NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
1 - BASIS OF PRESENTATION
The accounting and reporting policies of The First of Long Island Corporation reflect banking industry practice and conform to generally accepted accounting principles in the United States. In preparing the consolidated financial statements, management is required to make estimates, such as the allowance for loan losses, and assumptions that affect the reported asset and liability balances and revenue and expense amounts and the disclosure of contingent assets and liabilities. Actual results could differ significantly from those estimates.
The consolidated financial statements include the accounts of The First of Long Island Corporation and its wholly-owned subsidiary, The First National Bank of Long Island. The Bank has two wholly owned subsidiaries: FNY Service Corp., an investment company, and The First of Long Island Agency, Inc., an insurance agency licensed under the laws of the State of New York. The Bank and FNY Service Corp. jointly own another subsidiary, The First of Long Island REIT, Inc., a real estate investment trust.
The consolidated entity is referred to as the “Corporation” and the Bank and its subsidiaries are collectively referred to as the “Bank.”
All intercompany balances and amounts have been eliminated. For further information refer to the consolidated financial statements and notes thereto included in the Corporation's Annual Report on Form 10-K for the year ended December 31, 2013.
The consolidated financial information included herein as of and for the periods ended June 30, 2014 and 2013 is unaudited. However, such information reflects all adjustments which are, in the opinion of management, necessary for a fair statement of results for the interim periods. The December 31, 2013 consolidated balance sheet was derived from the Corporation's December 31, 2013 audited consolidated financial statements. When appropriate, items in the prior year financial statements are reclassified to conform to the current period presentation.
2 - COMPREHENSIVE INCOME
Comprehensive income includes net income and other comprehensive income or loss. Other comprehensive income or loss includes revenues, expenses, gains and losses that under generally accepted accounting principles are included in comprehensive income but excluded from net income. Other comprehensive income or loss for the Corporation consists of unrealized holding gains or losses on available-for-sale securities and changes in the funded status of the Bank’s defined benefit pension plan. Accumulated other comprehensive income (loss) is recognized as a separate component of stockholders’ equity.
The components of other comprehensive income or loss and the related tax effects are as follows:
|
|
Six Months Ended June 30,
|
|
|
Three Months Ended June 30,
|
|
|
|
2014
|
|
|
2013
|
|
|
2014
|
|
|
2013
|
|
|
|
(in thousands)
|
|
Change in net unrealized holding gains on available-for-sale securities:
|
|
|
|
|
|
|
|
|
|
|
Change arising during period
|
|
$
|
17,782
|
|
|
$
|
(28,315
|
)
|
|
$
|
7,586
|
|
|
$
|
(20,899
|
)
|
Reclassification adjustment for (gains) losses included in net income (1)
|
|
|
(21
|
)
|
|
|
13
|
|
|
|
(18
|
)
|
|
|
-
|
|
Change in net unrealized holding gains on available-for-sale securities
|
|
|
17,761
|
|
|
|
(28,302
|
)
|
|
|
7,568
|
|
|
|
(20,899
|
)
|
Tax effect
|
|
|
7,255
|
|
|
|
(11,236
|
)
|
|
|
3,075
|
|
|
|
(8,297
|
)
|
|
|
|
10,506
|
|
|
|
(17,066
|
)
|
|
|
4,493
|
|
|
|
(12,602
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in funded status of pension plan:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of prior service cost included in pension expense (2)
|
|
|
7
|
|
|
|
12
|
|
|
|
3
|
|
|
|
6
|
|
Amortization of net actuarial loss included in pension expense (2)
|
|
|
-
|
|
|
|
314
|
|
|
|
-
|
|
|
|
157
|
|
|
|
|
7
|
|
|
|
326
|
|
|
|
3
|
|
|
|
163
|
|
Tax effect
|
|
|
(15
|
)
|
|
|
130
|
|
|
|
(1
|
)
|
|
|
65
|
|
|
|
|
22
|
|
|
|
196
|
|
|
|
4
|
|
|
|
98
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income (loss)
|
|
$
|
10,528
|
|
|
$
|
(16,870
|
)
|
|
$
|
4,497
|
|
|
$
|
(12,504
|
)
|
(1) Reclassification adjustment represents net realized gains or losses arising from the sale of available-for-sale securities. The net realized gains or losses are included in the consolidated statements of income in the line item, “Net gains on sales of securities.” See “Note 3 – Investment Securities” for the income tax expense (benefit) related to the net realized gains or losses.
(2) Represents the amortization into expense of prior service cost and net actuarial loss relating to the Corporation’s defined benefit pension plan. These items are included in net periodic pension cost (see Note 6) and in the consolidated statements of income in the line item, “Employee benefits.” The income tax expense relating to these costs is included in the consolidated statements of income in the line item, “Income tax expense.”
The following sets forth the components of accumulated other comprehensive income, net of tax:
|
|
|
|
|
Current
|
|
|
|
|
|
|
Balance
|
|
|
Period
|
|
|
Balance
|
|
|
|
12/31/13
|
|
|
Change
|
|
|
6/30/14
|
|
|
|
(in thousands)
|
|
Unrealized holding gains on available-for-sale securities
|
|
$
|
2,783
|
|
|
$
|
10,506
|
|
|
$
|
13,289
|
|
Unrealized actuarial loss and prior service cost on pension plan
|
|
|
(1,121
|
)
|
|
|
22
|
|
|
|
(1,099
|
)
|
Accumulated other comprehensive income, net of tax
|
|
$
|
1,662
|
|
|
$
|
10,528
|
|
|
$
|
12,190
|
|
3 - INVESTMENT SECURITIES
The following tables set forth the amortized cost and estimated fair values of the Bank’s investment securities.
|
|
June 30, 2014
|
|
|
|
|
|
|
Gross
|
|
|
Gross
|
|
|
|
|
|
|
Amortized
|
|
|
Unrealized
|
|
|
Unrealized
|
|
|
Fair
|
|
|
|
Cost
|
|
|
Gains
|
|
|
Losses
|
|
|
Value
|
|
Held-to-Maturity Securities:
|
|
(in thousands)
|
|
State and municipals
|
|
$
|
23,700
|
|
|
$
|
1,089
|
|
|
$
|
-
|
|
|
$
|
24,789
|
|
Pass-through mortgage securities
|
|
|
1,225
|
|
|
|
142
|
|
|
|
-
|
|
|
|
1,367
|
|
Collateralized mortgage obligations
|
|
|
1,318
|
|
|
|
104
|
|
|
|
-
|
|
|
|
1,422
|
|
|
|
$
|
26,243
|
|
|
$
|
1,335
|
|
|
$
|
-
|
|
|
$
|
27,578
|
|
Available-for-Sale Securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
State and municipals
|
|
$
|
383,747
|
|
|
$
|
16,924
|
|
|
$
|
(935
|
)
|
|
$
|
399,736
|
|
Pass-through mortgage securities
|
|
|
141,996
|
|
|
|
1,473
|
|
|
|
(1,317
|
)
|
|
|
142,152
|
|
Collateralized mortgage obligations
|
|
|
263,204
|
|
|
|
6,780
|
|
|
|
(547
|
)
|
|
|
269,437
|
|
|
|
$
|
788,947
|
|
|
$
|
25,177
|
|
|
$
|
(2,799
|
)
|
|
$
|
811,325
|
|
|
|
December 31, 2013
|
|
|
|
|
|
|
|
Gross
|
|
|
Gross
|
|
|
|
|
|
|
|
Amortized
|
|
|
Unrealized
|
|
|
Unrealized
|
|
|
Fair
|
|
|
|
Cost
|
|
|
Gains
|
|
|
Losses
|
|
|
Value
|
|
Held-to-Maturity Securities:
|
|
(in thousands)
|
|
State and municipals
|
|
$
|
27,968
|
|
|
$
|
1,087
|
|
|
$
|
-
|
|
|
$
|
29,055
|
|
Pass-through mortgage securities
|
|
|
1,878
|
|
|
|
181
|
|
|
|
-
|
|
|
|
2,059
|
|
Collateralized mortgage obligations
|
|
|
2,258
|
|
|
|
176
|
|
|
|
-
|
|
|
|
2,434
|
|
|
|
$
|
32,104
|
|
|
$
|
1,444
|
|
|
$
|
-
|
|
|
$
|
33,548
|
|
Available-for-Sale Securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
State and municipals
|
|
$
|
353,333
|
|
|
$
|
8,250
|
|
|
$
|
(5,030
|
)
|
|
$
|
356,553
|
|
Pass-through mortgage securities
|
|
|
154,760
|
|
|
|
1,040
|
|
|
|
(3,982
|
)
|
|
|
151,818
|
|
Collateralized mortgage obligations
|
|
|
272,083
|
|
|
|
6,190
|
|
|
|
(1,851
|
)
|
|
|
276,422
|
|
|
|
$
|
780,176
|
|
|
$
|
15,480
|
|
|
$
|
(10,863
|
)
|
|
$
|
784,793
|
|
At June 30, 2014 and December 31, 2013, investment securities with a carrying value of $294,337,000 and $281,444,000, respectively, were pledged as collateral to secure public deposits and borrowed funds.
