0001437749-24-024209.txt : 20240801 0001437749-24-024209.hdr.sgml : 20240801 20240801100241 ACCESSION NUMBER: 0001437749-24-024209 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 59 CONFORMED PERIOD OF REPORT: 20240630 FILED AS OF DATE: 20240801 DATE AS OF CHANGE: 20240801 FILER: COMPANY DATA: COMPANY CONFORMED NAME: FIRST OF LONG ISLAND CORP CENTRAL INDEX KEY: 0000740663 STANDARD INDUSTRIAL CLASSIFICATION: NATIONAL COMMERCIAL BANKS [6021] ORGANIZATION NAME: 02 Finance IRS NUMBER: 112672906 STATE OF INCORPORATION: NY FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-32964 FILM NUMBER: 241164833 BUSINESS ADDRESS: STREET 1: 275 BROADHOLLOW ROAD CITY: MELVILLE STATE: NY ZIP: 11747 BUSINESS PHONE: 5166714900 MAIL ADDRESS: STREET 1: 275 BROADHOLLOW ROAD CITY: MELVILLE STATE: NY ZIP: 11747 10-Q 1 flic20240630_10q.htm FORM 10-Q flic20240630_10q.htm
0000740663 FIRST OF LONG ISLAND CORP false --12-31 Q2 2024 0.10 0.10 80,000,000 80,000,000 22,517,881 22,517,881 22,590,942 22,590,942 0 0 6 10 10 1 2 1 0 0 3 1 3 300 300 http://fasb.org/us-gaap/2024#SecuredOvernightFinancingRateSofrMember 1.71 false false false false Represents net realized losses arising from the sale of AFS securities, included in the consolidated statements of income in the line item “Net loss on sales of securities.” See “Note 3 – Investment Securities” for the income tax benefit related to these net realized losses, included in the consolidated statements of income in the line item “Income tax expense.” The decrease in fair value of net loans is mainly due to an increase in interest rates. This amount represents the amortized cost basis of the closed loan portfolio used to designate the hedging relationship in which the hedged item is the stated amount of assets in the closed portfolio anticipated to be outstanding for the designated hedge period. At June 30, 2024, the amortized cost basis of the closed portfolio used in this hedging relationship was $455.7 million. The cumulative basis adjustment associated with this hedging relationship was $3.7 million and the amount of the designated hedged item was $3.8 million. 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 and is included in the consolidated statements of income in the line item “Other noninterest income.” Certain fixed rate residential mortgage loans are included in a fair value hedging relationship. The amortized cost excludes a contra asset of $3.7 million related to basis adjustments for loans in the closed portfolio under the portfolio layer method at June 30, 2024. These basis adjustments would be allocated to the amortized cost of specific loans within the pool if the hedge was de-designated. See "Note 7 - Derivatives" for more information on the fair value hedge. 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Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

 


 

FORM 10-Q

 

(Mark One)

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

 

For the quarterly period ended

June 30, 2024

 

 

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.)

  

 275 Broadhollow Road, Melville, NY

11747

(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)

 

Securities registered pursuant to Section 12(b) of the Act:

   

Title of Each Class

Trading Symbol

Name of Each Exchange on Which Registered

Common stock, $0.10 par value per share

FLIC

Nasdaq

 

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 every Interactive Data File required to be submitted 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 such files).

Yes ☒   No ☐ 

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a 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 ☐ 

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 ☒ 

 

As of July 31, 2024, the registrant had 22,531,272 shares of common stock, $0.10 par value per share, outstanding.

 

 

 

TABLE OF CONTENTS

 

PART I.

FINANCIAL INFORMATION

 
     

ITEM 1.

Financial Statements (Unaudited)

 
     
 

Consolidated Balance Sheets

1

     
 

Consolidated Statements of Income

2

     
 

Consolidated Statements of Comprehensive Income (Loss)

3

     
 

Consolidated Statements of Changes in Stockholders’ Equity

4

     
 

Consolidated Statements of Cash Flows

6

     
 

Notes to Unaudited Consolidated Financial Statements

7

     

ITEM 2.

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

21

     

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

33

     

ITEM 6.

