UNITED STATES OF
AMERICA
SECURITIES AND EXCHANGE
COMMISSION
Washington, D.C. 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 September 30, 2016 | |||
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: 000-11486
CONNECTONE BANCORP, INC. | |
(Exact Name of Registrant as Specified in Its Charter) | |
New Jersey | 52-1273725 |
(State or Other Jurisdiction of | (IRS Employer |
Incorporation or Organization) | Identification No.) |
301 Sylvan Avenue | |
Englewood Cliffs, New Jersey 07632 | |
(Address of Principal Executive Offices) (Zip Code) |
201-816-8900
(Registrants Telephone Number, Including Area Code)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or smaller reporting company. See definition of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act (check one):
Large accelerated filer ☐ | Accelerated filer ☒ | Non-accelerated filer ☐ | Smaller reporting company ☐ | |||
(Do not check if smaller | ||||||
reporting company) |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
Indicate the number of shares outstanding of each of the issuers classes of common stock, as of the latest practicable date.
Common Stock,
no par value: (Title of Class) |
30,265,407 shares (Outstanding as of November 4, 2016) |
Table of Contents | ||||
Page | ||||
PART I FINANCIAL
INFORMATION |
||||
Item 1. | Financial Statements | |||
Consolidated Statements of Condition at September 30, 2016 (unaudited) and December 31, 2015 | 3 | |||
Consolidated Statements of Income for the three and nine months ended September 30, 2016 and 2015 (unaudited) | 4 | |||
Consolidated Statements of Comprehensive Income for the three and nine months ended September 30, 2016 and 2015 (unaudited) | 5 | |||
Consolidated Statements of Changes in Stockholders Equity for the nine months ended September 30, 2016 and for the nine months ended September 30, 2015 (unaudited) | 6 | |||
Consolidated Statements of Cash Flows for the nine months ended September 30, 2016 and 2015 (unaudited) | 7 | |||
Notes to Consolidated Financial
Statements |
8 | |||
Item 2. | Managements Discussion and Analysis of
Financial Condition and Results of Operations |
45 | ||
Item 3. | Qualitative and Quantitative Disclosures about
Market Risks |
59 | ||
Item 4. | Controls and Procedures |
60 | ||
PART II OTHER
INFORMATION |
||||
Item 1. | Legal Proceedings |
61 | ||
Item 1a. | Risk
Factors |
61 | ||
Item 2. | Unregistered Sales of Equity Securities and Use
of Proceeds |
62 | ||
Item 3. | Defaults Upon Senior
Securities |
62 | ||
Item 4. | Mine Safety Disclosures |
62 | ||
Item 5. | Other Information |
62 | ||
Item 6. | Exhibits |
63 | ||
SIGNATURES | ||||
2 |
Item 1. Financial Statements
CONNECTONE BANCORP, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CONDITION
September 30, | December 31, | |||||||
(in thousands, except for share data) | 2016 | 2015 | ||||||
(unaudited) | ||||||||
ASSETS | ||||||||
Cash and due from banks | $ | 49,028 | $ | 31,291 | ||||
Interest-bearing deposits with banks | 184,766 | 169,604 | ||||||
Cash and cash equivalents | 233,794 | 200,895 | ||||||
Investment securities: | ||||||||
Available-for-sale | 338,459 | 195,770 | ||||||
Held-to-maturity (fair value of $ - and $230,558) | - | 224,056 | ||||||
Loans held-for-sale | 15,112 | - | ||||||
Loans receivable | 3,445,476 | 3,099,007 | ||||||
Less: Allowance for loan and lease losses | 37,615 | 26,572 | ||||||
Net loans receivable | 3,407,861 | 3,072,435 | ||||||
Investment in restricted stock, at cost | 24,535 | 32,612 | ||||||
Bank premises and equipment | 22,112 | 22,333 | ||||||
Accrued interest receivable | 12,497 | 12,545 | ||||||
Bank-owned life insurance | 97,644 | 78,801 | ||||||
Other real estate owned | 626 | 2,549 | ||||||
Goodwill | 145,909 | 145,909 | ||||||
Core deposit intangibles | 3,281 | 3,908 | ||||||
Other assets | 25,974 | 24,096 | ||||||
Total assets | $ | 4,327,804 | $ | 4,015,909 | ||||
LIABILITIES | ||||||||
Deposits: | ||||||||
Noninterest-bearing | $ | 655,683 | $ | 650,775 | ||||
Interest-bearing | 2,613,266 | 2,140,191 | ||||||
Total deposits | 3,268,949 | 2,790,966 | ||||||
Borrowings | 481,337 | 671,587 | ||||||
Subordinated debentures (net of $665 and $812 in debt issuance costs) | 54,490 | 54,343 | ||||||
Other liabilities | 23,440 | 21,669 | ||||||
Total liabilities | 3,828,216 | 3,538,565 | ||||||
COMMITMENTS AND CONTINGENCIES | ||||||||
STOCKHOLDERS EQUITY | ||||||||
Preferred stock, $1,000 liquidation value per share, authorized 5,000,000 shares; issued and outstanding | ||||||||
11,250 shares of Series B preferred stock at December 31, 2015; total liquidation value of $11,250 at | ||||||||
December 31, 2015 | - | 11,250 | ||||||
Common stock, no par value, authorized 50,000,000 shares; issued 32,261,240 shares at September 30, | ||||||||
2016 and 32,149,585 at December 31, 2015; outstanding 30,197,318 shares at September 30, 2016 and | ||||||||
30,085,663 at December 31, 2015 | 374,287 | 374,287 | ||||||
Additional paid-in capital | 10,409 | 8,527 | ||||||
Retained earnings | 130,885 | 104,606 | ||||||
Treasury stock, at cost (2,063,922 common shares at September 30, 2016 and December 31, 2015) | (16,717 | ) | (16,717 | ) | ||||
Accumulated other comprehensive income/(loss) | 724 | (4,609 | ) | |||||
Total stockholders equity | 499,588 | 477,344 | ||||||
Total liabilities and stockholders equity | $ | 4,327,804 | $ | 4,015,909 |
See accompanying
notes to unaudited consolidated financial statements. |
3 |
CONNECTONE BANCORP, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(unaudited)
Three Months Ended | Nine Months Ended | |||||||||||
September 30, | September 30, | |||||||||||
(in thousands, except for share and per share data) | 2016 | 2015 | 2016 | 2015 | ||||||||
Interest income | ||||||||||||
Interest and fees on loans | $ | 37,803 | $ | 32,276 | $ | 109,381 | $ | 91,807 | ||||
Interest and dividends on investment securities: | ||||||||||||
Taxable | 1,774 | 2,669 | 5,879 | 8,340 | ||||||||
Tax-exempt | 988 | 901 | 2,867 | 2,666 | ||||||||
Dividends | 352 | 297 | 1,074 | 797 | ||||||||
Interest on federal funds sold and other short-term investments | 261 | 43 | 541 | 127 | ||||||||
Total interest income | 41,178 | 36,186 | 119,742 | 103,737 | ||||||||
Interest expense | ||||||||||||
Deposits | 5,159 | 3,655 | 13,532 | 9,980 | ||||||||
Borrowings | 2,995 | 2,804 | 9,472 | 7,060 | ||||||||
Total interest expense | 8,154 | 6,459 | 23,004 | 17,040 | ||||||||
Net interest income | 33,024 | 29,727 | 96,738 | 86,697 | ||||||||
Provision for loan and lease losses | 6,750 | 4,175 | 13,500 | 7,550 | ||||||||
Net interest income after provision for loan and lease losses | 26,274 | 25,552 | 83,238 | 79,147 | ||||||||
Noninterest income | ||||||||||||
Annuities and insurance commissions | 68 | 77 | 140 | 210 | ||||||||
Bank-owned life insurance | 615 | 388 | 1,843 | 1,162 | ||||||||
Net gains on sale of loans held-for-sale | 56 | 63 | 147 | 276 | ||||||||
Deposit, loan and other income | 706 | 1,224 | 1,984 | 2,145 | ||||||||
Insurance recovery | - | - | - | 2,224 | ||||||||
Net gains on sales of investment securities | 4,131 | 2,067 | 4,234 | 2,793 | ||||||||
Total noninterest income | 5,576 | 3,819 | 8,348 | 8,810 | ||||||||
Noninterest expenses | ||||||||||||
Salaries and employee benefits | 7,791 | 6,905 | 23,143 | 20,480 | ||||||||
Occupancy and equipment | 2,049 | 1,916 | 6,450 | 5,785 | ||||||||
FDIC insurance | 745 | 535 | 1,955 | 1,535 | ||||||||
Professional and consulting | 667 | 836 | 2,078 | 2,045 | ||||||||
Marketing and advertising | 293 | 247 | 817 | 634 | ||||||||
Data processing | 1,002 | 957 | 3,036 | 2,686 | ||||||||
Loss on extinguishment of debt | - | - | - | 2,397 | ||||||||
Amortization of core deposit intangible | 193 | 217 | 627 | 700 | ||||||||
Other expenses | 1,811 | 1,688 | 5,150 | 4,643 | ||||||||
Total noninterest expenses | 14,551 | 13,301 | 43,256 | 40,905 | ||||||||
Income before income tax expense | 17,299 | 16,070 | 48,330 | 47,052 | ||||||||
Income tax expense | 5,443 | 5,228 | 15,224 | 15,309 | ||||||||
Net income | 11,856 | 10,842 | 33,106 | 31,743 | ||||||||
Less: Preferred stock dividends | - | 28 | 22 | 84 | ||||||||
Net income available to common stockholders | $ | 11,856 | $ | 10,814 | $ | 33,084 | $ | 31,659 | ||||
Earnings per common share: | ||||||||||||
Basic | $ | 0.39 | $ | 0.36 | $ | 1.10 | $ | 1.06 | ||||
Diluted | 0.39 | 0.36 | 1.09 | 1.04 | ||||||||
Weighted average common shares outstanding: | ||||||||||||
Basic | 30,125,287 | 30,045,818 | 30,100,057 | 29,786,374 | ||||||||
Diluted | 30,401,684 | 30,335,571 | 30,376,085 | 30,323,376 | ||||||||
Dividend per common share | $ | 0.075 | $ | 0.075 | $ | 0.225 | $ | 0.225 |
See accompanying
notes to unaudited consolidated financial statements. |
4 |
CONNECTONE BANCORP, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(unaudited)
Three Months Ended | Nine Months Ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
(in thousands) | 2016 | 2015 | 2016 | 2015 | ||||||||||||
Net income | $ | 11,856 | $ | 10,842 | $ | 33,106 | $ | 31,743 | ||||||||
Other comprehensive income: | ||||||||||||||||
Unrealized gains and losses: | ||||||||||||||||
Unrealized holding (losses) gains on available-for-sale securities | ||||||||||||||||
arising during the period | (523 | ) | 108 | 1,551 | (1,196 | ) | ||||||||||
Tax effect | 187 | (39 | ) | (634 | ) | 485 | ||||||||||
Net of tax | (336 | ) | 69 | 917 | (711 | ) | ||||||||||
Unrealized gains on securities transferred from held-to-maturity | ||||||||||||||||
to available-for-sale the period | 10,069 | - | 10,069 | - | ||||||||||||
Tax effect | (3,815 | ) | - | (3,815 | ) | - | ||||||||||
Net of tax | 6,254 | - | 6,254 | - | ||||||||||||
Reclassification adjustment for realized gains included in net | ||||||||||||||||
income | (4,131 | ) | (2,067 | ) | (4,234 | ) | (2,793 | ) | ||||||||
Tax effect | 1,640 | 794 | 1,682 | 1,091 | ||||||||||||
Net of tax | (2,491 | ) | (1,273 | ) | (2,552 | ) | (1,702 | ) | ||||||||
Amortization of unrealized net losses on held-to-maturity | ||||||||||||||||
securities transferred from available-for-sale securities | 1,890 | 37 | 1,986 | 165 | ||||||||||||
Tax effect | (774 | ) | (15 | ) | (813 | ) | (67 | ) | ||||||||
Net of tax | 1,116 | 22 | 1,173 | 98 | ||||||||||||
Unrealized gains (losses) on cash flow hedges | 644 | (855 | ) | (1,081 | ) | (1,153 | ) | |||||||||
Tax effect | (263 | ) | 349 | 441 | 471 | |||||||||||
Net of tax | 381 | (506 | ) | (640 | ) | (682 | ) | |||||||||
Unrealized pension plan gains and losses: | ||||||||||||||||
Unrealized pension plan gains (losses) before reclassifications | - | 75 | (1 | ) | 862 | |||||||||||
Tax effect | - | (31 | ) | - | (353 | ) | ||||||||||
Net of tax | - | 44 | (1 | ) | 509 | |||||||||||
Reclassification adjustment for realized losses included in net | ||||||||||||||||
income | 204 | 108 | 306 | 324 | ||||||||||||
Tax effect | (83 | ) | (44 | ) | (124 | ) | (132 | ) | ||||||||
Net of tax | 121 | 64 | 182 | 192 | ||||||||||||
Total other comprehensive income (loss) | 5,045 | (1,580 | ) | 5,333 | (2,296 | ) | ||||||||||
Total comprehensive income | $ | 16,901 | $ | 9,262 | $ | 38,439 | $ | 29,447 |
See accompanying
notes to unaudited consolidated financial statements. |
5 |
CONNECTONE BANCORP, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF
CHANGES IN STOCKHOLDERS EQUITY
(unaudited)
Accumulated | ||||||||||||||||||||||||||
Additional | Other | Total | ||||||||||||||||||||||||
(dollars in thousands, except for | Preferred | Common | Paid-In | Retained | Treasury | Comprehensive | Stockholders | |||||||||||||||||||
per share data) | Stock | Stock | Capital | Earnings | Stock | Income (Loss) | Equity | |||||||||||||||||||
Balance as of December 31, 2014 | $ | 11,250 | $ | 374,287 | $ | 6,015 | $ | 72,398 | $ | (16,717 | ) | $ | (1,014 | ) | $ | 446,219 | ||||||||||
Net income | - | - | - | 31,743 | - | - | 31,743 | |||||||||||||||||||
Other comprehensive loss, net of | ||||||||||||||||||||||||||
tax | - | - | - | - | - | (2,296 | ) | (2,296 | ) | |||||||||||||||||
Dividend on series B preferred | ||||||||||||||||||||||||||
stock | - | - | - | (84 | ) | - | - | (84 | ) | |||||||||||||||||
Cash dividends declared on | ||||||||||||||||||||||||||
common stock ($0.15 per share) | - | - | - | (6,736 | ) | - | - | (6,736 | ) | |||||||||||||||||
Exercise of stock options (339,334 | ||||||||||||||||||||||||||
shares) | - | - | 1,424 | - | - | - | 1,424 | |||||||||||||||||||
Restricted stock and performance | ||||||||||||||||||||||||||
units grants (162,491 shares) | - | - | - | - | - | - | - | |||||||||||||||||||
Stock-based compensation | ||||||||||||||||||||||||||
expense | - | - | 876 | - | - | - | 876 | |||||||||||||||||||
Balance as of September 30, | ||||||||||||||||||||||||||
2015 | $ | 11,250 | $ | 374,287 | $ | 8,315 | $ | 97,321 | $ | (16,717 | ) | $ | (3,310 | ) | $ | 471,146 | ||||||||||
Balance as of December 31, 2015 | $ | 11,250 | $ | 374,287 | $ | 8,527 | $ | 104,606 | $ | (16,717 | ) | $ | (4,609 | ) | $ | 477,344 | ||||||||||
Net income | - | - | - | 33,106 | - | - | 33,106 | |||||||||||||||||||
Other comprehensive income, net | ||||||||||||||||||||||||||
of tax | - | - | - | - | - | 5,333 | 5,333 | |||||||||||||||||||
Dividend on series B preferred | ||||||||||||||||||||||||||
stock | - | - | - | (22 | ) | - | - | (22 | ) | |||||||||||||||||
Cash dividends declared on | ||||||||||||||||||||||||||
common stock ($0.15 per share) | - | - | - | (6,805 | ) | - | - | (6,805 | ) | |||||||||||||||||
Redemption of preferred stock | (11,250 | ) | - | - | - | - | - | (11,250 | ) | |||||||||||||||||
Exercise of stock options (36,135 | ||||||||||||||||||||||||||
shares) | - | - | 232 | - | - | - | 232 | |||||||||||||||||||
Restricted stock and performance | ||||||||||||||||||||||||||
units grants (75,520 shares) | - | - | - | - | - | - | - | |||||||||||||||||||
Stock-based compensation | ||||||||||||||||||||||||||
expense | - | - | 1,650 | - | - | - | 1,650 | |||||||||||||||||||
Balance as of September 30, | ||||||||||||||||||||||||||
2016 | $ | - | $ | 374,287 | $ | 10,409 | $ | 130,885 | $ | (16,717 | ) | $ | 724 | $ | 499,588 |
See accompanying
notes to unaudited consolidated financial statements. |
6 |
CONNECTONE BANCORP, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
Nine Months Ended | ||||||||
September 30, | ||||||||
(in thousands) | 2016 | 2015 | ||||||
Cash flows from operating activities | ||||||||
Net income | $ | 33,106 | $ | 31,743 | ||||
Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||
Depreciation and amortization of premises and equipment | 2,084 | 1,720 | ||||||
Provision for loan and lease losses | 13,500 | 7,550 | ||||||
Amortization of intangibles | 627 | 700 | ||||||
Net accretion of loans | (3,381 | ) | (3,830 | ) | ||||
Accretion on bank premises | (94 | ) | (77 | ) | ||||
Accretion on deposits | (167 | ) | (394 | ) | ||||
Accretion on borrowings | (250 | ) | (354 | ) | ||||
Stock-based compensation | 1,650 | 876 | ||||||
Gains on sales of investment securities, net | (4,234 | ) | (2,793 | ) | ||||
Gains on sale of loans held-for-sale, net | (147 | ) | (276 | ) | ||||
Loans originated for resale | (6,399 | ) | (18,004 | ) | ||||
Proceeds from sale of loans held-for-sale | 4,948 | 17,290 | ||||||
Net (gain) loss on sale of other real estate owned | (182 | ) | 112 | |||||
Increase in cash surrender value of bank-owned life insurance | (1,843 | ) | (1,163 | ) | ||||
Amortization of premiums and accretion of discounts on investments securities, net | 1,148 | 1,442 | ||||||
Decrease in accrued interest receivable | 48 | 38 | ||||||
Increase in other assets | (2,813 | ) | (3,324 | ) | ||||
(Decrease) increase in other liabilities | (981 | ) | 294 | |||||
Net cash provided by operating activities | 36,620 | 31,550 | ||||||
Cash flows from investing activities | ||||||||
Investment securities available-for-sale: | ||||||||
Purchases | (114,844 | ) | (34,796 | ) | ||||
Sales | 85,253 | 44,397 | ||||||
Maturities, calls and principal repayments | 109,452 | 53,542 | ||||||
Investment securities held-to-maturity: | ||||||||
Purchases | (1,000 | ) | (17,531 | ) | ||||
Maturities and principal repayments | 14,758 | 14,702 | ||||||
Net redemptions (purchases) of restricted investment in bank stocks | 8,077 | (6,827 | ) | |||||
Net increase in loans | (359,945 | ) | (413,461 | ) | ||||
Purchases of premises and equipment | (1,769 | ) | (2,513 | ) | ||||
Purchases of bank owned life insurance | (17,000 | ) | - | |||||
Proceeds from sale of other real estate owned | 2,992 | 126 | ||||||
Net cash used in investing activities | (274,026 | ) | (362,361 | ) | ||||
Cash flows from financing activities | ||||||||
Net increase in deposits | 478,150 | 191,411 | ||||||
Increase in subordinated debt | - | 50,000 | ||||||
Advances of FHLB borrowings | 375,000 | 625,000 | ||||||
Repayments of FHLB borrowings | (565,000 | ) | (482,525 | ) | ||||
Repayment of repurchase agreement | - | (16,000 | ) | |||||
Cash dividends paid on common stock | (6,805 | ) | (6,741 | ) | ||||
Cash dividends paid on preferred stock | (22 | ) | (84 | ) | ||||
Redemption of preferred stock | (11,250 | ) | - | |||||
Proceeds from exercise of stock options | 232 | 1,424 | ||||||
Net cash provided by financing activities | 270,305 | 362,485 | ||||||
Net change in cash and cash equivalents | 32,899 | 31,674 | ||||||
Cash and cash equivalents at beginning of period | 200,895 | 126,847 | ||||||
Cash and cash equivalents at end of period | $ | 233,794 | $ | 158,521 | ||||
Supplemental disclosures of cash flow information | ||||||||
Cash payments for: | ||||||||
Interest paid on deposits and borrowings | $ | 22,791 | $ | 15,940 | ||||
Income taxes | 18,195 | 17,045 | ||||||
Supplemental disclosures of noncash investing activities | ||||||||
Transfer of loans to other real estate owned | $ | 887 | $ | 2,374 | ||||
Transfer of loans to loans held-for-sale | 13,514 | - | ||||||
Transfer of investment securities from held-to-maturity to available-for sale | 209,855 | - |
See accompanying
notes to unaudited consolidated financial statements. |
7 |
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
(unaudited)
Note 1. Nature of Operations and Principles of Consolidation
The consolidated financial statements of ConnectOne Bancorp, Inc. (the Parent Corporation) are prepared on an accrual basis and include the accounts of the Parent Corporation and its wholly-owned subsidiary, ConnectOne Bank (the Bank and, collectively with the Parent Corporation and the Parent Corporations other direct and indirect subsidiaries, the Company). All significant intercompany accounts and transactions have been eliminated from the accompanying consolidated financial statements.
The Bank is a community-based, full-service New Jersey-chartered commercial bank that was founded in 2005. The Bank operates from its headquarters located at 301 Sylvan Avenue in the Borough of Englewood Cliffs, Bergen County, New Jersey and through its twenty other banking offices. Substantially all loans are secured by specific items of collateral including business assets, consumer assets, and commercial and residential real estate or are expected to be paid from cash flow of business operations. Commercial loans are expected to be repaid from cash flow from business operations. There are no significant concentrations of loans to any one industry or client. However, the clients ability to repay their loans is dependent on the cash flows, real estate and general economic conditions in the area.
The preceding unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (GAAP) for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X, and, accordingly, do not include all of the information and footnotes required by GAAP for complete financial statements. However, in the opinion of management, all adjustments (consisting only of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three months ended September 30, 2016 are not necessarily indicative of the results that may be expected for the full year ending December 31, 2016, or for any other interim period. The Companys 2015 Annual Report on Form 10-K should be read in conjunction with these consolidated financial statements.
In preparing the consolidated financial statements, management has made estimates and assumptions that affect the reported amounts of assets and liabilities as of the dates of the consolidated statements of condition and that affect the results of operations for the periods presented. Actual results could differ significantly from those estimates.
The consolidated financial statements have been prepared in conformity with GAAP. Some items in the prior year consolidated financial statements were reclassified to conform to current presentation. Reclassifications had no effect on prior year net income or stockholders equity.
Note 2. New Authoritative Accounting Guidance
ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606). ASU 2014-09 implements a common revenue standard that clarifies the principles for recognizing revenue. The core principle of ASU 2014-09 is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. To achieve that core principle, an entity should apply the following steps: (i) identify the contract(s) with a customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenue when (or as) the entity satisfies a performance obligation. ASU 2014-09 was originally going to be effective for us on January 1, 2017; however, the FASB recently issued ASU 2015-14, Revenue from Contracts with Customers (Topic 606) - Deferral of the Effective Date which deferred the effective date of ASU 2014-09 by one year to January 1, 2018. The Company is currently evaluating the potential impact of ASU 2014-09 on its consolidated financial statements.
ASU No. 2014-12, Accounting for Share-Based Payments When the Terms of an Award Provide That a Performance Target Could Be Achieved after the Requisite Service Period ("ASU 2014-12"). ASU 2014-12 requires that a performance target that affects vesting, and that could be achieved after the requisite service period, be treated as a performance condition. As such, the performance target should not be reflected in estimating the grant date fair value of the award. This update further clarifies that compensation cost should be recognized in the period in which it becomes probable that the performance target will be achieved and should represent the compensation cost attributable to the period(s) for which the requisite service has already been rendered. The Company adopted ASU 2014-12 effective on January 1, 2016 and its adoption did not have a significant impact on the Companys consolidated financial statements.
ASU No. 2015-03, "Interest-Imputation of Interest (Subtopic 835-30) Simplifying the Presentation of Debt Issuance Costs (ASU 2015-13)" requires that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. The recognition and measurement guidance for debt issuance costs are not affected by the amendments in the ASU No. 2015-03. The Company adopted ASU No. 2015-03 effective on January 1, 2016 and its adoption did not have a significant impact on the Companys consolidated financial statements.
8 |
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
(unaudited)
Note 2. New Authoritative Accounting Guidance (continued)
ASU No. 2015-12, "Plan Accounting: Defined Benefit Pension Plans (Topic 960): Defined Contribution Pension Plans, (Topic 962): Health and Welfare Benefit Plans, (Topic 965): (Part I) Fully Benefit-Responsive Investment Contracts, (Part II) Plan Investment Disclosures, (Part III) Measurement Date Practical Expedient." ASU No. 2015-12 simplifies accounting for employee benefit plans as follows: (i) fully benefit-responsive investment contracts are now to be measured, presented and disclosed at contract value, (ii) the requirement to disclose investments that represent 5 percent or more of net assets available for benefits has been eliminated, (iii) the net appreciation or depreciation in investments for the period should be presented in the aggregate, but is no longer required to be disaggregated and disclosed by general type, (iv) if an investment is measured using the net asset value per share (or its equivalent) practical expedient in Topic 820, and that investment is in a fund that files a U.S. Department of Labor Form 5500, Annual Return/Report of Employee Benefit Plan, as a direct filing entity, disclosure of that investments strategy is no longer required, and (v) allows employers to measure (as a practical expedient) benefit plan assets on a month-end date nearest to the employers fiscal year end when the fiscal period does not coincide with a month end. The Company adopted ASU No. 2015-12 effective on January 1, 2016 and its adoption did not have a significant impact on the Companys consolidated financial statements.
ASU No. 2015-15, Interest Imputation of Interest (Subtopic 835-30) Presentation and Subsequent Measurement of Debt Issuance Costs Associated with Line-of-Credit Arrangements. Amendments to SEC Paragraphs Pursuant to Staff Announcement at June 18, 2015 EITF Meeting." ASU 2015-15 adds SEC paragraphs pursuant to an SEC Staff Announcement that given the absence of authoritative guidance within ASU 2015-03 for debt issuance costs related to line-of-credit arrangements, the SEC staff would not object to an entity deferring and presenting debt issuance costs as an asset and subsequently amortizing the deferred debt issuance costs ratably over the term of the line-of-credit arrangement, regardless of whether there are any outstanding borrowings on the line-of-credit arrangement. The adoption of ASU 2015-15 did not have a material impact on the Companys consolidated financial statements.
ASU No. 2015-16, Business Combinations (Topic 805) - Simplifying the Accounting for Measurement-Period Adjustments. ASU 2015-16 requires that adjustments to provisional amounts that are identified during the measurement period of a business combination be recognized in the reporting period in which the adjustment amounts are determined. The acquirer must also disclose, by line item, the amount of the adjustment reflected in the current-period income statement that would have been recognized in previous periods if the adjustment to the provision amounts had been recognized as of the acquisition date. Under previous guidance, adjustments to provisional amounts identified during the measurement period are to be recognized retrospectively. The adoption of ASU 2015-16 will impact the accounting for future acquisitions.
ASU No. 2016-01, Financial Instruments Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities. ASU 2016-1, among other things; (i) requires equity investments, with certain exceptions, to be measured at fair value with changes in fair value recognized in net income, (ii) simplifies the impairment assessment of equity investments without readily determinable fair values by requiring a qualitative assessment to identify impairment; (iii) eliminates the requirement for public business entities to disclose the methods and significant assumptions used to estimate the fair value that is required to be disclosed for financial instruments measured at amortized cost on the balance sheet; (iv) requires public business entities to use the exit price notion when measuring the fair value of financial instruments for disclosure purposes; (v) requires an entity to present separately in other comprehensive income the portion of the total change in the fair value of a liability resulting from a change in the instrument-specific credit risk when the entity has elected to measure the liability at fair value in accordance with the fair value option for financial instruments; (vi) requires separate presentation of financial assets and financial liabilities by measurement category and form of financial asset on the balance sheet or the accompanying notes to the financial statements; and (vii) clarifies that an entity should evaluate the need for a valuation allowance on a deferred tax asset related to available-for-sale. ASU 2016-1 will be effective for us on January 1, 2018 and we are currently evaluating the potential impact of ASU No. 2016-01 on our consolidated financial statements.
ASU No. 2016-02, Leases (Topic 842) requires the recognition of a right of use asset and related lease liability by lessees for leases classified as operating leases under current accounting principles GAAP. Topic 842, which replaces the current guidance under Topic 840, retains a distinction between finance leases and operating leases. The recognition, measurement, and presentation of expenses and cash flows arising from a lease by a lessee also will not significantly change from current GAAP. For leases with a term of 12 months or less, a lessee is permitted to make an accounting policy election by class of underlying asset not to recognize right of use assets and lease liabilities. Topic 842 will be effective for the Company for reporting periods beginning January 1, 2019, with an early adoption permitted. The Company must apply a modified retrospective transition approach for the applicable leases existing at, or entered into after, the beginning of the earliest comparative period presented in the consolidated financial statements. The modified retrospective approach would not require any transition accounting for leases that expired before the earliest comparative period presented. We are currently evaluating the potential impact of ASU 2016-10 on our consolidated financial statements.
9 |
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
(unaudited)
Note 2. New Authoritative Accounting Guidance (continued)
ASU 2016-09,Compensation - Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting. Under ASU 2016-09 all excess tax benefits and tax deficiencies related to share-based payment awards should be recognized as income tax expense or benefit in the income statement during the period in which they occur. Previously, such amounts were recorded in the pool of excess tax benefits included in additional paid-in capital, if such pool was available. Because excess tax benefits are no longer recognized in additional paid-in capital, the assumed proceeds from applying the treasury stock method when computing earnings per share should exclude the amount of excess tax benefits that would have previously been recognized in additional paid-in capital. Additionally, excess tax benefits should be classified along with other income tax cash flows as an operating activity rather than a financing activity, as was previously the case. ASU 2016-09 also provides that an entity can make an entity-wide accounting policy election to either estimate the number of awards that are expected to vest (current GAAP) or account for forfeitures when they occur. ASU 2016-09 changes the threshold to qualify for equity classification (rather than as a liability) to permit withholding up to the maximum statutory tax rates (rather than the minimum as was previously the case) in the applicable jurisdictions. ASU 2016-09 will be effective on January 1, 2017 and is not expected to have a significant impact on our consolidated financial statements.
ASU No. 2016-10,Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing. ASU 2016-10 was issued to clarify ASC Topic 606, Revenue from Contracts with Customers related to (i) identifying performance obligations; and (ii) the licensing implementation guidance. The effective date and transition of ASU 2016-10 is the same as the effective date and transition of ASU 2014-09, Revenue from Contracts with Customers (Topic 606), as discussed above. We are currently evaluating the potential impact of ASU 2016-10 on our consolidated financial statements.
ASU No. 2016-12,Revenue from Contracts with Customers (Topic 606): Narrow-Scope Improvements and Practical Expedients. ASU 2016-12 was issued to clarify ASC Topic 606, Revenue from Contracts with Customers and to address narrow-scope improvements to the guidance on collectability, noncash consideration, and completed contracts at transition. Additionally, the amendments in this Update provide a practical expedient for contract modifications at transition and an accounting policy election related to the presentation of sales taxes and other similar taxes collected from customers. The effective date and transition of ASU 2016-12 is the same as the effective date and transition of ASU 2014-09, Revenue from Contracts with Customers (Topic 606), as discussed above. We are currently evaluating the potential impact of ASU 2016-10 on our consolidated financial statements.
10 |
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
(unaudited)
Note 2. New Authoritative Accounting Guidance (continued)
ASU No. 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments provides guidance on the following eight specific cash flow issues: (1) Debt Prepayment or Debt Extinguishment Costs: Cash payments for debt prepayment or debt extinguishment costs should be classified as cash outflows for financing activities; (2) Settlement of Zero-Coupon Debt Instruments or Other Debt Instruments with Coupon Interest Rates That Are Insignificant in Relation to the Effective Interest Rate of the Borrowing: At the settlement of zero-coupon debt instruments or other debt instruments with coupon interest rates that are insignificant in relation to the effective interest rate of the borrowing, the issuer should classify the portion of the cash payment attributable to the accreted interest related to the debt discount as cash outflows for operating activities, and the portion of the cash payment attributable to the principal as cash outflows for financing activities; (3) Contingent Consideration Payments Made after a Business Combination: Cash payments not made soon after the acquisition date of a business combination by an acquirer to settle a contingent consideration liability should be separated and classified as cash outflows for financing activities and operating activities. Cash payments up to the amount of the contingent consideration liability recognized at the acquisition date (including measurement-period adjustments) should be classified as financing activities; any excess should be classified as operating activities. Cash payments made soon after the acquisition date of a business combination by an acquirer to settle a contingent consideration liability should be classified as cash outflows for investing activities; (4) Proceeds from the Settlement of Insurance Claims: Cash proceeds received from the settlement of insurance claims should be classified on the basis of the related insurance coverage (that is, the nature of the loss). For insurance proceeds that are received in a lump-sum settlement, an entity should determine the classification on the basis of the nature of each loss included in the settlement; (5) Proceeds from the Settlement of Corporate-Owned Life Insurance Policies, including Bank-Owned Life Insurance Policies: Cash proceeds received from the settlement of corporate-owned life insurance policies should be classified as cash inflows from investing activities. The cash payments for premiums on corporate-owned policies may be classified as cash outflows for investing activities, operating activities, or a combination of investing and operating activities; (6) Distributions Received from Equity Method Investees: When a reporting entity applies the equity method, it should make an accounting policy election to classify distributions received from equity method investees using either of the following approaches: a. Cumulative earnings approach: Distributions received are considered returns on investment and classified as cash inflows from operating activities, unless the investors cumulative distributions received less distributions received in prior periods that were determined to be returns of investment exceed cumulative equity in earnings recognized by the investor. When such an excess occurs, the current-period distribution up to this excess should be considered a return of investment and classified as cash inflows from investing activities. b. Nature of the distribution approach: Distributions received should be classified on the basis of the nature of the activity or activities of the investee that generated the distribution as either a return on investment (classified as cash inflows from operating activities) or a return of investment (classified as cash inflows from investing activities) when such information is available to the investor. If an entity elects to apply the nature of the distribution approach and the information to apply that approach to distributions received from an individual equity method investee is not available to the investor, the entity should report a change in accounting principle on a retrospective basis by applying the cumulative earnings approach in (1) for that investee. In such situations, an entity should disclose that a change in accounting principle has occurred with respect to the affected investee(s) due to the lack of available information and should provide the disclosures required in paragraphs 250-10-50-1(b) and 250-10-50-2, as applicable. This amendment does not address equity method investments measured using the fair value option; (7) Beneficial Interests in Securitization Transactions: A transferors beneficial interest obtained in a securitization of financial assets should be disclosed as a non cash activity, and cash receipts from payments on a transferors beneficial interests in securitized trade receivables should be classified as cash inflows from investing activities; (8) Separately Identifiable Cash Flows and Application of the Predominance Principle: The classification of cash receipts and payments that have aspects of more than one class of cash flows should be determined first by applying specific guidance in generally accepted accounting principles (GAAP). In the absence of specific guidance, an entity should determine each separately identifiable source or use within the cash receipts and cash payments on the basis of the nature of the underlying cash flows. An entity should then classify each separately identifiable source or use within the cash receipts and payments on the basis of their nature in financing, investing, or operating activities. In situations in which cash receipts and payments have aspects of more than one class of cash flows and cannot be separated by source or use, the appropriate classification should depend on the activity that is likely to be the predominant source or use of cash flows for the item. The amendments in this Update are effective for public business entities for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. For all other entities, the amendments are effective for fiscal years beginning after December 15, 2018, and interim periods within fiscal years beginning after December 15, 2019. Early adoption is permitted, including adoption in an interim period. If an entity early adopts the amendments in an interim period, any adjustments should be reflected as of the beginning of the fiscal year that includes that interim period. An entity that elects early adoption must adopt all of the amendments in the same period. The amendments in this Update should be applied using a retrospective transition method to each period presented. If it is impracticable to apply the amendments retrospectively for some of the issues, the amendments for those issues would be applied prospectively as of the earliest date practicable. The Company is currently evaluating this ASU to determine the impact on its consolidated financial position, results of operations and cash flows.
ASU No. 2016-13, Financial Instruments Credit Losses (Topic 326): Assets Measured at Amortized Cost. ASU 2016-13 requires a financial asset (or a group of financial assets) measured at amortized cost basis to be presented at the net amount expected to be collected. The allowance for credit losses is a valuation account that is deducted from the amortized cost basis of the financial asset(s) to present the net carrying value at the amount expected to be collected on the financial asset. The income statement reflects the measurement of credit losses for newly recognized financial assets, as well as the expected increases or decreases of expected credit losses that have taken place during the period. The measurement of expected credit losses is based on relevant information about past events, including historical experience, current conditions, and reasonable and supportable forecasts that affect the collectability of the reported amount. An entity must use judgment in determining the relevant information and estimation methods that are appropriate in its circumstances. The allowance for credit losses for purchased financial assets with a more-than insignificant amount of credit deterioration since origination (PCD assets) that are measured at amortized cost basis is determined in a similar manner to other financial assets measured at amortized cost basis; however, the initial allowance for credit losses is added to the purchase price rather than being reported as a credit loss expense. Only subsequent changes in the allowance for credit losses are recorded as a credit loss expense for these assets. Interest income for PCD assets should be recognized based on the effective interest rate, excluding the discount embedded in the purchase price that is attributable to the acquirer assessment of credit losses at acquisition. Available-for-Sale Debt SecuritiesCredit losses relating to available-for-sale debt securities should be recorded through an allowance for credit losses. Available-for-sale accounting recognizes that value may be realized either through collection of contractual cash flows or through sale of the security. Therefore, the amendments limit the amount of the allowance for credit losses to the amount by which fair value is below amortized cost because the classification as available for sale is premised on an investment strategy that recognizes that the investment could be sold at fair value, if cash collection would result in the realization of an amount less than fair value. The allowance for credit losses for purchased available-for-sale securities with a more-than-insignificant amount of credit deterioration since origination is determined in a similar manner to other available-for-sale debt securities; however, the initial allowance for credit losses is added to the purchase price rather than reported as a credit loss expense. Only subsequent changes in the allowance for credit losses are recorded in credit loss expense. Interest income should be recognized based on the effective interest rate, excluding the discount embedded in the purchase price that is attributable to the acquirers assessment of credit losses at acquisition. For public business entities that are U.S. Securities and Exchange Commission (SEC) filers, the amendments in this Update are effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. For all other public business entities, the amendments in this Update are effective for fiscal years beginning after December 15, 2020, including interim periods within those fiscal years. We are currently evaluating the potential impact of ASU 2016-10 on our consolidated financial statements.
