NO
TES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
1 - BASIS OF PRESENTATION
The accounting and reporting policies of The First of Long Island Corporation (“Corporation”) reflect banking industry practice and conform to generally accepted accounting principles
(“GAAP”)
in the United States. In preparing the consolidated financial statements, management is required to make estimates, such as the allowance for loan losses, and assumptions that affect the reported asset and liability balances, revenue and expense amounts, and the disclosure of contingent assets and liabilities. Actual results could differ significantly from those estimates.
The consolidated financial statements include the accounts of the Corporation and its wholly-owned subsidiary, The First National Bank of Long Island (“Bank”). The Bank has
two
wholly owned subsidiaries: FNY Service Corp. and The First of Long Island Agency, Inc. The Bank and FNY Service Corp. jointly own another subsidiary, The First of Long Island REIT, Inc., a real estate investment trust. 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, 201
8
.
The consolidated financial information included herein as of and for the periods ended
March 31
, 201
9
and
201
8
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, 201
8
consolidated balance sheet was derived from the Corporation's
December 31, 201
8
audited consolidated financial statements. When appropriate, items in the prior year financial statements are reclassified to conform to the current period presentation.
2 - EARNINGS PER SHARE
The following table sets forth the calculation of basic and diluted earnings per share (“EPS”) for the periods indicated.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
March 31,
|
(dollars in thousands, except per share data)
|
|
2019
|
|
2018
|
Net income
|
|
$
|
10,841
|
|
$
|
11,111
|
Income allocated to participating securities (1)
|
|
|
—
|
|
|
37
|
Income allocated to common stockholders
|
|
$
|
10,841
|
|
$
|
11,074
|
|
|
|
|
|
|
|
Weighted average:
|
|
|
|
|
|
|
Common shares
|
|
|
25,284,357
|
|
|
24,962,520
|
Dilutive stock options and restricted stock units (1)
|
|
|
156,204
|
|
|
204,345
|
|
|
|
25,440,561
|
|
|
25,166,865
|
Earnings per share:
|
|
|
|
|
|
|
Basic
|
|
|
$.43
|
|
|
$.44
|
Diluted
|
|
|
.43
|
|
|
.44
|
(1) Restricted stock units (“RSUs”) awarded in
2016
accrue
d
dividends at the same rate as the dividends declared by the Board of Directors on the Corporation’s common stock. For purpose
s of computing EPS, these RSUs we
re considered to participate with common stock in the earnings of the Corporation and, there
fore, the Corporation calculated
basic and diluted EPS using the two-class method.
Substantially all of the RSUs awarded in 2016 vested on December 31, 2018. As a result, beginning in 2019
,
the Corporation calculates basic and dilutive EPS
using the trea
sury stock method.
3 - COMPREHENSIVE INCOME
Comprehensive income includes net income and other comprehensive income (loss). Other comprehensive income (loss) includes revenues, expenses, gains and losses that under GAAP are included in comprehensive income but excluded from net income. Other comprehensive income (loss) for the Corporation consists of unrealized holding gains or losses on available-for-sale securities and derivative instruments and changes in the funded status of the Bank’s defined benefit pension plan, all net of related income taxes. Accumulated other comprehensive income (loss) is recognized as a separate component of stockholders’ equity.
The components of other comprehensive income (loss) and the related tax effects are as follows:
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
March 31,
|
(in thousands)
|
|
2019
|
|
2018
|
Change in net unrealized holding gains (losses) on available-for-sale securities:
|
|
|
|
|
|
|
Change arising during the period
|
|
$
|
8,417
|
|
$
|
(11,734)
|
Tax effect
|
|
|
2,536
|
|
|
(3,548)
|
|
|
|
5,881
|
|
|
(8,186)
|
Change in funded status of pension plan:
|
|
|
|
|
|
|
Amortization of net actuarial loss included in net income (1)
|
|
|
88
|
|
|
—
|
Tax effect
|
|
|
27
|
|
|
—
|
|
|
|
61
|
|
|
—
|
Change in unrealized loss on derivative instrument:
|
|
|
|
|
|
|
Amount of loss recognized during the period
|
|
|
(1,614)
|
|
|
—
|
Reclassification adjustment for net interest expense included in net income (2)
|
|
|
69
|
|
|
—
|
|
|
|
(1,545)
|
|
|
—
|
Tax effect
|
|
|
(465)
|
|
|
—
|
|
|
|
(1,080)
|
|
|
—
|
Other comprehensive income (loss)
|
|
$
|
4,862
|
|
$
|
(8,186)
|
(1) Represents the amortization of net actuarial loss relating to the Corporation’s defined benefit pension plan. This item is a component of net periodic pension cost (see “Note 7 – Defined Benefit Pension Plan”) and included in the consolidated statement
s of income in the line item, “O
ther noninterest income.”
(2) Represents the net interest expense re
corded on
derivative transaction
s
and included in the consolidated statements of income
under
“Interest expense.”
The following table sets forth the components of accumulated other comprehensive
loss
, net of tax:
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
|
|
|
|
|
|
Balance
|
|
Period
|
|
Balance
|
(in thousands)
|
|
12/31/18
|
|
Change
|
|
3/31/19
|
Unrealized holding gains (losses) on available-for-sale securities
|
|
$
|
(2,955)
|
|
$
|
5,881
|
|
$
|
2,926
|
Unrealized actuarial loss on pension plan
|
|
|
(5,696)
|
|
|
61
|
|
|
(5,635)
|
Unrealized loss on derivative instruments
|
|
|
(789)
|
|
|
(1,080)
|
|
|
(1,869)
|
Accumulated other comprehensive loss, net of tax
|
|
$
|
(9,440)
|
|
$
|
4,862
|
|
$
|
(4,578)
|
4 - INVESTMENT SECURITIES
The following tables set forth the amortized cost and estimated fair values of the Bank’s investment securities.
|
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|
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|
|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2019
|
|
|
|
|
|
Gross
|
|
Gross
|
|
|
|
|
|
Amortized
|
|
Unrealized
|
|
Unrealized
|
|
Fair
|
(in thousands)
|
|
Cost
|
|
Gains
|
|
Losses
|
|
Value
|
Held-to-Maturity Securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
State and municipals
|
|
$
|
4,809
|
|
$
|
35
|
|
$
|
—
|
|
$
|
4,844
|
Pass-through mortgage securities
|
|
|
260
|
|
|
13
|
|
|
—
|
|
|
273
|
Collateralized mortgage obligations
|
|
|
55
|
|
|
—
|
|
|
—
|
|
|
55
|
|
|
$
|
5,124
|
|
$
|
48
|
|
$
|
—
|
|
$
|
5,172
|
Available-for-Sale Securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
State and municipals
|
|
$
|
408,205
|
|
$
|
5,932
|
|
$
|
(1,792)
|
|
$
|
412,345
|
Pass-through mortgage securities
|
|
|
66,833
|
|
|
284
|
|
|
(558)
|
|
|
66,559
|
Collateralized mortgage obligations
|
|
|
151,695
|
|
|
1,755
|
|
|
(163)
|
|
|
153,287
|
Corporate bonds
|
|
|
119,000
|
|
|
—
|
|
|
(1,270)
|
|
|
117,730
|
|
|
$
|
745,733
|
|
$
|
7,971
|
|
$
|
(3,783)
|
|
$
|
749,921
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2018
|
Held-to-Maturity Securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
State and municipals
|
|
$
|
5,142
|
|
$
|
36
|
|
$
|
—
|
|
$
|
5,178
|
Pass-through mortgage securities
|
|
|
267
|
|
|
11
|
|
|
—
|
|
|
278
|
Collateralized mortgage obligations
|
|
|
95
|
|
|
1
|
|
|
—
|
|
|
96
|
|
|
$
|
5,504
|
|
$
|
48
|
|
$
|
—
|
|
$
|
5,552
|
Available-for-Sale Securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
State and municipals
|
|
$
|
422,235
|
|
$
|
3,220
|
|
$
|
(5,417)
|
|
$
|
420,038
|
Pass-through mortgage securities
|
|
|
66,631
|
|
|
24
|
|
|
(1,169)
|
|
|
65,486
|
Collateralized mortgage obligations
|
|
|
154,378
|
|
|
886
|
|
|
(363)
|
|
|
154,901
|
Corporate bonds
|
|
|
119,000
|
|
|
—
|
|
|
(1,410)
|
|
|
117,590
|
|
|
$
|
762,244
|
|
$
|
4,130
|
|
$
|
(8,359)
|
|
$
|
758,015
|
At March 31, 2019
and
December 31, 2018
, investment securities with a carrying value
of
$391,614,000
and
$342,712,000
, 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, 2019
and
December 31, 2018
.
