10-Q 1 flic-20180630x10q.htm 10-Q flic 20180630 10Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

____________



FORM 10-Q



(Mark One)

[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934





 

 

 

 

For the quarterly period ended

June 30, 2018

 



or



[  ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934





 

 

 

 

For the transition period from

to

 



Commission file number 001-32964



THE FIRST OF LONG ISLAND CORPORATION

(Exact name of registrant as specified in its charter)

 



 

New York

11-2672906

(State or other jurisdiction of incorporation or organization)

(I.R.S. Employer Identification No.)



 



10 Glen Head Road, Glen Head, NY

 

11545

(Address of principal executive offices)

(Zip Code)

(516) 671-4900

(Registrant's telephone number, including area code)



Not Applicable

(Former name, former address and former fiscal year, if changed since last report)



Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes    No  



Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes    No  



Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.





 

Large accelerated filer 

Accelerated filer 

Non‑accelerated filer   (Do not check if a smaller reporting company)

Emerging growth company 

Smaller reporting company 

 



If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. 



Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes    No  



Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date.





 

 

Title of Each Class

 

Outstanding at July  31, 2018

Common stock, $.10 par value per share

 

25,420,870




 

TABLE OF CONTENTS





 

 

PART I.

FINANCIAL INFORMATION

 

ITEM 1.

Financial Statements

 



Consolidated Balance Sheets (Unaudited) – June 30, 2018 and December 31, 2017



Consolidated Statements of Income (Unaudited) – Six and Three Months Ended June 30, 2018 and 2017



Consolidated Statements of Comprehensive Income (Unaudited) – Six and Three Months Ended June 30, 2018 and 2017



Consolidated Statements of Changes in Stockholders’ Equity (Unaudited) – Six Months Ended June 30, 2018 and 2017



Consolidated Statements of Cash Flows (Unaudited) – Six Months Ended June 30, 2018 and 2017



Notes to Unaudited Consolidated Financial Statements

ITEM 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

22 

ITEM 3.

Quantitative and Qualitative Disclosures About Market Risk

31 

ITEM 4.

Controls and Procedures

33 

PART II.

OTHER INFORMATION

 

ITEM 1.

Legal Proceedings

33 

ITEM 1A.

Risk Factors

33 

ITEM 2.

Unregistered Sales of Equity Securities and Use of Proceeds

33 

ITEM 3.

Defaults Upon Senior Securities

33 

ITEM 4.

Mine Safety Disclosures

33 

ITEM 5.

Other Information

34 

ITEM 6.

Exhibits

34 



Signatures

36 



 



 


 

PART 1. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS



CONSOLIDATED BALANCE SHEETS (UNAUDITED)

 





 

 

 

 

 

 



 

 

 

 

 

 



 

June 30,

 

December 31,

(dollars in thousands)

 

2018

 

2017



 

 

 

 

 

 

Assets:

 

 

 

 

 

 

Cash and cash equivalents

 

$

67,186 

 

$

69,672 



 

 

 

 

 

 

Investment securities:

 

 

 

 

 

 

Held-to-maturity, at amortized cost (fair value of $5,653 and $7,749)

 

 

5,575 

 

 

7,636 

Available-for-sale, at fair value

 

 

801,859 

 

 

720,128 



 

 

807,434 

 

 

727,764 

Loans:

 

 

 

 

 

 

Commercial and industrial

 

 

103,490 

 

 

109,623 

Secured by real estate:

 

 

 

 

 

 

Commercial mortgages

 

 

1,273,470 

 

 

1,193,007 

Residential mortgages

 

 

1,792,213 

 

 

1,558,564 

Home equity lines

 

 

78,746 

 

 

83,625 

Consumer and other

 

 

6,690 

 

 

5,533 



 

 

3,254,609 

 

 

2,950,352 

Allowance for loan losses

 

 

(35,832)

 

 

(33,784)



 

 

3,218,777 

 

 

2,916,568 



 

 

 

 

 

 

Restricted stock, at cost

 

 

36,659 

 

 

37,314 

Bank premises and equipment, net

 

 

40,099 

 

 

39,648 

Bank-owned life insurance

 

 

79,828 

 

 

59,665 

Pension plan assets, net

 

 

19,311 

 

 

19,152 

Deferred income tax benefit

 

 

5,723 

 

 

 —

Other assets

 

 

17,458 

 

 

24,925 



 

$

4,292,475 

 

$

3,894,708 

Liabilities:

 

 

 

 

 

 