Exhibits

33

     
 

Signatures

35

 

 

 

PART 1. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

 

CONSOLIDATED BALANCE SHEETS (UNAUDITED)

 

  

June 30,

  

December 31,

 

(dollars in thousands)

 

2024

  

2023

 

Assets:

        

Cash and cash equivalents

 $67,289  $60,887 

Investment securities available-for-sale, at fair value

  657,989   695,877 
         

Loans:

        

Commercial and industrial

  150,587   116,163 

Secured by real estate:

        

Commercial mortgages

  1,936,691   1,919,714 

Residential mortgages

  1,122,866   1,166,887 

Home equity lines

  39,665   44,070 

Consumer and other

  1,330   1,230 
   3,251,139   3,248,064 

Allowance for credit losses

  (28,484)  (28,992)
   3,222,655   3,219,072 

Restricted stock, at cost

  27,530   32,659 

Bank premises and equipment, net

  30,687   31,414 

Right-of-use asset - operating leases

  21,270   22,588 

Bank-owned life insurance

  115,317   114,045 

Pension plan assets, net

  10,527   10,740 

Deferred income tax benefit

  31,628   28,996 

Other assets

  24,432   19,622 
  $4,209,324  $4,235,900 

Liabilities:

        

Deposits:

        

Checking

 $1,123,244  $1,133,184 

Savings, NOW and money market

  1,628,078   1,546,369 

Time

  612,119   591,433 
   3,363,441   3,270,986 

Overnight advances

     70,000 

Other borrowings

  430,000   472,500 

Operating lease liability

  23,553   24,940 

Accrued expenses and other liabilities

  16,134   17,328 
   3,833,128   3,855,754 

Stockholders' Equity:

        

Common stock, par value $0.10 per share:

        

Authorized, 80,000,000 shares;

        

Issued and outstanding, 22,517,881 and 22,590,942 shares

  2,252   2,259 

Surplus

  78,537   79,728 

Retained earnings

  355,674   355,887 
   436,463   437,874 

Accumulated other comprehensive loss, net of tax

  (60,267)  (57,728)
   376,196   380,146 
  $4,209,324  $4,235,900 
 

 

See notes to unaudited consolidated financial statements

 

 

 

CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)

 

  

Six Months Ended

  

Three Months Ended

 
  

June 30,

  

June 30,

 

(in thousands, except per share data)

 

2024

  

2023

  

2024

  

2023

 

Interest and dividend income:

                

Loans

 $67,653  $61,888  $34,110  $31,483 

Investment securities:

                

Taxable

  14,472   9,283   7,479   5,614 

Nontaxable

  1,917   2,972   957   1,027 
   84,042   74,143   42,546   38,124 

Interest expense:

                

Savings, NOW and money market deposits

  21,520   13,386   11,437   7,611 

Time deposits

  14,036   7,301   7,059   4,232 

Overnight advances

  267   546   4   438 

Other borrowings

  11,627   7,435   5,615   4,002 
   47,450   28,668   24,115   16,283 

Net interest income

  36,592   45,475   18,431   21,841 

Provision (credit) for credit losses

  570   (1,056)  570    

Net interest income after provision (credit) for credit losses

  36,022   46,531   17,861   21,841 
                 

Noninterest income:

                

Bank-owned life insurance

  1,697   1,574   857   794 

Service charges on deposit accounts

  1,701   1,540   821   753 

Net loss on sales of securities

     (3,489)      

Other

  2,240   2,070   1,186   1,135 
   5,638   1,695   2,864   2,682 

Noninterest expense:

                

Salaries and employee benefits

  19,474   19,619   9,500   9,854 

Occupancy and equipment

  6,324   6,721   3,110   3,396 

Other

  6,257   6,748   3,239   3,267 
   32,055   33,088   15,849   16,517 

Income before income taxes

  9,605   15,138   4,876   8,006 
                 

Income tax expense

  372   1,758   78   1,107 

Net income

 $9,233  $13,380  $4,798  $6,899 
                 

Weighted average:

                

Common shares

  22,515,464   22,522,663   22,510,359   22,551,568 

Dilutive restricted stock units

  62,161   59,910   50,494   33,309 
   22,577,625   22,582,573   22,560,853   22,584,877 

Earnings per share:

                

Basic

 $0.41  $0.59  $0.21  $0.31 

Diluted

  0.41   0.59   0.21   0.31 
                 

Cash dividends declared per share

  0.42   0.42   0.21   0.21 

 