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, 2019
|
|
|
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
|
|
$
|
—
|
|
$
|
—
|
|
$
|
60,339
|
|
$
|
(1,792)
|
|
$
|
60,339
|
|
$
|
(1,792)
|
Pass-through mortgage securities
|
|
|
—
|
|
|
—
|
|
|
28,282
|
|
|
(558)
|
|
|
28,282
|
|
|
(558)
|
Collateralized mortgage obligations
|
|
|
—
|
|
|
—
|
|
|
7,160
|
|
|
(163)
|
|
|
7,160
|
|
|
(163)
|
Corporate bonds
|
|
|
117,730
|
|
|
(1,270)
|
|
|
—
|
|
|
—
|
|
|
117,730
|
|
|
(1,270)
|
Total temporarily impaired
|
|
$
|
117,730
|
|
$
|
(1,270)
|
|
$
|
95,781
|
|
$
|
(2,513)
|
|
$
|
213,511
|
|
$
|
(3,783)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2018
|
State and municipals
|
|
$
|
102,882
|
|
$
|
(1,639)
|
|
$
|
62,995
|
|
$
|
(3,778)
|
|
$
|
165,877
|
|
$
|
(5,417)
|
Pass-through mortgage securities
|
|
|
38,421
|
|
|
(142)
|
|
|
23,425
|
|
|
(1,027)
|
|
|
61,846
|
|
|
(1,169)
|
Collateralized mortgage obligations
|
|
|
32,577
|
|
|
(89)
|
|
|
7,342
|
|
|
(274)
|
|
|
39,919
|
|
|
(363)
|
Corporate bonds
|
|
|
97,590
|
|
|
(1,410)
|
|
|
—
|
|
|
—
|
|
|
97,590
|
|
|
(1,410)
|
Total temporarily impaired
|
|
$
|
271,470
|
|
$
|
(3,280)
|
|
$
|
93,762
|
|
$
|
(5,079)
|
|
$
|
365,232
|
|
$
|
(8,359)
|
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, 2019
.
Sales of Available-for-Sale
and Held-to-Maturity
Securities.
There were
no
sales of
available-for-sale
or
held-to-maturity securities during the three months ended March 31, 2019 and 2018.
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
March 31, 2019
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
mortgage
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.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
|
Amortized Cost
|
|
Fair Value
|
|
|
Held-to-Maturity Securities:
|
|
|
|
|
|
|
|
|
Within one year
|
|
$
|
3,241
|
|
$
|
3,243
|
|
|
After 1 through 5 years
|
|
|
1,568
|
|
|
1,601
|
|
|
After 5 through 10 years
|
|
|
—
|
|
|
—
|
|
|
After 10 years
|
|
|
—
|
|
|
—
|
|
|
Mortgage-backed securities
|
|
|
315
|
|
|
328
|
|
|
|
|
$
|
5,124
|
|
$
|
5,172
|
|
|
Available-for-Sale Securities:
|
|
|
|
|
|
|
|
|
Within one year
|
|
$
|
38,917
|
|
$
|
39,170
|
|
|
After 1 through 5 years
|
|
|
41,470
|
|
|
41,908
|
|
|
After 5 through 10 years
|
|
|
290,124
|
|
|
291,350
|
|
|
After 10 years
|
|
|
156,694
|
|
|
157,647
|
|
|
Mortgage-backed securities
|
|
|
218,528
|
|
|
219,846
|
|
|
|
|
$
|
745,733
|
|
$
|
749,921
|
|
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, 2019
|
|
|
Loans
|
|
Allowance for Loan Losses
|
(in thousands)
|
|
Individually
Evaluated for
Impairment
|
|
Collectively
Evaluated for
Impairment
|
|
Ending
Balance
|
|
Individually
Evaluated for
Impairment
|
|
Collectively
Evaluated for
Impairment
|
|
Ending
Balance
|
Commercial and industrial
|
|
$
|
15
|
|
$
|
100,929
|
|
$
|
100,944
|
|
$
|
—
|
|
$
|
1,047
|
|
$
|
1,047
|
Commercial mortgages:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Multifamily
|
|
|
—
|
|
|
781,835
|
|
|
781,835
|
|
|
—
|
|
|
6,435
|
|
|
6,435
|
Other
|
|
|
—
|
|
|
435,579
|
|
|
435,579
|
|
|
—
|
|
|
3,517
|
|
|
3,517
|
Owner-occupied
|
|
|
519
|
|
|
86,953
|
|
|
87,472
|
|
|
—
|
|
|
685
|
|
|
685
|
Residential mortgages:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Closed end
|
|
|
1,692
|
|
|
1,775,640
|
|
|
1,777,332
|
|
|
15
|
|
|
18,056
|
|
|
18,071
|
Revolving home equity
|
|
|
714
|
|
|
65,335
|
|
|
66,049
|
|
|
—
|
|
|
402
|
|
|
402
|
Consumer and other
|
|
|
296
|
|
|
4,811
|
|
|
5,107
|
|
|
—
|
|
|
42
|
|
|
42
|
|
|
$
|
3,236
|
|
$
|
3,251,082
|
|
$
|
3,254,318
|
|
$
|
15
|
|
$
|
30,184
|
|
$
|
30,199
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2018
|
Commercial and industrial
|
|
$
|
22
|
|
$
|
98,763
|
|
$
|
98,785
|
|
$
|
—
|
|
$
|
1,158
|
|
$
|
1,158
|
Commercial mortgages:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Multifamily
|
|
|
—
|
|
|
756,714
|
|
|
756,714
|
|
|
—
|
|
|
5,851
|
|
|
5,851
|
Other
|
|
|
—
|
|
|
433,330
|
|
|
433,330
|
|
|
—
|
|
|
3,783
|
|
|
3,783
|
Owner-occupied
|
|
|
520
|
|
|
90,731
|
|
|
91,251
|
|
|
—
|
|
|
743
|
|
|
743
|
Residential mortgages:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Closed end
|
|
|
1,814
|
|
|
1,807,837
|
|
|
1,809,651
|
|
|
16
|
|
|
18,828
|
|
|
18,844
|
Revolving home equity
|
|
|
743
|
|
|
66,967
|
|
|
67,710
|
|
|
—
|
|
|
410
|
|
|
410
|
Consumer and other
|
|
|
324
|
|
|
5,634
|
|
|
5,958
|
|
|
—
|
|
|
49
|
|
|
49
|
|
|
$
|
3,423
|
|
$
|
3,259,976
|
|
$
|
3,263,399
|
|
$
|
16
|
|
$
|
30,822
|
|
$
|
30,838
|
The following tables present the activity in the allowance for loan losses for the periods indicated.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
|
Balance at
1/1/19
|
|
Chargeoffs
|
|
Recoveries
|
|
Provision for
Loan Losses
(Credit)
|
|
Balance at
3/31/19
|
Commercial and industrial
|
|
$
|
1,158
|
|
$
|
54
|
|
$
|
4
|
|
$
|
(61)
|
|
$
|
1,047
|
Commercial mortgages:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Multifamily
|
|
|
5,851
|
|
|
—
|
|
|
—
|
|
|
584
|
|
|
6,435
|
Other
|
|
|
3,783
|
|
|
—
|
|
|
—
|
|
|
(266)
|
|
|
3,517
|
Owner-occupied
|
|
|
743
|
|
|
—
|
|
|
—
|
|
|
(58)
|
|
|
685
|
Residential mortgages:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Closed end
|
|
|
18,844
|
|
|
134
|
|
|
1
|
|
|
(640)
|
|
|
18,071
|
Revolving home equity
|
|
|
410
|
|
|
—
|
|
|
—
|
|
|
(8)
|
|
|
402
|
Consumer and other
|
|
|
49
|
|
|
—
|
|
|
1
|
|
|
(8)
|
|
|
42
|
|
|
$
|
30,838
|
|
$
|
188
|
|
$
|
6
|
|
$
|
(457)
|
|
$
|
30,199
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
|
Balance at
1/1/18
|
|
Chargeoffs
|
|
Recoveries
|
|
Provision for Loan Losses (Credit)
|
|
Balance at
3/31/18
|
Commercial and industrial
|
|
$
|
1,441
|
|
$
|
74
|
|
$
|
—
|
|
$
|
(103)
|
|
$
|
1,264
|
Commercial mortgages:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Multifamily
|
|
|
6,423
|
|
|
—
|
|
|
—
|
|
|
346
|
|
|
6,769
|
Other
|
|
|
4,734
|
|
|
—
|
|
|
—
|
|
|
46
|
|
|
4,780
|
Owner-occupied
|
|
|
1,076
|
|
|
—
|
|
|
—
|
|
|