There were no holdings of any one issuer, other than the U.S. Government and its agencies, in an amount greater than 10% of stockholders’ equity at June 30, 2014 and December 31, 2013.
Securities With Unrealized Losses.
The following tables set forth securities with unrealized losses presented by the length of time the securities have been in a continuous unrealized loss position.
|
|
June 30, 2014
|
|
|
|
Less than
|
|
|
12 Months
|
|
|
|
|
|
|
|
|
|
12 Months
|
|
|
or More
|
|
|
Total
|
|
|
|
Fair
|
|
|
Unrealized
|
|
|
Fair
|
|
|
Unrealized
|
|
|
Fair
|
|
|
Unrealized
|
|
|
|
Value
|
|
|
Loss
|
|
|
Value
|
|
|
Loss
|
|
|
Value
|
|
|
Loss
|
|
|
|
(in thousands)
|
|
State and municipals
|
|
$
|
18,582
|
|
|
$
|
(76
|
)
|
|
$
|
40,159
|
|
|
$
|
(859
|
)
|
|
$
|
58,741
|
|
|
$
|
(935
|
)
|
Pass-through mortgage securities
|
|
|
-
|
|
|
|
-
|
|
|
|
116,069
|
|
|
|
(1,317
|
)
|
|
|
116,069
|
|
|
|
(1,317
|
)
|
Collateralized mortgage obligations
|
|
|
4,447
|
|
|
|
(29
|
)
|
|
|
20,155
|
|
|
|
(518
|
)
|
|
|
24,602
|
|
|
|
(547
|
)
|
Total temporarily impaired
|
|
$
|
23,029
|
|
|
$
|
(105
|
)
|
|
$
|
176,383
|
|
|
$
|
(2,694
|
)
|
|
$
|
199,412
|
|
|
$
|
(2,799
|
)
|
|
|
December 31, 2013
|
|
|
|
Less than
|
|
|
12 Months
|
|
|
|
|
|
|
|
|
|
|
|
12 Months
|
|
|
or More
|
|
|
Total
|
|
|
|
Fair
|
|
|
Unrealized
|
|
|
Fair
|
|
|
Unrealized
|
|
|
Fair
|
|
|
Unrealized
|
|
|
|
Value
|
|
|
Loss
|
|
|
Value
|
|
|
Loss
|
|
|
Value
|
|
|
Loss
|
|
|
|
(in thousands)
|
|
State and municipals
|
|
$
|
103,010
|
|
|
$
|
(4,549
|
)
|
|
$
|
7,729
|
|
|
$
|
(481
|
)
|
|
$
|
110,739
|
|
|
$
|
(5,030
|
)
|
Pass-through mortgage securities
|
|
|
89,092
|
|
|
|
(2,279
|
)
|
|
|
38,237
|
|
|
|
(1,703
|
)
|
|
|
127,329
|
|
|
|
(3,982
|
)
|
Collateralized mortgage obligations
|
|
|
36,652
|
|
|
|
(652
|
)
|
|
|
54,660
|
|
|
|
(1,199
|
)
|
|
|
91,312
|
|
|
|
(1,851
|
)
|
Total temporarily impaired
|
|
$
|
228,754
|
|
|
$
|
(7,480
|
)
|
|
$
|
100,626
|
|
|
$
|
(3,383
|
)
|
|
$
|
329,380
|
|
|
$
|
(10,863
|
)
|
Because the unrealized losses reflected in the preceding tables are deemed by management to be attributable to changes in interest rates and not credit losses, and because management does not have the intent to sell these securities and it is not more likely than not that it will be required to sell these securities before their anticipated recovery, the Bank does not consider these securities to be other-than-temporarily impaired at June 30, 2014.
Sales of Available-for-Sale Securities.
Sales of available-for-sale securities were as follows:
|
|
Six Months Ended
|
|
|
Three Months Ended
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
2014
|
|
|
2013
|
|
|
2014
|
|
|
2013
|
|
|
|
(in thousands)
|
|
Proceeds
|
|
$
|
3,320
|
|
|
$
|
1,376
|
|
|
$
|
667
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross gains
|
|
$
|
41
|
|
|
$
|
36
|
|
|
$
|
22
|
|
|
$
|
-
|
|
Gross losses
|
|
|
(20
|
)
|
|
|
(49
|
)
|
|
|
(4
|
)
|
|
|
-
|
|
Net gain (loss)
|
|
$
|
21
|
|
|
$
|
(13
|
)
|
|
$
|
18
|
|
|
$
|
-
|
|
The income tax expense (benefit) related to the net realized gain (loss) was $9,000 and $(5,000) for six months ended June 30, 2014 and 2013, respectively, and $7,000 for the three months ended June 30, 2014.
Sales of Held-to-Maturity Securities.
During the second quarter of 2014, the Bank sold municipal securities of three issuers that were classified as held-to-maturity securities. These sales were in response to a significant deterioration in the creditworthiness of the issuers. The securities sold had a carrying value of $725,000 at the time of sale and the Bank realized a gain upon sale of $31,000.
During the first quarter of 2014, the Bank sold certain mortgage-backed securities that were classified as held-to-maturity securities. These sales occurred after the Bank collected at least 85% of the principal outstanding at acquisition of each security. The securities sold had a carrying value of $1.2 million at the time of sale and the Bank realized a gain upon sale of $66,000.
During the first quarter of 2013, the Bank sold municipal securities of two issuers that were classified as held-to-maturity securities. These sales were in response to a significant deterioration in the creditworthiness of the issuers. The securities sold had a carrying value of $705,000 at the time of sale and the Bank realized a gain upon sale of $17,000.
Maturities.
The following table sets forth by maturity the amortized cost and fair value of the Bank’s state and municipal securities at June 30, 2014 based on the earlier of their stated maturity or, if applicable, their pre-refunded date. The remaining securities in the Bank’s investment securities portfolio are mortgage-backed securities, consisting of pass-through securities and collateralized mortgage obligations. Although these securities are expected to have substantial periodic repayments they are reflected in the table below in aggregate amounts.
|
|
Amortized Cost
|
|
|
|
Fair Value
|
|
Held-to-Maturity Securities:
|
|
(in thousands)
|
|
Within one year
|
|
$
|
3,930
|
|
|
|
$
|
3,977
|
|
After 1 through 5 years
|
|
|
10,367
|
|
|
|
|
10,842
|
|
After 5 through 10 years
|
|
|
8,570
|
|
|
|
|
9,086
|
|
After 10 years
|
|
|
833
|
|
|
|
|
884
|
|
Mortgage-backed securities
|
|
|
2,543
|
|
|
|
|
2,789
|
|
|
|
$
|
26,243
|
|
|
|
$
|
27,578
|
|
Available-for-Sale Securities:
|
|
|
|
|
|
|
|
|
|
Within one year
|
|
$
|
5,933
|
|
|
|
$
|
6,029
|
|
After 1 through 5 years
|
|
|
11,498
|
|
|
|
|
11,807
|
|
After 5 through 10 years
|
|
|
102,861
|
|
|
|
|
105,131
|
|
After 10 years
|
|
|
263,455
|
|
|
|
|
276,769
|
|
Mortgage-backed securities
|
|
|
405,200
|
|
|
|
|
411,589
|
|
|
|
$
|
788,947
|
|
|
|
$
|
811,325
|
|
4 – LOANS
The following tables set forth by class of loans as of June 30, 2014 and December 31, 2013: (1) the amount of loans individually evaluated for impairment and the portion of the allowance for loan losses allocable to such loans; and (2) the amount of loans collectively evaluated for impairment and the portion of the allowance for loan losses allocable to such loans. The tables also set forth by class of loans the activity in the allowance for loan losses for the six months and three months ended June 30, 2014 and 2013. Construction and land development loans are included with commercial mortgages in the following tables.