See notes to unaudited consolidated financial statements 

 

 

 

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (UNAUDITED) 

 

 

  

Six Months Ended

  

Three Months Ended

 
  

June 30,

  

June 30,

 

(in thousands)

 

2024

  

2023

  

2024

  

2023

 

Net income

 $9,233  $13,380  $4,798  $6,899 

Other comprehensive loss:

                

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

  (3,931)  (5,197)  (2,142)  (10,617)

Change in funded status of pension plan

  400   509   200   255 

Other comprehensive loss before income taxes

  (3,531)  (4,688)  (1,942)  (10,362)

Income tax benefit

  (992)  (1,357)  (595)  (3,182)

Other comprehensive loss

  (2,539)  (3,331)  (1,347)  (7,180)

Comprehensive income (loss)

 $6,694  $10,049  $3,451  $(281)

 

See notes to unaudited consolidated financial statements 

 

 

 

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (UNAUDITED)

 

  

Six Months Ended June 30, 2024

 
                  

Accumulated

     
                  

Other

     
  

Common Stock

      

Retained

  

Comprehensive

     

(dollars in thousands)

 

Shares

  

Amount

  

Surplus

  

Earnings

  

Loss

  

Total

 

Balance, January 1, 2024

  22,590,942  $2,259  $79,728  $355,887  $(57,728) $380,146 

Net income

            4,435      4,435 

Other comprehensive loss

               (1,192)  (1,192)

Repurchase of common stock

  (167,526)  (17)  (2,003)        (2,020)

Shares withheld upon the vesting and conversion of RSUs

  (19,530)  (2)  (250)        (252)

Common stock issued under stock compensation plans

  46,926   5   9          14 

Common stock issued under dividend reinvestment and stock purchase plan

  27,116   3   305         308 

Stock-based compensation

         401         401 

Cash dividends declared

            (4,717)     (4,717)

Balance, March 31, 2024

  22,477,928   2,248   78,190   355,605   (58,920)  377,123 

Net income

            4,798      4,798 

Other comprehensive loss

               (1,347)  (1,347)

Shares withheld upon the vesting and conversion of RSUs

  (513)     (5)        (5)

Common stock issued under stock compensation plans

  40,466   4   12          16 

Stock-based compensation

         340         340 

Cash dividends declared

            (4,729)     (4,729)

Balance, June 30, 2024

  22,517,881  $2,252  $78,537  $355,674  $(60,267) $376,196 

 

See notes to unaudited consolidated financial statements

 

 

 

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (UNAUDITED)

 

  

Six Months Ended June 30, 2023

 
                  

Accumulated

     
                  

Other

     
  

Common Stock

      

Retained

  

Comprehensive

     

(dollars in thousands)

 

Shares

  

Amount

  

Surplus

  

Earnings

  

Loss

  

Total

 

Balance, January 1, 2023

  22,443,380  $2,244  $78,462  $348,597  $(64,767) $364,536 

Net income

            6,481      6,481 

Other comprehensive income

               3,849   3,849 

Shares withheld upon the vesting and conversion of RSUs

  (47,275)  (5)  (846)        (851)

Common stock issued under stock compensation plans

  103,015   11   6          17 

Common stock issued under dividend reinvestment and stock purchase plan

  32,665   3   500         503 

Stock-based compensation

         499         499 

Cash dividends declared

            (4,727)     (4,727)

Balance, March 31, 2023

  22,531,785   2,253   78,621   350,351   (60,918)  370,307 

Net income

            6,899      6,899 

Other comprehensive loss

               (7,180)  (7,180)

Shares withheld upon the vesting and conversion of RSUs

  (623)     (7)        (7)

Common stock issued under stock compensation plans

  25,834   3   12          15 

Stock-based compensation

         638         638 

Cash dividends declared

            (4,738)     (4,738)

Balance, June 30, 2023

  22,556,996  $2,256  $79,264  $352,512  $(68,098) $365,934 

 

See notes to unaudited consolidated financial statements

 

 

 

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) 

 

  

Six Months Ended June 30,

 

(in thousands)

 

2024

  

2023

 

Cash Flows From Operating Activities:

        

Net income

 $9,233  $13,380 

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

        

Provision (credit) for credit losses

  570   (1,056)