(158)
|
|
|
918
|
Residential mortgages:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Closed end
|
|
|
19,347
|
|
|
20
|
|
|
1
|
|
|
1,338
|
|
|
20,666
|
Revolving home equity
|
|
|
689
|
|
|
49
|
|
|
—
|
|
|
42
|
|
|
682
|
Consumer and other
|
|
|
74
|
|
|
—
|
|
|
—
|
|
|
1
|
|
|
75
|
|
|
$
|
33,784
|
|
$
|
143
|
|
$
|
1
|
|
$
|
1,512
|
|
$
|
35,154
|
For individually impaired loans, the following tables set forth by class of loans at
March 31, 2019
and
December 31, 2018
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, 2019 and 2018
. The recorded investment is the unpaid principal balance of the loans less any interest payments applied to principal
and any direct chargeoffs plus o
r 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, 2019
|
|
March 31, 2019
|
|
|
|
|
|
Unpaid
|
|
|
|
|
Average
|
|
Interest
|
|
|
Recorded
|
|
Principal
|
|
Related
|
|
Recorded
|
|
Income
|
(in thousands)
|
|
Investment
|
|
Balance
|
|
Allowance
|
|
Investment
|
|
Recognized
|
With no related allowance recorded:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial and industrial
|
|
$
|
15
|
|
$
|
15
|
|
$
|
—
|
|
$
|
17
|
|
$
|
—
|
Commercial mortgages - owner-occupied
|
|
|
519
|
|
|
602
|
|
|
—
|
|
|
519
|
|
|
8
|
Residential mortgages:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Closed end
|
|
|
1,538
|
|
|
1,557
|
|
|
—
|
|
|
1,546
|
|
|
1
|
Revolving home equity
|
|
|
714
|
|
|
734
|
|
|
—
|
|
|
729
|
|
|
—
|
Consumer and other
|
|
|
296
|
|
|
296
|
|
|
—
|
|
|
312
|
|
|
—
|
With an allowance recorded:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential mortgages - closed end
|
|
|
154
|
|
|
154
|
|
|
15
|
|
|
155
|
|
|
2
|
Total:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial and industrial
|
|
|
15
|
|
|
15
|
|
|
—
|
|
|
17
|
|
|
—
|
Commercial mortgages - owner-occupied
|
|
|
519
|
|
|
602
|
|
|
—
|
|
|
519
|
|
|
8
|
Residential mortgages:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Closed end
|
|
|
1,692
|
|
|
1,711
|
|
|
15
|
|
|
1,701
|
|
|
3
|
Revolving home equity
|
|
|
714
|
|
|
734
|
|
|
—
|
|
|
729
|
|
|
—
|
Consumer and other
|
|
|
296
|
|
|
296
|
|
|
—
|
|
|
312
|
|
|
—
|
|
|
$
|
3,236
|
|
$
|
3,358
|
|
$
|
15
|
|
$
|
3,278
|
|
$
|
11
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
December 31, 2018
|
|
March 31, 2018
|
|
|
|
|
|
Unpaid
|
|
|
|
|
Average
|
|
Interest
|
|
|
Recorded
|
|
Principal
|
|
Related
|
|
Recorded
|
|
Income
|
(in thousands)
|
|
Investment
|
|
Balance
|
|
Allowance
|
|
Investment
|
|
Recognized
|
With no related allowance recorded:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial and industrial
|
|
$
|
22
|
|
$
|
22
|
|
$
|
—
|
|
$
|
99
|
|
$
|
1
|
Commercial mortgages - owner-occupied
|
|
|
520
|
|
|
604
|
|
|
—
|
|
|
552
|
|
|
6
|
Residential mortgages:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Closed end
|
|
|
1,561
|
|
|
1,573
|
|
|
—
|
|
|
1,141
|
|
|
1
|
Revolving home equity
|
|
|
743
|
|
|
747
|
|
|
—
|
|
|
—
|
|
|
—
|
Consumer and other
|
|
|
324
|
|
|
324
|
|
|
—
|
|
|
117
|
|
|
1
|
With an allowance recorded:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential mortgages - closed end
|
|
|
253
|
|
|
253
|
|
|
16
|
|
|
286
|
|
|
3
|
Total:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial and industrial
|
|
|
22
|
|
|
22
|
|
|
—
|
|
|
99
|
|
|
1
|
Commercial mortgages - owner-occupied
|
|
|
520
|
|
|
604
|
|
|
—
|
|
|
552
|
|
|
6
|
Residential mortgages:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Closed end
|
|
|
1,814
|
|
|
1,826
|
|
|
16
|
|
|
1,427
|
|
|
4
|
Revolving home equity
|
|
|
743
|
|
|
747
|
|
|
—
|
|
|
—
|
|
|
—
|
Consumer and other
|
|
|
324
|
|
|
324
|
|
|
—
|
|
|
117
|
|
|
1
|
|
|
$
|
3,423
|
|
$
|
3,523
|
|
$
|
16
|
|
$
|
2,195
|
|
$
|
12
|
Aging of Loans
. The following tables present the aging of the recorded investment in loans by class of loans.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2019
|
|
|
|
|
|
|
|
|
Past Due
|
|
|
|
|
Total Past
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
90 Days or
|
|
|
|
|
Due Loans &
|
|
|
|
|
|
|
|
|
30-59 Days
|
|
60-89 Days
|
|
More and
|
|
Nonaccrual
|
|
Nonaccrual
|
|
|
|
|
Total
|
(in thousands)
|
|
Past Due
|
|
Past Due
|
|
Still Accruing
|
|
Loans
|
|
Loans
|
|
Current
|
|
Loans
|
Commercial and industrial
|
|
$
|
445
|
|
$
|
—
|
|
$
|
—
|
|
$
|
—
|
|
$
|
445
|
|
$
|
100,499
|
|
$
|
100,944
|
Commercial mortgages:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Multifamily
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
781,835
|
|
|
781,835
|
Other
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
435,579
|
|
|
435,579
|
Owner-occupied
|
|
|
231
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
231
|
|
|
87,241
|
|
|
87,472
|
Residential mortgages:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Closed end
|
|
|
2,012
|
|
|
—
|
|
|
—
|
|
|
1,372
|
|
|
3,384
|
|
|
1,773,948
|
|
|
1,777,332
|
Revolving home equity
|
|
|
96
|
|
|
249
|
|
|
—
|
|
|
714
|
|
|
1,059
|
|
|
64,990
|
|
|
66,049
|
Consumer and other
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
5,107
|
|
|
5,107
|
|
|
$
|
2,784
|
|
$
|
249
|
|
$
|
—
|
|
$
|
2,086
|
|
$
|
5,119
|
|
$
|
3,249,199
|
|
$
|
3,254,318
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2018
|
Commercial and industrial
|
|
$
|
—
|
|
$
|
43
|
|
$
|
—
|
|
$
|
—
|
|
$
|
43
|
|
$
|
98,742
|
|
$
|
98,785
|
Commercial mortgages:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Multifamily
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
756,714
|
|
|
756,714
|
Other
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
433,330
|
|
|
433,330
|
Owner-occupied
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
91,251
|
|
|
91,251
|
Residential mortgages:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Closed end
|
|
|
864
|
|
|
—
|
|
|
—
|
|
|
1,392
|
|
|
2,256
|
|
|
1,807,395
|
|
|
1,809,651
|
Revolving home equity
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
743
|
|
|
743
|
|
|
66,967
|
|
|
67,710
|
