|
11,351
|
|
|
$
|
11,062
|
|
Interest cost
|
|
|
379
|
|
|
|
392
|
|
Benefit payments
|
|
|
(544
|
)
|
|
|
(234
|
)
|
Actuarial (gain) loss
|
|
|
(822
|
)
|
|
|
131
|
|
Projected benefit obligation at end of period
|
|
|
10,364
|
|
|
|
11,351
|
|
Plan assets at fair value:
|
|
|
|
|
|
|
|
|
Balance at beginning of period
|
|
|
-
|
|
|
|
-
|
|
Contributions
|
|
|
544
|
|
|
|
234
|
|
Benefit payments
|
|
|
(544
|
)
|
|
|
(234
|
)
|
Balance at end of period
|
|
|
-
|
|
|
|
-
|
|
Funded status at the end of the year:
|
|
$
|
(10,364
|
)
|
|
$
|
(11,351
|
)
|
The combined net periodic cost for the defined benefit portions of the BMP and the Director Retirement Plan included the following components:
|
|
Year Ended December 31,
|
|
|
|
2017
|
|
|
2016
|
|
|
2015
|
|
Interest cost
|
|
$
|
379
|
|
|
$
|
392
|
|
|
$
|
375
|
|
Amortization of unrealized loss
|
|
|
147
|
|
|
|
161
|
|
|
|
242
|
|
Net periodic cost
|
|
$
|
526
|
|
|
$
|
553
|
|
|
$
|
617
|
|
The combined change in accumulated other comprehensive income that resulted from the BMP and Director Retirement Plan is summarized as follows:
|
|
At December 31,
|
|
|
|
2017
|
|
|
2016
|
|
Balance at beginning of period
|
|
$
|
(2,758
|
)
|
|
$
|
(2,788
|
)
|
Amortization of unrealized loss
|
|
|
147
|
|
|
|
161
|
|
Gain (loss) recognized during the year
|
|
|
822
|
|
|
|
(131
|
)
|
Balance at the end of the period
|
|
$
|
(1,789
|
)
|
|
$
|
(2,758
|
)
|
Period end component of accumulated other comprehensive loss, net of tax
|
|
$
|
1,203
|
|
|
$
|
1,512
|
|
Major assumptions utilized to determine the net periodic cost and benefit obligations for both the BMP and Director Retirement Plan were as follows:
|
|
At or For the Year
Ended December 31,
|
|
|
|
2017
|
|
|
2016
|
|
|
2015
|
|
Discount rate used for net periodic cost – BMP
|
|
|
3.46
|
%
|
|
|
3.54
|
%
|
|
|
3.39
|
%
|
Discount rate used for net periodic cost – Director Retirement Plan
|
|
|
3.53
|
|
|
|
3.67
|
|
|
|
3.49
|
|
Discount rate used to determine BMP benefit obligation at period end
|
|
|
3.13
|
|
|
|
3.46
|
|
|
|
3.54
|
|
Discount rate used to determine Director Retirement Plan benefit obligation at period end
|
|
|
3.17
|
|
|
|
3.53
|
|
|
|
3.67
|
|
Both the BMP and Director Retirement Plan are unfunded non-qualified benefit plans that are not anticipated to ever hold assets for investment. Any contributions made to either the BMP or Director Retirement Plan are expected to be used immediately to pay benefits that accrue. The Bank contributed and made benefit payments in the amount of $343 on behalf of the BMP and $201 on behalf of the Directors Retirement Plan during the year ending December 31, 2017.
In addition to benefit payments from the defined benefit plan component of the BMP discussed above, retired participants are eligible for distributions from the plan. During the year ended December 31, 2017, three retired participants elected a gross lump-sum distribution of $11,828. The distribution was satisfied by 365,104 shares of common stock (market value $7,151) held by the ESOP component of the BMP and cash of $4,629 funded by the proceeds from the sale of trading securities held by the defined contribution plan components of the BMP. As a result of the distribution a non-cash tax benefit of $1,454 was recognized for the difference between market value and cost basis of the common stock held by the BMP. Effective January 1, 2017, income tax benefits were recognized as discrete items in income tax expense in accordance to ASU 2016-09.
During the year ended December 31, 2016, a retired participant elected a gross lump-sum distribution of $7,736. The distribution was satisfied by 239,822 shares of Common Stock (market value of $4,088) held by the ESOP component of the BMP and cash of $3,648 funded by proceeds from the sale of trading securities held by the defined contribution plan components of the BMP. As a result of the distribution, a non-cash tax benefit of $717 was recognized for the difference between market value and cost basis of the Common Stock held by the BMP, which reduces tax payable and increases Additional Paid-in Capital.
Actuarial projections performed as of December 31, 2017 assumed the Bank will contribute $564 to the BMP and $226 to the Director Retirement Plan during the year ending December 31, 2018 in order to pay benefits due under the respective plans. During the year ending December 31, 2018, actuarial losses of $34 related to the BMP and $75 related to the Director Retirement Plan are anticipated to be recognized as a component of net periodic cost.
Combined benefit payments under the BMP and Director Retirement Plan, which reflect expected future service (as appropriate), are anticipated to be made as follows:
|
|
Amount
|
|
|
|
|
|
2018
|
|
|
789
|
|
2019
|
|
|
786
|
|
2020
|
|
|
815
|
|
2021
|
|
|
807
|
|
2022
|
|
|
798
|
|
2023 to 2027
|
|
|
3,923
|
|
There is no defined contribution cost incurred by the Holding Company or the Bank under the Director Retirement Plan. Defined contribution costs incurred by the Company related to the BMP were $336, $744 and $1,900 for the years ended December 31, 2017, 2016 and 2015, respectively.
Postretirement Benefit Plan
The Bank offers the Postretirement Benefit Plan to its retired employees who provided at least five consecutive years of credited service and were active employees prior to April 1, 1991, as follows:
|
(1)
|
Qualified employees who retired prior to April 1, 1991 receive the full medical coverage in effect at the time of retirement until their death at no cost to such retirees;
|
|
(2)
|
Qualified employees retiring on or after April 1, 1991 are eligible for medical benefits. Throughout retirement, the Bank will continue to pay the premiums for the coverage not to exceed the premium amount paid for the first year of retirement coverage. Should the premiums increase, the employee is required to pay the differential to maintain full medical coverage.
|
Postretirement Benefit Plan benefits are available only to full-time employees who commence or commenced collecting retirement benefits from the Retirement Plan immediately upon termination of service from the Bank. The Bank reserves the right at any time, to the extent permitted by law, to change, terminate or discontinue any of the group benefits, and can exercise the maximum discretion permitted by law in administering, interpreting, modifying or taking any other action with respect to the plan or benefits.
The Postretirement Plan was amended effective March 31, 2015 to eliminate plan participation for post-amendment retirees. The amendment resulted in a curtailment gain of $3,394 during the year ended December 31, 2015.