|
|
2014
|
|
|
|
|
|
|
Commercial Mortgages
|
|
|
Residential Mortgages
|
|
|
|
|
|
|
|
|
|
Commercial
& Industrial
|
|
|
Multifamily
|
|
|
Other
|
|
|
Owner
Occupied
|
|
|
Closed
End
|
|
|
Revolving
Home
Equity
|
|
|
Consumer
|
|
|
Total
|
|
|
|
(in thousands)
|
|
Loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Individually evaluated for impairment
|
|
$
|
25
|
|
|
$
|
313
|
|
|
$
|
38
|
|
|
$
|
637
|
|
|
$
|
1,124
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
2,137
|
|
Collectively evaluated for impairment
|
|
|
69,226
|
|
|
|
469,625
|
|
|
|
171,558
|
|
|
|
105,496
|
|
|
|
663,073
|
|
|
|
81,128
|
|
|
|
6,483
|
|
|
|
1,566,589
|
|
|
|
$
|
69,251
|
|
|
$
|
469,938
|
|
|
$
|
171,596
|
|
|
$
|
106,133
|
|
|
$
|
664,197
|
|
|
$
|
81,128
|
|
|
$
|
6,483
|
|
|
$
|
1,568,726
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allocation of allowance for loan losses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Individually evaluated for impairment
|
|
$
|
-
|
|
|
$
|
7
|
|
|
$
|
-
|
|
|
$
|
41
|
|
|
$
|
70
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
118
|
|
Collectively evaluated for impairment
|
|
|
761
|
|
|
|
6,913
|
|
|
|
1,802
|
|
|
|
1,107
|
|
|
|
9,110
|
|
|
|
1,207
|
|
|
|
122
|
|
|
|
21,022
|
|
|
|
$
|
761
|
|
|
$
|
6,920
|
|
|
$
|
1,802
|
|
|
$
|
1,148
|
|
|
$
|
9,180
|
|
|
$
|
1,207
|
|
|
$
|
122
|
|
|
$
|
21,140
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Activity in allowance for loan losses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning balance at 1/1/14
|
|
$
|
808
|
|
|
$
|
7,348
|
|
|
$
|
1,501
|
|
|
$
|
1,191
|
|
|
$
|
8,607
|
|
|
$
|
1,240
|
|
|
$
|
153
|
|
|
$
|
20,848
|
|
Chargeoffs
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
400
|
|
|
|
121
|
|
|
|
114
|
|
|
|
7
|
|
|
|
642
|
|
Recoveries
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
2
|
|
|
|
-
|
|
|
|
9
|
|
|
|
11
|
|
Provision for loan losses (credit)
|
|
|
(47
|
)
|
|
|
(428
|
)
|
|
|
301
|
|
|
|
357
|
|
|
|
692
|
|
|
|
81
|
|
|
|
(33
|
)
|
|
|
923
|
|
Ending balance at 6/30/14
|
|
$
|
761
|
|
|
$
|
6,920
|
|
|
$
|
1,802
|
|
|
$
|
1,148
|
|
|
$
|
9,180
|
|
|
$
|
1,207
|
|
|
$
|
122
|
|
|
$
|
21,140
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Activity in allowance for loan losses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning balance at 4/1/14
|
|
$
|
761
|
|
|
$
|
6,938
|
|
|
$
|
1,492
|
|
|
$
|
1,316
|
|
|
$
|
8,717
|
|
|
$
|
1,203
|
|
|
$
|
128
|
|
|
$
|
20,555
|
|
Chargeoffs
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
400
|
|
|
|
-
|
|
|
|
-
|
|
|
|
7
|
|
|
|
407
|
|
Recoveries
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
2
|
|
|
|
-
|
|
|
|
8
|
|
|
|
10
|
|
Provision for loan losses (credit)
|
|
|
-
|
|
|
|
(18
|
)
|
|
|
310
|
|
|
|
232
|
|
|
|
461
|
|
|
|
4
|
|
|
|
(7
|
)
|
|
|
982
|
|
Ending balance at 6/30/14
|
|
$
|
761
|
|
|
$
|
6,920
|
|
|
$
|
1,802
|
|
|
$
|
1,148
|
|
|
$
|
9,180
|
|
|
$
|
1,207
|
|
|
$
|
122
|
|
|
$
|
21,140
|
|
|
|
2013
|
|
|
|
|
|
|
Commercial Mortgages
|
|
|
Residential Mortgages
|
|
|
|
|
|
|
|
|
|
|
|
|
Multifamily
|
|
|
Other
|
|
|
|
|
|
|
|
|
|
|
|
Consumer
|
|
|
Total
|
|
|
|
(in thousands)
|
|
Loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Individually evaluated for impairment
|
|
$
|
34
|
|
|
$
|
347
|
|
|
$
|
3,037
|
|
|
$
|
657
|
|
|
$
|
1,539
|
|
|
$
|
211
|
|
|
$
|
-
|
|
|
$
|
5,825
|
|
Collectively evaluated for impairment
|
|
|
71,784
|
|
|
|
469,139
|
|
|
|
159,837
|
|
|
|
82,994
|
|
|
|
603,804
|
|
|
|
77,370
|
|
|
|
7,184
|
|
|
|
1,472,112
|
|
|
|
$
|
71,818
|
|
|
$
|
469,486
|
|
|
$
|
162,874
|
|
|
$
|
83,651
|
|
|
$
|
605,343
|
|
|
$
|
77,581
|
|
|
$
|
7,184
|
|
|
$
|
1,477,937
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allocation of allowance for loan losses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Individually evaluated for impairment
|
|
$
|
1
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
127
|
|
|
$
|
149
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
277
|
|
Collectively evaluated for impairment
|
|
|
807
|
|
|
|
7,348
|
|
|
|
1,501
|
|
|
|
1,064
|
|
|
|
8,458
|
|
|
|
1,240
|
|
|
|
153
|
|
|
|
20,571
|
|
|
|
$
|
808
|
|
|
$
|
7,348
|
|
|
$
|
1,501
|
|
|
$
|
1,191
|
|
|
$
|
8,607
|
|
|
$
|
1,240
|
|
|
$
|
153
|
|
|
$
|
20,848
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Activity in allowance for loan losses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning balance at 1/1/13
|
|
$
|
834
|
|
|
$
|
5,342
|
|
|
$
|
1,978
|
|
|
$
|
1,163
|
|
|
$
|
7,729
|
|
|
$
|
1,453
|
|
|
$
|
125
|
|
|
$
|
18,624
|
|
Chargeoffs
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
3
|
|
|
|
3
|
|
Recoveries
|
|
|
19
|
|
|
|
-
|
|
|
|
113
|
|
|
|
-
|
|
|
|
5
|
|
|
|
-
|
|
|
|
7
|
|
|
|
144
|
|
Provision for loan losses (credit)
|
|
|
24
|
|
|
|
1,034
|
|
|
|
(316
|
)
|
|
|
(121
|
)
|
|
|
(38
|
)
|
|
|
110
|
|
|
|
62
|
|
|
|
755
|
|
Ending balance at 6/30/13
|
|
$
|
877
|
|
|
$
|
6,376
|
|
|
$
|
1,775
|
|
|
$
|
1,042
|
|
|
$
|
7,696
|
|
|
$
|
1,563
|
|
|
$
|
191
|
|
|
$
|
19,520
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Activity in allowance for loan losses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning balance at 4/1/13
|
|
$
|
941
|
|
|
$
|
5,482
|
|
|
$
|
1,767
|
|
|
$
|
1,152
|
|
|
$
|
7,431
|
|
|
$
|
1,640
|
|
|
$
|
151
|
|
|
$
|
18,564
|
|
Chargeoffs
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Recoveries
|
|
|
1
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
5
|
|
|
|
-
|
|
|
|
3
|
|
|
|
9
|
|
Provision for loan losses (credit)
|
|
|
(65
|
)
|
|
|
894
|
|
|
|
8
|
|
|
|
(110
|
)
|
|
|
260
|
|
|
|
(77
|
)
|
|
|
37
|
|
|
|
947
|
|
Ending balance at 6/30/13
|
|
$
|
877
|
|
|
$
|
6,376
|
|
|
$
|
1,775
|
|
|
$
|
1,042
|
|
|
$
|
7,696
|
|
|
$
|
1,563
|
|
|
$
|
191
|
|
|
$
|
19,520
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For individually impaired loans, the following tables set forth by class of loans at June 30, 2014 and December 31, 2013 the recorded investment, unpaid principal balance and related allowance. The tables also set forth the average recorded investment of individually impaired loans and interest income recognized while the loans were impaired during the six and three months ended June 30, 2014 and 2013. The recorded investment is the unpaid principal balance of the loans less any interest payments applied to principal and any direct chargeoffs plus or minus net deferred loan costs and fees.