11 |
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
(unaudited)
Note 3. Earnings per Common Share
Basic earnings per common share (EPS) is computed by dividing income available to common stockholders by the weighted average number of common shares outstanding. Diluted EPS includes any additional common shares as if all potentially dilutive common shares were issued (e.g., stock options). The Companys weighted average common shares outstanding for diluted EPS include the effect of stock options and restricted stock awards outstanding using the Treasury Stock Method, which are not included in the calculation of basic EPS.
Earnings per common share have been computed as follows:
Three Months Ended | Nine Months Ended | |||||||||||||
September 30, | September 30, | |||||||||||||
(in thousands, except per share amounts) | 2016 | 2015 | 2016 | 2015 | ||||||||||
Net income | $ | 11,856 | $ | 10,842 | $ | 33,106 | $ | 31,743 | ||||||
Preferred stock dividends | - | (28 | ) | (22 | ) | (84 | ) | |||||||
Net income available to common stockholders | $ | 11,856 | $ | 10,814 | $ | 33,084 | $ | 31,659 | ||||||
Basic weighted average common shares outstanding | 30,125 | 30,046 | 30,100 | 29,786 | ||||||||||
Effect of dilutive options (1) | 276 | 290 | 276 | 537 | ||||||||||
Diluted weighted average common shares outstanding (2) | 30,401 | 30,336 | 30,376 | 30,323 | ||||||||||
Earnings per common share: | ||||||||||||||
Basic | $ | 0.39 | $ | 0.36 | $ | 1.10 | $ | 1.06 | ||||||
Diluted | 0.39 | 0.36 | 1.09 | 1.04 |
(1) | Represents incremental shares computed using the treasury stock method. |
(2) | Anti-dilutive shares are not included in determining diluted earnings per share. There were no anti-dilutive shares in the three and nine months ended September 30, 2016. |
Note 4. Investment Securities
The Companys investment securities are classified as available-for-sale at September 30, 2016 and as available-for-sale and held-to-maturity at December 31, 2015. Investment securities available-for-sale are reported at fair value with unrealized gains or losses included in equity, net of tax. Accordingly, the carrying value of such securities reflects their fair value as of September 30, 2016 and December 31, 2015. Fair value is based upon either quoted market prices, or in certain cases where there is limited activity in the market for a particular instrument, assumptions are made to determine their fair value. See Note 7 of the Notes to Consolidated Financial Statements for a further discussion.
Transfers of debt securities from the available-for-sale category to the held-to-maturity category are made at fair value at the date of transfer. The unrealized holding gain or loss at the date of transfer remains in accumulated other comprehensive income and in the carrying value of the held-to-maturity investment security. Premiums or discounts on investment securities are amortized or accreted using the effective interest method over the life of the security as an adjustment of yield. Unrealized holding gains or losses that remain in accumulated other comprehensive income are amortized or accreted over the remaining life of the security as an adjustment of yield, offsetting the related amortization of the premium or accretion of the discount.
Transfers of debt securities from the held-to-maturity category to the available-for-sale category are made at fair value at the date of transfer. The unrealized holding gain or loss at the date of the transfer shall be recognized in accumulated other comprehensive income, net of applicable taxes.
During the quarter ended September 30, 2016 the Company transferred all securities previously categorized as held-to-maturity to available-for-sale classification. The transfer resulted in an increase of approximately $210 million in amortized cost basis of available-for-sale securities and resulted in a net increase to accumulated other comprehensive income of $7.4 million, net of tax. This transfer will enhance liquidity and increase flexibility with regard to asset-liability management and balance sheet composition.
12 |
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
(unaudited)
Note 4. Investment Securities (continued)
The following tables present information related to the Companys investment securities at September 30, 2016 and December 31, 2015 (dollars in thousands):
Gross | Gross | |||||||||||
Amortized | Unrealized | Unrealized | Fair | |||||||||
September 30, 2016 | Cost | Gains | Losses | Value | ||||||||
Investment securities available-for-sale | ||||||||||||
Federal agency obligations | $ | 55,024 | $ | 1,084 | $ | (9 | ) | $ | 56,099 | |||
Residential mortgage pass-through securities | 62,124 | 1,292 | (12 | ) | 63,404 | |||||||
Commercial mortgage pass-through securities | 4,218 | 151 | - | 4,369 | ||||||||
Obligations of U.S. states and political subdivisions | 135,781 | 5,582 | (2 | ) | 141,361 | |||||||
Trust preferred securities | 5,574 | 310 | (209 | ) | 5,675 | |||||||
Corporate bonds and notes | 37,725 | 916 | (348 | ) | 38,293 | |||||||
Asset-backed securities | 15,797 | 1 | (296 | ) | 15,502 | |||||||
Certificates of deposit | 973 | 15 | - | 988 | ||||||||
Equity securities | 376 | 52 | (3 | ) | 425 | |||||||
Other securities | 12,332 | 94 | (83 | ) | 12,343 | |||||||
Total securities available-for-sale | $ | 329,924 | $ | 9,497 | $ | (962 | ) | $ | 338,459 | |||
Gross | Gross | |||||||||||
Amortized | Unrealized | Unrealized | Fair | |||||||||
December 31, 2015 | Cost | Gains | Losses | Value | ||||||||
Investment securities available-for-sale | ||||||||||||
Federal agency obligations | $ | 29,062 | $ | 142 | $ | (58 | ) | $ | 29,146 | |||
Residential mortgage pass-through securities | 44,155 | 803 | (48 | ) | 44,910 | |||||||
Commercial mortgage pass-through securities | 2,981 | - | (9 | ) | 2,972 | |||||||
Obligations of U.S. states and political subdivisions | 8,188 | 169 | - | 8,357 | ||||||||
Trust preferred securities | 16,088 | 398 | (231 | ) | 16,255 | |||||||
Corporate bonds and notes | 53,566 | 702 | (292 | ) | 53,976 | |||||||
Asset-backed securities | 20,005 | 18 | (298 | ) | 19,725 | |||||||
Certificates of deposit | 1,895 | 18 | (8 | ) | 1,905 | |||||||
Equity securities | 376 | 21 | (23 | ) | 374 | |||||||
Other securities | 18,303 | - | (153 | ) | 18,150 | |||||||
Total securities available-for-sale | $ | 194,619 | $ | 2,271 | $ | (1,120 | ) | $ | 195,770 | |||
Gross | Gross | |||||||||||
Amortized | Unrecognized | Unrecognized | Fair | |||||||||
Cost | Gains | Losses | Value | |||||||||
Investment securities held-to-maturity | ||||||||||||
U.S. Treasury and agency securities | $ | 28,471 | $ | 755 | $ | - | $ | 29,226 | ||||
Federal agency obligations | 33,616 | 280 | (119 | ) | 33,777 | |||||||
Residential mortgage-backed securities | 3,805 | 11 | (6 | ) | 3,810 | |||||||
Commercial mortgage-backed securities | 4,110 | 27 | (2 | ) | 4,135 | |||||||
Obligations of U.S. states and political divisions | 118,015 | 5,001 | (3 | ) | 123,013 | |||||||
Corporate bonds and notes | 36,039 | 719 | (161 | ) | 36,597 | |||||||
Total securities held-to-maturity | $ | 224,056 | $ | 6,793 | $ | (291 | ) | $ | 230,558 | |||
Total investment securities | $ | 418,675 | $ | 9,064 | $ | (1,411 | ) | $ | 426,328 |
13 |
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
(unaudited)
Note 4. Investment Securities (continued)
The following table presents information for investment securities at September 30, 2016, based on scheduled maturities. Actual maturities can be expected to differ from scheduled maturities due to prepayment or early call options of the issuer.
September 30, 2016 | |||||
Amortized | Fair | ||||
Cost | Value | ||||
(in thousands) | |||||
Investment securities available-for-sale: | |||||
Due in one year or less | $ | 3,886 | $ | 3,906 | |
Due after one year through five years | 26,238 | 26,914 | |||
Due after five years through ten years | 55,486 | 57,204 | |||
Due after ten years | 165,264 | 169,894 | |||
Residential mortgage pass-through securities | 62,124 | 63,404 | |||
Commercial mortgage pass-through securities | 4,218 | 4,369 | |||
Equity securities | 376 | 425 | |||
Other securities | 12,332 | 12,343 | |||
Total | $ | 329,924 | $ | 338,459 |
Gross gains and losses from the sales, calls and maturities of investment securities for the three-month and nine-month periods ended September 30, 2016 and 2015 were as follows:
Three Months Ended | Nine Months Ended | |||||||||||
September 30, | September 30, | |||||||||||
(in thousands) | 2016 | 2015 | 2016 | 2015 | ||||||||
Proceeds | $ | 78,680 | $ | 32,125 | $ | 85,253 | $ | 44,397 | ||||
Gross gains on sales of investment securities | 4,131 | 2,067 | 4,234 | 2,793 | ||||||||
Gross losses on sales of investment securities | - | - | - | - | ||||||||
Net gains on sales of investment securities | 4,131 | 2,067 | 4,234 | 2,793 | ||||||||
Less: tax provision on net gains | 1,640 | 794 | 1,682 | 1,091 | ||||||||
Total | $ | 2,491 | $ | 1,273 | $ | 2,552 | $ | 1,702 |
The Company performs regular analysis on the available-for-sale securities portfolio to determine whether a decline in fair value indicates that an investment is other-than-temporarily impaired in accordance with FASB ASC 320-10. FASB ASC 320-10 requires companies to record other-than-temporary impairment (OTTI) charges through earnings if they have the intent to sell, or more likely than not will be required to sell, an impaired debt security before recovery of its amortized cost basis. If the Company intends to sell or it is more likely than not it will be required to sell the security before recovery of its amortized cost basis, less any current period credit loss, the OTTI is recognized in earnings equal to the entire difference between the investments amortized cost basis and its estimated fair value at the balance sheet date. If the Company does not intend to sell the security and it is more likely than not that the entity will be required to sell the security before recovery of its amortized cost basis less any current period loss, and as such, it determines that a decline in fair value is other-than-temporary, the OTTI is separated into the amount representing the credit loss and the amount related to all other factors. The amount of the OTTI related to the credit loss is determined based on the present value of cash flows expected to be collected and is recognized in earnings. The amount of the total OTTI related to other factors is recognized in other comprehensive income, net of applicable taxes. The previous amortized cost basis less the OTTI recognized in earnings becomes the new amortized cost basis of the investment.
14 |
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
(unaudited)
Note 4. Investment Securities (continued)
The Company reviews all securities for potential recognition of other-than-temporary impairment. The Company maintains a watch list for the identification and monitoring of securities experiencing problems that require a heightened level of review. This could include credit rating downgrades.
The Companys assessment of whether an impairment in the portfolio is other-than temporary includes factors such as whether the issuer has defaulted on scheduled payments, announced restructuring and/or filed for bankruptcy, has disclosed severe liquidity problems that cannot be resolved, disclosed deteriorating financial condition or sustained significant losses.
Temporarily Impaired Investments
The Company does not believe that any of the unrealized losses, which were comprised of 36 and 74 investment securities as of September 30, 2016 and December 31, 2015, respectively, represent an other-than-temporary impairment. The gross unrealized losses associated with U.S. Treasury and agency securities, federal agency obligations, mortgage-backed securities, corporate bonds, tax-exempt securities, asset-backed securities, trust preferred securities, mutual funds and equity securities are not considered to be other-than-temporary because these unrealized losses are related to changes in interest rates and do not affect the expected cash flows of the underlying collateral or issuer.
Factors which may contribute to unrealized losses include credit risk, market risk, changes in interest rates, economic cycles, and liquidity risk. The magnitude of any unrealized loss may be affected by the relative concentration of the Companys investment in any one issuer or industry. The Company has established policies to reduce exposure through diversification of the investment portfolio including limits on concentrations to any one issuer. The Company believes the investment portfolio is prudently diversified.
The unrealized losses included in the tables below are primarily related to changes in interest rates and credit spreads. All of the Companys investment securities are performing and are expected to continue to perform in accordance with their respective contractual terms and conditions. These are largely intermediate duration holdings and, in certain cases, monthly principal payments can further reduce loss exposure resulting from an increase in rates.
The Company evaluates all securities with unrealized losses quarterly to determine whether the loss is other-than-temporary. Unrealized losses in the corporate debt securities category consist primarily of senior unsecured corporate debt securities issued by large financial institutions, insurance companies and other corporate issuers. Single issuer corporate trust preferred securities are also included, and in the case of one holding the market valuation loss is largely based upon the floating rate coupon and corresponding market valuation. Neither that trust preferred issuer, nor any other corporate issuers, have defaulted on interest payments. The unrealized loss in equity securities consists of losses on other bank equities. The decline in fair value is due in large part to the lack of an active trading market for these securities, changes in market credit spreads and rating agency downgrades. Management concluded that these securities were not other-than-temporarily impaired at September 30, 2016.
In determining whether or not securities are OTTI, the Company must exercise considerable judgment. Accordingly, there can be no assurance that the actual results will not differ from the Companys judgments and that such differences may not require the future recognition of other-than-temporary impairment charges that could have a material effect on the Companys financial position and results of operations. In addition, the value of, and the realization of any loss on, an investment security is subject to numerous risks as cited above.
15 |
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
(unaudited)
Note 4. Investment Securities (continued)
The following tables indicate gross unrealized losses not recognized in income and fair value, aggregated by investment category and the length of time individual securities have been in a continuous unrealized loss position at September 30, 2016 and December 31, 2015:
September 30, 2016 | ||||||||||||||||||||
Total | Less than 12 Months | 12 Months or Longer | ||||||||||||||||||
Fair | Unrealized | Fair | Unrealized | Fair | Unrealized | |||||||||||||||
Value | Losses | Value | Losses | Value | Losses | |||||||||||||||
(in thousands) | ||||||||||||||||||||
Investment securities | ||||||||||||||||||||
available-for-sale: | ||||||||||||||||||||
Federal agency obligation | $ | 2,685 | $ | (9 | ) | $ | 1,366 | $ | (3 | ) | $ | 1,319 | $ | (6 | ) | |||||
Residential mortgage | ||||||||||||||||||||
pass-through securities | 2,978 | (12 | ) | 2,596 | (9 | ) | 382 | (3 | ) | |||||||||||
Obligations of U.S. states | ||||||||||||||||||||
and political subdivisions | 575 | (2 | ) | 575 | (2 | ) | ||||||||||||||
Trust preferred securities | 1,369 | (209 | ) | - | - | 1,369 | (209 | ) | ||||||||||||
Corporate bonds and notes | 13,945 | (348 | ) | 5,741 | (185 | ) | 8,204 | (163 | ) | |||||||||||
Asset-backed securities | 14,025 | (296 | ) | 3,891 | (72 | ) | 10,134 | (224 | ) | |||||||||||
Equity securities | 134 | (3 | ) | - | - | 134 | (3 | ) | ||||||||||||
Other securities | 5,417 | (83 | ) | - | - | 5,417 | (83 | ) | ||||||||||||
Total temporarily impaired | ||||||||||||||||||||
securities | $ | 41,128 | $ | (962 | ) | $ | 14,169 | $ | (271 | ) | $ | 26,959 | $ | (691 | ) |
16 |
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
(unaudited)
Note 4. Investment Securities (continued)
December 31, 2015 | ||||||||||||||||||||
Total | Less than 12 Months | 12 Months or Longer | ||||||||||||||||||
Fair | Unrealized | Fair | Unrealized | Fair | Unrealized | |||||||||||||||
Value | Losses | Value | Losses | Value | Losses | |||||||||||||||
(dollars in thousands) | ||||||||||||||||||||
Investment Securities | ||||||||||||||||||||
Available-for-Sale: | ||||||||||||||||||||
Federal agency obligation | $ | 12,260 | $ | (58 | ) | $ | 12,013 | $ | (54 | ) | $ | 247 | $ | (4 | ) | |||||
Residential mortgage | ||||||||||||||||||||
pass-through securities | 9,027 | (48 | ) | 9,027 | (48 | ) | - | - | ||||||||||||
Commercial mortgage-backed | ||||||||||||||||||||
securities | 2,971 | (9 | ) | 2,971 | (9 | ) | - | - | ||||||||||||
Trust preferred securities | 1,345 | (231 | ) | - | - | 1,345 | (231 | ) | ||||||||||||
Corporate bonds and notes | 16,533 | (292 | ) | 12,702 | (161 | ) | 3,831 | (131 | ) | |||||||||||
Asset-backed securities | 14,745 | (298 | ) | 11,250 | (188 | ) | 3,495 | (110 | ) | |||||||||||
Certificates of deposit | 215 | (8 | ) | 215 | (8 | ) | - | - | ||||||||||||
Equity securities | 123 | (23 | ) | - | - | 123 | (23 | ) | ||||||||||||
Other securities | 5,347 | (153 | ) | - | - | 5,347 | (153 | ) | ||||||||||||
Total | $ | 62,566 | $ | (1,120 | ) | $ | 48,178 | $ | (468 | ) | $ | 14,388 | $ | (652 | ) | |||||
Investment Securities | ||||||||||||||||||||
Held-to-Maturity: | ||||||||||||||||||||
Federal agency obligation | 12,554 | (119 | ) | 11,783 | (109 | ) | 771 | (10 | ) | |||||||||||
Residential mortgage | ||||||||||||||||||||
pass-through securities | 2,480 | (6 | ) | 2,480 | (6 | ) | - | - | ||||||||||||
Commercial mortgage-backed | ||||||||||||||||||||
securities | 1,331 | (2 | ) | 1,331 | (2 | ) | - | - | ||||||||||||
Obligations of U.S. states | ||||||||||||||||||||
and political subdivisions | 981 | (3 | ) | 981 | (3 | ) | - | - | ||||||||||||
Corporate bonds and notes | 5,536 | (161 | ) | 5,536 | (161 | ) | - | - | ||||||||||||
Total | $ | 22,882 | $ | (291 | ) | $ | 22,111 | $ | (281 | ) | $ | 771 | $ | (10 | ) | |||||
Total Temporarily Impaired | ||||||||||||||||||||
Securities | $ | 85,448 | $ | (1,411 | ) | $ | 70,289 | $ | (749 | ) | $ | 15,159 | $ | (662 | ) |
Investment securities having a carrying value of approximately $104.2 million and $142.5 million at September 30, 2016 and December 31, 2015, respectively, were pledged to secure public deposits, borrowings, Federal Reserve Discount Window and Federal Home Loan Bank advances and for other purposes required or permitted by law.
As of September 30, 2016 and December 31, 2015, there were no holdings of securities of any one issuer, other than the U.S. Government and its agencies, in an amount greater than 10% of stockholders equity.
Note 5 - Derivatives
The Company utilizes interest rate swap agreements as part of its asset liability management strategy to help manage its interest rate risk position. The notional amount of the interest rate swap does not represent amounts exchanged by the parties. The amount exchanged is determined by reference to the notional amount and the other terms of the individual interest rate swap agreements.
Interest rate swaps were entered into on August 24, 2015, December 30, 2014 and October 15, 2014 each with a respective notional amount of $25 million and were designated as cash flow hedges of a Federal Home Loan Bank advance. The swaps were determined to be fully effective during the period presented and therefore no amount of ineffectiveness has been included in net income while the aggregate fair value of the swaps is recorded in other assets (liabilities) with changes in fair value recorded in other comprehensive income (loss). The amount included in accumulated other comprehensive income (loss) would be reclassified to current earnings should the hedges no longer be considered effective. The Company expects the hedges to remain fully effective during the remaining term of the swaps.
17 |
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
(unaudited)
Note 5 Derivatives (continued)
Summary information about the interest rate swaps designated as cash flow hedges as of September 30, 2016, December 31, 2015 and September 30, 2015 are presented in the following table.
September 30, | December 31, | September 30, | |||||||||
(dollars in thousands) | 2016 | 2015 | 2015 | ||||||||
Notional amount | $ | 75,000 | $ | 75,000 | $ | 75,000 | |||||
Weighted average pay rates | 1.58 | % | 1.56 | % | 1.56 | % | |||||
Weighted average receive rates | 0.70 | % | 0.44 | % | 0.30 | % | |||||
Weighted average maturity | 3.1 years | 3.8 years | 4.1 years | ||||||||
Fair value | $ | (1,212 | ) | $ | (131 | ) | $ | (1,105 | ) |
Interest expense recorded on these swap transactions totaled approximately $167,000 and $534,000 for the three and nine months ended September 30, 2016 and approximately $165,000 and $331,000 for the three and nine months ended September 30, 2015.
Cash Flow Hedge
The following table presents the net gains (losses), recorded in other comprehensive income and the Consolidated Statements of Income relating to the cash flow derivative instruments for the following periods:
Nine Months Ended September 30, 2016 | |||||||||
Amount of loss | Amount of loss | Amount of loss | |||||||
recognized | reclassified | recognized in other | |||||||
in OCI (Effective | from OCI to | Noninterest income | |||||||
(in thousands) | Portion) | interest income | (Ineffective Portion) | ||||||
Interest rate contracts | $ | (640) | $ | - | $ | - | |||
Nine Months Ended September 30, 2015 | |||||||||
Amount of loss | Amount of loss | Amount of loss | |||||||
recognized | reclassified | recognized in other | |||||||
in OCI (Effective | from OCI to | Noninterest income | |||||||
(in thousands) | Portion) | interest income | (Ineffective Portion) | ||||||
Interest rate contracts | $ | (1,153) | $ | - | $ | - |
The following table reflects the cash flow hedges included in the consolidated statements of condition as of September 30, 2016 and December 31, 2015:
September 30, 2016 | December 31, 2015 | ||||||||||||
Notional | Notional | ||||||||||||
(in thousands) | Amount | Fair Value | Amount | Fair Value | |||||||||
Interest rate swaps related to FHLB Advances included in Assets | $ | 75,000 | $ | (1,212 | ) | $ | 75,000 | $ | (131 | ) |
18 |
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
(unaudited)
Note 6. Loans and the Allowance for Loan and Lease Losses
Loans that management has the intent and ability to hold for the foreseeable future or until maturity or payoff are reported at the principal balance outstanding, net of deferred loan fees and costs, premiums and discounts related to purchase accounting, and an allowance for loan and lease losses. Interest income is accrued on the unpaid principal balance. Loan origination fees, net of certain direct origination costs, are deferred and recognized in interest income using the level-yield method without anticipating prepayments.
Loan segments are defined as a group of loans and leases, which share similar initial measurement attributes, risk characteristics, and methods for monitoring and assessing credit risk. Management has determined that the Company has five segments of loans and leases: commercial (including lease financing), commercial real estate, commercial construction, residential real estate (including home equity) and consumer.
Interest income on commercial, commercial real estate, commercial construction and residential loans are discontinued at the time the loan is 90 days delinquent unless the loan is well-secured and in process of collection. Past due status is based on the contractual terms of the loan. In all cases, loans are placed on nonaccrual or charged-off at an earlier date if collection of principal or interest is considered doubtful. Nonaccrual loans and loans past due 90 days still on accrual include both smaller balance homogeneous loans that are collectively evaluated for impairment and individually classified impaired loans. A loan is moved to nonaccrual status in accordance with the Companys policy, typically after 90 days of non-payment.
All interest accrued but not received for loans placed on nonaccrual is reversed against interest income. Interest received on such loans is accounted for on the cash-basis or cost-recovery method, until qualifying for return to accrual. Loans are returned to accrual status when all the principal and interest amounts contractually due are brought current and future payments are reasonably assured.
The policy of the Company is to generally grant commercial, residential and consumer loans to residents and businesses within its market area. The borrowers abilities to repay their obligations are dependent upon various factors including the borrowers income and net worth, cash flows generated by the borrowers underlying collateral, value of the underlying collateral, and priority of the lenders lien on the property. Such factors are dependent upon various economic conditions and individual circumstances beyond the control of the Company. The Company is therefore subject to risk of loss. The Company believes its lending policies and procedures adequately minimize the potential exposure to such risks and that adequate provisions for loan and lease losses are provided for all known and inherent risks. Collateral and/or personal guarantees are required for a large majority of the Companys loans.
Allowance for Loan and Lease Losses
The allowance for loan and lease losses is a valuation allowance for probable incurred credit losses. Losses are charged against the allowance when management believes the uncollectibility of a loan balance is confirmed. Subsequent recoveries, if any, are credited to the allowance. Management estimates the allowance balance required using past loan and lease loss experience, the nature and volume of the portfolio, information about specific borrower situations and estimated collateral values, economic conditions, and other factors. Allocations of the allowance may be made for specific loans, but the entire allowance is available for any loan that, in managements judgment, should be charged off. The allowance consists of specific and general components. The specific component relates to loans that are individually classified as impaired.
A loan is impaired when, based on current information and events, it is probable that the Company will be unable to collect all amounts due according to the contractual terms of the loan agreement. Loans, for which the terms have been modified, and for which the borrower is experiencing financial difficulties, are considered troubled debt restructurings (TDRs) and classified as impaired. As part of the evaluation of impaired loans, the Company individually reviews for impairment all non-homogeneous loans internally classified as substandard or below. Generally, smaller impaired non-homogeneous loans and impaired homogeneous loans are collectively evaluated for impairment.
Factors considered by management in determining impairment include payment status, collateral value, and the probability of collecting scheduled principal and interest payments when due. Loans that experience insignificant payment delays and payment shortfalls generally are not classified as impaired. Management determines the significance of payment delays and payment shortfalls on a case-by-case basis, taking into consideration all of the circumstances surrounding the loan and the borrower, including the length of the delay, the reasons for the delay, the borrowers prior payment record, and the amount of the shortfall in relation to the principal and interest owed.
19 |
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
(unaudited)
Note 6. Loans and the Allowance for Loan and Lease Losses (continued)
TDRs are separately identified for impairment disclosures and are measured at the present value of estimated future cash flows using the loans effective rate at inception. If a TDR is considered to be a collateral dependent loan, the loan is reported, net, at the fair value of the collateral. For TDRs that subsequently default, the Company determines the amount of reserve in accordance with the accounting policy for the allowance for loan and lease losses.
The general component covers non-impaired loans and is based on historical loss experience adjusted for current factors. The historical loss experience, the primary factor, is determined by loan class and is based on the actual loss history experienced by the Bank over an actual three-year rolling calculation. This actual loss experience is supplemented with other economic factors based on the risks present for each portfolio segment and with the exogenous factor adjustments based on the risks present for each loan category. These exogenous factors include consideration of the following: concentrations of credit; delinquency & nonaccrual trends; economic & business conditions including evaluation of the national and regional economies and industries with significant loan concentrations; external factors including legal, regulatory or competitive pressures that may impact the loan portfolio; changes in the experience, ability, or size of the lending staff, management, or board of directors that may impact the loan portfolio; changes in underwriting standards, collection procedures, charge-off practices, or other changes in lending policies and procedures that may impact the loan portfolio; loss and recovery trends; changes in portfolio size and mix; and trends in problem loans.
Purchased Credit-Impaired Loans
The Company purchases groups of loans in conjunction with mergers, some of which have shown evidence of credit deterioration since origination. These purchased credit impaired loans are recorded at the amount paid, such that there is no carryover of the sellers allowance for loan and lease losses. After acquisition, losses are recognized by an increase in the allowance for loan and lease losses.
Such purchased credit-impaired loans (PCI) are accounted for individually. The Company estimates the amount and timing of expected cash flows for each loan and the expected cash flows in excess of amount paid is recorded as interest income over the remaining life of the loan (accretable yield). The excess of the loans contractual principal and interest over expected cash flows is not recorded (nonaccretable difference).
A PCI loan may be resolved either through a sale of the loan, by working with the customer and obtaining partial or full repayment, by short sale of the collateral, or by foreclosure. A gain or loss on resolution would be recognized based on the difference between the proceeds received and the carrying amount of the loan.
Payments received earlier than expected or in excess of expected cash flows from sales or other resolutions may result in the carrying value of a pool being reduced to zero even though outstanding contractual balances and expected cash flows remain related to loans in the pool. Once the carrying value of a pool is reduced to zero, any future proceeds, which may include cash or real estate acquired in foreclosure, from the remaining loans, representing further realization of accretable yield, are recognized as interest income upon receipt.
PCI loans that met the criteria for nonaccrual may be considered performing, regardless of whether the customer is contractually delinquent, if management can reasonably estimate the timing and amount of the expected cash flows on such loans and if management expects to fully collect the new carrying value of the loans. As such, management may no longer consider the loans to be nonaccrual or nonperforming and may accrue interest on these loans, including the impact of any accretable discount.
20 |
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
(unaudited)
Note 6. Loans and the Allowance for Loan and Lease Losses (continued)
Composition of Loan Portfolio
The following table sets forth the composition of the Companys loan portfolio, including net deferred loan fees, at September 30, 2016 and December 31, 2015:
September 30, | December 31, | ||||||
2016 | 2015 | ||||||
(in thousands) | |||||||
Commercial | $ | 644,430 | $ | 570,116 | |||
Commercial real estate | 2,100,804 | 1,966,696 | |||||
Commercial construction | 471,109 | 328,838 | |||||
Residential real estate | 229,401 | 233,690 | |||||
Consumer | 2,879 | 2,454 | |||||
Gross loans | 3,448,623 | 3,101,794 | |||||
Net deferred loan fees | (3,147 | ) | (2,787 | ) | |||
Total loans receivable | $ | 3,445,476 | $ | 3,099,007 |
As of September 30, 2016, the bank designated approximately $15.1 million as loans held-for-sale. This designation occurred during the third quarter of 2016 and consisted of approximately $1.6 million of mortgage loans and approximately $13.5 million of commercial and commercial real estate loans.
At September 30, 2016 and December 31, 2015 loan balances of approximately $1.6 billion were pledged to secure borrowings from the Federal Home Loan Bank of New York.
Purchased Credit-Impaired Loans
The Company holds purchased loans for which there was, at their acquisition date, evidence of deterioration of credit quality since their origination and it was probable, at acquisition, that all contractually required payments would not be collected. The carrying amount of those loans is as follows at September 30, 2016 and December 31, 2015.
September 30, | December 31, | ||||
2016 | 2015 | ||||
(in thousands) | |||||
Commercial | $ | 7,027 | $ | 7,078 | |
Commercial real estate | 1,002 | 1,775 | |||
Residential real estate | - | 328 | |||
Total carrying amount | $ | 8,029 | $ | 9,181 |
For those purchased loans disclosed above, the Company did not increase the allowance for loan and lease losses for the three and nine months ended September 30, 2016.
The accretable yield, or income expected to be collected, on the purchased loans disclosed above for the three and nine months ended September 30, 2016 is as follows (in thousands):
Three Months | Three Months | ||||||
Ended | Ended | ||||||
September | September | ||||||
30, 2016 | 30, 2015 | ||||||
Beginning balance | $ | 3,233 | $ | 4,013 | |||
New loans purchased | - | - | |||||
Accretion of income | (185 | ) | (207 | ) | |||
Reclassification from nonaccretable differences | - | - | |||||
Disposals | - | - | |||||
Ending balance | $ | 3,048 | $ | 3,806 |
21 |
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
(unaudited)
Note 6. Loans and the Allowance for Loan and Lease Losses (continued)
Nine Months | Nine Months | |||||||
Ended | Ended | |||||||
September | September | |||||||
30, 2016 | 30, 2015 | |||||||
Beginning balance | $ | 3,599 | $ | 4,467 | ||||
New loans purchased | - | - | ||||||
Accretion of income | (551 | ) | (661 | ) | ||||
Reclassification from nonaccretable differences | - | - | ||||||
Disposals | - | - | ||||||
Ending balance | $ | 3,048 | $ | 3,806 |
The following table presents information about the recorded investment in loan receivables on nonaccrual status by segment at September 30, 2016 and December 31, 2015:
Loans Receivable on Nonaccrual Status
September 30, | December 31, | ||||
2016 | 2015 | ||||
(in thousands) | |||||
Commercial | $ | 5,982 | $ | 6,586 | |
Commercial real estate | 2,489 | 9,112 | |||
Commercial construction | - | 1,479 | |||
Residential real estate | 3,022 | 3,559 | |||
Total loans receivable on nonaccrual status | $ | 11,493 | $ | 20,736 |
During the quarter ended September 30, 2016, the bank sold a lease financing receivable for approximately $2.6 million, net of closing costs. At the time of sale, the recorded investment of the lease financing receivable was $3.7 million, with a specific allowance for loan loss reserve of $1.3 million. The amount of net proceeds that exceeded the net carrying value was recorded as an increase to the allowance for loan losses.
The Company continuously monitors the credit quality of its loans receivable. In addition to its internal staff, the Company utilizes the services of a third party loan review firm to rate the credit quality of its loans receivable. Credit quality is monitored by reviewing certain credit quality indicators. Assets classified Pass are deemed to possess average to superior credit quality, requiring no more than normal attention.
Assets classified as Special Mention have generally acceptable credit quality yet possess higher risk characteristics/circumstances than satisfactory assets. Such conditions include strained liquidity, slow pay, stale financial statements, or other conditions that require more stringent attention from the lending staff. These conditions, if not corrected, may weaken the loan quality or inadequately protect the Companys credit position at some future date.
Assets are classified Substandard if the asset has a well-defined weakness that requires managements attention to a greater degree than for loans classified special mention. Such weakness, if left uncorrected, could possibly result in the compromised ability of the loan to perform to contractual requirements.
An asset is classified as Doubtful if it is inadequately protected by the net worth and/or paying capacity of the obligor or of the collateral, if any, that secures the obligation. Assets classified as doubtful include assets for which there is a distinct possibility that a degree of loss will occur if the inadequacies are not corrected.
22 |
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
(unaudited)
Note 6. Loans and the Allowance for Loan and Lease Losses (continued)
The following table presents information, excluding loans held-for-sale and net deferred loan fees, about the Companys loan credit quality at September 30, 2016 and December 31, 2015:
September 30, 2016 | |||||||||||||||
Special | |||||||||||||||
Pass | Mention | Substandard | Doubtful | Total | |||||||||||
(in thousands) | |||||||||||||||
Commercial | $ | 531,599 | $ | 2,787 | $ | 110,044 | $ | - | $ | 644,430 | |||||
Commercial real estate | 2,049,986 | 32,504 | 18,314 | - | 2,100,804 | ||||||||||
Commercial construction | 469,735 | 1,374 | - | - | 471,109 | ||||||||||
Residential real estate | 226,012 | - | 3,389 | - | 229,401 | ||||||||||
Consumer | 2,812 | - | 67 | - | 2,879 | ||||||||||
Total loans | $ | 3,280,144 | $ | 36,665 | $ | 131,814 | $ | - | $ | 3,448,623 | |||||
December 31, 2015 | |||||||||||||||
Special | |||||||||||||||
Pass | Mention | Substandard | Doubtful | Total | |||||||||||
(in thousands) | |||||||||||||||
Commercial | $ | 462,358 | $ | 11,760 | $ | 95,998 | $ | - | $ | 570,116 | |||||
Commercial real estate | 1,919,041 | 18,990 | 28,426 | 239 | 1,966,696 | ||||||||||
Commercial construction | 326,697 | 662 | 1,479 | - | 328,838 | ||||||||||
Residential real estate | 229,426 | - | 4,264 | - | 233,690 | ||||||||||
Consumer | 2,368 | - | 86 | - | 2,454 | ||||||||||
Total loans | $ | 2,939,890 | $ | 31,412 | $ | 130,253 | $ | 239 | $ | 3,101,794 |
23 |
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
(unaudited)
Note 6. Loans and the Allowance for Loan and Lease Losses (continued)
The following table provides an analysis of the impaired loans, by loan segment, at September 30, 2016 and December 31, 2015:
September 30, 2016 | |||||||||
Unpaid | |||||||||
Recorded | Principal | Related | |||||||
Investment | Balance | Allowance | |||||||
No related allowance recorded | (in thousands) | ||||||||
Commercial | $ | 6,718 | $ | 7,025 | |||||
Commercial real estate | 9,166 | 9,182 | |||||||
Commercial construction | 1,374 | 1,374 | |||||||
Residential real estate | 3,389 | 3,823 | |||||||
Consumer | 67 | 67 | |||||||
Total | $ | 20,714 | $ | 21,471 | |||||
With an allowance recorded | |||||||||
Commercial | $ | 95,964 | $ | 95,964 | $ | 12,931 | |||
Commercial real estate | 153 | 153 | 105 | ||||||
Total | $ | 96,117 | $ | 96,117 | $ | 13,036 | |||
Total | |||||||||
Commercial | $ | 102,682 | $ | 103,989 | $ | 12,931 | |||
Commercial real estate | 9,319 | 9,335 | 105 | ||||||
Commercial construction | 1,374 | 1,374 | - | ||||||
Residential real estate | 3,389 | 3,823 | - | ||||||
Consumer | 67 | 67 | - | ||||||
Total | $ | 116,831 | $ | 117,588 | $ | 13,036 | |||
December 31, 2015 | |||||||||
Unpaid | |||||||||
Recorded | Principal | Related | |||||||
Investment | Balance | Allowance | |||||||
No related allowance recorded | (in thousands) | ||||||||
Commercial | $ | 610 | $ | 645 | |||||
Commercial real estate | 15,517 | 16,512 | |||||||
Commercial construction | 2,149 | 2,141 | |||||||
Residential real estate | 3,954 | 4,329 | |||||||
Consumer | 87 | 86 | |||||||
Total | $ | 22,317 | $ | 23,713 | |||||
With an allowance recorded | |||||||||
Commercial | $ | 84,787 | $ | 84,449 | $ | 6,725 | |||
Total | |||||||||
Commercial | $ | 85,397 | $ | 85,094 | $ | 6,725 | |||
Commercial real estate | 15,517 | 16,512 | - | ||||||
Commercial construction | 2,149 | 2,141 | - | ||||||
Residential real estate | 3,954 | 4,329 | - | ||||||
Consumer | 87 | 86 | - | ||||||
Total | $ | 107,104 | $ | 108,162 | $ | 6,725 |
24 |
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
(unaudited)
Note 6. Loans and the Allowance for Loan and Lease Losses (continued)
The following table provides an analysis related to the average recorded investment and interest income recognized on impaired loans by segment as of and for the three and nine months ended September 30, 2016 and 2015 (in thousands):
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||||||||||
2016 | 2015 | 2016 | 2015 | |||||||||||||||||||||
Average | Interest | Average | Interest | Average | Interest | Average | Interest | |||||||||||||||||
Recorded | Income | Recorded | Income | Recorded | Income | Recorded | Income | |||||||||||||||||
Investment | Recognized | Investment | Recognized | Investment | Recognized | Investment | Recognized | |||||||||||||||||
Impaired loans with no | ||||||||||||||||||||||||
related allowance | ||||||||||||||||||||||||
recorded: | ||||||||||||||||||||||||
Commercial | $ | 6,704 | $ | 66 | $ | 712 | $ | - | $ | 4,317 | $ | 86 | $ | 707 | $ | - | ||||||||
Commercial real estate | 9,129 | 65 | 4,869 | 15 | 8,167 | 118 | 4,905 | 46 | ||||||||||||||||
Commercial | ||||||||||||||||||||||||
construction | 1,224 | 21 | 1,479 | - | 979 | 54 | 1,479 | - | ||||||||||||||||
Residential real estate | 3,271 | 5 | 3,221 | 7 | 3,247 | 15 | 3,251 | 12 | ||||||||||||||||
Consumer | 70 | 1 | 100 | 1 | 74 | 3 | 102 | 4 | ||||||||||||||||
Total | $ | 20,398 | $ | 158 | $ | 10,381 | 23 | $ | 16,784 | $ | 276 | $ | 10,444 | $ | 62 | |||||||||
Impaired loans with an | ||||||||||||||||||||||||
allowance recorded: | ||||||||||||||||||||||||
Commercial | $ | 91,393 | $ | 925 | $ | 79,732 | $ | 722 | $ | 85,620 | $ | 2,447 | $ | 45,747 | $ | 1,206 | ||||||||
Commercial real estate | 153 | - | - | - | 153 | - | - | - | ||||||||||||||||
Total | $ | 91,5476 | $ | 925 | $ | 79,732 | $ | 722 | $ | 102,577 | $ | 2,447 | $ | 45,747 | $ | 1,206 | ||||||||
Total impaired loans: | ||||||||||||||||||||||||
Commercial | $ | 98,097 | $ | 991 | $ | 80,444 | $ | 722 | $ | 89,937 | $ | 2,533 | $ | 46,454 | $ | 1,206 | ||||||||
Commercial real estate | 9,282 | 65 | 4,869 | 15 | 8,320 | 118 | 4,905 | 46 | ||||||||||||||||
Commercial | ||||||||||||||||||||||||
construction | 1,224 | 21 | 1,479 | - | 979 | 54 | 1,479 | - | ||||||||||||||||
Residential real estate | 3,271 | 5 | 3,221 | 7 | 3,247 | 15 | 3,251 | 12 | ||||||||||||||||
Consumer | 70 | 1 | 100 | 1 | 74 | 3 | 102 | 4 | ||||||||||||||||
Total | $ | 111,944 | $ | 1,083 | $ | 90,113 | $ | 745 | $ | 102,557 | $ | 2,753 | $ | 56,191 | $ | 1,268 |
Included in impaired loans at September 30, 2016 and December 31, 2015 are loans that are deemed troubled debt restructurings. The recorded investment in loans include accrued interest receivable and other capitalized costs such as real estate taxes paid on behalf of the borrower. Cash basis interest and interest income recognized on accrual basis approximate each other.
