`
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended March 31, 2015
Commission File No. 001-34453
HUDSON VALLEY HOLDING CORP.
(Exact name of registrant as specified in its charter)
NEW YORK | 13-3148745 |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
21 Scarsdale Road, Yonkers, NY 10707
(Address of principal executive office with zip code)
914-961-6100
(Registrant’s 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 and (2) has been subject to such filing requirements for the past 90 days. Yes x 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 during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files.) Yes x No ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions 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 x | Non-accelerated filer ¨ | Smaller reporting company ¨ |
(Do not check if a 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 x
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
Class | Outstanding at May 1, 2015 |
Common stock, par value $0.20 per share | 20,075,107 |
FORM 10-Q
TABLE OF CONTENTS
|
| Page No. |
PART I: |
| |
ITEM 1 |
| 2 |
ITEM 2 |
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS | 26 |
ITEM 3 |
| 39 |
ITEM 4 |
| 39 |
PART II: |
|
|
ITEM 1A |
| 41 |
ITEM 2 |
| 41 |
ITEM 6 |
| 41 |
| 42 |
1
PART 1 — FINANCIAL INFORMATION
Item 1. Condensed Financial Statements
HUDSON VALLEY HOLDING CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
(In thousands, except per share data)
|
| Three Months Ended |
| |||||
|
| March 31 |
| |||||
|
|
| 2015 |
|
|
| 2014 |
|
Interest Income: |
|
|
|
|
|
|
|
|
Loans, including fees |
| $ | 21,278 |
|
| $ | 19,538 |
|
Securities: |
|
|
|
|
|
|
|
|
Taxable |
|
| 3,302 |
|
|
| 2,318 |
|
Exempt from Federal income taxes |
|
| 552 |
|
|
| 630 |
|
Federal funds sold |
|
| 7 |
|
|
| 8 |
|
Deposits in banks |
|
| 151 |
|
|
| 341 |
|
Total interest income |
|
| 25,290 |
|
|
| 22,835 |
|
Interest Expense: |
|
|
|
|
|
|
|
|
Deposits |
|
| 1,166 |
|
|
| 1,090 |
|
Securities sold under repurchase agreements and other short-term borrowings |
|
| 6 |
|
|
| 6 |
|
Other borrowings |
|
| — |
|
|
| 10 |
|
Total interest expense |
|
| 1,172 |
|
|
| 1,106 |
|
Net Interest Income |
|
| 24,118 |
|
|
| 21,729 |
|
Provision for loan losses |
|
| 1,354 |
|
|
| 78 |
|
Net interest income after provision for loan losses |
|
| 22,764 |
|
|
| 21,651 |
|
Non-Interest Income: |
|
|
|
|
|
|
|
|
Service charges |
|
| 1,732 |
|
|
| 1,783 |
|
Investment advisory fees |
|
| 117 |
|
|
| 1,927 |
|
Realized gains on securities available for sale, net |
|
| 60 |
|
|
| 26 |
|
Prepayment penalty - FHLB Borrowings |
|
| — |
|
|
| (1,860 | ) |
Other income |
|
| 605 |
|
|
| 603 |
|
Total non-interest income |
|
| 2,514 |
|
|
| 2,479 |
|
Non-Interest Expense: |
|
|
|
|
|
|
|
|
Salaries and employee benefits |
|
| 11,331 |
|
|
| 13,039 |
|
Occupancy |
|
| 1,926 |
|
|
| 2,019 |
|
Professional services |
|
| 2,244 |
|
|
| 1,693 |
|
Equipment |
|
| 921 |
|
|
| 998 |
|
Business development |
|
| 360 |
|
|
| 671 |
|
FDIC assessment |
|
| 479 |
|
|
| 606 |
|
Other operating expenses |
|
| 2,624 |
|
|
| 2,764 |
|
Total non-interest expense |
|
| 19,885 |
|
|
| 21,790 |
|
Income before income taxes |
|
| 5,393 |
|
|
| 2,340 |
|
Income taxes |
|
| 605 |
|
|
| 738 |
|
Net Income |
| $ | 4,788 |
|
| $ | 1,602 |
|
Basic earnings per common share |
| $ | 0.24 |
|
| $ | 0.08 |
|
Diluted earnings per common share |
| $ | 0.24 |
|
| $ | 0.08 |
|
See notes to condensed consolidated financial statements
2
HUDSON VALLEY HOLDING CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)
(In thousands)
|
| Three Months Ended |
| |||||
|
| March 31 |
| |||||
|
|
| 2015 |
|
|
| 2014 |
|
Net income |
| $ | 4,788 |
|
| $ | 1,602 |
|
Other comprehensive income, net of tax: |
|
|
|
|
|
|
|
|
Net change in unrealized gains: |
|
|
|
|
|
|
|
|
Securities available for sale not other-than-temporarily impaired: |
|
|
|
|
|
|
|
|
Gains arising during the period |
|
| 4,796 |
|
|
| 3,884 |
|
Income tax effect |
|
| (1,910 | ) |
|
| (1,501 | ) |
|
|
| 2,886 |
|
|
| 2,383 |
|
Gains recognized in earnings |
|
| (60 | ) |
|
| (26 | ) |
Income tax effect |
|
| 24 |
|
|
| 10 |
|
|
|
| (36 | ) |
|
| (16 | ) |
Unrealized holding gains on securities available for sale not |
|
|
|
|
|
|
|
|
other-than-temporarily-impaired, net of tax |
|
| 2,850 |
|
|
| 2,367 |
|
Unrealized holding gains on securities, net |
|
| 2,850 |
|
|
| 2,367 |
|
Accrued benefit liability adjustment: |
|
|
|
|
|
|
|
|
Net gain during the period |
|
| — |
|
|
| — |
|
Reclassification adjustment for amortization of prior service cost and |
|
|
|
|
|
|
|
|
net gain/loss included in net period pension cost |
|
| 50 |
|
|
| 188 |
|
Income tax effect |
|
| (20 | ) |
|
| (75 | ) |
Net of tax |
|
| 30 |
|
|
| 113 |
|
Other comprehensive income |
|
| 2,880 |
|
|
| 2,480 |
|
Comprehensive Income |
| $ | 7,668 |
|
| $ | 4,082 |
|
|
|
|
|
|
|
|
|
|
See notes to condensed consolidated financial statements
3
HUDSON VALLEY HOLDING CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(In thousands, except share and per share data)
|
| March 31 |
|
| December 31 |
| ||
|
| 2015 |
|
| 2014 |
| ||
ASSETS |
|
|
|
|
|
|
|
|
Cash and non-interest earning due from banks |
| $ | 41,892 |
|
| $ | 33,208 |
|
Interest earning deposits in banks |
|
| 323,580 |
|
|
| 259,660 |
|
Total cash and cash equivalents |
|
| 365,472 |
|
|
| 292,868 |
|
Federal funds sold |
|
| 11,651 |
|
|
| 13,673 |
|
Securities available for sale, at estimated fair value (amortized cost of $774,145 in |
|
|
|
|
|
|
|
|
2015 and $815,077 in 2014) |
|
| 779,520 |
|
|
| 815,716 |
|
Securities held to maturity, at amortized cost (estimated fair value of $3,754 in |
|
|
|
|
|
|
|
|
2015 and $4,404 in 2014) |
|
| 3,524 |
|
|
| 4,158 |
|
Federal Home Loan Bank of New York (FHLB) stock |
|
| 2,409 |
|
|
| 2,409 |
|
Loans (net of allowance for loan losses of $28,355 in 2015 and $27,342 in 2014) |
|
| 1,943,706 |
|
|
| 1,900,814 |
|
Accrued interest and other receivables |
|
| 16,142 |
|
|
| 13,219 |
|
Premises and equipment, net |
|
| 14,432 |
|
|
| 15,251 |
|
Other real estate owned |
|
| 222 |
|
|
| — |
|
Deferred income tax, net |
|
| 19,957 |
|
|
| 26,364 |
|
Bank owned life insurance |
|
| 43,777 |
|
|
| 43,058 |
|
Goodwill |
|
| 1,369 |
|
|
| 3,989 |
|
Other intangible assets |
|
| — |
|
|
| 523 |
|
Other assets |
|
| 6,145 |
|
|
| 6,528 |
|
Total Assets |
| $ | 3,208,326 |
|
| $ | 3,138,570 |
|
|
|
|
|
|
|
|
|
|
LIABILITIES |
|
|
|
|
|
|
|
|
Deposits: |
|
|
|
|
|
|
|
|
Non-interest bearing |
| $ | 1,102,742 |
|
| $ | 1,081,251 |
|
Interest bearing |
|
| 1,756,070 |
|
|
| 1,699,821 |
|
Total deposits |
|
| 2,858,812 |
|
|
| 2,781,072 |
|
Securities sold under repurchase agreements |
|
| 19,865 |
|
|
| 28,161 |
|
Accrued interest and other liabilities |
|
| 25,864 |
|
|
| 31,771 |
|
Total Liabilities |
|
| 2,904,541 |
|
|
| 2,841,004 |
|
|
|
|
|
|
|
|
|
|
STOCKHOLDERS’ EQUITY |
|
|
|
|
|
|
|
|
Preferred Stock, $0.01 par value; authorized 15,000,000 shares; no shares |
|
|
|
|
|
|
|
|
outstanding in 2015 and 2014, respectively |
|
| — |
|
|
| — |
|
Common stock, $0.20 par value; authorized 25,000,000 shares: outstanding |
|
|
|
|
|
|
|
|
20,076,540 and 20,082,568 shares in 2015 and 2014, respectively |
|
| 4,275 |
|
|
| 4,276 |
|
Additional paid-in capital |
|
| 356,497 |
|
|
| 356,339 |
|
Retained deficit |
|
| (1,582 | ) |
|
| (4,764 | ) |
Accumulated other comprehensive income (loss) |
|
| 2,159 |
|
|
| (721 | ) |
Treasury stock, at cost; 1,299,414 shares in 2015 and 2014 |
|
| (57,564 | ) |
|
| (57,564 | ) |
Total Stockholders' Equity |
|
| 303,785 |
|
|
| 297,566 |
|
Total Liabilities and Stockholders' Equity |
| $ | 3,208,326 |
|
| $ | 3,138,570 |
|
|
|
|
|
|
|
|
|
|
See notes to condensed consolidated financial statements
4
HUDSON VALLEY HOLDING CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (UNAUDITED)
Three Months Ended March 31, 2015 and 2014
(In thousands, except share and per share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Accumulated |
|
|
|
|
| |
|
| Number of |
|
|
|
|
|
|
|
|
|
| Additional |
|
|
|
|
|
| Other |
|
|
|
|
| |||
|
| Shares |
|
| Common |
|
| Treasury |
|
| Paid-in |
|
| Retained |
|
| Comprehensive |
|
|
|
|
| ||||||
|
| Outstanding |
|
| Stock |
|
| Stock |
|
| Capital |
|
| Deficit |
|
| Income (Loss) |
|
| Total |
| |||||||
Balance at January 1, 2014 |
|
| 19,935,559 |
|
| $ | 4,247 |
|
| $ | (57,564 | ) |
| $ | 351,108 |
|
| $ | (7,111 | ) |
| $ | (6,371 | ) |
| $ | 284,309 |
|
Net income |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 1,602 |
|
|
| — |
|
|
| 1,602 |
|
Other comprehensive income |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 2,480 |
|
|
| 2,480 |
|
Common stock issued for dividend reinvestment |
|
| 678 |
|
|
| — |
|
|
| — |
|
|
| 12 |
|
|
| — |
|
|
| — |
|
|
| 12 |
|
Vesting and exercise of stock options, net of tax |
|
| 6,413 |
|
|
| 1 |
|
|
| — |
|
|
| 119 |
|
|
| — |
|
|
| — |
|
|
| 120 |
|
Restricted stock awards and related expense, net of withheld shares |
|
| 89,781 |
|
|
| 18 |
|
|
| — |
|
|
| 209 |
|
|
| — |
|
|
| — |
|
|
| 227 |
|
Cash dividends ($0.06 per share) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (1,197 | ) |
|
| — |
|
|
| (1,197 | ) |
Balance at March 31, 2014 |
|
| 20,032,431 |
|
| $ | 4,266 |
|
| $ | (57,564 | ) |
| $ | 351,448 |
|
| $ | (6,706 | ) |
| $ | (3,891 | ) |
| $ | 287,553 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at January 1, 2015 |
|
| 20,082,568 |
|
| $ | 4,276 |
|
| $ | (57,564 | ) |
| $ | 356,339 |
|
| $ | (4,764 | ) |
| $ | (721 | ) |
| $ | 297,566 |
|
Net income |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 4,788 |
|
|
| — |
|
|
| 4,788 |
|
Other comprehensive income |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 2,880 |
|
|
| 2,880 |
|
Common stock issued for dividend reinvestment |
|
| 709 |
|
|
| — |
|
|
| — |
|
|
| 18 |
|
|
| — |
|
|
| — |
|
|
| 18 |
|
Restricted stock awards and related expense, net of withheld shares |
|
| (6,737 | ) |
|
| (1 | ) |
|
| — |
|
|
| 140 |
|
|
| — |
|
|
| — |
|
|
| 139 |
|
Cash dividends ($0.08 per share) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (1,606 | ) |
|
| — |
|
|
| (1,606 | ) |
Balance at March 31, 2015 |
|
| 20,076,540 |
|
| $ | 4,275 |
|
| $ | (57,564 | ) |
| $ | 356,497 |
|
| $ | (1,582 | ) |
| $ | 2,159 |
|
| $ | 303,785 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See notes to condensed consolidated financial statements
5
HUDSON VALLEY HOLDING CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(In thousands)
|
| Three Months Ended |
| |||||
|
| March 31 |
| |||||
|
|
| 2015 |
|
|
| 2014 |
|
Operating Activities: |
|
|
|
|
|
|
|
|
Net Income |
| $ | 4,788 |
|
| $ | 1,602 |
|
Adjustments to reconcile net income to net cash provided by operating activities: |
|
|
|
|
|
|
|
|
Provision for loan losses |
|
| 1,354 |
|
|
| 78 |
|
Depreciation and amortization |
|
| 671 |
|
|
| 697 |
|
Realized gain on security transactions net |
|
| (60 | ) |
|
| (26 | ) |
Amortization of premiums on securities, net |
|
| 979 |
|
|
| 427 |
|
Increase in cash value of bank owned life insurance |
|
| (517 | ) |
|
| (441 | ) |
Amortization of other intangible assets |
|
| 11 |
|
|
| 48 |
|
Share-based payment expense |
|
| 139 |
|
|
| 227 |
|
Deferred tax expense |
|
| 323 |
|
|
| 4,170 |
|
Decrease in deferred loan fees, net |
|
| 234 |
|
|
| 350 |
|
Increase in accrued interest and other receivables |
|
| (2,923 | ) |
|
| (3,270 | ) |
Decrease (increase) in other assets |
|
| 895 |
|
|
| (281 | ) |
Excess tax benefit from share-based payment arrangements |
|
| (142 | ) |
|
| (47 | ) |
Decrease in accrued interest and other liabilities |
|
| (5,854 | ) |
|
| (4,744 | ) |
Net Cash Used in Operating Activities |
|
| (102 | ) |
|
| (1,210 | ) |
Investing Activities: |
|
|
|
|
|
|
|
|
Net decrease in short term investments |
|
| 2,022 |
|
|
| 8,268 |
|
Decrease in FHLB stock |
|
| — |
|
|
| 738 |
|
Proceeds from maturities of securities available for sale |
|
| 40,716 |
|
|
| 19,996 |
|
Proceeds from maturities of securities held to maturity |
|
| 637 |
|
|
| 287 |
|
Proceeds from sales of securities available for sale |
|
| 361 |
|
|
| 9,548 |
|
Purchases of securities available for sale |
|
| (1,070 | ) |
|
| (16,230 | ) |
Net increase in loans |
|
| (44,702 | ) |
|
| (27,044 | ) |
Premiums paid on bank owned life insurance |
|
| (202 | ) |
|
| (190 | ) |
Proceeds from sale of subsidiary |
|
| 6,798 |
|
|
| — |
|
Net sales (purchases) of premises and equipment |
|
| 148 |
|
|
| (330 | ) |
Net Cash Provided by (Used in) Investing Activities |
|
| 4,708 |
|
|
| (4,957 | ) |
Financing Activities: |
|
|
|
|
|
|
|
|
Proceeds from issuance of common stock |
|
| 18 |
|
|
| 132 |
|
Excess tax benefits from share-based payment arrangements |
|
| 142 |
|
|
| 47 |
|
Net increase (decrease) in deposits |
|
| 77,740 |
|
|
| (71,726 | ) |
Cash dividends paid |
|
| (1,606 | ) |
|
| (1,197 | ) |
Repayment of other borrowings |
|
| — |
|
|
| (16,388 | ) |
Net decrease in securities sold under repurchase agreements |
|
| (8,296 | ) |
|
| (3,196 | ) |
Net Cash Provided by (Used in) Financing Activities |
|
| 67,998 |
|
|
| (92,328 | ) |
Increase (Decrease) in Cash and Cash Equivalents |
|
| 72,604 |
|
|
| (98,495 | ) |
Cash and Cash Equivalents, Beginning of Period |
|
| 292,868 |
|
|
| 699,354 |
|
Cash and Cash Equivalents, End of Period |
| $ | 365,472 |
|
| $ | 600,859 |
|
Supplemental Disclosures: |
|
|
|
|
|
|
|
|
Interest paid |
| $ | 1,179 |
|
| $ | 1,222 |
|
Income tax payments |
|
| 71 |
|
|
| — |
|
Change in unrealized loss on securities available for sale, net of tax |
|
| 2,850 |
|
|
| 2,367 |
|
Transfers to other real estate owned |
|
| 222 |
|
|
| — |
|
See notes to condensed consolidated financial statements
6
HUDSON VALLEY HOLDING CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(Dollars in thousands, except share and per share data)
1. Description of Operations
Hudson Valley Holding Corp. (“Hudson Valley” or the “Company”) is a New York corporation founded in 1982. The Company is registered as a bank holding company under the Bank Holding Company Act of 1956.