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended
|
|
|
Three Months Ended
|
|
|
|
June 30, 2014
|
|
|
June 30, 2014
|
|
|
June 30, 2014
|
|
|
|
|
|
|
Unpaid
|
|
|
|
|
|
Average
|
|
|
Interest
|
|
|
Average
|
|
|
Interest
|
|
|
|
Recorded
|
|
|
Principal
|
|
|
Related
|
|
|
Recorded
|
|
|
Income
|
|
|
Recorded
|
|
|
Income
|
|
|
|
Investment
|
|
|
Balance
|
|
|
Allowance
|
|
|
Investment
|
|
|
Recognized
|
|
|
Investment
|
|
|
Recognized
|
|
|
|
(in thousands)
|
|
With no related allowance recorded:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial and industrial
|
|
$
|
25
|
|
|
$
|
25
|
|
|
$
|
-
|
|
|
$
|
29
|
|
|
$
|
1
|
|
|
$
|
26
|
|
|
$
|
1
|
|
Commercial mortgages:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
38
|
|
|
|
38
|
|
|
|
-
|
|
|
|
38
|
|
|
|
1
|
|
|
|
38
|
|
|
|
-
|
|
Owner-occupied
|
|
|
395
|
|
|
|
410
|
|
|
|
-
|
|
|
|
401
|
|
|
|
-
|
|
|
|
396
|
|
|
|
-
|
|
Residential mortgages - closed end
|
|
|
232
|
|
|
|
278
|
|
|
|
-
|
|
|
|
238
|
|
|
|
-
|
|
|
|
234
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
With an allowance recorded:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial mortgages:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Multifamily
|
|
|
313
|
|
|
|
378
|
|
|
|
7
|
|
|
|
335
|
|
|
|
-
|
|
|
|
328
|
|
|
|
-
|
|
Owner-occupied
|
|
|
242
|
|
|
|
254
|
|
|
|
41
|
|
|
|
246
|
|
|
|
-
|
|
|
|
244
|
|
|
|
-
|
|
Residential mortgages - closed end
|
|
|
892
|
|
|
|
909
|
|
|
|
70
|
|
|
|
905
|
|
|
|
11
|
|
|
|
898
|
|
|
|
5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial and industrial
|
|
|
25
|
|
|
|
25
|
|
|
|
-
|
|
|
|
29
|
|
|
|
1
|
|
|
|
26
|
|
|
|
1
|
|
Commercial mortgages:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Multifamily
|
|
|
313
|
|
|
|
378
|
|
|
|
7
|
|
|
|
335
|
|
|
|
-
|
|
|
|
328
|
|
|
|
-
|
|
Other
|
|
|
38
|
|
|
|
38
|
|
|
|
-
|
|
|
|
38
|
|
|
|
1
|
|
|
|
38
|
|
|
|
-
|
|
Owner-occupied
|
|
|
637
|
|
|
|
664
|
|
|
|
41
|
|
|
|
647
|
|
|
|
-
|
|
|
|
640
|
|
|
|
-
|
|
Residential mortgages - closed end
|
|
|
1,124
|
|
|
|
1,187
|
|
|
|
70
|
|
|
|
1,143
|
|
|
|
11
|
|
|
|
1,132
|
|
|
|
5
|
|
|
|
$
|
2,137
|
|
|
$
|
2,292
|
|
|
$
|
118
|
|
|
$
|
2,192
|
|
|
$
|
13
|
|
|
$
|
2,164
|
|
|
$
|
6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended
|
|
|
Three Months Ended
|
|
|
|
December 31, 2013
|
|
|
June 30, 2013
|
|
|
June 30, 2013
|
|
|
|
|
|
|
|
Unpaid
|
|
|
|
|
|
|
Average
|
|
|
Interest
|
|
|
Average
|
|
|
Interest
|
|
|
|
Recorded
|
|
|
Principal
|
|
|
Related
|
|
|
Recorded
|
|
|
Income
|
|
|
Recorded
|
|
|
Income
|
|
|
|
Investment
|
|
|
Balance
|
|
|
Allowance
|
|
|
Investment
|
|
|
Recognized
|
|
|
Investment
|
|
|
Recognized
|
|
|
|
(in thousands)
|
|
With no related allowance recorded:
|
|
|
|
|
|
|
|
|
|
|
|
Commercial and industrial
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
44
|
|
|
$
|
1
|
|
|
$
|
42
|
|
|
$
|
-
|
|
Commercial mortgages:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Multifamily
|
|
|
347
|
|
|
|
400
|
|
|
|
-
|
|
|
|
1,096
|
|
|
|
10
|
|
|
|
366
|
|
|
|
-
|
|
Other
|
|
|
3,037
|
|
|
|
3,084
|
|
|
|
-
|
|
|
|
1,758
|
|
|
|
51
|
|
|
|
1,752
|
|
|
|
26
|
|
Owner-occupied
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
354
|
|
|
|
-
|
|
|
|
360
|
|
|
|
-
|
|
Residential mortgages:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Closed end
|
|
|
580
|
|
|
|
617
|
|
|
|
-
|
|
|
|
703
|
|
|
|
4
|
|
|
|
697
|
|
|
|
4
|
|
Revolving home equity
|
|
|
211
|
|
|
|
213
|
|
|
|
-
|
|
|
|
378
|
|
|
|
-
|
|
|
|
375
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
With an allowance recorded:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial and industrial
|
|
|
34
|
|
|
|
34
|
|
|
|
1
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Commercial mortgages - owner-occupied
|
|
|
657
|
|
|
|
666
|
|
|
|
127
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Residential mortgages - closed end
|
|
|
959
|
|
|
|
969
|
|
|
|
149
|
|
|
|
3,744
|
|
|
|
38
|
|
|
|
3,782
|
|
|
|
17
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial and industrial
|
|
|
34
|
|
|
|
34
|
|
|
|
1
|
|
|
|
44
|
|
|
|
1
|
|
|
|
42
|
|
|
|
-
|
|
Commercial mortgages:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Multifamily
|
|
|
347
|
|
|
|
400
|
|
|
|
-
|
|
|
|
1,096
|
|
|
|
10
|
|
|
|
366
|
|
|
|
-
|
|
Other
|
|
|
3,037
|
|
|
|
3,084
|
|
|
|
-
|
|
|
|
1,758
|
|
|
|
51
|
|
|
|
1,752
|
|
|
|
26
|
|
Owner-occupied
|
|
|
657
|
|
|
|
666
|
|
|
|
127
|
|
|
|
354
|
|
|
|
-
|
|
|
|
360
|
|
|
|
-
|
|
Residential mortgages:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Closed end
|
|
|
1,539
|
|
|
|
1,586
|
|
|
|
149
|
|
|
|
4,447
|
|
|
|
42
|
|
|
|
4,479
|
|
|
|
21
|
|
Revolving home equity
|
|
|
211
|
|
|
|
213
|
|
|
|
-
|
|
|
|
378
|
|
|
|
-
|
|
|
|
375
|
|
|
|
-
|
|
|
|
$
|
5,825
|
|
|
$
|
5,983
|
|
|
$
|
277
|
|
|
$
|
8,077
|
|
|
$
|
104
|
|
|
$
|
7,374
|
|
|
$
|
47
|
|
Any principal and interest payments received on nonaccrual impaired loans are applied to the recorded investment in the loans. The Bank recognizes interest income on other impaired loans using the accrual method of accounting.
Aging of Loans
. The following tables present the aging of the recorded investment in loans by class of loans.
|
|
June 30, 2014
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
|
|
|
|
|
|
|
(in thousands)
|
|
Commercial and industrial
|
|
$
|
391
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
391
|
|
|
$
|
68,860
|
|
|
$
|
69,251
|
|
Commercial mortgages:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Multifamily
|
|
|
963
|
|
|
|
-
|
|
|
|
-
|
|
|
|
313
|
|
|
|
1,276
|
|
|
|
468,662
|
|
|
|
469,938
|
|
Other
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
171,596
|
|
|
|
171,596
|
|
Owner-occupied
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
637
|
|
|
|
637
|
|
|
|
105,496
|
|
|
|
106,133
|
|
Residential mortgages:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Closed end
|
|
|
1,090
|
|
|
|
-
|
|
|
|
-
|
|
|
|
667
|
|
|
|
1,757
|
|
|
|
662,440
|
|
|
|
664,197
|
|
Revolving home equity
|
|
|
339
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
339
|
|
|
|
80,789
|
|
|
|
81,128
|
|
Consumer
|
|
|
16
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
16
|
|
|
|
6,467
|
|
|
|
6,483
|
|
|
|
$
|
2,799
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
1,617
|
|
|
$
|
4,416
|
|
|
$
|
1,564,310
|
|
|
$
|
1,568,726
|
|
|
|
December 31, 2013
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
|
|
|
|
|
|
|
(in thousands)
|
|
Commercial and industrial
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
71,818
|
|
|
$
|
71,818
|
|
Commercial mortgages:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Multifamily
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
347
|
|
|
|
347
|
|
|
|
469,139
|
|
|
|
469,486
|
|
Other
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,311
|
|
|
|
1,311
|
|
|
|
161,563
|
|
|
|
162,874
|
|
Owner-occupied
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
657
|
|
|
|
657
|
|
|
|
82,994
|
|
|
|
83,651
|
|
Residential mortgages:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Closed end
|
|
|
67
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,070
|
|
|
|
1,137
|
|
|
|
604,206
|
|
|
|
605,343
|
|
Revolving home equity
|
|
|
112
|
|
|
|
-
|
|
|
|
-
|
|
|
|
211
|
|
|
|
323
|
|
|
|
77,258
|
|
|
|
77,581
|
|
Consumer
|
|
|
5
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
5
|
|
|
|
7,179
|
|
|
|
7,184
|
|
|
|
$
|
184
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
3,596
|
|
|
$
|
3,780
|
|
|
$
|
1,474,157
|
|
|
$
|
1,477,937
|
|
Troubled Debt Restructurings.