Credit provision for deferred income taxes

  (1,640)  (237)

Depreciation and amortization of premises and equipment

  1,558   1,524 

Amortization of right-of-use asset - operating leases

  1,318   1,337 

Premium amortization on investment securities, net

  1,200   939 

Net loss on sales of securities

     3,489 

Stock-based compensation expense

  741   1,137 

Accretion of cash surrender value on bank-owned life insurance

  (1,697)  (1,574)

Pension expense

  613   746 

Decrease in other liabilities

  (2,566)  (2,876)

Other increases in assets

  (5,315)  (2,917)

Net cash provided by operating activities

  4,015   13,892 

Cash Flows From Investing Activities:

        

Available-for-sale securities:

        

Proceeds from sales

     145,451 

Proceeds from maturities and redemptions

  35,125   23,275 

Purchases

  (2,368)  (171,122)

Net (increase) decrease in loans

  (4,153)  41,051 

Net decrease in restricted stock

  5,129   983 

Purchases of premises and equipment, net

  (831)  (2,246)

Proceeds from disposition of premises and fixed assets

  383   2,291 

Proceeds from death benefit of bank-owned life insurance

  576    

Net cash provided by investing activities

  33,861   39,683 

Cash Flows From Financing Activities:

        

Net increase (decrease) in deposits

  92,455   (11,919)

Net decrease in overnight advances

  (70,000)   

Proceeds from other borrowings

  100,000   125,000 

Repayment of other borrowings

  (142,500)  (153,500)

Proceeds from issuance of common stock, net of shares withheld

  52   (355)

Repurchase of common stock

  (2,020)   

Cash dividends paid

  (9,461)  (9,441)

Net cash used in financing activities

  (31,474)  (50,215)

Net increase in cash and cash equivalents

  6,402   3,360 

Cash and cash equivalents, beginning of year

  60,887   74,178 

Cash and cash equivalents, end of period

 $67,289  $77,538 

Supplemental Cash Flow Disclosures:

        

Cash paid for:

        

Interest

 $47,756  $27,279 

Income taxes

  2,801   2,570 

Operating cash flows from operating leases

  1,761   1,301 

Noncash investing and financing activities:

        

Right-of-use assets obtained in exchange for operating lease liabilities

     1,057 

Cash dividends payable

  4,729   4,738 

 

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 (“GAAP”) in the United States.

 

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 one wholly-owned subsidiary: FNY Service Corp., an investment company. 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, 2023.

 

The consolidated financial information included herein as of and for the periods ended June 30, 2024 and 2023 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, 2023 consolidated balance sheet was derived from the Corporation's  December 31, 2023 audited consolidated financial statements. When appropriate, items in the prior year financial statements are reclassified to conform to the current period presentation.

 

Use of Estimates. In preparing the consolidated financial statements in conformity with GAAP, management is required to make estimates and assumptions that affect the reported asset and liability balances, revenue and expense amounts, and the disclosures provided, including disclosure of contingent assets and liabilities, based on available information. Actual results could differ significantly from those estimates. Information available which could affect these judgements include, but are not limited to, changes in interest rates, changes in the performance of the economy and changes in the financial condition of borrowers.

 

2 - COMPREHENSIVE INCOME

 

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

 

The following table sets forth the components of accumulated OCI, net of tax.

 

      

Current

     
  

Balance

  

Period

  

Balance

 

(in thousands)

 

12/31/2023

  

Change

  

6/30/2024

 

Unrealized holding loss on available-for-sale securities

 $(49,809) $(2,816) $(52,625)

Unrealized actuarial loss on pension plan

  (7,919)  277   (7,642)

Accumulated other comprehensive loss, net of tax

 $(57,728) $(2,539) $(60,267)

 

7

 

The components of OCI and the related tax effects are as follows:

 

  

Six Months Ended

  

Three Months Ended

 
  

June 30,

  

June 30,

 

(in thousands)

 

2024

  

2023

  

2024

  

2023

 

Change in net unrealized holding gains or losses on available-for-sale securities:

                

Change arising during the period

 $(3,931) $(8,686) $(2,142) $(10,617)

Reclassification adjustment for losses included in net income (1)

     3,489       
   (3,931)  (5,197)  (2,142)  (10,617)