The Company provides financial services through its wholly-owned subsidiary, Hudson Valley Bank, N.A. (“HVB” or the “Bank”), a national banking association established in 1972, with operational headquarters in Westchester County, New York. HVB has seventeen branch offices in Westchester County, New York, four in Manhattan, New York, four in Bronx County, New York, two in Rockland County, New York, and one in Kings County, New York.
The Company provides asset based lending products through a wholly-owned subsidiary of HVB, HVB Capital Credit LLC, which was formed in 2013 and has offices at 489 Fifth Avenue in Manhattan, New York.
The Company provides equipment loan and lease financing through a wholly-owned subsidiary of HVB, HVB Equipment Capital, LLC, which was formed in 2014 and also has offices at 489 Fifth Avenue in Manhattan, New York.
On January 22, 2015, the Company completed the sale of A.R. Schmeidler & Co., Inc. (“ARS”). ARS provided money management services and had offices at 500 Fifth Avenue in Manhattan, New York.
We derive substantially all of our revenue and income from providing banking and related services to businesses, professionals, municipalities, not-for-profit organizations and individuals within our market area.
Our principal executive offices are located at 21 Scarsdale Road, Yonkers, New York 10707.
Our principal customers are businesses, professionals, municipalities, not-for-profit organizations and individuals. Our strategy is to operate community-oriented banking institutions dedicated to providing personalized service to customers and focusing on products and services for selected segments of the market. We believe that our ability to attract and retain customers is due primarily to our focused approach to our markets, our personalized and professional services, our product offerings, our experienced staff, our knowledge of our markets and our ability to provide responsive solutions to customer needs. We provide these products and services to a diverse range of customers and do not rely on a single large depositor for a significant percentage of deposits.
On November 4, 2014, the Company signed a definitive Agreement and Plan of Merger (the “Merger Agreement”) with Sterling Bancorp (“Sterling”) whereby the Company will be merged with and into Sterling (the “Merger”). Immediately following the Merger, HVB will merge with and into Sterling’s wholly owned subsidiary, Sterling National Bank, with Sterling National Bank as the surviving entity. Subject to the terms and conditions of the Merger Agreement, upon completion of the Merger, the Company’s stockholders will have the right to receive 1.92 shares of Sterling common stock for each share of Company common stock. The Merger has been approved by the boards of directors of both the Company and Sterling and the Company’s and Sterling’s shareholders. The Merger is subject to regulatory approval and other customary closing conditions. The Merger is anticipated to close in the second quarter of 2015.
2. Basis of Presentation
The unaudited condensed consolidated financial statements included in this report have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and the instructions for Form 10-Q and Article 10 of Regulation S-X. Accordingly, these financial statements do not contain all of the information and footnotes required by GAAP for annual financial statements and should be read in conjunction with the Company’s Annual Report on Form 10-K for the year ended December 31, 2014.
The accounting and reporting policies followed in the presentation of the unaudited condensed consolidated financial statements are consistent with those described in Note 1 of the Notes to Consolidated Financial Statements included in the Company’s 2014 Annual Report on Form 10-K. Management has evaluated all significant events and transactions that occurred after March 31, 2015, for potential recognition or disclosure in these consolidated financial statements. In the opinion of management, these consolidated financial statements reflect all adjustments necessary to present fairly such information for the periods and dates indicated. Such adjustments are normal and recurring in nature. All significant intercompany accounts and transactions have been eliminated in consolidation. Certain prior period amounts have been reclassified to conform to the current period’s presentation. Reclassifications had no effect on prior period net income or stockholders’ equity.
7
In preparing such financial statements, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the dates of the consolidated balance sheets and statements of income for the periods reported. Actual results could differ significantly from those estimates. Estimates that are particularly susceptible to significant change in the near term relate to the determination of the allowance for loan losses, the determination of the fair value of securities available for sale, the determination of other-than-temporary impairment of investments and the carrying amounts of goodwill and deferred tax assets. In connection with the determination of the allowance for loan losses, management utilizes the work of professional appraisers for significant properties.
3. Securities
The following tables set forth the amortized cost, gross unrealized gains and losses and the estimated fair value of securities classified as available for sale and held to maturity at the dates indicated:
|
| March 31, 2015 |
| |||||||||||||
|
| Amortized |
|
| Gross Unrealized |
|
| Estimated |
| |||||||
|
| Cost |
|
| Gains |
|
| Losses |
|
| Fair Value |
| ||||
|
| (In thousands) |
| |||||||||||||
Classified as Available for Sale |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasury and government agencies |
| $ | 112,465 |
|
| $ | 759 |
|
| $ | 18 |
|
| $ | 113,206 |
|
Mortgage-backed securities - residential |
|
| 554,194 |
|
|
| 4,981 |
|
|
| 1,916 |
|
|
| 557,259 |
|
Obligations of states and political subdivisions |
|
| 97,119 |
|
|
| 904 |
|
|
| 31 |
|
|
| 97,992 |
|
Other debt securities |
|
| 965 |
|
|
| 4 |
|
|
| — |
|
|
| 969 |
|
Total debt securities |
|
| 764,743 |
|
|
| 6,648 |
|
|
| 1,965 |
|
|
| 769,426 |
|
Mutual funds and other equity securities |
|
| 9,402 |
|
|
| 769 |
|
|
| 77 |
|
|
| 10,094 |
|
Total |
| $ | 774,145 |
|
| $ | 7,417 |
|
| $ | 2,042 |
|
| $ | 779,520 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Amortized |
|
| Gross Unrecognized |
|
| Estimated |
| |||||||
|
| Cost |
|
| Gains |
|
| Losses |
|
| Fair Value |
| ||||
|
| (In thousands) |
| |||||||||||||
Classified as Held to Maturity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage-backed securities - residential |
| $ | 2,145 |
|
| $ | 211 |
|
|
| — |
|
| $ | 2,356 |
|
Obligations of states and political subdivisions |
|
| 1,379 |
|
|
| 19 |
|
|
| — |
|
|
| 1,398 |
|
Total |
| $ | 3,524 |
|
| $ | 230 |
|
|
| — |
|
| $ | 3,754 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| December 31, 2014 |
| |||||||||||||
|
| Amortized |
|
| Gross Unrealized |
|
| Estimated |
| |||||||
|
| Cost |
|
| Gains |
|
| Losses |
|
| Fair Value |
| ||||
|
| (In thousands) |
| |||||||||||||
Classified as Available for Sale |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasury and government agencies |
| $ | 120,545 |
|
| $ | 159 |
|
| $ | 282 |
|
| $ | 120,422 |
|
Mortgage-backed securities - residential |
|
| 583,031 |
|
|
| 2,829 |
|
|
| 3,401 |
|
|
| 582,459 |
|
Obligations of states and political subdivisions |
|
| 100,830 |
|
|
| 817 |
|
|
| 193 |
|
|
| 101,454 |
|
Other debt securities |
|
| 969 |
|
|
| 2 |
|
|
| 1 |
|
|
| 970 |
|
Total debt securities |
|
| 805,375 |
|
|
| 3,807 |
|
|
| 3,877 |
|
|
| 805,305 |
|
Mutual funds and other equity securities |
|
| 9,702 |
|
|
| 904 |
|
|
| 195 |
|
|
| 10,411 |
|
Total |
| $ | 815,077 |
|
| $ | 4,711 |
|
| $ | 4,072 |
|
| $ | 815,716 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Amortized |
|
| Gross Unrecognized |
|
| Estimated |
| |||||||
|
| Cost |
|
| Gains |
|
| Losses |
|
| Fair Value |
| ||||
|
| (In thousands) |
| |||||||||||||
Classified as Held to Maturity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage-backed securities - residential |
| $ | 2,301 |
|
| $ | 219 |
|
|
| — |
|
| $ | 2,520 |
|
Obligations of states and political subdivisions |
|
| 1,857 |
|
|
| 27 |
|
|
| — |
|
|
| 1,884 |
|
Total |
| $ | 4,158 |
|
| $ | 246 |
|
|
| — |
|
| $ | 4,404 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8
The following table summarizes the change in pretax other-than-temporary impairment (“OTTI”) credit related losses on securities available for sale for the periods indicated:
|
| Three Months Ended March 31, |
| |||||
|
|
| 2015 |
|
|
| 2014 |
|
|
| (In thousands) |
| |||||
Balance at beginning of period: |
|
|
|
|
|
|
|
|
Total OTTI credit related impairment charges beginning of period |
|
| — |
|
| $ | 11,242 |
|
Increase to the amount related to the credit loss for which other-than-temporary impairment was previously recognized |
|
| — |
|
|
| — |
|
Credit related impairment dispositions |
|
| — |
|
|
| (11,242 | ) |
Credit related impairment not previously recognized |
|
| — |
|
|
| — |
|
Balance at end of period: |
|
| — |
|
| $ | — |
|
|
|
|
|
|
|
|
|
|
At March 31, 2015 and December 31, 2014, securities having a stated value of approximately $209,321 and $265,054, respectively, were pledged to secure public deposits, securities sold under agreements to repurchase and for other purposes as required or permitted by law.