25 |
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
(unaudited)
Note 6. Loans and the Allowance for Loan and Lease Losses (continued)
The following table provides an analysis of the aging of gross loans (excluding loans held-for-sale) that are past due at September 30, 2016 and December 31, 2015 by segment:
Aging Analysis
September 30, 2016 | |||||||||||||||||||||
90 Days or | Greater than 90 Days | ||||||||||||||||||||
30-59 Days | 60-89 Days | Greater Past | Total Loans | Past Due and Still | |||||||||||||||||
Past Due | Past Due | Due | Total | Current | Receivable | Accruing/Accreting | |||||||||||||||
(in thousands) | |||||||||||||||||||||
Commercial | $ | - | $ | 249 | $ | 5,363 | $ | 5,612 | $ | 638,818 | $ | 644,430 | $ | 4,543 | |||||||
Commercial real | |||||||||||||||||||||
estate | 461 | 1,600 | 2,385 | 4,446 | 2,096,358 | 2,100,804 | 654 | ||||||||||||||
Commercial | |||||||||||||||||||||
construction | - | - | - | - | 471,109 | 471,109 | - | ||||||||||||||
Residential real | |||||||||||||||||||||
estate | 505 | 924 | 1,778 | 3,207 | 226,194 | 229,401 | - | ||||||||||||||
Consumer | 9 | - | - | 9 | 2,870 | 2,879 | |||||||||||||||
Total | $ | 975 | $ | 2,773 | $ | 9,526 | $ | 13,274 | $ | 3,435,349 | $ | 3,448,623 | $ | 5,197 | |||||||
December 31, 2015 | |||||||||||||||||||||
90 Days or | Greater than 90 Days | ||||||||||||||||||||
30-59 Days | 60-89 Days | Greater Past | Total Loans | Past Due and Still | |||||||||||||||||
Past Due | Past Due | Due | Total | Current | Receivable | Accruing/Accreting | |||||||||||||||
(in thousands) | |||||||||||||||||||||
Commercial | $ | 6,887 | $ | 3,505 | $ | 6,865 | $ | 17,257 | $ | 552,859 | $ | 570,116 | $ | - | |||||||
Commercial real | |||||||||||||||||||||
estate | 1,998 | 988 | 9,561 | 12,547 | 1,954,149 | 1,966,696 | - | ||||||||||||||
Commercial | |||||||||||||||||||||
construction | - | - | 1,479 | 1,479 | 327,359 | 328,838 | - | ||||||||||||||
Residential real | |||||||||||||||||||||
estate | - | - | 2,122 | 2,122 | 231,568 | 233,690 | - | ||||||||||||||
Consumer | 4 | 9 | - | 13 | 2,441 | 2,454 | - | ||||||||||||||
Total | $ | 8,889 | $ | 4,502 | $ | 20,027 | $ | 33,418 | $ | 3,068,376 | $ | 3,101,794 | $ | - |
Included in the 90 days and still accruing/accreting bucket are three purchased credit-impaired loans, net of their fair value marks, which are accreting income per their valuation at date of acquisition.
26 |
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
(unaudited)
Note 6. Loans and the Allowance for Loan and Lease Losses (continued)
The following tables detail, at the period-end presented, the amount of gross loans (excluding loans held-for-sale) that are evaluated individually, and collectively, for impairment, those acquired with deteriorated quality, and the related portion of the allowance for loan and lease losses that are allocated to each loan portfolio segment:
September 30, 2016 | |||||||||||||||||||||
Commercial | Commercial | Residential | |||||||||||||||||||
Commercial | real estate | construction | real estate | Consumer | Unallocated | Total | |||||||||||||||
(in thousands) | |||||||||||||||||||||
Allowance for loan and lease losses | |||||||||||||||||||||
Individually evaluated for impairment | $ | 12,931 | $ | 105 | $ | - | $ | - | $ | - | $ | - | $ | 13,036 | |||||||
Collectively evaluated for impairment | 7,465 | 11,270 | 4,072 | 1,174 | 4 | 594 | 24,579 | ||||||||||||||
Acquired portfolio | - | - | - | - | - | - | - | ||||||||||||||
Acquired with deteriorated credit quality | - | - | - | - | - | - | - | ||||||||||||||
Total | $ | 20,396 | $ | 11,375 | $ | 4,072 | $ | 1,174 | $ | 4 | $ | 594 | $ | 37,615 | |||||||
Gross loans | |||||||||||||||||||||
Individually evaluated for impairment | $ | 102,682 | $ | 9,319 | $ | 1,374 | $ | 3,389 | $ | 67 | $ | - | $ | 116,831 | |||||||
Collectively evaluated for impairment | 487,657 | 1,480,859 | 462,687 | 153,488 | 2,178 | - | 2,586,869 | ||||||||||||||
Acquired portfolio | 47,064 | 609,624 | 7,048 | 72,524 | 634 | - | 736,894 | ||||||||||||||
Acquired with deteriorated credit quality | 7,027 | 1,002 | - | - | - | - | 8,029 | ||||||||||||||
Total | $ | 644,430 | $ | 2,100,804 | $ | 471,109 | $ | 229,401 | $ | 2,879 | $ | - | $ | 3,448,623 | |||||||
December 31, 2015 | |||||||||||||||||||||
Commercial | Commercial | Residential | |||||||||||||||||||
Commercial | real estate | construction | real estate | Consumer | Unallocated | Total | |||||||||||||||
(in thousands) | |||||||||||||||||||||
Allowance for loan and lease losses | |||||||||||||||||||||
Individually evaluated for impairment | $ | 6,725 | $ | - | $ | - | $ | - | $ | - | $ | - | $ | 6,725 | |||||||
Collectively evaluated for impairment | 4,224 | 10,926 | 3,253 | 976 | 4 | 464 | 19,847 | ||||||||||||||
Acquired portfolio | - | - | - | - | - | - | - | ||||||||||||||
Acquired with deteriorated credit quality | - | - | - | - | - | - | - | ||||||||||||||
Total | $ | 10,949 | $ | 10,926 | $ | 3,253 | $ | 976 | $ | 4 | $ | 464 | $ | 26,572 | |||||||
Gross loans | |||||||||||||||||||||
Individually evaluated for impairment | $ | 85,397 | $ | 15,517 | $ | 2,149 | $ | 3,954 | $ | 87 | $ | - | $ | 107,104 | |||||||
Collectively evaluated for impairment | 395,424 | 1,269,140 | 315,785 | 136,633 | 1,649 | - | 2,118,631 | ||||||||||||||
Acquired portfolio | 82,217 | 680,264 | 10,904 | 92,775 | 718 | 866,878 | |||||||||||||||
Acquired with deteriorated credit quality | 7,078 | 1,775 | - | 328 | - | - | 9,181 | ||||||||||||||
Total | $ | 570,116 | $ | 1,966,696 | $ | 328,838 | $ | 233,690 | $ | 2,454 | $ | - | $ | 3,101,794 |
27 |
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
(unaudited)
Note 6. Loans and the Allowance for Loan and Lease Losses (continued)
The Companys allowance for loan and lease losses is analyzed quarterly. Many factors are considered, including growth in the portfolio, delinquencies, nonaccrual loan levels, and other factors inherent in the extension of credit. There have been no material changes to the allowance for loan and lease losses methodology as disclosed in the Companys Annual Report on Form 10-K for the year ended December 31, 2015.
A summary of the activity in the allowance for loan and lease losses is as follows:
Three Months Ended September 30, 2016 | |||||||||||||||||||||||||||
Commercial | Commercial | Residential | |||||||||||||||||||||||||
Commercial | real estate | construction | real estate | Consumer | Unallocated | Total | |||||||||||||||||||||
(in thousands) | |||||||||||||||||||||||||||
Balance at June 30, 2016 | $ | 15,548 | $ | 11,371 | $ | 4,040 | $ | 1,091 | $ | 4 | $ | 709 | $ | 32,763 | |||||||||||||
Charge-offs | (1,878 | ) | - | - | (27 | ) | (5 | ) | - | (1,910 | ) | ||||||||||||||||
Recoveries | 1 | 10 | - | - | 1 | - | 12 | ||||||||||||||||||||
Provision | 6,725 | (6 | ) | 32 | 110 | 4 | (115 | ) | 6,750 | ||||||||||||||||||
Balance at September 30, | |||||||||||||||||||||||||||
2016 | $ | 20,396 | $ | 11,375 | $ | 4,072 | $ | 1,174 | $ | 4 | $ | 594 | $ | 37,615 | |||||||||||||
Three Months Ended September 30, 2015 | |||||||||||||||||||||||||||
Commercial | Commercial | Residential | |||||||||||||||||||||||||
Commercial | real estate | construction | real estate | Consumer | Unallocated | Total | |||||||||||||||||||||
(in thousands) | |||||||||||||||||||||||||||
Balance at June 30, 2015 | $ | 4,633 | $ | 9,195 | $ | 1,945 | $ | 1,161 | $ | 7 | $ | 539 | $ | 17,480 | |||||||||||||
Charge-offs | - | (124 | ) | - | - | - | - | (124 | ) | ||||||||||||||||||
Recoveries | 2 | - | - | - | - | - | 2 | ||||||||||||||||||||
Provision | 2,488 | 1,203 | 701 | (149 | ) | (3 | ) | (65 | ) | 4,175 | |||||||||||||||||
Balance at September 30, | |||||||||||||||||||||||||||
2015 | $ | 4,633 | $ | 9,195 | $ | 2,646 | $ | 1,012 | $ | 4 | $ | 474 | $ | 21,533 |
28 |
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
(unaudited)
Note 6. Loans and the Allowance for Loan and Lease Losses (continued)
Nine Months Ended September 30, 2016 | |||||||||||||||||||||||||||
Commercial | Commercial | Residential | |||||||||||||||||||||||||
Commercial | real estate | construction | real estate | Consumer | Unallocated | Total | |||||||||||||||||||||
(in thousands) | |||||||||||||||||||||||||||
Balance at December 31, | |||||||||||||||||||||||||||
2015 | $ | 10,949 | $ | 10,926 | $ | 3,253 | $ | 976 | $ | 4 | $ | 464 | $ | 26,572 | |||||||||||||
Charge-offs | (2,396 | ) | - | - | (94 | ) | (10 | ) | - | (2,500 | ) | ||||||||||||||||
Recoveries | 2 | 35 | - | 3 | 3 | - | 43 | ||||||||||||||||||||
Provision | 11,841 | 414 | 819 | 289 | 7 | 130 | 13,500 | ||||||||||||||||||||
Balance at September 30, | |||||||||||||||||||||||||||
2016 | $ | 20,396 | $ | 11,375 | $ | 4,072 | $ | 1,174 | $ | 4 | $ | 594 | $ | 37,615 | |||||||||||||
Nine Months Ended September 30, 2015 | |||||||||||||||||||||||||||
Commercial | Commercial | Residential | |||||||||||||||||||||||||
Commercial | real estate | construction | real estate | Consumer | Unallocated | Total | |||||||||||||||||||||
(in thousands) | |||||||||||||||||||||||||||
Balance at December 31, | |||||||||||||||||||||||||||
2014 | $ | 3,083 | $ | 7,799 | $ | 1,239 | $ | 1,113 | $ | 7 | $ | 919 | $ | 14,160 | |||||||||||||
Charge-offs | (100 | ) | (406 | ) | - | - | (13 | ) | - | (519 | ) | ||||||||||||||||
Recoveries | 12 | 327 | - | 2 | 1 | - | 342 | ||||||||||||||||||||
Provision | 4,128 | 2,554 | 1,407 | (103 | ) | 9 | (445 | ) | 7,550 | ||||||||||||||||||
Balance at September 30, | |||||||||||||||||||||||||||
2015 | $ | 7,123 | $ | 10,274 | $ | 2,646 | $ | 1,012 | $ | 4 | $ | 474 | $ | 21,533 |
Troubled Debt Restructurings
At September 30, 2016, there were no commitments to lend additional funds to borrowers whose loans were on nonaccrual status or were contractually past due in excess of 90 days and still accruing interest, or whose terms have been modified in troubled debt restructurings.
The policy of the Company generally is to grant commercial, mortgage and consumer loans to residents and businesses within its market area. The ability of borrowers to repay their obligations is dependent upon various factors, including the borrowers income and net worth, cash flows generated by the borrowers underlying collateral, value of the underlying collateral, and priority of the lenders lien on the property. Such factors are dependent upon various economic conditions and individual circumstances beyond the control of the Company. The Company is therefore subject to risk of loss. The Company believes its lending policies and procedures adequately minimize the potential exposure to such risks and that adequate provisions for loan and lease losses are provided for all known and inherent risks. Collateral and/or personal guarantees are required for virtually all loans. A loan is considered to be in payment default once it is 90 days contractually past due under the modified terms.
29 |
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
(unaudited)
Note 6. Loans and the Allowance for Loan and Lease Losses (continued)
Loans modified in troubled debt restructurings totaled $106.7 million at September 30, 2016, of which $1.4 million were on nonaccrual status and $105.3 million were performing under restructured terms. At December 31, 2015, loans modified in troubled debt restructurings totaled $86.6 million, of which $0.7 million were on nonaccrual status and $85.9 million were performing under restructured terms. The Company has allocated $12.5 and $4.5 million in specific allocations with respect to loans whose loan terms had been modified in troubled debt restructurings as of September 30, 2016 and December 31, 2015, respectively. Performing TDRs as of September 30, 2016 increased the allowance for loan and lease losses by $5.0 and $8.3 million during the three and nine months ended September 30, 2016, respectively. Performing TDRs as of December 31, 2015 did not increase the allowance for loan and lease losses during the year ended December 31, 2015.
The $12.5 million in specific allocations referenced above were associated with New York City taxi medallion lending and were calculated based on the present value of estimated cash flows, including contractual debt interest service through maturity, and principal repayments based on the estimated fair value of the collateral excluding any consideration for personal guarantees of borrowers, which provide an additional source of repayment but cannot be relied upon. The valuation per New York City corporate medallion used for the calculation at September 30, 2016 was approximately $700,000. Since December 31, 2015, an additional $8.3 million specific allocation was required at September 30, 2016 due to a decline in the Companys estimated valuation of New York City taxi medallions since December 31, 2015, when the specific allocation was $4.5 million.
The following table presents loans by class modified as troubled debt restructurings that occurred during the nine months ended September 30, 2016 (dollars in thousands):
Pre-Modification | Post-Modification | |||||||
Outstanding | Outstanding | |||||||
Number of | Recorded | Recorded | ||||||
Loans | Investment | Investment | ||||||
Troubled debt restructurings: | ||||||||
Commercial | 16 | $ | 19,311 | $ | 19,311 | |||
Commercial real estate | 2 | 581 | 581 | |||||
Commercial construction | - | - | - | |||||
Residential real estate | - | - | - | |||||
Consumer | - | - | - | |||||
Total | 18 | $ | 19,892 | $ | 19,892 |
Included in the above troubled debt restructurings were 14 loans secured by 25 New York City taxi medallions totaling $17.3 million. These loan modifications included interest rate reductions and maturity extensions. All 14 loans were accruing prior to modification, while 13 remained in accrual status post-modification.
The troubled debt restructurings described above increased the allowance for loan and leases losses by $8.3 million during the nine months ended September 30, 2016. There were no charge-offs in connection with a loan modification at the time of modification during the nine months ended September 30, 2016. There were no troubled debt restructurings for which there was a payment default within twelve months following the modification during the nine months ended September 30, 2016.
The following table presents loans by class modified as troubled debt restructurings that occurred during the nine months ended September 30, 2015 (dollars in thousands):
Pre-Modification | Post-Modification | |||||||
Outstanding | Outstanding | |||||||
Number of | Recorded | Recorded | ||||||
Loans | Investment | Investment | ||||||
Troubled debt restructurings: | ||||||||
Commercial | 47 | $ | 75,363 | $ | 75,363 | |||
Commercial real estate | - | - | - | |||||
Commercial construction | - | - | - | |||||
Residential real estate | - | - | - | |||||
Consumer | - | - | - | |||||
Total | 47 | $ | 75,363 | $ | 75,363 |
30 |
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
(unaudited)
Note 6. Loans and the Allowance for Loan and Lease Losses (continued)
The troubled debt restructurings included in the table above were loans secured by New York City taxi medallions that were modified during the third quarter of 2015. The modifications consisted of a deferral of principal amortization from approximately 25-30 year amortization to interest-only. There was no extension of the loans contractual maturity dates, there was no forgiveness of principal, and the interest rates on these loans were increased from approximately 3%-3.25% to 3.75%. These loans were accruing prior to modification and remained in accrual status post-modification.
The troubled debt restructurings described above increased the allowance for loan and lease losses by $2.0 million during the nine months ended September 30, 2015. There were no charge-offs in connection with a loan modification at the time of modification during the nine months ended September 30, 2015. There were no troubled debt restructurings for which there was a payment default within twelve months following the modification during the nine months ended September 30, 2015.
Note 7 - Fair Value Measurements and Fair Value of Financial Instruments
Fair value is the exchange price that would be received for an asset or paid to transfer a liability (exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. There are three levels of inputs that may be used to measure fair value:
FASB ASC 820-10-05 defines fair value, establishes a framework for measuring fair value, establishes a three-level valuation hierarchy for disclosure of fair value measurements and enhances disclosure requirements for fair value measurements. The valuation hierarchy is based upon the transparency of inputs to the valuation of an asset or liability as of the measurement date.
FASB ASC 820-10-65 provides additional guidance for estimating fair value in accordance with FASB ASC 820-10-05 when the volume and level of activity for the asset or liability have significantly decreased. This ASC also includes guidance on identifying circumstances that indicate a transaction is not orderly.
FASB ASC 820-10-05 establishes a fair value hierarchy that prioritizes the inputs to valuation methods used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). The three levels of the fair value hierarchy under FASB ASC 820-10-05 are as follows:
Level 1: Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities.
Level 2: Quoted prices for similar assets and liabilities in active markets, and inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument.
Level 3: Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (for example, supported with little or no market activity).
An assets or liabilitys level within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement.
The following information should not be interpreted as an estimate of the fair value of the entire Company since a fair value calculation is only provided for a limited portion of the Companys assets and liabilities. Due to a wide range of valuation techniques and the degree of subjectivity used in making the estimates, comparisons between the Companys disclosures and those of other companies may not be meaningful. The following methods and assumptions were used to estimate the fair values of the Companys assets measured at fair value on a recurring basis at September 30, 2016 and December 31, 2015:
Securities Available-for-Sale
Where quoted prices are available in an active market, securities are classified within Level 1 of the valuation hierarchy. Level 1 inputs include securities that have quoted prices in active markets for identical assets. If quoted market prices are not available, then fair values are estimated by using pricing models, quoted prices of securities with similar characteristics, or discounted cash flows. Examples of instruments, which would generally be classified within Level 2 of the valuation hierarchy include municipal bonds and certain agency collateralized mortgage obligations. In certain cases where there is limited activity in the market for a particular instrument, assumptions must be made to determine the fair value of the instruments and these are classified as Level 3. When measuring fair value, the valuation techniques available under the market approach, income approach and/or cost approach are used. The Companys evaluations are based on market data and the Company employs combinations of these approaches for its valuation methods depending on the asset class.
31 |
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
(unaudited)
Note 7 - Fair Value Measurements and Fair Value of Financial Instruments
Derivatives
The fair value of derivatives are based on valuation models using observable market data as of the measurement date (level 2). Our derivatives are traded in an over-the-counter market where quoted market prices are not always available. Therefore, the fair values of derivatives are determined using quantitative models that utilize multiple market inputs. The inputs will vary based on the type of derivative, but could include interest rates, prices and indices to generate continuous yield or pricing curves, prepayment rate, and volatility factors to value the position. The majority of market inputs are actively quoted and can be validated through external sources, including brokers, market transactions and third-party pricing services.
Loans Held-for-sale
Loans held-for-sale are required to be measured at the lower of cost or fair value. Under FASB ASC 820-10-05, market value is to represent fair value. Management obtains quotes or bids on all or part of these loans directly from the purchasing financial institutions.
Loans Receivable
The fair value of performing loans, except residential mortgages, is calculated by discounting scheduled cash flows through the estimated maturity using estimated market discount rates that reflect the credit and interest rate risks inherent in the loan. The estimate of maturity is based on the historical experience of the Bank with prepayments for each loan classification, modified as required by an estimate of the effect of current economic and lending conditions. For performing residential mortgage loans, fair value is estimated by discounting contractual cash flows adjusted for prepayment estimates using discount rates based on secondary market sources adjusted to reflect differences in servicing and credit costs.
Off-Balance Sheet Financial Instruments
The fair value of commitments to extend credit is estimated using the fees currently charged to enter into similar agreements, taking into account the remaining terms of the agreements and the present creditworthiness of the counterparties. For fixed rate loan commitments, fair value also considers the difference between current levels of interest rate and the committed rates.
The fair value of financial standby letters of credit is based on fees currently charged for similar agreements or on the estimated cost to terminate them or otherwise settle the obligations with the counterparties.
32 |
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
(unaudited)
Note 7 - Fair Value Measurements and Fair Value of Financial Instruments
Assets and Liabilities Measured at Fair Value on a Recurring Basis
For financial assets and liabilities measured at fair value on a recurring basis, the fair value measurements by level within the fair value hierarchy used at September 30, 2016 and December 31, 2015 are as follows:
September 30, 2016 | ||||||||||||
Fair Value Measurements at Reporting Date Using | ||||||||||||
Quoted Prices | ||||||||||||
in Active | Significant | |||||||||||
Markets for | Other | Significant | ||||||||||
Identical | Observable | Unobservable | ||||||||||
Assets | Inputs | Inputs | ||||||||||
(Level 1) | (Level 2) | (Level 3) | ||||||||||
(in thousands) | ||||||||||||
Recurring fair value measurements: | ||||||||||||
Assets | ||||||||||||
Investment securities: | ||||||||||||
available-for-sale: | ||||||||||||
Federal agency obligations | $ | 56,099 | $ | - | $ | 56,099 | $ | - | ||||
Residential mortgage pass- | ||||||||||||
through securities | 63,404 | - | 63,404 | - | ||||||||
Commercial mortgage pass- | ||||||||||||
through securities | 4,369 | - | 4,369 | - | ||||||||
Obligations of U.S. states and | ||||||||||||
political subdivision | 141,361 | - | 123,026 | 18,335 | ||||||||
Trust preferred securities | 5,675 | - | 5,675 | - | ||||||||
Corporate bonds and notes | 38,293 | - | 38,293 | - | ||||||||
Asset-backed securities | 15,502 | - | 15,502 | - | ||||||||
Certificates of deposit | 988 | - | 988 | - | ||||||||
Equity securities | 425 | 425 | - | - | ||||||||
Other securities | 12,343 | 12,343 | - | - | ||||||||
Total available-for-sale | $ | 338,459 | $ | 12,768 | $ | 307,356 | $ | 18,335 | ||||
Liabilities | ||||||||||||
Derivatives | $ | 1,212 | $ | - | $ | 1,212 | $ | - | ||||
Total liabilities | $ | 1,212 | $ | - | $ | 1,212 | $ | - |
There were no transfers between Level 1, Level 2 and Level 3 during the three months ended September 30, 2016.
33 |
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
(unaudited)
Note 7 - Fair Value Measurements and Fair Value of Financial Instruments (continued)
December 31, 2015 | |||||||||||
Fair Value Measurements at Reporting Date Using | |||||||||||
Quoted Prices | |||||||||||
in Active | Significant | ||||||||||
Markets for | Other | Significant | |||||||||
Identical | Observable | Unobservable | |||||||||
Assets | Inputs | Inputs | |||||||||
(Level 1) | (Level 2) | (Level 3) | |||||||||
(in thousands) | |||||||||||
Recurring fair value measurements: | |||||||||||
Assets | |||||||||||
Investment securities: | |||||||||||
available-for-sale: | |||||||||||
Federal agency obligations | $ | 29,146 | $ | - | $ | 29,146 | $ | - | |||
Residential mortgage pass- | |||||||||||
through securities | 44,910 | - | 44,910 | - | |||||||
Commercial mortgage pass- | |||||||||||
through securities | 2,972 | - | 2,972 | - | |||||||
Obligations of U.S. states and | |||||||||||
political subdivision | 8,357 | - | 8,357 | - | |||||||
Trust preferred securities | 16,255 | - | 16,255 | - | |||||||
Corporate bonds and notes | 53,976 | - | 53,976 | - | |||||||
Asset-backed securities | 19,725 | - | 19,725 | - | |||||||
Certificates of deposit | 1,905 | - | 1,905 | - | |||||||
Equity securities | 374 | 374 | - | - | |||||||
Other securities | 18,150 | 18,150 | - | - | |||||||
Total available-for-sale | $ | 195,770 | $ | 18,524 | $ | 177,246 | $ | - | |||
Liabilities | |||||||||||
Derivatives | $ | 131 | $ | - | $ | 131 | $ | - | |||
Total liabilities | $ | 131 | $ | - | $ | 131 | $ | - |
There were no transfers between Level 1, Level 2 and Level 3 during the year ended December 31, 2015.
34 |
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
(unaudited)
Note 7 - Fair Value Measurements and Fair Value of Financial Instruments (continued)
Assets Measured at Fair Value on a Non-Recurring Basis
The Company may be required periodically to measure certain assets at fair value on a nonrecurring basis in accordance with GAAP. These adjustments to fair value usually result from the application of lower of cost or fair value accounting or impairment write-downs of individual assets. The Company primarily utilized appraisal value less cost to sell and other unobservable market inputs to determine fair value of assets, and therefore, these valuations are classified as a Level 3 measurement. For assets measured at fair value on a non-recurring basis, the fair value measurements at September 30, 2016 and December 31, 2015 are as follows:
Fair Value Measurements at Reporting Date Using | ||||||||||||
Quoted | ||||||||||||
Prices | ||||||||||||
in Active | Significant | |||||||||||
Markets for | Other | Significant | ||||||||||
Identical | Observable | Unobservable | ||||||||||
September 30, | Assets | Inputs | Inputs | |||||||||
Assets measured at fair value on a nonrecurring basis: | 2016 | (Level 1) | (Level 2) | (Level 3) | ||||||||
Impaired loans: | (in thousands) | |||||||||||
Commercial | $ | 396 | $ | - | $ | - | $ | 396 | ||||
Fair Value Measurements at Reporting Date Using | ||||||||||||
Quoted | ||||||||||||
Prices | ||||||||||||
in Active | Significant | |||||||||||
Markets for | Other | Significant | ||||||||||
Identical | Observable | Unobservable | ||||||||||
December 31, | Assets | Inputs | Inputs | |||||||||
Assets measured at fair value on a nonrecurring basis: | 2015 | (Level 1) | (Level 2) | (Level 3) | ||||||||
Impaired loans: | (in thousands) | |||||||||||
Commercial | $ | 3,751 | $ | - | $ | - | $ | 3,751 |
The following methods and assumptions were used to estimate the fair values of the Companys assets measured at fair value on a non-recurring basis at September 30, 2016 and December 31, 2015.
Impaired loans. The value of the impaired loans above were measured based upon the fair value of the collateral of the loans. Smaller balance homogeneous loans that are collectively evaluated for impairment, such as residential mortgage loans and consumer loans, are specifically excluded from the impaired loan portfolio. Collateral dependent impaired loans are individually assessed to determine that each loans carrying value is not in excess of the fair value of the related collateral. Collateral dependent impaired loans at September 30, 2016 that required a valuation allowance were $0.9 million with a related valuation allowance of $0.5 million compared to $6.0 million with a related valuation allowance of $2.2 million at December 31, 2015.
Fair Value of Financial Instruments
FASB ASC 825-10 requires all entities to disclose the estimated fair value of their financial instrument assets and liabilities. For the Company, as for most financial institutions, the majority of its assets and liabilities are considered financial instruments as defined in FASB ASC 825-10. Many of the Companys financial instruments, however, lack an available trading market as characterized by a willing buyer and willing seller engaging in an exchange transaction. It is also the Companys general practice and intent to hold its financial instruments to maturity and not to engage in trading or sales activities except for loans held-for-sale and investment securities available-for-sale. Therefore, significant estimations and assumptions, as well as present value calculations, were used by the Company for the purposes of this disclosure.
Cash and cash equivalents. The carrying amounts of cash and short-term instruments approximate fair values.
FHLB stock. It is not practical to determine the fair value of FHLB stock due to restrictions placed on its transferability.
Investment Securities Held-to-Maturity. The fair value of the Companys investment securities held-to-maturity was primarily measured using information from a third-party pricing service. If quoted prices were not available, fair values were estimated primarily by obtaining quoted prices for similar assets in active markets or through the use of pricing models. In cases where there may be limited or less transparent information provided by the Companys third-party pricing service, fair value may be estimated by the use of secondary pricing services or through the use of non-binding third-party broker quotes.
35 |
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
(unaudited)
Note 7 - Fair Value Measurements and Fair Value of Financial Instruments (continued)
Loans. The fair value of the Companys loans was estimated by discounting the expected future cash flows using the current interest rates at which similar loans would be made to borrowers with similar credit ratings and for the same remaining maturities. Loans were segregated by types such as commercial, residential and consumer loans. Expected future cash flows were projected based on contractual cash flows, adjusted for estimated prepayments. The methods utilized to estimate the fair value of loans do not necessarily represent an exit price and therefore, while permissible for presentation purposes under ASC 825-10, do not conform to ASC 820-10.
Interest-Bearing Deposits. The fair values of the Companys interest-bearing deposits were estimated using discounted cash flow analyses. The discounted rates used were based on rates currently offered for deposits with similar remaining maturities. The fair values of the Companys interest-bearing deposits do not take into consideration the value of the Companys long-term relationships with depositors, which may have significant value.
Term Borrowings and Subordinated Debentures. The fair value of the Companys long-term borrowings and subordinated debentures were calculated using a discounted cash flow approach and applying discount rates currently offered based on weighted remaining maturities.
Accrued Interest Receivable/Payable. The carrying amounts of accrued interest approximate fair value resulting in a level 2 or level 3 classification based on the level of the asset or liability with which the accrual is associated.
The following presents the carrying amount, fair value, and placement in the fair value hierarchy of the Companys financial instruments as of September 30, 2016 and December 31, 2015.
Fair Value Measurements | ||||||||||||||
Carrying Amount |
Fair Value |
Quoted Prices in Active Markets for Identical Assets (Level 1) |
Significant Other Observable Inputs (Level 2) |
Significant Unobservable Inputs (Level 3) | ||||||||||
(in thousands) | ||||||||||||||
September 30, 2016 | ||||||||||||||
Financial assets | ||||||||||||||
Cash and cash equivalents | $ | 233,794 | $ | 233,794 | $ | 233,794 | $ | - | $ | - | ||||
Investment securities available-for-sale | 338,459 | 338,459 | 12,768 | 307,356 | 18,335 | |||||||||
Restricted investment in bank stocks | 24,535 | n/a | n/a | n/a | n/a | |||||||||
Net loans | 3,407,861 | 3,421,539 | - | - | 3,421,539 | |||||||||
Loans held-for-sale | 15,112 | 15,112 | - | 15,112 | - | |||||||||
Accrued interest receivable | 12,497 | 12,497 | - | 1,895 | 10,602 | |||||||||
Financial liabilities | ||||||||||||||
Noninterest-bearing deposits | 655,683 | 655,683 | 655,683 | - | - | |||||||||
Interest-bearing deposits | 2,613,266 | 2,601,221 | - | 2,601,221 | - | |||||||||
Borrowings | 481,337 | 486,503 | - | 486,503 | - | |||||||||
Subordinated debentures, net | 54,490 | 53,784 | - | 53,784 | - | |||||||||
Derivatives | 1,212 | 1,212 | - | 1,212 | - | |||||||||
Accrued interest payable | $ | 4,600 | $ | 4,600 | $ | - | $ | 4,600 | $ | - | ||||
December 31, 2015 | ||||||||||||||
Financial assets | ||||||||||||||
Cash and cash equivalents | $ | 200,895 | $ | 200,895 | $ | 200,895 | $ | - | $ | - | ||||
Investment securities available-for-sale | 195,770 | 195,770 | 18,524 | 177,246 | - | |||||||||
Investment securities held-to-maturity | 224,056 | 230,558 | 29,226 | 182,774 | 18,558 | |||||||||
Restricted investment in bank stocks | 32,612 | n/a | n/a | n/a | n/a | |||||||||
Net loans | 3,072,435 | 3,059,343 | - | - | 3,059,343 | |||||||||
Accrued interest receivable | 12,545 | 12,545 | 68 | 2,699 | 9,778 | |||||||||
Financial liabilities | ||||||||||||||
Noninterest-bearing deposits | 650,775 | 650,775 | 650,775 | - | - | |||||||||
Interest-bearing deposits | 2,140,191 | 2,137,149 | - | 2,137,149 | - | |||||||||
Borrowings | 671,587 | 674,131 | - | 674,131 | - | |||||||||
Subordinated debentures, net | 54,343 | 55,209 | - | 55,209 | - | |||||||||
Derivatives | 131 | 131 | - | 131 | - | |||||||||
Accrued interest payable | $ | 4,387 | $ | 4,387 | $ | - | $ | 4,387 | $ | - |
36 |
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
(unaudited)
Note 7 - Fair Value Measurements and Fair Value of Financial Instruments (continued)
The fair value of commitments to originate loans is estimated using the fees currently charged to enter into similar agreements, taking into account the remaining terms of the agreements and the present creditworthiness of the counterparties. For fixed-rate loan commitments, fair value also considers the difference between current levels of interest rates and the committed rates. The fair values of letters of credit and lines of credit are based on fees currently charged for similar agreements or on the estimated cost to terminate or otherwise settle the obligations with the counterparties at the reporting date.
Changes in assumptions or estimation methodologies may have a material effect on these estimated fair values.
The Companys remaining assets and liabilities, which are not considered financial instruments, have not been valued differently than has been customary with historical cost accounting. No disclosure of the relationship value of the Companys core deposit base is required by FASB ASC 825-10.
Fair value estimates are based on existing balance sheet financial instruments, without attempting to estimate the value of anticipated future business and the value of assets and liabilities that are not considered financial instruments. For example, there are certain significant assets and liabilities that are not considered financial assets or liabilities, deferred taxes, premises and equipment, and goodwill. In addition, the tax ramifications related to the realization of the unrealized gains and losses can have a significant effect on fair value estimates and have not been considered in the estimates.
Management believes that reasonable comparability between financial institutions may not be likely, due to the wide range of permitted valuation techniques and numerous estimates which must be made, given the absence of active secondary markets for many of the financial instruments. This lack of uniform valuation methodologies also introduces a greater degree of subjectivity to these estimated fair values.