A restructuring constitutes a troubled debt restructuring when it includes a concession by the Bank and the borrower is experiencing financial difficulty. In order to determine whether a borrower is experiencing financial difficulty, an evaluation is performed of the probability that the borrower will be in payment default on any of its debt in the foreseeable future without the modification. The Bank performs the evaluation under its internal underwriting policy.
During the six months ended June 30, 2014, the Bank did not modify any loans in troubled debt restructurings. During the six months ended June 30, 2013, the Bank modified two loans to a single borrower in a troubled debt restructuring. The loans were a first lien residential mortgage with a pre-modification outstanding recorded investment of $159,000 and interest rate of 6.50% and a junior lien residential mortgage with a pre-modification outstanding recorded investment of $100,000 and interest rate of 3.25%. The restructuring resulted in a single first lien residential mortgage with a post-modification outstanding recorded investment of $259,000 and interest rate of 3.75% which is lower than the current market rate for new debt with similar risk.
At June 30, 2014 and December 31, 2013, the Bank had an allowance for loan losses of $118,000 and $208,000, respectively, allocated to specific troubled debt restructurings. The Bank had no commitments to lend additional amounts to loans that were classified as troubled debt restructurings.
There was one troubled debt restructuring for which there was a payment default during the six months ended June 30, 2014 that was modified during the twelve-month period prior to default. The restructured loan was an owner-occupied commercial mortgage loan with an outstanding recorded investment of $243,000 at June 30, 2014 and a specifically allocated allowance for loan losses of $41,000. There were no troubled debt restructurings for which there was a payment default during the six months ended June 30, 2013 that were modified during the twelve-month period prior to default. A loan is considered to be in payment default once it is 90 days contractually past due under the modified terms.
Loans Held-for-Sale.
The June 30, 2014 consolidated balance sheet includes a loan held-for-sale at its estimated fair value of $1.8 million. The Bank charged-off $635,000 against the allowance for loan losses during the first six months of 2014 on loans transferred to held-for-sale during the period.
The December 31, 2013 consolidated balance sheet includes a loan held-for-sale at its estimated fair value of $900,000. This loan was sold in January 2014 for its carrying value.
Risk Characteristics.
Credit risk within the Bank’s loan portfolio primarily stems from factors such as borrower size, geographic concentration, industry concentration, real estate values, local and national economic conditions and environmental impairment of properties securing mortgage loans. The Bank’s commercial loans, including those secured by mortgages, are primarily made to small and medium-sized businesses. Such loans sometimes involve a higher degree of risk than those to larger companies because such businesses may have shorter operating histories, higher debt-to-equity ratios and may lack sophistication in internal record keeping and financial and operational controls. In addition, most of the Bank’s loans are made to businesses and consumers on Long Island and in the boroughs of New York City, and a large percentage of these loans are mortgage loans secured by properties located in those areas. The primary source of repayment for multifamily loans is cash flows from the underlying properties, a substantial portion of which are rent stabilized or rent controlled. Such cash flows are dependent on the strength of the local economy.
Credit Quality Indicators.
The Corporation categorizes loans into risk categories based on relevant information about the borrower’s ability to service their debt including, but not limited to, current financial information for the borrower and any guarantors, payment experience, credit documentation, public records and current economic trends.
Commercial and industrial loans and commercial mortgage loans, including construction and land development loans, are risk rated utilizing a ten point rating system. Residential mortgages, home equity lines and other consumer loans are risk rated utilizing a three point rating system. The ten and three point risk rating systems are described hereinafter.
Internally
Assigned
Risk Rating
|
|
|
|
1 – 2
|
Cash flow is of high quality and stable. Borrower has very good liquidity and ready access to traditional sources of credit. This category also includes loans to borrowers secured by cash and/or marketable securities within approved margin requirements.
|
3 – 4
|
Cash flow quality is strong, but shows some variability. Borrower has good liquidity and asset quality. Borrower has access to traditional sources of credit with minimal restrictions.
|
5 – 6
|
Cash flow quality is acceptable but shows some variability. Liquidity varies with operating cycle and assets provide an adequate margin of protection. Borrower has access to traditional sources of credit, but generally on a secured basis.
|
7
|
Watch - Cash flow has a high degree of variability and subject to economic downturns. Liquidity is strained and the ability of the borrower to access traditional sources of credit is diminished.
|
8
|
Special Mention - The borrower has potential weaknesses that deserve management’s close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the loan or in the Bank’s credit position at some future date. Special mention assets are not adversely classified and do not expose the Bank to risk sufficient to warrant adverse classification.
|
9
|
Substandard - Loans are inadequately protected by the current sound worth and paying capacity of the borrower or the collateral pledged, if any. Loans so classified have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. They are characterized by the distinct possibility that the Bank will sustain some loss if the deficiencies are not corrected.
|
10
|
Doubtful - Loans have all the inherent weaknesses of those classified substandard with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions and values, highly questionable and improbable.
|
Risk ratings on commercial and industrial loans and commercial mortgages are initially assigned by the lending officer together with any necessary approval authority. The ratings are periodically reviewed and evaluated through one or more of the following:
(1) borrower contact
(2) credit department review
(3) independent loan review
The Bank’s loan risk rating and review policy establishes requirements for the annual review of commercial real estate and commercial and industrial loans. The requirements include details of the scope of coverage and selection process based on loan-type and risk rating. Among other requirements, at least 60% of the principal balance of commercial real estate loans as of December 31 of the prior year must be reviewed annually. The frequency of the review of other loans is determined by the Bank’s ongoing assessments of the borrower’s condition.
Residential mortgage loans, revolving home equity lines and other consumer loans are risk rated utilizing a three point rating system. In most cases, the borrower’s credit score dictates the risk rating. However, regardless of credit score, loans that are on management’s watch list or have been criticized or classified by management are assigned a risk rating of 3. A credit score is a tool used in the Bank’s loan approval process, and a minimum score of 680 is generally required for new loans. Credit scores for each borrower are updated at least annually. The risk ratings along with their definitions are as follows:
Internally
Assigned
Risk Rating
|
|
|
|
1
|
Credit score is equal to or greater than 680.
|
2
|
Credit score is 635 to 679.
|
3
|
Credit score is below 635 or, regardless of credit score, the loan has been classified, criticized or placed on watch.
|
The following tables present the recorded investment in commercial and industrial loans and commercial real estate loans by class of loans and risk rating. Loans shown as Pass are all loans other than those that are risk rated Watch, Special Mention, Substandard or Doubtful.
|
|
June 30, 2014
|
|
|
|
Internally Assigned Risk Rating
|
|
|
|
|
|
|
|
|
|
|
|
|
Special
|
|
|
|
|
|
|
|
|
|
|
|
|
Pass
|
|
|
Watch
|
|
|
Mention
|
|
|
Substandard
|
|
|
Doubtful
|
|
|
Total
|
|
|
|
(in thousands)
|
|
Commercial and industrial
|
|
$
|
68,717
|
|
|
$
|
297
|
|
|
$
|
212
|
|
|
$
|
25
|
|
|
$
|
-
|
|
|
$
|
69,251
|
|
Commercial mortgages:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Multifamily
|
|
|
465,167
|
|
|
|
4,459
|
|
|
|
-
|
|
|
|
312
|
|
|
|
-
|
|
|
|
469,938
|
|
Other
|
|
|
168,028
|
|
|
|
594
|
|
|
|
1,273
|
|
|
|
1,701
|
|
|
|
|
|
|
|
171,596
|
|
Owner-occupied
|
|
|
104,335
|
|
|
|
1,062
|
|
|
|
-
|
|
|
|
736
|
|
|
|
-
|
|
|
|
106,133
|
|
|
|
$
|
806,247
|
|
|
$
|
6,412
|
|
|
$
|
1,485
|
|
|
$
|
2,774
|
|
|
$
|
-
|
|
|
$
|
816,918
|
|
|
|
December 31, 2013
|
|
|
|
Internally Assigned Risk Rating
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Special
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pass
|
|
|
Watch
|
|
|
Mention
|
|
|
Substandard
|
|
|
Doubtful
|
|
|
Total
|
|
|
|
(in thousands)
|
|
Commercial and industrial
|
|
$
|
70,349
|
|
|
$
|
280
|
|
|
$
|
1,155
|
|
|
$
|
34
|
|
|
$
|
-
|
|
|
$
|
71,818
|
|
Commercial mortgages:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Multifamily
|
|
|
459,670
|
|
|
|
9,470
|
|
|
|
-
|
|
|
|
346
|
|
|
|
-
|
|
|
|
469,486
|
|
Other
|
|
|
159,236
|
|
|
|
601
|
|
|
|
-
|
|
|
|
3,037
|
|
|
|
-
|
|
|
|
162,874
|
|
Owner-occupied
|
|
|
75,681
|
|
|
|
4,161
|
|
|
|
837
|
|
|
|
2,972
|
|
|
|
-
|
|
|
|
83,651
|
|
|
|
$
|
764,936
|
|
|
$
|
14,512
|
|
|
$
|
1,992
|
|
|
$
|
6,389
|
|
|
$
|
-
|
|
|
$
|
787,829
|
|
The following tables present the recorded investment in residential mortgages, home equity lines, and other consumer loans by class of loans and risk rating. Loans shown as Pass are all loans other than those that are risk rated Watch, Special Mention, Substandard or Doubtful.
