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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.
Includes revolving lines converted to term of $2.5 million of commercial and industrial, $1.0 million of owner-occupied commercial mortgage and $7.0 million of residential home equity.
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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.
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 | ) |
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 | |
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.
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 | |
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.
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.