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 | March 31, 2017 |
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 X 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 X 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 [X] |
Non-accelerated filer [ ] (Do not check if a smaller reporting company) | |
Smaller reporting company [ ] | Emerging growth 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 X
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 April 30, 2017 | |
Common stock, $.10 par value per share | 24,082,418 |
TABLE OF CONTENTS |
||
PART I. |
FINANCIAL INFORMATION |
|
ITEM 1. |
Financial Statements |
|
Consolidated Balance Sheets (Unaudited) – March 31, 2017 and December 31, 2016 |
1 |
|
Consolidated Statements of Income (Unaudited) – Three Months Ended March 31, 2017 and 2016 |
2 |
|
Consolidated Statements of Comprehensive Income (Unaudited) – Three Months Ended March 31, 2017 and 2016 |
3 |
|
Consolidated Statements of Changes in Stockholders’ Equity (Unaudited) – Three Months Ended March 31, 2017 and 2016 |
4 |
|
Consolidated Statements of Cash Flows (Unaudited) – Three Months Ended March 31, 2017 and 2016 |
5 |
|
Notes to Unaudited Consolidated Financial Statements |
6 |
|
ITEM 2. |
Management’s Discussion and Analysis of Financial Condition and Results of Operations |
19 |
ITEM 3. |
Quantitative and Qualitative Disclosures About Market Risk |
26 |
ITEM 4. |
Controls and Procedures |
28 |
PART II. |
OTHER INFORMATION |
|
ITEM 1. |
Legal Proceedings |
28 |
ITEM 1A. |
Risk Factors |
28 |
ITEM 2. |
Unregistered Sales of Equity Securities and Use of Proceeds |
28 |
ITEM 3. |
Defaults Upon Senior Securities |
28 |
ITEM 4. |
Mine Safety Disclosures |
28 |
ITEM 5. |
Other Information |
28 |
ITEM 6. |
Exhibits |
28 |
Signatures |
30 |
PART 1. FINANCIAL INFORMATION |
|||||
ITEM 1. FINANCIAL STATEMENTS |
|||||
CONSOLIDATED BALANCE SHEETS (UNAUDITED) |
March 31, |
December 31, |
|||||||
(dollars in thousands) |
2017 |
2016 |
||||||
Assets: |
||||||||
Cash and cash equivalents |
$ | 48,167 | $ | 36,929 | ||||
Investment securities: |
||||||||
Held-to-maturity, at amortized cost (fair value of $10,296 and $11,637) |
10,079 | 11,387 | ||||||
Available-for-sale, at fair value |
747,468 | 815,299 | ||||||
757,547 | 826,686 | |||||||
Loans: |
||||||||
Commercial and industrial |
123,175 | 126,038 | ||||||
Secured by real estate: |
||||||||
Commercial mortgages |
1,093,387 | 1,085,198 | ||||||
Residential mortgages |
1,361,871 | 1,238,431 | ||||||
Home equity lines |
87,642 | 86,461 | ||||||
Consumer and other |
9,206 | 9,293 | ||||||
2,675,281 | 2,545,421 | |||||||
Allowance for loan losses |
(30,843 | ) | (30,057 | ) | ||||
2,644,438 | 2,515,364 | |||||||
Restricted stock, at cost |
29,183 | 31,763 | ||||||
Bank premises and equipment, net |
34,687 | 34,361 | ||||||
Bank-owned life insurance |
58,446 | 33,097 | ||||||
Pension plan assets, net |
17,350 | 17,316 | ||||||
Other assets |
17,212 | 14,804 | ||||||
$ | 3,607,030 | $ | 3,510,320 | |||||
Liabilities: |
||||||||
Deposits: |
||||||||
Checking |
$ | 839,131 | $ | 808,311 | ||||
Savings, NOW and money market |
1,616,467 | 1,519,749 | ||||||
Time, $100,000 and over |
187,143 | 178,918 | ||||||
Time, other |
104,853 | 101,739 | ||||||
2,747,594 | 2,608,717 | |||||||
Short-term borrowings |
139,484 | 207,012 | ||||||
Long-term debt |
390,212 | 379,212 | ||||||
Accrued expenses and other liabilities |
12,143 | 9,481 | ||||||
Deferred income taxes payable |
1,165 | 68 | ||||||
3,290,598 | 3,204,490 | |||||||
Stockholders' Equity: |
||||||||
Common stock, par value $.10 per share: |
||||||||
Authorized, 40,000,000 shares; |
||||||||
Issued and outstanding, 23,901,707 and 23,699,107 shares |
2,390 | 2,370 | ||||||
Surplus |
105,971 | 101,738 | ||||||
Retained earnings |
209,051 | 203,326 | ||||||
317,412 | 307,434 | |||||||
Accumulated other comprehensive loss, net of tax |
(980 | ) | (1,604 | ) | ||||
316,432 | 305,830 | |||||||
$ | 3,607,030 | $ | 3,510,320 |
See notes to unaudited consolidated financial statements |
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED) |
Three Months Ended March 31, |
||||||||
(dollars in thousands, except per share data) |
2017 |
2016 |
||||||
Interest and dividend income: |
||||||||
Loans |
$ | 22,919 | $ | 19,814 | ||||
Investment securities: |
||||||||
Taxable |
2,202 | 1,890 | ||||||
Nontaxable |
3,377 | 3,403 | ||||||
28,498 | 25,107 | |||||||
Interest expense: |
||||||||
Savings, NOW and money market deposits |
1,491 | 933 | ||||||
Time deposits |
1,188 | 1,375 | ||||||
Short-term borrowings |
389 | 124 | ||||||
Long-term debt |
1,770 | 1,974 | ||||||
4,838 | 4,406 | |||||||
Net interest income |
23,660 | 20,701 | ||||||