Deposits:

 

 

 

 

 

 

Checking

 

$

922,006 

 

$

896,129 

Savings, NOW and money market

 

 

1,761,726 

 

 

1,602,460 

Time, $100,000 and over

 

 

302,966 

 

 

203,890 

Time, other

 

 

247,200 

 

 

119,518 



 

 

3,233,898 

 

 

2,821,997 



 

 

 

 

 

 

Short-term borrowings

 

 

255,907 

 

 

281,141 

Long-term debt

 

 

414,527 

 

 

423,797 

Accrued expenses and other liabilities

 

 

13,904 

 

 

10,942 

Deferred income taxes payable

 

 

 —

 

 

2,381 



 

 

3,918,236 

 

 

3,540,258 

Stockholders' Equity:

 

 

 

 

 

 

Common stock, par value $.10 per share: 

 

 

 

 

 

 

Authorized, 80,000,000 shares;

 

 

 

 

 

 

Issued and outstanding,  25,353,336 and 24,668,390 shares

 

 

2,535 

 

 

2,467 

Surplus

 

 

143,620 

 

 

127,122 

Retained earnings

 

 

238,447 

 

 

224,315 



 

 

384,602 

 

 

353,904 

Accumulated other comprehensive income (loss), net of tax

 

 

(10,363)

 

 

546 



 

 

374,239 

 

 

354,450 



 

$

4,292,475 

 

$

3,894,708 



See notes to unaudited consolidated financial statements

 

 

1


 

CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)





 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 



 

Six Months Ended

 

Three Months Ended



 

June 30,

 

June 30,

(in thousands, except per share data)

 

2018

 

2017

 

2018

 

2017



 

 

 

 

 

 

 

 

 

 

 

 

Interest and dividend income:

 

 

 

 

 

 

 

 

 

 

 

 

Loans

 

$

55,170 

 

$

46,637 

 

$

28,506 

 

$

23,718 

Investment securities:

 

 

 

 

 

 

 

 

 

 

 

 

Taxable

 

 

5,210 

 

 

4,077 

 

 

3,001 

 

 

1,875 

Nontaxable

 

 

6,870 

 

 

6,754 

 

 

3,439 

 

 

3,377 



 

 

67,250 

 

 

57,468 

 

 

34,946 

 

 

28,970 

Interest expense:

 

 

 

 

 

 

 

 

 

 

 

 

Savings, NOW and money market deposits

 

 

5,698 

 

 

3,065 

 

 

3,158 

 

 

1,574 

Time deposits

 

 

4,577 

 

 

2,549 

 

 

2,869 

 

 

1,361 

Short-term borrowings

 

 

1,656 

 

 

729 

 

 

873 

 

 

340 

Long-term debt

 

 

4,278 

 

 

3,672 

 

 

2,161 

 

 

1,902 



 

 

16,209 

 

 

10,015 

 

 

9,061 

 

 

5,177 

Net interest income

 

 

51,041 

 

 

47,453 

 

 

25,885 

 

 

23,793 

Provision for loan losses

 

 

2,315 

 

 

2,081 

 

 

803 

 

 

1,293 

Net interest income after provision for loan losses

 

 

48,726 

 

 

45,372 

 

 

25,082 

 

 

22,500 



 

 

 

 

 

 

 

 

 

 

 

 

Noninterest income:

 

 

 

 

 

 

 

 

 

 

 

 

Investment Management Division income

 

 

1,157 

 

 

1,050 

 

 

576 

 

 

528 

Service charges on deposit accounts

 

 

1,287 

 

 

1,394 

 

 

587 

 

 

691 

Net gains on sales of securities

 

 

 —

 

 

58 

 

 

 —

 

 

Other

 

 

3,527 

 

 

2,633 

 

 

1,516 

 

 

1,462 



 

 

5,971 

 

 

5,135 

 

 

2,679 

 

 

2,682 

Noninterest expense:

 

 

 

 

 

 

 

 

 

 

 

 

Salaries

 

 

14,299 

 

 

12,469 

 

 

7,252 

 

 

6,241 

Employee benefits and other personnel expense

 

 

4,415 

 

 

3,650 

 

 

2,245 

 

 

1,812 

Occupancy and equipment

 

 

5,878 

 

 

5,021 

 

 

3,065 

 

 

2,500 

Other

 

 

5,983 

 

 

5,675 

 

 

3,145 

 

 

2,915 



 

 

30,575 

 

 

26,815 

 

 