The following tables reflect the fair value and gross unrealized loss of the Company’s investments, aggregated by investment category and length of time the individual securities have been in a continuous unrealized loss position, as of the dates indicated:
|
| Less Than 12 Months |
|
| Greater Than 12 Months |
|
| Total |
| |||||||||||||||
|
|
|
|
|
| Gross |
|
|
|
|
|
| Gross |
|
|
|
|
|
| Gross |
| |||
|
| Fair |
|
| Unrealized |
|
| Fair |
|
| Unrealized |
|
| Fair |
|
| Unrealized |
| ||||||
March 31, 2015 |
| Value |
|
| Loss |
|
| Value |
|
| Loss |
|
| Value |
|
| Loss |
| ||||||
|
| (In thousands) |
| |||||||||||||||||||||
Available for sale: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasuries and government agencies |
| $ | 6,298 |
|
| $ | 7 |
|
| $ | 4,237 |
|
| $ | 11 |
|
| $ | 10,535 |
|
| $ | 18 |
|
Mortgage-backed securities - residential |
|
| 54,287 |
|
|
| 187 |
|
|
| 101,126 |
|
|
| 1,729 |
|
|
| 155,413 |
|
|
| 1,916 |
|
Obligations of states and political subdivisions |
|
| 8,804 |
|
|
| 23 |
|
|
| 1,617 |
|
|
| 8 |
|
|
| 10,421 |
|
|
| 31 |
|
Total debt securities |
|
| 69,389 |
|
|
| 217 |
|
|
| 106,980 |
|
|
| 1,748 |
|
|
| 176,369 |
|
|
| 1,965 |
|
Mutual funds and other equity securities |
|
| — |
|
|
| — |
|
|
| 8,923 |
|
|
| 77 |
|
|
| 8,923 |
|
|
| 77 |
|
Total temporarily impaired securities |
| $ | 69,389 |
|
| $ | 217 |
|
| $ | 115,903 |
|
| $ | 1,825 |
|
| $ | 185,292 |
|
| $ | 2,042 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Less Than 12 Months |
|
| Greater Than 12 Months |
|
| Total |
| |||||||||||||||
|
|
|
|
|
| Gross |
|
|
|
|
|
| Gross |
|
|
|
|
|
| Gross |
| |||
|
| Fair |
|
| Unrealized |
|
| Fair |
|
| Unrealized |
|
| Fair |
|
| Unrealized |
| ||||||
December 31, 2014 |
| Value |
|
| Loss |
|
| Value |
|
| Loss |
|
| Value |
|
| Loss |
| ||||||
|
| (In thousands) |
| |||||||||||||||||||||
Available for sale: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasuries and government agencies |
| $ | 35,149 |
|
| $ | 82 |
|
| $ | 17,880 |
|
| $ | 200 |
|
| $ | 53,029 |
|
| $ | 282 |
|
Mortgage-backed securities - residential |
|
| 187,074 |
|
|
| 617 |
|
|
| 136,437 |
|
|
| 2,784 |
|
|
| 323,511 |
|
|
| 3,401 |
|
Obligations of states and political subdivisions |
|
| 29,654 |
|
|
| 181 |
|
|
| 2,412 |
|
|
| 12 |
|
|
| 32,066 |
|
|
| 193 |
|
Other debt securities |
|
| 201 |
|
|
| — |
|
|
| 409 |
|
|
| 1 |
|
|
| 610 |
|
|
| 1 |
|
Total debt securities |
|
| 252,078 |
|
|
| 880 |
|
|
| 157,138 |
|
|
| 2,997 |
|
|
| 409,216 |
|
|
| 3,877 |
|
Mutual funds and other equity securities |
|
| — |
|
|
| — |
|
|
| 9,014 |
|
|
| 195 |
|
|
| 9,014 |
|
|
| 195 |
|
Total temporarily impaired securities |
| $ | 252,078 |
|
| $ | 880 |
|
| $ | 166,152 |
|
| $ | 3,192 |
|
| $ | 418,230 |
|
| $ | 4,072 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
There were no securities classified as held to maturity in an unrealized loss position at March 31, 2015 or December 31, 2014.
The total number of securities in the Company’s portfolio that were in an unrealized loss position was 103 and 273 at March 31, 2015 and December 31, 2014, respectively. The Company has determined that it does not intend to sell, nor is it more likely than not that it will be required to sell, its securities that are in an unrealized loss position prior to the recovery of its amortized cost basis. The Company believes that its securities continue to have satisfactory ratings, are readily marketable and that current unrealized losses are primarily a result of changes in interest rates and other market conditions. Therefore, management does not consider these investments to be other-than-temporarily impaired at March 31, 2015.
9
The contractual maturity of all debt securities held at March 31, 2015 is shown below. Actual maturities may differ from contractual maturities because some issuers have the right to call or prepay obligations with or without call or prepayment penalties.
|
| Available for Sale |
|
| Held to Maturity |
| ||||||||||
|
| Amortized |
|
| Fair |
|
| Amortized |
|
| Fair |
| ||||
|
| Cost |
|
| Value |
|
| Cost |
|
| Value |
| ||||
|
| (In thousands) |
| |||||||||||||
Contractual Maturity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Within 1 year |
| $ | 46,374 |
|
| $ | 46,441 |
|
|
| — |
|
|
| — |
|
After 1 year but within 5 years |
|
| 144,880 |
|
|
| 146,069 |
|
| $ | 1,379 |
|
| $ | 1,398 |
|
After 5 year but within 10 years |
|
| 19,295 |
|
|
| 19,657 |
|
|
| — |
|
|
| — |
|
Mortgage-backed securities - residential |
|
| 554,194 |
|
|
| 557,259 |
|
|
| 2,145 |
|
|
| 2,356 |
|
Total |
| $ | 764,743 |
|
| $ | 769,426 |
|
| $ | 3,524 |
|
| $ | 3,754 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4. Loans
The loan portfolio is comprised of the following:
|
| March 31 |
|
| December 31 |
| ||
|
| 2015 |
|
|
| 2014 |
| |
|
| (In thousands) |
| |||||
Real estate: |
|
|
|
|
|
|
|
|
Commercial |
| $ | 623,160 |
|
| $ | 617,299 |
|
Construction |
|
| 103,727 |
|
|
| 101,802 |
|
Residential multi-family |
|
| 328,277 |
|
|
| 326,416 |
|
Residential other |
|
| 391,265 |
|
|
| 394,820 |
|
Commercial & industrial |
|
| 485,037 |
|
|
| 448,628 |
|
Individuals & lease financing |
|
| 40,077 |
|
|
| 38,439 |
|
Total loans |
|
| 1,971,543 |
|
|
| 1,927,404 |
|
Deferred loan costs, net |
|
| 518 |
|
|
| 752 |
|
Allowance for loan losses |
|
| (28,355 | ) |
|
| (27,342 | ) |
Loans, net |
| $ | 1,943,706 |
|
| $ | 1,900,814 |
|
|
|
|
|
|
|
|
|
|
Risk characteristics of the Company’s loan portfolio segments include the following:
Commercial Real Estate Loans — In underwriting commercial real estate loans, the Company evaluates both the prospective borrower’s ability to make timely payments on the loan and the value of the property securing the loan. Repayment of such loans may be negatively impacted should the borrower default or should there be a substantial decline in the value of the property securing the loan, or a decline in general economic conditions. Where the owner occupies the property, the Company also evaluates the business’s ability to repay the loan on a timely basis. In addition, the Company may require personal guarantees, lease assignments and/or the guarantee of the operating company when the property is owner occupied. These types of loans may involve greater risks than other types of lending, because payments on such loans are often dependent upon the successful operation of the business involved, therefore, repayment of such loans may be negatively impacted by adverse changes in economic conditions affecting the borrowers’ business.
Construction Loans — Construction loans are short-term loans (generally up to 18 months) secured by land for both residential and commercial development. The loans are generally made for acquisition and improvements. Funds are disbursed as phases of construction are completed. Most non-residential construction loans require pre-approved permanent financing or pre-leasing by the company or another bank providing the permanent financing. The Company funds construction of single family homes and commercial real estate, when no contract of sale exists, based upon the experience of the builder, the financial strength of the owner, the type and location of the property and other factors. Construction loans are generally personally guaranteed by the principal(s). Repayment of such loans may be negatively impacted by the builders’ inability to complete construction, by a downturn in the new construction market, by a significant increase in interest rates or by a decline in general economic conditions. The Bank’s primary regulator considers construction loans to be part of commercial real estate for concentration risk measurement purposes.
Residential Real Estate Loans — Various loans secured by residential real estate properties are offered by the Company, including 1-4 family residential mortgages, multi-family residential loans and a variety of home equity line of credit products. Repayment of such loans may be negatively impacted should the borrower default, should there be a significant decline in the value of
10
the property securing the loan or should there be a decline in general economic conditions. These loans are available for 7 or 10 year terms with one 5 year extension option. A 7 year term with no extension option is also offered. Pricing is typically based on a spread over the corresponding Federal Home Loan Bank (“FHLB”) rate. Amortization of up to 30 years, a maximum loan to value ratio of 80% and a debt service coverage ratio of 1.2 to 1 are generally required. The Bank’s primary regulator considers multi-family residential loans to be part of commercial real estate for concentration risk measurement purposes.
Commercial and Industrial Loans — The Company’s commercial and industrial loan portfolio consists primarily of commercial business loans and lines of credit to businesses and professionals. These loans are usually made to finance the purchase of inventory, new or used equipment or other short or long-term working capital purposes. These loans are generally secured by corporate assets, often with real estate as secondary collateral, but are also offered on an unsecured basis. In granting this type of loan, the Company primarily looks to the borrower’s cash flow as the source of repayment with collateral and personal guarantees, where obtained, as a secondary source. Asset-based lending (“ABL”) loans are secured by a variety of assets usually comprised of accounts receivable, inventory, machinery and equipment and, at times, real estate. The collateral is considered the primary source of repayment and the operation of the business is the secondary source. Commercial loans are often larger and may involve greater risks than other types of loans offered by the Company. Payments on such loans are often dependent upon the successful operation of the underlying business involved and, therefore, repayment of such loans may be negatively impacted by adverse changes in economic conditions, management’s inability to effectively manage the business, claims of others against the borrower’s assets which may take priority over the Company’s claims against assets, death or disability of the borrower or loss of market for the borrower’s products or services.
Lease Financing and Other Loans — The Company originates lease financing transactions which are primarily conducted with businesses, professionals and not-for-profit organizations. In late March 2014, the Company initiated an equipment leasing program with a focus on financing income producing equipment in the manufacturing, healthcare, technology and transportation segments. Payments on such loans are often dependent upon the successful operation of the underlying business involved and, therefore, repayment of such loans may be negatively impacted by adverse changes in economic conditions, and management’s inability to effectively manage the business or loss of market for the borrower’s products or services. The Company also offers installment loans and reserve lines of credit to individuals. Repayment of such loans are often dependent on the personal income of the borrower which may be negatively impacted by adverse changes in economic conditions. The Company does not place an emphasis on originating these types of loans.
The following table presents the allowance for loan losses by portfolio segment for the periods indicated:
| For the Three Months Ended March 31, 2015 |
| |||||||||||||||||||||
| Commercial |
|
|
|
|
|
| Residential |
|
| Commercial & |
|
| Lease Financing |
|
|
|
|
| ||||
| Real Estate |
|
| Construction |
|
| Real Estate |
|
| Industrial |
|
| & Other |
|
| Total |
| ||||||
| (In thousands) |
| |||||||||||||||||||||
Balance at beginning of period | $ | 11,226 |
|
| $ | 3,643 |
|
| $ | 6,273 |
|
| $ | 5,777 |
|
| $ | 423 |
|
| $ | 27,342 |
|
Charge-offs |
| (500 | ) |
|
| — |
|
|
| — |
|
|
| (27 | ) |
|
| (3 | ) |
|
| (530 | ) |
Recoveries |
| — |
|
|
| — |
|
|
| 65 |
|
|
| 103 |
|
|
| 21 |
|
|
| 189 |
|
Net (charge-offs) recoveries |
| (500 | ) |
|
| — |
|
|
| 65 |
|
|
| 76 |
|
|
| 18 |
|
|
| (341 | ) |
Provision for loan losses |
| 1,045 |
|
|
| 173 |
|
|
| (219 | ) |
|
| 530 |
|
|
| (175 | ) |
|
| 1,354 |
|
Net change during the period |
| 545 |
|
|
| 173 |
|
|
| (154 | ) |
|
| 606 |
|
|
| (157 | ) |
|
| 1,013 |
|
Balance at end of period | $ | 11,771 |
|
| $ | 3,816 |
|
| $ | 6,119 |
|
| $ | 6,383 |
|
| $ | 266 |
|
| $ | 28,355 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| For the Three Months Ended March 31, 2014 |
| |||||||||||||||||||||
| Commercial |
|
|
|
|
|
| Residential |
|
| Commercial & |
|
| Lease Financing |
|
|
|
|
| ||||
| Real Estate |
|
| Construction |
|
| Real Estate |
|
| Industrial |
|
| & Other |
|
| Total |
| ||||||
| (In thousands) |
| |||||||||||||||||||||
Balance at beginning of period | $ | 11,231 |
|
| $ | 4,641 |
|
| $ | 6,236 |
|
| $ | 3,436 |
|
| $ | 446 |
|
| $ | 25,990 |
|
Charge-offs |
| — |
|
|
| — |
|
|
| (217 | ) |
|
| (32 | ) |
|
| (10 | ) |
|
| (259 | ) |
Recoveries |
| 787 |
|
|
| 37 |
|
|
| 48 |
|
|
| 131 |
|
|
| 92 |
|
|
| 1,095 |
|
Net recoveries (charge-offs) |
| 787 |
|
|
| 37 |
|
|
| (169 | ) |
|
| 99 |
|
|
| 82 |
|
|
| 836 |
|
Provision for loan losses |
| (480 | ) |
|
| (364 | ) |
|
| 470 |
|
|
| 550 |
|
|
| (98 | ) |
|
| 78 |
|
Net change during the period |
| 307 |
|
|
| (327 | ) |
|
| 301 |
|
|
| 649 |
|
|
| (16 | ) |
|
| 914 |
|
Balance at end of period | $ | 11,538 |
|
| $ | 4,314 |
|
| $ | 6,537 |
|
| $ | 4,085 |
|
| $ | 430 |
|
| $ | 26,904 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11
The following tables present the allowance for loan losses and the recorded investment in loans by portfolio segment based on impairment method as of the dates indicated:
| March 31, 2015 |
| |||||||||||||||||||||
| Commercial |
|
|
|
|
|
| Residential |
|
| Commercial & |
|
| Lease Financing |
|
|
|
|
| ||||
| Real Estate |
|
| Construction |
|
| Real Estate |
|
| Industrial |
|
| & Other |
|
| Total |
| ||||||
| (In thousands) |
| |||||||||||||||||||||
Allowance for loan losses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance attributed to loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Collectively evaluated for impairment | $ | 11,771 |
|
| $ | 3,816 |
|
| $ | 6,119 |
|
| $ | 6,383 |
|
| $ | 266 |
|
| $ | 28,355 |
|
Individually evaluated for impairment |
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Total allowance for loan losses | $ | 11,771 |
|
| $ | 3,816 |
|
| $ | 6,119 |
|
| $ | 6,383 |
|
| $ | 266 |
|
| $ | 28,355 |
|
Total loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance of loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Collectively evaluated for impairment | $ | 600,586 |
|
| $ | 102,848 |
|
| $ | 709,960 |
|
| $ | 476,414 |
|
| $ | 40,077 |
|
| $ | 1,929,885 |
|
Individually evaluated for impairment |
| 22,574 |
|
|
| 879 |
|
|
| 9,582 |
|
|
| 8,623 |
|
|
| — |
|
|
| 41,658 |
|
Total loans | $ | 623,160 |
|
| $ | 103,727 |
|
| $ | 719,542 |
|
| $ | 485,037 |
|
| $ | 40,077 |
|
| $ | 1,971,543 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| December 31, 2014 |
| |||||||||||||||||||||
| Commercial |
|
|
|
|
|
| Residential |
|
| Commercial & |
|
| Lease Financing |
|
|
|
|
| ||||
| Real Estate |
|
| Construction |
|
| Real Estate |
|
| Industrial |
|
| & Other |
|
| Total |
| ||||||
| (In thousands) |
| |||||||||||||||||||||
Allowance for loan losses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance attributed to loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Collectively evaluated for impairment | $ | 11,226 |
|
| $ | 3,643 |
|
| $ | 6,273 |
|
| $ | 5,777 |
|
| $ | 423 |
|
| $ | 27,342 |
|
Individually evaluated for impairment |
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Total allowance for loan losses | $ | 11,226 |
|
| $ | 3,643 |
|
| $ | 6,273 |
|
| $ | 5,777 |
|
| $ | 423 |
|
| $ | 27,342 |
|
Total loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance of loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Collectively evaluated for impairment | $ | 593,985 |
|
| $ | 100,923 |
|
| $ | 711,476 |
|
| $ | 440,131 |
|
| $ | 38,439 |
|
| $ | 1,884,954 |
|
Individually evaluated for impairment |
| 23,314 |
|
|
| 879 |
|
|
| 9,760 |
|
|
| 8,497 |
|
|
| — |
|
|
| 42,450 |
|
Total loans | $ | 617,299 |
|
| $ | 101,802 |
|
| $ | 721,236 |
|
| $ | 448,628 |
|
| $ | 38,439 |
|
| $ | 1,927,404 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12
The following table presents the recorded investment in non-accrual loans and loans past due 90 days and still accruing by class of loans as of the dates indicated:
| March 31, 2015 |
|
| December 31, 2014 |
| ||||||||||
|
|
|
|
| Past Due |
|
|
|
|
|
| Past Due |
| ||
|
|
|
|
| 90 Days and |
|
|
|
|
|
| 90 Days and |
| ||
| Non-Accrual |
|
| Still Accruing |
|
| Non-Accrual |
|
| Still Accruing |
| ||||
| (In thousands) |
| |||||||||||||
Loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial real estate: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Owner occupied | $ | 1,625 |
|
|
| — |
|
| $ | 1,817 |
|
|
| — |
|
Non owner occupied |
| 11,446 |
|
|
| — |
|
|
| 11,964 |
|
|
| — |
|
Construction: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial |
| 879 |
|
|
| — |
|
|
| 879 |
|
|
| — |
|
Residential |
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Residential: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Multifamily |
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
1-4 family |
| 6,331 |
|
|
| — |
|
|
| 6,494 |
|
|
| — |
|
Home equity |
| 980 |
|
|
| — |
|
|
| 980 |
|
|
| — |
|
Commercial & industrial |
| 460 |
|
|
| — |
|
|
| 250 |
|
|
| — |
|
Other: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lease financing & other |
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Overdrafts |
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Total | $ | 21,721 |
|
|
| — |
|
| $ | 22,384 |
|
|
| — |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross interest income that would have been recorded if these borrowers had been current in accordance with their original loan terms was $306 and $272 for the three month periods ended March 31, 2015 and 2014, respectively. There was no interest income recorded on non-accrual loans during the three month periods ended March 31, 2015 and 2014.