Consumer and other
|
|
|
2
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
2
|
|
|
5,956
|
|
|
5,958
|
|
|
$
|
866
|
|
$
|
43
|
|
$
|
—
|
|
$
|
2,135
|
|
$
|
3,044
|
|
$
|
3,260,355
|
|
$
|
3,263,399
|
There were
no
loans in the process of foreclosure nor did the Bank hold any
foreclosed
residential real estate property at
March 31, 2019
or December 31,
201
8
.
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.
The Bank did
not
modify any loans in troubled debt restructurings during the first three months of 2019. During the three months ended March 31, 2018, the Bank modified
two
consumer loans to a single borrower into
one
loan in a troubled debt restructuring amounting to
$350,000
. The term of the restructured loan was exte
nded for 12
months and the post-modification interest rate was lower than the current market rate for new debt with similar risk
.
At
March 31, 2019
and
December 31, 2018
, the Bank had an allowance for loan
losses of
$15,000
and
$16,000
,
respectively, allocated to specific troubled debt restructurings. The Bank had
no
commitments to lend additional amounts in connection with loans that were classified a
s troubled debt restructurings.
There were
no
troubled debt restructurings for which there was a payment default during the
three months ended
March 31, 2019
and
2018
that were modified during the
12
-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
changes in the
borrower
’
s
financial condition,
c
redit
concentration
s
,
changes in collateral values
, economic conditions and environmental
contamination
of properties securing mortgage loans. The Bank’s commercial loans, including those secured by
real estate
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 sources of repayment for residential and commercial mortgage loans include employment and other income of the borrowers, the businesses of the borrowers and cash flows from the underlying properties. In t
he
case of
multifamily
mortgage
loans
, a
substantial portion of the
underlying properties are rent stabilized or rent controlled.
These sources of repayment are dependent on, among other things,
the strength of the local economy.
Credit Quality Indicators.
The
Corporation
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
, due diligence checks
and current economic trends.
Commercial and industrial loans and commercial mortgage loans are risk rated utilizing a ten point rating system. The ten point risk rating s
ystem 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
during the underwriting process
and affirmed
as part of the
approval
process
. The ratings are periodically reviewed and
evaluated based
on 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
80%
of the recorded investment of com
mercial real estate loans as of December
31 of the prior year must be reviewed annually.
Lines of credit are also reviewed annually at each proposed reaffirmation.
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
by management
.
|
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, 2019
|
|
|
Internally Assigned Risk Rating
|
|
|
|
|
|
|
|
|
|
|
|
Special
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
|
Pass
|
|
Watch
|
|
Mention
|
|
Substandard
|
|
Doubtful
|
|
Total
|
Commercial and industrial
|
|
$
|
99,912
|
|
$
|
—
|
|
$
|
634
|
|
$
|
398
|
|
$
|
—
|
|
$
|
100,944
|
Commercial mortgages:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Multifamily
|
|
|
781,835
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
781,835
|
Other
|
|
|
435,579
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
435,579
|
Owner-occupied
|
|
|
82,097
|
|
|
1,078
|
|
|
3,778
|
|
|
519
|
|
|
—
|
|
|
87,472
|
|
|
$
|
1,399,423
|
|
$
|
1,078
|
|
$
|
4,412
|
|
$
|
917
|
|
$
|
—
|
|
$
|
1,405,830
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2018
|
Commercial and industrial
|
|
$
|
97,684
|
|
$
|
—
|
|
$
|
667
|
|
$
|
434
|
|
$
|
—
|
|
$
|
98,785
|
Commercial mortgages:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Multifamily
|
|
|
756,714
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
756,714
|
Other
|
|
|
417,838
|
|
|
14,194
|
|
|
1,298
|
|
|
—
|
|
|
—
|
|
|
433,330
|
Owner-occupied
|
|
|
85,710
|
|
|
1,090
|
|
|
3,911
|
|
|
540
|
|
|
—
|
|
|
91,251
|
|
|
$
|
1,357,946
|
|
$
|
15,284
|
|
$
|
5,876
|
|
$
|
974
|
|
$
|
—
|
|
$
|
1,380,080
|
The following tables present the recorded investment in residential mortgage loans, home equity lines and other consumer loans by class of loans and risk rating. Loans shown as Pass are all loans other than those risk rated by management as Watch, Special Mention, Substandard or Doubtful.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2019
|
|
|
Internally Assigned Risk Rating
|
|
|
|
|
|
|
|
|
|
|
|
Special
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
|
Pass
|
|
Watch
|
|
Mention
|
|
Substandard
|
|
|
Doubtful
|
|
Total
|
Residential mortgages:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Closed end
|
|
$
|
1,775,328
|
|
$
|
312
|
|
$
|
—
|
|
$
|
1,692
|
|
$
|
—
|
|
$
|
1,777,332
|
Revolving home equity
|
|
|
65,088
|
|
|
—
|
|
|
247
|
|
|
714
|
|
|
—
|
|
|
66,049
|
Consumer and other
|
|
|
4,307
|
|
|
—
|
|
|
—
|
|
|
296
|
|
|
—
|
|
|
4,603
|
|
|
$
|
1,844,723
|
|
$
|
312
|
|
$
|
247
|
|
$
|
2,702
|
|
$
|
—
|
|
$
|
1,847,984
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2018
|
Residential mortgages:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Closed end
|
|
$
|
1,807,525
|
|
$
|
312
|
|
$
|
—
|
|
$
|
1,814
|
|
$
|
—
|
|
$
|
1,809,651
|
Revolving home equity
|
|
|
66,718
|
|
|
—
|
|
|
249
|
|
|
743
|
|
|
—
|
|
|
67,710
|
Consumer and other
|
|
|
4,958
|
|
|
—
|
|
|
—
|
|
|
324
|
|
|
—
|
|
|
5,282
|
|
|
$
|
1,879,201
|
|
$
|
312
|
|
$
|
249
|
|
$
|
2,881
|
|
$
|
—
|
|
$
|
1,882,643
|
Deposit account overdrafts were
$504,000
and
$676,000
at
March 31, 2019
and
December 31, 2018
, respectively. Overdrafts are not assigned a risk rating and are therefore excluded from consumer loans in the tables above.