Provision for loan losses |
788 | 253 | ||||||
Net interest income after provision for loan losses |
22,872 | 20,448 | ||||||
Noninterest income: |
||||||||
Investment Management Division income |
522 | 476 | ||||||
Service charges on deposit accounts |
703 | 634 | ||||||
Net gains on sales of securities |
57 | - | ||||||
Other |
838 | 644 | ||||||
2,120 | 1,754 | |||||||
Noninterest expense: |
||||||||
Salaries |
5,924 | 5,578 | ||||||
Employee benefits |
1,809 | 1,669 | ||||||
Occupancy and equipment |
2,521 | 2,377 | ||||||
Other |
2,760 | 2,807 | ||||||
13,014 | 12,431 | |||||||
Income before income taxes |
11,978 | 9,771 | ||||||
Income tax expense |
2,897 | 2,136 | ||||||
Net income |
$ | 9,081 | $ | 7,635 | ||||
Earnings per share: |
||||||||
Basic |
$ | .38 | $ | .36 | ||||
Diluted |
$ | .38 | $ | .35 | ||||
Cash dividends declared per share |
$ | .14 | $ | .13 |
See notes to unaudited consolidated financial statements |
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED) |
Three Months Ended |
||||||||
March 31, |
||||||||
(dollars in thousands) |
2017 |
2016 |
||||||
Net income |
$ | 9,081 | $ | 7,635 | ||||
Other comprehensive income: |
||||||||
Change in net unrealized holding gains on available-for-sale securities |
1,071 | 5,142 | ||||||
Change in funded status of pension plan |
5 | 61 | ||||||
Other comprehensive income before income taxes |
1,076 | 5,203 | ||||||
Income tax expense |
452 | 2,272 | ||||||
Other comprehensive income |
624 | 2,931 | ||||||
Comprehensive income |
$ | 9,705 | $ | 10,566 |
See notes to unaudited consolidated financial statements |
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (UNAUDITED) |
Three Months Ended March 31, 2017 |
||||||||||||||||||||||||
Accumulated |
||||||||||||||||||||||||
Other |
||||||||||||||||||||||||
Common Stock |
Retained |
Comprehensive |
||||||||||||||||||||||
(dollars in thousands) |
Shares |
Amount |
Surplus |
Earnings |
Loss |
Total |
||||||||||||||||||
Balance, January 1, 2017 |
23,699,107 | $ | 2,370 | $ | 101,738 | $ | 203,326 | $ | (1,604 | ) | $ | 305,830 | ||||||||||||
Net income |
9,081 | 9,081 | ||||||||||||||||||||||
Other comprehensive income |
624 | 624 | ||||||||||||||||||||||
Repurchase of common stock |
(19,339 | ) | (2 | ) | (525 | ) | (527 | ) | ||||||||||||||||
Common stock issued under stock compensation plans |
75,219 | 7 | 142 | 149 | ||||||||||||||||||||
Common stock issued under dividend reinvestment and stock purchase plan |
146,720 | 15 | 3,869 | 3,884 | ||||||||||||||||||||
Stock-based compensation |
747 | 747 | ||||||||||||||||||||||
Cash dividends declared |
(3,356 | ) | (3,356 | ) | ||||||||||||||||||||
Balance, March 31, 2017 |
23,901,707 | $ | 2,390 | $ | 105,971 | $ | 209,051 | $ | (980 | ) | $ | 316,432 |
Three Months Ended March 31, 2016 |
||||||||||||||||||||||||
Accumulated |
||||||||||||||||||||||||
Other |
||||||||||||||||||||||||
Common Stock |
Retained |
Comprehensive |
||||||||||||||||||||||
(dollars in thousands) |
Shares |
Amount |
Surplus |
Earnings |
Income |
Total |
||||||||||||||||||
Balance, January 1, 2016 |
14,116,677 | $ | 1,412 | $ | 56,931 | $ | 185,069 | $ | 7,524 | $ | 250,936 | |||||||||||||
Net income |
7,635 | 7,635 | ||||||||||||||||||||||
Other comprehensive income |
2,931 | 2,931 | ||||||||||||||||||||||
Repurchase of common stock |
(13,393 | ) | (1 | ) | (369 | ) | (370 | ) | ||||||||||||||||
Common stock issued under stock compensation plans |
58,469 | 5 | 215 | 220 | ||||||||||||||||||||
Common stock issued under dividend reinvestment and stock purchase plan |
50,601 | 5 | 1,424 | 1,429 | ||||||||||||||||||||
Stock-based compensation |
508 | 508 | ||||||||||||||||||||||
Cash dividends declared |
(2,853 | ) | (2,853 | ) | ||||||||||||||||||||
Balance, March 31, 2016 |
14,212,354 | $ | 1,421 | $ | 58,709 | $ | 189,851 | $ | 10,455 | $ | 260,436 |
See notes to unaudited consolidated financial statements |
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
Three Months Ended March 31, |
||||||||
(dollars in thousands) |
2017 |
2016 |
||||||
Cash Flows From Operating Activities: |
||||||||
Net income |
$ | 9,081 | $ | 7,635 | ||||
Adjustments to reconcile net income to net cash provided by operating activities: |
||||||||
Provision for loan losses |
788 | 253 | ||||||
Provision for deferred income taxes |
645 | 817 | ||||||
Depreciation and amortization |
824 | 848 | ||||||
Premium amortization on investment securities, net |
838 | 920 | ||||||
Net gains on sales of securities |
(57 | ) | - | |||||
Net loss on sales of loans held-for-sale |
- | 5 | ||||||
Stock-based compensation expense |
747 | 508 | ||||||
Common stock issued in lieu of cash for director fees |
13 | - | ||||||