Tax effect

  (1,115)  (1,513)  (656)  (3,260)
   (2,816)  (3,684)  (1,486)  (7,357)

Change in funded status of pension plan:

                

Amortization of net actuarial loss included in pension expense (2)

  400   509   200   255 

Tax effect

  123   156   61   78 
   277   353   139   177 

Other comprehensive loss

 $(2,539) $(3,331) $(1,347) $(7,180)

 

(1)

Represents net realized losses arising from the sale of AFS securities, included in the consolidated statements of income in the line item “Net loss on sales of securities.” See “Note 3 – Investment Securities” for the income tax benefit related to these net realized losses, 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 and is included in the consolidated statements of income in the line item “Other noninterest income.”

  
 

3 - INVESTMENT SECURITIES

 

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

 

  

June 30, 2024

 
      

Gross

  

Gross

     
  

Amortized

  

Unrealized

  

Unrealized

  

Fair

 

(in thousands)

 

Cost

  

Gains

  

Losses

  

Value

 

State and municipals

 $152,412  $17  $(16,790) $135,639 

Pass-through mortgage securities

  161,479   7   (29,219)  132,267 

Collateralized mortgage obligations

  186,665   504   (22,238)  164,931 

SBA agency obligations

  114,243   324   (918)  113,649 

Corporate bonds

  119,000      (7,497)  111,503 
  $733,799  $852  $(76,662) $657,989 

 

  

December 31, 2023

 

State and municipals

 $155,294  $317  $(11,990) $143,621 

Pass-through mortgage securities

  165,734      (27,131)  138,603 

Collateralized mortgage obligations

  201,500   1,836   (21,074)  182,262 

SBA agency obligations

  126,228   331   (1,083)  125,476 

Corporate bonds

  119,000      (13,085)  105,915 
  $767,756  $2,484  $(74,363) $695,877 

 

8

 

Small Business Administration (“SBA”) agency obligations are floating rate, government guaranteed securities backed by $87.7 million of commercial mortgages and $25.9 million of equipment finance loans at June 30, 2024.

 

At June 30, 2024 and December 31, 2023, investment securities with a carrying value of $301.3 million and $203.9 million, respectively, were pledged as collateral to secure public deposits and borrowed funds.

 

There were no holdings of any one issuer, other than the U.S. government and its agencies, in an amount greater than 10% of stockholders’ equity at June 30, 2024 and December 31, 2023.

 

There was no allowance for credit losses associated with the investment securities portfolio at June 30, 2024 or December 31, 2023.

 

Securities With Unrealized Losses. The following tables set forth securities with unrealized losses at the dates indicated presented by the length of time the securities have been in a continuous unrealized loss position.

 

  

June 30, 2024

 
  

Less than

  

12 Months

         
  

12 Months

  

or More

  

Total

 
  

Fair

  

Unrealized

  

Fair

  

Unrealized

  

Fair

  

Unrealized

 

(in thousands)

 

Value

  

Loss

  

Value

  

Loss

  

Value

  

Loss

 

State and municipals

 $12,524  $(230) $117,327  $(16,560) $129,851  $(16,790)

Pass-through mortgage securities

  2,717   (45)  128,329   (29,174)  131,046   (29,219)

Collateralized mortgage obligations

  18,960   (150)  96,790   (22,088)  115,750   (22,238)

SBA agency obligations

        92,615   (918)  92,615   (918)

Corporate bonds

        111,503   (7,497)  111,503   (7,497)

Total temporarily impaired

 $34,201  $(425) $546,564  $(76,237) $580,765  $(76,662)

 

  

December 31, 2023

 

State and municipals

 $29,522  $(719) $95,725  $(11,271) $125,247  $(11,990)

Pass-through mortgage securities

  2,361   (1)  134,558   (27,130)  136,919   (27,131)

Collateralized mortgage obligations

        102,528   (21,074)  102,528   (21,074)

SBA agency obligations

  98,879   (1,083)        98,879   (1,083)

Corporate bonds

        105,915   (13,085)  105,915   (13,085)

Total temporarily impaired

 $130,762  $(1,803) $438,726  $(72,560) $569,488  $(74,363)

 

State and Municipals

 

At June 30, 2024, approximately $129.9 million of state and municipal bonds had an unrealized loss of $16.8 million. Substantially all the state and municipal bonds are considered high investment grade and rated Aa2/AA- or higher. The unrealized loss is attributable to changes in interest rates and illiquidity and not credit quality. The issuers continue to make timely principal and interest payments on the bonds. The Bank has the ability to hold these securities and it is likely that it will not be required to sell the securities before their anticipated recovery. The fair value is expected to recover as the bonds approach maturity.