6 - STOCK-BASED COMPENSATION
On April 22, 2014, the stockholders of the Corporation approved the 2014 Equity Incentive Plan (“2014 Plan”). Upon approval of the 2014 Plan,
no
further awards could be made under the 2006 Stock Compensation Plan (“2006 Plan”).
2014 Plan.
Under the 2014 Plan, awards may be granted to employees and non-employee directors as non-qualified stock options (“NQSOs”), stock appreciation rights (“SARs”), restricted stock awards, RSUs, or any combination thereof, any of which may be subject to performance-based vesting conditions. Awards may also be granted to employees as incentive stock options (“ISOs”). The exercise price of stock options and SARs granted under the 2014 Plan may not be less than the fair market value of the Corporation’s common stock on the date the stock option
or SAR
is granted. The 2014 Plan is administered by the Compensation Committee of the Board of Directors. Almost all of the awards granted to date under the 2014 Plan are RSUs. All awards granted under the 2014 Plan will immediately vest upon an involuntary termination following a change in control, total and permanent disability, as defined, or death, and with certain exceptions, will immediately vest in the event of retirement, as defined.
The Corporation has
2,250,000
shares of common stock reserved for awards under the 2014 Plan. Awards granted under the 2006 Plan that expire or are forfeited after April 22, 2014 will be added to the number of shares of common stock reserved for issuance of awards under the 2014 Plan. All of the 2,250,000 shares may be issued upon the exercise of stock options or SARs. A maximum of
787,500
shares may be issued as restricted stock awards or upon the conversion of RSUs. At
March 31, 2019
,
1,751,778
equity
awards remain available to be granted under the 2014 Plan of
which
298,633
may be granted as restricted stock awards or RSUs.
Details
of RSUs.
The following table summarizes the vesting schedule of RSUs outstanding at
March 31, 2019
by the year they were originally granted.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted During the Year Ended December 31,
|
|
Total
|
|
2019
|
|
2018
|
|
2017
|
|
2016
|
Number of RSUs:
|
|
|
|
|
|
|
|
|
|
Granted during the year
|
379,435
|
|
107,144
|
|
70,688
|
|
94,329
|
|
107,274
|
Outstanding at March 31, 2019
|
220,890
|
|
107,144
|
|
44,338
|
|
66,408
|
|
3,000
|
|
|
|
|
|
|
|
|
|
|
Scheduled to vest during:
|
|
|
|
|
|
|
|
|
|
2019
|
94,126
|
|
23,535
|
|
14,359
|
|
53,232
|
|
3,000
|
2020
|
54,414
|
|
35,706
|
|
8,782
|
|
9,926
|
|
—
|
2021
|
36,632
|
|
12,185
|
|
21,197
|
|
3,250
|
|
—
|
2022
|
35,718
|
|
35,718
|
|
—
|
|
—
|
|
—
|
|
220,890
|
|
107,144
|
|
44,338
|
|
66,408
|
|
3,000
|
The RSUs in the table above include performance-based RSUs with vesting based on the financial performance of the Corporation in 201
9
and 20
20
and service-based RSUs with various service-based vesting periods. The grant date fair value of RSUs awarded in 2016 is equal to the market price of the shares underlying the awards on the grant date. The grant date fair value of RSUs awarded in 201
7
, 201
8
and 201
9
is equal to the market price of the shares underlying the awards on the grant date, discounted for dividends that are not paid on these RSUs.
The following table presents a summary of RSUs outstanding at
March 31, 2019
and changes during the
three
month period then ended.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-
|
|
|
|
|
|
|
|
Weighted-
|
|
Average
|
|
Aggregate
|
|
|
|
|
Average
|
|
Remaining
|
|
Intrinsic
|
|
|
Number of
|
|
Grant-Date
|
|
Contractual
|
|
Value
|
|
|
RSUs
|
|
Fair Value
|
|
Term (yrs.)
|
|
(in thousands)
|
Outstanding at January 1, 2019
|
|
215,084
|
|
$
|
23.79
|
|
|
|
|
|
|
Granted
|
|
107,144
|
|
|
19.48
|
|
|
|
|
|
|
Converted
|
|
(101,338)
|
|
|
20.79
|
|
|
|
|
|
|
Outstanding at March 31, 2019
|
|
220,890
|
|
$
|
23.08
|
|
|
1.41
|
|
$
|
4,844
|
Vested and Convertible at March 31, 2019
|
|
—
|
|
$
|
—
|
|
|
—
|
|
$
|
—
|
The performance-based RSUs granted in
2019
and 2018
have a maximum payout potential of
1.50
shares of the Corporati
on’s common stock
for each RSU awarded.
Performance-based RSU’s granted in 2017 have a maximum payout potential of
1.25
shares for each RSU awarded.
All other RSUs outstanding at
March 31, 2019
have a maximum payout potential of one share of the Corporation’s common stock for each RSU awarded. All of the RSUs outstanding at
March 31, 2019
are currently expected to vest and become convertible in the future. The total intrinsic value of RSUs converted during the first
three
months of 201
9
and 201
8
was
$2,107,000
and
$2,884,000
, respectively.
2006 Plan.
The 2006 Plan was approved by the stockholders of the Corporation on April 18, 2006. The 2006 Plan permitted the granting of stock options, SARs, restricted stock awards and RSUs to employ
ees and non-employee directors.
Through December 31, 2011, equity grants to executive officers and directors under the 2006 Plan consisted of a combination of NQSOs and RSUs, while equity grants to other officers consisted solely of NQSOs. Beginning in 2012, equity grants under the 2006 Plan consisted solely of RSUs. Stock options granted under the 2006 Plan have a
five
year vesting period and a
ten
year term.
Fair Value of Stock Options.
The grant date fair value of options was estimated on the date of grant using the Black-Scholes option pricing model. Substantially all outstanding stock options were expensed in prior years.
Stock Option Activity.
The following table presents a summary of options outstanding at
March 31, 2019
, and changes during the
three
month period
then ended.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-
|
|
|
|
|
|
|
|
Weighted-
|
|
Average
|
|
Aggregate
|
|
|
|
|
Average
|
|
Remaining
|
|
Intrinsic
|
|
|
Number of
|
|
Exercise
|
|
Contractual
|
|
Value
|
|
|
Options
|
|
Price
|
|
Term (yrs.)
|
|
(in thousands)
|
Outstanding at January 1, 2019
|
|
96,112
|
|
$
|
11.80
|
|
|
|
|
|
|
Exercised
|
|
(19,656)
|
|
|
10.32
|
|
|
|
|
|
|
Forfeited or expired
|
|
—
|
|
|
—
|
|
|
|
|
|
|
Outstanding at March 31, 2019
|
|
76,456
|
|
$
|
12.18
|
|
|
1.43
|
|
$
|
745
|
Exercisable at March 31, 2019
|
|
76,156
|
|
$
|
12.16
|
|
|
1.42
|
|
$
|
744
|
All options outstanding at
March 31, 2019
are
either fully vested or expected to vest. The total intrinsic value of options exercised during the first three months of 2019 and 2018 was
$203,000
and
$205,000
, respectively. Cash received from option exercises in the first three months of 2019 and 2018 was
$203,000
and
$96,000
,
respectively
. Tax benefits from stock option exercises for the three months ended March 31, 2019 and 2018
were
$61,000
and
$62,000
, respectively.