Note 8. Accumulated Other Comprehensive Income/(Loss)
Accumulated other comprehensive loss (net of tax) at September 30, 2016 and December 31, 2015 consisted of the following:
September 30, | December 31, | |||||||
2016 | 2015 | |||||||
(in thousands) | ||||||||
Net unrealized gain on investment securities available-for-sale | $ | 5,332 | $ | 713 | ||||
Cash flow hedge | (717 | ) | (77 | ) | ||||
Unamortized component of securities transferred from available-for-sale to held-to- | ||||||||
maturity | - | (1,173 | ) | |||||
Defined benefit pension and post-retirement plans | (3,891 | ) | (4,072 | ) | ||||
Total accumulated other comprehensive income (loss) | $ | 724 | $ | (4,609 | ) |
Note 9. Stock-Based Compensation
The Company maintains two stock-based compensation plans from which new grants could be issued. The Companys stock-based compensation plans permit Parent Corporation common stock to be issued to key employees and directors of the Company and its subsidiaries. Grants under the existing plans can be in the form of stock options (qualified or non-qualified), restricted shares, or performance units. Shares available for grant and issuance under the existing plans as of September 30, 2016 are 68,516 under the 2009 Equity Incentive Plan and 234,090 shares under the North Jersey Community Bancorp Equity Compensation Plan. The Company intends to issue all shares under these plans in the form of newly issued shares.
Restricted stock and option awards typically have a three-year vesting period starting one year after the date of grant with one-third vesting each year. The options generally expire ten years from the date of grant. Restricted stock awards granted to new employees and board members may be granted with shorter vesting periods. Grants of performance units typically have a cliff vesting after three years. All issuances are subject to forfeiture if the recipient leaves or is terminated prior to the awards vesting. Restricted shares have the same dividend and voting rights as common stock, while options and performance units do not.
All awards are issued at fair value of the underlying shares at the grant date. The Company expenses the cost of the awards, which is determined to be the fair market value of the awards at the date of grant, ratably over the vesting period.
No options were granted during the three and nine months ended September 30, 2016 and 2015.
37 |
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
(unaudited)
Note 9. Stock-Based Compensation (continued)
During the three months ended September 30, 2016 and 2015 no restricted shares were awarded. The compensation expense related to restricted stock awards during the three and nine months ended September 30, 2016 was $223,000 and $572,000, respectively.
During the nine months ended September 30, 2016 and 2015, the Company granted to various key employees performance unit awards, with each unit entitling the holder to one share of the Companys common stock contingent upon the Company meeting or exceeding certain return on asset targets over the course of a three-year period commencing on January 1 of the year of issuance. Under the grant agreement, and assuming the Company has met or exceeded the applicable targets, grants of performance unit awards will vest on the third anniversary of the grant date or on an earlier date in the event of a change in control, as defined in the agreements. At September 30, 2016, the specific number of shares related to performance unit awards that were expected to vest was 132,304, determined by actual performance in consideration of the established range of the performance targets, which is consistent with the level of expense currently being recognized over the vesting period. Should this expectation change, additional compensation expense could be recorded in future periods or previously recognized expense could be reversed. The maximum amount of performance unit awards is 181,892 shares. The total amount of compensation cost related to performance unit awards included in salary expense during the quarters ended September 30, 2016 and 2015 was $238,000 and $156,000, respectively. The total amount of compensation cost related to performance unit awards included in salary expense during the nine months ended September 30, 2016 was $698,000 and $258,000, respectively.
Option activity under the Companys option plans as of September 30, 2016 and changes during the nine months ended September 30, 2016 were as follows:
Weighted- | ||||||||||
Average | ||||||||||
Weighted- | Remaining | |||||||||
Average | Contractual | |||||||||
Exercise | Term | Aggregate | ||||||||
Shares | Price | (In Years) | Intrinsic Value | |||||||
Outstanding at December 31, 2015 | 535,906 | $ | 6.48 | |||||||
Granted | - | - | ||||||||
Exercised | (38,735 | ) | 6.32 | |||||||
Forfeited/cancelled/expired | (45,010 | ) | 10.59 | |||||||
Outstanding at September 30, 2016 | 452,161 | $ | 6.09 | 2.51 | $ | 5,412,898 | ||||
Exercisable at September 30, 2016 | 448,631 | $ | 6.02 | 2.47 | $ | 4,674,682 |
The aggregate intrinsic value of outstanding and exercisable options above represents the total pre-tax intrinsic value (the difference between the Companys closing stock price on September 30 2016 and the exercise price, multiplied by the number of in-the-money options) that would have been received by the option holders had all option holders exercised their options on September 30, 2016. This amount changes based on the fair market value of the Parent Corporations stock.
Information related to stock option exercises during 2016:
2016 | ||
Intrinsic value of options exercised | $ | 398,890 |
Cash received from options exercised | 244,625 | |
Tax benefit realized from options exercised | 53,631 | |
Weighted average fair value of options granted | n/a |
The aggregate intrinsic value of exercised options above represents the total pre-tax intrinsic value (the difference between the Companys closing stock price on the date of exercise and the exercise price, multiplied by the number of in-the-money options) of all options that were exercised during the 6 month period ending September 30, 2016. The tax benefit is calculated on any non-qualified options exercised during the period using a 36% tax rate.
38 |
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
(unaudited)
Note 9. Stock-Based Compensation
The below table represents information regarding restricted shares currently outstanding at September 30, 2016:
Weighted- | |||||
Average | |||||
Nonvested | Grant Date | ||||
Shares | Fair Value | ||||
Nonvested at December 31, 2015 | 96,902 | $ | 16.81 | ||
Granted | 72,920 | 15.88 | |||
Vested | (55,648 | ) | 16.01 | ||
Forfeited/cancelled/expired | (1,000 | ) | 19.58 | ||
Nonvested at September 30, 2016 | 113,174 | $ | 16.81 |
As of September 30, 2016, there was $1,249,000 of total unrecognized compensation cost related to nonvested restricted shares granted under the plans. The cost is expected to be recognized over a weighted average period of 23.1 months. No shares vested during the quarter ended September 30, 2016.
A summary of the status of unearned performance unit awards and the change during the period is presented in the table below:
Weighted- | |||||
Average | |||||
Grant Date | |||||
Units | Fair Value | ||||
Unearned at December 31, 2015 | 94,585 | $ | 19.46 | ||
Awarded | 59,138 | 17.01 | |||
Forfeited | (7,447 | ) | 19.46 | ||
Expired | - | - | |||
Unearned at September 30, 2016 | 146,276 | $ | 18.47 |
At September 30, 2016, compensation cost of $1,671,000 related to nonvested awards not yet recognized is expected to be recognized over a weighted-average period of 1.7 years.
Note 10. Components of Net Periodic Pension Cost
The Company maintained a non-contributory defined benefit pension plan for substantially all of its employees until March 31, 2007, at which time the Company froze the plan. The following table sets forth the net periodic pension cost of the Companys pension plan for the periods indicated.
Three Months Ended | Nine Months Ended | ||||||||||||||
September 30, | September 30, | ||||||||||||||
2016 | 2015 | 2016 | 2015 | ||||||||||||
(in thousands) | |||||||||||||||
Interest cost | $ | 129 | $ | 127 | $ | 386 | $ | 394 | |||||||
Expected return on plan assets | (166 | ) | (123 | ) | (457 | ) | (387 | ) | |||||||
Net amortization | 101 | 108 | 305 | 324 | |||||||||||
Recognized settlement loss | - | 64 | - | 629 | |||||||||||
Net periodic pension cost | $ | 64 | $ | 176 | $ | 234 | $ | 960 | |||||||
Amortization of actuarial loss | $ | (204 | ) | $ | (183 | ) | $ | (305 | ) | $ | (1,186 | ) | |||
Total recognized in other comprehensive income | $ | (204 | ) | $ | (183 | ) | $ | (305 | ) | $ | (1,186 | ) | |||
Total recognized in net expense and OCI (before tax) | $ | (140 | ) | $ | (7 | ) | $ | (71 | ) | $ | (226 | ) |
39 |
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
(unaudited)
Note 10. Components of Net Periodic Pension Cost (continued)
Contributions
The Company contributed $2.0 million to its Pension Trust during the second quarter of 2016. The Company does not plan on contributing additional amounts to the Pension Trust for the remainder of 2016. The trust is established to provide retirement and other benefits for eligible employees and their beneficiaries. No part of the trust assets may be applied to any purpose other than providing benefits under the plan and for defraying expenses of administering the plan and the trust.
Note 11. FHLB and other borrowings
The Companys FHLB and other borrowings and weighted average interest rates are summarized below:
September 30, 2016 | December 31, 2015 | ||||||||||
Amount | Rate | Amount | Rate | ||||||||
(in thousands) | |||||||||||
By type of borrowing: | |||||||||||
FHLB borrowings and other borrowings | $ | 466,337 | 1.52 | % | $ | 656,587 | 1.26 | % | |||
Repurchase agreements (REPOs) | 15,000 | 5.95 | 15,000 | 5.95 | |||||||
Total borrowings | $ | 481,337 | 1.66 | $ | 671,587 | 1.37 | |||||
By remaining period to maturity: | |||||||||||
One year or less | $ | 251,337 | 1.27 | % | $ | 270,587 | 0.64 | % | |||
One to two years | 60,000 | 1.96 | 171,000 | 1.56 | |||||||
Two to three years | 105,000 | 1.69 | 130,000 | 1.84 | |||||||
Three to four years | 25,000 | 1.85 | 35,000 | 1.60 | |||||||
Four to five years | 40,000 | 3.43 | 65,000 | 2.82 | |||||||
Total borrowings | $ | 481,337 | 1.66 | $ | 671,587 | 1.37 |
The FHLB borrowings are secured by pledges of certain collateral including, but not limited to, U.S. government and agency mortgage-backed securities and a blanket assignment of qualifying first lien mortgage loans, consisting of both residential mortgages and commercial real estate loans.
The Company has entered into agreements under which it has sold securities subject to an obligation to repurchase the same or similar securities. Under these arrangements, the Company may transfer legal control over the assets but still retain effective control through an agreement that both entitles and obligates the Company to repurchase the assets. The obligation to repurchase the securities is reflected as a liability in the Companys consolidated statement of condition, while the securities underlying the securities sold under agreements to repurchase remain in the respective asset accounts and are delivered to and held as collateral by third party trustees.
Three of the FHLB notes ($2,500,000 and $7,500,000 each due April 2, 2018, and $5,000,000 due July 16, 2018) contain a convertible option which allows the FHLB, at quarterly intervals, to convert the fixed convertible advance into replacement funding for the same or lesser principal based on any advance then offered by the FHLB at its current market rate. The Company has the option to repay these advances, if converted, without penalty. The remaining advances are payable at stated maturity, with a prepayment penalty for fixed rate advances. All FHLB advances are fixed rate while the REPOs are variable rate advances. The advances at September 30, 2016 were collateralized by approximately $1.2 billion of commercial mortgage loans, net of required over-collateralization amounts, under a blanket lien arrangement. At September 30, 2016 the Company had remaining borrowing capacity of approximately at FHLB of approximately $752 million.
40 |
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
(unaudited)
Note 12 Securities Sold under Agreements to Repurchase
Repurchase agreements are secured borrowings. The Company pledges investment securities to secure those borrowings. Information concerning repurchase agreements is summarized as follows for the periods presented:
September 30, | December 31, | September 30, | ||||||||||
(dollars in thousands) | 2016 | 2015 | 2015 | |||||||||
Average daily balance during the year-to-date | $ | 15,000 | $ | 22,890 | $ | 25,549 | ||||||
Average interest rate during the year-to-date | 5.95 | % | 5.92 | % | 5.90 | % | ||||||
Maximum month-end balance during the year-to-date | $ | 15,000 | $ | 31,000 | $ | 31,000 | ||||||
Weighted average interest rate during the year-to-date | 5.95 | % | 5.92 | % | 5.90 | % |
The table below shows the remaining contractual maturity of agreement by fair value of collateral pledged:
September 30, 2016 | ||||||||||||||
Remaining Contractual Maturity of the Agreements | ||||||||||||||
Overnight and | Up to 30 | Greater Than | ||||||||||||
(dollars in thousands) | Continuous | Days | 30-90 Days | 90 Days | Total | |||||||||
Repurchase agreements and | ||||||||||||||
repurchase-to-maturity transactions | ||||||||||||||
U.S. Treasury and agency securities | $ | - | $ | - | $ | - | $ | - | $ | - | ||||
Residential mortgage pass-through securities | - | - | - | 17,082 | 17,082 | |||||||||
Total Borrowings | $ | - | $ | - | $ | - | $ | 17,082 | $ | 17,082 | ||||
Amounts related to agreements not included in offsetting disclosure in Note 14: | $ | 2,082 | ||||||||||||
December 31, 2015 | ||||||||||||||
Remaining Contractual Maturity of the Agreements | ||||||||||||||
Overnight and | Up to 30 | Greater Than | ||||||||||||
(dollars in thousands) | Continuous | Days | 30-90 Days | 90 Days | Total | |||||||||
Repurchase agreements and | ||||||||||||||
repurchase-to-maturity transactions | ||||||||||||||
U.S. Treasury and agency securities | $ | - | $ | - | $ | - | $ | 6,313 | $ | 6,313 | ||||
Residential mortgage pass-through securities | - | - | - | 12,589 | 12,589 | |||||||||
Total Borrowings | $ | - | $ | - | $ | - | $ | 18,902 | $ | 18,902 | ||||
Amounts related to agreements not included in offsetting disclosure in Note 14 | $ | 3,902 |
The fair value of securities pledged to secure repurchase agreements may decline. By contractual agreement, the fair value of securities pledged to secure repurchase agreements must meet or exceed the gross outstanding balance by 8%, or be subject to margin calls. Securities sold under agreements to repurchase are secured by securities with a carrying amount of $17.1 million and $18.8 million at September 30, 2016 and December 31, 2015.
Note 13 - Subordinated Debentures
During 2003, the Company formed a statutory business trust, which exists for the exclusive purpose of (i) issuing Trust Securities representing undivided beneficial interests in the assets of the Trust; (ii) investing the gross proceeds of the Trust securities in junior subordinated deferrable interest debentures (subordinated debentures) of the Company; and (iii) engaging in only those activities necessary or incidental thereto. On December 19, 2003, Center Bancorp Statutory Trust II, a statutory business trust and wholly-owned subsidiary of the Parent Corporation issued $5.0 million of MMCapS capital securities to investors due on January 23, 2034. The capital securities presently qualify as Tier I capital. The trust loaned the proceeds of this offering to the Company and received in exchange $5.2 million of the Parent Corporations subordinated debentures. The subordinated debentures are redeemable in whole or in part prior to maturity. The floating interest rate on the subordinate debentures is three-month LIBOR plus 2.85% and reprices quarterly. The rate at September 30, 2016 was 3.61%. These subordinated debentures and the related income effects are not eliminated in the consolidated financial statements as the statutory business trust is not consolidated in accordance with FASB ASC 810-10. Distributions on the subordinated debentures owned by the subsidiary trust have been classified as interest expense in the Consolidated Statements of Income.
41 |
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
(unaudited)
Note 13 - Subordinated Debentures (continued)
The following table summarizes the mandatory redeemable trust preferred securities of the Companys Statutory Trust II at September 30, 2016 and December 31, 2015.
Securities | Redeemable by | |||||||||
Issuance Date | Issued | Liquidation Value | Coupon Rate | Maturity | Issuer Beginning | |||||
12/19/2003 | $ 5,000,000 | $1,000 per Capital | Floating 3-month | 01/23/2034 | 01/23/2009 | |||||
Security | LIBOR + 285 Basis | |||||||||
Points |
During June 2015, the Parent Corporation issued $50 million in aggregate principal amount of fixed-to-floating rate subordinated notes (the Notes). The Notes are non-callable for five years, have a stated maturity of July 1, 2025, and bear interest at a fixed rate of 5.75% per year, from and including June 30, 2015 to, but excluding July 1, 2020. From and including July 1, 2020 to the maturity date or early redemption date, the interest rate will reset quarterly to a level equal to the then current three-month LIBOR rate plus 393 basis points. As of September 30, 2016, unamortized costs related to the debt issuance were $665,000.
In connection with the issuance of the Notes, the Parent Corporation obtained ratings from Kroll Bond Rating Agency (KBRA). KBRA assigned investment grade ratings of BBB- for the Companys subordinated debt and a senior deposit rating of BBB+ for the Bank. On August 16, 2016, Kroll reaffirmed our current investment grade.
Note 14 Offsetting Assets and Liabilities
Certain financial instrument-related assets and liabilities may be eligible for offset on the consolidated statements of condition because they are subject to master netting agreements or similar agreements. However, the Company does not elect to offset such arrangements on the consolidated financial statements. The Company enters into interest rate swap agreements with financial institution counterparties. For additional detail regarding interest rate swap agreements refer to Note 5. In the event of default on, or termination of, any one contract, both parties have the right to net settle multiple contracts. Also, certain interest rate swap agreements may require the Company to receive or pledge cash or financial instrument collateral based on the contract provisions.
42 |
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
(unaudited)
Note 14 Offsetting Assets and Liabilities (continued)
The Company also entered into an agreement to sell securities subject to an obligation to repurchase the same or similar securities, referred to as a repurchase agreement. Under this agreement, the Company may transfer legal control over the assets but still retain effective control through an agreement that both entitles and obligates the Company to repurchase the assets. The obligation to repurchase the securities is reflected as a liability in the Companys consolidated statement of condition, while the securities underlying the repurchase agreements remain in the respective investment securities account, therefore there is no offsetting or netting of the investment securities assets with the repurchase agreement liability. The following table presents information about financial instruments that are eligible for offset as of September 30, 2016 and December 31, 2015:
Gross Amounts Not Offset | ||||||||||||||||||
Gross Amounts | Net Amounts of | Cash or | ||||||||||||||||
Offset in the | Assets Presented in | Financial | Financial | |||||||||||||||
Gross Amounts | Statement of | the Statement of | Instruments | Instrument | Net | |||||||||||||
Recognized | Financial Position | Financial Position | Recognized | Collateral | Amount | |||||||||||||
(in thousands) | ||||||||||||||||||
September 30, 2016 | ||||||||||||||||||
Assets: | ||||||||||||||||||
Interest rate swaps | $ | - | $ | - | $ | - | $ | - | $ | - | $ | - | ||||||
Liabilities: | ||||||||||||||||||
Interest rate swaps | $ | 1,212 | $ | - | $ | 1,212 | $ | - | $ | 1,212 | $ | - | ||||||
Repurchase | ||||||||||||||||||
agreements | 15,000 | - | 15,000 | - | 15,000 | - | ||||||||||||
Total | $ | 16,212 | $ | - | $ | 16,212 | $ | - | $ | 16,212 | $ | - | ||||||
December 31, 2015 | ||||||||||||||||||
Assets: | ||||||||||||||||||
Interest rate swaps | $ | (179 | ) | $ | - | $ | - | $ | - | $ | - | $ | - | |||||
Liabilities: | ||||||||||||||||||
Interest rate swaps | $ | 131 | $ | - | $ | 131 | $ | - | $ | 131 | $ | - | ||||||
Repurchase | ||||||||||||||||||
agreements | 15,000 | - | 15,000 | - | 15,000 | - | ||||||||||||
Total | $ | 15,131 | $ | - | $ | 15,131 | $ | - | $ | 15,131 | $ | - |
43 |
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
(unaudited)
Note 15 Presentation of Debt Issuance Costs
As of January 1, 2016, the Company adopted Accounting Standards Update (ASU) No. 2015-03 Simplifying the Presentation of Debt Issuance Costs, which requires that debt issuance costs be presented in the consolidated statement of condition as a direct deduction from the carrying amount of debt liability. This ASU is required to be applied retrospectively to all periods presented. The following table summarizes the impact of retrospective application to the consolidated statement of condition for the year ended December 31, 2015:
December 31, | ||
(dollars in thousands) | 2015 | |
Other assets | ||
As previously reported | $ | 24,908 |
As reported under the new guidance | 24,096 | |
Total assets | ||
As previously reported | $ | 4,016,721 |
As reported under the new guidance | 4,015,909 | |
Subordinated debentures | ||
As previously reported | $ | 55,155 |
As reported under the new guidance | 54,343 | |
Total liabilities | ||
As previously reported | $ | 3,539,377 |
As reported under the new guidance | 3,538,565 |
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Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
The purpose of this analysis is to provide the reader with information relevant to understanding and assessing the Companys results of operations for the periods presented herein and financial condition as of September 30, 2016 and December 31, 2015. In order to fully understand this analysis, the reader is encouraged to review the consolidated financial statements and accompanying notes thereto appearing elsewhere in this report.
Cautionary Statement Concerning Forward-Looking Statements
This report includes forward-looking statements within the meaning of Sections 27A of the Securities Act of 1933, as amended, and 21E of the Securities Exchange Act of 1934, as amended, that involve inherent risks and uncertainties. This report contains certain forward-looking statements with respect to the financial condition, results of operations, plans, objectives, future performance and business of ConnectOne Bancorp Inc. and its subsidiaries, including statements preceded by, followed by or that include words or phrases such as believes, expects, anticipates, plans, trend, objective, continue, remain, pattern or similar expressions or future or conditional verbs such as will, would, should, could, might, can, may or similar expressions. There are a number of important factors that could cause future results to differ materially from historical performance and these forward-looking statements. Factors that might cause such a difference include, but are not limited to: (1) competitive pressures among depository institutions may increase significantly; (2) changes in the interest rate environment may reduce interest margins; (3) prepayment speeds, loan origination and sale volumes, charge-offs and loan and lease loss provisions may vary substantially from period to period; (4) general economic conditions may be less favorable than expected; (5) political developments, sovereign debt problems, wars or other hostilities may disrupt or increase volatility in securities markets or other economic conditions; (6) legislative or regulatory changes or actions may adversely affect the businesses in which ConnectOne Bancorp is engaged, including, without limitation, the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 and regulations issued thereunder; (7) changes and trends in the securities markets may adversely impact ConnectOne Bancorp; (8) a delayed or incomplete resolution of regulatory issues could adversely impact planning by ConnectOne Bancorp; (9) the impact on reputation risk created by the developments discussed above on such matters as business generation and retention, funding and liquidity could be significant; and (10) the outcome of regulatory and legal investigations and proceedings may not be anticipated. Further information on other factors that could affect the financial results of ConnectOne Bancorp is included in Item 1a. of ConnectOne Bancorps Annual Report on Form 10-K and in ConnectOne Bancorps other filings with the Securities and Exchange Commission. These documents are available free of charge at the Commissions website at http://www.sec.gov and/or from ConnectOne Bancorp, Inc.
Critical Accounting Policies and Estimates
The accounting and reporting policies followed by ConnectOne Bancorp, Inc. and its subsidiaries (collectively, the Company) conform, in all material respects, to GAAP. In preparing the consolidated financial statements, management has made estimates, judgments and assumptions that affect the reported amounts of assets and liabilities as of the dates of the consolidated statements of condition and for the periods indicated in the consolidated statements of operations. Actual results could differ significantly from those estimates.
The Companys accounting policies are fundamental to understanding Managements Discussion and Analysis (MD&A) of financial condition and results of operations. The Company has identified the determination of the allowance for loan and lease losses, the other-than-temporary impairment evaluation of securities, the evaluation of the impairment of goodwill and the evaluation of deferred tax assets to be critical because management must make subjective and/or complex judgments about matters that are inherently uncertain and could be most subject to revision as new information becomes available. Additional information on these policies is provided below.
Allowance for Loan and Lease Losses and Related Provision
The allowance for loan and lease losses represents managements estimate of probable credit losses inherent in the loan portfolio. Determining the amount of the allowance for loan and lease losses is considered a critical accounting estimate because it requires significant judgment and the use of estimates related to the amount and timing of expected future cash flows on impaired loans, estimated losses on pools of homogeneous loans based on historical loss experience, individual credit situation and consideration of current economic trends and conditions, all of which may be susceptible to significant change. The loan portfolio also represents the largest asset type on the consolidated statements of condition.
The evaluation of the adequacy of the allowance for loan and lease losses includes, among other factors, an analysis of historical loss rates by loan category applied to current loan totals. However, actual loan and lease losses may be higher or lower than historical trends, which vary. Actual losses on specified problem loans, which also are provided for in the evaluation, may vary from estimated loss percentages, which are established based upon a limited number of potential loss classifications.
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The allowance for loan and lease losses is established through a provision for loan and lease losses charged to expense. Management believes that the current allowance for loan and lease losses will be adequate to absorb loan and lease losses on existing loans that may become uncollectible based on the evaluation of known and inherent risks in the loan portfolio. The evaluation takes into consideration such factors as changes in the nature and size of the portfolio, overall portfolio quality, and specific problem loans and current economic conditions which may affect the borrowers ability to pay. The evaluation also details historical losses by loan category and the resulting loan and lease loss rates which are projected for current loan total amounts. Loss estimates for specified problem loans are also detailed. All of the factors considered in the analysis of the adequacy of the allowance for loan and lease losses may be subject to change. To the extent actual outcomes differ from management estimates, additional provisions for loan and lease losses may be required that could materially adversely impact earnings in future periods. Additional information can be found in Note 1 of the Notes to Consolidated Financial Statements.
Other-Than-Temporary Impairment of Investment Securities
Investment securities are evaluated on at least a quarterly basis, and more frequently when market conditions warrant such an evaluation, to determine whether a decline in their value is other-than-temporary. FASB ASC 320-10-65 clarifies the interaction of the factors that should be considered when determining whether a debt security is otherthan-temporarily impaired. For debt securities, management assesses whether (a) it has the intent to sell the security and (b) it is more likely than not that it will be required to sell the security prior to its anticipated recovery.
In instances when a determination is made that an other-than-temporary impairment exists but the investor does not intend to sell the debt security and it is not more likely than not that it will be required to sell the debt security prior to its anticipated recovery, the other-than-temporary impairment is separated into (a) the amount of the total other-than-temporary impairment related to a decrease in cash flows expected to be collected from the debt security (the credit loss) and (b) the amount of the total other-than-temporary impairment related to all other factors. The amount of the total other-than-temporary impairment related to the credit loss is recognized in earnings. The amount of the total other-than-temporary impairment related to all other factors is recognized in other comprehensive income.
Fair Value of Investment Securities
FASB ASC 820-10-35 clarifies the application of the provisions of FASB ASC 820-10-05 in an inactive market and how an entity would determine fair value in an inactive market. The Company applies the guidance in FASB ASC 820-10-35 when determining fair value for the Companys private label collateralized mortgage obligations, pooled trust preferred securities and single name corporate trust preferred securities. See Note 8 of the Notes to Consolidated Financial Statements for further discussion.
FASB ASC 820-10-65 provides additional guidance for estimating fair value in accordance with FASB ASC 820-10-05 when the volume and level of activity for the asset or liability have significantly decreased. This ASC also includes guidance on identifying circumstances that indicate a transaction is not orderly.
Goodwill
The Company adopted the provisions of FASB ASC 350-10, which requires that goodwill be reported separate from other intangible assets in the Consolidated Statements of Condition and not be amortized but rather tested for impairment annually or more frequently if impairment indicators arise.
Income Taxes
The objectives of accounting for income taxes are to recognize the amount of taxes payable or refundable for the current year and deferred tax liabilities and assets for the future tax consequences of events that have been recognized in an entitys financial statements or tax returns. Judgment is required in assessing the future tax consequences of events that have been recognized in the Companys consolidated financial statements or tax returns.
Fluctuations in the actual outcome of these future tax consequences could impact the Companys consolidated financial condition or results of operations. Note 12 of the Notes to Consolidated Financial Statements included in the Companys Form 10-K for the year ended December 31, 2015 includes additional discussion on the accounting for income taxes.
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Operating Results Overview
Net income available to common stockholders for the three months ended September 30, 2016 amounted to $11.9 million compared to $10.8 million for the comparable three-month period ended September 30, 2015. The Companys diluted earnings per share were $0.39 for the three months ended September 30, 2016 as compared with diluted earnings per share of $0.36 for the same three months of 2015. The increase in net income available to common stockholders and diluted earnings per share was attributable to an increase in net interest income, an increase in noninterest income (primarily due to an increase in net gains on sales of investment securities) and a decrease in noninterest expense, partially offset by an increase in provision for loan and lease losses.
Net income available to common stockholders for the nine months ended September 30, 2016 amounted to $33.1 million compared to $31.7 million for the comparable nine-month period ended September 30, 2015. The Companys diluted earnings per share were $1.09 for the nine months ended September 30, 2016 as compared with diluted earnings per share of $1.04 for the first nine months of 2015. The increase in net income available to common stockholders and diluted earnings per share was primarily attributable to an increase in net interest income, partially offset by increases in provision for loan and lease losses and noninterest expenses and a decrease in noninterest income.
Net Interest Income and Margin
Net interest income is the difference between the interest earned on the portfolio of earning assets (principally loans and investments) and the interest paid for deposits and borrowings, which support these assets. Net interest income is presented on a tax-equivalent basis by adjusting tax-exempt income (primarily interest earned on obligations of state and political subdivisions) by the amount of income tax which would have been paid had the assets been invested in taxable issues. Net interest margin is defined as net interest income on a tax-equivalent basis as a percentage of total average interest-earning assets.
Fully taxable equivalent net interest income for the third quarter of 2016 increased by $3.4 million, or 11.1%, from the same quarter of 2015. This was a result of a 17.4% increase in average interest-earning assets due to significant organic loan growth, partially offset by an 18 basis-point contraction of the net interest margin. Included in net interest income was accretion and amortization of purchase accounting adjustments of $1.0 million during the third quarter of 2016 and $1.3 million in the same quarter of 2015. Excluding these purchase accounting adjustments, the current quarters adjusted net interest margin was 13 basis points lower than the 2015 third quarter adjusted net interest margin of 3.35%. The reduction in the adjusted net interest margin was due primarily to higher level of cash balances held at the Federal Reserve Bank and an increase in rates paid on deposits.
Fully taxable equivalent net interest income for the nine months ended September 30, 2016 was $98.9 million, an increase of $10.3 million, or 11.6%, from the same period in 2015. This was a result of an 18.2% increase in average interest-earning assets due to significant organic loan growth, partially offset by a 20 basis-point contraction of the net interest margin. Included in net interest income was accretion and amortization of purchase accounting adjustments of $3.6 million for the nine months ended September 30, 2016 and $4.6 million for the same period in 2015. Excluding these purchase accounting adjustments, the adjusted net interest margin was 3.26% for the nine months ended September 30, 2016, 16 basis points lower than the 2015 nine month adjusted net interest margin of 3.42%. The reduction in the adjusted net interest margin was due to a higher level of cash balances held at the Federal Reserve Bank, the September 30, 2015 issuance of $50 million in subordinated debentures, increased costs of attracting and retaining time deposits and the impact of a protracted low-interest rate environment on loan yields.
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The following tables, Average Statements of Condition with Interest and Average Rates, present for the three and nine months ended September 30, 2016 and 2015, the Companys average assets, liabilities and stockholders equity. The Companys net interest income, net interest spread and net interest margin are also reflected.
Average Statements of Condition with Interest and Average Rates
Three Months Ended September 30, | ||||||||||||||||||||||
2016 | 2015 | |||||||||||||||||||||
Interest | Interest | |||||||||||||||||||||
Average | Income/ | Average | Average | Income/ | Average | |||||||||||||||||
Balance | Expense | Rate (8) | Balance | Expense | Rate (8) | |||||||||||||||||
(dollars in thousands) | ||||||||||||||||||||||
Interest-earning assets: | ||||||||||||||||||||||
Investment securities (1) (2) | $ | 406,802 | $ | 3,293 | 3.22 | % | $ | 483,677 | $ | 4,055 | 3.33 | % | ||||||||||
Loans (2) (3) (4) | 3,407,278 | 38,010 | 4.44 | 2,863,708 | 32,446 | 4.50 | ||||||||||||||||
Federal funds sold & interest-bearing with banks | 202,106 | 261 | 0.51 | 66,867 | 43 | 0.26 | ||||||||||||||||
Restricted investment in bank stock | 24,834 | 352 | 5.64 | 26,899 | 297 | 4.38 | ||||||||||||||||
Total interest-earning assets | 4,041,020 | 41,916 | 4.13 | 3,441,151 | 36,841 | 4.25 | ||||||||||||||||
Allowance for loan and lease losses | (34,052 | ) | (18,157 | ) | ||||||||||||||||||
Noninterest-earning assets | 337,828 | 306,509 | ||||||||||||||||||||
Total liabilities and stockholders equity | $ | 4,344,796 | $ | 3,729,503 | ||||||||||||||||||
Interest-bearing liabilities: | ||||||||||||||||||||||
Money market deposits | $ | 872,937 | $ | 1,211 | 0.55 | $ | 710,767 | $ | 794 | 0.44 | ||||||||||||
Savings deposits | 211,162 | 158 | 0.30 | 220,481 | 146 | 0.26 | ||||||||||||||||
Time deposits | 1,007,530 | 3,323 | 1.31 | 787,262 | 2,391 | 1.20 | ||||||||||||||||
Other interest-bearing deposits | 553,401 | 467 | 0.34 | 352,156 | 324 | 0.37 | ||||||||||||||||
Total interest-bearing deposits | 2,645,030 | 5,159 | 0.78 | 2,070,666 | 3,655 | 0.70 | ||||||||||||||||
Borrowings | 488,015 | 2,139 | 1.74 | 544,774 | 1,944 | 1.42 | ||||||||||||||||
Subordinated debentures (5) | 55,155 | 814 | 5.87 | 2,933 | 44 | 5.95 | ||||||||||||||||
Capital lease obligation | 2,814 | 42 | 5.94 | 55,155 | 816 | 5.87 | ||||||||||||||||
Total interest-bearing liabilities | 3,191,014 | 8,154 | 1.02 | 2,673,528 | 6,459 | 0.96 | ||||||||||||||||
Demand deposits | 640,323 | 560,129 | ||||||||||||||||||||
Other liabilities | 18,318 | 24,164 | ||||||||||||||||||||
Total noninterest-bearing liabilities | 658,641 | 584,293 | ||||||||||||||||||||
Stockholders equity | 495,141 | 471,682 | ||||||||||||||||||||
Total liabilities and stockholders equity | $ | 4,344,796 | $ | 3,729,503 | ||||||||||||||||||
Net interest income (tax equivalent basis) | 33,762 | 30,382 | ||||||||||||||||||||
Net interest spread (6) | 3.11 | % | 3.29 | % | ||||||||||||||||||
Net interest margin (7) | 3.32 | % | 3.50 | % | ||||||||||||||||||
Tax equivalent adjustment | (738 | ) | (655 | ) | ||||||||||||||||||
Net interest income | $ | 33,024 | $ | 29,727 |
(1) | Average balances are based on amortized cost. |
(2) | Interest income is presented on a tax equivalent basis using 35% federal tax rate. |
(3) | Includes loan fee income. |
(4) | Loans include nonaccrual loans. |
(5) | Amount does not reflect netting of debt issuance costs of $698 and $ - for the three months ended September 30, 2016 and September 30, 2015, respectively. |
(6) | Represents difference between the average yield on interest-earning assets and the average cost of interest-bearing liabilities and is presented on a tax equivalent basis. |
(7) | Represents net interest income on a tax equivalent basis divided by average total interest-earning assets. |
(8) | Rates are annualized. |
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Average Statements of Condition with Interest and Average Rates
Nine Months Ended September 30, | ||||||||||||||||||||||
2016 | 2015 | |||||||||||||||||||||
Interest | Interest | |||||||||||||||||||||
Average | Income/ | Average | Average | Income/ | Average | |||||||||||||||||
Balance | Expense | Rate (8) | Balance | Expense | Rate (8) | |||||||||||||||||
(dollars in thousands) | ||||||||||||||||||||||
Interest-earning assets: | ||||||||||||||||||||||
Investment securities (1) (2) | $ | 413,493 | $ | 10,290 | 3.32 | % | $ | 496,375 | $ | 12,442 | 3.35 | % | ||||||||||
Loans (2) (3) (4) | 3,310,788 | 109,959 | 4.44 | 2,709,332 | 92,279 | 4.55 | ||||||||||||||||
Federal funds sold & interest-bearing with banks | 143,517 | 541 | 0.50 | 65,663 | 127 | 0.26 | ||||||||||||||||
Restricted investment in bank stocks | 29,818 | 1,074 | 4.81 | 26,385 | 797 | 4.04 | ||||||||||||||||
Total interest-earning assets | 3,897,616 | 121,864 | 4.18 | 3,297,755 | 105,645 | 4.28 | ||||||||||||||||
Allowance for loan and lease losses | (30,412 | ) | (16,469 | ) | ||||||||||||||||||
Noninterest-earning assets | 331,544 | 302,316 | ||||||||||||||||||||
Total liabilities and stockholders equity | $ | 4,198,748 | $ | 3,583,602 | ||||||||||||||||||
Interest-bearing liabilities: | ||||||||||||||||||||||
Money market deposits | $ | 772,981 | $ | 3,016 | 0.52 | $ | 692,919 | $ | 2,204 | 0.43 | ||||||||||||
Savings deposits | 213,963 | 471 | 0.29 | 220,639 | 465 | 0.28 | ||||||||||||||||
Time deposits | 902,017 | 8,714 | 1.29 | 742,037 | 6,339 | 1.14 | ||||||||||||||||
Other interest-bearing deposits | 528,841 | 1,331 | 0.34 | 349,626 | 972 | 0.37 | ||||||||||||||||
Total interest-bearing deposits | 2,417,802 | 13,532 | 0.75 | 2,005,221 | 9,980 | 0.67 | ||||||||||||||||
Borrowings | 603,423 | 6,908 | 1.53 | 548,013 | 6,022 | 1.47 | ||||||||||||||||
Subordinated debentures (5) | 55,155 | 2,436 | 5.90 | 2,961 | 134 | 6.05 | ||||||||||||||||
Capital lease obligation | 2,844 | 128 | 6.01 | 22,188 | 904 | 5.45 | ||||||||||||||||
Total interest-bearing liabilities | 3,079,224 | 23,004 | 1.00 | 2,578,383 | 17,040 | 0.88 | ||||||||||||||||
Demand deposits | 610,568 | 514,936 | ||||||||||||||||||||
Other liabilities | 21,872 | 26,917 | ||||||||||||||||||||
Total noninterest-bearing liabilities | 632,440 | 541,853 | ||||||||||||||||||||
Stockholders equity | 487,084 | 463,366 | ||||||||||||||||||||
Total liabilities and stockholders equity | $ | 4,198,748 | $ | 3,583,602 | ||||||||||||||||||
Net interest income (tax equivalent basis) | 98,860 | 88,605 | ||||||||||||||||||||
Net interest spread (6) | 3.18 | % | 3.40 | % | ||||||||||||||||||
Net interest margin (7) | 3.39 | % | 3.59 | % | ||||||||||||||||||
Tax equivalent adjustment | (2,122 | ) | (1,908 | ) | ||||||||||||||||||
Net interest income | $ | 96,738 | $ | 86,697 |
(1) | Average balances are based on amortized cost. |
(2) | Interest income is presented on a tax equivalent basis using 35% federal tax rate. |
(3) | Includes loan fee income. |
(4) | Loans include nonaccrual loans. |
(5) | Amount does not reflect netting of debt issuance costs of $746 and $ - for the nine months ended September 30, 2016 and September 30, 2015, respectively. |
(6) | Represents difference between the average yield on interest-earning assets and the average cost of interest-bearing liabilities and is presented on a tax equivalent basis. |
(7) | Represents net interest income on a tax equivalent basis divided by average total interest-earning assets. |
(8) | Rates are annualized. |
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Noninterest Income
Noninterest income totaled $5.6 million in the third quarter of 2016, an increase of $1.8 million from $3.8 million in the comparable prior-year quarter. The increase was primarily due to an increase in net gains on sales of investment securities of $2.1 million and an increase of $0.2 million in income on bank owned life insurance, offset by a decrease of $0.5 million in deposit, loan and other income. Net gains on sales of investment securities were $4.1 million and $2.1 million for the third quarter of 2016 and 2015, respectively.