Accretion of cash surrender value on bank-owned life insurance |
(349 | ) | (234 | ) | ||||
Pension expense (credit) |
(29 | ) | 4 | |||||
Increase in other assets |
(2,408 | ) | (1,268 | ) | ||||
Increase (decrease) in accrued expenses and other liabilities |
2,624 | (3,724 | ) | |||||
Net cash provided by operating activities |
12,717 | 5,764 | ||||||
Cash Flows From Investing Activities: |
||||||||
Proceeds from sales of available-for-sale investment securities |
40,011 | - | ||||||
Proceeds from maturities and redemptions of investment securities: |
||||||||
Held-to-maturity |
1,331 | 812 | ||||||
Available-for-sale |
34,753 | 22,369 | ||||||
Purchases of available-for-sale investment securities |
(6,666 | ) | (65,438 | ) | ||||
Proceeds from sales of loans held-for-sale |
- | 100 | ||||||
Net increase in loans |
(129,862 | ) | (60,954 | ) | ||||
Net decrease in restricted stock |
2,580 | 7,943 | ||||||
Purchases of premises and equipment, net |
(1,150 | ) | (1,504 | ) | ||||
Purchase of bank-owned life insurance |
(25,000 | ) | - | |||||
Net cash used in investing activities |
(84,003 | ) | (96,672 | ) | ||||
Cash Flows From Financing Activities: |
||||||||
Net increase in deposits |
138,877 | 271,328 | ||||||
Net decrease in short-term borrowings |
(67,528 | ) | (199,692 | ) | ||||
Proceeds from long-term debt |
11,000 | 23,500 | ||||||
Proceeds from issuance of common stock, net |
3,884 | 1,429 | ||||||
Proceeds from exercise of stock options |
136 | 220 | ||||||
Repurchase and retirement of common stock |
(527 | ) | (370 | ) | ||||
Cash dividends paid |
(3,318 | ) | (2,821 | ) | ||||
Net cash provided by financing activities |
82,524 | 93,594 | ||||||
Net increase in cash and cash equivalents |
11,238 | 2,686 | ||||||
Cash and cash equivalents, beginning of year |
36,929 | 39,635 | ||||||
Cash and cash equivalents, end of period |
$ | 48,167 | $ | 42,321 | ||||
Supplemental Information: |
||||||||
Cash paid for: |
||||||||
Interest |
$ | 4,872 | $ | 7,426 | ||||
Income taxes |
260 | 694 | ||||||
Noncash investing and financing activities: |
||||||||
Cash dividends payable |
3,406 | 2,855 |
See notes to unaudited consolidated financial statements
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
1 - BASIS OF PRESENTATION
The accounting and reporting policies of The First of Long Island Corporation (“Corporation”) reflect banking industry practice and conform to generally accepted accounting principles in the United States. In preparing the consolidated financial statements, management is required to make estimates, such as the allowance for loan losses, and assumptions that affect the reported asset and liability balances, revenue and expense amounts, and the disclosure of contingent assets and liabilities. Actual results could differ significantly from those estimates.
The consolidated financial statements include the accounts of the Corporation and its wholly-owned subsidiary, The First National Bank of Long Island (“Bank”). The Bank has two wholly owned subsidiaries: FNY Service Corp., an investment company, and The First of Long Island Agency, Inc., a licensed insurance agency under the laws of the State of New York. The Bank and FNY Service Corp. jointly own another subsidiary, The First of Long Island REIT, Inc., a real estate investment trust. The consolidated entity is referred to as the “Corporation” and the Bank and its subsidiaries are collectively referred to as the “Bank.” All intercompany balances and amounts have been eliminated. For further information refer to the consolidated financial statements and notes thereto included in the Corporation's Annual Report on Form 10-K for the year ended December 31, 2016.
The consolidated financial information included herein as of and for the periods ended March 31, 2017 and 2016 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, 2016 consolidated balance sheet was derived from the Corporation's December 31, 2016 audited consolidated financial statements. When appropriate, items in the prior year financial statements are reclassified to conform to the current period presentation.
In the fourth quarter of 2016, the Corporation adopted Accounting Standards Update (“ASU”) 2016-09 “Improvements to Employee Share-Based Payment Accounting.” Earnings for the first three quarters of 2016 were adjusted retroactively to reflect the adoption of the ASU effective as of January 1, 2016. The ASU increased net income in the first quarters of 2017 and 2016 through credits to income tax expense by $285,000 and $205,000, respectively.
2 – EARNINGS PER SHARE
The following table sets forth the calculation of basic and diluted earnings per share (“EPS”) for the periods indicated.