The funded status of the Postretirement Benefit Plan was as follows:
|
|
At December 31,
|
|
|
|
2017
|
|
|
2016
|
|
Accumulated benefit obligation at end of period
|
|
$
|
1,768
|
|
|
$
|
1,756
|
|
Reconciliation of projected benefit obligation:
|
|
|
|
|
|
|
|
|
Projected benefit obligation at beginning of period
|
|
$
|
1,756
|
|
|
$
|
1,825
|
|
Interest cost
|
|
|
59
|
|
|
|
63
|
|
Actuarial gain
|
|
|
132
|
|
|
|
(10
|
)
|
Benefit payments
|
|
|
(179
|
)
|
|
|
(122
|
)
|
Projected benefit obligation at end of period
|
|
|
1,768
|
|
|
|
1,756
|
|
Plan assets at fair value:
|
|
|
|
|
|
|
|
|
Balance at beginning of period
|
|
|
-
|
|
|
|
-
|
|
Contributions
|
|
|
179
|
|
|
|
122
|
|
Benefit payments
|
|
|
(179
|
)
|
|
|
(122
|
)
|
Balance at end of period
|
|
|
-
|
|
|
|
-
|
|
Funded status:
|
|
|
|
|
|
|
|
|
Deficiency of plan assets over projected benefit obligation and accrued expense included in other liabilities
|
|
$
|
(1,768
|
)
|
|
$
|
(1,756
|
)
|
The Postretirement Benefit Plan net periodic cost included the following components:
|
|
Year Ended December 31,
|
|
|
|
2017
|
|
|
2016
|
|
|
2015
|
|
Service cost
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
9
|
|
Interest cost
|
|
|
59
|
|
|
|
63
|
|
|
|
94
|
|
Curtailment gain
(1)
|
|
|
-
|
|
|
|
-
|
|
|
|
(3,394
|
)
|
Amortization of unrealized loss
|
|
|
(14
|
)
|
|
|
(12
|
)
|
|
|
(19
|
)
|
Net periodic (credit) cost
|
|
$
|
45
|
|
|
$
|
51
|
|
|
$
|
(3,310
|
)
|
(1)
|
The Postretirement Plan was amended effective March 31, 2015, whereby post-amendment retirees are not eligible to participate in the plan. The amendment resulted in a curtailment gain.
|
The change in accumulated other comprehensive income (loss) that resulted from the Postretirement Benefit Plan is summarized as follows:
|
|
At December 31,
|
|
|
|
2017
|
|
|
2016
|
|
Balance at beginning of period
|
|
$
|
349
|
|
|
$
|
351
|
|
Amortization of unrealized loss
|
|
|
(14
|
)
|
|
|
(12
|
)
|
Gain (loss) recognized during the year
|
|
|
(132
|
)
|
|
|
10
|
|
Balance at the end of the period
|
|
$
|
203
|
|
|
$
|
349
|
|
Period end component of accumulated other comprehensive loss, net of tax
|
|
$
|
(137
|
)
|
|
$
|
(191
|
)
|
Major assumptions utilized to determine the net periodic cost were as follows:
|
|
At or for the Year Ended December 31,
|
|
|
|
2017
|
|
|
2016
|
|
|
2015
|
|
Discount rate used for net periodic cost
|
|
|
3.48
|
%
|
|
|
3.58
|
%
|
|
|
3.80
|
%
|
Rate of increase in compensation levels used for net periodic cost
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
3.50
|
|
Discount rate used to determine benefit obligation at period end
|
|
|
3.16
|
|
|
|
3.48
|
|
|
|
3.58
|
|
Rate of increase in compensation levels used to determine benefit obligation at period end
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
3.50
|
|
As of December 31, 2017, an escalation in the assumed medical care cost trend rates by 1% in each year would increase the net periodic cost by approximately $1. A decline in the assumed medical care cost trend rates by 1% in each year would decrease the net periodic cost by approximately $1.
As of December 31, 2017 and 2016, the Bank used December 31
st
as its measurement date for the Postretirement Benefit Plan. The assumed medical care cost trend rate used in computing the accumulated Postretirement Benefit Plan obligation was 6.5% for 2017 and was assumed to decrease gradually to 5.0% in 2023 and remain at that level thereafter. An escalation in the assumed medical care cost trend rates by 1% in each year would increase the accumulated Postretirement Benefit Plan obligation by approximately $28. A decline in the assumed medical care cost trend rates by 1% in each year would reduce the accumulated Postretirement Benefit Plan obligation by approximately $26.
GAAP provides guidance on both accounting for the effects of the Medicare Prescription Drug Improvement and Modernization Act of 2003 (the "Modernization Act") to employers that sponsor postretirement health care plans which provide prescription drug benefits, and measuring the accumulated postretirement benefit obligation ("APBO") and net periodic postretirement benefit cost, and the effects of the Modernization Act on the APBO. The Company determined that the benefits provided by the Postretirement Benefit Plan are actuarially equivalent to Medicare Part D under the Modernization Act. The effects of an expected subsidy on payments made under the Postretirement Benefit Plan were treated as an actuarial gain for purposes of calculating the APBO as of December 31, 2017 and 2016. The Company remains in the process of claiming this subsidy from the government, and, as a result, the Bank cannot determine the amount of subsidy it will ultimately receive.
The Postretirement Benefit Plan is an unfunded non-qualified benefit plan that is not anticipated to ever hold assets for investment. Any contributions made to the Postretirement Benefit Plan are expected to be used immediately to pay benefits that accrue.
Benefit payments under the Postretirement Benefit Plan, which reflect expected future service (as appropriate), are expected to be made as follows:
Year Ending December 31,
|
|
|
|
2018
|
|
|
121
|
|
2019
|
|
|
116
|
|
2020
|
|
|
107
|
|
2021
|
|
|
101
|
|
2022
|
|
|
94
|
|
2023 to 2027
|
|
|
347
|
|
18.
|
STOCK-BASED COMPENSATION
|
Stock Option Activity
The Company has made stock option grants to outside Directors and certain officers under the Stock Plans. All option shares granted have a ten-year life. The option shares granted to the outside Directors vest over one year, while the option shares granted to officers vest ratably over four years. The exercise price of each option award was determined based upon the fair market value of the Common Stock on the respective grant dates. Compensation expense recorded during the year ended December 31, 2015 was determined based upon the fair value of the option shares on the respective dates of grant, as determined utilizing a recognized option pricing methodology. There was no compensation expense recorded during the year ended December 31, 2017 or 2016 as all options were fully vested during the year ended December 31, 2015.
There were no stock options granted during the years ended December 31, 2017, 2016 and 2015.