Noninterest income includes bank-owned life insurance income, deposit and loan fees, annuities and life insurance commissions, and gains on sales of residential mortgages in the secondary market and represents a relatively small portion of the Banks total revenue. Although management intends to continue its strategy of de-emphasizing service charges in order to attract new and retain existing clients, it expects fee income to increase modestly in future periods.
Noninterest income totaled $8.3 million for the nine months ended September 30, 2016, a decrease of $0.5 million from $8.8 million in the comparable prior-year period. Included in the prior-year period totals was a $2.2 million insurance recovery related to a wire fraud loss that occurred during the second quarter of 2015. Excluding this insurance recovery, noninterest income increased by $1.8 million when compared to the comparable prior-year period. The increase was primarily due to an increase in net gains on sales of investment securities of $1.4 million and income on bank owned life insurance of $0.7 million, offset by decreases in net gains on sales of loans of $0.1 million and deposit, loan and other income of $0.2 million.
Noninterest Expense
Noninterest expenses for the third quarter of 2016 were $14.6 million, a $1.3 million, or 9.4%, increase from $13.3 million in the third quarter of 2015, and were $43.3 million for the first nine months of 2016, a $2.4 million, or 5.7%, increase from $40.9 million in the first nine months of 2015. Included in the noninterest expense for the third quarter of 2015 and for the first nine months of 2015 was a loss on debt extinguishment of $2.4 million. This loss on debt extinguishment was the result of the Company repaying $16.0 million in principal amount of high cost puttable borrowings. Excluding the loss on debt extinguishment, noninterest expenses increased $1.3 million and $4.7 million in the third quarter of 2016 and for the first nine months of 2016, respectively, from their prior year periods.
The largest factors contributing to the increases (excluding loss on debt extinguishment) were salaries and employee benefits expense, which increased by $0.9 and $2.7 million to $7.8 million and $23.1 million in the third quarter and first nine months of 2016, respectively, and occupancy and equipment expense, which increased by $0.1 and $0.7 million to $2.0 million and $6.5 million in the third quarter and first nine months of 2016, respectively. These increases across both period comparisons were primarily the result of increased levels of business and staff resulting from organic growth.
Income Taxes
Income tax expense was $5.4 and $15.2 million for the three and nine months ended September 30, 2016, respectively, compared with $5.2 and $15.3 million for the three and nine months ended September 30, 2015, respectively. The effective tax rates were 31.5% for both the third quarter and first nine months of 2016, compared with 32.5% for both the third quarter and first nine months of 2015. The effective tax rate for the full year 2016 is expected to remain at approximately 31.5%.
Financial Condition
Loan Portfolio
Commercial lending is the Companys primary business activity. The Companys loan portfolio consists of commercial, residential and consumer loans, serving the diverse client base in its market area. The composition of the Companys portfolio remains relatively constant but can change due to factors such as the economic climate, the level and fluctuations in interest rates, real estate values and employment metrics. Organic growth (i.e., growth other than through mergers and acquisitions) is generated through business development, repeat client requests for new financings, penetration into existing markets and entry into new markets.
The Company seeks to create growth in commercial lending by offering client-focused products, competitive pricing and by capitalizing on the positive trends in its market area. Products offered are designed to meet the financial requirements of the Companys clients. It is the objective of the Companys credit policies to diversify the commercial loan portfolio to limit concentrations in any single segment.
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The following table sets forth the composition of our loan portfolio, excluding loans held-for-sale and unearned net origination fees and costs, by type of loan at the periods indicated.
Dollar | ||||||||||||||||
September 30, 2016 | December 31, 2015 | Change | ||||||||||||||
Amount | % | Amount | % | 2016 vs. 2015 | ||||||||||||
(dollars in thousands) | ||||||||||||||||
Commercial | $ | 644,430 | 18.7 | % | $ | 570,116 | 18.4 | % | $ | 74,314 | ||||||
Commercial real estate | 2,100,804 | 60.9 | 1,966,696 | 63.4 | 134,108 | |||||||||||
Commercial construction | 471,109 | 13.7 | 328,838 | 10.6 | 142,271 | |||||||||||
Residential real estate | 229,401 | 6.6 | 233,690 | 7.5 | (4,289 | ) | ||||||||||
Consumer | 2,879 | 0.1 | 2,454 | 0.1 | 425 | |||||||||||
Gross loans | $ | 3,448,623 | 100.0 | % | $ | 3,101,794 | 100.0 | % | $ | 346,829 |
At September 30, 2016, total gross loans amounted to $3.4 billion, an increase of $0.3 billion, or 11.2%, as compared to December 31, 2015. Net loan growth was primarily attributable to multi-family ($80 million, including a $28 million loan reclassified during the current quarter as multi-family from other commercial real estate), commercial ($74 million), other commercial real estate ($54 million, excluding the aforementioned reclassification) and commercial construction ($142 million). The increase in commercial construction reflected higher utilization of existing construction facilities. The growth in loans was funded primarily with increases in deposits.
At September 30, 2016, acquired loans remaining in the loan portfolio totaled $0.7 billion, compared to $0.9 billion as of December 31, 2015.
Allowance for Loan and Lease Losses and Related Provision
The purpose of the allowance for loan and lease losses (the ALLL) is to establish a valuation allowance for probable incurred losses in the loan portfolio. Additions to the ALLL are made through provisions charged against current operations and through recoveries made on loans previously charged off. The ALLL is maintained at an amount considered adequate by management to provide for probable credit losses inherent in the loan portfolio based upon historical losses and a periodic evaluation of external and portfolio risk factors. In establishing an appropriate ALLL, an assessment of the individual borrowers, a determination of the value of the underlying collateral, a review of historical loss experience and an analysis of the levels and trends of loan categories, delinquencies and problem loans are considered. Such factors as the level and trend of interest rates and current economic conditions and peer group statistics are also reviewed. The Companys analysis of its ALLL also takes into consideration the potential impact that current trends may have on the Companys borrower base.
Although management uses the best information available, the level of the allowance for loan and lease losses remains an estimate, which is subject to significant judgment and short-term change. Various regulatory agencies, as an integral part of their examination process, periodically review the Companys allowance for loan and lease losses. Such agencies may require the Company to increase the ALLL based on their analysis of information available to them at the time of their examination. Furthermore, the majority of the Companys loans are secured by real estate in the State of New Jersey. Future adjustments to the ALLL may be necessary due to economic factors impacting New Jersey real estate and the economy in general, as well as operating, regulatory and other conditions beyond the Companys control.
At September 30, 2016, the allowance was $37.6 million as compared to $26.6 million at December 31, 2015. Provisions to the allowance for the three and nine months ended September 30, 2016 increased to $6.8 million and $13.5 million, respectively, from $4.2 million and $7.6 million for the same periods in 2015. These increases were primarily a result of higher specific reserves for the taxi medallion portfolio, which increased to $5.0 million for the three months ended and $8.3 million for the nine months ended September 30, 2016 from $2.0 million for the three and nine months ended September 30, 2015. See Asset Quality for a discussion of the taxi cab medallion portfolio. Partially offsetting the increases in provision for loan losses due to specific taxi medallion reserves was slower growth in the originating (non-acquired) loan portfolio.
There were $1.9 million in net charge-offs during the three months ended September 30, 2016, compared to $122 thousand during the three months ended September 30, 2015. The allowance for loan and lease losses as a percentage of total loans amounted to 1.09% at September 30, 2016 compared to 0.86% at December 31, 2015 and 0.73% at September 30, 2015. The large increase in net-charge-offs during the three months ended September 30, 2016, was primarily attributable to one charge-off of a lease financing receivable for $1.1 million, which had a specific reserve of $1.3 million prior to the charge.
The level of the allowance for the respective periods of 2016 and 2015 reflects the credit quality within the loan portfolio, the loan volume recorded during the periods, the changing composition of the commercial and residential real estate loan portfolios and other related factors. In managements view, the level of the ALLL at September 30, 2016 is adequate to cover losses inherent in the loan portfolio. Managements judgment regarding the adequacy of the allowance constitutes a Forward-Looking Statement under the Private Securities Litigation Reform Act of 1995. Actual results could differ materially from managements analysis, based principally upon the factors considered by management in establishing the allowance.
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Changes in the allowance for loan and lease losses are presented in the following table for the periods indicated.
Three Months Ended | ||||||||
September 30, | ||||||||
2016 | 2015 | |||||||
(dollars in thousands) | ||||||||
Average loans for the period | $ | 3,407,278 | $ | 2,863,708 | ||||
Loans receivable at end of period | 3,445,476 | 2,953,381 | ||||||
Analysis of the Allowance for loan and lease losses: | ||||||||
Balance - beginning of quarter | $ | 32,763 | $ | 17,480 | ||||
Charge-offs: | ||||||||
Commercial | (1,878 | ) | - | |||||
Commercial real estate | - | (124 | ) | |||||
Residential real estate | (27 | ) | - | |||||
Consumer | (5 | ) | - | |||||
Total charge-offs | (1,910 | ) | (124 | ) | ||||
Recoveries: | ||||||||
Commercial | 1 | 2 | ||||||
Commercial real estate | 10 | - | ||||||
Residential real estate | - | - | ||||||
Consumer | 1 | - | ||||||
Total recoveries | 12 | 2 | ||||||
Net charge-offs | (1,898 | ) | (122 | ) | ||||
Provision for loan and lease losses | 6,750 | 4,175 | ||||||
Balance - end of period | $ | 37,615 | $ | 21,533 | ||||
Ratio of annualized net charge-offs during the period to average loans during the period | 0.22 | % | 0.02 | % | ||||
Allowance for loan and lease losses as a percent of loans receivable | 1.09 | % | 0.73 | % | ||||
Nine Months Ended | ||||||||
September 30, | ||||||||
2016 | 2015 | |||||||
(dollars in thousands) | ||||||||
Average loans for the period | $ | 3,310,788 | $ | 2,630,864 | ||||
Loans receivable at end of period | 3,445,476 | 2,953,381 | ||||||
Analysis of the Allowance for loan and lease losses: | ||||||||
Balance - beginning of year | $ | 26,572 | $ | 14,160 | ||||
Charge-offs: | ||||||||
Commercial | (2,396 | ) | (100 | ) | ||||
Commercial real estate | - | (406 | ) | |||||
Residential real estate | (94 | ) | - | |||||
Consumer | (10 | ) | (13 | ) | ||||
Total charge-offs | (2,500 | ) | (519 | ) | ||||
Recoveries: | ||||||||
Commercial | 2 | 12 | ||||||
Commercial real estate | 35 | 327 | ||||||
Residential real estate | 3 | 2 | ||||||
Consumer | 3 | 1 | ||||||
Total recoveries | 43 | 342 | ||||||
Net charge-offs | (2,457 | ) | (176 | ) | ||||
Provision for loan and lease losses | 13,500 | 7,550 | ||||||
Balance - end of period | $ | 37,615 | $ | 21,533 | ||||
Ratio of annualized net charge-offs during the period to average loans during the period | 0.06 | % | 0.01 | % | ||||
Allowance for loan and lease losses as a percent of loans receivable | 1.09 | % | 0.73 | % |
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Asset Quality
The Company manages asset quality and credit risk by maintaining diversification in its loan portfolio and through review processes that include analysis of credit requests and ongoing examination of outstanding loans, delinquencies, and potential problem loans, with particular attention to portfolio dynamics and mix. The Company strives to identify loans experiencing difficulty early enough to correct the problems, to record charge-offs promptly based on realistic assessments of current collateral values and cash flows, and to maintain an adequate allowance for loan and lease losses at all times.
It is generally the Companys policy to discontinue interest accruals once a loan is past due as to interest or principal payments for a period of ninety days. When a loan is placed on nonaccrual status, interest accruals cease and uncollected accrued interest is reversed and charged against current income. Payments received on nonaccrual loans are generally applied against principal. A loan may be restored to an accruing basis when all past due amounts have been collected. Loans past due 90 days or more which are both well-secured and in the process of collection may remain on an accrual basis.
Nonperforming assets include nonaccrual loans and other real estate owned. Nonaccrual loans represent loans on which interest accruals have been suspended. In general, it is the policy of management to consider the charge-off of uncollectible amounts of loans at the point they become past due 90 days. Performing troubled debt restructured loans represent loans to borrowers experiencing financial difficulties on which a concession was granted, such as a reduction in interest rate below the current market rate for new debt with similar risks or modified repayment terms, and are performing under the restructured terms.
The following table sets forth, as of the dates indicated, the amount of the Companys nonaccrual loans, other real estate owned (OREO), performing troubled debt restructurings (TDRs) and loans past due 90 days and still accruing/accreting:
September 30, | December 31, | |||||||
2016 | 2015 | |||||||
Nonaccrual loans | $ | 11,493 | $ | 20,737 | ||||
OREO | 626 | 2,549 | ||||||
Total nonperforming assets | $ | 12,119 | $ | 23,286 | ||||
Performing TDRs | $ | 105,338 | $ | 85,925 | ||||
Loans past due 90 days and still | ||||||||
accreting income (PCI) | 5,197 | - | ||||||
Loans past due 90 days and still | ||||||||
accruing income (Non-PCI) | $ | - | $ | - | ||||
Nonaccrual loans to total loans | ||||||||
receivable | 0.33 | % | 0.67 | % | ||||
Nonperforming assets to total assets | 0.28 | % | 0.58 | % | ||||
Nonperforming assets, performing TDRs, | ||||||||
and loans past due 90 days and still | ||||||||
accruing/accreting to total loans | ||||||||
receivable | 3.56 | % | 3.52 | % |
The increase in TDRs was primarily due to 14 loans secured by 25 New York City taxi medallions totaling $17.3 million. These loan modifications included interest rate reductions and maturity extensions. All 14 loans were accruing prior to modification, while 13 remained in accrual status post-modification.
As of September 30, 2016, loans secured by New York City taxi medallions totaled $102.7 million. Troubled debt restructurings associated with this portfolio totaled $95.2 million and total nonaccrual loans were $3.7 million at quarter-end. Troubled debt restructurings increased by $7.2 million from the second quarter of 2016, while nonaccrual loans decreased by $0.2 million, resulting from partial charge-offs. Specific reserves for taxi medallion loans totaled $12.5 million, or 12.2%, of total taxi medallion portfolio. The Banks valuation of a New York City corporate medallion, which are applicable to approximately 95% of total exposure, was approximately $700 thousand as of September 30, 2016, down from approximately $750 thousand as of June 30, 2016.
The $12.5 million in specific allocations referenced above were calculated based on the present value of estimated cash flows, including contractual debt interest service through maturity, and principal repayments based on the estimated fair value of the collateral excluding any consideration for personal guarantees of borrowers, which provide an additional source of repayment but cannot be relied upon. Since December 31, 2015, an additional $8.3 million specific allocation was required for the nine months ended September 30, 2016 due to a decline in the Companys estimated valuation of taxi medallions from December 31, 2015, when the specific allocation was $4.5 million.
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Investment Portfolio
At September 30, 2016, the principal components of the investment securities portfolio were federal agency obligations, mortgage-backed securities, obligations of U.S. states and political subdivisions, corporate bonds and notes, trust preferred securities, asset backed securities and equity securities.
Transfers of debt securities from the held-to-maturity category to the available-for-sale category are made at fair value at the date of transfer. The unrealized holding gain or loss at the date of the transfer shall be recognized in accumulated other comprehensive income, net of applicable taxes. During the quarter ended September 30, 2016 the Company transferred all securities previously categorized as held-to-maturity to available-for-sale classification. The transfer resulted in an increase of approximately $210 million in amortized cost basis of securities and resulted in a net increase to accumulated other comprehensive income of $7.4 million, net of tax. This transfer will enhance liquidity and increase flexibility with regard to asset-liability management and balance sheet composition.
During the nine months ended September 30, 2016, approximately $85.3 million in investment securities were sold from the available-for-sale portfolio resulting in a net gain on sales of securities of $4.2 million. The cash flow from the investment securities will be primarily used to fund loan growth and purchase new securities.
For the three months ended September 30, 2016, average investment securities decreased $76.8 million to approximately $406.8 million, or 10.1% of average interest-earning assets, from $483.7 million on average, or 14.1% of average interest-earning assets, for the comparable period in 2015. For the nine months ended September 30, 2016, average investment securities decreased $86.0 million to approximately $413.5 million, or 10.6% of average interest-earning assets, from $496.4 million on average, or 15.1% of average interest-earning assets, for the comparable period in 2015. The reduction in average balances for each of the respective periods was a result of total sales, maturities, calls and prepayments of securities for the nine months ended September 30, 2015 which totaled $112.6 million. In the same period for 2015, this was offset by approximately $52.3 million in new securities purchases with the remaining cash flow primarily utilized to fund new loan originations. For the nine months ended September 30, 2016 total sales, maturities, calls and prepayments of securities $209.5 million offset by securities purchases of $115.8 million.
At September 30, 2016, net unrealized gains on investment securities available-for-sale, which are carried as a component of accumulated other comprehensive income and included in stockholders equity, net of tax, amounted to $5.3 million as compared with net unrealized gains of $0.7 million at December 31, 2015. The increase in unrealized gains is predominately attributable to the aforementioned reclassification of securities previously classified as held-to-maturity to available-for-sale. The gross unrealized losses associated with agency securities and federal agency obligations, mortgage-backed securities, corporate bonds and tax-exempt securities are not considered to be other-than-temporary because their unrealized losses are related to changes in interest rates and do not affect the expected cash flows of the underlying collateral or issuer.
Interest Rate Sensitivity Analysis
The principal objective of our asset and liability management function is to evaluate the interest-rate risk included in certain balance sheet accounts; determine the level of risk appropriate given our business focus, operating environment, and capital and liquidity requirements; establish prudent asset concentration guidelines; and manage the risk consistent with Board approved guidelines. We seek to reduce the vulnerability of our operations to changes in interest rates, and actions in this regard are taken under the guidance of the Banks Asset Liability Committee (the ALCO). The ALCO generally reviews our liquidity, cash flow needs, maturities of investments, deposits and borrowings, and current market conditions and interest rates.
We currently utilize net interest income simulation and economic value of equity (EVE) models to measure the potential impact to the Bank of future changes in interest rates. As of September 30, 2016 and December 31, 2015 the results of the models were within guidelines prescribed by our Board of Directors. If model results were to fall outside prescribed ranges, action, including additional monitoring and reporting to the Board, would be required by the ALCO and Banks management.
The net interest income simulation model attempts to measure the change in net interest income over the next one-year period, and over the next three-year period on a cumulative basis, assuming certain changes in the general level of interest rates.
Based on our model, which was run as of September 30, 2016, we estimated that over the next one-year period a 200 basis-point instantaneous increase in the general level of interest rates would increase our net interest income by 8.38%, while a 100 basis-point instantaneous decrease in interest rates would decrease net interest income by 4.19%. As of December 31, 2015, we estimated that over the next one-year period, a 200 basis-point instantaneous increase in the general level of interest rates would increase our net interest income by 5.65%, while a 100 basis-point instantaneous decrease in the general level of interest rates would decrease our net interest income by 3.62%.
Based on our model, which was run as of September 30, 2016, we estimated that over the next three years, on a cumulative basis, a 200 basis-point instantaneous increase in the general level of interest rates would increase our net interest income by 8.44%, while a 100 basis-point instantaneous decrease in interest rates would decrease net interest income by 5.28%. As of December 31, 2015, we estimated that over the next three years, on a cumulative basis, a 200 basis-point instantaneous increase in the general level of interest rates would increase our net interest income by 6.66%, while a 100 basis-point instantaneous decrease in interest rates would decrease net interest income by 5.59%.
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An EVE analysis is also used to dynamically model the present value of asset and liability cash flows with instantaneous rate shocks of up 200 basis points and down 100 basis points. The economic value of equity is likely to be different as interest rates change. Our EVE as of September 30, 2016, would decline by 8.56% with an instantaneous rate shock of up 200 basis points, and increase by 5.12% with an instantaneous rate shock of down 100 basis points. Our EVE as of December 31, 2015, would decline by 9.65% with an instantaneous rate shock of up 200 basis points, and increase by 8.20% with an instantaneous rate shock of down 100 basis points.
Interest | |||||||||||||||||||||
Interest Rates | Estimated | Estimated Change in EVE | Rates | Estimated | Estimated Change in NII | ||||||||||||||||
(basis points) | EVE | Amount | % | (basis points) | NII | Amount | % | ||||||||||||||
+300 | $ | 384,052 | $ | (58,257 | ) | (13.2 | )% | +300 | $ | 142,524 | $ | 15,617 | 12.3 | % | |||||||
+200 | 404,447 | (37,862 | ) | (8.6 | ) | +200 | 137,538 | 10,631 | 8.4 | ||||||||||||
+100 | 422,495 | (19,814 | ) | (4.5 | ) | +100 | 132,087 | 5,180 | 4.1 | ||||||||||||
0 | 442,309 | - | 0.0 | 0 | 126,907 | - | 0.0 | ||||||||||||||
-100 | 464,952 | 22,643 | 5.1 | -100 | 121,588 | (5,319 | ) | (4.2 | ) |
Estimates of Fair Value
The estimation of fair value is significant to a number of the Companys assets, including loans held-for-sale and investment securities available-for-sale. These are all recorded at either fair value or the lower of cost or fair value. Fair values are volatile and may be influenced by a number of factors. Circumstances that could cause estimates of the fair value of certain assets and liabilities to change include a change in prepayment speeds, discount rates, or market interest rates. Fair values for most available-for-sale investment securities are based on quoted market prices. If quoted market prices are not available, fair values are based on judgments regarding future expected loss experience, current economic condition risk characteristics of various financial instruments, and other factors. These estimates are subjective in nature, involve uncertainties and matters of significant judgment and therefore cannot be determined with precision. Changes in assumptions could significantly affect the estimates.
Impact of Inflation and Changing Prices
The consolidated financial statements and notes thereto presented elsewhere herein have been prepared in accordance with GAAP, which require the measurement of financial position and operating results in terms of historical dollars without considering the change in the relative purchasing power of money over time due to inflation. The impact of inflation is reflected in the increased cost of operations; unlike most industrial companies, nearly all of the Companys assets and liabilities are monetary. As a result, interest rates have a greater impact on performance than do the effects of general levels of inflation. Interest rates do not necessarily move in the same direction or to the same extent as the prices of goods and services.
Liquidity
Liquidity is a measure of a banks ability to fund loans, withdrawals or maturities of deposits, and other cash outflows in a cost-effective manner. Our principal sources of funds are deposits, scheduled amortization and prepayments of loan principal, maturities of investment securities, and funds provided by operations. While scheduled loan payments and maturing investments are relatively predictable sources of funds, deposit flow and loan prepayments are greatly influenced by general interest rates, economic conditions and competition.
At September 30, 2016, the amount of liquid assets remained at a level management deemed adequate to ensure that, on a short and long-term basis, contractual liabilities, depositors withdrawal requirements, and other operational and client credit needs could be satisfied. As of September 30, 2016, liquid assets (cash and due from banks, interest-bearing deposits with banks and unencumbered investment securities) were $466.7 million, which represented 10.8% of total assets and 12.3% of total deposits and borrowings, compared to $466.5 million at December 31, 2015, which represented 11.6% of total assets and 13.3% of total deposits and borrowings on such date. The decrease in the current period was mainly attributable to a reduction in cash balances of $40.7 million at September 30, 2016 from December 31, 2015.
The Bank is a member of the Federal Home Loan Bank of New York and, based on available qualified collateral as of September 30, 2016, had the ability to borrow $1.6 billion. In addition, at September 30, 2016, the Bank had in place borrowing capacity of $37 million through correspondent banks. The Bank also has a credit facility established with the Federal Reserve Bank of New York for direct discount window borrowings with capacity based on pledged collateral of $16.8 million. At September 30, 2016, the Bank had aggregate available and unused credit of $805.8 million, which represents the aforementioned facilities totaling $1.3 billion net of $466 million in outstanding borrowings. At September 30, 2016, outstanding commitments for the Bank to extend credit were $581 million.
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Cash and cash equivalents totaled $233.8 million at September 30, 2016, increasing by $32.9 million from $200.9 million at December 31, 2015. Operating activities provided $36.6 million in net cash. Investing activities used $274.0 million in net cash, primarily reflecting an increase in loans. Financing activities provided $270.3 million in net cash, primarily reflecting a net increase of $478.1 million in deposits, a redemption of $11.3 million of preferred stock, and a net decrease of $190.0 million in borrowings (consisting of $375.0 million in new borrowings offset by repayments of $565.0 million).
Deposits
Total deposits increased by $478 million, or 17.1%, to $3.3 billion at September 30, 2016, primarily attributable to increases in time, interest-bearing demand, noninterest-bearing demand and money market deposits, and partially offset by a modest decreases in savings. The following table sets forth the composition of our deposit base by the periods indicated.
Dollar | |||||||||||||||
September 30, 2016 | December 31, 2015 | Change | |||||||||||||
Amount | % | Amount | % | 2016 vs. 2015 | |||||||||||
(dollars in thousands) | |||||||||||||||
Demand, noninterest-bearing | $ | 655,683 | 20.1 | % | $ | 650,775 | 23.3 | % | $ | 4,908 | |||||
Demand, interest-bearing & NOW | 531,500 | 16.2 | 490,380 | 17.6 | 41,120 | ||||||||||
Money market | 866,710 | 26.5 | 658,695 | 23.6 | 208,015 | ||||||||||
Savings | 207,717 | 6.4 | 216,399 | 7.8 | (8,682 | ) | |||||||||
Time | 1,007,339 | 30.8 | 774,717 | 27.7 | 232,622 | ||||||||||
Total deposits | $ | 3,268,949 | 100.0 | % | $ | 2,790,966 | 100.0 | % | $ | 477,983 |
Subordinated Debentures
During December 2003, Center Bancorp Statutory Trust II, a statutory business trust and wholly-owned subsidiary of the Parent Corporation issued $5.0 million of MMCapS capital securities to investors due on January 23, 2034. The trust loaned the proceeds of this offering to the Company and received in exchange $5.2 million of the Parent Corporations subordinated debentures. The subordinated debentures are redeemable in whole or part. The floating interest rate on the subordinated debentures is three-month LIBOR plus 2.85% and reprices quarterly. The rate at September 30, 2016 was 3.61%.
During June 2015, the Parent Corporation issued $50 million in aggregate principal amount of fixed-to-floating rate subordinated notes (the Notes) to certain institutional accredited investors. The net proceeds from the sale of the Notes were used by the Parent Corporation to contribute $35.0 million of common equity to the Bank on June 30, 2015, and to repay $11.25 million of SBLF preferred issued to the U.S. Treasury on March 11, 2016. Remaining funds will be used for general corporate purposes. The Notes are non-callable for five years, have a stated maturity of July 1, 2025, and bear interest at a fixed rate of 5.75% per year, from and including September 30, 2015 to, but excluding July 1, 2020. From and including July 1, 2020 to the maturity date or early redemption date, the interest rate will reset quarterly to a level equal to the then current three-month LIBOR rate plus 393 basis points.
Stockholders Equity
The Companys stockholders equity was $500 million at September 30, 2016, an increase of $22 million from December 31, 2015. The increase in stockholders equity was primarily attributable to an increase of $26 million in retained earnings, approximately $2 million of equity issuance related to stock-based compensation, including the exercise of stock options, and an increase in accumulated other comprehensive income of $5 million, offset by an $11 million payoff of SBLF preferred stock. As of September 30, 2016, the Companys tangible common equity ratio and tangible book value per share were 8.39% and $11.60, respectively. As of December 31, 2015, the tangible common equity ratio and tangible book value per share were 8.18% and $10.51, respectively. Total goodwill and other intangible assets were approximately $149 million and $150 million as of September 30, 2016 and December 31, 2015, respectively.
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Tangible book value per share is a non-GAAP financial measure and represents tangible stockholders equity (or tangible book value) calculated on a per common share basis. The Company believes that a disclosure of tangible book value per share may be helpful for those investors who seek to evaluate the Companys book value per share without giving effect to goodwill and other intangible assets. The following table presents a reconciliation of total book value per share to tangible book value per share as of September 30, 2016 and December 31, 2015.
September 30, | December 31, | ||||
2016 | 2015 | ||||
(in thousands, except for share data) | |||||
Stockholders equity | $ | 499,588 | $ | 477,344 | |
Less: Preferred stock | - | 11,250 | |||
Less: Goodwill and other intangible assets | 149,190 | 149,817 | |||
Tangible common stockholders equity | $ | 350,398 | $ | 316,277 | |
Common stock outstanding at period end | 30,197,318 | 30,085,663 | |||
Book value per common share | $ | 16.54 | $ | 15.49 | |
Less: Goodwill and other intangible assets | 4.94 | 4.98 | |||
Tangible book value per common share | $ | 11.60 | $ | 10.51 |
Regulatory Capital and Capital Adequacy
The maintenance of a solid capital foundation is a primary goal for the Company. Accordingly, capital plans and dividend policies are monitored on an ongoing basis. The Companys objective with respect to the capital planning process is to effectively balance the retention of capital to support future growth with the goal of providing stockholders with an attractive long-term return on their investment.
The Company and the Bank are subject to regulatory guidelines establishing minimum capital standards that involve quantitative measures of assets, and certain off-balance sheet items, as risk-adjusted assets under regulatory accounting practices.
The following is a summary of regulatory capital amounts and ratios as of September 30, 2016 for the Company and the Bank, compared with minimum capital adequacy requirements and the regulatory requirements for classification as a well-capitalized depository institution (dollars in thousands).
To Be Well-Capitalized Under | ||||||||||||||||||
For Capital Adequacy | Prompt Corrective Action | |||||||||||||||||
ConnectOne Bancorp, Inc. | Purposes | Provisions | ||||||||||||||||
At September 30, 2016 | Amount | Ratio | Amount | Ratio | Amount | Ratio | ||||||||||||
(dollars in thousands) | ||||||||||||||||||
Tier 1 leverage capital | $ | 356,141 | 8.49 | % | $ | 167,877 | 4.00 | % | N/A | N/A | ||||||||
CET I risk-based ratio | 350,986 | 9.25 | 170,815 | 4.50 | N/A | N/A | ||||||||||||
Tier 1 risk-based capital | 356,141 | 9.38 | 227,753 | 6.00 | N/A | N/A | ||||||||||||
Total risk-based capital | 443,756 | 11.69 | 303,671 | 8.00 | N/A | N/A | ||||||||||||
To Be Well-Capitalized Under | ||||||||||||||||||
For Capital Adequacy | Prompt Corrective Action | |||||||||||||||||
ConnectOne Bank | Purposes | Provisions | ||||||||||||||||
At September 30, 2016 | Amount | Ratio | Amount | Ratio | Amount | Ratio | ||||||||||||
(dollars in thousands) | ||||||||||||||||||
Tier 1 leverage capital | $ | 401,385 | 9.57 | % | $ | 167,807 | 4.00 | % | $ | 209,759 | 5.00 | % | ||||||
CET I risk-based ratio | 401,385 | 10.58 | 170,787 | 4.50 | 246,692 | 6.50 | ||||||||||||
Tier 1 risk-based capital | 401,385 | 10.58 | 227,715 | 6.00 | 303,621 | 8.00 | ||||||||||||
Total risk-based capital | 439,000 | 11.57 | 303,621 | 8.00 | 379,526 | 10.00 |
N/A - not applicable
As of September 30, 2016, management believes that each of the Bank and the Company meet all capital adequacy requirements to which they are subject.
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The new Basel III rules require a capital conservation buffer, for both the Company and the Bank. When fully phased in on January 1, 2019, each of the Company and the Bank will be required to maintain a 2.5% capital conservation buffer, above and beyond the capital levels otherwise required under applicable regulation. The implementation of this capital conservation buffer began on January 1, 2016 at a level of 0.625%, and will increase by 0.625% on each subsequent January 1 until it reaches 2.5% on January 1, 2019. Under this guidance banking institutions with a CET1, Tier 1 Capital Ratio and Total Risk Based Capital Ratio above the minimum regulatory adequate capital ratios but below the capital conservation buffer will face constraints on their ability to pay dividends, repurchase equity and pay discretionary bonuses to executive officers, based on the amount of the shortfall.
As of September 30, 2016 both the Company and Bank satisfy the capital conservation buffer requirements applicable to them. The lowest ratio at the Company is the Tier 1 Capital Ratio which was 2.757% above the minimum buffer ratio and, at the Bank, the lowest ratio was the Total Risk Based Capital Ratio which was 2.942% above the minimum buffer ratio.
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Item 3. Qualitative and Quantitative Disclosures about Market Risks
Market Risk
Interest rate risk management is our primary market risk. See "Item 2- Management's Discussion and Analysis of Financial Condition and Results of Operation- Interest Rate Sensitivity Analysis" herein for a discussion of our management of our interest rate risk.
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Item 4. Controls and Procedures
a) Disclosure controls and procedures. As of the end of the Companys most recently completed fiscal quarter covered by this report, the Company carried out an evaluation, with the participation of the Companys management, including the Companys Chief Executive Officer and Chief Financial Officer, of the effectiveness of the Companys disclosure controls and procedures pursuant to Securities Exchange Act Rule 13a-15. Based upon that evaluation, the Companys Chief Executive Officer and Chief Financial Officer concluded that, the Companys disclosure controls and procedures are not effective in ensuring that information required to be disclosed by the Company in the reports that it files or submits under the Securities Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SECs rules and forms and are operating in an effective manner and that such information is accumulated and communicated to management, including the Companys Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.
In the course of business, and from time to time, the Company modifies loans at the request of borrowers. Modifications that involve borrowers experiencing financial difficulties and that result in concessions regarding loan terms including reduced interest rates, deferral of principal and extension of maturities can be deemed troubled debt restructurings. We recently identified material weaknesses in our controls over the identification and measurement of troubled debt restructurings in our taxi medallion portfolio, which, due to loan size and structure, is underwritten using market and industry data, and did not contain individual loan information required to accurately assess whether or not a modification should be deemed a TDR and the measurement of impairment for such TDRs. Upon completion of the review, it was determined that $75.4 million carrying value of taxi medallion loans, which were originally deemed to not be TDRs, should have been deemed TDRs when they were modified in April 2015.
b) Changes in internal controls over financial reporting. When the material weaknesses were identified, we enhanced our internal controls concerning identification of all TDRs by (i) strengthening our policies and procedures, including requirements that we obtain and analyze current information on each individual borrower and (ii) enhancing oversight, monitoring and approval authorities, before agreeing to any modification of a borrowers loan. We also enhanced our internal controls concerning measurement of TDR impairment with regard to taxi medallion loans, including engaging a third-party firm specializing in financial valuation analysis. Despite these control enhancements, we cannot assert as of September 30, 2016 that our material weaknesses have been fully remediated, due to insufficient time to fully test these controls.
Other than as discussed above, there have been no changes in the Companys internal controls over financial reporting that occurred during the Companys last fiscal quarter to which this report relates that have materially affected, or are reasonable likely to materially affect, the Companys internal control over financial reporting.
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PART II - OTHER INFORMATION
Item 1. Legal Proceedings
The Company is not subject to any legal proceedings, which could have a materially adverse impact on its results of operations and financial condition.
Item 1a. Risk Factors
There have been no changes to the risks inherent in our business from those described under Item 1A Risk Factors of our Annual Report on Form 10-K.
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Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Not applicable
Item 3. Defaults Upon Senior Securities
Not applicable
Item 4. Mine Safety Disclosures
Not applicable
Item 5. Other Information
Not applicable
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Item 6. Exhibits
Exhibit No. | Description | |
31.1 | Certification of the Chief Executive Officer of the Parent Corporation Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | |
31.2 | Certification of the Chief Financial Officer of the Parent Corporation Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | |
32.1 | Certification of the Chief Executive Officer of the Parent Corporation Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | |
32.2 | Certification of the Chief Financial Officer of the Parent Corporation Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | |
101.INS | XBRL Instance Document | |
101.SCH | XBRL Taxonomy Extension Schema Document | |
101.CAL | XBRL Taxonomy Extension Calculation Linkbase Document | |
101.DEF | Definition Taxonomy Extension Linkbase Document | |
101.LAB | XBRL Taxonomy Extension Label Linkbase Document | |
101.PRE | XBRL Taxonomy Extension Presentation Linkbase Document |
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf, by the undersigned, thereunto duly authorized.
CONNECTONE BANCORP,
INC.
(Registrant)
By: | /s/ Frank Sorrentino III | By: | /s/ William S. Burns | |
Frank Sorrentino III | William S. Burns | |||
Chairman and Chief Executive Officer | Executive Vice President and Chief Financial Officer | |||
Date: November 7, 2016 | Date: November 7, 2016 |
64 |
EXHIBIT 31.1
CERTIFICATION
I, Frank Sorrentino III, certify that:
1. I have reviewed this quarterly report on Form 10-Q of ConnectOne Bancorp, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the Registrant as of, and for, the periods presented in this report;
4. The Registrants other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the Registrant and have:
a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Registrant, including its consolidated subsidiaries, is made known to me by others within those entities, particularly during the period in which this report is being prepared;
b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c) evaluated the effectiveness of the Registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d) disclosed in this report any change in the Registrants internal control over financial reporting that occurred during the Registrants most recent fiscal quarter (the Registrants fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the Registrants internal control over financial reporting.