Three Months Ended March 31, |
||||||||
(dollars in thousands, except per share data) |
2017 |
2016 |
||||||
Net income |
$ | 9,081 | $ | 7,635 | ||||
Income allocated to participating securities (1) |
34 | 32 | ||||||
Income allocated to common stockholders |
$ | 9,047 | $ | 7,603 | ||||
Weighted average: |
||||||||
Common shares |
23,858,640 | 21,275,579 | ||||||
Dilutive stock options and restricted stock units (1) |
264,305 | 274,683 | ||||||
24,122,945 | 21,550,262 | |||||||
Earnings per share: |
||||||||
Basic |
$ | .38 | $ | .36 | ||||
Diluted |
.38 | .35 |
(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 is required to calculate basic and diluted EPS using the two-class method. Under the two-class method, net income for the period is allocated between common stockholders and participating securities according to dividends declared and participation rights in undistributed earnings.
3 - COMPREHENSIVE INCOME
Comprehensive income includes net income and other comprehensive income. Other comprehensive income includes revenues, expenses, gains and losses that under generally accepted accounting principles are included in comprehensive income but excluded from net income. Other comprehensive income for the Corporation consists of unrealized holding gains or losses on available-for-sale securities and changes in the funded status of the Bank’s defined benefit pension plan, both net of related income taxes. Accumulated other comprehensive income or loss is recognized as a separate component of stockholders’ equity.
The components of other comprehensive income and the related tax effects are as follows:
Three Months Ended March 31, |
||||||||
2017 |
2016 |
|||||||
(in thousands) | ||||||||
Change in net unrealized holding gains on available-for-sale securities: |
||||||||
Change arising during the period |
$ | 1,128 | $ | 5,142 | ||||
Reclassification adjustment for gains included in net income (1) |
(57 | ) | - | |||||
Change in net unrealized holding gains on available-for-sale securities |
1,071 | 5,142 | ||||||
Tax effect |
450 | 2,298 | ||||||
621 | 2,844 | |||||||
Change in funded status of pension plan: |
||||||||
Amortization of net actuarial loss included in pension expense (2) |
5 | 61 | ||||||
Tax effect |
2 | (26 | ) | |||||
3 | 87 | |||||||
Other comprehensive income |
$ | 624 | $ | 2,931 |
(1) Reclassification adjustment represents net realized gains arising from the sale of available-for-sale securities. The net realized gains are included in the consolidated statements of income in the line item, “Net gains on sales of securities.” See “Note 4 – Investment Securities” for the income tax expense related to the net realized gains, which is included in the consolidated statements of income in the line item, “Income tax expense.”
(2) Represents the amortization into expense of net actuarial loss relating to the Corporation’s defined benefit pension plan. This item is included in net periodic pension cost (see Note 7) and in the consolidated statements of income in the line item, “Employee benefits.” The related income tax expense is included in the consolidated statements of income in the line item, “Income tax expense.”
The following table sets forth the components of accumulated other comprehensive loss, net of tax:
Current |
||||||||||||
Balance |
Period |
Balance |
||||||||||
12/31/16 |
Change |
3/31/17 |
||||||||||
(in thousands) |
||||||||||||
Unrealized holding gains on available-for-sale securities |
$ | 1,654 | $ | 621 | $ | 2,275 | ||||||
Unrealized actuarial losses on pension plan |
(3,258 | ) | 3 | (3,255 | ) | |||||||
Accumulated other comprehensive loss, net of tax |
$ | (1,604 | ) | $ | 624 | $ | (980 | ) |
4 - INVESTMENT SECURITIES
The following tables set forth the amortized cost and estimated fair values of the Bank’s investment securities.
March 31, 2017 |
||||||||||||||||
Gross |
Gross |
|||||||||||||||
Amortized |
Unrealized |
Unrealized |
Fair |
|||||||||||||
Cost |
Gains |
Losses |
Value |
|||||||||||||
Held-to-Maturity Securities: | (in thousands) | |||||||||||||||
State and municipals |
$ | 9,180 | $ | 154 | $ | - | $ | 9,334 | ||||||||
Pass-through mortgage securities |
349 | 31 | - | 380 | ||||||||||||
Collateralized mortgage obligations |
550 | 32 | - | 582 | ||||||||||||
$ | 10,079 | $ | 217 | $ | - | $ | 10,296 | |||||||||
Available-for-Sale Securities: |
||||||||||||||||
State and municipals |
$ | 438,399 | $ | 10,681 | $ | (3,040 | ) | $ | 446,040 | |||||||
Pass-through mortgage securities |
166,606 | 133 | (2,759 | ) | 163,980 | |||||||||||
Collateralized mortgage obligations |
138,767 | 216 | (1,535 | ) | 137,448 | |||||||||||
$ | 743,772 | $ | 11,030 | $ | (7,334 | ) | $ | 747,468 |
December 31, 2016 |
||||||||||||||||
Held-to-Maturity Securities: |
||||||||||||||||
State and municipals |
$ | 10,419 | $ | 177 | $ | - | $ | 10,596 | ||||||||
Pass-through mortgage securities |
361 | 33 | - | 394 | ||||||||||||
Collateralized mortgage obligations |
607 | 40 | - | 647 | ||||||||||||
$ | 11,387 | $ | 250 | $ | - | $ | 11,637 | |||||||||
Available-for-Sale Securities: |
||||||||||||||||
State and municipals |
$ | 444,154 | $ | 10,137 | $ | (3,631 | ) | $ | 450,660 | |||||||
Pass-through mortgage securities |
188,527 | 156 | (2,874 | ) | 185,809 | |||||||||||
Collateralized mortgage obligations |
179,993 | 862 | (2,025 | ) | 178,830 | |||||||||||
$ | 812,674 | $ | 11,155 | $ | (8,530 | ) | $ | 815,299 |
At March 31, 2017 and December 31, 2016, investment securities with a carrying value of $452,298,000 and $415,419,000, 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 March 31, 2017 and December 31, 2016.