|
|
June 30, 2014
|
|
|
|
Internally Assigned Risk Rating
|
|
|
|
|
|
|
|
|
|
|
|
|
Special
|
|
|
|
|
|
|
|
|
|
|
|
|
Pass
|
|
|
Watch
|
|
|
Mention
|
|
|
Substandard
|
|
|
Doubtful
|
|
|
Total
|
|
|
|
(in thousands)
|
|
Residential mortgages:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Closed end
|
|
$
|
661,333
|
|
|
$
|
1,740
|
|
|
$
|
-
|
|
|
$
|
1,124
|
|
|
$
|
-
|
|
|
$
|
664,197
|
|
Revolving home equity
|
|
|
80,749
|
|
|
|
379
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
81,128
|
|
Consumer
|
|
|
6,134
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
6,134
|
|
|
|
$
|
748,216
|
|
|
$
|
2,119
|
|
|
$
|
-
|
|
|
$
|
1,124
|
|
|
$
|
-
|
|
|
$
|
751,459
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2013
|
|
|
|
Internally Assigned Risk Rating
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Special
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pass
|
|
|
Watch
|
|
|
Mention
|
|
|
Substandard
|
|
|
Doubtful
|
|
|
Total
|
|
|
|
(in thousands)
|
|
Residential mortgages:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Closed end
|
|
$
|
602,025
|
|
|
$
|
1,779
|
|
|
$
|
-
|
|
|
$
|
1,539
|
|
|
$
|
-
|
|
|
$
|
605,343
|
|
Revolving home equity
|
|
|
77,018
|
|
|
|
352
|
|
|
|
-
|
|
|
|
211
|
|
|
|
-
|
|
|
|
77,581
|
|
Consumer
|
|
|
5,802
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
5,802
|
|
|
|
$
|
684,845
|
|
|
$
|
2,131
|
|
|
$
|
-
|
|
|
$
|
1,750
|
|
|
$
|
-
|
|
|
$
|
688,726
|
|
Deposit account overdrafts were $349,000 and $1,382,000 at June 30, 2014 and December 31, 2013, respectively. Overdrafts are not assigned a risk-rating and are therefore excluded from consumer loans in the above tables.
5 - STOCK-BASED COMPENSATION
On April 22, 2014, the stockholders of the Corporation approved the 2014 Equity Incentive Plan (“2014 Plan”). Awards may be granted under the 2014 plan as incentive and non-qualified stock options (“NQSOs”), stock appreciation rights (“SARs”), restricted stock awards, restricted stock units (“RSUs”), or any combination thereof, any of which may be subject to performance-based vesting conditions. One million (1,000,000) shares of the Corporation’s common stock are reserved for issuance of awards under the 2014 Plan. All of the 1,000,000 shares may be issued pursuant to the exercise of stock options or SARs. The maximum number of shares that may be issued as restricted stock awards or RSUs is 350,000 shares. Outstanding awards under the 2006 Plan that expire or are forfeited will be added to the number of shares of common stock reserved for issuance of awards under the 2014 Plan. At June 30, 2014, 1,001,061 shares of common stock are reserved for issuance of awards under the 2014 Plan. The 2014 Plan is administered by the Compensation Committee of the Board of Directors.
The Corporation’s 2006 Stock Compensation Plan (“2006 Plan”) permitted the granting of stock options, SARs, restricted stock, and RSUs to employees and non-employee directors for up to 600,000 shares of common stock. Through December 31, 2011, equity grants to executive officers and directors under the 2006 Plan consisted of a combination of NQSOs and RSUs, while equity grants to other officers consisted solely of NQSOs. Beginning with the January 2012 grant, equity compensation for all officers and directors consisted solely of RSUs. No further awards can be made under the 2006 Plan.
Fair Value of Stock Option Awards.
The grant date fair value of option awards is estimated on the date of grant using the Black-Scholes option pricing model. There were no stock options granted by the Corporation’s Board of Directors during 2013 or the six months ended June 30, 2014.
Fair Value of RSUs.
The grant date fair value of RSUs is based on the market price of the shares underlying the awards on the grant date, discounted for dividends which are not paid on restricted stock units.
Compensation Expense.
Compensation expense for stock options is recognized ratably over a five-year vesting period or the period from the grant date to the participant’s eligible retirement date, whichever is shorter.
Compensation expense for performance-based RSUs awarded to date is recognized over a three-year performance period and adjusted periodically to reflect the estimated number of shares of the Corporation’s common stock into which the RSUs will ultimately be convertible. However, if the period between the grant date and the grantee’s eligible retirement date is less than three years, compensation expense is recognized ratably over this shorter period.
The Corporation’s Board of Directors granted 25,419 performance-based RSUs in the first quarter of 2014. In addition, the Board of Directors granted 8,005 RSUs for which compensation expense will be recognized over a two to three year service-based vesting period.
In determining compensation expense for stock options and RSUs outstanding and not yet vested, the Corporation assumes, based on prior experience, that no forfeitures will occur. The Corporation recorded compensation expense for share-based payments of $613,000 and $218,000 and recognized related income tax benefits of $249,000 and $87,000 in the first six months of 2014 and 2013, respectively.
Stock Option Activity.
The following table presents a summary of options outstanding under the Corporation’s stock-based compensation plans as of June 30, 2014, and changes during the six-month period then ended.
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at January 1, 2014
|
|
|
232,534
|
|
|
$
|
23.46
|
|
|
|
|
|
|
|
Exercised
|
|
|
(19,103
|
)
|
|
|
23.39
|
|
|
|
|
|
|
|
Forfeited or expired
|
|
|
(376
|
)
|
|
|
27.85
|
|
|
|
|
|
|
|
Outstanding at June 30, 2014
|
|
|
213,055
|
|
|
$
|
23.46
|
|
|
|
4.08
|
|
|
$
|
3,327
|
|
Exercisable at June 30, 2014
|
|
|
186,835
|
|
|
$
|
22.86
|
|
|
|
3.78
|
|
|
$
|
3,031
|
|
All options outstanding at June 30, 2014 are either fully vested or expected to vest. The total intrinsic value of options exercised during the first six months of 2014 and 2013 was $328,000 and $265,000, respectively.
RSU Activity.
The following table presents a summary of RSUs outstanding as of June 30, 2014 and changes during the six-month period then ended.
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at January 1, 2014
|
|
|
64,610
|
|
|
$
|
25.54
|
|
|
|
|
|
|
|
|
Granted
|
|
|
33,424
|
|
|
|
39.16
|
|
|
|
|
|
|
|
|
Converted
|
|
|
(8,276
|
)
|
|
|
26.40
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
(685
|
)
|
|
|
31.81
|
|
|
|
|
|
|
|
|
Outstanding at June 30, 2014
|
|
|
89,073
|
|
|
$
|
30.52
|
|
|
1.45
|
|
|
$
|
3,481
|
|
Vested and Convertible at June 30, 2014
|
|
|
-
|
|
|
$
|
-
|
|
|
-
|
|
|
$
|
-
|
|
The number of RSUs in the table represents the maximum number of shares of the Corporation’s common stock into which the RSUs can be converted. RSUs outstanding at June 30, 2014 include 82,978 that are expected to vest and become convertible in the future. The total intrinsic value of RSUs converted during the first six months of 2014 and 2013 was $348,000 and $325,000, respectively.
Unrecognized Compensation Cost.
As of June 30, 2014, there was $1,524,000 of total unrecognized compensation cost related to non-vested equity awards comprised of $159,000 for stock options and $1,365,000 for RSUs. The total cost is expected to be recognized over a weighted-average period of 1.8 years which is based on weighted-average periods of 1.3 years and 1.9 years for options and RSUs, respectively.