15,707 

 

 

13,468 

Income before income taxes

 

 

24,122 

 

 

23,692 

 

 

12,054 

 

 

11,714 



 

 

 

 

 

 

 

 

 

 

 

 

Income tax expense

 

 

2,696 

 

 

5,478 

 

 

1,739 

 

 

2,581 

Net income

 

$

21,426 

 

$

18,214 

 

$

10,315 

 

$

9,133 



 

 

 

 

 

 

 

 

 

 

 

 

Earnings per share:

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

$.85

 

 

$.76

 

 

$.41

 

 

$.38

Diluted

 

 

.84

 

 

.75

 

 

.40

 

 

.37



 

 

 

 

 

 

 

 

 

 

 

 

Cash dividends declared per share

 

 

.30

 

 

.28

 

 

.15

 

 

.14



See notes to unaudited consolidated financial statements 

 

 

2


 

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED) 

 





 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 



 

Six Months Ended

 

Three Months Ended



 

June 30,

 

June 30,

(in thousands)

 

2018

 

2017

 

2018

 

2017

Net income

 

$

21,426 

 

$

18,214 

 

$

10,315 

 

$

9,133 

Other comprehensive income (loss):

 

 

 

 

 

 

 

 

 

 

 

 

Change in net unrealized holding gains (losses) on
  available-for-sale securities

 

 

(14,828)

 

 

5,351 

 

 

(3,094)

 

 

4,280 

Change in funded status of pension plan

 

 

 —

 

 

 

 

 —

 

 

Change in net unrealized loss on derivative instrument

 

 

(406)

 

 

 —

 

 

(406)

 

 

 —

Other comprehensive income (loss) before income taxes

 

 

(15,234)

 

 

5,360 

 

 

(3,500)

 

 

4,284 

Income tax expense (benefit)

 

 

(4,602)

 

 

2,250 

 

 

(1,054)

 

 

1,798 

Other comprehensive income (loss)

 

 

(10,632)

 

 

3,110 

 

 

(2,446)

 

 

2,486 

Comprehensive income

 

$

10,794 

 

$

21,324 

 

$

7,869 

 

$

11,619 



See notes to unaudited consolidated financial statements 

 

 

3


 

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (UNAUDITED)

 





 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

Six Months Ended June 30, 2018



 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

Other

 

 

 



 

Common Stock

 

 

 

 

Retained

 

Comprehensive

 

 

 

(dollars in thousands)

 

Shares

 

Amount

 

Surplus

 

Earnings

 

Income (Loss)

 

Total

Balance, January 1, 2018

 

24,668,390 

 

$

2,467 

 

$

127,122 

 

$

224,315 

 

$

546 

 

$

354,450 

Net income

 

 

 

 

 

 

 

 

 

 

21,426 

 

 

 

 

 

21,426 

Other comprehensive loss

 

 

 

 

 

 

 

 

 

 

 

 

 

(10,632)

 

 

(10,632)

Reclassification of stranded

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

tax effects upon the adoption

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

of ASU 2018-02

 

 

 

 

 

 

 

 

 

 

277 

 

 

(277)

 

 

 —

Shares withheld upon the vesting

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

and conversion of RSUs

 

(25,735)

 

 

(3)

 

 

(730)

 

 

 

 

 

 

 

 

(733)

Common stock issued under

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

stock compensation plans

 

118,900 

 

 

12 

 

 

172 

 

 

 

 

 

 

 

 

184 

Common stock issued under

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

dividend reinvestment and

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

stock purchase plan

 

591,781 

 

 

59 

 

 

15,795 

 

 

 

 

 

 

 

 

15,854 

Stock-based compensation

 

 

 

 

 

 

 

1,261 

 

 

 

 

 

 

 

 

1,261 

Cash dividends declared

 

 

 

 

 

 

 

 

 

 

(7,571)

 

 

 

 

 

(7,571)

Balance, June 30, 2018

 

25,353,336 

 

$

2,535 

 

$

143,620 

 

$

238,447 

 

$

(10,363)

 

$

374,239 









 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

Six Months Ended June 30, 2017



 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

Other

 

 

 



 

Common Stock

 

 

 

 

Retained

 

Comprehensive

 

 

 

(dollars in thousands)

 

Shares

 

Amount

 

Surplus

 

Earnings

 

Income (Loss)

 

Total

Balance, January 1, 2017

 

23,699,107 

 

$

2,370 

 

$

101,738 

 

$

203,326 

 