Compensation Expense.
The Corporation recorded compensation expense for share-based
payments of
$1,295,000
and
$1,128,000
and reco
rd
ed related income tax benefits
of
$390,000
and
$340,000
for the thre
e
months ended March 31, 2019 and 2018, respectively.
Unrecognized Compensation Cost.
As of
March 31,
201
9
, there
was
$1,797,000
of total unrecognized compensation cost related to non-vested equity awards comprised of
$1,000
for stock options and
$1,796,000
for RSUs. The total cost is expected to be recognized over a weighted-average period of
1.3
years, which is based on weighted-average periods of
1.2
years and
1.3
years for stock options and RSUs, respectively.
Other.
No
cash was used to settle stock options during the first
three
months of 201
9
or 201
8
. The Corporation uses newly issued shares to settle st
ock option exercises and for the conversion of RSUs. During the three months ended March 31, 2019 and 2018,
1,462
and
557
shares, respectively
,
of the Corporation’s common stock were issued to member
s
of the Board of Directors in payment of director fees.
7 - DEFINED BENEFIT
PENSION PLAN
The following table sets forth the components of net periodic pension
credit
.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
March 31,
|
(in thousands)
|
|
2019
|
|
2018
|
Service cost
|
|
$
|
317
|
|
$
|
342
|
Interest cost
|
|
|
446
|
|
|
397
|
Expected return on plan assets
|
|
|
(750)
|
|
|
(819)
|
Amortization of net actuarial loss
|
|
|
88
|
|
|
—
|
Net pension cost (credit)
|
|
$
|
101
|
|
$
|
(80)
|
C
omponents of net pension
cost (
credit
)
other th
an the service cost component a
re included in the line item “Other noninterest income” in the consolidated statements of incom
e. The service cost component i
s included in the line item “Salaries
and employee benefits
” in the consolidated statements of income.
The Bank makes cash contributions to the pension plan (“Plan”) which comply with the fund
ing requirements of applicable f
ederal laws and regulations. For funding purposes, the laws and regulations set forth both minimum required and maximum tax-deductible contributions. The Bank has
no
minimum required pension contribution for the Plan year ending
September 30
, 201
9
.
I
t
s maximum tax-deductible contribution for the tax year beginning
January 1, 2019 is
$7,700,000
.
The contribution the Bank will make in 2019, if any, has not yet been d
etermined.
8 - FAIR VALUE OF FINANCIAL INSTRUMENTS
Financial Instruments Recorded at Fair Value
. When measuring fair value, the Corporation uses a fair value hierarchy, which is designed to maximize the use of observable inputs and minimize the use of unobservable inputs. The hierarchy involves three levels of inputs that may be used to measure fair value:
Level 1: Quoted prices (unadjusted) in active markets for identical assets or liabilities that the Corporation has the ability to access at the measurement date.
Level 2: Significant other observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets or liabilities in markets that are not active; or inputs other than quoted prices that are observable or can be corroborated by observable market data.
Level 3: Significant unobservable inputs that reflect the Corporation’s own assumptions about the assumptions that market participants would use in pricing an asset or liability.
The Corporation deems transfers between levels of the fair value hierarchy to have occurred on the date of the event or change in circumstance that caused the transfer. There were
no
transfers between levels of the fair value hierarchy during the
three months ended
March 31, 2019
or
2018
.
The fair values of the Corporation’s
financial assets and liabilities measured at fair value on a recurring basis are s
et forth in the table
that follow
s.
The fair value
s
of available-for-sale securities
are determined on a recurring basis using matrix pricing (Level 2 inputs). Matrix pricing, which is a mathematical technique widely used in the industry to value debt securities, does not rely exclusively on quoted prices for the specific securities but rather on the relationship of such securities to othe
r benchmark quoted securities.
Where no significant other observable inputs were available,
L
evel 3
inputs were used
.
The fair values of interest rate swaps are based on valuation models using observable market data as of the measurement date resulting in a Level 2 classification.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements Using:
|
|
|
|
|
|
Quoted Prices
|
|
Significant
|
|
|
|
|
|
|
|
|
in Active
|
|
Other
|
|
Significant
|
|
|
|
|
|
Markets for
|
|
Observable
|
|
Unobservable
|
|
|
|
|
|
Identical Assets
|
|
Inputs
|
|
Inputs
|
(in thousands)
|
|
Total
|
|
(Level 1)
|
|
(Level 2)
|
|
(Level 3)
|
March 31, 2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-Sale Securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
State and municipals
|
|
$
|
412,345
|
|
$
|
—
|
|
$
|
412,075
|
|
$
|
270
|
Pass-through mortgage securities
|
|
|
66,559
|
|
|
—
|
|
|
66,559
|
|
|
—
|
Collateralized mortgage obligations
|
|
|
153,287
|
|
|
—
|
|
|
153,287
|
|
|
—
|
Corporate bonds
|
|
|
117,730
|
|
|
—
|
|
|
117,730
|
|
|
—
|
|
|
$
|
749,921
|
|
$
|
—
|
|
$
|
749,651
|
|
$
|
270
|
Financial Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative - interest rate swaps
|
|
$
|
2,675
|
|
$
|
—
|
|
$
|
2,675
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2018:
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-Sale Securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
State and municipals
|
|
$
|
420,038
|
|
$
|
—
|
|
$
|
420,038
|
|
$
|
—
|
Pass-through mortgage securities
|
|
|
65,486
|
|
|
—
|
|
|
65,486
|
|
|
—
|
Collateralized mortgage obligations
|
|
|
154,901
|
|
|
—
|
|
|
154,901
|
|
|
—
|
Corporate bonds
|
|
|
117,590
|
|
|
—
|
|
|
117,590
|
|
|
—
|
|
|
$
|
758,015
|
|
$
|
—
|
|
$
|
758,015
|
|
$
|
—
|
Financial Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative - interest rate swaps
|
|
$
|
1,130
|
|
$
|
—
|
|
$
|
1,130
|
|
$
|
—
|
The Corporation had
no
assets measured at fair value on a nonrecurring basis at March 31, 2019 or December 31, 2018.
Financial Instruments Not Recorded at Fair Value.
Fair value estimates are made at a specific point in time. Such estimates are generally subjective in nature and dependent upon a number of significant assumptions associated with each financial instrument or group of similar financial instruments, including estimates of discount rates,
liquidity,
risks associated with specific financial
instruments
,
estimates of future cash flows, and relevant available market information. Changes in assumptions could significantly affect the estimates. In addition, fair value estimates do not reflect the value of anticipated future business, premiums or discounts that could result from offering for sale at one time the Corporation’s entire holdings of a particular financial instrument, or the
income
tax consequences of realizing gains or losses on the sale of financial instruments.