The following table presents a summary of activity related to stock options granted under the Stock Plans, and changes during the period then ended:
|
|
Number of
Options
|
|
|
Weighted-Average
Exercise Price
|
|
|
Weighted-Average
Remaining
Contractual Years
|
|
|
Aggregate
Intrinsic Value
|
|
Options outstanding at January 1, 2016
|
|
|
465,246
|
|
|
$
|
14.87
|
|
|
|
|
|
|
|
Options granted
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
Options exercised
|
|
|
(245,992
|
)
|
|
|
14.22
|
|
|
|
|
|
|
|
Options that expired prior to exercise
|
|
|
(10,000
|
)
|
|
|
18.18
|
|
|
|
|
|
|
|
Options outstanding at December 31, 2016
|
|
|
209,254
|
|
|
$
|
15.48
|
|
|
|
2.2
|
|
|
$
|
966
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options granted
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
Options exercised
|
|
|
(51,708
|
)
|
|
|
15.35
|
|
|
|
|
|
|
|
|
|
Options that expired prior to exercise
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
Options outstanding at December 31, 2017
|
|
|
157,546
|
|
|
$
|
15.53
|
|
|
|
1.7
|
|
|
$
|
1,027
|
|
Options vested and exercisable at December 31, 2017
|
|
|
157,546
|
|
|
$
|
15.53
|
|
|
|
1.7
|
|
|
$
|
1,027
|
|
Information related to stock options under the Stock Plans during each period is as follows:
|
|
For the Year Ended December 31,
|
|
|
|
2017
|
|
|
2016
|
|
|
2015
|
|
Cash received for option exercise cost
|
|
$
|
792
|
|
|
$
|
3,498
|
|
|
$
|
6,549
|
|
Income tax benefit recognized
(1)
|
|
|
52
|
|
|
|
93
|
|
|
|
264
|
|
Intrinsic value of options exercised
|
|
|
314
|
|
|
|
826
|
|
|
|
1,143
|
|
Compensation expense recognized
|
|
|
-
|
|
|
|
-
|
|
|
|
31
|
|
Remaining unrecognized compensation expense
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
(1)
|
Effective January 1, 2017, income tax benefits were recognized as discrete items in income tax expense in accordance to ASU 2016-09. Prior to January, 1, 2017, income tax benefits were recognized through additional paid in capital.
|
The range of exercise prices and weighted-average remaining contractual lives of both outstanding and vested options (by option exercise cost) as of December 31, 2017 were as follows:
|
|
|
Outstanding Options
|
|
|
Vested Options
|
|
|
|
|
Amount
|
|
|
Weighted
Average
Contractual
Years Remaining
|
|
|
Amount
|
|
|
Weighted
Average
Contractual
Years Remaining
|
|
Exercise Prices:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
8.34
|
|
|
|
13,713
|
|
|
|
1.3
|
|
|
|
13,713
|
|
|
|
1.3
|
|
|
$
|
12.75
|
|
|
|
19,827
|
|
|
|
2.3
|
|
|
|
19,827
|
|
|
|
2.3
|
|
|
$
|
13.86
|
|
|
|
12,220
|
|
|
|
4.3
|
|
|
|
12,220
|
|
|
|
4.3
|
|
|
$
|
15.46
|
|
|
|
31,479
|
|
|
|
3.3
|
|
|
|
31,479
|
|
|
|
3.3
|
|
|
$
|
16.73
|
|
|
|
25,307
|
|
|
|
0.6
|
|
|
|
25,307
|
|
|
|
0.6
|
|
|
$
|
18.18
|
|
|
|
55,000
|
|
|
|
0.4
|
|
|
|
55,000
|
|
|
|
0.4
|
|
Total
|
|
|
|
157,546
|
|
|
|
1.7
|
|
|
|
157,546
|
|
|
|
1.7
|
|
Restricted Stock Awards
The Company has made restricted stock award grants to outside Directors and certain officers under the Stock Plans. Typically awards to outside Directors fully vest on the first anniversary of the grant date, while awards to officers may vest in equal installments over a four-year period or at the end of the four-year requisite period. All awards were made at the fair value of the Common Stock on the award date. Compensation expense on all restricted stock awards was thus recorded during the years ended December 31, 2017, 2016 and 2015 based upon the fair value of the shares on the respective dates of grant.
The following table presents a summary of activity related to the restricted stock awards granted under the Stock Plans, and changes during the periods indicated:
|
|
Number of
Shares
|
|
|
Weighted-Average
Grant-Date
Fair Value
|
|
Unvested allocated shares outstanding at January 1, 2016
|
|
|
223,894
|
|
|
$
|
15.36
|
|
Shares granted
|
|
|
60,675
|
|
|
|
18.11
|
|
Shares vested
|
|
|
(116,042
|
)
|
|
|
15.09
|
|
Shares forfeited
|
|
|
(16,118
|
)
|
|
|
16.29
|
|
Unvested allocated shares at December 31, 2016
|
|
|
152,409
|
|
|
|
16.56
|
|
|
|
|
|
|
|
|
|
|
Shares granted
|
|
|
122,329
|
|
|
|
19.61
|
|
Shares vested
|
|
|
(87,455
|
)
|
|
|
16.43
|
|
Shares forfeited
|
|
|
(36,716
|
)
|
|
|
17.65
|
|
Unvested allocated shares at December 31, 2017
|
|
|
150,567
|
|
|
$
|
18.85
|
|
Information related to restricted stock awards under the Stock Plans during each period is as follows:
|
|
For the Year Ended December 31,
|
|
|
|
2017
|
|
|
2016
|
|
|
2015
|
|
Compensation expense recognized
|
|
$
|
1,358
|
|
|
$
|
1,549
|
|
|
$
|
1,855
|
|
Income tax benefit recognized
|
|
|
95
|
|
|
|
78
|
|
|
|
39
|
|
Weighted average remaining years for which compensation expense is to be recognized
|
|
|
2.7
|
|
|
|
1.6
|
|
|
|
1.0
|
|
LTIP
During the years ended December 31, 2017, 2016 and 2015, the Company established long term incentive award programs to certain officers. The program for 2017 will ultimately be settled in performance shares only, the program for 2016 will ultimately be settled in cash and performance based shares, while the program for 2015 will ultimately be settled in cash only.
For each award, threshold (50% of target), target (100% of target) and maximum (150% of target) payment opportunities are eligible to be earned over a three-year performance period based on the Company's performance on certain measurement goals. Both the measurement goals and the peer group utilized to determine the Company's performance are established at the onset of the measurement period and cannot be altered subsequently.
At December 31, 2017, a liability totaling $556 was recorded for expected future payments under the long-term cash incentive payment plan. This liability reflected the expectation of the most likely payment outcome determined for each individual incentive award (based upon both period-to-date actual and estimated future results for each award period). During the years ended December 31, 2017, 2016 and 2015, total expense recognized related to LTIP cash awards were $190, $443 and $946, respectively.
Performance based shares awarded to certain officers meet the criteria for equity-based accounting. The following table presents a summary of activity related to performance based equity awards and changes during the period:
|
|
Number of
Shares
|
|
|
Weighted-
Average Grant-
Date Fair Value
|
|
Maximum aggregate share payout at January 1, 2017
|
|
|
24,730
|
|
|
|
17.35
|
|
Shares granted
|
|
|
71,976
|
|
|
|
19.75
|
|
Shares forfeited
|
|
|
(27,482
|
)
|
|
|
18.99
|
|
Maximum aggregate share payout at December 31, 2017
|
|
|
69,224
|
|
|
|
19.19
|
|
Minimum aggregate share payout
|
|
|
4,433
|
|
|
|
18.53
|
|
Likely aggregate share payout
|
|
|
47,978
|
|
|
$
|
19.17
|
|
Compensation expense recorded for performance based equity awards was $329 for the year ended December 31, 2017 and $57 for the year ended December 31, 2016. There was no expense recognized during the year ended December 31, 2015 as this award program was established during the year ended December 31, 2016.