The following table presents the aging of loans (including past due and non-accrual loans) by class of loans as of the dates indicated:
|
| March 31, 2015 |
| |||||||||||||||||||||
|
| 31-60 Days |
|
| 61-89 Days |
|
| 90 Days Or |
|
| Total |
|
|
|
|
|
|
|
|
| ||||
|
| Past Due |
|
| Past Due |
|
| More Past Due |
|
| Past Due |
|
| Current |
|
| Total |
| ||||||
|
| (In thousands) |
| |||||||||||||||||||||
Loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial real estate: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Owner occupied |
|
| — |
|
|
| — |
|
| $ | 191 |
|
| $ | 191 |
|
| $ | 160,109 |
|
| $ | 160,300 |
|
Non owner occupied |
|
| — |
|
| $ | 313 |
|
|
| 11,446 |
|
|
| 11,759 |
|
|
| 451,101 |
|
|
| 462,860 |
|
Construction: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial |
| $ | 5,677 |
|
|
| — |
|
|
| 879 |
|
|
| 6,556 |
|
|
| 59,523 |
|
|
| 66,079 |
|
Residential |
|
| 2,999 |
|
|
| — |
|
|
| — |
|
|
| 2,999 |
|
|
| 34,649 |
|
|
| 37,648 |
|
Residential: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Multifamily |
|
| 615 |
|
|
| 423 |
|
|
| — |
|
|
| 1,038 |
|
|
| 327,239 |
|
|
| 328,277 |
|
1-4 family |
|
| 1,202 |
|
|
| — |
|
|
| 4,685 |
|
|
| 5,887 |
|
|
| 271,543 |
|
|
| 277,430 |
|
Home equity |
|
| 1,699 |
|
|
| 4,597 |
|
|
| 980 |
|
|
| 7,276 |
|
|
| 106,559 |
|
|
| 113,835 |
|
Commercial & industrial |
|
| 1,576 |
|
|
| 149 |
|
|
| 460 |
|
|
| 2,185 |
|
|
| 482,852 |
|
|
| 485,037 |
|
Other: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lease financing & other |
|
| 2 |
|
|
| — |
|
|
| — |
|
|
| 2 |
|
|
| 38,462 |
|
|
| 38,464 |
|
Overdrafts |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 1,613 |
|
|
| 1,613 |
|
Total |
| $ | 13,770 |
|
| $ | 5,482 |
|
| $ | 18,641 |
|
| $ | 37,893 |
|
| $ | 1,933,650 |
|
| $ | 1,971,543 |
|
13
|
| December 31, 2014 |
| |||||||||||||||||||||
|
| 31-60 Days |
|
| 61-89 Days |
|
| 90 Days Or |
|
| Total |
|
|
|
|
|
|
|
|
| ||||
|
| Past Due |
|
| Past Due |
|
| More Past Due |
|
| Past Due |
|
| Current |
|
| Total |
| ||||||
|
| (In thousands) |
| |||||||||||||||||||||
Loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial real estate: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Owner occupied |
|
| — |
|
|
| — |
|
| $ | 205 |
|
| $ | 205 |
|
| $ | 162,894 |
|
| $ | 163,099 |
|
Non owner occupied |
|
| — |
|
|
| — |
|
|
| 11,963 |
|
|
| 11,963 |
|
|
| 442,237 |
|
|
| 454,200 |
|
Construction: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial |
|
| — |
|
|
| — |
|
|
| 879 |
|
|
| 879 |
|
|
| 61,668 |
|
|
| 62,547 |
|
Residential |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 39,255 |
|
|
| 39,255 |
|
Residential: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Multifamily |
| $ | 616 |
|
|
| — |
|
|
| — |
|
|
| 616 |
|
|
| 325,800 |
|
|
| 326,416 |
|
1-4 family |
|
| 923 |
|
| $ | 314 |
|
|
| 4,818 |
|
|
| 6,055 |
|
|
| 272,523 |
|
|
| 278,578 |
|
Home equity |
|
| 4,133 |
|
|
| 922 |
|
|
| 980 |
|
|
| 6,035 |
|
|
| 110,207 |
|
|
| 116,242 |
|
Commercial & industrial |
|
| 131 |
|
|
| 879 |
|
|
| 250 |
|
|
| 1,260 |
|
|
| 447,368 |
|
|
| 448,628 |
|
Other: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lease financing & other |
|
| 5 |
|
|
| — |
|
|
| — |
|
|
| 5 |
|
|
| 37,186 |
|
|
| 37,191 |
|
Overdrafts |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 1,248 |
|
|
| 1,248 |
|
Total |
| $ | 5,808 |
|
| $ | 2,115 |
|
| $ | 19,095 |
|
| $ | 27,018 |
|
| $ | 1,900,386 |
|
| $ | 1,927,404 |
|
Impaired loans and the recorded investment in impaired loans as of the dates indicated were as follows:
|
| March 31, 2015 |
|
| December 31, 2014 |
| ||||||||||||||||||
|
| Unpaid |
|
|
|
|
|
| Allowance for |
|
| Unpaid |
|
|
|
|
|
| Allowance for |
| ||||
|
| Principal |
|
| Recorded |
|
| Loan Losses |
|
| Principal |
|
| Recorded |
|
| Loan Losses |
| ||||||
|
| Balance |
|
| Investment |
|
| Allocated |
|
| Balance |
|
| Investment |
|
| Allocated |
| ||||||
|
| (In thousands) |
| |||||||||||||||||||||
With no related allowance recorded: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial real estate: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Owner occupied |
| $ | 9,796 |
|
| $ | 9,715 |
|
|
| — |
|
| $ | 10,010 |
|
| $ | 9,930 |
|
|
| — |
|
Non owner occupied |
|
| 14,001 |
|
|
| 12,859 |
|
|
| — |
|
|
| 14,028 |
|
|
| 13,385 |
|
|
| — |
|
Construction: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial |
|
| 1,231 |
|
|
| 879 |
|
|
| — |
|
|
| 1,231 |
|
|
| 879 |
|
|
| — |
|
Residential: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Multifamily |
|
| 1,578 |
|
|
| 1,578 |
|
|
| — |
|
|
| 1,589 |
|
|
| 1,589 |
|
|
| — |
|
1-4 family |
|
| 8,527 |
|
|
| 6,950 |
|
|
| — |
|
|
| 8,692 |
|
|
| 7,115 |
|
|
| — |
|
Home equity |
|
| 1,055 |
|
|
| 1,055 |
|
|
| — |
|
|
| 1,055 |
|
|
| 1,055 |
|
|
| — |
|
Commercial & industrial |
|
| 8,850 |
|
|
| 8,623 |
|
|
| — |
|
|
| 8,725 |
|
|
| 8,497 |
|
|
| — |
|
Total loans |
| $ | 45,038 |
|
| $ | 41,659 |
|
|
| — |
|
| $ | 45,330 |
|
| $ | 42,450 |
|
|
| — |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The carrying value of impaired loans was determined using either the fair value of the underlying collateral of the loan or by an analysis of the expected cash flows related to the loan.
14
The following table presents the average recorded investment in impaired loans by portfolio segment and interest recognized on impaired loans for the periods indicated:
|
| Three Months Ended March 31, | ||||||
|
| 2015 |
| 2014 | ||||
|
| Average |
|
|
| Average |
|
|
|
| Recorded |
| Interest |
| Recorded |
| Interest |
|
| Investment |
| Income |
| Investment |
| Income |
|
| (In thousands) | ||||||
Commercial real estate: |
|
|
|
|
|
|
|
|
Owner occupied |
| $ 9,821 |
| $ 30 |
| $ 10,644 |
| $ 18 |
Non owner occupied |
| 13,122 |
| 78 |
| 3,581 |
| 77 |
Construction: |
|
|
|
|
|
|
|
|
Commercial |
| 879 |
| — |
| 879 |
| — |
Residential |
| — |
| — |
| — |
| — |
Residential: |
|
|
|
|
|
|
|
|
Multifamily |
| 1,584 |
| 17 |
| 2,275 |
| 17 |
1-4 family |
| 7,033 |
| 9 |
| 12,768 |
| 10 |
Home equity |
| 1,055 |
| 1 |
| 1,160 |
| 1 |
Commercial & industrial |
| 8,560 |
| 90 |
| 9,747 |
| 98 |
Lease financing & other |
| — |
| — |
| — |
| — |
Total |
| $ 42,054 |
| $ 225 |
| $ 41,054 |
| $ 221 |
|
|
|
|
|
|
|
|
|
During the three months ended March 31, 2015, there were no loans modified as troubled debt restructurings (“TDRs”). During the three months ended March 31, 2014, the terms of certain loans were modified as TDRs. The modification of the terms of such loans included one or a combination of the following: a reduction of the stated interest rate of the loan; an extension of the maturity date at a stated rate of interest lower than the current market rate for new debt with similar risk; or a permanent reduction of the recorded investment in the loan. Modifications involving a reduction of the stated interest rate of the loan were for periods ranging from 6 months to 15 years. Modifications involving an extension of the maturity date were for periods ranging from 6 months to 3 years.
The Company is committed to extend approximately $228 of additional credit to a borrower whose loan is classified as a TDR. Impaired loans as of March 31, 2015 and December 31, 2014 included $25,517 and $25,837, respectively, of loans considered to be TDRs. The Company classifies all loans considered to be TDRs as impaired.
For the three month period ended March 31, 2015, fifteen TDRs with carrying amounts of $19,938 were on accrual status and performing in accordance with their modified terms. All other TDRs for the three month period ended March 31, 2015 were on non-accrual status. There were no TDRs with payment defaults within twelve months following the modification during both of the three month periods ended March 31, 2015 and 2014. The Company’s policy states that a loan is considered to be in payment default once it is 45 days contractually past due under the modified terms.
15
The following tables present loans by class modified as TDRs that occurred during the periods indicated:
| Three Months Ended March 31, 2015 |
| Three Months Ended March 31, 2014 | ||||||||
|
|
| Pre-Modification |
| Post-Modification |
|
|
| Pre-Modification |
| Post-Modification |
|
|
| Outstanding |
| Outstanding |
|
|
| Outstanding |
| Outstanding |
| Number |
| Recorded |
| Recorded |
| Number |
| Recorded |
| Recorded |
| of Loans |
| Investment |
| Investment |
| of Loans |
| Investment |
| Investment |
| (Dollars in thousands) | ||||||||||
Commercial real estate: |
|
|
|
|
|
|
|
|
|
|
|
Owner occupied | — |
| — |
| — |
| 1 |
| $ 1,299 |
| $ 1,299 |
Non owner occupied | — |
| — |
| — |
| 2 |
| 1,444 |
| 1,444 |
Construction: |
|
|
|
|
|
|
|
|
|
|
|
Commercial | — |
| — |
| — |
| — |
| — |
| — |
Residential | — |
| — |
| — |
| — |
| — |
| — |
Residential: |
|
|
|
|
|
|
|
|
|
|
|
Multifamily | — |
| — |
| — |
| — |
| — |
| — |
1-4 family | — |
| — |
| — |
| — |
| — |
| — |
Home equity | — |
| — |
| — |
| — |
| — |
| — |
Commercial & industrial | — |
| — |
| — |
| — |
| — |
| — |
Other: |
|
|
|
|
|
|
|
|
|
|
|
Lease financing & other | — |
| — |
| — |
| — |
| — |
| — |
Overdrafts | — |
| — |
| — |
| — |
| — |
| — |
Total | — |
| — |
| — |
| 3 |
| $ 2,743 |
| $ 2,743 |
|
|
|
|
|
|
|
|
|
|
|
|
The TDRs described above resulted in no charge-offs during the three month periods ended March 31, 2015 and 2014.