5. The Registrants other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Registrants auditors and the audit committee of the Registrants board of directors (or persons performing the equivalent functions):
a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Registrants ability to record, process, summarize and report financial information; and
b) any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrant's internal control over financial reporting.
Date: November 7, 2016 | /s/ Frank Sorrentino III |
Frank Sorrentino III | |
Chairman and Chief Executive Officer |
65 |
EXHIBIT 31.2
CERTIFICATION
I, William S. Burns, certify that:
1. I have reviewed this quarterly report on Form 10-Q of ConnectOne Bancorp, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the Registrant as of, and for, the periods presented in this report;
4. The Registrants other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the Registrant and have:
a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Registrant, including its consolidated subsidiaries, is made known to me by others within those entities, particularly during the period in which this report is being prepared;
b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c) evaluated the effectiveness of the Registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d) disclosed in this report any change in the Registrants internal control over financial reporting that occurred during the Registrants most recent fiscal quarter (the Registrants fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the Registrants internal control over financial reporting.
5. The Registrants other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Registrants auditors and the audit committee of the Registrants board of directors (or persons performing the equivalent functions):
a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Registrants ability to record, process, summarize and report financial information; and
b) any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrant's internal control over financial reporting.
Date: November 7, 2016 | /s/ William S. Burns |
William S. Burns | |
Executive Vice President and Chief Financial Officer |
66 |
EXHIBIT 32.1
CERTIFICATION PURSUANT
TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE
SARBANES-OXLEY ACT OF 2002
In connection with this Quarterly Report of ConnectOne Bancorp, Inc. (the Company) on Form 10-Q for the quarter ended September 30, 2016 filed with the Securities and Exchange Commission (the Report), I, Frank Sorrentino III, Chairman and Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to my knowledge:
1. The Report fully complies with the requirements of Section 13 (a) of the Securities Exchange Act of 1934; and
2. The information contained in the Report fairly presents, in all material respects, the consolidated financial condition of the Company as of the dates presented and the consolidated results of operations of the Company for the periods presented.
Date: November 7, 2016 | /s/ Frank Sorrentino III |
Frank Sorrentino III | |
Chairman and Chief Executive Officer |
67 |
EXHIBIT 32.2
CERTIFICATION PURSUANT
TO
18 U.S.C. SECTION
1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with this Quarterly Report of ConnectOne Bancorp, Inc. (the Company) on Form 10-Q for the quarter ended September 30, 2016 filed with the Securities and Exchange Commission (the Report), I, William S. Burns, Executive Vice President and Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to my knowledge:
1. The Report fully complies with the requirements of Section 13 (a) of the Securities Exchange Act of 1934; and
2. The information contained in the Report fairly presents, in all material respects, the consolidated financial condition of the Company as of the dates presented and the consolidated results of operations of the Company for the periods presented.
Date: November 7, 2016 | /s/ William S. Burns |
William S. Burns | |
Executive Vice President and Chief Financial Officer |
68 |
Document and Entity Information - shares |
9 Months Ended | |
---|---|---|
Sep. 30, 2016 |
Nov. 04, 2016 |
|
Document And Entity Information | ||
Entity Registrant Name | ConnectOne Bancorp, Inc. | |
Entity Central Index Key | 0000712771 | |
Document Type | 10-Q | |
Document Period End Date | Sep. 30, 2016 | |
Amendment Flag | false | |
Current Fiscal Year End Date | --12-31 | |
Entity Filer Category | Accelerated Filer | |
Entity Common Stock, Shares Outstanding | 30,265,407 | |
Document Fiscal Period Focus | Q3 | |
Document Fiscal Year Focus | 2016 |
CONSOLIDATED STATEMENTS OF CONDITION (Unaudited) (Parenthetical) - USD ($) $ in Thousands |
Sep. 30, 2016 |
Dec. 31, 2015 |
---|---|---|
Held-to-maturity, fair value | $ 230,558 | |
Subordinated debentures, debt issuance costs | $ 665 | $ 812 |
Preferred stock, liquidation value (in Dollars per share) | $ 1,000 | $ 1,000 |
Preferred stock, shares authorized | 5,000,000 | 5,000,000 |
Preferred Stock, total liquidation value | $ 11,250 | |
Common stock, shares authorized | 50,000,000 | 50,000,000 |
Common stock, shares issued | 32,261,240 | 32,149,585 |
Common stock, shares outstanding | 30,197,318 | 30,085,663 |
Treasury Stock, Shares | 2,063,922 | 2,063,922 |
Series B Preferred Stock [Member] | ||
Preferred stock, shares issued | 11,250 | |
Preferred stock, shares outstanding | 11,250 |
CONSOLIDATED STATEMENTS OF INCOME (Unaudited) - USD ($) $ in Thousands |
3 Months Ended | 9 Months Ended | ||||
---|---|---|---|---|---|---|
Sep. 30, 2016 |
Sep. 30, 2015 |
Sep. 30, 2016 |
Sep. 30, 2015 |
|||
Interest income | ||||||
Interest and fees on loans | $ 37,803 | $ 32,276 | $ 109,381 | $ 91,807 | ||
Interest and dividends on investment securities: | ||||||
Taxable | 1,774 | 2,669 | 5,879 | 8,340 | ||
Tax-exempt | 988 | 901 | 2,867 | 2,666 | ||
Dividends | 352 | 297 | 1,074 | 797 | ||
Interest on federal funds sold and other short-term investments | 261 | 43 | 541 | 127 | ||
Total interest income | 41,178 | 36,186 | 119,742 | 103,737 | ||
Interest expense | ||||||
Deposits | 5,159 | 3,655 | 13,532 | 9,980 | ||
Borrowings | 2,995 | 2,804 | 9,472 | 7,060 | ||
Total interest expense | 8,154 | 6,459 | 23,004 | 17,040 | ||
Net interest income | 33,024 | 29,727 | 96,738 | 86,697 | ||
Provision for loan and lease losses | 6,750 | 4,175 | 13,500 | 7,550 | ||
Net interest income after provision for loan and lease losses | 26,274 | 25,552 | 83,238 | 79,147 | ||
Noninterest income | ||||||
Annuities and insurance commissions | 68 | 77 | 140 | 210 | ||
Bank-owned life insurance | 615 | 388 | 1,843 | 1,162 | ||
Net gains on sale of loans held-for-sale | 56 | 63 | 147 | 276 | ||
Deposit, loan and other income | 706 | 1,224 | 1,984 | 2,145 | ||
Insurance recovery | 2,224 | |||||
Net gains on sales of investment securities | 4,131 | 2,067 | 4,234 | 2,793 | ||
Total noninterest income | 5,576 | 3,819 | 8,348 | 8,810 | ||
Noninterest expenses | ||||||
Salaries and employee benefits | 7,791 | 6,905 | 23,143 | 20,480 | ||
Occupancy and equipment | 2,049 | 1,916 | 6,450 | 5,785 | ||
FDIC insurance | 745 | 535 | 1,955 | 1,535 | ||
Professional and consulting | 667 | 836 | 2,078 | 2,045 | ||
Marketing and advertising | 293 | 247 | 817 | 634 | ||
Data processing | 1,002 | 957 | 3,036 | 2,686 | ||
Loss on extinguishment of debt | 2,397 | |||||
Amortization of core deposit intangible | 193 | 217 | 627 | 700 | ||
Other expenses | 1,811 | 1,688 | 5,150 | 4,643 | ||
Total noninterest expenses | 14,551 | 13,301 | 43,256 | 40,905 | ||
Income before income tax expense | 17,299 | 16,070 | 48,330 | 47,052 | ||
Income tax expense | 5,443 | 5,228 | 15,224 | 15,309 | ||
Net income | 11,856 | 10,842 | 33,106 | 31,743 | ||
Less: Preferred stock dividends | 28 | 22 | 84 | |||
Net income available to common stockholders | $ 11,856 | $ 10,814 | $ 33,084 | $ 31,659 | ||
Earnings per common share: | ||||||
Basic | $ 0.39 | $ 0.36 | $ 1.10 | $ 1.06 | ||
Diluted | $ 0.39 | $ 0.36 | $ 1.09 | $ 1.04 | ||
Weighted average common shares outstanding: | ||||||
Basic | 30,125,287 | 30,045,818 | 30,100,057 | 29,786,374 | ||
Diluted | [1] | 30,401,684 | 30,335,571 | 30,376,085 | 30,323,376 | |
Dividend per common share | $ 0.075 | $ 0.075 | $ 0.225 | $ 0.225 | ||
|
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (Unaudited) - USD ($) $ in Thousands |
Preferred Stock [Member] |
Common Stock [Member] |
Additional Paid-in Capital [Member] |
Retained Earnings [Member] |
Treasury Stock [Member] |
Accumulated Other Comprehensive Income (Loss) [Member] |
Total |
---|---|---|---|---|---|---|---|
Balance at Dec. 31, 2014 | $ 11,250 | $ 374,287 | $ 6,015 | $ 72,398 | $ (16,717) | $ (1,014) | $ 446,219 |
Net income | 31,743 | 31,743 | |||||
Other comprehensive loss, net of tax | (2,296) | (2,296) | |||||
Dividend on series B preferred stock | (84) | (84) | |||||
Cash dividends declared on common stock ($0.15 per share) | (6,736) | (6,736) | |||||
Exercise of stock options | 1,424 | 1,424 | |||||
Restricted stock and performance units grants | |||||||
Stock-based compensation expense | 876 | 876 | |||||
Balance at Sep. 30, 2015 | 11,250 | 374,287 | 8,315 | 97,321 | (16,717) | (3,310) | 471,146 |
Balance at Dec. 31, 2015 | 11,250 | 374,287 | 8,527 | 104,606 | (16,717) | (4,609) | 477,344 |
Net income | 33,106 | 33,106 | |||||
Other comprehensive loss, net of tax | 5,333 | 5,333 | |||||
Dividend on series B preferred stock | (22) | (22) | |||||
Cash dividends declared on common stock ($0.15 per share) | (6,805) | (6,805) | |||||
Redemption of preferred stock | (11,250) | (11,250) | |||||
Exercise of stock options | 232 | 232 | |||||
Restricted stock and performance units grants | |||||||
Stock-based compensation expense | 1,650 | 1,650 | |||||
Balance at Sep. 30, 2016 | $ 374,287 | $ 10,409 | $ 130,885 | $ (16,717) | $ 724 | $ 499,588 |
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (Parenthetical) - $ / shares |
9 Months Ended | |
---|---|---|
Sep. 30, 2016 |
Sep. 30, 2015 |
|
Cash dividends declared on common stock (in Dollars per share) | $ 0.15 | $ 0.15 |
Exercise of stock options, shares | 38,735 | |
Restricted stock and performance units grants, shares | 75,520 | 162,491 |
Additional Paid-in Capital [Member] | ||
Exercise of stock options, shares | 36,135 | 339,334 |
Nature of Operations and Principles of Consolidation |
9 Months Ended |
---|---|
Sep. 30, 2016 | |
Organization, Consolidation and Presentation of Financial Statements [Abstract] | |
Nature of Operations and Principles of Consolidation | Note 1. Nature of Operations and Principles of Consolidation The consolidated financial statements of ConnectOne Bancorp, Inc. (the Parent Corporation) are prepared on an accrual basis and include the accounts of the Parent Corporation and its wholly-owned subsidiary, ConnectOne Bank (the Bank and, collectively with the Parent Corporation and the Parent Corporations other direct and indirect subsidiaries, the Company). All significant intercompany accounts and transactions have been eliminated from the accompanying consolidated financial statements. The Bank is a community-based, full-service New Jersey-chartered commercial bank that was founded in 2005. The Bank operates from its headquarters located at 301 Sylvan Avenue in the Borough of Englewood Cliffs, Bergen County, New Jersey and through its twenty other banking offices. Substantially all loans are secured by specific items of collateral including business assets, consumer assets, and commercial and residential real estate or are expected to be paid from cash flow of business operations. Commercial loans are expected to be repaid from cash flow from business operations. There are no significant concentrations of loans to any one industry or client. However, the clients ability to repay their loans is dependent on the cash flows, real estate and general economic conditions in the area. The preceding unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (GAAP) for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X, and, accordingly, do not include all of the information and footnotes required by GAAP for complete financial statements. However, in the opinion of management, all adjustments (consisting only of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three months ended September 30, 2016 are not necessarily indicative of the results that may be expected for the full year ending December 31, 2016, or for any other interim period. The Companys 2015 Annual Report on Form 10-K should be read in conjunction with these consolidated financial statements. In preparing the consolidated financial statements, management has made estimates and assumptions that affect the reported amounts of assets and liabilities as of the dates of the consolidated statements of condition and that affect the results of operations for the periods presented. Actual results could differ significantly from those estimates. The consolidated financial statements have been prepared in conformity with GAAP. Some items in the prior year consolidated financial statements were reclassified to conform to current presentation. Reclassifications had no effect on prior year net income or stockholders equity. |
New Authoritative Accounting Guidance |
9 Months Ended |
---|---|
Sep. 30, 2016 | |
New Accounting Pronouncements and Changes in Accounting Principles [Abstract] | |
New Authoritative Accounting Guidance | Note 2. New Authoritative Accounting Guidance ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606). ASU 2014-09 implements a common revenue standard that clarifies the principles for recognizing revenue. The core principle of ASU 2014-09 is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. To achieve that core principle, an entity should apply the following steps: (i) identify the contract(s) with a customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenue when (or as) the entity satisfies a performance obligation. ASU 2014-09 was originally going to be effective for us on January 1, 2017; however, the FASB recently issued ASU 2015-14, Revenue from Contracts with Customers (Topic 606) - Deferral of the Effective Date which deferred the effective date of ASU 2014-09 by one year to January 1, 2018. The Company is currently evaluating the potential impact of ASU 2014-09 on its consolidated financial statements. ASU No. 2014-12, Accounting for Share-Based Payments When the Terms of an Award Provide That a Performance Target Could Be Achieved after the Requisite Service Period ("ASU 2014-12"). ASU 2014-12 requires that a performance target that affects vesting, and that could be achieved after the requisite service period, be treated as a performance condition. As such, the performance target should not be reflected in estimating the grant date fair value of the award. This update further clarifies that compensation cost should be recognized in the period in which it becomes probable that the performance target will be achieved and should represent the compensation cost attributable to the period(s) for which the requisite service has already been rendered. The Company adopted ASU 2014-12 effective on January 1, 2016 and its adoption did not have a significant impact on the Companys consolidated financial statements. ASU No. 2015-03, "Interest-Imputation of Interest (Subtopic 835-30) Simplifying the Presentation of Debt Issuance Costs (ASU 2015-13)" requires that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. The recognition and measurement guidance for debt issuance costs are not affected by the amendments in the ASU No. 2015-03. The Company adopted ASU No. 2015-03 effective on January 1, 2016 and its adoption did not have a significant impact on the Companys consolidated financial statements. ASU No. 2015-12, "Plan Accounting: Defined Benefit Pension Plans (Topic 960): Defined Contribution Pension Plans, (Topic 962): Health and Welfare Benefit Plans, (Topic 965): (Part I) Fully Benefit-Responsive Investment Contracts, (Part II) Plan Investment Disclosures, (Part III) Measurement Date Practical Expedient." ASU No. 2015-12 simplifies accounting for employee benefit plans as follows: (i) fully benefit-responsive investment contracts are now to be measured, presented and disclosed at contract value, (ii) the requirement to disclose investments that represent 5 percent or more of net assets available for benefits has been eliminated, (iii) the net appreciation or depreciation in investments for the period should be presented in the aggregate, but is no longer required to be disaggregated and disclosed by general type, (iv) if an investment is measured using the net asset value per share (or its equivalent) practical expedient in Topic 820, and that investment is in a fund that files a U.S. Department of Labor Form 5500, Annual Return/Report of Employee Benefit Plan, as a direct filing entity, disclosure of that investments strategy is no longer required, and (v) allows employers to measure (as a practical expedient) benefit plan assets on a month-end date nearest to the employers fiscal year end when the fiscal period does not coincide with a month end. The Company adopted ASU No. 2015-12 effective on January 1, 2016 and its adoption did not have a significant impact on the Companys consolidated financial statements. ASU No. 2015-15, Interest Imputation of Interest (Subtopic 835-30) Presentation and Subsequent Measurement of Debt Issuance Costs Associated with Line-of-Credit Arrangements. Amendments to SEC Paragraphs Pursuant to Staff Announcement at June 18, 2015 EITF Meeting." ASU 2015-15 adds SEC paragraphs pursuant to an SEC Staff Announcement that given the absence of authoritative guidance within ASU 2015-03 for debt issuance costs related to line-of-credit arrangements, the SEC staff would not object to an entity deferring and presenting debt issuance costs as an asset and subsequently amortizing the deferred debt issuance costs ratably over the term of the line-of-credit arrangement, regardless of whether there are any outstanding borrowings on the line-of-credit arrangement. The adoption of ASU 2015-15 did not have a material impact on the Companys consolidated financial statements. ASU No. 2015-16, Business Combinations (Topic 805) - Simplifying the Accounting for Measurement-Period Adjustments. ASU 2015-16 requires that adjustments to provisional amounts that are identified during the measurement period of a business combination be recognized in the reporting period in which the adjustment amounts are determined. The acquirer must also disclose, by line item, the amount of the adjustment reflected in the current-period income statement that would have been recognized in previous periods if the adjustment to the provision amounts had been recognized as of the acquisition date. Under previous guidance, adjustments to provisional amounts identified during the measurement period are to be recognized retrospectively. The adoption of ASU 2015-16 will impact the accounting for future acquisitions. ASU No. 2016-01, Financial Instruments Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities. ASU 2016-1, among other things; (i) requires equity investments, with certain exceptions, to be measured at fair value with changes in fair value recognized in net income, (ii) simplifies the impairment assessment of equity investments without readily determinable fair values by requiring a qualitative assessment to identify impairment; (iii) eliminates the requirement for public business entities to disclose the methods and significant assumptions used to estimate the fair value that is required to be disclosed for financial instruments measured at amortized cost on the balance sheet; (iv) requires public business entities to use the exit price notion when measuring the fair value of financial instruments for disclosure purposes; (v) requires an entity to present separately in other comprehensive income the portion of the total change in the fair value of a liability resulting from a change in the instrument-specific credit risk when the entity has elected to measure the liability at fair value in accordance with the fair value option for financial instruments; (vi) requires separate presentation of financial assets and financial liabilities by measurement category and form of financial asset on the balance sheet or the accompanying notes to the financial statements; and (vii) clarifies that an entity should evaluate the need for a valuation allowance on a deferred tax asset related to available-for-sale. ASU 2016-1 will be effective for us on January 1, 2018 and we are currently evaluating the potential impact of ASU No. 2016-01 on our consolidated financial statements. ASU No. 2016-02, Leases (Topic 842) requires the recognition of a right of use asset and related lease liability by lessees for leases classified as operating leases under current accounting principles GAAP. Topic 842, which replaces the current guidance under Topic 840, retains a distinction between finance leases and operating leases. The recognition, measurement, and presentation of expenses and cash flows arising from a lease by a lessee also will not significantly change from current GAAP. For leases with a term of 12 months or less, a lessee is permitted to make an accounting policy election by class of underlying asset not to recognize right of use assets and lease liabilities. Topic 842 will be effective for the Company for reporting periods beginning January 1, 2019, with an early adoption permitted. The Company must apply a modified retrospective transition approach for the applicable leases existing at, or entered into after, the beginning of the earliest comparative period presented in the consolidated financial statements. The modified retrospective approach would not require any transition accounting for leases that expired before the earliest comparative period presented. We are currently evaluating the potential impact of ASU 2016-10 on our consolidated financial statements. ASU 2016-09,Compensation - Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting. Under ASU 2016-09 all excess tax benefits and tax deficiencies related to share-based payment awards should be recognized as income tax expense or benefit in the income statement during the period in which they occur. Previously, such amounts were recorded in the pool of excess tax benefits included in additional paid-in capital, if such pool was available. Because excess tax benefits are no longer recognized in additional paid-in capital, the assumed proceeds from applying the treasury stock method when computing earnings per share should exclude the amount of excess tax benefits that would have previously been recognized in additional paid-in capital. Additionally, excess tax benefits should be classified along with other income tax cash flows as an operating activity rather than a financing activity, as was previously the case. ASU 2016-09 also provides that an entity can make an entity-wide accounting policy election to either estimate the number of awards that are expected to vest (current GAAP) or account for forfeitures when they occur. ASU 2016-09 changes the threshold to qualify for equity classification (rather than as a liability) to permit withholding up to the maximum statutory tax rates (rather than the minimum as was previously the case) in the applicable jurisdictions. ASU 2016-09 will be effective on January 1, 2017 and is not expected to have a significant impact on our consolidated financial statements. ASU No. 2016-10,Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing. ASU 2016-10 was issued to clarify ASC Topic 606, Revenue from Contracts with Customers related to (i) identifying performance obligations; and (ii) the licensing implementation guidance. The effective date and transition of ASU 2016-10 is the same as the effective date and transition of ASU 2014-09, Revenue from Contracts with Customers (Topic 606), as discussed above. We are currently evaluating the potential impact of ASU 2016-10 on our consolidated financial statements. ASU No. 2016-12,Revenue from Contracts with Customers (Topic 606): Narrow-Scope Improvements and Practical Expedients. ASU 2016-12 was issued to clarify ASC Topic 606, Revenue from Contracts with Customers and to address narrow-scope improvements to the guidance on collectability, noncash consideration, and completed contracts at transition. Additionally, the amendments in this Update provide a practical expedient for contract modifications at transition and an accounting policy election related to the presentation of sales taxes and other similar taxes collected from customers. The effective date and transition of ASU 2016-12 is the same as the effective date and transition of ASU 2014-09, Revenue from Contracts with Customers (Topic 606), as discussed above. We are currently evaluating the potential impact of ASU 2016-10 on our consolidated financial statements. ASU No. 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments provides guidance on the following eight specific cash flow issues: (1) Debt Prepayment or Debt Extinguishment Costs: Cash payments for debt prepayment or debt extinguishment costs should be classified as cash outflows for financing activities; (2) Settlement of Zero-Coupon Debt Instruments or Other Debt Instruments with Coupon Interest Rates That Are Insignificant in Relation to the Effective Interest Rate of the Borrowing: At the settlement of zero-coupon debt instruments or other debt instruments with coupon interest rates that are insignificant in relation to the effective interest rate of the borrowing, the issuer should classify the portion of the cash payment attributable to the accreted interest related to the debt discount as cash outflows for operating activities, and the portion of the cash payment attributable to the principal as cash outflows for financing activities; (3) Contingent Consideration Payments Made after a Business Combination: Cash payments not made soon after the acquisition date of a business combination by an acquirer to settle a contingent consideration liability should be separated and classified as cash outflows for financing activities and operating activities. Cash payments up to the amount of the contingent consideration liability recognized at the acquisition date (including measurement-period adjustments) should be classified as financing activities; any excess should be classified as operating activities. Cash payments made soon after the acquisition date of a business combination by an acquirer to settle a contingent consideration liability should be classified as cash outflows for investing activities; (4) Proceeds from the Settlement of Insurance Claims: Cash proceeds received from the settlement of insurance claims should be classified on the basis of the related insurance coverage (that is, the nature of the loss). For insurance proceeds that are received in a lump-sum settlement, an entity should determine the classification on the basis of the nature of each loss included in the settlement; (5) Proceeds from the Settlement of Corporate-Owned Life Insurance Policies, including Bank-Owned Life Insurance Policies: Cash proceeds received from the settlement of corporate-owned life insurance policies should be classified as cash inflows from investing activities. The cash payments for premiums on corporate-owned policies may be classified as cash outflows for investing activities, operating activities, or a combination of investing and operating activities; (6) Distributions Received from Equity Method Investees: When a reporting entity applies the equity method, it should make an accounting policy election to classify distributions received from equity method investees using either of the following approaches: a. Cumulative earnings approach: Distributions received are considered returns on investment and classified as cash inflows from operating activities, unless the investors cumulative distributions received less distributions received in prior periods that were determined to be returns of investment exceed cumulative equity in earnings recognized by the investor. When such an excess occurs, the current-period distribution up to this excess should be considered a return of investment and classified as cash inflows from investing activities. b. Nature of the distribution approach: Distributions received should be classified on the basis of the nature of the activity or activities of the investee that generated the distribution as either a return on investment (classified as cash inflows from operating activities) or a return of investment (classified as cash inflows from investing activities) when such information is available to the investor. If an entity elects to apply the nature of the distribution approach and the information to apply that approach to distributions received from an individual equity method investee is not available to the investor, the entity should report a change in accounting principle on a retrospective basis by applying the cumulative earnings approach in (1) for that investee. In such situations, an entity should disclose that a change in accounting principle has occurred with respect to the affected investee(s) due to the lack of available information and should provide the disclosures required in paragraphs 250-10-50-1(b) and 250-10-50-2, as applicable. This amendment does not address equity method investments measured using the fair value option; (7) Beneficial Interests in Securitization Transactions: A transferors beneficial interest obtained in a securitization of financial assets should be disclosed as a non cash activity, and cash receipts from payments on a transferors beneficial interests in securitized trade receivables should be classified as cash inflows from investing activities; (8) Separately Identifiable Cash Flows and Application of the Predominance Principle: The classification of cash receipts and payments that have aspects of more than one class of cash flows should be determined first by applying specific guidance in generally accepted accounting principles (GAAP). In the absence of specific guidance, an entity should determine each separately identifiable source or use within the cash receipts and cash payments on the basis of the nature of the underlying cash flows. An entity should then classify each separately identifiable source or use within the cash receipts and payments on the basis of their nature in financing, investing, or operating activities. In situations in which cash receipts and payments have aspects of more than one class of cash flows and cannot be separated by source or use, the appropriate classification should depend on the activity that is likely to be the predominant source or use of cash flows for the item. The amendments in this Update are effective for public business entities for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. For all other entities, the amendments are effective for fiscal years beginning after December 15, 2018, and interim periods within fiscal years beginning after December 15, 2019. Early adoption is permitted, including adoption in an interim period. If an entity early adopts the amendments in an interim period, any adjustments should be reflected as of the beginning of the fiscal year that includes that interim period. An entity that elects early adoption must adopt all of the amendments in the same period. The amendments in this Update should be applied using a retrospective transition method to each period presented. If it is impracticable to apply the amendments retrospectively for some of the issues, the amendments for those issues would be applied prospectively as of the earliest date practicable. The Company is currently evaluating this ASU to determine the impact on its consolidated financial position, results of operations and cash flows. ASU No. 2016-13, Financial Instruments Credit Losses (Topic 326): Assets Measured at Amortized Cost. ASU 2016-13 requires a financial asset (or a group of financial assets) measured at amortized cost basis to be presented at the net amount expected to be collected. The allowance for credit losses is a valuation account that is deducted from the amortized cost basis of the financial asset(s) to present the net carrying value at the amount expected to be collected on the financial asset. The income statement reflects the measurement of credit losses for newly recognized financial assets, as well as the expected increases or decreases of expected credit losses that have taken place during the period. The measurement of expected credit losses is based on relevant information about past events, including historical experience, current conditions, and reasonable and supportable forecasts that affect the collectability of the reported amount. An entity must use judgment in determining the relevant information and estimation methods that are appropriate in its circumstances. The allowance for credit losses for purchased financial assets with a more-than insignificant amount of credit deterioration since origination (PCD assets) that are measured at amortized cost basis is determined in a similar manner to other financial assets measured at amortized cost basis; however, the initial allowance for credit losses is added to the purchase price rather than being reported as a credit loss expense. Only subsequent changes in the allowance for credit losses are recorded as a credit loss expense for these assets. Interest income for PCD assets should be recognized based on the effective interest rate, excluding the discount embedded in the purchase price that is attributable to the acquirer assessment of credit losses at acquisition. Available-for-Sale Debt SecuritiesCredit losses relating to available-for-sale debt securities should be recorded through an allowance for credit losses. Available-for-sale accounting recognizes that value may be realized either through collection of contractual cash flows or through sale of the security. Therefore, the amendments limit the amount of the allowance for credit losses to the amount by which fair value is below amortized cost because the classification as available for sale is premised on an investment strategy that recognizes that the investment could be sold at fair value, if cash collection would result in the realization of an amount less than fair value. The allowance for credit losses for purchased available-for-sale securities with a more-than-insignificant amount of credit deterioration since origination is determined in a similar manner to other available-for-sale debt securities; however, the initial allowance for credit losses is added to the purchase price rather than reported as a credit loss expense. Only subsequent changes in the allowance for credit losses are recorded in credit loss expense. Interest income should be recognized based on the effective interest rate, excluding the discount embedded in the purchase price that is attributable to the acquirers assessment of credit losses at acquisition. For public business entities that are U.S. Securities and Exchange Commission (SEC) filers, the amendments in this Update are effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. For all other public business entities, the amendments in this Update are effective for fiscal years beginning after December 15, 2020, including interim periods within those fiscal years. We are currently evaluating the potential impact of ASU 2016-10 on our consolidated financial statements. |
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Earnings per Common Share | Note 3. Earnings per Common Share Basic earnings per common share (EPS) is computed by dividing income available to common stockholders by the weighted average number of common shares outstanding. Diluted EPS includes any additional common shares as if all potentially dilutive common shares were issued (e.g., stock options). The Companys weighted average common shares outstanding for diluted EPS include the effect of stock options and restricted stock awards outstanding using the Treasury Stock Method, which are not included in the calculation of basic EPS. Earnings per common share have been computed as follows:
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Investment Securities |
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Investments, Debt and Equity Securities [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Investment Securities | Note 4. Investment Securities The Companys investment securities are classified as available-for-sale at September 30, 2016 and as available-for-sale and held-to-maturity at December 31, 2015. Investment securities available-for-sale are reported at fair value with unrealized gains or losses included in equity, net of tax. Accordingly, the carrying value of such securities reflects their fair value as of September 30, 2016 and December 31, 2015. Fair value is based upon either quoted market prices, or in certain cases where there is limited activity in the market for a particular instrument, assumptions are made to determine their fair value. See Note 7 of the Notes to Consolidated Financial Statements for a further discussion. Transfers of debt securities from the available-for-sale category to the held-to-maturity category are made at fair value at the date of transfer. The unrealized holding gain or loss at the date of transfer remains in accumulated other comprehensive income and in the carrying value of the held-to-maturity investment security. Premiums or discounts on investment securities are amortized or accreted using the effective interest method over the life of the security as an adjustment of yield. Unrealized holding gains or losses that remain in accumulated other comprehensive income are amortized or accreted over the remaining life of the security as an adjustment of yield, offsetting the related amortization of the premium or accretion of the discount. Transfers of debt securities from the held-to-maturity category to the available-for-sale category are made at fair value at the date of transfer. The unrealized holding gain or loss at the date of the transfer shall be recognized in accumulated other comprehensive income, net of applicable taxes. During the quarter ended September 30, 2016 the Company transferred all securities previously categorized as held-to-maturity to available-for-sale classification. The transfer resulted in an increase of approximately $210 million in amortized cost basis of available-for-sale securities and resulted in a net increase to accumulated other comprehensive income of $7.4 million, net of tax. This transfer will enhance liquidity and increase flexibility with regard to asset-liability management and balance sheet composition. The following tables present information related to the Companys investment securities at September 30, 2016 and December 31, 2015 (dollars in thousands):
The following table presents information for investment securities at September 30, 2016, based on scheduled maturities. Actual maturities can be expected to differ from scheduled maturities due to prepayment or early call options of the issuer.
Gross gains and losses from the sales, calls and maturities of investment securities for the three-month and nine-month periods ended September 30, 2016 and 2015 were as follows:
The Company performs regular analysis on the available-for-sale securities portfolio to determine whether a decline in fair value indicates that an investment is other-than-temporarily impaired in accordance with FASB ASC 320-10. FASB ASC 320-10 requires companies to record other-than-temporary impairment (OTTI) charges through earnings if they have the intent to sell, or more likely than not will be required to sell, an impaired debt security before recovery of its amortized cost basis. If the Company intends to sell or it is more likely than not it will be required to sell the security before recovery of its amortized cost basis, less any current period credit loss, the OTTI is recognized in earnings equal to the entire difference between the investments amortized cost basis and its estimated fair value at the balance sheet date. If the Company does not intend to sell the security and it is more likely than not that the entity will be required to sell the security before recovery of its amortized cost basis less any current period loss, and as such, it determines that a decline in fair value is other-than-temporary, the OTTI is separated into the amount representing the credit loss and the amount related to all other factors. The amount of the OTTI related to the credit loss is determined based on the present value of cash flows expected to be collected and is recognized in earnings. The amount of the total OTTI related to other factors is recognized in other comprehensive income, net of applicable taxes. The previous amortized cost basis less the OTTI recognized in earnings becomes the new amortized cost basis of the investment. The Company reviews all securities for potential recognition of other-than-temporary impairment. The Company maintains a watch list for the identification and monitoring of securities experiencing problems that require a heightened level of review. This could include credit rating downgrades. The Companys assessment of whether an impairment in the portfolio is other-than temporary includes factors such as whether the issuer has defaulted on scheduled payments, announced restructuring and/or filed for bankruptcy, has disclosed severe liquidity problems that cannot be resolved, disclosed deteriorating financial condition or sustained significant losses. Temporarily Impaired Investments The Company does not believe that any of the unrealized losses which were comprised of 36 and 74 investment securities as of September 30, 2016 and December 31, 2015, respectively, represent an other-than-temporary impairment. The gross unrealized losses associated with U.S. Treasury and agency securities, federal agency obligations, mortgage-backed securities, corporate bonds, tax-exempt securities, asset-backed securities, trust preferred securities, mutual funds and equity securities are not considered to be other-than-temporary because these unrealized losses are related to changes in interest rates and do not affect the expected cash flows of the underlying collateral or issuer. Factors which may contribute to unrealized losses include credit risk, market risk, changes in interest rates, economic cycles, and liquidity risk. The magnitude of any unrealized loss may be affected by the relative concentration of the Companys investment in any one issuer or industry. The Company has established policies to reduce exposure through diversification of the investment portfolio including limits on concentrations to any one issuer. The Company believes the investment portfolio is prudently diversified. The unrealized losses included in the tables below are primarily related to changes in interest rates and credit spreads. All of the Companys investment securities are performing and are expected to continue to perform in accordance with their respective contractual terms and conditions. These are largely intermediate duration holdings and, in certain cases, monthly principal payments can further reduce loss exposure resulting from an increase in rates. The Company evaluates all securities with unrealized losses quarterly to determine whether the loss is other-than-temporary. Unrealized losses in the corporate debt securities category consist primarily of senior unsecured corporate debt securities issued by large financial institutions, insurance companies and other corporate issuers. Single issuer corporate trust preferred securities are also included, and in the case of one holding the market valuation loss is largely based upon the floating rate coupon and corresponding market valuation. Neither that trust preferred issuer, nor any other corporate issuers, have defaulted on interest payments. The unrealized loss in equity securities consists of losses on other bank equities. The decline in fair value is due in large part to the lack of an active trading market for these securities, changes in market credit spreads and rating agency downgrades. Management concluded that these securities were not other-than-temporarily impaired at September 30, 2016. In determining whether or not securities are OTTI, the Company must exercise considerable judgment. Accordingly, there can be no assurance that the actual results will not differ from the Companys judgments and that such differences may not require the future recognition of other-than-temporary impairment charges that could have a material effect on the Companys financial position and results of operations. In addition, the value of, and the realization of any loss on, an investment security is subject to numerous risks as cited above. The following tables indicate gross unrealized losses not recognized in income and fair value, aggregated by investment category and the length of time individual securities have been in a continuous unrealized loss position at September 30, 2016 and December 31, 2015:
Investment securities having a carrying value of approximately $104.2 million and $142.5 million at September 30, 2016 and December 31, 2015, respectively, were pledged to secure public deposits, borrowings, Federal Reserve Discount Window and Federal Home Loan Bank advances and for other purposes required or permitted by law. As of September 30, 2016 and December 31, 2015, there were no holdings of securities of any one issuer, other than the U.S. Government and its agencies, in an amount greater than 10% of stockholders equity. |
Derivatives |
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Derivatives | Note 5 - Derivatives The Company utilizes interest rate swap agreements as part of its asset liability management strategy to help manage its interest rate risk position. The notional amount of the interest rate swap does not represent amounts exchanged by the parties. The amount exchanged is determined by reference to the notional amount and the other terms of the individual interest rate swap agreements. Interest rate swaps were entered into on August 24, 2015, December 30, 2014 and October 15, 2014 each with a respective notional amount of $25 million and were designated as cash flow hedges of a Federal Home Loan Bank advance. The swaps were determined to be fully effective during the period presented and therefore no amount of ineffectiveness has been included in net income while the aggregate fair value of the swaps is recorded in other assets (liabilities) with changes in fair value recorded in other comprehensive income (loss). The amount included in accumulated other comprehensive income (loss) would be reclassified to current earnings should the hedges no longer be considered effective. The Company expects the hedges to remain fully effective during the remaining term of the swaps. Summary information about the interest rate swaps designated as cash flow hedges as of September 30, 2016, December 31, 2015 and September 30, 2015 are presented in the following table.