19. COMMITMENTS AND CONTINGENCIES
Loan Commitments and Lines of Credit
The contractual amounts of financial instruments with off-balance sheet risk at year-end were as follows:
|
|
2017
|
|
|
2016
|
|
|
|
Fixed Rate
|
|
|
Variable Rate
|
|
|
Fixed Rate
|
|
|
Variable Rate
|
|
Available lines of credit
|
|
$
|
-
|
|
|
$
|
73,315
|
|
|
$
|
-
|
|
|
$
|
34,774
|
|
Other loan commitments
|
|
|
1,000
|
|
|
|
47,181
|
|
|
|
-
|
|
|
|
138,310
|
|
Stand-by letters of credit
|
|
|
927
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
At December 31, 2017 and 2016, the Bank had outstanding loan commitments that were accepted by the borrower aggregating approximately $48,181 and $115,216, respectively. Substantially all of the Bank's commitments expire within three months of their acceptance by the prospective borrower. The primary concentrations of credit risk associated with these commitments were geographical (as the majority of committed loans were collateralized by properties located in the New York City metropolitan area) and the proportion of the commitments comprised of multifamily residential and commercial real estate loans.
At December 31, 2017, the Bank had an available line of credit with the FHLBNY equal to its excess borrowing capacity. At December 31, 2017, this amount approximated $1,771,000.
Additionally, in connection with the Loan Securitization (see Note 6), the Bank executed a reimbursement agreement with FHLMC that obligates the Company to reimburse FHLMC for any contractual principal and interest payments on defaulted loans, not to exceed 10% of the original principal amount of the loans comprising the aggregate balance of the loan pool at securitization. The maximum exposure under this reimbursement obligation is $28.0 million.
Lease Commitments
At December 31, 2017, aggregate minimum annual rental commitments on operating leases were as follows:
|
|
Amount
|
|
|
|
|
|
2018
|
|
|
6,682
|
|
2019
|
|
|
6,808
|
|
2020
|
|
|
6,715
|
|
2021
|
|
|
6,634
|
|
2022
|
|
|
6,331
|
|
Thereafter
|
|
|
28,438
|
|
Total
|
|
$
|
61,
608
|
|
Rental expense for the years ended December 31, 2017, 2016 and 2015 totaled $6,740, $5,854, and $3,685, respectively.
Litigation
The Company is subject to certain pending and threatened legal actions which arise out of the normal course of business. Litigation is inherently unpredictable, particularly in proceedings where claimants seek substantial or indeterminate damages, or which are in their early stages. The Company cannot predict with certainty the actual loss or range of loss related to such legal proceedings, the manner in which they will be resolved, the timing of final resolution or the ultimate settlement. Consequently, the Company cannot estimate losses or ranges of losses related to such legal matters, even in instances where it is reasonably possible that a loss will be incurred. In the opinion of management, after consultation with counsel, the resolution of all ongoing legal proceedings will not have a material adverse effect on the consolidated financial condition or results of operations of the Company. The Company accounts for potential losses related to litigation in accordance with GAAP.
20.
|
FAIR VALUE OF FINANCIAL INSTRUMENTS
|
The fair value hierarchy established under ASC 820-10 is summarized as follows:
Level 1 Inputs
– Quoted prices (unadjusted) for identical assets or liabilities in active markets that the reporting entity has the ability to access at the measurement date.
Level 2 Inputs
– Significant other observable inputs such as any of the following: (1) quoted prices for similar assets or liabilities in active markets, (2) quoted prices for identical or similar assets or liabilities in markets that are not active, (3) inputs other than quoted prices that are observable for the asset or liability (
e.g.
, interest rates and yield curves observable at commonly quoted intervals, volatilities, prepayment speeds, loss severities, credit risks, and default rates), or (4) inputs that are derived principally from or corroborated by observable market data by correlation or other means (market-corroborated inputs).
Level 3 Inputs
– Significant unobservable inputs for the asset or liability. Significant unobservable inputs reflect the reporting entity's own assumptions about the assumptions that market participants would use in pricing the asset or liability (including assumptions about risk). Significant unobservable inputs shall be used to measure fair value to the extent that observable inputs are not available, thereby allowing for situations in which there is little, if any, market activity for the asset or liability at the measurement date.
Fair Value of Financial Assets and Liabilities
The following tables present the assets measured at fair value on a recurring basis as of the dates indicated segmented by level within the fair value hierarchy. Financial assets are classified in their entirety based on the lowest level of input that is significant to the fair value measurement. There were no financial liabilities measured at fair value on a recurring basis at December 31, 2017 or 2016.
|
|
|
|
|
Fair Value Measurements at
December 31, 2017 Using
|
|
|
|
Total
|
|
|
Level 1
Inputs
|
|
|
Level 2
Inputs
|
|
|
Level 3
Inputs
|
|
Financial Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
Trading securities (Registered Mutual Funds):
|
|
|
|
|
|
|
|
|
|
|
|
|
Domestic Equity Mutual Funds
|
|
$
|
460
|
|
|
$
|
460
|
|
|
$
|
-
|
|
|
$
|
-
|
|
International Equity Mutual Funds
|
|
|
120
|
|
|
|
120
|
|
|
|
-
|
|
|
|
-
|
|
Fixed Income Mutual Funds
|
|
|
2,135
|
|
|
|
2,135
|
|
|
|
-
|
|
|
|
-
|
|
Investment securities available-for-sale:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Registered Mutual Funds:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Domestic Equity Mutual Funds
|
|
|
1,512
|
|
|
|
1,512
|
|
|
|
-
|
|
|
|
-
|
|
International Equity Mutual Funds
|
|
|
445
|
|
|
|
445
|
|
|
|
-
|
|
|
|
-
|
|
Fixed Income Mutual Funds
|
|
|
2,049
|
|
|
|
2,049
|
|
|
|
-
|
|
|
|
-
|
|
Pass-through MBS issued by GSEs
|
|
|
340,879
|
|
|
|
-
|
|
|
|
340,879
|
|
|
|
-
|
|
Agency CMOs
|
|
|
10,505
|
|
|
|
-
|
|
|
|
10,505
|
|
|
|
-
|
|
Derivative – interest rate product
|
|
|
4,041
|
|
|
|
-
|
|
|
|
4,041
|
|
|
|
-
|
|
|
|
|
|
|
Fair Value Measurements at
December 31, 2016 Using
|
|
|
|
Total
|
|
|
Level 1
Inputs
|
|
|
Level 2
Inputs
|
|
|
Level 3
Inputs
|
|
Financial Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
Trading securities (Registered Mutual Funds):
|
|
|
|
|
|
|
|
|
|
|
|
|
Domestic Equity Mutual Funds
|
|
$
|
873
|
|
|
$
|
873
|
|
|
$
|
-
|
|
|
$
|
-
|
|
International Equity Mutual Funds
|
|
|
213
|
|
|
|
213
|
|
|
|
-
|
|
|
|
-
|
|
Fixed Income Mutual Funds
|
|
|
5,867
|
|
|
|
5,867
|
|
|
|
-
|
|
|
|
-
|
|
Investment securities available-for-sale:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Registered Mutual Funds:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Domestic Equity Mutual Funds
|
|
|
1,356
|
|
|
|
1,356
|
|
|
|
-
|
|
|
|
-
|
|
International Equity Mutual Funds
|
|
|
377
|
|
|
|
377
|
|
|
|
-
|
|
|
|
-
|
|
Fixed Income Mutual Funds
|
|
|
2,162
|
|
|
|
2,162
|
|
|
|
-
|
|
|
|
-
|
|
Pass-through MBS issued by GSEs
|
|
|
372
|
|
|
|
-
|
|
|
|
372
|
|
|
|
-
|
|
Agency CMOs
|
|
|
3,186
|
|
|
|
-
|
|
|
|
3,186
|
|
|
|
-
|
|
Derivative – interest rate product
|
|
|
3,228
|
|
|
|
-
|
|
|
|
3,228
|
|
|
|
-
|
|
The Company used the following methods and significant assumptions to estimate fair value.