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.
March 31, 2017 |
||||||||||||||||||||||||
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 |
$ | 97,489 | $ | (3,021 | ) | $ | 1,534 | $ | (19 | ) | $ | 99,023 | $ | (3,040 | ) | |||||||||
Pass-through mortgage securities |
156,715 | (2,759 | ) | - | - | 156,715 | (2,759 | ) | ||||||||||||||||
Collateralized mortgage obligations |
105,143 | (1,347 | ) | 7,144 | (188 | ) | 112,287 | (1,535 | ) | |||||||||||||||
Total temporarily impaired |
$ | 359,347 | $ | (7,127 | ) | $ | 8,678 | $ | (207 | ) | $ | 368,025 | $ | (7,334 | ) |
December 31, 2016 |
||||||||||||||||||||||||
State and municipals |
$ | 117,181 | $ | (3,631 | ) | $ | - | $ | - | $ | 117,181 | $ | (3,631 | ) | ||||||||||
Pass-through mortgage securities |
175,000 | (2,874 | ) | - | - | 175,000 | (2,874 | ) | ||||||||||||||||
Collateralized mortgage obligations |
125,424 | (1,820 | ) | 7,737 | (205 | ) | 133,161 | (2,025 | ) | |||||||||||||||
Total temporarily impaired |
$ | 417,605 | $ | (8,325 | ) | $ | 7,737 | $ | (205 | ) | $ | 425,342 | $ | (8,530 | ) |
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 March 31, 2017.
Sales of Available-for-Sale Securities. Sales of available-for-sale securities were as follows:
Three Months Ended March 31, |
||||||||
2017 |
2016 |
|||||||
(in thousands) |
||||||||
Proceeds |
$ | 40,011 | $ | - | ||||
Gross gains |
$ | 366 | $ | - | ||||
Gross losses |
(309 | ) | - | |||||
Net gain |
$ | 57 | $ | - |
Income tax expense related to the net realized gains for the three months ended March 31, 2017 was $24,000.
Sales of Held-to-Maturity Securities. There were no sales of held-to-maturity securities during the three months ended March 31, 2017 and 2016.
Maturities. The following table sets forth by maturity the amortized cost and fair value of the Bank’s state and municipal securities at March 31, 2017 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 |
$ | 4,026 | $ | 4,057 | ||||
After 1 through 5 years |
4,266 | 4,382 | ||||||
After 5 through 10 years |
888 | 895 | ||||||
After 10 years |
- | - | ||||||
Mortgage-backed securities |
899 | 962 | ||||||
$ | 10,079 | $ | 10,296 | |||||
Available-for-Sale Securities: |
||||||||
Within one year |
$ | 15,264 | $ | 15,447 | ||||
After 1 through 5 years |
75,845 | 78,649 | ||||||
After 5 through 10 years |
170,480 | 173,676 | ||||||
After 10 years |
176,810 | 178,268 | ||||||
Mortgage-backed securities |
305,373 | 301,428 | ||||||
$ | 743,772 | $ | 747,468 |
5 – LOANS
The following tables set forth by class of loans the amount of loans individually and collectively evaluated for impairment and the portion of the allowance for loan losses allocable to such loans.
March 31, 2017 |
||||||||||||||||||||||||
Loans |
Allowance for Loan Losses |
|||||||||||||||||||||||
Individually Evaluated for Impairment |
Collectively Evaluated for Impairment |
Ending Balance |
Individually Evaluated for Impairment |
Collectively Evaluated for Impairment |
Ending Balance |
|||||||||||||||||||
(in thousands) |
||||||||||||||||||||||||
Commercial and industrial |
$ | 65 | $ | 123,110 | $ | 123,175 | $ | - | $ | 1,527 | $ | 1,527 | ||||||||||||
Commercial mortgages: |
||||||||||||||||||||||||
Multifamily |
- | 597,584 | 597,584 | - | 5,806 | 5,806 | ||||||||||||||||||
Other |
- | 390,375 | 390,375 | - | 4,303 | 4,303 | ||||||||||||||||||
Owner-occupied |
549 | 104,879 | 105,428 | - | 998 | 998 | ||||||||||||||||||
Residential mortgages: |
||||||||||||||||||||||||
Closed end |
884 | 1,360,987 | 1,361,871 | 44 | 16,714 | 16,758 | ||||||||||||||||||
Revolving home equity |
1,760 | 85,882 | 87,642 | 513 | 826 | 1,339 | ||||||||||||||||||
Consumer and other |
- | 9,206 | 9,206 | - | 112 | 112 | ||||||||||||||||||
$ | 3,258 | $ | 2,672,023 | $ | 2,675,281 | $ | 557 | $ | 30,286 | $ | 30,843 |
December 31, 2016 |
||||||||||||||||||||||||
Commercial and industrial |
$ | 131 | $ | 125,907 | $ | 126,038 | $ | - | $ | 1,408 | $ | 1,408 | ||||||||||||
Commercial mortgages: |
||||||||||||||||||||||||
Multifamily |
- | 610,385 | 610,385 | - | 6,119 | 6,119 | ||||||||||||||||||
Other |
- | 371,142 | 371,142 | - | 4,296 | 4,296 | ||||||||||||||||||
Owner-occupied |
558 | 103,113 | 103,671 | - | 959 | 959 | ||||||||||||||||||
Residential mortgages: |
||||||||||||||||||||||||
Closed end |
856 | 1,237,575 | 1,238,431 | 45 | 15,695 | 15,740 | ||||||||||||||||||
Revolving home equity |
1,770 | 84,691 | 86,461 | 482 | 919 | 1,401 | ||||||||||||||||||
Consumer and other |
- | 9,293 | 9,293 | - | 134 | 134 | ||||||||||||||||||
$ | 3,315 | $ | 2,542,106 | $ | 2,545,421 | $ | 527 | $ | 29,530 | $ | 30,057 |
The following tables present the activity in the allowance for loan losses for the three months ended March 31, 2017 and 2016.