Interest expense recorded on these swap transactions totaled approximately $167,000 and $534,000 for the three and nine months ended September 30, 2016 and approximately $165,000 and $331,000 for the three and nine months ended September 30, 2015. Cash Flow Hedge The following table presents the net gains (losses), recorded in other comprehensive income and the Consolidated Statements of Income relating to the cash flow derivative instruments for the following periods:
The following table reflects the cash flow hedges included in the consolidated statements of condition as of September 30, 2016 and December 31, 2015:
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Loans and the Allowance for Loan and Lease Losses |
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Loans and the Allowance for Loan and Lease Losses | Note 6. Loans and the Allowance for Loan and Lease Losses Loans that management has the intent and ability to hold for the foreseeable future or until maturity or payoff are reported at the principal balance outstanding, net of deferred loan fees and costs, premiums and discounts related to purchase accounting, and an allowance for loan and lease losses. Interest income is accrued on the unpaid principal balance. Loan origination fees, net of certain direct origination costs, are deferred and recognized in interest income using the level-yield method without anticipating prepayments. Loan segments are defined as a group of loans and leases, which share similar initial measurement attributes, risk characteristics, and methods for monitoring and assessing credit risk. Management has determined that the Company has five segments of loans and leases: commercial (including lease financing), commercial real estate, commercial construction, residential real estate (including home equity) and consumer. Interest income on commercial, commercial real estate, commercial construction and residential loans are discontinued at the time the loan is 90 days delinquent unless the loan is well-secured and in process of collection. Past due status is based on the contractual terms of the loan. In all cases, loans are placed on nonaccrual or charged-off at an earlier date if collection of principal or interest is considered doubtful. Nonaccrual loans and loans past due 90 days still on accrual include both smaller balance homogeneous loans that are collectively evaluated for impairment and individually classified impaired loans. A loan is moved to nonaccrual status in accordance with the Companys policy, typically after 90 days of non-payment. All interest accrued but not received for loans placed on nonaccrual is reversed against interest income. Interest received on such loans is accounted for on the cash-basis or cost-recovery method, until qualifying for return to accrual. Loans are returned to accrual status when all the principal and interest amounts contractually due are brought current and future payments are reasonably assured. The policy of the Company is to generally grant commercial, residential and consumer loans to residents and businesses within its market area. The borrowers abilities to repay their obligations are dependent upon various factors including the borrowers income and net worth, cash flows generated by the borrowers underlying collateral, value of the underlying collateral, and priority of the lenders lien on the property. Such factors are dependent upon various economic conditions and individual circumstances beyond the control of the Company. The Company is therefore subject to risk of loss. The Company believes its lending policies and procedures adequately minimize the potential exposure to such risks and that adequate provisions for loan and lease losses are provided for all known and inherent risks. Collateral and/or personal guarantees are required for a large majority of the Companys loans. Allowance for Loan and Lease Losses The allowance for loan and lease losses is a valuation allowance for probable incurred credit losses. Losses are charged against the allowance when management believes the uncollectibility of a loan balance is confirmed. Subsequent recoveries, if any, are credited to the allowance. Management estimates the allowance balance required using past loan and lease loss experience, the nature and volume of the portfolio, information about specific borrower situations and estimated collateral values, economic conditions, and other factors. Allocations of the allowance may be made for specific loans, but the entire allowance is available for any loan that, in managements judgment, should be charged off. The allowance consists of specific and general components. The specific component relates to loans that are individually classified as impaired. A loan is impaired when, based on current information and events, it is probable that the Company will be unable to collect all amounts due according to the contractual terms of the loan agreement. Loans, for which the terms have been modified, and for which the borrower is experiencing financial difficulties, are considered troubled debt restructurings (TDRs) and classified as impaired. As part of the evaluation of impaired loans, the Company individually reviews for impairment all non-homogeneous loans internally classified as substandard or below. Generally, smaller impaired non-homogeneous loans and impaired homogeneous loans are collectively evaluated for impairment. Factors considered by management in determining impairment include payment status, collateral value, and the probability of collecting scheduled principal and interest payments when due. Loans that experience insignificant payment delays and payment shortfalls generally are not classified as impaired. Management determines the significance of payment delays and payment shortfalls on a case-by-case basis, taking into consideration all of the circumstances surrounding the loan and the borrower, including the length of the delay, the reasons for the delay, the borrowers prior payment record, and the amount of the shortfall in relation to the principal and interest owed. TDRs are separately identified for impairment disclosures and are measured at the present value of estimated future cash flows using the loans effective rate at inception. If a TDR is considered to be a collateral dependent loan, the loan is reported, net, at the fair value of the collateral. For TDRs that subsequently default, the Company determines the amount of reserve in accordance with the accounting policy for the allowance for loan and lease losses. The general component covers non-impaired loans and is based on historical loss experience adjusted for current factors. The historical loss experience, the primary factor, is determined by loan class and is based on the actual loss history experienced by the Bank over an actual three-year rolling calculation. This actual loss experience is supplemented with other economic factors based on the risks present for each portfolio segment and with the exogenous factor adjustments based on the risks present for each loan category. These exogenous factors include consideration of the following: concentrations of credit; delinquency & nonaccrual trends; economic & business conditions including evaluation of the national and regional economies and industries with significant loan concentrations; external factors including legal, regulatory or competitive pressures that may impact the loan portfolio; changes in the experience, ability, or size of the lending staff, management, or board of directors that may impact the loan portfolio; changes in underwriting standards, collection procedures, charge-off practices, or other changes in lending policies and procedures that may impact the loan portfolio; loss and recovery trends; changes in portfolio size and mix; and trends in problem loans. Purchased Credit-Impaired Loans The Company purchases groups of loans in conjunction with mergers, some of which have shown evidence of credit deterioration since origination. These purchased credit impaired loans are recorded at the amount paid, such that there is no carryover of the sellers allowance for loan and lease losses. After acquisition, losses are recognized by an increase in the allowance for loan and lease losses. Such purchased credit-impaired loans (PCI) are accounted for individually. The Company estimates the amount and timing of expected cash flows for each loan and the expected cash flows in excess of amount paid is recorded as interest income over the remaining life of the loan (accretable yield). The excess of the loans contractual principal and interest over expected cash flows is not recorded (nonaccretable difference). A PCI loan may be resolved either through a sale of the loan, by working with the customer and obtaining partial or full repayment, by short sale of the collateral, or by foreclosure. A gain or loss on resolution would be recognized based on the difference between the proceeds received and the carrying amount of the loan. Payments received earlier than expected or in excess of expected cash flows from sales or other resolutions may result in the carrying value of a pool being reduced to zero even though outstanding contractual balances and expected cash flows remain related to loans in the pool. Once the carrying value of a pool is reduced to zero, any future proceeds, which may include cash or real estate acquired in foreclosure, from the remaining loans, representing further realization of accretable yield, are recognized as interest income upon receipt. PCI loans that met the criteria for nonaccrual may be considered performing, regardless of whether the customer is contractually delinquent, if management can reasonably estimate the timing and amount of the expected cash flows on such loans and if management expects to fully collect the new carrying value of the loans. As such, management may no longer consider the loans to be nonaccrual or nonperforming and may accrue interest on these loans, including the impact of any accretable discount. The following table sets forth the composition of the Companys loan portfolio, including net deferred loan fees, at September 30, 2016 and December 31, 2015:
As of September 30, 2016, the bank designated approximately $15.1 million as loans held-for-sale. This designation occurred during the third quarter of 2016 and consisted of approximately $1.6 million of mortgage loans and approximately $13.5 million of commercial and commercial real estate loans. At September 30, 2016 and December 31, 2015 loan balances of approximately $1.6 billion were pledged to secure borrowings from the Federal Home Loan Bank of New York. Purchased Credit-Impaired Loans The Company holds purchased loans for which there was, at their acquisition date, evidence of deterioration of credit quality since their origination and it was probable, at acquisition, that all contractually required payments would not be collected. The carrying amount of those loans is as follows at September 30, 2016 and December 31, 2015.
For those purchased loans disclosed above, the Company did not increase the allowance for loan and lease losses for the three and nine months ended September 30, 2016. The accretable yield, or income expected to be collected, on the purchased loans disclosed above for the three and nine months ended September 30, 2016 is as follows (in thousands):
The following table presents information about the recorded investment in loan receivables on nonaccrual status by segment at September 30, 2016 and December 31, 2015: Loans Receivable on Nonaccrual Status
During the quarter ended September 30, 2016, the bank sold a lease financing receivable for approximately $2.6 million, net of closing costs. At the time of sale, the recorded investment of the lease financing receivable was $3.7 million, with a specific allowance for loan loss reserve of $1.3 million. The amount of net proceeds that exceeded the net carrying value was recorded as an increase to the allowance for loan losses. The Company continuously monitors the credit quality of its loans receivable. In addition to its internal staff, the Company utilizes the services of a third party loan review firm to rate the credit quality of its loans receivable. Credit quality is monitored by reviewing certain credit quality indicators. Assets classified Pass are deemed to possess average to superior credit quality, requiring no more than normal attention. Assets classified as Special Mention have generally acceptable credit quality yet possess higher risk characteristics/circumstances than satisfactory assets. Such conditions include strained liquidity, slow pay, stale financial statements, or other conditions that require more stringent attention from the lending staff. These conditions, if not corrected, may weaken the loan quality or inadequately protect the Companys credit position at some future date. Assets are classified Substandard if the asset has a well-defined weakness that requires managements attention to a greater degree than for loans classified special mention. Such weakness, if left uncorrected, could possibly result in the compromised ability of the loan to perform to contractual requirements. An asset is classified as Doubtful if it is inadequately protected by the net worth and/or paying capacity of the obligor or of the collateral, if any, that secures the obligation. Assets classified as doubtful include assets for which there is a distinct possibility that a degree of loss will occur if the inadequacies are not corrected. The following table presents information, excluding loans held-for-sale and net deferred loan fees, about the Companys loan credit quality at September 30, 2016 and December 31, 2015:
The following table provides an analysis of the impaired loans, by loan segment, at September 30, 2016 and December 31, 2015:
The following table provides an analysis related to the average recorded investment and interest income recognized on impaired loans by segment as of and for the three and nine months ended September 30, 2016 and 2015 (in thousands):
Included in impaired loans at September 30, 2016 and December 31, 2015 are loans that are deemed troubled debt restructurings. The recorded investment in loans include accrued interest receivable and other capitalized costs such as real estate taxes paid on behalf of the borrower. Cash basis interest and interest income recognized on accrual basis approximate each other. The following table provides an analysis of the aging of gross loans (excluding loans held-for-sale) that are past due at September 30, 2016 and December 31, 2015 by segment: Aging Analysis
Included in the 90 days and still accruing/accreting bucket are three purchased credit-impaired loans, net of their fair value marks, which are accreting income per their valuation at date of acquisition. The following tables detail, at the period-end presented, the amount of gross loans (excluding loans held-for-sale) that are evaluated individually, and collectively, for impairment, those acquired with deteriorated quality, and the related portion of the allowance for loan and lease losses that are allocated to each loan portfolio segment:
The Companys allowance for loan and lease losses is analyzed quarterly. Many factors are considered, including growth in the portfolio, delinquencies, nonaccrual loan levels, and other factors inherent in the extension of credit. There have been no material changes to the allowance for loan and lease losses methodology as disclosed in the Companys Annual Report on Form 10-K for the year ended December 31, 2015. A summary of the activity in the allowance for loan and lease losses is as follows:
Troubled Debt Restructurings At September 30, 2016, there were no commitments to lend additional funds to borrowers whose loans were on nonaccrual status or were contractually past due in excess of 90 days and still accruing interest, or whose terms have been modified in troubled debt restructurings. The policy of the Company generally is to grant commercial, mortgage and consumer loans to residents and businesses within its market area. The ability of borrowers to repay their obligations is dependent upon various factors, including the borrowers income and net worth, cash flows generated by the borrowers underlying collateral, value of the underlying collateral, and priority of the lenders lien on the property. Such factors are dependent upon various economic conditions and individual circumstances beyond the control of the Company. The Company is therefore subject to risk of loss. The Company believes its lending policies and procedures adequately minimize the potential exposure to such risks and that adequate provisions for loan and lease losses are provided for all known and inherent risks. Collateral and/or personal guarantees are required for virtually all loans. A loan is considered to be in payment default once it is 90 days contractually past due under the modified terms. Loans modified in troubled debt restructurings totaled $106.7 million at September 30, 2016, of which $1.4 million were on nonaccrual status and $105.3 million were performing under restructured terms. At December 31, 2015, loans modified in troubled debt restructurings totaled $86.6 million, of which $0.7 million were on nonaccrual status and $85.9 million were performing under restructured terms. The Company has allocated $12.5 and $4.5 million in specific allocations with respect to loans whose loan terms had been modified in troubled debt restructurings as of September 30, 2016 and December 31, 2015, respectively. Performing TDRs as of September 30, 2016 increased the allowance for loan and lease losses by $5.0 and $8.3 million during the three and nine months ended September 30, 2016, respectively. Performing TDRs as of December 31, 2015 did not increase the allowance for loan and lease losses during the year ended December 31, 2015. The $12.5 million in specific allocations referenced above were associated with New York City taxi medallion lending and were calculated based on the present value of estimated cash flows, including contractual debt interest service through maturity, and principal repayments based on the estimated fair value of the collateral excluding any consideration for personal guarantees of borrowers, which provide an additional source of repayment but cannot be relied upon. The valuation per New York City corporate medallion used for the calculation at September 30, 2016 was approximately $700,000. Since December 31, 2015, an additional $8.3 million specific allocation was required at September 30, 2016 due to a decline in the Companys estimated valuation of New York City taxi medallions since December 31, 2015, when the specific allocation was $4.5 million. The following table presents loans by class modified as troubled debt restructurings that occurred during the nine months ended September 30, 2016 (dollars in thousands):
Included in the above troubled debt restructurings were 14 loans secured by 25 New York City taxi medallions totaling $17.3 million. These loan modifications included interest rate reductions and maturity extensions. All 14 loans were accruing prior to modification, while 13 remained in accrual status post-modification. The troubled debt restructurings described above increased the allowance for loan and leases losses by $8.3 million during the nine months ended September 30, 2016. There were no charge-offs in connection with a loan modification at the time of modification during the nine months ended September 30, 2016. There were no troubled debt restructurings for which there was a payment default within twelve months following the modification during the nine months ended September 30, 2016. The following table presents loans by class modified as troubled debt restructurings that occurred during the nine months ended September 30, 2015 (dollars in thousands):
The troubled debt restructurings included in the table above were loans secured by New York City taxi medallions that were modified during the third quarter of 2015. The modifications consisted of a deferral of principal amortization from approximately 25-30 year amortization to interest-only. There was no extension of the loans contractual maturity dates, there was no forgiveness of principal, and the interest rates on these loans were increased from approximately 3%-3.25% to 3.75%. These loans were accruing prior to modification and remained in accrual status post-modification. The troubled debt restructurings described above increased the allowance for loan and lease losses by $2.0 million during the nine months ended September 30, 2015. There were no charge-offs in connection with a loan modification at the time of modification during the nine months ended September 30, 2015. There were no troubled debt restructurings for which there was a payment default within twelve months following the modification during the nine months ended September 30, 2015. |
Fair Value Measurements and Fair Value of Financial Instruments |
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Fair Value Disclosures [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Fair Value Measurements and Fair Value of Financial Instruments | Note 7 - Fair Value Measurements and Fair Value of Financial Instruments Fair value is the exchange price that would be received for an asset or paid to transfer a liability (exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. There are three levels of inputs that may be used to measure fair value: FASB ASC 820-10-05 defines fair value, establishes a framework for measuring fair value, establishes a three-level valuation hierarchy for disclosure of fair value measurements and enhances disclosure requirements for fair value measurements. The valuation hierarchy is based upon the transparency of inputs to the valuation of an asset or liability as of the measurement date. FASB ASC 820-10-65 provides additional guidance for estimating fair value in accordance with FASB ASC 820-10-05 when the volume and level of activity for the asset or liability have significantly decreased. This ASC also includes guidance on identifying circumstances that indicate a transaction is not orderly. FASB ASC 820-10-05 establishes a fair value hierarchy that prioritizes the inputs to valuation methods used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). The three levels of the fair value hierarchy under FASB ASC 820-10-05 are as follows: Level 1: Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities. Level 2: Quoted prices for similar assets and liabilities in active markets, and inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument. Level 3: Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (for example, supported with little or no market activity). An assets or liabilitys level within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement. The following information should not be interpreted as an estimate of the fair value of the entire Company since a fair value calculation is only provided for a limited portion of the Companys assets and liabilities. Due to a wide range of valuation techniques and the degree of subjectivity used in making the estimates, comparisons between the Companys disclosures and those of other companies may not be meaningful. The following methods and assumptions were used to estimate the fair values of the Companys assets measured at fair value on a recurring basis at September 30, 2016 and December 31, 2015: Securities Available-for-Sale Where quoted prices are available in an active market, securities are classified within Level 1 of the valuation hierarchy. Level 1 inputs include securities that have quoted prices in active markets for identical assets. If quoted market prices are not available, then fair values are estimated by using pricing models, quoted prices of securities with similar characteristics, or discounted cash flows. Examples of instruments, which would generally be classified within Level 2 of the valuation hierarchy include municipal bonds and certain agency collateralized mortgage obligations. In certain cases where there is limited activity in the market for a particular instrument, assumptions must be made to determine the fair value of the instruments and these are classified as Level 3. When measuring fair value, the valuation techniques available under the market approach, income approach and/or cost approach are used. The Companys evaluations are based on market data and the Company employs combinations of these approaches for its valuation methods depending on the asset class. Derivatives The fair value of derivatives are based on valuation models using observable market data as of the measurement date (level 2). Our derivatives are traded in an over-the-counter market where quoted market prices are not always available. Therefore, the fair values of derivatives are determined using quantitative models that utilize multiple market inputs. The inputs will vary based on the type of derivative, but could include interest rates, prices and indices to generate continuous yield or pricing curves, prepayment rate, and volatility factors to value the position. The majority of market inputs are actively quoted and can be validated through external sources, including brokers, market transactions and third-party pricing services. Loans Held-for-sale Loans held-for-sale are required to be measured at the lower of cost or fair value. Under FASB ASC 820-10-05, market value is to represent fair value. Management obtains quotes or bids on all or part of these loans directly from the purchasing financial institutions. Loans Receivable The fair value of performing loans, except residential mortgages, is calculated by discounting scheduled cash flows through the estimated maturity using estimated market discount rates that reflect the credit and interest rate risks inherent in the loan. The estimate of maturity is based on the historical experience of the Bank with prepayments for each loan classification, modified as required by an estimate of the effect of current economic and lending conditions. For performing residential mortgage loans, fair value is estimated by discounting contractual cash flows adjusted for prepayment estimates using discount rates based on secondary market sources adjusted to reflect differences in servicing and credit costs. Off-Balance Sheet Financial Instruments The fair value of commitments to extend credit is estimated using the fees currently charged to enter into similar agreements, taking into account the remaining terms of the agreements and the present creditworthiness of the counterparties. For fixed rate loan commitments, fair value also considers the difference between current levels of interest rate and the committed rates. The fair value of financial standby letters of credit is based on fees currently charged for similar agreements or on the estimated cost to terminate them or otherwise settle the obligations with the counterparties. Assets and Liabilities Measured at Fair Value on a Recurring Basis For financial assets and liabilities measured at fair value on a recurring basis, the fair value measurements by level within the fair value hierarchy used at September 30, 2016 and December 31, 2015 are as follows:
There were no transfers between Level 1, Level 2 and Level 3 during the three months ended September 30, 2016.
There were no transfers between Level 1, Level 2 and Level 3 during the year ended December 31, 2015. Assets Measured at Fair Value on a Non-Recurring Basis The Company may be required periodically to measure certain assets at fair value on a nonrecurring basis in accordance with GAAP. These adjustments to fair value usually result from the application of lower of cost or fair value accounting or impairment write-downs of individual assets. The Company primarily utilized appraisal value less cost to sell and other unobservable market inputs to determine fair value of assets, and therefore, these valuations are classified as a Level 3 measurement. For assets measured at fair value on a non-recurring basis, the fair value measurements at September 30, 2016 and December 31, 2015 are as follows:
The following methods and assumptions were used to estimate the fair values of the Companys assets measured at fair value on a non-recurring basis at September 30, 2016 and December 31, 2015. Impaired loans. The value of the impaired loans above were measured based upon the fair value of the collateral of the loans. Smaller balance homogeneous loans that are collectively evaluated for impairment, such as residential mortgage loans and consumer loans, are specifically excluded from the impaired loan portfolio. Collateral dependent impaired loans are individually assessed to determine that each loans carrying value is not in excess of the fair value of the related collateral. Collateral dependent impaired loans at September 30, 2016 that required a valuation allowance were $0.9 million with a related valuation allowance of $0.5 million compared to $6.0 million with a related valuation allowance of $2.2 million at December 31, 2015. Fair Value of Financial Instruments FASB ASC 825-10 requires all entities to disclose the estimated fair value of their financial instrument assets and liabilities. For the Company, as for most financial institutions, the majority of its assets and liabilities are considered financial instruments as defined in FASB ASC 825-10. Many of the Companys financial instruments, however, lack an available trading market as characterized by a willing buyer and willing seller engaging in an exchange transaction. It is also the Companys general practice and intent to hold its financial instruments to maturity and not to engage in trading or sales activities except for loans held-for-sale and investment securities available-for-sale. Therefore, significant estimations and assumptions, as well as present value calculations, were used by the Company for the purposes of this disclosure. Cash and cash equivalents. The carrying amounts of cash and short-term instruments approximate fair values. FHLB stock. It is not practical to determine the fair value of FHLB stock due to restrictions placed on its transferability. Investment Securities Held-to-Maturity. The fair value of the Companys investment securities held-to-maturity was primarily measured using information from a third-party pricing service. If quoted prices were not available, fair values were estimated primarily by obtaining quoted prices for similar assets in active markets or through the use of pricing models. In cases where there may be limited or less transparent information provided by the Companys third-party pricing service, fair value may be estimated by the use of secondary pricing services or through the use of non-binding third-party broker quotes. Loans. The fair value of the Companys loans was estimated by discounting the expected future cash flows using the current interest rates at which similar loans would be made to borrowers with similar credit ratings and for the same remaining maturities. Loans were segregated by types such as commercial, residential and consumer loans. Expected future cash flows were projected based on contractual cash flows, adjusted for estimated prepayments. The methods utilized to estimate the fair value of loans do not necessarily represent an exit price and therefore, while permissible for presentation purposes under ASC 825-10, do not conform to ASC 820-10. Interest-Bearing Deposits. The fair values of the Companys interest-bearing deposits were estimated using discounted cash flow analyses. The discounted rates used were based on rates currently offered for deposits with similar remaining maturities. The fair values of the Companys interest-bearing deposits do not take into consideration the value of the Companys long-term relationships with depositors, which may have significant value. Term Borrowings and Subordinated Debentures. The fair value of the Companys long-term borrowings and subordinated debentures were calculated using a discounted cash flow approach and applying discount rates currently offered based on weighted remaining maturities. Accrued Interest Receivable/Payable. The carrying amounts of accrued interest approximate fair value resulting in a level 2 or level 3 classification based on the level of the asset or liability with which the accrual is associated. The following presents the carrying amount, fair value, and placement in the fair value hierarchy of the Companys financial instruments as of September 30, 2016 and December 31, 2015.
The fair value of commitments to originate loans is estimated using the fees currently charged to enter into similar agreements, taking into account the remaining terms of the agreements and the present creditworthiness of the counterparties. For fixed-rate loan commitments, fair value also considers the difference between current levels of interest rates and the committed rates. The fair values of letters of credit and lines of credit are based on fees currently charged for similar agreements or on the estimated cost to terminate or otherwise settle the obligations with the counterparties at the reporting date. Changes in assumptions or estimation methodologies may have a material effect on these estimated fair values. The Companys remaining assets and liabilities, which are not considered financial instruments, have not been valued differently than has been customary with historical cost accounting. No disclosure of the relationship value of the Companys core deposit base is required by FASB ASC 825-10. Fair value estimates are based on existing balance sheet financial instruments, without attempting to estimate the value of anticipated future business and the value of assets and liabilities that are not considered financial instruments. For example, there are certain significant assets and liabilities that are not considered financial assets or liabilities, deferred taxes, premises and equipment, and goodwill. In addition, the tax ramifications related to the realization of the unrealized gains and losses can have a significant effect on fair value estimates and have not been considered in the estimates. Management believes that reasonable comparability between financial institutions may not be likely, due to the wide range of permitted valuation techniques and numerous estimates which must be made, given the absence of active secondary markets for many of the financial instruments. This lack of uniform valuation methodologies also introduces a greater degree of subjectivity to these estimated fair values. |
Accumulated Other Comprehensive Income/(Loss) |
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Accumulated Other Comprehensive Income (Loss), Net of Tax [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Accumulated Other Comprehensive Income/(Loss) | Note 8. Accumulated Other Comprehensive Income/(Loss) Accumulated other comprehensive loss (net of tax) at September 30, 2016 and December 31, 2015 consisted of the following:
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Stock-Based Compensation |
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Disclosure of Compensation Related Costs, Share-based Payments [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Stock-Based Compensation | Note 9. Stock-Based Compensation The Company maintains two stock-based compensation plans from which new grants could be issued. The Companys stock-based compensation plans permit Parent Corporation common stock to be issued to key employees and directors of the Company and its subsidiaries. Grants under the existing plans can be in the form of stock options (qualified or non-qualified), restricted shares, or performance units. Shares available for grant and issuance under the existing plans as of September 30, 2016 are 68,516 under the 2009 Equity Incentive Plan and 234,090 shares under the North Jersey Community Bancorp Equity Compensation Plan. The Company intends to issue all shares under these plans in the form of newly issued shares. Restricted stock and option awards typically have a three-year vesting period starting one year after the date of grant with one-third vesting each year. The options generally expire ten years from the date of grant. Restricted stock awards granted to new employees and board members may be granted with shorter vesting periods. Grants of performance units typically have a cliff vesting after three years. All issuances are subject to forfeiture if the recipient leaves or is terminated prior to the awards vesting. Restricted shares have the same dividend and voting rights as common stock, while options and performance units do not. All awards are issued at fair value of the underlying shares at the grant date. The Company expenses the cost of the awards, which is determined to be the fair market value of the awards at the date of grant, ratably over the vesting period. No options were granted during the three and nine months ended September 30, 2016 and 2015. During the three months ended September 30, 2016 and 2015 no restricted shares were awarded. The compensation expense related to restricted stock awards during the three and nine months ended September 30, 2016 was $223,000 and $572,000, respectively. During the nine months ended September 30, 2016 and 2015, the Company granted to various key employees performance unit awards, with each unit entitling the holder to one share of the Companys common stock contingent upon the Company meeting or exceeding certain return on asset targets over the course of a three-year period commencing on January 1 of the year of issuance. Under the grant agreement, and assuming the Company has met or exceeded the applicable targets, grants of performance unit awards will vest on the third anniversary of the grant date or on an earlier date in the event of a change in control, as defined in the agreements. At September 30, 2016, the specific number of shares related to performance unit awards that were expected to vest was 132,304, determined by actual performance in consideration of the established range of the performance targets, which is consistent with the level of expense currently being recognized over the vesting period. Should this expectation change, additional compensation expense could be recorded in future periods or previously recognized expense could be reversed. The maximum amount of performance unit awards is 181,892 shares. The total amount of compensation cost related to performance unit awards included in salary expense during the quarters ended September 30, 2016 and 2015 was $238,000 and $156,000, respectively. The total amount of compensation cost related to performance unit awards included in salary expense during the nine months ended September 30, 2016 was $698,000 and $258,000, respectively. Option activity under the Companys option plans as of September 30, 2016 and changes during the nine months ended September 30, 2016 were as follows:
The aggregate intrinsic value of outstanding and exercisable options above represents the total pre-tax intrinsic value (the difference between the Companys closing stock price on September 30 2016 and the exercise price, multiplied by the number of in-the-money options) that would have been received by the option holders had all option holders exercised their options on September 30, 2016. This amount changes based on the fair market value of the Parent Corporations stock. Information related to stock option exercises during 2016:
The aggregate intrinsic value of exercised options above represents the total pre-tax intrinsic value (the difference between the Companys closing stock price on the date of exercise and the exercise price, multiplied by the number of in-the-money options) of all options that were exercised during the 6 month period ending September 30, 2016. The tax benefit is calculated on any non-qualified options exercised during the period using a 36% tax rate. The below table represents information regarding restricted shares currently outstanding at September 30, 2016:
As of September 30, 2016, there was $1,249,000 of total unrecognized compensation cost related to nonvested restricted shares granted under the plans. The cost is expected to be recognized over a weighted average period of 23.1 months. No shares vested during the quarter ended September 30, 2016. A summary of the status of unearned performance unit awards and the change during the period is presented in the table below:
At September 30, 2016, compensation cost of $1,671,000 related to nonvested awards not yet recognized is expected to be recognized over a weighted-average period of 1.7 years. |
Components of Net Periodic Pension Cost |
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Compensation and Retirement Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Components of Net Periodic Pension Cost | Note 10. Components of Net Periodic Pension Cost The Company maintained a non-contributory defined benefit pension plan for substantially all of its employees until March 31, 2007, at which time the Company froze the plan. The following table sets forth the net periodic pension cost of the Companys pension plan for the periods indicated.
Contributions The Company contributed $2.0 million to its Pension Trust during the second quarter of 2016. The Company does not plan on contributing additional amounts to the Pension Trust for the remainder of 2016. The trust is established to provide retirement and other benefits for eligible employees and their beneficiaries. No part of the trust assets may be applied to any purpose other than providing benefits under the plan and for defraying expenses of administering the plan and the trust. |
FHLB and other borrowings |
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Federal Home Loan Bank, Advances, General Debt Obligations, Disclosures [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
FHLB and other borrowings | Note 11. FHLB and other borrowings The Companys FHLB and other borrowings and weighted average interest rates are summarized below:
The FHLB borrowings are secured by pledges of certain collateral including, but not limited to, U.S. government and agency mortgage-backed securities and a blanket assignment of qualifying first lien mortgage loans, consisting of both residential mortgages and commercial real estate loans. The Company has entered into agreements under which it has sold securities subject to an obligation to repurchase the same or similar securities. Under these arrangements, the Company may transfer legal control over the assets but still retain effective control through an agreement that both entitles and obligates the Company to repurchase the assets. The obligation to repurchase the securities is reflected as a liability in the Companys consolidated statement of condition, while the securities underlying the securities sold under agreements to repurchase remain in the respective asset accounts and are delivered to and held as collateral by third party trustees. Three of the FHLB notes ($2,500,000 and $7,500,000 each due April 2, 2018, and $5,000,000 due July 16, 2018) contain a convertible option which allows the FHLB, at quarterly intervals, to convert the fixed convertible advance into replacement funding for the same or lesser principal based on any advance then offered by the FHLB at its current market rate. The Company has the option to repay these advances, if converted, without penalty. The remaining advances are payable at stated maturity, with a prepayment penalty for fixed rate advances. All FHLB advances are fixed rate while the REPOs are variable rate advances. The advances at September 30, 2016 were collateralized by approximately $1.2 billion of commercial mortgage loans, net of required over-collateralization amounts, under a blanket lien arrangement. At September 30, 2016 the Company had remaining borrowing capacity of approximately at FHLB of approximately $752 million |
Securities Sold under Agreements to Repurchase |
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Securities Sold under Agreements to Repurchase | Note 12 Securities Sold under Agreements to Repurchase Repurchase agreements are secured borrowings. The Company pledges investment securities to secure those borrowings. Information concerning repurchase agreements is summarized as follows for the periods presented:
The table below shows the remaining contractual maturity of agreement by fair value of collateral pledged:
The fair value of securities pledged to secure repurchase agreements may decline. By contractual agreement, the fair value of securities pledged to secure repurchase agreements must meet or exceed the gross outstanding balance by 8%, or be subject to margin calls. Securities sold under agreements to repurchase are secured by securities with a carrying amount of $17.1 million and $18.8 million at September 30, 2016 and December 31, 2015. |
Subordinated Debentures |
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Subordinated Debentures | Note 13 - Subordinated Debentures During 2003, the Company formed a statutory business trust, which exists for the exclusive purpose of (i) issuing Trust Securities representing undivided beneficial interests in the assets of the Trust; (ii) investing the gross proceeds of the Trust securities in junior subordinated deferrable interest debentures (subordinated debentures) of the Company; and (iii) engaging in only those activities necessary or incidental thereto. On December 19, 2003, Center Bancorp Statutory Trust II, a statutory business trust and wholly-owned subsidiary of the Parent Corporation issued $5.0 million of MMCapS capital securities to investors due on January 23, 2034. The capital securities presently qualify as Tier I capital. The trust loaned the proceeds of this offering to the Company and received in exchange $5.2 million of the Parent Corporations subordinated debentures. The subordinated debentures are redeemable in whole or in part prior to maturity. The floating interest rate on the subordinate debentures is three-month LIBOR plus 2.85% and reprices quarterly. The rate at September 30, 2016 was 3.61%. These subordinated debentures and the related income effects are not eliminated in the consolidated financial statements as the statutory business trust is not consolidated in accordance with FASB ASC 810-10. Distributions on the subordinated debentures owned by the subsidiary trust have been classified as interest expense in the Consolidated Statements of Income. The following table summarizes the mandatory redeemable trust preferred securities of the Companys Statutory Trust II at September 30, 2016 and December 31, 2015.