Investment Securities
The Company’s available-for-sale investment securities are reported at fair value, which were determined utilizing prices obtained from independent parties. The valuations obtained are based upon market data, and often utilize evaluated pricing models that vary by asset and incorporate available trade, bid and other market information. For securities that do not trade on a daily basis, pricing applications apply available information such as benchmarking and matrix pricing. The market inputs normally sought in the evaluation of securities include benchmark yields, reported trades, broker/dealer quotes (obtained only from market makers or broker/dealers recognized as market participants), issuer spreads, two-sided markets, benchmark securities, bids, offers and reference data. For certain securities, additional inputs may be used or some market inputs may not be applicable. Prioritization of inputs may vary on any given day based on market conditions.
The pass-through MBS issued by GSEs all possessed the highest possible credit rating published by at least one established credit rating agency as of December 31, 2017 and December 31, 2016. Obtaining market values as of December 31, 2017 and December 31, 2016 for these securities utilizing significant observable inputs was not difficult due to their considerable demand.
Derivatives
Derivatives represent interest rate swaps and estimated fair values are based on valuation models using observable market data as of the measurement date (Level 2).
There were no assets or liabilities measured at fair value on a non-recurring basis as of December 31, 2017 or 2016.
Fair Value of Financial Instruments
The carrying amounts and estimated fair values of financial instruments other than those measured at fair value on either a recurring or non-recurring basis at December 31, 2017 and December 31, 2016 were as follows:
|
|
|
|
|
Fair Value Measurements
at December 31, 2017 Using
|
|
|
|
Carrying
Amount
|
|
|
Level 1
Inputs
|
|
|
Level 2
Inputs
|
|
|
Level 3
Inputs
|
|
|
Total
|
|
Financial Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and due from banks
|
|
$
|
169,455
|
|
|
$
|
169,455
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
169,455
|
|
Loans, net
|
|
|
5,581,084
|
|
|
|
-
|
|
|
|
-
|
|
|
|
5,519,746
|
|
|
|
5,519,746
|
|
Accrued interest receivable
|
|
|
16,543
|
|
|
|
-
|
|
|
|
751
|
|
|
|
15,792
|
|
|
|
16,543
|
|
FHLBNY capital stock
|
|
|
59,696
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
Financial Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Savings, money market and checking accounts
|
|
|
3,311,560
|
|
|
|
3,311,560
|
|
|
|
-
|
|
|
|
-
|
|
|
|
3,311,560
|
|
CDs
|
|
|
1,091,887
|
|
|
|
-
|
|
|
|
1,192,964
|
|
|
|
-
|
|
|
|
1,192,964
|
|
Escrow and other deposits
|
|
|
82,168
|
|
|
|
82,168
|
|
|
|
-
|
|
|
|
-
|
|
|
|
82,168
|
|
FHLBNY Advances
|
|
|
1,170,000
|
|
|
|
-
|
|
|
|
1,164,947
|
|
|
|
-
|
|
|
|
1,164,947
|
|
Subordinated debt, net
|
|
|
113,612
|
|
|
|
-
|
|
|
|
115,337
|
|
|
|
-
|
|
|
|
115,337
|
|
Accrued interest payable
|
|
|
1,623
|
|
|
|
-
|
|
|
|
1,623
|
|
|
|
-
|
|
|
|
1,623
|
|
|
|
|
|
|
Fair Value Measurements
at December 31, 2016 Using
|
|
|
|
Carrying
Amount
|
|
|
Level 1
Inputs
|
|
|
Level 2
Inputs
|
|
|
Level 3
Inputs
|
|
|
Total
|
|
Financial Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and due from banks
|
|
$
|
113,503
|
|
|
$
|
113,503
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
113,503
|
|
TRUP CDOs
|
|
|
5,378
|
|
|
|
-
|
|
|
|
-
|
|
|
|
7,296
|
|
|
|
7,296
|
|
Loans, net
|
|
|
5,615,886
|
|
|
|
-
|
|
|
|
-
|
|
|
|
5,609,034
|
|
|
|
5,609,034
|
|
Accrued interest receivable
|
|
|
15,647
|
|
|
|
-
|
|
|
|
11
|
|
|
|
15,636
|
|
|
|
15,647
|
|
FHLBNY capital stock
|
|
|
44,444
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
Financial Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Savings, money market and checking accounts
|
|
|
3,346,961
|
|
|
|
3,346,961
|
|
|
|
-
|
|
|
|
-
|
|
|
|
3,346,961
|
|
CDs
|
|
|
1,048,465
|
|
|
|
-
|
|
|
|
1,054,131
|
|
|
|
-
|
|
|
|
1,054,131
|
|
Escrow and other deposits
|
|
|
103,001
|
|
|
|
103,001
|
|
|
|
-
|
|
|
|
-
|
|
|
|
103,001
|
|
FHLBNY Advances
|
|
|
831,125
|
|
|
|
-
|
|
|
|
831,951
|
|
|
|
-
|
|
|
|
831,951
|
|
Trust Preferred securities payable
|
|
|
70,680
|
|
|
|
-
|
|
|
|
69,973
|
|
|
|
-
|
|
|
|
69,973
|
|
Accrued interest payable
|
|
|
2,080
|
|
|
|
-
|
|
|
|
2,080
|
|
|
|
-
|
|
|
|
2,080
|
|
The methods and assumptions used to estimate fair values are described as follows:
Cash and Due From Banks
The fair value is assumed to be equal to their carrying value as these amounts are due upon demand (deemed a Level 1 valuation).
TRUP CDOs Held to Maturity
At December 31, 2016, the Company owned seven TRUP CDOs classified as held-to-maturity. At December 31, 2016, their estimated fair value was obtained utilizing broker quotations to estimate the fair value of TRUP CDOs. Despite improvement in the overall marketplace conditions, unobservable data was still deemed to have been utilized in the broker quotation pricing, warranting a determination of Level 3 valuation for these securities at December 31, 2016. The Company sold its TRUP CDO portfolio in August 2017.
Loans, Net
For adjustable rate loans repricing monthly or quarterly, and with no significant change in credit risk, fair values are based on carrying values. The fair value of all remaining loans receivable is determined by discounting anticipated future cash flows of the loans, net of anticipated prepayments, using a discount rate reflecting current market rates for loans with similar terms to borrowers of similar credit quality. The valuation method used for loans does not necessarily represent an exit price valuation methodology as defined under ASC 820. However, since the valuation methodology is deemed to be comparable to a Level 3 input, the fair value of loans receivable other than impaired loans measured at fair value is shown under the Level 3 valuation column.