The following table sets forth the carrying amounts and estimated fair values of financial instruments that are not recorded at fair value in the Corporation’s financial statements.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Level of
|
|
March 31, 2019
|
|
December 31, 2018
|
|
Fair Value
|
|
Carrying
|
|
|
|
|
Carrying
|
|
|
|
(in thousands)
|
Hierarchy
|
|
Amount
|
|
Fair Value
|
|
Amount
|
|
Fair Value
|
Financial Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
Level 1
|
|
$
|
44,017
|
|
$
|
44,017
|
|
$
|
47,358
|
|
$
|
47,358
|
Held-to-maturity securities
|
Level 2
|
|
|
2,402
|
|
|
2,450
|
|
|
2,445
|
|
|
2,493
|
Held-to-maturity securities
|
Level 3
|
|
|
2,722
|
|
|
2,722
|
|
|
3,059
|
|
|
3,059
|
Loans
|
Level 3
|
|
|
3,224,119
|
|
|
3,107,542
|
|
|
3,232,561
|
|
|
3,079,946
|
Restricted stock
|
Level 1
|
|
|
29,411
|
|
|
29,411
|
|
|
40,686
|
|
|
40,686
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Checking deposits
|
Level 1
|
|
|
925,141
|
|
|
925,141
|
|
|
935,574
|
|
|
935,574
|
Savings, NOW and money market deposits
|
Level 1
|
|
|
1,699,996
|
|
|
1,699,996
|
|
|
1,590,341
|
|
|
1,590,341
|
Time deposits
|
Level 2
|
|
|
682,072
|
|
|
680,348
|
|
|
559,057
|
|
|
553,900
|
Short-term borrowings
|
Level 1
|
|
|
135,176
|
|
|
135,176
|
|
|
388,923
|
|
|
388,923
|
Long-term debt
|
Level 2
|
|
|
366,472
|
|
|
362,368
|
|
|
362,027
|
|
|
354,651
|
9 – LEASES
As described in “Note 12 – Adoption of New Accounting Standards,” the Bank adopted Accounting Standards Update (“ASU”) 2016-02 “Leases” and all subsequent
amendments on January 1, 2019.
The Bank leases certain branch and back-office locations under long-term, non-cancelable operating lease agreements. The leases expire at various dates through 2028 and have a weighted average remaining term of
7.75
years at March 31, 2019. Many of the Bank’s leases include renewal options of up to
10
years. The exercise of lease renewal options is at the Bank’s sole discretion.
R
ental payments
required by
the Bank’s lease agreements may increase over time based on certain variable components such as
real estate taxes and common area maintenance charges
.
The Bank determines if an arrangement is a lease at inception.
ASU 2016-02 requires the recognition of a right-of-use (“ROU”) asset and lease liability
at the commencement date based on the present value of lease payments over the lease term. As most of the Bank’s leases do not provide an implicit
interest
rate, the Bank uses its incremental borrowing rate
to determine
the present value of
the
lease payments
.
The
weighted average discount rate was
3.10%
at March 31, 2019
.
For leases entered into on a going forward basis, t
he Bank’s ROU asset and lease liability
may
include options to extend the lease when it is reasonably certain that the Bank will exercise that option.
L
ease expense
will be
recognized on a straight-line basis over the lease term.
Leases with an initial term of 12 months or less are not recorded on the balance sheet. The Bank has one such lease at March 31, 2019 and
recognize
s
lease expense for this lease on a straight-line basis over the lease term
.
The components of lease expense for the three months ended March 3
1, 2019 are as follows:
|
|
|
|
|
|
|
|
|
(in thousands)
|
|
|
|
|
Operating lease cost
|
|
|
$
|
642
|
Variable lease cost
|
|
|
|
135
|
Short-term lease cost
|
|
|
|
2
|
|
|
|
$
|
779
|
The following is a maturity analysis of
the operating lease liability
as of March 31, 2019.
|
|
|
|
|
|
|
|
|
|
(dollars in thousands)
|
|
|
|
|
12 months ended March 31,
|
2020
|
|
$
|
2,531
|
|
2021
|
|
|
2,446
|
|
2022
|
|
|
2,382
|
|
2023
|
|
|
2,285
|
|
2024
|
|
|
1,979
|
|
Thereafter
|
|
|
6,438
|
Total lease payments
|
|
|
|
18,061
|
Less: i
nterest
|
|
|
|
2,062
|
Present value of lease payments
|
|
|
$
|
15,999
|
Related Party Leases.
Buildings occupied by
two
of the Bank’s branch offices are leased from a director of the Corporation and the Bank with a total lease liability of
$155,000
at March 31, 2019. The leases expire on October 31, 2022 and December 31, 2019 with options to re
new.
10
– REVENUE FROM CONTRACTS WITH CUSTOMERS
T
he noninterest income section of the co
nsolidated statements of income
include
s
the
f
ollowing types of
r
e
venues
earned from the Bank's contracts with customers.
Investment Management Division Revenues.
The Bank holds customer assets in a fiduciary capacity and provides various services, including trust account services, estate settlement, custody and asset management. The services
are performed for
customer
s
over time, requiring a time-based measure of progress. Fees are assessed based on market
valu
es
of customer assets held or under management
as of a certain point in time, and income cannot be estimated prior to the end of the measurement period.
Volatility in equity and other market values will impact the amount of revenue that will be earned.
Fees are generally earned and collected on a monthly or quarterly basis, accrued to income as earned and included in the consolidated statements of income in the line item "Investment Management Division income."
Deposit Account Revenues.
Fees are earned and collected on a monthl
y basis for account maintenance and
activity
-based
service charges o
n
deposit accounts. The services
are performed for
customer
s
over time, requiring a time-based measure of progress. Customers may be required to maintain minimum balances and average balances. Additional fees may also be earned for overdrafts, replacement of debit cards, bill payment, lockbox services and ACH services, among others, and are earned and collected as transactions take place. All deposit account fees are accrued to inco
me as earned, either monthly or at the point of sale
, and included in the consolidated statements of income in the line item "Service charges on deposit accounts."
Transaction and Branch Service Fees.
The following revenue streams are components of “Other noninterest income” on the consolidated statements of income. These components
totaled
$493,000
and
$455,000
for the three months ended March 31, 2019 and 2018, respectively. Other items included in “Other noninterest income,” such as bank-owned life insurance (“BOLI”) income, non-service components of net pension cost and real estate tax refunds are
excluded from revenue from contracts with customers
.
Debit/Credit Card
Revenue
s
.
The Bank earns a fee when its customers use their
debit or credit cards in point-of-sale transactions.
These fees are
generally known as interchange fees.
Interchange fees from cardholder transactions represent a percentage of the underlying transaction value and are recorded daily, concurrently with the transaction processing services provided to the cardholder.
Branch
Service
s
Revenues.
The Bank charges fees for safe deposit box rentals, wire transfers, money orders,
checkbook printing, official
checks an
d ATM usage. Fees are earned,
collected
and generally recorded as revenue when the service is provided.
Investment Advisory Services.
The Bank provides branch space to a third party who sells financial products to
the Bank’s customers and pays
commissions
to the Bank
based on the products sold. Commissions are variable
and based on the market values of financial assets sold. C
ommissions are accrued to incom
e as earned
.
11 – DERIVATIVES
As part of its asset liability management
activities
, the Co
rporation may utilize
interest rate swap
s
to help manage its interest rate risk posi
tion. The notional amount of an
interest rate swap does not represent the amount exchanged by the parties. The
exchange of cash flows
is determined by reference to the notional amount and the other terms of the interest rate swap agreement
s.