The Company categorizes loans into risk categories based on relevant information about the ability of the borrowers to service their debt such as value of underlying collateral, current financial information, historical payment experience, credit documentation, public information, and current economic trends, among other factors. The Company analyzes non-homogeneous loans individually and classifies them as to credit risk on a quarterly basis. The Company uses the following definitions for risk ratings:
Special Mention — Loans classified as special mention have potential weaknesses that deserve management’s close attention. If left uncorrected, these potential weaknesses may result in deterioration of repayment prospects for the asset or in the institution’s credit position at some future date.
Substandard — Loans classified as substandard are inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any. Loans so classified must have a well-defined weakness, or weaknesses, that jeopardize the liquidation of the debt. They are characterized by the distinct possibility that the Bank will sustain some loss if the deficiencies are not corrected.
Doubtful — Loans classified as doubtful have all the weaknesses inherent in one classified as substandard with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently known facts, conditions and values, highly questionable and improbable.
Loans not meeting the above criteria that are analyzed individually as part of the above described process are considered to be pass rated loans.
16
The following table presents the risk category by class of loans as of the dates indicated of non-homogeneous loans individually classified as to credit risk as of the most recent analysis performed:
|
| March 31, 2015 |
| |||||||||||||||||
|
| Pass |
|
| Special Mention |
|
| Substandard |
|
| Doubtful |
|
| Total |
| |||||
|
| (In thousands) |
| |||||||||||||||||
Commercial real estate: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Owner occupied |
| $ | 135,127 |
|
| $ | 8,914 |
|
| $ | 16,259 |
|
|
| — |
|
| $ | 160,300 |
|
Non owner occupied |
|
| 425,149 |
|
|
| 19,257 |
|
|
| 18,454 |
|
|
| — |
|
|
| 462,860 |
|
Construction: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial |
|
| 58,913 |
|
|
| 6,287 |
|
|
| 879 |
|
|
| — |
|
|
| 66,079 |
|
Residential |
|
| 37,266 |
|
|
| — |
|
|
| 382 |
|
|
| — |
|
|
| 37,648 |
|
Residential: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Multifamily |
|
| 324,838 |
|
|
| 3,439 |
|
|
| — |
|
|
| — |
|
|
| 328,277 |
|
1-4 family |
|
| 27,088 |
|
|
| 1,748 |
|
|
| 9,368 |
|
|
| — |
|
|
| 38,204 |
|
Home equity |
|
| 128 |
|
|
| — |
|
|
| 2,071 |
|
|
| — |
|
|
| 2,199 |
|
Commercial & industrial |
|
| 464,698 |
|
|
| 8,382 |
|
|
| 3,505 |
|
|
| — |
|
|
| 476,585 |
|
Lease financing & other |
|
| 35,694 |
|
|
| — |
|
|
| 169 |
|
|
| — |
|
|
| 35,863 |
|
Total loans |
| $ | 1,508,901 |
|
| $ | 48,027 |
|
| $ | 51,087 |
|
|
| — |
|
| $ | 1,608,015 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| December 31, 2014 |
| |||||||||||||||||
|
| Pass |
|
| Special Mention |
|
| Substandard |
|
| Doubtful |
|
| Total |
| |||||
|
| (In thousands) |
| |||||||||||||||||
Commercial real estate: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Owner occupied |
| $ | 137,544 |
|
| $ | 8,969 |
|
| $ | 16,586 |
|
|
| — |
|
| $ | 163,099 |
|
Non owner occupied |
|
| 418,511 |
|
|
| 17,649 |
|
|
| 18,040 |
|
|
| — |
|
|
| 454,200 |
|
Construction: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial |
|
| 55,368 |
|
|
| 6,300 |
|
|
| 879 |
|
|
| — |
|
|
| 62,547 |
|
Residential |
|
| 39,077 |
|
|
| — |
|
|
| 178 |
|
|
| — |
|
|
| 39,255 |
|
Residential: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Multifamily |
|
| 323,573 |
|
|
| 2,843 |
|
|
| — |
|
|
| — |
|
|
| 326,416 |
|
1-4 family |
|
| 27,737 |
|
|
| 2,350 |
|
|
| 9,577 |
|
|
| — |
|
|
| 39,664 |
|
Home equity |
|
| 32 |
|
|
| — |
|
|
| 1,750 |
|
|
| — |
|
|
| 1,782 |
|
Commercial & industrial |
|
| 429,147 |
|
|
| 8,641 |
|
|
| 2,670 |
|
|
| — |
|
|
| 440,458 |
|
Lease financing & other |
|
| 34,227 |
|
|
| — |
|
|
| 174 |
|
|
| — |
|
|
| 34,401 |
|
Total loans |
| $ | 1,465,216 |
|
| $ | 46,752 |
|
| $ | 49,854 |
|
|
| — |
|
| $ | 1,561,822 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans not individually rated, primarily consisting of certain 1-4 family residential mortgages and home equity lines of credit, are evaluated for risk in groups of homogeneous loans. The primary risk characteristic evaluated on these pools is delinquency.
The following table presents the delinquency categories by class of loans as of the dates indicated for loans evaluated for risk in groups of homogeneous loans:
| March 31, 2015 |
| |||||||||||||||||||||
| 31-59 Days |
|
| 60-89 Days |
|
| 90 Days Or |
|
| Total |
|
|
|
|
|
|
|
|
| ||||
| Past Due |
|
| Past Due |
|
| More Past Due |
|
| Past Due |
|
| Current |
|
| Total |
| ||||||
| (In thousands) |
| |||||||||||||||||||||
Residential: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1-4 family | $ | 197 |
|
|
| — |
|
|
| — |
|
| $ | 197 |
|
| $ | 239,029 |
|
| $ | 239,226 |
|
Home equity |
| 1,699 |
|
| $ | 4,597 |
|
|
| — |
|
|
| 6,296 |
|
|
| 105,340 |
|
|
| 111,636 |
|
Other: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other loans |
| 2 |
|
|
| — |
|
|
| — |
|
|
| 2 |
|
|
| 2,599 |
|
|
| 2,601 |
|
Commercial & industrial |
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 8,452 |
|
|
| 8,452 |
|
Overdrafts |
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 1,613 |
|
|
| 1,613 |
|
Total loans | $ | 1,898 |
|
| $ | 4,597 |
|
|
| — |
|
| $ | 6,495 |
|
| $ | 357,033 |
|
| $ | 363,528 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
17
| December 31, 2014 |
| |||||||||||||||||||||
| 31-59 Days |
|
| 60-89 Days |
|
| 90 Days Or |
|
| Total |
|
|
|
|
|
|
|
|
| ||||
| Past Due |
|
| Past Due |
|
| More Past Due |
|
| Past Due |
|
| Current |
|
| Total |
| ||||||
| (In thousands) |
| |||||||||||||||||||||
Residential: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1-4 family | $ | 425 |
|
|
| — |
|
|
| — |
|
| $ | 425 |
|
| $ | 238,489 |
|
| $ | 238,914 |
|
Home equity |
| 4,133 |
|
| $ | 498 |
|
|
| — |
|
|
| 4,631 |
|
|
| 109,829 |
|
|
| 114,460 |
|
Other: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other loans |
| 1 |
|
|
| — |
|
|
| — |
|
|
| 1 |
|
|
| 2,789 |
|
|
| 2,790 |
|
Commercial & industrial |
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 8,170 |
|
|
| 8,170 |
|
Overdrafts |
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 1,248 |
|
|
| 1,248 |
|
Total loans | $ | 4,559 |
|
| $ | 498 |
|
|
| — |
|
| $ | 5,057 |
|
| $ | 360,525 |
|
| $ | 365,582 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5. Earnings Per Share
FASB ASC 260-10-45 addresses whether instruments granted in share-based payment transactions are participating securities prior to vesting and, therefore, need to be included in the earnings allocation in computing earnings per share (“EPS”). The restricted stock awards and restricted stock units granted by the Company contain non-forfeitable rights to dividends and therefore are considered participating securities. The two-class method for calculating basic EPS excludes dividends paid to participating securities and any undistributed earnings attributable to participating securities. Restricted stock unit awards which contain forfeitable rights to dividends and are non-voting, are considered common stock equivalents and are considered only in diluted earnings per share.
The following table presents the calculation of earnings per share for the periods indicated:
|
| Three Months Ended March 31, |
| |||||
|
|
| 2015 |
|
|
| 2014 |
|
|
| (Dollars in thousands) |
| |||||
|
|
|
|
|
|
|
|
|
Net income |
| $ | 4,788 |
|
| $ | 1,602 |
|
Less: Dividends paid on and earnings allocated to participating securities |
|
| 37 |
|
|
| 22 |
|
Income attributable to common stock |
| $ | 4,751 |
|
| $ | 1,580 |
|
Weighted average common shares outstanding, including participating |
|
|
|
|
|
|
|
|
securities |
|
| 20,076,543 |
|
|
| 19,983,449 |
|
Less: Weighted average participating securities |
|
| 153,335 |
|
|
| 292,173 |
|
Weighted average common shares outstanding |
|
| 19,923,208 |
|
|
| 19,691,276 |
|
Basic earnings per common share |
| $ | 0.24 |
|
| $ | 0.08 |
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding |
|
| 19,923,208 |
|
|
| 19,691,276 |
|
Weighted average common equivalent shares outstanding |
|
| 39,099 |
|
|
| 27,719 |
|
Weighted average common and equivalent shares outstanding |
|
| 19,962,307 |
|
|
| 19,718,995 |
|
Diluted earnings per common share |
| $ | 0.24 |
|
| $ | 0.08 |
|
|
|
|
|
|
|
|
|
|
Dividends per common share |
| $ | 0.08 |
|
| $ | 0.06 |
|
|
|
|
|
|
|
|
|
|
There were 17,596 and 166,605 options outstanding at March 31, 2015, and 2014, respectively, that were not included in the computation of diluted earnings per share because the options’ exercise prices were greater than the average market price of common stock and were, therefore, antidilutive.
6. Benefit Plans
In addition to defined contribution pension and savings plans which cover substantially all employees, the Company provides additional retirement benefits to certain officers and directors pursuant to unfunded supplemental defined benefit plans. The following table summarizes the components of the net periodic pension cost of the defined benefit plans:
18
|
| Three Months Ended March 31, |
| |||||
|
|
| 2015 |
|
|
| 2014 |
|
|
| (In thousands) |
| |||||
Service cost |
| $ | 73 |
|
| $ | 109 |
|
Interest cost |
|
| 123 |
|
|
| 153 |
|
Amortization of prior service cost |
|
| — |
|
|
| — |
|
Amortization of net loss |
|
| 50 |
|
|
| 188 |
|
Net periodic pension cost |
| $ | 246 |
|
| $ | 450 |
|
|
|
|
|
|
|
|
|
|
The Company makes contributions to the unfunded defined benefit plans only as benefit payments become due. The Company disclosed in its 2014 Annual Report on Form 10-K that it expected to contribute $1,452 to the unfunded defined benefit plans during 2015. The Company contributed $297 to these plans for the three month period ended March 31, 2015.
7. Stock-Based Compensation
In accordance with the provisions of the Hudson Valley Holding Corp. 2010 Omnibus Incentive Plan (the “2010 Plan”), the Company may grant eligible employees, including directors, consultants and advisors, incentive stock options, non-qualified stock options, restricted stock awards, restricted stock units, stock appreciation rights, performance awards and other types of awards. The 2010 Plan provides for the issuance of up to 1,331,000 shares of the Company’s common stock. Prior to the 2010 Plan, the Company had stock option plans that provided for the granting of options to directors, officers, eligible employees, and certain advisors at an exercise price not less than the market value of the stock on the date of grant subject to various eligibility and vesting requirements. There will be no further grants under any plans adopted prior to the 2010 plan.
Compensation costs relating to stock-based payment transactions are recognized in the financial statements with measurement based upon the fair value of the equity or liability instruments issued. Stock-based payments are expensed over their respective vesting periods.
The following table summarizes stock-based compensation activity for the three month period ended March 31, 2015:
|
|
|
|
|
| Weighted |
|
| Aggregate |
|
| Weighted Average |
| |||
|
|
|
|
|
| Average Grant or |
|
| Intrinsic Value (2) |
|
| Remaining |
| |||
Prior Option Plans (1): |
| Shares |
|
| Exercise Price |
|
| (In thousands) |
|
| Contractual Term |
| ||||
Outstanding at December 31, 2014 |
|
| 88,466 |
|
| $ | 25.14 |
|
|
|
|
|
|
|
|
|
Granted |
|
| — |
|
|
| — |
|
|
|
|
|
|
|
|
|
Exercised |
|
| — |
|
|
| — |
|
|
|
|
|
|
|
|
|
Cancelled or expired |
|
| (3,920 | ) |
|
| 20.33 |
|
|
|
|
|
|
|
|
|
Outstanding at March 31, 2015 |
|
| 84,546 |
|
|
| 25.36 |
|
| $ | 115 |
|
|
| 1.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at March 31, 2015 |
|
| 84,546 |
|
|
| 25.36 |
|
|
| 115 |
|
|
| 1.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-vested at March 31, 2015 |
|
| — |
|
|
| — |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010 Omnibus Incentive Plan: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-vested at December 31, 2014 |
|
| 210,717 |
|
| $ | 17.46 |
|
|
|
|
|
|
|
|
|
Granted at fair value |
|
| 42,693 |
|
|
| 25.74 |
|
|
|
|
|
|
|
|
|
Restriction released |
|
| (66,725 | ) |
|
| 17.95 |
|
|
|
|
|
|
|
|
|
Cancelled |
|
| (13,286 | ) |
|
| 16.92 |
|
|
|
|
|
|
|
|
|
Non-vested at March 31, 2015 |
|
| 173,399 |
|
|
| 19.35 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available for grant at December 31, 2014 |
|
| 952,061 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted stock awards |
|
| (42,693 | ) |
| $ | 25.70 |
|
|
|
|
|
|
|
|
|
Unissued or cancelled |
|
| 37,382 |
|
|
| 17.66 |
|
|
|
|
|
|
|
|
|
Available for future grant |
|
| 946,750 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
19
|
(1) | 2010 Plan includes restricted stock awards while prior option plans do not. |
(2) | The aggregate intrinsic value of a stock option in the table above represents the total pre-tax intrinsic value (the amount by which the current fair value of the underlying stock exceeds the exercise price of the option) that would have been received by the option holders had all option holders exercised their options on March 31, 2015. This amount changes based on the fair value of the Company’s stock. |
The fair value (present value of the estimated future benefit to the option holder) of each option grant is estimated on the date of grant using the Black-Scholes option pricing model. There were no stock options granted in the three month period ended March 31, 2015 or the year ended December 31, 2014.