Balance at 1/1/17 |
Chargeoffs |
Recoveries |
Provision for Loan Losses (Credit) |
Balance at 3/31/17 |
||||||||||||||||
(in thousands) |
||||||||||||||||||||
Commercial and industrial |
$ | 1,408 | $ | 6 | $ | 3 | $ | 122 | $ | 1,527 | ||||||||||
Commercial mortgages: |
||||||||||||||||||||
Multifamily |
6,119 | - | - | (313 | ) | 5,806 | ||||||||||||||
Other |
4,296 | - | - | 7 | 4,303 | |||||||||||||||
Owner-occupied |
959 | - | - | 39 | 998 | |||||||||||||||
Residential mortgages: |
||||||||||||||||||||
Closed end |
15,740 | - | 1 | 1,017 | 16,758 | |||||||||||||||
Revolving home equity |
1,401 | - | - | (62 | ) | 1,339 | ||||||||||||||
Consumer and other |
134 | - | - | (22 | ) | 112 | ||||||||||||||
$ | 30,057 | $ | 6 | $ | 4 | $ | 788 | $ | 30,843 |
Balance at 1/1/16 |
Chargeoffs |
Recoveries |
Provision for Loan Losses (Credit) |
Balance at 3/31/16 |
||||||||||||||||
(in thousands) |
||||||||||||||||||||
Commercial and industrial |
$ | 928 | $ | - | $ | 4 | $ | 180 | $ | 1,112 | ||||||||||
Commercial mortgages: |
||||||||||||||||||||
Multifamily |
6,858 | - | - | (53 | ) | 6,805 | ||||||||||||||
Other |
3,674 | - | - | 179 | 3,853 | |||||||||||||||
Owner-occupied |
1,047 | - | - | 46 | 1,093 | |||||||||||||||
Residential mortgages: |
||||||||||||||||||||
Closed end |
13,639 | - | 8 | (4 | ) | 13,643 | ||||||||||||||
Revolving home equity |
1,016 | - | 3 | (92 | ) | 927 | ||||||||||||||
Consumer and other |
94 | - | - | (3 | ) | 91 | ||||||||||||||
$ | 27,256 | $ | - | $ | 15 | $ | 253 | $ | 27,524 |
For individually impaired loans, the following tables set forth by class of loans at March 31, 2017 and December 31, 2016 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 three months ended March 31, 2017 and 2016. The recorded investment is the unpaid principal balance of the loans less any interest payments applied to principal and any direct chargeoffs plus or minus net deferred loan costs and fees. Any principal and interest payments received on nonaccrual impaired loans are applied to the recorded investment in the loans. The Bank recognizes interest income on other impaired loans using the accrual method of accounting.
Three Months Ended |
||||||||||||||||||||
March 31, 2017 |
March 31, 2017 |
|||||||||||||||||||
Unpaid |
Average |
Interest |
||||||||||||||||||
Recorded |
Principal |
Related |
Recorded |
Income |
||||||||||||||||
Investment |
Balance |
Allowance |
Investment |
Recognized |
||||||||||||||||
(in thousands) |
||||||||||||||||||||
With no related allowance recorded: |
||||||||||||||||||||
Commercial and industrial |
$ | 65 | $ | 65 | $ | - | $ | 99 | $ | 2 | ||||||||||
Commercial mortgages - owner occupied |
549 | 632 | - | 552 | 4 | |||||||||||||||
Residential mortgages: |
||||||||||||||||||||
Closed end |
266 | 355 | - | 272 | - | |||||||||||||||
Revolving home equity |
280 | 279 | - | 280 | - | |||||||||||||||
With an allowance recorded: |
||||||||||||||||||||
Residential mortgages: |
||||||||||||||||||||
Closed end |
618 | 627 | 44 | 621 | 12 | |||||||||||||||
Revolving home equity |
1,480 | 1,480 | 513 | 1,483 | - | |||||||||||||||
Total: |
||||||||||||||||||||
Commercial and industrial |
65 | 65 | - | 99 | 2 | |||||||||||||||
Commercial mortgages - owner occupied |
549 | 632 | - | 552 | 4 | |||||||||||||||
Residential mortgages: |
||||||||||||||||||||
Closed end |
884 | 982 | 44 | 893 | 12 | |||||||||||||||
Revolving home equity |
1,760 | 1,759 | 513 | 1,763 | - | |||||||||||||||
$ | 3,258 | $ | 3,438 | $ | 557 | $ | 3,307 | $ | 18 |
Three Months Ended |
||||||||||||||||||||
December 31, 2016 |
March 31, 2016 |
|||||||||||||||||||
Unpaid |
Average |
Interest |
||||||||||||||||||
Recorded |
Principal |
Related |
Recorded |
Income |
||||||||||||||||
Investment |
Balance |
Allowance |
Investment |
Recognized |
||||||||||||||||
(in thousands) |
||||||||||||||||||||
With no related allowance recorded: |
||||||||||||||||||||
Commercial and industrial |
$ | 131 | $ | 131 | $ | - | $ | - | $ | - | ||||||||||