Accrued Interest Receivable
The estimated fair value of accrued interest receivable approximates its carrying amount, and is deemed to be valued at an input level comparable to its underlying financial asset.
FHLBNY Capital Stock
It is not practicable to determine the fair value of FHLBNY capital stock due to restrictions placed on transferability.
Deposits
The fair value of savings, money market, and checking accounts is, by definition, equal to the amount payable on demand at the reporting date (
i.e
., their carrying amount), which has been deemed a Level 1 valuation. The fair value of CDs is based upon the present value of contractual cash flows using current interest rates for instruments of the same remaining maturity (deemed a Level 2 valuation).
Escrow and Other Deposits
The fair value of escrow and other deposits is, by definition, equal to the amount payable on demand at the reporting date
(i.e.
, their carrying amount), which has been deemed a Level 1 valuation.
FHLBNY Advances
The
fair value of FHLBNY Advances is measured by the discounted anticipated cash flows through contractual maturity or next interest repricing date, or an earlier call date if, as of the valuation date, the borrowing is expected to be called (deemed a Level 2 valuation). The carrying amount of accrued interest payable on FHLBNY Advances is its fair value and is deemed a Level 2 valuation.
Subordinated Debt
The fair value of subordinated debt is estimated using discounted cash flow analyses based on then current borrowing rates for similar types of borrowing arrangements (deemed a Level 2 valuation), and is provided to the Company quarterly independently by a market maker in the underlying security. The fair value is shown net of capitalized issuance costs.
Trust Preferred Securities Payable
At December 31, 2016, the fair value of trust preferred securities payable is estimated using discounted cash flow analyses based on then current borrowing rates for similar types of borrowing arrangements (deemed a Level 2 valuation), and is provided to the Company quarterly independently by a market maker in the underlying security. The Company redeemed its trust preferred securities in July 2017.
Accrued Interest Payable
The estimated fair value of accrued interest payable approximates its carrying amount, and is deemed to be valued at an input level comparable to its underlying financial liability.
21. REGULATORY MATTERS
The Bank is subject to regulation, examination, and supervision by the New York State Department of Financial Services and the FDIC. The Holding Company is subject to regulation, examination, and supervision by the Board of Governors of the Federal Reserve System.
The final rules implementing the Basel Committee on Banking Supervision's capital guidelines for U.S. banks (the “Basel III Capital Rules”) became effective for the Holding Company and Bank on January 1, 2015, with full compliance with all of the requirements being phased in over a multi-year schedule, and fully phased in by January 1, 2019. The Basel III Capital Rules provide for the following minimum capital to risk-weighted assets ratios as of January 1, 2015: a) 4.5% based upon common equity tier 1 capital ("CET1"); b) 6.0% based upon tier 1 capital; and c) 8.0% based upon total regulatory capital. A minimum leverage ratio (tier 1 capital as a percentage of average consolidated assets) of 4.0% is also required under the Basel III Capital Rules.
When fully phased in, the Basel III Capital Rules will additionally require institutions to retain a capital conservation buffer, composed entirely of CET1, of 2.5% above these required minimum capital ratio levels. Banking organizations that fail to maintain the minimum 2.5% capital conservation buffer could face restrictions on capital distributions or discretionary bonus payments to executive officers. Restrictions would begin phasing in where the banking organization’s capital conservation buffer was below 2.5% at the beginning of a quarter, and distributions and discretionary bonus payments would be completely prohibited if no capital conservation buffer exists. The implementation of the capital conservation buffer began on January 1, 2016 at 0.625% and will increase by 0.625% each subsequent January 1, until it reaches 2.5% on January 1, 2019. At December 31, 2017, the capital conservation buffer was 1.25%. When the capital conservation buffer is fully phased in on January 1, 2019, the Holding Company and the Bank will effectively have the following minimum capital to risk-weighted assets ratios: a) 7.0% based upon CET1; b) 8.5% based upon tier 1 capital; and c) 10.5% based upon total regulatory capital. In accordance with the Basel III Capital Rules, the Holding Company and the Bank have elected to exclude all permissible components of accumulated other comprehensive income from computing regulatory capital. Management believes, as of December 31, 2017 and 2016, the Holding Company and Bank met all capital requirements to which they were subject.
The Bank is also governed by numerous federal and state laws and regulations, including the FDIC Improvement Act of 1991, which established five categories of capital adequacy ranging from well capitalized to critically undercapitalized (although these items are not utilized to represent overall financial condition). The FDIC utilizes these categories of capital adequacy to determine various matters, including, but not limited to, prompt corrective action and deposit insurance premium assessment levels. Capital levels and adequacy classifications may also be subject to qualitative judgments by the Bank’s regulators regarding, among other factors, the components of capital and risk weighting. If adequately capitalized, regulatory approval is required to accept brokered deposits. If undercapitalized, capital distributions and asset growth are limited, and capital restoration plans are required. As of December 31, 2017 and 2016, the Bank satisfied all criteria necessary to be categorized as “well capitalized” under the regulatory framework for prompt corrective action. There have been no conditions or events since December 31, 2017 that management believes have changed the "well capitalized" categorization.
Actual and required capital amounts and ratios as of the dates indicated are presented below:
|
|
Actual
|
|
|
For Capital
Adequacy Purposes
(1)
|
|
|
To Be Categorized as
“Well Capitalized”
(1)
|
|
As of December 31, 2017
|
|
Amount
|
|
|
Ratio
|
|
|
Amount
|
|
|
Minimum
Ratio
|
|
|
Amount
|
|
|
Minimum Ratio
|
|
Tier 1 Capital / % of average total assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bank
|
|
$
|
591,380
|
|
|
|
9.32
|
%
|
|
$
|
256,071
|
|
|
|
4.0
|
%
|
|
$
|
320,089
|
|
|
|
5.0
|
%
|
Consolidated Company
|
|
|
546,571
|
|
|
|
8.61
|
|
|
|
256,029
|
|
|
|
4.0
|
|
|
|
N/A
|
|
|
|
N/A
|
|
Common equity Tier 1 capital / % of risk weighted assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bank
|
|
|
591,380
|
|
|
|
12.38
|
|
|
|
214,984
|
|
|
|
4.5
|
|
|
|
310,532
|
|
|
|
6.5
|
|
Consolidated Company
|
|
|
546,571
|
|
|
|
11.42
|
|
|
|
215,424
|
|
|
|
4.5
|
|
|
|
N/A
|
|
|
|
N/A
|
|
Tier 1 Capital / % of risk weighted assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bank
|
|
|
591,380
|
|
|
|
12.38
|
|
|
|
286,645
|
|
|
|
6.0
|
|
|
|
382,194
|
|
|
|
8.0
|
|
Consolidated Company
|
|
|
546,571
|
|
|
|
11.42
|
|
|
|
287,232
|
|
|
|
6.0
|
|
|
|
N/A
|
|
|
|
N/A
|
|
Total Capital / % of risk weighted assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bank
|
|
|
612,858
|
|
|
|
12.83
|
|
|
|
382,194
|
|
|
|
8.0
|
|
|
|
477,742
|
|
|
|
10.0
|
|
Consolidated Company
|
|
|
683,049
|
|
|
|
14.27
|
|
|
|
382,976
|
|
|
|
8.0
|
|
|
|
N/A
|
|
|
|
N/A
|
|
(1)
|
In accordance with the Basel III rules.