There was no net compensation expense related to stock options included in net income for the three month periods ended March 31, 2015 and 2014. There was no remaining unrecognized compensation expense related to stock options at March 31, 2015 and 2014.
Compensation expense of $432 and $416 related to the Company’s restricted stock awards was included in net income for the three month periods ended March 31, 2015 and 2014, respectively. The tax effect related thereto was $179 and $172, respectively. Unrecognized compensation expense related to restricted stock awards totaled $2,001 at March 31, 2015. This expense is expected to be recognized over a remaining weighted average period of 1.8 years.
During the three months ended March 31, 2015, 24,096 shares of restricted stock awards were withheld for the benefit of the participants to pay participants’ individual tax liability.
8. Fair Value
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 values:
Level 1: Quoted prices (unadjusted) for identical assets or liabilities in active markets that the entity has the ability to access as of the measurement date.
Level 2: Significant other observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data.
Level 3: Significant unobservable inputs that reflect a reporting entity’s own assumptions about the assumptions that market participants would use in pricing an asset or liability.
A description of the valuation methodologies used for assets and liabilities measured at fair value, as well as the general classification of such instruments pursuant to the valuation hierarchy, is set forth below. While management believes the Company’s valuation methodologies are appropriate and consistent with other financial institutions, the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different estimate of fair value at the reporting date.
Investment Securities — The fair values of investment securities are determined by obtaining quoted prices on nationally recognized securities exchanges, if available (Level 1), or matrix pricing, which is a mathematical technique widely used in the industry to value debt securities without relying exclusively on quoted prices for the specific securities but rather by relying on the securities’ relationship to other benchmark quoted securities, which is a Level 2 input.
Impaired Loans — At the time a loan is considered impaired, it is generally valued at lower of cost or fair value. Impaired loans carried at fair value generally are partially charged off or receive specific allocations of the allowance for loan losses. For collateral dependent loans, fair value is commonly based on recent real estate appraisals adjusted for market conditions and costs to sell. Management may apply additional discounts based on changes in the market from the time of valuation. Such adjustments are usually significant and typically result in a Level 3 classification of the inputs for determining value. Non-real estate collateral may be valued using an appraisal, net book value per the borrower’s financial statements, or aging reports, adjusted or discounted based on management’s historical knowledge, changes in market conditions from the time of the valuation, and management’s expertise and knowledge of the client and the client’s business, resulting in a Level 3 fair value classification. Impaired loans are evaluated on a quarterly basis for additional impairment and adjusted accordingly.
Other Real Estate Owned (“OREO”) — Real estate properties acquired through loan foreclosure are recorded at the lower of cost or fair value, net of estimated selling costs, at the time of foreclosure. Fair value is commonly based on real estate appraisals.
20
These appraisals may utilize a single valuation approach or a combination of approaches including comparable sales and the income approach. Adjustments are routinely made in the appraisal process by the independent appraisers to adjust for differences between the comparable sales and income data available. Such adjustments are usually significant and typically result in a Level 3 classification of the inputs used in determining fair value.
Assets and liabilities measured at fair value are summarized below:
|
| March 31, 2015 |
| |||||||||||||
|
| Quoted Prices in |
|
| Significant |
|
| Significant |
|
|
|
|
| |||
|
| Active Markets |
|
| Other |
|
| Unobservable |
|
|
|
|
| |||
|
| for Identical Assets |
|
| Observable Inputs |
|
| Inputs |
|
|
|
|
| |||
|
| (Level 1) |
|
| (Level 2) |
|
| (Level 3) |
|
| Total |
| ||||
|
| (In thousands) |
| |||||||||||||
Measured on a recurring basis: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available for sale securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasury and government agencies |
|
| — |
|
| $ | 113,206 |
|
|
| — |
|
| $ | 113,206 |
|
Mortgage-backed securities - residential |
|
| — |
|
|
| 557,259 |
|
|
| — |
|
|
| 557,259 |
|
Obligations of states and political subdivisions |
|
| — |
|
|
| 97,992 |
|
|
| — |
|
|
| 97,992 |
|
Other debt securities |
|
| — |
|
|
| 969 |
|
|
| — |
|
|
| 969 |
|
Mutual funds and other equity securities |
| $ | 10,094 |
|
|
| — |
|
|
| — |
|
|
| 10,094 |
|
Total |
| $ | 10,094 |
|
| $ | 769,426 |
|
|
| — |
|
| $ | 779,520 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Measured on a non-recurring basis: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impaired loans: (1) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial real estate |
|
| — |
|
|
| — |
|
| $ | 725 |
|
| $ | 725 |
|
Construction |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Residential |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Commercial & industrial |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Total |
|
| — |
|
|
| — |
|
| $ | 725 |
|
| $ | 725 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) | Impaired loans are reported at the fair value of the underlying collateral if repayment is expected solely from the collateral. Collateral values are estimated using Level 2 and Level 3 inputs which include independent appraisals and internally developed discounting criteria. The recorded investment in impaired loans subject to fair value reporting on March 31, 2015 was $725 for which no specific allowance has been established within the allowance for loan losses. During the three months ended March 31, 2015, there were no charge-offs related to these loans. The fair values were based on internally developed discounting criteria of the collateral and thus classified as Level 3 fair values. |
|
| December 31, 2014 |
| |||||||||||||
|
| Quoted Prices in |
|
| Significant |
|
| Significant |
|
|
|
|
| |||
|
| Active Markets |
|
| Other |
|
| Unobservable |
|
|
|
|
| |||
|
| for Identical Assets |
|
| Observable Inputs |
|
| Inputs |
|
|
|
|
| |||
|
| (Level 1) |
|
| (Level 2) |
|
| (Level 3) |
|
| Total |
| ||||
|
| (In thousands) |
| |||||||||||||
Measured on a recurring basis: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available for sale securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasury and government agencies |
|
| — |
|
| $ | 120,422 |
|
|
| — |
|
| $ | 120,422 |
|
Mortgage-backed securities - residential |
|
| — |
|
|
| 582,459 |
|
|
| — |
|
|
| 582,459 |
|
Obligations of states and political subdivisions |
|
| — |
|
|
| 101,454 |
|
|
| — |
|
|
| 101,454 |
|
Other debt securities |
|
| — |
|
|
| 970 |
|
|
| — |
|
|
| 970 |
|
Mutual funds and other equity securities |
| $ | 10,411 |
|
|
| — |
|
|
| — |
|
|
| 10,411 |
|
Total |
| $ | 10,411 |
|
| $ | 805,305 |
|
|
| — |
|
| $ | 815,716 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Measured on a non-recurring basis: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impaired loans: (1) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial real estate |
|
| — |
|
|
| — |
|
| $ | 725 |
|
| $ | 725 |
|
Construction |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Residential |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Commercial & industrial |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Total |
|
| — |
|
|
| — |
|
| $ | 725 |
|
| $ | 725 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
21
|
(1) | Impaired loans are reported at the fair value of the underlying collateral if repayment is expected solely from the collateral. Collateral values are estimated using Level 2 and Level 3 inputs which include independent appraisals and internally developed discounting criteria. The recorded investment in impaired loans subject to fair value reporting on December 31, 2014 was $725 for which no specific allowance has been established within the allowance for loan losses. During 2014, $167 of charge-offs were recorded related to these loans. The fair values were based on internally developed discounting criteria of the collateral and thus classified as Level 3 fair values. |
The following table presents quantitative information about Level 3 fair value measurements for financial instruments measured at fair value on a non-recurring basis at both March 31, 2015 and December 31, 2014:
|
| Fair Value |
|
| Valuation |
| Unobservable |
|
|
|
| |
Asset |
| (In thousands) |
|
| Technique |
| Inputs |
| Discount |
| ||
Impaired loans - commercial real estate |
| $ | 725 |
|
| Sales comparison approach |
| Discounts to appraisals for market conditions |
|
| 5% |
|
9. Fair Value of Financial Instruments
The Company follows the “Financial Instruments” topic of the FASB Accounting Standards Codification which requires the disclosure of the estimated fair value of certain financial instruments. These estimated fair values as of March 31, 2015 and December 31, 2014 have been determined using available market information and appropriate valuation methodologies. Considerable judgment is required to interpret market data to develop estimates of fair value. The estimates presented are not necessarily indicative of amounts the Company could realize in a current market exchange. The use of alternative market assumptions and estimation methodologies could have had a material effect on these estimates of fair value.
Carrying amount and estimated fair value of financial instruments, not previously presented, at the dates indicated were as follows:
|
|
|
|
|
|
|
|
|
| Fair Value Measurements |
| |||||||||
|
|
|
|
|
|
|
|
|
| Quoted Prices in |
|
| Significant |
|
| Significant |
| |||
|
|
|
|
|
| Total |
|
| Active Markets for |
|
| Other Observable |
|
| Unobservable |
| ||||
|
| Carrying |
|
| Fair |
|
| Identical Assets |
|
| Inputs |
|
| Inputs |
| |||||
March 31, 2015 |
| Amount |
|
| Value |
|
| (Level 1) |
|
| (Level 2) |
|
| (Level 3) |
| |||||
|
| (In millions) |
| |||||||||||||||||
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Held to maturity securities and accrued interest |
| $ | 3.5 |
|
| $ | 3.8 |
|
|
| — |
|
| $ | 3.8 |
|
|
| — |
|
FHLB stock |
|
| 2.4 |
|
| N/A |
|
|
| — |
|
|
| — |
|
|
| — |
| |
Loans and accrued interest |
|
| 1,978.1 |
|
|
| 1,986.8 |
|
|
| — |
|
|
| — |
|
| $ | 1,986.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits with no stated maturity and accrued interest |
|
| 2,753.5 |
|
|
| 2,753.5 |
|
| $ | 2,753.5 |
|
|
| — |
|
|
| — |
|
Time deposits and accrued interest |
|
| 105.5 |
|
|
| 105.4 |
|
|
| — |
|
|
| 105.4 |
|
|
| — |
|
Securities sold under repurchase agreements and accrued interest |
|
| 19.9 |
|
|
| 19.9 |
|
|
| 19.9 |
|
|
| — |
|
|
| — |
|
22
|
|
|
|
|
|
|
|
|
| Fair Value Measurements |
| |||||||||
|
|
|
|
|
|
|
|
|
| Quoted Prices in |
|
| Significant |
|
| Significant |
| |||
|
|
|
|
|
| Total |
|
| Active Markets for |
|
| Other Observable |
|
| Unobservable |
| ||||
|
| Carrying |
|
| Fair |
|
| Identical Assets |
|
| Inputs |
|
| Inputs |
| |||||
December 31, 2014 |
| Amount |
|
| Value |
|
| (Level 1) |
|
| (Level 2) |
|
| (Level 3) |
| |||||
|
| (In millions) |
| |||||||||||||||||
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Held to maturity securities and accrued interest |
| $ | 4.2 |
|
| $ | 4.4 |
|
|
| — |
|
| $ | 4.4 |
|
|
| — |
|
FHLB stock |
|
| 2.4 |
|
| N/A |
|
|
| — |
|
|
| — |
|
|
| — |
| |
Loans and accrued interest |
|
| 1,933.9 |
|
|
| 1,931.7 |
|
|
| — |
|
|
| — |
|
| $ | 1,931.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits with no stated maturity and accrued interest |
|
| 2,673.2 |
|
|
| 2,673.2 |
|
| $ | 2,673.2 |
|
|
| — |
|
|
| — |
|
Time deposits and accrued interest |
|
| 108.1 |
|
|
| 107.9 |
|
|
| — |
|
|
| 107.9 |
|
|
| — |
|
Securities sold under repurchase agreements and accrued interest |
|
| 28.2 |
|
|
| 28.2 |
|
|
| 28.2 |
|
|
| — |
|
|
| — |
|
The estimated fair value of the indicated items was determined as follows:
Financial assets for which carrying value approximates fair value are excluded from the table — The estimated fair value approximates carrying amount because of the immediate availability of these funds or based on the short maturities and current rates for similar deposits.
Held to maturity securities and accrued interest — The fair value of securities held to maturity was estimated based on quoted market prices or dealer quotations. Accrued interest is stated at its carrying amounts which approximates fair value.
FHLB Stock — It is not practicable to determine its fair value due to restrictions placed on its transferability.
Loans and accrued interest — The fair value of loans was estimated by discounting projected cash flows at the reporting date using current rates for similar loans. Accrued interest is stated at its carrying amount which approximates fair value. The methods utilized to estimate the fair value of loans do not necessarily represent an exit price.
Deposits with no stated maturity and accrued interest — The estimated fair value of deposits with no stated maturity and accrued interest, as applicable, are considered to be equal to their carrying amounts.
Time deposits and accrued interest — The fair value of time deposits has been estimated by discounting projected cash flows at the reporting date using current rates for similar deposits. Accrued interest is stated at its carrying amount which approximates fair value.
Securities sold under repurchase agreements and other short-term borrowings and accrued interest — The estimated fair value of these instruments approximate carrying amount because of their short maturities and variable rates. Accrued interest is stated at its carrying amount which approximates fair value.
Other borrowings and accrued interest — The fair value of callable FHLB advances was estimated by discounting projected cash flows at the reporting date using the rate applicable to the projected call date option. Accrued interest is stated at its carrying amount which approximates fair value.