 

Pass-through Mortgage Securities

 

At June 30, 2024, pass-through mortgage securities of approximately $131.0 million had an unrealized loss of $29.2 million. These securities were issued by U.S. government and government-sponsored agencies and are considered high investment grade. The unrealized loss is attributable to changes in interest rates and not credit quality. The issuers continue to make timely principal and interest payments on the bonds. The Bank has the ability to hold these securities and it is likely that it will not be required to sell the securities before their anticipated recovery. The fair value is expected to recover as the bonds approach maturity.

 

Collateralized Mortgage Obligations

 

At June 30, 2024, collateralized mortgage obligations of approximately $115.8 million had an unrealized loss of $22.2 million. These securities were issued by U.S. government and government-sponsored agencies and are considered high investment grade. The unrealized loss is attributable to changes in interest rates and not credit quality. The issuers continue to make timely principal and interest payments on the bonds. The Bank has the ability to hold these securities and it is likely that it will not be required to sell the securities before their anticipated recovery. The fair value is expected to recover as the bonds approach maturity.

 

9

 

SBA Agency Obligations

 

At June 30, 2024, SBA agency obligations of approximately $92.6 million had an unrealized loss of $918,000. These securities were issued by the SBA, a U.S. government agency and are considered high investment grade. The unrealized loss is attributable to changes in interest rates and not credit quality. The issuer continues to make timely principal and interest payments on the bonds. The Bank has the ability to hold these securities and it is likely that it will not be required to sell the securities before their anticipated recovery. The fair value is expected to recover as the bonds approach maturity.

 

Corporate Bonds

 

At June 30, 2024, approximately $111.5 million of corporate bonds had an unrealized loss of $7.5 million. The corporate bonds represent senior unsecured debt obligations of six of the largest U.S. based financial institutions, including JPMorgan Chase, Bank of America, Citigroup, Goldman Sachs, Morgan Stanley and Wells Fargo. Each of the corporate bonds has a stated maturity of ten years and matures in 2028. The bonds reprice quarterly based on the ten year constant maturity swap rate.

 

Each of the financial institutions is considered upper medium investment grade and rated A3 or higher. The unrealized loss is attributable to changes in credit spreads and interest rates and the illiquid nature of the securities. The Bank does not have the intent to sell these securities and it is likely that it will not be required to sell the securities before their anticipated recovery. Each of these financial institutions has diversified revenue streams, is well capitalized and continues to make timely interest payments. Management evaluates the quarterly financial statements of each company to determine if full payment of principal and interest is in doubt and does not believe there is any impairment at June 30, 2024.

 

Sales of AFS Securities. Sales of AFS securities were as follows:

 

  

Six Months Ended

  

Three Months Ended

 
  

June 30,

  

June 30,

 

(in thousands)

 

2024

  

2023

  

2024

  

2023

 

Proceeds

 $  $145,451  $  $ 
                 

Gains

 $  $  $  $ 

Losses

     (3,489)      

Net loss

 $  $(3,489) $  $ 

 

Income tax benefit related to the net realized losses for the six months ended June 30, 2023 was $1.1 million and is included in the consolidated statements of income in the line item “Income tax expense.” 

 

Maturities. The following table sets forth by maturity the amortized cost and fair value of the Bank’s state and municipal securities and corporate bonds at June 30, 2024 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 and asset-backed securities, consisting of pass-through mortgage securities, collateralized mortgage obligations and SBA agency obligations. Although these securities are expected to have substantial periodic repayments, they are reflected in the table below in aggregate amounts.

 

(in thousands)

 

Amortized Cost

  

Fair Value

 

Within one year

 $1,077  $1,076 

After 1 through 5 years

  135,740   127,180 

After 5 through 10 years

  36,864   33,266 

After 10 years

  97,731   85,620 

Mortgage and asset-backed securities

  462,387   410,847 
  $733,799  $657,989 

 

10

 

4 - LOANS

 

The following table sets forth the loans outstanding by class of loans at the dates indicated.