|
|
|
Actual
|
|
|
For Capital
Adequacy Purposes
(1)
|
|
|
To Be Categorized as
“Well Capitalized”
(1)
|
|
As of December 31, 2016
|
|
Amount
|
|
|
Ratio
|
|
|
Amount
|
|
|
Minimum
Ratio
|
|
|
Amount
|
|
|
Minimum
Ratio
|
|
Tier 1 Capital / % of average total assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bank
|
|
$
|
521,458
|
|
|
|
8.95
|
%
|
|
$
|
235,232
|
|
|
|
4.0
|
%
|
|
$
|
294,041
|
|
|
|
5.0
|
%
|
Consolidated Company
|
|
|
516,170
|
|
|
|
10.03
|
|
|
|
235,402
|
|
|
|
4.0
|
|
|
|
N/A
|
|
|
|
N/A
|
|
Common equity Tier 1 capital / % of risk weighted assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bank
|
|
|
521,458
|
|
|
|
11.60
|
|
|
|
202,337
|
|
|
|
4.5
|
|
|
|
292,265
|
|
|
|
6.5
|
|
Consolidated Company
|
|
|
516,170
|
|
|
|
11.44
|
|
|
|
203,104
|
|
|
|
4.5
|
|
|
|
N/A
|
|
|
|
N/A
|
|
Tier 1 Capital / % of risk weighted assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bank
|
|
|
521,458
|
|
|
|
11.60
|
|
|
|
269,783
|
|
|
|
6.0
|
|
|
|
359,711
|
|
|
|
8.0
|
|
Consolidated Company
|
|
|
584,684
|
|
|
|
12.95
|
|
|
|
270,806
|
|
|
|
6.0
|
|
|
|
N/A
|
|
|
|
N/A
|
|
Total Capital / % of risk weighted assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bank
|
|
|
542,019
|
|
|
|
12.05
|
|
|
|
359,711
|
|
|
|
8.0
|
|
|
|
449,639
|
|
|
|
10.0
|
|
Consolidated Company
|
|
|
605,245
|
|
|
|
13.41
|
|
|
|
361,074
|
|
|
|
8.0
|
|
|
|
N/A
|
|
|
|
N/A
|
|
(1)
|
In accordance with the Basel III rules.
|
22.
|
UNAUDITED QUARTERLY FINANCIAL INFORMATION
|
The following tables summarize the unaudited condensed consolidated results of operations for each of the quarters during the fiscal years ended December 31, 2017 and 2016:
|
|
For the three months ended
|
|
|
|
March 31,
2017
|
|
|
June 30,
2017
|
|
|
September 30,
2017
|
|
|
December 31,
2017
|
|
Net interest income
|
|
$
|
37,487
|
|
|
$
|
38,053
|
|
|
$
|
38,458
|
|
|
$
|
38,732
|
|
Provision (credit) for loan losses
|
|
|
450
|
|
|
|
1,047
|
|
|
|
23
|
|
|
|
(1,000
|
)
|
Net interest income after provision for loan losses
|
|
|
37,037
|
|
|
|
37,006
|
|
|
|
38,435
|
|
|
|
39,732
|
|
Non-interest income
|
|
|
1,778
|
|
|
|
1,747
|
|
|
|
4,283
|
|
|
|
13,706
|
|
Non-interest expense
|
|
|
20,769
|
|
|
|
19,469
|
|
|
|
22,175
|
|
|
|
22,573
|
|
Income before income taxes
|
|
|
18,046
|
|
|
|
19,284
|
|
|
|
20,543
|
|
|
|
30,865
|
|
Income tax expense
|
|
|
6,889
|
|
|
|
7,295
|
|
|
|
7,230
|
|
|
|
15,442
|
|
Net income
|
|
$
|
11,157
|
|
|
$
|
11,989
|
|
|
$
|
13,313
|
|
|
$
|
15,423
|
|
EPS
(1)
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.30
|
|
|
$
|
0.32
|
|
|
$
|
0.36
|
|
|
$
|
0.41
|
|
Diluted
|
|
$
|
0.30
|
|
|
$
|
0.32
|
|
|
$
|
0.35
|
|
|
$
|
0.41
|
|
(1)
The quarterly EPS amounts, when added, may not coincide with the full fiscal year EPS reported on the Consolidated Statements of Operations due to differences in the computed weighted average shares outstanding as well as rounding differences.
|
|
For the three months ended
|
|
|
|
March 31,
2016
|
|
|
June 30,
2016
|
|
|
September 30,
2016
|
|
|
December 31,
2016
|
|
Net interest income
|
|
$
|
34,631
|
|
|
$
|
35,610
|
|
|
$
|
35,347
|
|
|
$
|
37,898
|
|
Provision (credit) for loan losses
|
|
|
(21
|
)
|
|
|
442
|
|
|
|
1,168
|
|
|
|
529
|
|
Net interest income after provision for loan losses
|
|
|
34,652
|
|
|
|
35,168
|
|
|
|
34,179
|
|
|
|
37,369
|
|
Non-interest income
|
|
|
69,741
|
|
|
|
2,305
|
|
|
|
2,071
|
|
|
|
1,817
|
|
Non-interest expense
|
|
|
17,869
|
|
|
|
18,092
|
|
|
|
18,232
|
|
|
|
29,638
|
|
Income before income taxes
|
|
|
86,524
|
|
|
|
19,381
|
|
|
|
18,018
|
|
|
|
9,548
|
|
Income tax expense
|
|
|
36,487
|
|
|
|
8,173
|
|
|
|
7,481
|
|
|
|
8,816
|
|
Net income
|
|
$
|
50,037
|
|
|
$
|
11,208
|
|
|
$
|
10,537
|
|
|
$
|
732
|
|
EPS
(1)
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
1.37
|
|
|
$
|
0.30
|
|
|
$
|
0.29
|
|
|
$
|
0.02
|
|
Diluted
|
|
$
|
1.36
|
|
|
$
|
0.30
|
|
|
$
|
0.29
|
|
|
$
|
0.02
|
|
(1)
The quarterly EPS amounts, when added, may not coincide with the full fiscal year EPS reported on the Consolidated Statements of Operations due to differences in the computed weighted average shares outstanding as well as rounding differences
23.
|
CONDENSED HOLDING COMPANY ONLY FINANCIAL STATEMENTS
|
The following statements of condition as of December 31, 2017 and 2016, and the related statements of operations and cash flows for the years ended December 31, 2017, 2016 and 2015, reflect the Holding Company’s investment in its wholly-owned subsidiary, the Bank, using, as deemed appropriate, the equity method of accounting:
DIME COMMUNITY BANCSHARES, INC.