23
10. Accumulated Other Comprehensive Income (Loss)
Comprehensive income consists of net income and other comprehensive income. Other comprehensive income includes unrealized gains and losses on securities available for sale and accrued benefit liability adjustments which are also recognized as separate components of equity. Activity in accumulated other comprehensive income (loss), net of tax, was as follows:
|
|
|
|
|
|
|
|
|
| Accumulated |
| |
|
| Securities |
|
| Defined |
|
| Other |
| |||
|
| Available |
|
| Benefit |
|
| Comprehensive |
| |||
|
| For Sale |
|
| Plans |
|
| Income (Loss) |
| |||
|
| (In thousands) |
| |||||||||
Balance at January 1, 2015 |
| $ | 342 |
|
| $ | (1,063 | ) |
| $ | (721 | ) |
Other comprehensive income before reclassification |
|
| 2,886 |
|
|
| — |
|
|
| 2,886 |
|
Amounts reclassified from accumulated other comprehensive income |
|
| (36 | ) |
|
| 30 |
|
|
| (6 | ) |
Net other comprehensive income during period |
|
| 2,850 |
|
|
| 30 |
|
|
| 2,880 |
|
Balance at March 31, 2015 |
| $ | 3,192 |
|
| $ | (1,033 | ) |
| $ | 2,159 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at January 1, 2014 |
| $ | (5,328 | ) |
| $ | (1,043 | ) |
| $ | (6,371 | ) |
Other comprehensive income before reclassification |
|
| 2,383 |
|
|
| — |
|
|
| 2,383 |
|
Amounts reclassified from accumulated other comprehensive income |
|
| (16 | ) |
|
| 113 |
|
|
| 97 |
|
Net other comprehensive income during period |
|
| 2,367 |
|
|
| 113 |
|
|
| 2,480 |
|
Balance at March 31, 2014 |
| $ | (2,961 | ) |
| $ | (930 | ) |
| $ | (3,891 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table represents the reclassification out of accumulated other comprehensive income for the periods indicated:
|
| Three Months Ended March 31, |
| |||||
|
|
| 2015 |
|
|
| 2014 |
|
|
| (In thousands) |
| |||||
Unrealized gains on securities available for sale: |
|
|
|
|
|
|
|
|
Realized gains on securities transactions |
| $ | 60 |
|
| $ | 26 |
|
Income tax expense |
|
| (24 | ) |
|
| (10 | ) |
Net of tax |
|
| 36 |
|
|
| 16 |
|
Amortization of pension and post-retirement benefit items: |
|
|
|
|
|
|
|
|
Amortization of net actuarial loss |
|
| (50 | ) |
|
| (188 | ) |
Amortization of prior service cost |
|
| — |
|
|
| — |
|
Income tax expense |
|
| 20 |
|
|
| 75 |
|
Net of tax |
|
| (30 | ) |
|
| (113 | ) |
Total reclassifications, net of tax |
| $ | 6 |
|
| $ | (97 | ) |
|
|
|
|
|
|
|
|
|
The income statement line items impacted by the reclassification of unrealized gains (losses) on securities available for sale are net impairment loss recognized in earnings and income tax expense. The income statement line items impacted by the reclassification of amortization of pension and post-retirement benefit items are salaries and employee benefits and income tax expense.
11. Recent Accounting Pronouncements
In January 2015, the FASB issued Accounting Standards Update (“ASU”) 2015-01, “Income Statement – Extraordinary and Unusual Items (Subtopic 225-20): Simplifying Income Statement Presentation by Eliminating the Concept of Extraordinary Items.” The amendments in this ASU eliminate from U.S. GAAP the concept of extraordinary items. Subtopic 225-20, Income Statement – Extraordinary and Unusual Items, required that an entity separately classify, present, and disclose extraordinary events and transactions. Presently, an event or transaction is presumed to be an ordinary and usual activity of the reporting entity unless evidence clearly supports its classification as an extraordinary item. If an event or transaction meets the criteria for extraordinary classification, an entity is required to segregate the extraordinary item from the results of ordinary operations and show the item separately in the income statement, net of tax, after income from continuing operations. The entity also is required to disclose applicable income taxes and either present or disclose earnings-per-share data applicable to the extraordinary item. The amendments in this ASU are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2015. Early adoption is permitted provided that the guidance is applied from the beginning of the fiscal year of adoption. A reporting entity may apply this ASU
24
prospectively or retrospectively to all prior periods presented in the financial statements. We do not expect this ASU will have a material impact on our results of operations or financial position.
12. Pending Business Combination
On April 30, 2015, the Company’s stockholders approved the Merger Agreement with Sterling. Completion of the Merger remains subject to obtaining regulatory approval and the satisfaction of the remaining customary closing conditions contained in the Merger Agreement. Assuming such conditions are satisfied, the Company currently expects to complete the Merger in the second calendar quarter of 2015.
13. Subsequent Events
On May 1, 2015, the Company entered into an agreement to sell substantially all of its asset-based loans at 98 percent in conjunction with the asset-based lending team departing the Bank. The anticipated closing date is the second quarter of 2015.
25
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
This section presents discussion and analysis of the Company’s consolidated financial condition at March 31, 2015 and December 31, 2014, and the consolidated results of operations for the three month periods ended March 31, 2015 and March 31, 2014. The Company is consolidated with its wholly owned subsidiaries Hudson Valley Bank, N.A. and its subsidiaries (collectively “HVB” or the “Bank”) and HVHC Risk Management Corp. This discussion and analysis should be read in conjunction with the financial statements and supplementary financial information contained in the Company’s 2014 Annual Report on Form 10-K.
Forward-Looking Statements
In this Quarterly Report on Form 10-Q, the Company has made various forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 with respect to earnings, credit quality and other financial and business matters for periods subsequent to March 31, 2015. Such statements are not historical facts and include expressions about management’s confidence and strategies and management’s expectations about items such as new and existing programs and products, relationships, opportunities, taxation, technology, market conditions and economic expectations. These statements may be identified by such forward-looking terminology as “should,” “expect,” “believe,” “view,” “intends,” “estimates,” “predicts,” “opportunity,” “allow,” “continues,” “reflects,” “typically,” “usually,��� “anticipate,” and words of similar import. The Company cautions that these forward-looking statements are subject to numerous assumptions, risks and uncertainties, and that statements relating to subsequent periods increasingly are subject to greater uncertainty because of the increased likelihood of changes in underlying factors and assumptions. Actual results could differ materially from forward-looking statements.
Factors that may cause actual results to differ materially from those contemplated by such forward-looking statements, in addition to those risk factors disclosed in the Company’s Annual Report on Form 10-K for the year ended December 31, 2014 include, but are not limited to, statements regarding:
● | the OCC and other bank regulators may require us to modify or change our mix of assets, including our concentration in certain types of loans, or require us to take further remedial actions; |
● | our inability to deploy our excess cash, reduce our expenses and improve our operating leverage and efficiency; |
● | our ability to pay quarterly cash dividends to shareholders in light of our earnings, the current and future economic environment, FRB guidance, our Bank’s capital plan and other regulatory requirements applicable to Hudson Valley or Hudson Valley Bank; |
● | the possibility that we may need to raise additional capital in the future and our ability to raise such capital on terms that are favorable to us; |
● | further increases in our nonperforming loans and allowance for loan losses; |
● | ineffectiveness in managing our loan portfolios; |
● | lower than expected future performance of our investment portfolio; |
● | inability to effectively integrate and manage new businesses and lending teams; |
● | a lack of opportunities for growth and increased or unexpected competition in attracting and retaining customers; |
● | continued poor economic conditions generally and in our market area in particular, which may adversely affect the ability of borrowers to repay their loans and the value of real property or other property held as collateral for such loans; |
● | lower than expected demand for our products and services; |
● | possible impairment of our goodwill and other intangible assets; |
● | our inability to manage interest rate risk; |
● | increased expense and burdens resulting from the regulatory environment in which we operate and our ability to comply with existing and future regulatory requirements; |
● | our inability to maintain regulatory capital above the minimum levels the Bank has set as its minimum capital levels or such higher capital levels as may be required; |
● | proposed legislative and regulatory action may adversely affect us and the financial services industry; |
● | legislative and regulatory actions (including the impact of the Dodd-Frank Act and Consumer Protection Act and related regulations) may subject us to additional regulatory oversight which may result in increased compliance costs and/or require us to change our business model; |
● | future increased FDIC special assessments or changes to regular assessments; |
26
● | potential liabilities under federal and state environmental laws; |
● | legislative and regulatory changes to laws governing New York State’s taxation of HVB’s REIT subsidiary; |
● | our ability to obtain regulatory approvals and meet other closing conditions to the Merger, including approval by Sterling Bancorp, on the expected terms and schedule; |
● | delay in closing the Merger; |
● | difficulties and delays in integrating the Sterling and Hudson Valley businesses or fully realizing cost savings and other benefits; |
● | business disruption following the proposed Merger transaction; changes in asset quality and credit risk; |
● | the inability to sustain revenue and earnings growth; changes in interest rates and capital markets; and |
● | the inability to realize cost savings or revenues or to implement integration plans and other consequences associated with mergers, acquisitions and divestitures. |
We assume no obligation for updating any such forward-looking statements at any time.
Overview of Management’s Discussion and Analysis
This overview is intended to highlight selected information included in this Quarterly Report on Form 10-Q. It does not contain sufficient information for a complete understanding of the Company’s financial condition and operating results and, therefore, should be read in conjunction with this entire Quarterly Report on Form 10-Q and the Company’s 2014 Annual Report on Form 10-K.
The Company derives substantially all of its revenue from providing banking and related services to businesses, professionals, municipalities, not-for profit organizations and individuals within its market area, primarily Westchester County and Rockland County, New York, and portions of New York City. The Company’s assets consist primarily of cash and cash equivalents, loans and investment securities, which are funded by deposits, borrowings and capital. The primary source of revenue is net interest income, the difference between interest income on cash and cash equivalents, loans and investments, and interest expense on deposits and borrowed funds. The Company’s strategy includes consummation of the merger (the “Merger”) with Sterling Bancorp, and to a lesser extent, investigation of opportunities for expansion within our market area, select lending opportunities outside our market area, as well as an ongoing review of our existing branch system to evaluate if our current locations have or have not met expectations for growth and profitability. Considering current economic conditions, the Company’s primary market risk exposures are interest rate risk, the risk of deterioration of market values of collateral supporting the Company’s loan portfolio, particularly commercial and residential real estate, and potential risks associated with the impact of regulatory changes that have occurred and may continue to take place in reaction to current conditions in the financial system. Interest rate risk is the exposure of net interest income to changes in interest rates. Commercial and residential real estate are the primary collateral for the majority of the Company’s loans.
The Company recorded net income for the three month period ended March 31, 2015 of $4.8 million or $0.24 per diluted share, an increase of $3.2 million compared to net income of $1.6 million or $0.08 per diluted share for the same period in the prior year. The increase in earnings for the three month period ended March 31, 2015, compared to the same period in the prior year, was primarily due to higher interest income on loans and investments, lower non-interest expense, and the recognition of a tax benefit related to the sale of A.R. Schmeidler & Co., Inc. (“ARS”), partially offset by higher interest expense on deposits and a higher provision for loan losses.
Total loans increased $44.1 million to $1,971.5 million during the three month period ended March 31, 2015 compared to $1,927.4 million at the prior year end. The overall increase was primarily the result of new production in all loan categories in excess of payoffs and net paydowns, except residential other loans. The Company continues to provide lending availability to both new and existing customers.
Nonperforming assets decreased $0.5 million to $21.9 million during the three month period ended March 31, 2015, compared to $22.4 million at the prior year end. The Company has continued to maintain the allowance for loan losses at a higher than historical level, while recognizing the measurable improvements in overall asset quality and the general economic outlook. The allowance for loan losses totaled $28.4 million or 1.44 percent of total loans at March 31, 2015, compared to $27.3 million or 1.42 percent of total loans at December 31, 2014. The provision for loan losses totaled $1.4 million for the three month period ended March 31, 2015, compared to $0.1 million for the same period in the prior year. The increase in the provision for the three months ended March 31, 2015 as compared to the same period in 2014 was predicated upon loan growth coupled with the effects of net charge-offs totaling $0.3 million during the three months ended March 31, 2015 compared to the $0.8 million net recovery recorded in the same period in 2014.
27
Total deposits increased by $77.7 million to $2,858.8 million during the three month period ended March 31, 2015, compared to $2,781.1 million at the prior year end. The Company continued to emphasize its core deposit growth, while placing less emphasis on non-core deposits.
The net interest margin was 3.21 percent for the three month period ended March 31, 2015, compared to 3.14 percent for the same period in the prior year. During the year ended December 31, 2014, the Company significantly reduced its level of excess liquidity, primarily by originating new loans, purchasing investment securities and repaying other borrowings. Net interest income increased by $2.4 million or 11.0 percent to $24.1 million for the three month period ended March 31, 2015 compared to $21.7 million for the same period in the prior year.
The tax equivalent net interest margin was 3.25 percent for the three month period ended March 31, 2015, compared to 3.19 percent for the same period in the prior year. As a result of the aforementioned activity in the Company’s core businesses of loans and deposits and other asset/liability management activities, tax equivalent basis net interest income increased by $2.3 million or 10.4 percent to $24.4 million for the three month period ended March 31, 2015, compared to $22.1 million for the same period in the prior year. Tax equivalent basis net interest income is a non-GAAP financial measure.
The Company’s non-interest income was $2.5 million for both of the three month periods ended March 31, 2015 and 2014. Service charges decreased by $0.1 million and investment advisory fees decreased by $1.8 million due to the sale of ARS in January 2015, which was offset by the previously disclosed $1.9 million pre-tax prepayment penalty for the redemption of the FHLB borrowings in January 2014.
Non-interest expense was $19.9 million for the three month period ended March 31, 2015, compared to $21.8 million for the same period in the prior year. The decrease for the three month period ended March 31, 2015, compared to the same period in the prior year, was primarily due to lower salaries and employee benefits related to the disposition of ARS and employee turnover ahead of the Merger.
Hudson Valley’s capital ratios remain in excess of “well capitalized” levels generally applicable to banks under current regulations. At March 31, 2015, Hudson Valley Holding Corp. maintained a total risk-based capital ratio of 15.1 percent, a tier 1 risk-based capital ratio of 13.9 percent, a common equity tier 1 risk-based capital ratio of 13.9 percent, and a tier 1 leverage ratio of 9.4 percent. At March 31, 2015, Hudson Valley Bank, N.A. maintained a total risk-based capital ratio of 14.9 percent, a tier 1 risk-based capital ratio of 13.6 percent, a common equity tier 1 risk-based capital ratio of 13.6 percent, and a tier 1 leverage ratio of 9.2 percent.
Critical Accounting Policies
Application of Critical Accounting Policies — The Company’s consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States (“GAAP”). Certain accounting policies require management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenue and expense during the reporting period. On an on-going basis, management evaluates its estimates and assumptions, and the effects of revisions are reflected in the financial statements in the period in which they are determined to be necessary. The critical accounting policies discussed in our Annual Report on Form 10-K for the year ended December 31, 2014, are those that most frequently require management to make estimates and judgments, and therefore, are critical to understanding the Company’s results of operations. Senior management has discussed the development and selection of these accounting estimates and the related disclosures with the Audit Committee of the Company’s Board of Directors. There have been no changes to the Company’s critical accounting policies during the three months ended March 31, 2015.
Comparison of Results of Operations for the Three Month Periods Ended March 31, 2015 and March 31, 2014
Summary of Results
The Company recorded net income of $4.8 million or $0.24 per diluted share for the three month period ended March 31, 2015, compared to net income of $1.6 million or $0.08 per diluted share for the same period in the prior year. The increase in net income for the three month period ended March 31, 2015, compared to the same period in the prior year, was primarily due to higher interest income on loans and investments, lower non-interest expense, and the recognition of a tax benefit related to the sale of ARS, partially offset by higher interest expense on deposits and a higher provision for loan losses. The provision for loan losses totaled $1.4 million for the three month period ended March 31, 2015, compared to $0.1 million for the same period in the prior year.