 

(in thousands)

 

June 30, 2024

  

December 31, 2023

 

Commercial and industrial

 $150,587  $116,163 

Commercial mortgages:

        

Multifamily

  868,286   857,163 

Other

  819,682   829,090 

Owner-occupied

  248,723   233,461 

Residential mortgages:

        

Closed end

  1,122,866   1,166,887 

Revolving home equity

  39,665   44,070 

Consumer and other

  1,330   1,230 
  $3,251,139  $3,248,064 

 

Allowance for Credit Losses. Loans that do not share similar risk characteristics are evaluated on an individual basis. Such disparate risk characteristics may include internal or external credit ratings, risk ratings, collateral type, size of loan, effective interest rate, term, geographic location, industry or historical or expected loss pattern. For loans individually evaluated, an allowance for credit losses (“ACL” or “allowance”) is estimated based on either the fair value of collateral or the discounted value of expected future cash flows. In estimating the fair value of real estate collateral, management utilizes appraisals or evaluations adjusted for costs to dispose and a distressed sale adjustment, if needed. Estimating the fair value of collateral other than real estate is also subjective in nature and sometimes requires difficult and complex judgements. Determining expected future cash flows can be more subjective than determining fair values. Expected future cash flows could differ significantly, both in timing and amount, from the cash flows actually received over the loan’s remaining life. Individually evaluated loans are excluded from the estimation of credit losses for the pooled portfolio.

 

For loans collectively evaluated for credit loss, management segregates its loan portfolio into distinct pools, certain of which are combined in reporting loans outstanding by class of loans: (1) commercial and industrial; (2) small business; (3) multifamily; (4) owner-occupied; (5) other commercial real estate; (6) construction and land development; (7) closed end residential mortgage; (8) revolving home equity; (9) consumer; and (10) municipal loans. Historical loss information from the Bank’s own loan portfolio from December 31, 2007 to present provides a basis for management’s assessment of expected credit losses. The choice of a historical look-back period that begins in 2007 covers an entire economic cycle and impacts the average historical loss rates used to calculate the final ACL. Due to the extensive loss data available, management selected the vintage approach to measure the historical loss component of credit losses for most of its loan pools. For the revolving home equity and small business pools, the lifetime PD/LGD (probability of default/loss given default) method is used to measure historical losses.

 

Modifications to borrowers experiencing financial difficulty are initially included in loans collectively evaluated for credit loss. An assessment of whether a borrower is experiencing financial difficulty is made on the date of a modification. A charge to the allowance for credit losses is generally not recorded upon modification.

 

Management believes that the methods selected fairly reflect the historical loss component of expected losses inherent in the Bank’s loan portfolio. However, since future losses could vary significantly from those experienced in the past, on a quarterly basis management adjusts its historical loss experience to reflect current and forecasted conditions. In doing so, management considers a variety of general qualitative and quantitative factors (“Q-factors”) and then subjectively determines the weight to assign to each in estimating losses. Qualitative characteristics include differences in underwriting standards, policies, lending staff and environmental risks. Management also considers whether further adjustments to historical loss information are needed to reflect the extent to which current conditions and reasonable and supportable forecasts over a one year to two year forecasting horizon differ from the conditions that existed during the historical loss period. These quantitative adjustments reflect changes to relevant data such as changes in unemployment rates, gross domestic product (“GDP”), vacancies, average growth in pools of loans, rent regulation status, delinquencies or other factors associated with the financial assets. The immediate reversion method is applied for periods beyond the forecasting horizon. The Bank’s ACL allocable to pools of loans that are collectively evaluated for credit loss results primarily from these qualitative and quantitative adjustments to historical loss experience. Because of the nature of the Q-factors and the degree of judgement involved in assessing their impact, management’s resulting estimate of losses may not accurately reflect current and future losses in the portfolio.

 

11

 

Growth in commercial mortgages and commercial and industrial loans, allowances on individually evaluated loans and chargeoffs were the main drivers of the provision recorded in the first six months of 2024, partially offset by declines in historical loss rates and a deterioration in current and forecasted economic conditions, including adjustments for rent stabilization status of multifamily properties.

 

The following tables present the activity in the ACL for the periods indicated.