The Bank entered into an interest rate swap
with
a
notional amount totaling
$150
million on May 22, 2018 and a second interest rate swap with a notional amount of
$50
million on January 17, 2019. The interest rate swaps were
designated as cash flow hedge
s
of certain
Federal Home Loan Bank (“
FHLB
”) advances and brokered certificates of deposit. The swaps
w
ere
determined to be fully effective during the period presented and therefore no amount of ineffectiveness has been included in net income. The aggregate fa
ir value of the swaps
is recorded in other
liabilities
, with changes in fair value
net of related income taxes
recorded in other comprehensive income (loss). The amount included in accumulated other comprehensive income (loss) would be reclassified to current earnings should the hedge
s
no longer be considered effective. The
Corporation
expects the hedge
s
to remain fully effective during
the remaining term of the swaps
.
The following table summarizes informati
on about the interest rate swaps designated as
c
ash flow hedges.
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2019
|
|
December 31, 2018
|
Notional amount
|
|
$200 million
|
|
$150 million
|
Weighted average fixed pay rate
|
|
2.83%
|
|
2.90%
|
Weighted average 3-month LIBOR receive rate
|
|
2.70%
|
|
2.38%
|
Weighted average maturity
|
|
2.81
Years
|
|
2.43
Years
|
Interest expense recorded on the swap transaction
, which
totaled
$69,000
for the three months ended March 31, 201
9
,
is
recorded as a component of i
nterest expense
in the consolidated statements of income
. Amounts reported in accumulated other comprehensive income
(loss) related to swaps
will be reclassified to interest expense as interest payments are received
/made
on the
Bank’s variable-rate
liabilities.
During the
three
months ended March 31, 2019, the Corporation had
$69,000
of reclassifications to interest expense
. During the next twelve months, the Corporation estimates that
$667,000
will be reclassified as an increase to interest expense.
The following table presents the net losses recorded in
the consolidated statements of i
ncome
and the consolidated statements of c
omprehensive income
(loss) relating to
interest rate swaps
for the
three
months ended March 31, 2019.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount of Loss
|
|
|
Amount of Loss
|
|
Amount of Loss
|
|
Recognized in Other
|
|
|
Recognized in OCI
|
|
Reclassified from OCI
|
|
Noninterest Income
|
(in thousands)
|
|
(Effective Portion)
|
|
to Interest Expense
|
|
(Ineffective Portion)
|
Interest rate contract:
|
|
|
|
|
|
|
|
|
|
Three months ended March 31, 2019
|
|
$
|
1,614
|
|
$
|
69
|
|
$
|
—
|
The following table reflects the
amounts relating to the interest rate swap included in the consolidated balance sheet
at
March 31, 2019.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2019
|
|
December 31, 2018
|
|
|
Notional
|
|
Fair Value
|
|
|
Notional
|
|
Fair Value
|
(in thousands)
|
|
Amount
|
|
Asset
|
|
Liability
|
|
|
Amount
|
|
Asset
|
|
Liability
|
Included in other liabilities
|
|
|
|
|
$
|
—
|
|
$
|
2,675
|
|
|
|
|
$
|
—
|
|
$
|
1,130
|
Interest rate swap hedging FHLB advances
|
|
$
|
50,000
|
|
|
|
|
|
|
|
$
|
150,000
|
|
|
|
|
|
|
Interest rate swap hedging brokered
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
certificates of deposit
|
|
$
|
150,000
|
|
|
|
|
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Credit Risk Related Contingent Features
.
The
Bank’s agreement with its interest rate swap counterparty
s
ets forth
minimum collateral
posting thresholds
. If the termination value of
the swap
is a net asset position, the counterparty
may be
required to post collateral against its obligations to the
Bank
under the agreement. However, if the termination value of
the swap
is a net liability position, the
Bank
may be
required to post collateral to the counterparty. At
March 31
, 201
9
,
the Bank is in compliance with the collateral posting provisions to its counterparty under the agreement of approximately $2.7 million
. If the
Bank
had breached any of these provisions at
March 31
, 201
9
, it could have been required to settle its obligations under the agreement at the termination value.
12 – ADOPTION OF NEW ACCOUNTING STANDARDS
In February 2016, the Financial Accounting Standards Board (“FASB”) issued ASU 2016-02 “Leases.” ASU 2016-02 affects any entity that enters into a lease and is intended to increase the transparency and comparability of financial statements among organizations. The ASU requires, among other changes, a lessee to recognize on its balance sheet a lease asset and a lease liability for those leases previously classified as operating leases. The lease asset represents the right to use the underlying asset for the lease term and the lease liability represents the discounted value of the required lease payments to the lessor. The ASU also requires entities to disclose key information about leasing arrangements. The Corporation implemented ASU 2016-02 on January 1, 2019 utilizing the transition method described in ASU 2018-11 “Leases – Targeted Improvements.” Upon adoption of the ASU, the Corporation recorded a right-of-use asset and lease liability of
$15.
7
million and
$16.
5
million, respectively, for its outstanding operating leases. Implementation did not significantly
impact the Corporation’s results of operations, cash flows or regulatory capital ratios. See “Note 9 – Leases” for disclosures required by ASU 2016-02.
The Corporation elected the package of practical expedients permitted in ASU 2016-02. Accordingly, the Bank accounted for its existing operating leases as operating leases under the new guidance, without reassessing (a) whether the contracts contain a lease under ASU 2016-02, (b) whether classification of the operating leases would be different in accordance with ASU 2016-02, or (c) whether the unamortized initial direct costs before transition adjustments (as of December 31, 2018) would have met the definition of initial direct costs in ASU 2016-02 at lease commencement.
1
3
–
IMPACT OF IS
SUED BUT NOT YET EFFECTIVE ACCOUNTING STANDARDS
The pronouncements discussed in this section are not inten
ded to be an all-inclusive list, but rather only those pronouncements that could potentially have an impact on the Corporation’s financial position, results of operations or disclosures
.
In June 2016, the FASB issued ASU 2016-13 “Measurement of Credit Losses on Financial Instruments.” ASU 2016-13 affects entities holding financial assets that are not accounted for at fair value, including loans, debt securities and other financial assets. The ASU requires financial assets measured at amortized cost to be presented at the net amount expected to be collected by recording an allowance for credit losses. ASU 2016-13 is effective for interim and annual reporting periods beginning after December 15, 2019. Management has established an internal committee to manage the implementation of the ASU. The committee is led by the Bank’s Chief Accounting Officer and includes
the Chief Financial Officer,
Chief Risk Officer
, Controller, Manager of Accounting Controls
and Chief Auditor
. A broader group of Bank staff has been identified to assist
in implementing the ASU
,
including representatives of the Bank’s loan operations, credit administration, lending, investments and technology functions. The committee has selected and engaged a third-party software provider, developed an implementation timeline, accumulated the historical data needed to implement the ASU and is reviewing the accounting policy decisions, documentation and internal control processes needed to fully implement the ASU.
In August 2018, the FASB issued ASU 2018-13 “Changes to the Disclosure Requirements for Fair Value Measurement” and ASU 2018-14 “Changes to the Disclosure Requirements for Defined Benefit Plans.” These ASUs modify certain disclosure requirements pertaining to fair value measurements and defined benefit plans, respectively, as part of the FASB’s disclosure framework project
, and are
intended to improve the effectiveness of disclosures in the notes to financial statements. ASU 2018-13 is effective for fiscal years and interim periods within those fiscal years beginning after December 15, 2019. ASU 2018-14 is effective for fiscal years ending after December 15, 2020. Early adoption is permitted. The adoption of these ASUs will modify the Corporation’s disclosures but will not impact its financial position or results of operations.