$

(1,604)

 

$

305,830 

Net income

 

 

 

 

 

 

 

 

 

 

18,214 

 

 

 

 

 

18,214 

Other comprehensive income

 

 

 

 

 

 

 

 

 

 

 

 

 

3,110 

 

 

3,110 

Shares withheld upon the vesting

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

and conversion of RSUs

 

(19,339)

 

 

(2)

 

 

(525)

 

 

 

 

 

 

 

 

(527)

Common stock issued under

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

stock compensation plans

 

126,878 

 

 

13 

 

 

618 

 

 

 

 

 

 

 

 

631 

Common stock issued under

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

dividend reinvestment and

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

stock purchase plan

 

322,620 

 

 

32 

 

 

8,407 

 

 

 

 

 

 

 

 

8,439 

Stock-based compensation

 

 

 

 

 

 

 

1,331 

 

 

 

 

 

 

 

 

1,331 

Cash dividends declared

 

 

 

 

 

 

 

 

 

 

(6,753)

 

 

 

 

 

(6,753)

Balance, June 30, 2017

 

24,129,266 

 

$

2,413 

 

$

111,569 

 

$

214,787 

 

$

1,506 

 

$

330,275 



See notes to unaudited consolidated financial statements

 

 

4


 

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) 





 

 

 

 

 

 



 

 

 

 

 

 



 

Six Months Ended



 

June 30,

(in thousands)

 

2018

 

2017

Cash Flows From Operating Activities:

 

 

 

 

 

 

Net income

 

$

21,426 

 

$

18,214 

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

 

 

 

 

 

 

Provision for loan losses

 

 

2,315 

 

 

2,081 

Credit for deferred income taxes

 

 

(3,502)

 

 

(348)

Depreciation and amortization

 

 

2,003 

 

 

1,713 

Premium amortization on investment securities, net

 

 

965 

 

 

1,608 

Net gains on sales of securities

 

 

 —

 

 

(58)

Stock-based compensation expense

 

 

1,261 

 

 

1,331 

Common stock issued in lieu of cash for director fees

 

 

31 

 

 

27 

Accretion of cash surrender value on bank-owned life insurance

 

 

(1,025)

 

 

(745)

Net pension credit

 

 

(159)

 

 

(59)

Decrease (increase) in other assets

 

 

3,204 

 

 

(676)

Increase (decrease) in accrued expenses and other liabilities

 

 

2,444 

 

 

(501)

Net cash provided by operating activities

 

 

28,963 

 

 

22,587 

Cash Flows From Investing Activities:

 

 

 

 

 

 

Proceeds from sales of investment securities:

 

 

 

 

 

 

Held-to-maturity

 

 

 —

 

 

355 

Available-for-sale

 

 

 —

 

 

40,011 

Proceeds from maturities and redemptions of investment securities:

 

 

 

 

 

 

Held-to-maturity

 

 

3,187 

 

 

3,762 

Available-for-sale

 

 

39,574 

 

 

58,931 

Purchases of investment securities:

 

 

 

 

 

 

Held-to-maturity

 

 

(1,098)

 

 

(1,883)

Available-for-sale

 

 

(137,126)

 

 

(19,462)

Net increase in loans

 

 

(304,524)

 

 

(228,637)

Proceeds from sale of other real estate owned

 

 

5,125 

 

 

 —

Net decrease in restricted stock

 

 

655 

 

 

1,233 

Purchases of premises and equipment, net

 

 

(2,454)

 

 

(3,006)

Purchases of bank-owned life insurance

 

 

(20,000)

 

 

(25,000)

Net cash used in investing activities

 

 

(416,661)

 

 

(173,696)

Cash Flows From Financing Activities:

 

 

 

 

 

 

Net increase in deposits

 

 

411,901 

 

 

206,891 

Net decrease in short-term borrowings

 

 

(25,234)

 

 

(70,995)

Proceeds from long-term debt

 

 

39,680 

 

 

42,050 

Repayment of long-term debt

 

 

(48,950)

 

 

(8,900)

Proceeds from issuance of common stock, net

 

 

15,854 

 

 

8,439 

Proceeds from exercise of stock options

 

 

153 

 

 

604 

Shares withheld upon the vesting and conversion of RSUs

 

 

(733)

 

 

(527)

Cash dividends paid

 

 

(7,459)

 

 

(6,672)

Net cash provided by financing activities

 

 

385,212 

 

 

170,890 

Net increase (decrease) in cash and cash equivalents

 