CONDENSED STATEMENTS OF FINANCIAL CONDITION
|
|
At December 31,
|
|
|
|
2017
|
|
|
2016
|
|
ASSETS:
|
|
|
|
|
|
|
Cash and due from banks
|
|
$
|
58,723
|
|
|
$
|
49,152
|
|
Investment securities available-for-sale
|
|
|
4,006
|
|
|
|
3,895
|
|
Trading securities
|
|
|
2,715
|
|
|
|
6,953
|
|
MBS available-for-sale
|
|
|
321
|
|
|
|
372
|
|
Investment in subsidiaries
|
|
|
643,260
|
|
|
|
571,150
|
|
Other assets
|
|
|
3,154
|
|
|
|
6,020
|
|
Total assets
|
|
$
|
712,179
|
|
|
$
|
637,542
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS’ EQUITY:
|
|
|
|
|
|
|
|
|
Trust Preferred securities payable
|
|
$
|
-
|
|
|
$
|
70,680
|
|
Subordinated debt, net
|
|
|
113,612
|
|
|
|
-
|
|
Other liabilities
|
|
|
-
|
|
|
|
994
|
|
Stockholders’ equity
|
|
|
598,567
|
|
|
|
565,868
|
|
Total liabilities and stockholders’ equity
|
|
$
|
712,179
|
|
|
$
|
637,542
|
|
DIME COMMUNITY BANCSHARES, INC.
CONDENSED STATEMENTS OF OPERATIONS AND OTHER COMPREHENSIVE INCOME
(1)
|
|
Year Ended December 31,
|
|
|
|
2017
|
|
|
2016
|
|
|
2015
|
|
Net interest loss
|
|
$
|
(5,427
|
)
|
|
$
|
(4,852
|
)
|
|
$
|
(4,779
|
)
|
Dividends received from Bank
|
|
|
8,000
|
|
|
|
12,000
|
|
|
|
16,000
|
|
Non-interest income
|
|
|
249
|
|
|
|
478
|
|
|
|
295
|
|
Non-interest expense
|
|
|
(2,002
|
)
|
|
|
(668
|
)
|
|
|
(667
|
)
|
Income before income taxes and equity in
undistributed earnings of direct subsidiaries
|
|
|
820
|
|
|
|
6,958
|
|
|
|
10,849
|
|
Income tax credit
|
|
|
3,274
|
|
|
|
2,251
|
|
|
|
2,321
|
|
Income before equity in undistributed earnings of direct subsidiaries
|
|
|
4,094
|
|
|
|
9,209
|
|
|
|
13,170
|
|
Equity in undistributed earnings of subsidiaries
|
|
|
47,788
|
|
|
|
63,305
|
|
|
|
31,602
|
|
Net income
|
|
$
|
51,882
|
|
|
$
|
72,514
|
|
|
$
|
44,772
|
|
(1)
Other comprehensive income for the Holding Company approximated other comprehensive income for the consolidated Company during the years ended December 31, 2017, 2016 and 2015.
DIME COMMUNITY BANCSHARES, INC.
CONDENSED STATEMENTS OF CASH FLOWS
|
|
Year Ended December 31,
|
|
|
|
2017
|
|
|
2016
|
|
|
2015
|
|
Cash flows from Operating Activities:
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
51,882
|
|
|
$
|
72,514
|
|
|
$
|
44,772
|
|
Adjustments to reconcile net income to net cash provided by operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity in undistributed earnings of direct subsidiaries
|
|
|
(47,788
|
)
|
|
|
(63,305
|
)
|
|
|
(31,602
|
)
|
Net loss on the sale of investment securities available for sale
|
|
|
-
|
|
|
|
-
|
|
|
|
4
|
|
Net (gain) loss on trading securities
|
|
|
(169
|
)
|
|
|
(83
|
)
|
|
|
108
|
|
Net accretion
|
|
|
81
|
|
|
|
-
|
|
|
|
-
|
|
Loss from extinguishment of debt
|
|
|
1,272
|
|
|
|
-
|
|
|
|
-
|
|
Decrease (Increase) in other assets
|
|
|
1,442
|
|
|
|
(2,206
|
)
|
|
|
(69
|
)
|
(Decrease) Increase in other liabilities
|
|
|
(994
|
)
|
|
|
(7
|
)
|
|
|
(560
|
)
|
Net cash provided by operating activities
|
|
|
5,726
|
|
|
|
6,913
|
|
|
|
12,653
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from Investing Activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from sale of investment securities available-for-sale
|
|
|
377
|
|
|
|
-
|
|
|
|
2,000
|
|
Proceeds from the sale of trading securities
|
|
|
4,629
|
|
|
|
3,648
|
|
|
|
1,340
|
|
Purchases of investment securities available-for-sale
|
|
|
(145
|
)
|
|
|
(22
|
)
|
|
|
(2,134
|
)
|
Reimbursement from subsidiary, including purchases of investment securities available-for-sale
|
|
|
175
|
|
|
|
303
|
|
|
|
1,655
|
|
Net purchases of trading securities
|
|
|
(222
|
)
|
|
|
(317
|
)
|
|
|
(3,090
|
)
|
Principal collected on MBS available-for-sale
|
|
|
49
|
|
|
|
59
|
|
|
|
63
|
|
Principal repayments on ESOP loan
|
|
|
-
|
|
|
|
209
|
|
|
|
194
|
|
Net cash provided by investing activities
|
|
|
4,863
|
|
|
|
3,880
|
|
|
|
28
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from Financing Activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Redemption of preferred stock
|
|
|
(1
|
)
|
|
|
-
|
|
|
|
-
|
|
Common Stock issued for exercise of stock options
|
|
|
792
|
|
|
|
3,669
|
|
|
|
6,549
|
|
Repayment of trust preferred securities
|
|
|
(70,680
|
)
|
|
|
-
|
|
|
|
-
|
|
Proceeds from subordinated debt issuance, net
|
|
|
113,531
|
|
|
|
-
|
|
|
|
-
|
|
Treasury shares repurchased
|
|
|
-
|
|
|
|
-
|
|
|
|
(300
|
)
|
Equity award distribution
|
|
|
236
|
|
|
|
65
|
|
|
|
251
|
|
BMP ESOP shares received to satisfy distribution of retirement benefits
|
|
|
(3,905
|
)
|
|
|
(1,820
|
)
|
|
|
-
|
|
Capital contribution to subsidiary
|
|
|
(20,000
|
)
|
|
|
-
|
|
|
|
-
|
|
Cash dividends paid to stockholders
|
|
|
(20,991
|
)
|
|
|
(20,569
|
)
|
|
|
(20,279
|
)
|
Net cash used in financing activities
|
|
|
(1,018
|
)
|
|
|
(18,655
|
)
|
|
|
(13,779
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net decrease in cash and due from banks
|
|
|
9,571
|
|
|
|
(7,862
|
)
|
|
|
(1,098
|
)
|
Cash and due from banks, beginning of period
|
|
|
49,152
|
|
|
|
57,014
|
|
|
|
58,112
|
|
Cash and due from banks, end of period
|
|
$
|
58,723
|
|
|
$
|
49,152
|
|
|
$
|
57,014
|
|
* * * * *