Commercial mortgages - owner-occupied |
558 | 636 | - | 589 | - | |||||||||||||||
Residential mortgages: |
||||||||||||||||||||
Closed end |
230 | 313 | - | 300 | - | |||||||||||||||
Revolving home equity |
280 | 279 | - | 521 | 2 | |||||||||||||||
With an allowance recorded: |
||||||||||||||||||||
Residential mortgages: |
||||||||||||||||||||
Closed end |
626 | 634 | 45 | 3,475 | 34 | |||||||||||||||
Revolving home equity |
1,490 | 1,491 | 482 | - | - | |||||||||||||||
Total: |
||||||||||||||||||||
Commercial and industrial |
131 | 131 | - | - | - | |||||||||||||||
Commercial mortgages - owner-occupied |
558 | 636 | - | 589 | - | |||||||||||||||
Residential mortgages: |
||||||||||||||||||||
Closed end |
856 | 947 | 45 | 3,775 | 34 | |||||||||||||||
Revolving home equity |
1,770 | 1,770 | 482 | 521 | 2 | |||||||||||||||
$ | 3,315 | $ | 3,484 | $ | 527 | $ | 4,885 | $ | 36 |
Aging of Loans. The following tables present the aging of the recorded investment in loans by class of loans.
March 31, 2017 |
||||||||||||||||||||||||||||
30-59 Days Past Due |
60-89 Days Past Due |
Past Due 90 Days or More and Still Accruing |
Nonaccrual Loans |
Total Past Due Loans & Nonaccrual Loans |
Current |
Total Loans |
||||||||||||||||||||||
(in thousands) |
||||||||||||||||||||||||||||
Commercial and industrial |
$ | 213 | $ | - | $ | - | $ | 65 | $ | 278 | $ | 122,897 | $ | 123,175 | ||||||||||||||
Commercial mortgages: |
||||||||||||||||||||||||||||
Multifamily |
- | - | - | - | - | 597,584 | 597,584 | |||||||||||||||||||||
Other |
- | - | - | - | - | 390,375 | 390,375 | |||||||||||||||||||||
Owner-occupied |
- | - | - | - | - | 105,428 | 105,428 | |||||||||||||||||||||
Residential mortgages: |
||||||||||||||||||||||||||||
Closed end |
- | 1,371 | - | 266 | 1,637 | 1,360,234 | 1,361,871 | |||||||||||||||||||||
Revolving home equity |
- | 257 | - | 1,760 | 2,017 | 85,625 | 87,642 | |||||||||||||||||||||
Consumer and other |
19 | - | - | - | 19 | 9,187 | 9,206 | |||||||||||||||||||||
$ | 232 | $ | 1,628 | $ | - | $ | 2,091 | $ | 3,951 | $ | 2,671,330 | $ | 2,675,281 |
December 31, 2016 |
||||||||||||||||||||||||||||
Commercial and industrial |
$ | 224 | $ | - | $ | - | $ | - | $ | 224 | $ | 125,814 | $ | 126,038 | ||||||||||||||
Commercial mortgages: |
||||||||||||||||||||||||||||
Multifamily |
- | - | - | - | - | 610,385 | 610,385 | |||||||||||||||||||||
Other |
- | - | - | - | - | 371,142 | 371,142 | |||||||||||||||||||||
Owner-occupied |
- | - | 621 | 558 | 1,179 | 102,492 | 103,671 | |||||||||||||||||||||
Residential mortgages: |
||||||||||||||||||||||||||||
Closed end |
881 | - | - | 230 | 1,111 | 1,237,320 | 1,238,431 | |||||||||||||||||||||
Revolving home equity |
- | - | - | 1,770 | 1,770 | 84,691 | 86,461 | |||||||||||||||||||||
Consumer and other |
1 | - | - | - | 1 | 9,292 | 9,293 | |||||||||||||||||||||
$ | 1,106 | $ | - | $ | 621 | $ | 2,558 | $ | 4,285 | $ | 2,541,136 | $ | 2,545,421 |
The loans in the preceding table that were past due 90 days or more and still accruing at December 31, 2016 were well secured and in the process of collection. There were no loans in the process of foreclosure nor did the Bank hold any foreclosed residential real estate property at March 31, 2017 or December 31, 2016.
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 three months ended March 31, 2017 and 2016, the Bank did not modify any loans in troubled debt restructurings.
At March 31, 2017 and December 31, 2016, the Bank had an allowance for loan losses of $44,000 and $45,000, respectively, allocated to specific troubled debt restructurings. The Bank had no commitments to lend additional amounts in connection with loans that were classified as troubled debt restructurings.
There were no troubled debt restructurings for which there was a payment default during the three months ended March 31, 2017 and 2016 that were modified during the twelve-month period prior to default. A loan is considered to be in payment default once it is 90 days contractually past due under the modified terms.