 

(2,486)

 

 

19,781 

Cash and cash equivalents, beginning of year

 

 

69,672 

 

 

36,929 

Cash and cash equivalents, end of period

 

$

67,186 

 

$

56,710 

Supplemental Cash Flow Disclosures:

 

 

 

 

 

 

  Cash paid for:

 

 

 

 

 

 

     Interest

 

$

15,720 

 

$

10,008 

     Income taxes

 

 

365 

 

 

5,933 

Noncash investing and financing activities:

 

 

 

 

 

 

     Cash dividends payable

 

 

3,910 

 

 

3,449 

 

See notes to unaudited consolidated financial statements 

 

5


 

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

 

1 - BASIS OF PRESENTATION 



The accounting and reporting policies of The First of Long Island Corporation (“Corporation”) reflect banking industry practice and conform to generally accepted accounting principles (“GAAP”) in the United States. In preparing the consolidated financial statements, management is required to make estimates, such as the allowance for loan losses, and assumptions that affect the reported asset and liability balances, revenue and expense amounts, and the disclosure of contingent assets and liabilities. Actual results could differ significantly from those estimates.



The consolidated financial statements include the accounts of the Corporation and its wholly-owned subsidiary, The First National Bank of Long Island (“Bank”). The Bank has two wholly owned subsidiaries: FNY Service Corp., an investment company, and The First of Long Island Agency, Inc. The Bank and FNY Service Corp. jointly own another subsidiary, The First of Long Island REIT, Inc., a real estate investment trust (“REIT”). 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, 2017.



The consolidated financial information included herein as of and for the periods ended June 30, 2018 and 2017 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, 2017 consolidated balance sheet was derived from the Corporation's December 31, 2017 audited consolidated financial statements. When appropriate, items in the prior year financial statements are reclassified to conform to the current period presentation.



2 - EARNINGS PER SHARE



The following table sets forth the calculation of basic and diluted earnings per share (“EPS”) for the periods indicated.







 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 



 

Six Months Ended

 

Three Months Ended



 

June 30,

 

June 30,

(dollars in thousands, except per share data)

 

2018

 

2017

 

2018

 

2017

Net income

 

$

21,426 

 

$

18,214 

 

$

10,315 

 

$

9,133 

Income allocated to participating securities (1)

 

 

60 

 

 

68 

 

 

23 

 

 

34 

Income allocated to common stockholders

 

$

21,366 

 

$

18,146 

 

$

10,292 

 

$

9,099 



 

 

 

 

 

 

 

 

 

 

 

 

Weighted average:

 

 

 

 

 

 

 

 

 

 

 

 

Common shares

 

 

25,149,364 

 

 

23,975,687 

 

 

25,334,155 

 

 

24,091,447 

Dilutive stock options and restricted stock units (1)

 

 

188,918 

 

 

257,063 

 

 

173,661 

 

 

249,901 



 

 

25,338,282 

 

 

24,232,750 

 

 

25,507,816 

 

 

24,341,348 

Earnings per share:

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

$.85

 

 

$.76

 

 

$.41

 

 

$.38

Diluted

 

 

.84

 

 

.75

 

 

.40

 

 

.37



(1) Restricted stock units (“RSUs”) awarded in 2016 accrue dividends at the same rate as the dividends declared by the Board of Directors on the Corporation’s common stock. For purposes of computing EPS, these RSUs are considered to participate with common stock in the earnings of the Corporation and, therefore, the Corporation calculates basic and diluted EPS using the two-class method. Under the two-class method, net income for the period is allocated between common stockholders and participating securities according to dividends declared and participation rights in undistributed earnings. As a result, the RSUs awarded in 2016 are not included in the weighted average “dilutive stock options and restricted stock units” in the table above.

 

3 - COMPREHENSIVE INCOME



Comprehensive income includes net income and other comprehensive income (loss). Other comprehensive income (loss) includes revenues, expenses, gains and losses that under GAAP are included in comprehensive income but excluded from net income. Other comprehensive income (loss) for the Corporation consists of unrealized holding gains or losses on available-for-sale securities and derivative instruments and changes in the funded status of the Bank’s defined benefit pension plan, all net of related income taxes. Accumulated other comprehensive income (loss) is recognized as a separate component of stockholders’ equity.