Cash Received and Tax Benefits Realized.
Cash received from option exercises for the six months ended June 30, 2014 and 2013 was $447,000 and $800,000, respectively. The actual tax benefits realized for the tax deductions from option exercises for the six months ended June 30, 2014 and 2013 were $116,000 and $87,000, respectively.
Other.
No cash was used to settle stock options during the first six months of 2014 or 2013. The Corporation uses newly issued shares to settle stock option exercises and for the conversion of RSUs.
6 - DEFINED BENEFIT PENSION PLAN
The following table sets forth the components of net periodic pension cost.
|
|
Six Months Ended
|
|
|
Three Months Ended
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
2014
|
|
|
2013
|
|
|
2014
|
|
|
2013
|
|
|
|
(in thousands)
|
|
Service cost, net of plan participant contributions
|
|
$
|
558
|
|
|
$
|
606
|
|
|
$
|
279
|
|
|
$
|
303
|
|
Interest cost
|
|
|
704
|
|
|
|
608
|
|
|
|
352
|
|
|
|
304
|
|
Expected return on plan assets
|
|
|
(1,504
|
)
|
|
|
(1,328
|
)
|
|
|
(752
|
)
|
|
|
(664
|
)
|
Amortization of prior service cost
|
|
|
7
|
|
|
|
12
|
|
|
|
3
|
|
|
|
6
|
|
Amortization of net actuarial loss
|
|
|
-
|
|
|
|
314
|
|
|
|
-
|
|
|
|
157
|
|
Net pension expense (credit)
|
|
$
|
(235
|
)
|
|
$
|
212
|
|
|
$
|
(118
|
)
|
|
$
|
106
|
|
The Bank makes cash contributions to the pension plan (“Plan”) which comply with the funding requirements of applicable Federal laws and regulations. For funding purposes, the laws and regulations set forth both minimum required and maximum tax-deductible contributions. The Bank has no minimum required pension contribution for the Plan year ending September 30, 2014 and its maximum tax-deductible contribution is $1,177,000. Management has not yet determined whether the Bank will make a contribution to the Plan in 2014.
7 - FAIR VALUE OF FINANCIAL INSTRUMENTS
Financial Instruments Recorded at Fair Value
. When measuring fair value, the Corporation uses a fair value hierarchy, which is designed to maximize the use of observable inputs and minimize the use of unobservable inputs. The hierarchy involves three levels of inputs that may be used to measure fair value:
Level 1: Quoted prices (unadjusted) in active markets for identical assets or liabilities that the Corporation has the ability to access at the measurement date.
Level 2: Significant other observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets or liabilities in markets that are not active; or inputs other than quoted prices that are observable or can be corroborated by observable market data.
Level 3: Significant unobservable inputs that reflect the Corporation’s own assumptions about the assumptions that market participants would use in pricing an asset or liability.
The Corporation deems transfers between levels of the fair value hierarchy to have occurred on the date of the event or change in circumstance that caused the transfer. There were no transfers between levels of the fair value hierarchy during the six months ended June 30, 2014 or 2013.
The fair values of the Corporation’s investment securities designated as available-for-sale at June 30, 2014 and December 31, 2013 are set forth in the tables that follow. These values are determined on a recurring basis using matrix pricing (Level 2 inputs). Matrix pricing, which is a mathematical technique widely used in the industry to value debt securities, does not rely exclusively on quoted prices for the specific securities but rather on the relationship of such securities to other benchmark quoted securities.
|
|
|
|
|
Fair Value Measurements at June 30, 2014 Using:
|
|
|
|
|
|
|
Quoted Prices
|
|
|
Significant
|
|
|
|
|
|
|
|
|
|
in Active
|
|
|
Other
|
|
|
Significant
|
|
|
|
|
|
|
Markets for
|
|
|
Observable
|
|
|
Unobservable
|
|
|
|
|
|
|
Identical Assets
|
|
|
Inputs
|
|
|
Inputs
|
|
|
|
Total
|
|
|
(Level 1)
|
|
|
(Level 2)
|
|
|
(Level 3)
|
|
Available-for-Sale Securities:
|
|
(in thousands)
|
|
State and municipals
|
|
$
|
399,736
|
|
|
$
|
-
|
|
|
$
|
399,736
|
|
|
$
|
-
|
|
Pass-through mortgage securities
|
|
|
142,152
|
|
|
|
-
|
|
|
|
142,152
|
|
|
|
-
|
|
Collateralized mortgage obligations
|
|
|
269,437
|
|
|
|
-
|
|
|
|
269,437
|
|
|
|
-
|
|
|
|
$
|
811,325
|
|
|
$
|
-
|
|
|
$
|
811,325
|
|
|
$
|
-
|
|
|
|
|
|
|
|
Fair Value Measurements at December 31, 2013 Using:
|
|
|
|
|
|
|
|
Quoted Prices
|
|
|
Significant
|
|
|
|
|
|
|
|
|
|
|
|
in Active
|
|
|
Other
|
|
|
Significant
|
|
|
|
|
|
|
|
Markets for
|
|
|
Observable
|
|
|
Unobservable
|
|
|
|
|
|
|
|
Identical Assets
|
|
|
Inputs
|
|
|
Inputs
|
|
|
|
Total
|
|
|
(Level 1)
|
|
|
(Level 2)
|
|
|
(Level 3)
|
|
Available-for-Sale Securities:
|
|
(in thousands)
|
|
State and municipals
|
|
$
|
356,553
|
|
|
$
|
-
|
|
|
$
|
356,553
|
|
|
$
|
-
|
|
Pass-through mortgage securities
|
|
|
151,818
|
|
|
|
-
|
|
|
|
151,818
|
|
|
|
-
|
|
Collateralized mortgage obligations
|
|
|
276,422
|
|
|
|
-
|
|
|
|
276,422
|
|
|
|
-
|
|
|
|
$
|
784,793
|
|
|
$
|
-
|
|
|
$
|
784,793
|
|
|
$
|
-
|
|
Assets measured at fair value on a nonrecurring basis at June 30, 2014 and December 31, 2013, are set forth in the table that follows. Real estate appraisals utilized in measuring the fair value of impaired loans may employ a single valuation approach or a combination of approaches including comparable sales and the income approach. Adjustments are routinely made in the appraisal process by the independent appraisers to adjust for differences between the comparable sales and income data available. In arriving at fair value, the Corporation adjusts the value set forth in the appraisal by deducting costs to sell and a distressed sale adjustment. The adjustments made by the appraisers and the Corporation are deemed to be significant unobservable inputs and therefore result in a Level 3 classification of the inputs used for determining the fair value of impaired loans. Because the Corporation has a small amount of impaired loans measured at fair value, the impact of unobservable inputs on the Corporation’s financial statements is not material.
|
|
|
|
|
Fair Value Measurements Using:
|
|
|
|
|
|
|
Quoted Prices
in Active
Markets for
Identical Assets
|
|
|
Significant
Other
Observable
Inputs
|
|
|
Significant
Unobservable
Inputs
|
|
|
|
Total
|
|
|
(Level 1)
|
|
|
(Level 2)
|
|
|
(Level 3)
|
|
|
|
(in thousands)
|
|
June 30, 2014:
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial mortgage held-for-sale:
|
|
|
|
|
|
|
|
|
|
|
|
|
Owner-occupied
|
|
$
|
1,800
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
1,800
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impaired loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial mortgages - owner-occupied
|
|
$
|
202
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
202
|
|
Residential mortgages - closed end
|
|
|
177
|
|
|
|
-
|
|
|
|
-
|
|
|
|
177
|
|
|
|
$
|
379
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
379
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2013:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential mortgage held-for-sale:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Closed end
|
|
$
|
900
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
900
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impaired loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial mortgages - owner-occupied
|
|
$
|
530
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
530
|
|
Residential mortgages - closed end
|
|
|
278
|
|
|
|
-
|
|
|
|
-
|
|
|
|
278
|
|
|
|
$
|
808
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
808
|
|
The impaired loans set forth in the preceding table had principal balances of $433,000 and $1,024,000 at June 30, 2014 and December 31, 2013, respectively, and valuation allowances of $54,000 and $216,000, respectively. During the six and three month periods ended June 30, 2014, the Corporation recorded credit provisions for loan losses of $38,000 and $10,000, respectively, for impaired loans measured at fair value. During the six months ended June 30, 2013, the Corporation recorded a provision for loan losses of $188,000 for impaired loans measured at fair value all of which was recorded during the first quarter of 2013.
Financial Instruments Not Recorded at Fair Value.