Risk Characteristics. Credit risk within the Bank’s loan portfolio primarily stems from factors such as borrower size, geographic concentration, industry concentration, real estate values, local and national economic conditions and environmental impairment of properties securing mortgage loans. The Bank’s commercial loans, including those secured by mortgages, are primarily made to small and medium-sized businesses. Such loans sometimes involve a higher degree of risk than those to larger companies because such businesses may have shorter operating histories, higher debt-to-equity ratios and may lack sophistication in internal record keeping and financial and operational controls. In addition, most of the Bank’s loans are made to businesses and consumers on Long Island and in the boroughs of New York City, and a large percentage of these loans are mortgage loans secured by properties located in those areas. The primary source of repayment for multifamily loans is cash flows from the underlying properties, a substantial portion of which are rent stabilized or rent controlled. Such cash flows are dependent on the strength of the local economy.
Credit Quality Indicators. The Bank categorizes loans into risk categories based on relevant information about the borrower’s ability to service their debt including, but not limited to, current financial information for the borrower and any guarantors, payment experience, credit underwriting documentation, public records and current economic trends.
Commercial and industrial loans and commercial mortgage loans are risk rated utilizing a ten point rating system. The ten point risk rating system is described hereinafter.
Internally Assigned Risk Rating |
|
1 – 2 |
Cash flow is of high quality and stable. Borrower has very good liquidity and ready access to traditional sources of credit. This category also includes loans to borrowers secured by cash and/or marketable securities within approved margin requirements. |
3 – 4 |
Cash flow quality is strong, but shows some variability. Borrower has good liquidity and asset quality. Borrower has access to traditional sources of credit with minimal restrictions. |
5 – 6 |
Cash flow quality is acceptable but shows some variability. Liquidity varies with operating cycle and assets provide an adequate margin of protection. Borrower has access to traditional sources of credit, but generally on a secured basis. |
7 |
Watch - Cash flow has a high degree of variability and subject to economic downturns. Liquidity is strained and the ability of the borrower to access traditional sources of credit is diminished. |
8 |
Special Mention - The borrower has potential weaknesses that deserve management’s close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the loan or in the Bank’s credit position at some future date. Special mention assets are not adversely classified and do not expose the Bank to risk sufficient to warrant adverse classification. |
9 |
Substandard - Loans are inadequately protected by the current sound worth and paying capacity of the borrower or the collateral pledged, if any. Loans so classified have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. They are characterized by the distinct possibility that the Bank will sustain some loss if the deficiencies are not corrected. |
10 |
Doubtful - Loans have all the inherent weaknesses of those classified substandard with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions and values, highly questionable and improbable. |
Risk ratings on commercial and industrial loans and commercial mortgages are initially assigned by the lending officer together with any necessary approval authority. The ratings are periodically reviewed and evaluated based upon borrower contact, credit department review or independent loan review.
The Bank's loan risk rating and review policy establishes requirements for the annual review of commercial real estate and commercial and industrial loans. The requirements include details of the scope of coverage and selection process based on loan-type and risk rating. Among other things, at least 60% of the recorded investment of commercial real estate loans as of December 31 of the prior year must be reviewed annually. The frequency of the review of other loans is determined by the Bank’s ongoing assessments of the borrower’s condition.
Residential mortgage loans, revolving home equity lines and other consumer loans are risk rated utilizing a three point rating system. In most cases, the borrower’s credit score dictates the risk rating. However, regardless of credit score, loans that are on management’s watch list or have been criticized or classified by management are assigned a risk rating of 3. A credit score is a tool used in the Bank’s loan approval process, and a minimum score of 680 is generally required for new loans. Credit scores for each borrower are updated at least annually. The risk ratings along with their definitions are as follows:
Internally Assigned Risk Rating |
|
1 |
Credit score is equal to or greater than 680. |
2 |
Credit score is 635 to 679. |
3 |
Credit score is below 635 or, regardless of credit score, the loan has been classified, criticized or placed on watch. |
The following tables present the recorded investment in commercial and industrial loans and commercial mortgage loans by class of loans and risk rating. Loans shown as Pass are all loans other than those risk rated Watch, Special Mention, Substandard or Doubtful.
March 31, 2017 |
||||||||||||||||||||||||
Internally Assigned Risk Rating |
||||||||||||||||||||||||
Special |
||||||||||||||||||||||||
Pass |
Watch |
Mention |
Substandard |
Doubtful |
Total |
|||||||||||||||||||
(in thousands) |
||||||||||||||||||||||||
Commercial and industrial |
$ | 122,528 | $ | 582 | $ | - | $ | 65 | $ | - | $ | 123,175 | ||||||||||||
Commercial mortgages: |
||||||||||||||||||||||||
Multifamily |
590,344 | - | 7,240 | - | - | 597,584 | ||||||||||||||||||
Other |
388,986 | 1,389 | - | - | - | 390,375 | ||||||||||||||||||
Owner-occupied |
100,317 | 3,053 | 1,509 | 549 | - | 105,428 | ||||||||||||||||||
$ | 1,202,175 | $ | 5,024 | $ | 8,749 | $ | 614 | $ | - | $ | 1,216,562 |
December 31, 2016 |
||||||||||||||||||||||||
Commercial and industrial |
$ | 125,097 | $ | 810 | $ | - | $ | 131 | $ | - | $ | 126,038 | ||||||||||||
Commercial mortgages: |