10-Q 1 flic20170331_10q.htm FORM 10-Q flic20170331_10q.htm

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  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

         

 

1

 

 

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

         

 

 

2

 

 

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

       

 

 

3

 

 

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

             

 

4

 

 

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

 

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 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.

 

6

 

 

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 )

 

7

 

 

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.

 

8

 

 

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  

 

9

 

 

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  

 

10

 

 

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  

 

11

 

 

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.

 

12

 

 

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.

 

13

 

 

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:

                                          &