Fair value estimates are made at a specific point in time. Such estimates are generally subjective in nature and dependent upon a number of significant assumptions associated with each financial instrument or group of similar financial instruments, including estimates of discount rates, risks associated with specific financial instruments, estimates of future cash flows, and relevant available market information. Changes in assumptions could significantly affect the estimates. In addition, fair value estimates do not reflect the value of anticipated future business, premiums or discounts that could result from offering for sale at one time the Corporation’s entire holdings of a particular financial instrument, or the tax consequences of realizing gains or losses on the sale of financial instruments.
The following table sets forth the carrying amounts and estimated fair values of financial instruments that are not recorded at fair value in the Corporation’s financial statements at June 30, 2014 and December 31, 2013.
|
|
|
June 30, 2014
|
|
|
December 31, 2013
|
|
|
|
|
|
|
Fair Value
|
|
|
|
|
|
Fair Value
|
|
|
|
|
|
(in thousands)
|
|
Financial Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
Level 1
|
|
$
|
45,755
|
|
|
$
|
45,755
|
|
|
$
|
35,497
|
|
|
$
|
35,497
|
|
Held-to-maturity securities
|
|
Level 2
|
|
|
25,343
|
|
|
|
26,678
|
|
|
|
31,315
|
|
|
|
32,759
|
|
Held-to-maturity securities
|
|
Level 3
|
|
|
900
|
|
|
|
900
|
|
|
|
789
|
|
|
|
789
|
|
Loans
|
|
Level 3
|
|
|
1,547,207
|
|
|
|
1,537,779
|
|
|
|
1,456,281
|
|
|
|
1,447,199
|
|
Restricted stock
|
|
Level 1
|
|
|
19,043
|
|
|
|
19,043
|
|
|
|
19,869
|
|
|
|
19,869
|
|
Accrued interest receivable:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment securities
|
|
Level 2
|
|
|
4,828
|
|
|
|
4,828
|
|
|
|
4,766
|
|
|
|
4,766
|
|
Loans
|
|
Level 3
|
|
|
3,961
|
|
|
|
3,961
|
|
|
|
3,819
|
|
|
|
3,819
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Checking deposits
|
|
Level 1
|
|
|
631,484
|
|
|
|
631,484
|
|
|
|
599,114
|
|
|
|
599,114
|
|
Savings, NOW and money market deposits
|
|
Level 1
|
|
|
951,866
|
|
|
|
951,866
|
|
|
|
917,974
|
|
|
|
917,974
|
|
Time deposits
|
|
Level 2
|
|
|
325,497
|
|
|
|
331,953
|
|
|
|
265,040
|
|
|
|
270,545
|
|
Short-term borrowings
|
|
Level 1
|
|
|
71,765
|
|
|
|
71,765
|
|
|
|
110,463
|
|
|
|
110,463
|
|
Long-term debt
|
|
Level 2
|
|
|
295,000
|
|
|
|
300,179
|
|
|
|
285,000
|
|
|
|
285,502
|
|
Accrued interest payable:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Checking, savings, NOW and money market deposits
|
|
Level 1
|
|
|
19
|
|
|
|
19
|
|
|
|
33
|
|
|
|
33
|
|
Time deposits
|
|
Level 2
|
|
|
4,877
|
|
|
|
4,877
|
|
|
|
5,802
|
|
|
|
5,802
|
|
Short-term borrowings
|
|
Level 1
|
|
|
1
|
|
|
|
1
|
|
|
|
1
|
|
|
|
1
|
|
Long-term debt
|
|
Level 2
|
|
|
589
|
|
|
|
589
|
|
|
|
571
|
|
|
|
571
|
|
The following methods and assumptions are used by the Corporation in measuring the fair value of financial instruments disclosed in the preceding table.
Cash and cash equivalents
. The recorded book value of cash and cash equivalents is their fair value.
Investment securities.
Fair values are based on quoted prices for similar assets in active markets or derived principally from observable market data.
Loans
. The total loan portfolio is divided into three segments: (1) residential mortgages; (2) commercial mortgages and commercial loans; and (3) and consumer loans. Each segment is further divided into pools of loans with similar financial characteristics (i.e. product type, fixed versus variable rate, time to rate reset, length of term, conforming versus nonconforming). Cash flows for each pool, including estimated prepayments if applicable, are discounted utilizing market or internal benchmarks which management believes are reflective of current market rates for similar loan products. The discounted value of the cash flows is reduced by the related allowance for loan losses to arrive at an estimate of fair value.
Restricted stock
. The recorded book value of Federal Home Loan Bank stock and Federal Reserve Bank stock is their fair value because the stock is redeemable at cost.
Deposit liabilities
. The fair value of deposits with no stated maturity, such as checking deposits, money market deposits, NOW accounts and savings deposits, is equal to their recorded book value. The fair value of time deposits is based on the discounted value of contractual cash flows. The discount rate is equivalent to the rate at which the Bank could currently replace these deposits with wholesale borrowings from the Federal Home Loan Bank.
Borrowed funds
. For short-term borrowings maturing within ninety days, the recorded book value is a reasonable estimate of fair value. The fair value of long-term debt is based on the discounted value of contractual cash flows. The discount rate is equivalent to the rate at which the Bank could currently replace these borrowings with wholesale borrowings from the Federal Home Loan Bank.
Accrued interest receivable and payable
. For these short-term instruments, the recorded book value is a reasonable estimate of fair value.
Off-balance-sheet Items.
The fair value of off-balance sheet items is not considered to be material.
8 - IMPACT OF ISSUED BUT NOT YET EFFECTIVE ACCOUNTING STANDARDS
The pronouncements discussed in this section are not intended to be an all-inclusive list, but rather only those pronouncements that could potentially have an impact on the Corporation’s financial position, results of operations or disclosures.
In January 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2014-04 “Reclassification of Residential Real Estate Collateralized Consumer Mortgage Loans upon Foreclosure.” The amendments in ASU 2014-04 are intended to reduce diversity in practice by clarifying when an in-substance repossession or foreclosure occurs, that is, when a creditor such as the Bank should be considered to have received physical possession of residential real estate property collateralizing a consumer mortgage loan such that the loan should be derecognized and the real estate property recognized. Additionally, the amendments in ASU 2014-04 require interim and annual disclosure of both the amount of foreclosed residential real estate property held by a creditor and the recorded investment in consumer mortgage loans collateralized by residential real estate property that are in the process of foreclosure according to local requirements of the applicable jurisdiction. For public entities such as the Corporation, the amendments are effective for interim and annual reporting periods beginning after December 15, 2014. Early adoption in 2014 is permitted. ASU 2014-04 is not expected to have a material impact on the Corporation’s financial position, results of operations or disclosures.
In May 2014, the FASB issued ASU 2014-09 “Revenue from Contracts with Customers.” The amendments in ASU 2014-09 are intended to improve financial reporting by providing a comprehensive framework for addressing revenue recognition issues that can be applied to all contracts with customers regardless of industry-specific or transaction-specific fact patterns. While the guidance in ASU 2014-09 supersedes most existing industry-specific revenue recognition accounting guidance, much of a bank’s revenue comes from financial instruments such as debt securities and loans that are scoped-out of the guidance. The amendments also include improved disclosures to enable users of financial statements to better understand the nature, amount, timing and uncertainty of revenue that is recognized. For public entities such as the Corporation, ASU 2014-09 is effective for interim and annual reporting periods beginning after December 15, 2016. Early adoption is not permitted. Management is currently evaluating the impact that the amendments in ASU 2014-09 could have on the Corporation’s financial position, results of operations and disclosures, but does not currently believe that such impact will be material.
In June 2014, the FASB issued ASU 2014-11 “Repurchase-to-Maturity Transactions, Repurchase Financings, and Disclosures.” The amendments in ASU 2014-11 change the accounting for repurchase-to-maturity transactions and linked repurchase financings to secured borrowing accounting. The amendments also require new disclosures about certain transfers of financial assets and the types of collateral pledged in repurchase agreements and similar transactions. For public entities such as the Corporation, the amendments are generally effective for interim and annual reporting periods beginning after December 15, 2014. Early adoption for public entities is prohibited. ASU 2014-11 is not expected to have a material impact on the Corporation’s financial position, results of operations or disclosures.
In June 2014, the FASB issued ASU 2014-12 “Accounting for Share-Based Payments When the Terms of an Award Provide That a Performance Target Could Be Achieved after the Requisite Service Period.” ASU 2014-12 provides guidance on the accounting for share-based payments in which the terms of an award provide that an employee can cease rendering service before the end of the period in which a performance target could be achieved and still be eligible to vest in the award if and when the performance target is achieved. The amendments in ASU 2014-12 are effective for interim and annual reporting periods beginning after December 15, 2015. Early adoption is permitted. ASU 2014-12 is not expected to have a material impact on the Corporation’s financial position, results of operations or disclosures.