 

6


 

The components of other comprehensive income (loss) and the related tax effects are as follows:

 





 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 



 

Six Months Ended

 

Three Months Ended



 

June 30,

 

June 30,

(in thousands)

 

2018

 

2017

 

2018

 

2017

Change in net unrealized holding gains (losses) on

 

 

 

 

 

 

 

 

 

 

 

 

available-for-sale securities:

 

 

 

 

 

 

 

 

 

 

 

 

Change arising during the period

 

$

(14,828)

 

$

5,408 

 

$

(3,094)

 

$

4,280 

Reclassification adjustment for gains included in net income (1)

 

 

 —

 

 

(57)

 

 

 —

 

 

 —



 

 

(14,828)

 

 

5,351 

 

 

(3,094)

 

 

4,280 

Tax effect

 

 

(4,480)

 

 

2,246 

 

 

(932)

 

 

1,796 



 

 

(10,348)

 

 

3,105 

 

 

(2,162)

 

 

2,484 

Change in funded status of pension plan:

 

 

 

 

 

 

 

 

 

 

 

 

Amortization of net actuarial loss included in net income (2)

 

 

 —

 

 

 

 

 —

 

 

Tax effect

 

 

 —

 

 

 

 

 —

 

 



 

 

 —

 

 

 

 

 —

 

 

Change in net unrealized loss on derivative instrument:

 

 

 

 

 

 

 

 

 

 

 

 

Change arising during the period

 

 

(496)

 

 

 —

 

 

(496)

 

 

 —

Reclassification adjustment for net interest expense

 

 

 

 

 

 

 

 

 

 

 

 

included in net income (3)

 

 

90 

 

 

 

 

 

90 

 

 

 



 

 

(406)

 

 

 —

 

 

(406)

 

 

 —

Tax effect

 

 

(122)

 

 

 —

 

 

(122)

 

 

 —



 

 

(284)

 

 

 —

 

 

(284)

 

 

 —



 

 

 

 

 

 

 

 

 

 

 

 

Other comprehensive income (loss)

 

$

(10,632)

 

$

3,110 

 

$

(2,446)

 

$

2,486 



(1) Represents net realized gains arising from the sale of available-for-sale securities. The net realized gains are included in the consolidated statements of income in the line item, “Net gains on sales of securities.” See “Note 4 – Investment Securities” for the income tax expense related to the net realized gains, which is included in the consolidated statements of income in the line item, “Income tax expense.”



(2) Represents the amortization of net actuarial loss relating to the Corporation’s defined benefit pension plan. This item is a component of net periodic pension cost (see “Note 7 – Defined Benefit Pension Plan”).



(3) Represents the net interest expense recorded on a derivative transaction and included in the consolidated statements of income in the line item “Interest expense – short-term borrowings.”



The following table sets forth the components of accumulated other comprehensive income (loss), net of tax:







 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

Current Period Change due to

 

 

 



 

 

 

 

Other

 

 

Adoption

 

 

 



 

Balance

 

Comprehensive

 

 

of ASU

 

Balance

(in thousands)

 

12/31/17

 

Income (Loss)

 

 

2018-02 (1)

 

6/30/18

Unrealized holding gains (losses) on available-for-sale securities

 

$

2,600 

 

$

(10,348)

 

$

361 

 

$

(7,387)

Unrealized actuarial losses on pension plan

 

 

(2,054)

 

 

 —

 

 

(638)

 

 

(2,692)

Unrealized loss on derivative instrument

 

 

 —

 

 

(284)

 

 

 —

 

 

(284)

   Accumulated other comprehensive income (loss), net of tax

 

$

546 

 

$

(10,632)

 

$

(277)

 

$

(10,363)



(1) The adoption of Accounting Standards Update (“ASU”) 2018-02 “Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income” in the first quarter of 2018 allowed the Corporation to reclassify certain stranded tax effects arising from the enactment of the Tax Cuts and Jobs Act (“Tax Act”) in December 2017 from accumulated other comprehensive income to retained earnings. See “Note 11 – Adoption of New Accounting Standards” for more information regarding the effects of adopting ASU 2018-02.





 

7


 

4 - INVESTMENT SECURITIES



The following tables set forth the amortized cost and estimated fair values of the Bank’s investment securities.







 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 



 

June 30, 2018



 

 

 

 

Gross

 

Gross

 

 

 



 

Amortized

 

Unrealized

 

Unrealized

 

Fair

(in thousands)

 

Cost

 

Gains

 

Losses

 

Value

Held-to-Maturity Securities:

 

 

 

 

 

 

 

 

 

 

 

 

State and municipals

 

$

5,060 

 

$