During June 2015, the Parent Corporation issued $50 million in aggregate principal amount of fixed-to-floating rate subordinated notes (the Notes). The Notes are non-callable for five years, have a stated maturity of July 1, 2025, and bear interest at a fixed rate of 5.75% per year, from and including June 30, 2015 to, but excluding July 1, 2020. From and including July 1, 2020 to the maturity date or early redemption date, the interest rate will reset quarterly to a level equal to the then current three-month LIBOR rate plus 393 basis points. As of September 30, 2016, unamortized costs related to the debt issuance were $665,000. In connection with the issuance of the Notes, the Parent Corporation obtained ratings from Kroll Bond Rating Agency (KBRA). KBRA assigned investment grade ratings of BBB- for the Companys subordinated debt and a senior deposit rating of BBB+ for the Bank. On August 16, 2016, Kroll reaffirmed our current investment grade |
Offsetting Assets and Liabilities |
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Offsetting Assets and Liabilities | Note 14 Offsetting Assets and Liabilities Certain financial instrument-related assets and liabilities may be eligible for offset on the consolidated statements of condition because they are subject to master netting agreements or similar agreements. However, the Company does not elect to offset such arrangements on the consolidated financial statements. The Company enters into interest rate swap agreements with financial institution counterparties. For additional detail regarding interest rate swap agreements refer to Note 5. In the event of default on, or termination of, any one contract, both parties have the right to net settle multiple contracts. Also, certain interest rate swap agreements may require the Company to receive or pledge cash or financial instrument collateral based on the contract provisions. The Company also entered into an agreement to sell securities subject to an obligation to repurchase the same or similar securities, referred to as a repurchase agreement. Under this agreement, the Company may transfer legal control over the assets but still retain effective control through an agreement that both entitles and obligates the Company to repurchase the assets. The obligation to repurchase the securities is reflected as a liability in the Companys consolidated statement of condition, while the securities underlying the repurchase agreements remain in the respective investment securities account, therefore there is no offsetting or netting of the investment securities assets with the repurchase agreement liability. The following table presents information about financial instruments that are eligible for offset as of September 30, 2016 and December 31, 2015:
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Presentation of Debt Issuance Costs | Note 15 Presentation of Debt Issuance Costs As of January 1, 2016, the Company adopted Accounting Standards Update (ASU) No. 2015-03 Simplifying the Presentation of Debt Issuance Costs, which requires that debt issuance costs be presented in the consolidated statement of condition as a direct deduction from the carrying amount of debt liability. This ASU is required to be applied retrospectively to all periods presented. The following table summarizes the impact of retrospective application to the consolidated statement of condition for the year ended December 31, 2015:
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New Authoritative Accounting Guidance (Policies) |
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New Accounting Pronouncements and Changes in Accounting Principles [Abstract] | |
New Authoritative Accounting Guidance | ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606). ASU 2014-09 implements a common revenue standard that clarifies the principles for recognizing revenue. The core principle of ASU 2014-09 is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. To achieve that core principle, an entity should apply the following steps: (i) identify the contract(s) with a customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenue when (or as) the entity satisfies a performance obligation. ASU 2014-09 was originally going to be effective for us on January 1, 2017; however, the FASB recently issued ASU 2015-14, Revenue from Contracts with Customers (Topic 606) - Deferral of the Effective Date which deferred the effective date of ASU 2014-09 by one year to January 1, 2018. The Company is currently evaluating the potential impact of ASU 2014-09 on its consolidated financial statements. ASU No. 2014-12, Accounting for Share-Based Payments When the Terms of an Award Provide That a Performance Target Could Be Achieved after the Requisite Service Period ("ASU 2014-12"). ASU 2014-12 requires that a performance target that affects vesting, and that could be achieved after the requisite service period, be treated as a performance condition. As such, the performance target should not be reflected in estimating the grant date fair value of the award. This update further clarifies that compensation cost should be recognized in the period in which it becomes probable that the performance target will be achieved and should represent the compensation cost attributable to the period(s) for which the requisite service has already been rendered. The Company adopted ASU 2014-12 effective on January 1, 2016 and its adoption did not have a significant impact on the Companys consolidated financial statements. ASU No. 2015-03, "Interest-Imputation of Interest (Subtopic 835-30) Simplifying the Presentation of Debt Issuance Costs (ASU 2015-13)" requires that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. The recognition and measurement guidance for debt issuance costs are not affected by the amendments in the ASU No. 2015-03. The Company adopted ASU No. 2015-03 effective on January 1, 2016 and its adoption did not have a significant impact on the Companys consolidated financial statements. ASU No. 2015-12, "Plan Accounting: Defined Benefit Pension Plans (Topic 960): Defined Contribution Pension Plans, (Topic 962): Health and Welfare Benefit Plans, (Topic 965): (Part I) Fully Benefit-Responsive Investment Contracts, (Part II) Plan Investment Disclosures, (Part III) Measurement Date Practical Expedient." ASU No. 2015-12 simplifies accounting for employee benefit plans as follows: (i) fully benefit-responsive investment contracts are now to be measured, presented and disclosed at contract value, (ii) the requirement to disclose investments that represent 5 percent or more of net assets available for benefits has been eliminated, (iii) the net appreciation or depreciation in investments for the period should be presented in the aggregate, but is no longer required to be disaggregated and disclosed by general type, (iv) if an investment is measured using the net asset value per share (or its equivalent) practical expedient in Topic 820, and that investment is in a fund that files a U.S. Department of Labor Form 5500, Annual Return/Report of Employee Benefit Plan, as a direct filing entity, disclosure of that investments strategy is no longer required, and (v) allows employers to measure (as a practical expedient) benefit plan assets on a month-end date nearest to the employers fiscal year end when the fiscal period does not coincide with a month end. The Company adopted ASU No. 2015-12 effective on January 1, 2016 and its adoption did not have a significant impact on the Companys consolidated financial statements. ASU No. 2015-15, Interest Imputation of Interest (Subtopic 835-30) Presentation and Subsequent Measurement of Debt Issuance Costs Associated with Line-of-Credit Arrangements. Amendments to SEC Paragraphs Pursuant to Staff Announcement at June 18, 2015 EITF Meeting." ASU 2015-15 adds SEC paragraphs pursuant to an SEC Staff Announcement that given the absence of authoritative guidance within ASU 2015-03 for debt issuance costs related to line-of-credit arrangements, the SEC staff would not object to an entity deferring and presenting debt issuance costs as an asset and subsequently amortizing the deferred debt issuance costs ratably over the term of the line-of-credit arrangement, regardless of whether there are any outstanding borrowings on the line-of-credit arrangement. The adoption of ASU 2015-15 did not have a material impact on the Companys consolidated financial statements. ASU No. 2015-16, Business Combinations (Topic 805) - Simplifying the Accounting for Measurement-Period Adjustments. ASU 2015-16 requires that adjustments to provisional amounts that are identified during the measurement period of a business combination be recognized in the reporting period in which the adjustment amounts are determined. The acquirer must also disclose, by line item, the amount of the adjustment reflected in the current-period income statement that would have been recognized in previous periods if the adjustment to the provision amounts had been recognized as of the acquisition date. Under previous guidance, adjustments to provisional amounts identified during the measurement period are to be recognized retrospectively. The adoption of ASU 2015-16 will impact the accounting for future acquisitions. ASU No. 2016-01, Financial Instruments Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities. ASU 2016-1, among other things; (i) requires equity investments, with certain exceptions, to be measured at fair value with changes in fair value recognized in net income, (ii) simplifies the impairment assessment of equity investments without readily determinable fair values by requiring a qualitative assessment to identify impairment; (iii) eliminates the requirement for public business entities to disclose the methods and significant assumptions used to estimate the fair value that is required to be disclosed for financial instruments measured at amortized cost on the balance sheet; (iv) requires public business entities to use the exit price notion when measuring the fair value of financial instruments for disclosure purposes; (v) requires an entity to present separately in other comprehensive income the portion of the total change in the fair value of a liability resulting from a change in the instrument-specific credit risk when the entity has elected to measure the liability at fair value in accordance with the fair value option for financial instruments; (vi) requires separate presentation of financial assets and financial liabilities by measurement category and form of financial asset on the balance sheet or the accompanying notes to the financial statements; and (vii) clarifies that an entity should evaluate the need for a valuation allowance on a deferred tax asset related to available-for-sale. ASU 2016-1 will be effective for us on January 1, 2018 and we are currently evaluating the potential impact of ASU No. 2016-01 on our consolidated financial statements. ASU No. 2016-02, Leases (Topic 842) requires the recognition of a right of use asset and related lease liability by lessees for leases classified as operating leases under current accounting principles GAAP. Topic 842, which replaces the current guidance under Topic 840, retains a distinction between finance leases and operating leases. The recognition, measurement, and presentation of expenses and cash flows arising from a lease by a lessee also will not significantly change from current GAAP. For leases with a term of 12 months or less, a lessee is permitted to make an accounting policy election by class of underlying asset not to recognize right of use assets and lease liabilities. Topic 842 will be effective for the Company for reporting periods beginning January 1, 2019, with an early adoption permitted. The Company must apply a modified retrospective transition approach for the applicable leases existing at, or entered into after, the beginning of the earliest comparative period presented in the consolidated financial statements. The modified retrospective approach would not require any transition accounting for leases that expired before the earliest comparative period presented. We are currently evaluating the potential impact of ASU 2016-10 on our consolidated financial statements. ASU 2016-09,Compensation - Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting. Under ASU 2016-09 all excess tax benefits and tax deficiencies related to share-based payment awards should be recognized as income tax expense or benefit in the income statement during the period in which they occur. Previously, such amounts were recorded in the pool of excess tax benefits included in additional paid-in capital, if such pool was available. Because excess tax benefits are no longer recognized in additional paid-in capital, the assumed proceeds from applying the treasury stock method when computing earnings per share should exclude the amount of excess tax benefits that would have previously been recognized in additional paid-in capital. Additionally, excess tax benefits should be classified along with other income tax cash flows as an operating activity rather than a financing activity, as was previously the case. ASU 2016-09 also provides that an entity can make an entity-wide accounting policy election to either estimate the number of awards that are expected to vest (current GAAP) or account for forfeitures when they occur. ASU 2016-09 changes the threshold to qualify for equity classification (rather than as a liability) to permit withholding up to the maximum statutory tax rates (rather than the minimum as was previously the case) in the applicable jurisdictions. ASU 2016-09 will be effective on January 1, 2017 and is not expected to have a significant impact on our consolidated financial statements. ASU No. 2016-10,Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing. ASU 2016-10 was issued to clarify ASC Topic 606, Revenue from Contracts with Customers related to (i) identifying performance obligations; and (ii) the licensing implementation guidance. The effective date and transition of ASU 2016-10 is the same as the effective date and transition of ASU 2014-09, Revenue from Contracts with Customers (Topic 606), as discussed above. We are currently evaluating the potential impact of ASU 2016-10 on our consolidated financial statements. ASU No. 2016-12,Revenue from Contracts with Customers (Topic 606): Narrow-Scope Improvements and Practical Expedients. ASU 2016-12 was issued to clarify ASC Topic 606, Revenue from Contracts with Customers and to address narrow-scope improvements to the guidance on collectability, noncash consideration, and completed contracts at transition. Additionally, the amendments in this Update provide a practical expedient for contract modifications at transition and an accounting policy election related to the presentation of sales taxes and other similar taxes collected from customers. The effective date and transition of ASU 2016-12 is the same as the effective date and transition of ASU 2014-09, Revenue from Contracts with Customers (Topic 606), as discussed above. We are currently evaluating the potential impact of ASU 2016-10 on our consolidated financial statements. ASU No. 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments provides guidance on the following eight specific cash flow issues: (1) Debt Prepayment or Debt Extinguishment Costs: Cash payments for debt prepayment or debt extinguishment costs should be classified as cash outflows for financing activities; (2) Settlement of Zero-Coupon Debt Instruments or Other Debt Instruments with Coupon Interest Rates That Are Insignificant in Relation to the Effective Interest Rate of the Borrowing: At the settlement of zero-coupon debt instruments or other debt instruments with coupon interest rates that are insignificant in relation to the effective interest rate of the borrowing, the issuer should classify the portion of the cash payment attributable to the accreted interest related to the debt discount as cash outflows for operating activities, and the portion of the cash payment attributable to the principal as cash outflows for financing activities; (3) Contingent Consideration Payments Made after a Business Combination: Cash payments not made soon after the acquisition date of a business combination by an acquirer to settle a contingent consideration liability should be separated and classified as cash outflows for financing activities and operating activities. Cash payments up to the amount of the contingent consideration liability recognized at the acquisition date (including measurement-period adjustments) should be classified as financing activities; any excess should be classified as operating activities. Cash payments made soon after the acquisition date of a business combination by an acquirer to settle a contingent consideration liability should be classified as cash outflows for investing activities; (4) Proceeds from the Settlement of Insurance Claims: Cash proceeds received from the settlement of insurance claims should be classified on the basis of the related insurance coverage (that is, the nature of the loss). For insurance proceeds that are received in a lump-sum settlement, an entity should determine the classification on the basis of the nature of each loss included in the settlement; (5) Proceeds from the Settlement of Corporate-Owned Life Insurance Policies, including Bank-Owned Life Insurance Policies: Cash proceeds received from the settlement of corporate-owned life insurance policies should be classified as cash inflows from investing activities. The cash payments for premiums on corporate-owned policies may be classified as cash outflows for investing activities, operating activities, or a combination of investing and operating activities; (6) Distributions Received from Equity Method Investees: When a reporting entity applies the equity method, it should make an accounting policy election to classify distributions received from equity method investees using either of the following approaches: a. Cumulative earnings approach: Distributions received are considered returns on investment and classified as cash inflows from operating activities, unless the investors cumulative distributions received less distributions received in prior periods that were determined to be returns of investment exceed cumulative equity in earnings recognized by the investor. When such an excess occurs, the current-period distribution up to this excess should be considered a return of investment and classified as cash inflows from investing activities. b. Nature of the distribution approach: Distributions received should be classified on the basis of the nature of the activity or activities of the investee that generated the distribution as either a return on investment (classified as cash inflows from operating activities) or a return of investment (classified as cash inflows from investing activities) when such information is available to the investor. If an entity elects to apply the nature of the distribution approach and the information to apply that approach to distributions received from an individual equity method investee is not available to the investor, the entity should report a change in accounting principle on a retrospective basis by applying the cumulative earnings approach in (1) for that investee. In such situations, an entity should disclose that a change in accounting principle has occurred with respect to the affected investee(s) due to the lack of available information and should provide the disclosures required in paragraphs 250-10-50-1(b) and 250-10-50-2, as applicable. This amendment does not address equity method investments measured using the fair value option; (7) Beneficial Interests in Securitization Transactions: A transferors beneficial interest obtained in a securitization of financial assets should be disclosed as a non cash activity, and cash receipts from payments on a transferors beneficial interests in securitized trade receivables should be classified as cash inflows from investing activities; (8) Separately Identifiable Cash Flows and Application of the Predominance Principle: The classification of cash receipts and payments that have aspects of more than one class of cash flows should be determined first by applying specific guidance in generally accepted accounting principles (GAAP). In the absence of specific guidance, an entity should determine each separately identifiable source or use within the cash receipts and cash payments on the basis of the nature of the underlying cash flows. An entity should then classify each separately identifiable source or use within the cash receipts and payments on the basis of their nature in financing, investing, or operating activities. In situations in which cash receipts and payments have aspects of more than one class of cash flows and cannot be separated by source or use, the appropriate classification should depend on the activity that is likely to be the predominant source or use of cash flows for the item. The amendments in this Update are effective for public business entities for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. For all other entities, the amendments are effective for fiscal years beginning after December 15, 2018, and interim periods within fiscal years beginning after December 15, 2019. Early adoption is permitted, including adoption in an interim period. If an entity early adopts the amendments in an interim period, any adjustments should be reflected as of the beginning of the fiscal year that includes that interim period. An entity that elects early adoption must adopt all of the amendments in the same period. The amendments in this Update should be applied using a retrospective transition method to each period presented. If it is impracticable to apply the amendments retrospectively for some of the issues, the amendments for those issues would be applied prospectively as of the earliest date practicable. The Company is currently evaluating this ASU to determine the impact on its consolidated financial position, results of operations and cash flows. ASU No. 2016-13, Financial Instruments Credit Losses (Topic 326): Assets Measured at Amortized Cost. ASU 2016-13 requires a financial asset (or a group of financial assets) measured at amortized cost basis to be presented at the net amount expected to be collected. The allowance for credit losses is a valuation account that is deducted from the amortized cost basis of the financial asset(s) to present the net carrying value at the amount expected to be collected on the financial asset. The income statement reflects the measurement of credit losses for newly recognized financial assets, as well as the expected increases or decreases of expected credit losses that have taken place during the period. The measurement of expected credit losses is based on relevant information about past events, including historical experience, current conditions, and reasonable and supportable forecasts that affect the collectability of the reported amount. An entity must use judgment in determining the relevant information and estimation methods that are appropriate in its circumstances. The allowance for credit losses for purchased financial assets with a more-than insignificant amount of credit deterioration since origination (PCD assets) that are measured at amortized cost basis is determined in a similar manner to other financial assets measured at amortized cost basis; however, the initial allowance for credit losses is added to the purchase price rather than being reported as a credit loss expense. Only subsequent changes in the allowance for credit losses are recorded as a credit loss expense for these assets. Interest income for PCD assets should be recognized based on the effective interest rate, excluding the discount embedded in the purchase price that is attributable to the acquirer assessment of credit losses at acquisition. Available-for-Sale Debt SecuritiesCredit losses relating to available-for-sale debt securities should be recorded through an allowance for credit losses. Available-for-sale accounting recognizes that value may be realized either through collection of contractual cash flows or through sale of the security. Therefore, the amendments limit the amount of the allowance for credit losses to the amount by which fair value is below amortized cost because the classification as available for sale is premised on an investment strategy that recognizes that the investment could be sold at fair value, if cash collection would result in the realization of an amount less than fair value. The allowance for credit losses for purchased available-for-sale securities with a more-than-insignificant amount of credit deterioration since origination is determined in a similar manner to other available-for-sale debt securities; however, the initial allowance for credit losses is added to the purchase price rather than reported as a credit loss expense. Only subsequent changes in the allowance for credit losses are recorded in credit loss expense. Interest income should be recognized based on the effective interest rate, excluding the discount embedded in the purchase price that is attributable to the acquirers assessment of credit losses at acquisition. For public business entities that are U.S. Securities and Exchange Commission (SEC) filers, the amendments in this Update are effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. For all other public business entities, the amendments in this Update are effective for fiscal years beginning after December 15, 2020, including interim periods within those fiscal years. We are currently evaluating the potential impact of ASU 2016-10 on our consolidated financial statements. |
Earnings per Common Share (Tables) |
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Schedule of Earnings Per Share, Basic and Diluted [Table Text Block] | Earnings per common share have been computed as follows:
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Investment Securities (Tables) |
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Investments, Debt and Equity Securities [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Unrealized Gain (Loss) on Investments [Table Text Block] | The following tables present information related to the Companys investment securities at September 30, 2016 and December 31, 2015 (dollars in thousands):
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Investments Classified by Contractual Maturity Date [Table Text Block] | The following table presents information for investment securities at September 30, 2016, based on scheduled maturities. Actual maturities can be expected to differ from scheduled maturities due to prepayment or early call options of the issuer.
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Schedule of Realized Gain (Loss) [Table Text Block] | Gross gains and losses from the sales, calls and maturities of investment securities for the three-month and nine-month periods ended September 30, 2016 and 2015 were as follows:
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Schedule of Unrealized Loss on Investments [Table Text Block] | The following tables indicate gross unrealized losses not recognized in income and fair value, aggregated by investment category and the length of time individual securities have been in a continuous unrealized loss position at September 30, 2016 and December 31, 2015:
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Derivatives (Tables) |
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Derivative Instruments and Hedging Activities Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of Interest Rate Derivatives [Table Text Block] | Summary information about the interest rate swaps designated as cash flow hedges as of September 30, 2016, December 31, 2015 and September 30, 2015 are presented in the following table.
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Schedule of Cash Flow Hedges Included in Accumulated Other Comprehensive Income (Loss) [Table Text Block] | The following table presents the net gains (losses), recorded in other comprehensive income and the Consolidated Statements of Income relating to the cash flow derivative instruments for the following periods:
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Schedule of Cash Flow Hedging Instruments, Statements of Financial Performance and Financial Position, Location [Table Text Block] | The following table reflects the cash flow hedges included in the consolidated statements of condition as of September 30, 2016 and December 31, 2015:
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Loans and the Allowance for Loan and Lease Losses (Tables) |
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Receivables [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of Accounts, Notes, Loans and Financing Receivable [Table Text Block] | The following table sets forth the composition of the Companys loan portfolio, including net deferred loan fees, at September 30, 2016 and December 31, 2015:
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Loans and Leases Receivable Purchase Credit Impaired Loans [Table Text Block] | The carrying amount of those loans is as follows at September 30, 2016 and December 31, 2015.
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Loans and Leases Receivable Purchased Loans [Table Text Block] | The accretable yield, or income expected to be collected, on the purchased loans disclosed above for the three and nine months ended September 30, 2016 is as follows (in thousands):
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Schedule of Financing Receivables, Non Accrual Status [Table Text Block] | The following table presents information about the recorded investment in loan receivables on nonaccrual status by segment at September 30, 2016 and December 31, 2015:
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Financing Receivable Credit Quality Indicators [Table Text Block] | The following table presents information, excluding loans held-for-sale and net deferred loan fees, about the Companys loan credit quality at September 30, 2016 and December 31, 2015:
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Impaired Financing Receivables [Table Text Block] | The following table provides an analysis of the impaired loans, by loan segment, at September 30, 2016 and December 31, 2015:
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Schedule of Average Balance and Interest Income Recognized on Impaired Loans [Table Text Block] | The following table provides an analysis related to the average recorded investment and interest income recognized on impaired loans by segment as of and for the three and nine months ended September 30, 2016 and 2015 (in thousands):
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Past Due Financing Receivables [Table Text Block] | The following table provides an analysis of the aging of gross loans (excluding loans held-for-sale) that are past due at September 30, 2016 and December 31, 2015 by segment: Aging Analysis
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Schedule of Recorded Investment in Financing Receivables [Table Text Block] | The following tables detail, at the period-end presented, the amount of gross loans (excluding loans held-for-sale) that are evaluated individually, and collectively, for impairment, those acquired with deteriorated quality, and the related portion of the allowance for loan and lease losses that are allocated to each loan portfolio segment:
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Allowance for Credit Losses on Financing Receivables [Table Text Block] | A summary of the activity in the allowance for loan and lease losses is as follows:
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Schedule of Debtor Troubled Debt Restructuring, Current Period [Table Text Block] | The following table presents loans by class modified as troubled debt restructurings that occurred during the nine months ended September 30, 2016 (dollars in thousands):
The following table presents loans by class modified as troubled debt restructurings that occurred during the nine months ended September 30, 2015 (dollars in thousands):
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Fair Value Measurements and Fair Value of Financial Instruments (Tables) |
9 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Sep. 30, 2016 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Fair Value Disclosures [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of Fair Value, Assets and Liabilities Measured on Recurring Basis [Table Text Block] | For
financial assets and liabilities measured at fair value on a recurring basis,
the fair value measurements by level within the fair value hierarchy used at
September 30, 2016 and December 31, 2015 are as follows:
There were no transfers between Level 1, Level 2 and Level 3 during the three months ended September 30, 2016.
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Fair Value Measurements, Nonrecurring [Table Text Block] | For assets measured at fair value on a non-recurring basis, the fair value measurements at September 30, 2016 and December 31, 2015 are as follows:
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Fair Value, by Balance Sheet Grouping [Table Text Block] | The following presents the carrying amount, fair value, and placement in the fair value hierarchy of the Companys financial instruments as of September 30, 2016 and December 31, 2015.
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Accumulated Other Comprehensive Income/(Loss) (Tables) |
9 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Sep. 30, 2016 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Accumulated Other Comprehensive Income (Loss), Net of Tax [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of Accumulated Other Comprehensive Income (Loss) [Table Text Block] | Accumulated other comprehensive loss (net of tax) at September 30, 2016 and December 31, 2015 consisted of the following:
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Stock Based Compensation (Tables) |
9 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Sep. 30, 2016 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Disclosure of Compensation Related Costs, Share-based Payments [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Disclosure of Share-based Compensation Arrangements by Share-based Payment Award [Table Text Block] | Option activity under the Companys option plans as of September 30, 2016 and changes during the nine months ended September 30, 2016 were as follows:
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Schedule of Share Based Compensation Stock Option Plan Table Text Block | Information related to stock option exercises during 2016:
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Schedule of Nonvested Restricted Stock Units Activity [Table Text Block] | The below table represents information regarding restricted shares currently outstanding at September 30, 2016:
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Schedule of Unearned Performance Unit Awards [Table Text Block] | A summary of the status of unearned performance unit awards and the change during the period is presented in the table below:
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Components of Net Periodic Pension Cost (Tables) |
9 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Sep. 30, 2016 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Compensation and Retirement Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of Net Benefit Costs [Table Text Block] | The following table sets forth the net periodic pension cost of the Companys pension plan for the periods indicated.
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FHLB and other borrowings (Tables) |
9 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Sep. 30, 2016 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Debt Disclosure [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of Long-term Debt Instruments [Table Text Block] | The Companys FHLB and other borrowings and weighted average interest rates are summarized below:
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Securities Sold under Agreements to Repurchase (Tables) |
9 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Sep. 30, 2016 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Securities Sold Under Agreements To Repurchase Tables | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of information concerning repurchase agreements [Table Text Block] | Repurchase agreements are secured borrowings. The Company pledges investment securities to secure those borrowings. Information concerning repurchase agreements is summarized as follows for the periods presented:
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Schedule of remaining contractual maturity [Table Text Block] | The table below shows the remaining contractual maturity of agreement by fair value of collateral pledged:
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Subordinated Debentures (Tables) |
9 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||
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Sep. 30, 2016 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Subordinated Borrowings [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of Subordinated Debentures [Table Text Block] | The following table summarizes the mandatory redeemable trust preferred securities of the Companys Statutory Trust II at September 30, 2016 and December 31, 2015.
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Offsetting Assets and Liabilities (Tables) |
9 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Offsetting Assets And Liabilities Tables | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of financial instruments that are eligible for offset [Table Text Block] | The following table presents information about financial instruments that are eligible for offset as of September 30, 2016 and December 31, 2015:
|
Presentation of Debt Issuance Costs (Tables) |
9 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Sep. 30, 2016 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Presentation of Debt Issuance Costs [Table Text Block] | The following table summarizes the impact of retrospective application to the consolidated statement of condition for the year ended December 31, 2015:
|
Earnings per Common Share (Details) - Schedule of earnings per common share - USD ($) $ / shares in Units, $ in Thousands |
3 Months Ended | 9 Months Ended | |||||||
---|---|---|---|---|---|---|---|---|---|
Sep. 30, 2016 |
Sep. 30, 2015 |
Sep. 30, 2016 |
Sep. 30, 2015 |
||||||
Earnings Per Share [Abstract] | |||||||||
Net income | $ 11,856 | $ 10,842 | $ 33,106 | $ 31,743 | |||||
Preferred stock dividends | (28) | (22) | (84) | ||||||
Net income available to common stockholders | $ 11,856 | $ 10,814 | $ 33,084 | $ 31,659 | |||||
Basic weighted average common shares outstanding | 30,125,287 | 30,045,818 | 30,100,057 | 29,786,374 | |||||
Effect of dilutive options | [1] | 276,000 | 290,000 | 276,000 | 537,000 | ||||
Diluted weighted average common shares outstanding | [2] | 30,401,684 | 30,335,571 | 30,376,085 | 30,323,376 | ||||
Earnings per common share: | |||||||||
Basic | $ 0.39 | $ 0.36 | $ 1.10 | $ 1.06 | |||||
Diluted | $ 0.39 | $ 0.36 | $ 1.09 | $ 1.04 | |||||
|
Investment Securities (Details) $ in Thousands |
9 Months Ended | 12 Months Ended |
---|---|---|
Sep. 30, 2016
USD ($)
Integer
|
Dec. 31, 2015
USD ($)
Integer
|
|
Investments, Debt and Equity Securities [Abstract] | ||
Increase in amortized cost basis of available-for-sale securities | $ 210,000 | |
Net increase to accumulated other comprehensive income net of tax | $ 7,400 | |
Number of Investment Securities Sold | Integer | 36 | 74 |
Available-for-sale Securities Pledged as Collateral | $ 104,200 | $ 142,500 |
Description of Holding Securities | there were no holdings of securities of any one issuer, other than the U.S. Government and its agencies, in an amount greater than 10% of stockholders' equity. |
Investment Securities (Details) - Schedule of realized gains and losses - USD ($) $ in Thousands |
3 Months Ended | 9 Months Ended | ||
---|---|---|---|---|
Sep. 30, 2016 |
Sep. 30, 2015 |
Sep. 30, 2016 |
Sep. 30, 2015 |
|
Schedule of realized gains and losses [Abstract] | ||||
Proceeds | $ 78,680 | $ 32,125 | $ 85,253 | $ 44,397 |
Gross gains on sales of investment securities | 4,131 | 2,067 | 4,234 | 2,793 |
Gross losses on sales of investment securities | ||||
Net gains on sales of investment securities | 4,131 | 2,067 | 4,234 | 2,793 |
Less: tax provision on net gains | 1,640 | 794 | 1,682 | 1,091 |
Total | $ 2,491 | $ 1,273 | $ 2,552 | $ 1,702 |
Derivatives (Details) - USD ($) $ in Thousands |
3 Months Ended | 9 Months Ended | |||||
---|---|---|---|---|---|---|---|
Sep. 30, 2016 |
Sep. 30, 2015 |
Sep. 30, 2016 |
Sep. 30, 2015 |
Aug. 24, 2015 |
Dec. 30, 2014 |
Oct. 15, 2014 |
|
Derivative Instruments and Hedging Activities Disclosure [Abstract] | |||||||
Notional Amount of Interest Rate Cash Flow Hedge Derivatives | $ 25,000 | $ 25,000 | $ 25,000 | ||||
Interest expense on derivatives | $ 167 | $ 165 | $ 534 | $ 331 |
Derivatives (Details) - Summary of interest rate swap designated as a cash flow hedges - USD ($) $ in Thousands |
9 Months Ended | 12 Months Ended | |
---|---|---|---|
Sep. 30, 2016 |
Sep. 30, 2015 |
Dec. 31, 2015 |
|
Summary of interest rate swap designated as a cash flow hedges [Abstract] | |||
Notional amount | $ 75,000 | $ 75,000 | $ 75,000 |
Weighted average pay rates | 1.58% | 1.56% | 1.56% |
Weighted average receive rates | 0.70% | 0.30% | 0.44% |
Weighted average maturity | 3 years 1 month 6 days | 4 years 1 month 6 days | 3 years 9 months 18 days |
Fair value | $ (1,212) | $ (1,105) | $ (131) |
Derivatives (Details) - Summary of net gains (losses) recorded in accumulated other comprehensive income - Interest Rate Contract [Member] - USD ($) $ in Thousands |
9 Months Ended | |
---|---|---|
Sep. 30, 2016 |
Sep. 30, 2015 |
|
Derivatives (Details) - Summary of net gains (losses) recorded in accumulated other comprehensive income and statements of income relating to cash flow derivative instruments [Line Items] | ||
Amount of loss recognized in OCI (Effective Portion) | $ (640) | $ (1,153) |
Amount of loss reclassified from OCI to interest income | ||
Amount of loss recognized in other Non-interest income (Ineffective Portion) |
Derivatives (Details) - Summary of cash flow hedges included in the consolidated balance sheets - Interest Rate Swap [Member] - USD ($) $ in Thousands |
Sep. 30, 2016 |
Dec. 31, 2015 |
---|---|---|
Included in other asset/(liabilities): | ||
Interest rate swaps related to FHLB Advances included in Assets, Notional Amount | $ 75,000 | $ 75,000 |
Interest rate swaps related to FHLB Advances included in Assets, Fair Value | $ (1,212) | $ (131) |
Loans and the Allowance for Loan and Lease Losses (Details) - Composition of loan portfolio - USD ($) $ in Thousands |
Sep. 30, 2016 |
Dec. 31, 2015 |
---|---|---|
Accounts, Notes, Loans and Financing Receivable [Line Items] | ||
Gross loans | $ 3,448,623 | $ 3,101,794 |
Net deferred loan fees | (3,147) | (2,787) |
Total loans receivable | 3,445,476 | 3,099,007 |
Commercial Portfolio Segment [Member] | ||
Accounts, Notes, Loans and Financing Receivable [Line Items] | ||
Gross loans | 644,430 | 570,116 |
Commercial Real Estate Portfolio Segment [Member] | ||
Accounts, Notes, Loans and Financing Receivable [Line Items] | ||
Gross loans | 2,100,804 | 1,966,696 |
Construction Loans [Member] | ||
Accounts, Notes, Loans and Financing Receivable [Line Items] | ||
Gross loans | 471,109 | 328,838 |
Residential Portfolio Segment [Member] | ||
Accounts, Notes, Loans and Financing Receivable [Line Items] | ||
Gross loans | 229,401 | 233,690 |
Consumer Portfolio Segment [Member] | ||
Accounts, Notes, Loans and Financing Receivable [Line Items] | ||
Gross loans | $ 2,879 | $ 2,454 |
Loans and the Allowance for Loan and Lease Losses (Details) - Purchase credit impaired loans - USD ($) $ in Thousands |
Sep. 30, 2016 |
Dec. 31, 2015 |
---|---|---|
Loans and the Allowance for Loan and Lease Losses (Details) - Purchase credit impaired loans [Line Items] | ||
Total carrying amount | $ 8,029 | $ 9,181 |
Commercial Portfolio Segment [Member] | ||
Loans and the Allowance for Loan and Lease Losses (Details) - Purchase credit impaired loans [Line Items] | ||
Total carrying amount | 7,027 | 7,078 |
Commercial Real Estate Portfolio Segment [Member] | ||
Loans and the Allowance for Loan and Lease Losses (Details) - Purchase credit impaired loans [Line Items] | ||
Total carrying amount | 1,002 | 1,775 |
Residential Portfolio Segment [Member] | ||
Loans and the Allowance for Loan and Lease Losses (Details) - Purchase credit impaired loans [Line Items] | ||
Total carrying amount | $ 328 |
Loans and the Allowance for Loan and Lease Losses (Details) - Schedule of accretable yield, or income expected to be collected - USD ($) $ in Thousands |
3 Months Ended | 9 Months Ended | ||
---|---|---|---|---|
Sep. 30, 2016 |
Sep. 30, 2015 |
Sep. 30, 2016 |
Sep. 30, 2015 |
|
Schedule of accretable yield, or income expected to be collected [Abstract] | ||||
Beginning balance | $ 3,233 | $ 4,013 | $ 3,599 | $ 4,467 |
New loans purchased | ||||
Accretion of income | (185) | (207) | (551) | (661) |
Reclassification from nonaccretable differences | ||||
Disposals | ||||
Ending balance | $ 3,048 | $ 3,806 | $ 3,048 | $ 3,806 |
Fair Value Measurements and Fair Value of Financial Instruments (Details) - USD ($) $ in Thousands |
Sep. 30, 2016 |
Dec. 31, 2015 |
---|---|---|
Fair Value Disclosures [Abstract] | ||
Impaired Financing Receivable, with Related Allowance, Recorded Investment | $ 96,117 | $ 6,000 |
Impaired Financing Receivable, Related Allowance | $ 900 | $ 2,200 |
Fair Value Measurements and Fair Value of Financial Instruments (Details) - Schedule of Assets at Fair Value on Non-Recurring - Impaired Loans [Member] - Commercial Portfolio Segment [Member] - USD ($) $ in Thousands |
Sep. 30, 2016 |
Dec. 31, 2015 |
---|---|---|
Assets Measured at Fair Value on a Non-Recurring Basis: | ||
Assets, Fair Value Disclosure, Nonrecurring | $ 396 | $ 3,751 |
Fair Value, Inputs, Level 3 [Member] | ||
Assets Measured at Fair Value on a Non-Recurring Basis: | ||
Assets, Fair Value Disclosure, Nonrecurring | $ 396 | $ 3,751 |
Accumulated Other Comprehensive Income/(Loss) (Details) - USD ($) $ in Thousands |
Sep. 30, 2016 |
Dec. 31, 2015 |
---|---|---|
Accumulated Other Comprehensive Income (Loss), Net of Tax [Abstract] | ||
Net unrealized gain on investment securities available-for-sale | $ 5,332 | $ 713 |
Cash flow hedge | (717) | (77) |
Unamortized component of securities transferred from available-for-sale to held-to-maturity | (1,173) | |
Defined benefit pension and post-retirement plans | (3,891) | (4,072) |
Total accumulated other comprehensive income (loss) | $ 724 | $ (4,609) |
Stock-Based Compensation (Details) - Disclosure related to stock option plan $ in Thousands |
9 Months Ended |
---|---|
Sep. 30, 2016
USD ($)
| |
Disclosure of Compensation Related Costs, Share-based Payments [Abstract] | |
Intrinsic value of options exercised | $ 398,890 |
Cash received from options exercised | 244,625 |
Tax benefit realized from options exercised | 53,631 |
Weighted average fair value of options granted |
Stock-Based Compensation (Details) - Schedule of Share-based Payment Award, Nonvested Shares |
9 Months Ended |
---|---|
Sep. 30, 2016
$ / shares
shares
| |
Granted | |
Nonvested [Member] | |
Beginning balance | 96,902 |
Granted | 72,920 |
Vested | (55,648) |
Forfeited/cancelled/expired | (1,000) |
Ending balance | 113,174 |
Beginning balance | $ / shares | $ 16.81 |
Granted | $ / shares | 15.88 |
Vested | $ / shares | 16.01 |
Forfeited/cancelled/expired | $ / shares | 19.58 |
Ending balance | $ / shares | $ 16.81 |
Stock-Based Compensation (Details) - Schedule of Share-based Payment Award, Unearned Shares |
9 Months Ended |
---|---|
Sep. 30, 2016
$ / shares
shares
| |
Beginning balance | 535,906 |
Awarded | |
Ending balance | 452,161 |
Unearned [Member] | |
Beginning balance | 94,585 |
Awarded | 59,138 |
Forfeited | (7,447) |
Expired | |
Ending balance | 146,276 |
Beginning balance | $ / shares | $ 19.46 |
Awarded | $ / shares | 17.01 |
Forfeited | $ / shares | 19.46 |
Expired | $ / shares | |
Ending balance | $ / shares | $ 18.47 |
Components of Net Periodic Pension Cost (Details) - USD ($) $ in Thousands |
3 Months Ended | 9 Months Ended | ||
---|---|---|---|---|
Sep. 30, 2016 |
Sep. 30, 2015 |
Sep. 30, 2016 |
Sep. 30, 2015 |
|
Components Of Net Periodic Pension Cost Details | ||||
Interest cost | $ 129 | $ 127 | $ 386 | $ 394 |
Expected return on plan assets | (166) | (123) | (457) | (387) |
Net amortization | 101 | 108 | 305 | 324 |
Recognized settlement loss | 64 | 629 | ||
Net periodic pension cost | 64 | 176 | 234 | 960 |
Amortization of actuarial loss | (204) | (183) | (305) | (1,186) |
Total recognized in other comprehensive income | (204) | (183) | (305) | (1,186) |
Total recognized in net expense and OCI (before tax) | (140) | $ (7) | $ (71) | $ (226) |
Defined Benefit Plan, Contributions by Employer | $ 2,000 |
FHLB and other borrowings (Details) $ in Thousands |
9 Months Ended |
---|---|
Sep. 30, 2016
USD ($)
Integer
| |
Number of Federal Home Loan Bank Notes | Integer | 3 |
Long-term Line of Credit | $ 1,200,000 |
Line of Credit Facility, Remaining Borrowing Capacity | 752,000 |
Federal Home Loan Bank Note One [Member] | |
Extinguishment of Debt, Amount | $ 2,500 |
Debt Instrument, Maturity Date | Apr. 02, 2018 |
Federal Home Loan Bank Note Two [Member] | |
Extinguishment of Debt, Amount | $ 7,500 |
Debt Instrument, Maturity Date | Apr. 02, 2018 |
Federal Home Loan Bank Note Three [Member] | |
Extinguishment of Debt, Amount | $ 5,000 |
Debt Instrument, Maturity Date | Jul. 16, 2018 |
Securities Sold under Agreements to Repurchase (Details) - USD ($) $ in Thousands |
9 Months Ended | |
---|---|---|
Sep. 30, 2016 |
Dec. 31, 2015 |
|
Securities carrying amount | $ 17,100 | $ 18,800 |
Minimum [Member] | ||
Percentage by which fair value of pledged securities must meet or exceed gross outstanding balance | 8.00% |
Securities Sold under Agreements to Repurchase (Details) - Schedule of repurchase agreements - USD ($) $ in Thousands |
9 Months Ended | 12 Months Ended | |
---|---|---|---|
Sep. 30, 2016 |
Sep. 30, 2015 |
Dec. 31, 2015 |
|
Securities Sold under Agreements to Repurchase [Abstract] | |||
Average daily balance during the year-to-date | $ 15,000 | $ 25,549 | $ 22,890 |
Average interest rate during the year-to-date | 5.95% | 5.90% | 5.92% |
Maximum month-end balance during the year-to-date | $ 15,000 | $ 31,000 | $ 31,000 |
Weighted average interest rate during the year-to-date | 5.95% | 5.90% | 5.92% |
Subordinated Debentures (Details) - USD ($) $ in Thousands |
1 Months Ended | 9 Months Ended |
---|---|---|
Jun. 30, 2015 |
Sep. 30, 2016 |
|
Fixed-to-floating Rate Subordinated Notes [Member] | ||
Subordinated Debentures (Details) [Line Items] | ||
Proceeds from Issuance of Debt | $ 50,000 | |
Debt Instrument, Term | 5 years | |
Debt Instrument, Maturity Date | Jul. 01, 2025 | |
Debt Instrument, Interest Rate, Stated Percentage | 5.75% | |
Debt Instrument, Description of Variable Rate Basis | three-month LIBOR rate plus 393 basis points | |
Debt Issuance Cost | $ 665 | |
Subordinated Debt from Trust [Member] | ||
Subordinated Debentures (Details) [Line Items] | ||
Value of subordinated debentures received by Trust | $ 5,000 | |
Percentage Rate Added to Libor | 2.85% | |
Floating interest rate on subordinated debentures | 3.61% | |
Proceeds from Issuance of Debt | $ 5,200 | |
Debt Instrument, Maturity Date | Jan. 23, 2034 |
Subordinated Debentures (Details) - Schedule of Subordinated Borrowing - USD ($) $ in Thousands |
9 Months Ended | 12 Months Ended |
---|---|---|
Sep. 30, 2016 |
Dec. 31, 2015 |
|
Schedule of Subordinated Borrowing [Abstract] | ||
Issuance Date | Dec. 19, 2003 | Dec. 19, 2003 |
Securities Issued | $ 5,000 | $ 5,000 |
Liquidation Value | $1,000 per Capital Security | $1,000 per Capital Security |
Coupon Rate | Floating 3-month LIBOR + 285 Basis Points | Floating 3-month LIBOR + 285 Basis Points |
Maturity | Jan. 23, 2034 | Jan. 23, 2034 |
Redeemable by Issuer Beginning | Jan. 23, 2009 | Jan. 23, 2009 |
Presentation of Debt Issuance Costs (Details) - USD ($) $ in Thousands |
Sep. 30, 2016 |
Dec. 31, 2015 |
---|---|---|
Other assets | $ 25,974 | $ 24,096 |
Total assets | 4,327,804 | 4,015,909 |
Subordinated debentures | 54,490 | 54,343 |
Total liabilities | $ 3,828,216 | 3,538,565 |
As previously reported [Member] | ||
Other assets | 24,908 | |
Total assets | 4,016,721 | |
Subordinated debentures | 55,155 | |
Total liabilities | 3,539,377 | |
As reported under the new guidance [Member] | ||
Other assets | 24,096 | |
Total assets | 4,015,909 | |
Subordinated debentures | 54,343 | |
Total liabilities | $ 3,538,565 |
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