Annualized returns on average stockholders’ equity and average assets were 6.4 percent and 0.6 percent, respectively, for the three month period ended March 31, 2015, compared to 2.2 percent and 0.2 percent, respectively, for the same period in the prior year. Returns on adjusted average stockholders’ equity were 6.4 percent and 2.2 percent for the three month periods ended March 31, 2015 and 2014, respectively. Adjusted average stockholders’ equity excludes the effects of average net unrealized gains (losses), net of tax,
28
offset by the tax equivalent income (loss) adjustment, totaling $2.4 million and ($3.1) million for the three month periods ended March 31, 2015 and 2014, respectively. The annualized return on adjusted average stockholders’ equity is, under SEC regulations, a non-GAAP financial measure. Management believes that this non-GAAP financial measure more closely reflects actual performance, as it is more consistent with the Company’s stated asset/liability management strategies, which do not contemplate significant realization of market gains or losses on securities available for sale which were primarily related to changes in interest rates or illiquidity in the marketplace.
Average Balances and Interest Rates
The following tables set forth the average balances of interest earning assets and interest bearing liabilities as well as total interest and corresponding yields and rates for each of the periods indicated:
| Three Months Ended March 31, | ||||||||||
|
|
| 2015 |
|
|
|
|
| 2014 |
|
|
| Average |
|
|
| Yield/ |
| Average |
|
|
| Yield/ |
| Balance |
| Interest (3) |
| Rate |
| Balance |
| Interest (3) |
| Rate |
(Unaudited) | (Dollars in thousands) | ||||||||||
ASSETS |
|
|
|
|
|
|
|
|
|
|
|
Interest earning assets: |
|
|
|
|
|
|
|
|
|
|
|
Deposits in Banks | $ 273,187 |
| $ 151 |
| 0.22% |
| $ 585,180 |
| $ 341 |
| 0.23% |
Federal funds sold | 13,893 |
| 7 |
| 0.20% |
| 20,386 |
| 8 |
| 0.16% |
Securities: (1) |
|
|
|
|
|
|
|
|
|
|
|
Taxable | 702,911 |
| 3,302 |
| 1.88% |
| 456,914 |
| 2,318 |
| 2.03% |
Exempt from federal income taxes | 101,201 |
| 849 |
| 3.36% |
| 91,162 |
| 969 |
| 4.25% |
Loans, net (2) | 1,912,572 |
| 21,278 |
| 4.45% |
| 1,615,848 |
| 19,538 |
| 4.84% |
Total interest earning assets | 3,003,764 |
| 25,587 |
| 3.41% |
| 2,769,490 |
| 23,174 |
| 3.35% |
Non-interest earning assets: |
|
|
|
|
|
|
|
|
|
|
|
Cash & due from banks | 56,465 |
|
|
|
|
| 59,397 |
|
|
|
|
Other assets | 101,736 |
|
|
|
|
| 111,579 |
|
|
|
|
Total non-interest earning assets | 158,201 |
|
|
|
|
| 170,976 |
|
|
|
|
Total assets | $ 3,161,965 |
|
|
|
|
| $ 2,940,466 |
|
|
|
|
LIABILITIES AND STOCKHOLDERS' EQUITY |
|
|
|
|
|
|
|
|
|
|
|
Interest bearing liabilities: |
|
|
|
|
|
|
|
|
|
|
|
Deposits: |
|
|
|
|
|
|
|
|
|
|
|
Money market | $ 952,365 |
| $ 799 |
| 0.34% |
| $ 895,318 |
| $ 745 |
| 0.33% |
Savings | 128,334 |
| 34 |
| 0.11% |
| 124,311 |
| 43 |
| 0.14% |
Time | 106,649 |
| 119 |
| 0.45% |
| 115,035 |
| 133 |
| 0.46% |
Checking with interest | 548,769 |
| 214 |
| 0.16% |
| 456,403 |
| 169 |
| 0.15% |
Securities sold under repo & other s/t borrowings | 24,940 |
| 6 |
| 0.10% |
| 28,900 |
| 6 |
| 0.08% |
Other borrowings | — |
| — |
| 0.00% |
| 911 |
| 10 |
| 4.39% |
Total interest bearing liabilities | 1,761,057 |
| 1,172 |
| 0.27% |
| 1,620,878 |
| 1,106 |
| 0.27% |
Non-interest bearing liabilities: |
|
|
|
|
|
|
|
|
|
|
|
Demand deposits | 1,072,245 |
|
|
|
|
| 998,911 |
|
|
|
|
Other liabilities | 30,200 |
|
|
|
|
| 30,830 |
|
|
|
|
Total non-interest bearing liabilities | 1,102,445 |
|
|
|
|
| 1,029,741 |
|
|
|
|
Stockholders' equity (1) | 298,463 |
|
|
|
|
| 289,847 |
|
|
|
|
Total liabilities and stockholders' equity | $ 3,161,965 |
|
|
|
|
| $ 2,940,466 |
|
|
|
|
Net interest earnings |
|
| $ 24,415 |
|
|
|
|
| $ 22,068 |
|
|
Net yield on interest earning assets |
|
|
|
| 3.25% |
|
|
|
|
| 3.19% |
|
(1) | Excludes unrealized gains (losses) on securities available for sale. Management believes that this presentation more closely reflects actual performance, as it is more consistent with the Company’s stated asset/liability management strategies, which have not resulted in significant realization of temporary market gains or losses on securities available for sale which were primarily related to changes in interest rates. Effects of these adjustments are presented in the non-GAAP financial disclosures and reconciliation to GAAP table below. |
(2) | Includes loans classified as non-accrual. |
(3) | The data contained in this table has been adjusted to a tax equivalent basis, based on the Company’s federal statutory rate of 35 percent. Management believes that this presentation provides comparability of net interest income and net interest margin |
29
arising from both taxable and tax-exempt sources and is consistent with industry practice and SEC rules. Effects of these adjustments are presented in the non-GAAP financial disclosures and reconciliation to GAAP table below. |
The following table sets forth the non-GAAP financial disclosures and reconciliations for each of the periods indicated:
|
|
|
| |||||
|
| Three Months Ended March 31, |
| |||||
|
|
| 2015 |
|
|
| 2014 |
|
|
| (Dollars in thousands) |
| |||||
Total average interest earning assets: |
|
|
|
|
|
|
|
|
As reported |
| $ | 3,007,929 |
|
| $ | 2,764,533 |
|
Unrealized gain (loss) on securities available-for-sale (a) |
|
| 4,165 |
|
|
| (4,957 | ) |
Adjusted total average interest earning assets |
| $ | 3,003,764 |
|
| $ | 2,769,490 |
|
Net interest income: |
|
|
|
|
|
|
|
|
As reported |
| $ | 24,118 |
|
| $ | 21,729 |
|
Adjustment to tax equivalency basis (b) |
|
| 297 |
|
|
| 339 |
|
Adjusted net interest income |
| $ | 24,415 |
|
| $ | 22,068 |
|
Net yield on average interest earning assets: |
|
|
|
|
|
|
|
|
As reported |
|
| 3.21 | % |
|
| 3.14 | % |
Effects of (a) and (b) above |
|
| 0.04 | % |
|
| 0.05 | % |
Adjusted net yield on average interest earning assets |
|
| 3.25 | % |
|
| 3.19 | % |
Average stockholders' equity: |
|
|
|
|
|
|
|
|
As reported |
| $ | 300,932 |
|
| $ | 286,740 |
|
Effects of (a) and (b) above |
|
| 2,469 |
|
|
| (3,107 | ) |
Adjusted average stockholders' equity |
| $ | 298,463 |
|
| $ | 289,847 |
|
Interest income: |
|
|
|
|
|
|
|
|
As reported |
| $ | 25,290 |
|
| $ | 22,835 |
|
Adjustment to tax equivalency basis (b) |
|
| 297 |
|
|
| 339 |
|
Adjusted interest income |
| $ | 25,587 |
|
| $ | 23,174 |
|
Gross yield on average interest earning assets: |
|
|
|
|
|
|
|
|
As reported |
|
| 3.36 | % |
|
| 3.30 | % |
Effects of (a) and (b) above |
|
| 0.05 | % |
|
| 0.05 | % |
Adjusted gross yield on average interest earning assets |
|
| 3.41 | % |
|
| 3.35 | % |
|
|
|
|
|
|
|
|
|
The following table sets forth the interest rate spread on a tax equivalent basis for the periods indicated:
|
| Three Months Ended March 31, |
| |||||
|
|
| 2015 |
|
|
| 2014 |
|
Average interest rate on: |
|
|
|
|
|
|
|
|
Total average interest earning assets |
|
| 3.41 | % |
|
| 3.35 | % |
Total average interest bearing liabilities |
|
| 0.27 | % |
|
| 0.27 | % |
Total interest rate spread |
|
| 3.14 | % |
|
| 3.08 | % |
Interest rate spreads increase or decrease as a result of the relative change in average interest rates on interest earning assets compared to the change in average interest rates on interest bearing liabilities. Management cannot predict what impact market conditions will have on its interest rate spread and future compression may occur.
30
Interest Differential
The following table sets forth the changes in interest income, interest expense and net interest income for the periods indicated:
|
| Three Months Ended March 31, |
| |||||||||
|
| 2015 Compared to 2014 |
| |||||||||
|
| Volume |
|
| Rate |
|
| Total (1) |
| |||
|
| (In thousands) |
| |||||||||
Interest income: |
|
|
|
|
|
|
|
|
|
|
|
|
Deposits in banks |
| $ | (182 | ) |
| $ | (8 | ) |
| $ | (190 | ) |
Federal funds sold |
|
| (3 | ) |
|
| 2 |
|
|
| (1 | ) |
Securities: |
|
|
|
|
|
|
|
|
|
|
|
|
Taxable |
|
| 1,248 |
|
|
| (264 | ) |
|
| 984 |
|
Exempt from federal income taxes (2) |
|
| 107 |
|
|
| (227 | ) |
|
| (120 | ) |
Loans, net |
|
| 3,588 |
|
|
| (1,848 | ) |
|
| 1,740 |
|
Total interest income |
|
| 4,758 |
|
|
| (2,345 | ) |
|
| 2,413 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense: |
|
|
|
|
|
|
|
|
|
|
|
|
Deposits: |
|
|
|
|
|
|
|
|
|
|
|
|
Money market |
|
| 47 |
|
|
| 7 |
|
|
| 54 |
|
Savings |
|
| 1 |
|
|
| (10 | ) |
|
| (9 | ) |
Time |
|
| (10 | ) |
|
| (4 | ) |
|
| (14 | ) |
Checking with interest |
|
| 34 |
|
|
| 11 |
|
|
| 45 |
|
Securities sold under repo & other s/t borrowings |
|
| (1 | ) |
|
| 1 |
|
|
| — |
|
Other borrowings |
|
| (10 | ) |
|
| — |
|
|
| (10 | ) |
Total interest expense |
|
| 61 |
|
|
| 5 |
|
|
| 66 |
|
Interest differential |
| $ | 4,697 |
|
| $ | (2,350 | ) |
| $ | 2,347 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) | Changes attributable to both rate and volume are allocated between the rate and volume variances based upon their absolute relative weight to the total change. |
(2) | Equivalent yields on securities exempt from federal income taxes are based on a federal statutory rate of 35 percent in 2015 and 2014. |
Net Interest Income
Net interest income, on a tax equivalent basis, increased $2.3 million, or 10.4 percent, to $24.4 million during the three months ended March 31, 2015 compared to $22.1 million in same period in 2014. The increase in 2015, compared to 2014, was primarily due to an increase in the average balance of higher yielding loans and investment securities, funded by a decrease in the average balance of deposits in banks coupled with an increase in the overall rate earned on interest earning assets. The tax equivalent basis of the net interest margin increased to 3.25 percent in 2015, compared to 3.19 percent in 2014. Net interest income recognized in accordance with GAAP increased by $2.4 million, or 11.1 percent, to $24.1 million for the three months ended March 31, 2015 as compared to $21.7 million in 2014.
Net interest income recognized in accordance with GAAP, the difference between interest income and interest expense, is the most significant component of the Company’s consolidated earnings. Net interest income represented 87.0 percent of total revenue for the three months ended March 31, 2015 as compared to 85.8 percent for the three months ended March 31, 2014. Net interest income is dependent on the volume and composition of interest-earning assets and interest-bearing liabilities along with the interest rates in the market. The Company’s net interest income reflects new loan production and the purchase of securities in June 2014, partially offset by the continued low interest rate environment. The low interest rate environment resulted in interest-earning assets re-pricing at lower yields. Interest income from loans receivable comprised the largest component of interest income at 84.1 percent for the three months ended March 31, 2015, as compared to 85.6 percent for the three months ended March 31, 2014. Average loans receivable totaled 63.7 percent of interest-earning assets at March 31, 2015 as compared to 58.3 percent at March 31, 2014.
The “Average Balances and Interest Rates” table displays average interest-earning assets and interest-bearing liabilities, and the corresponding yield or cost associated with each. The tax equivalent net interest margin was 3.25 percent in the first quarter of 2015 compared to 3.19 percent in the first quarter of 2014. Tax equivalent net interest income for the first quarter of 2015 was $24.4 million as compared to $22.1 million for the first quarter of 2014. The increase in tax equivalent net interest income was due to higher interest income on loans and investments due to the previously mentioned growth, partially offset by lower interest income on deposits in banks due to the redeployment of excess cash into investment securities.
31
Tax equivalent interest income increased $2.3 million or 10.4 percent, to $24.4 million for the three months ended March 31, 2015, as compared to $22.1 million for the three months ended March 31, 2014.
See the Non-GAAP reconciliation in the “Average Balances and Interest Rates” section herein.
The Company’s overall asset quality has improved as a result of actions taken by management to reduce concentrations and classified assets and the gradually improving credit environment. However, the Company has continued to experience elevated levels of delinquent and nonperforming loans. Changes in the levels of nonperforming loans have a direct impact on net interest income.
Interest income is determined by the volume of, and related rates earned on, interest earning assets. Volume increases in average loans and investments, and a lower average cost of interest bearing liabilities, partially offset by a volume decrease in deposits in banks and federal funds sold resulted in slightly higher interest income for the three month period ended March 31, 2015, compared to the same periods in the prior year. Adjusted total average interest earning assets for the three month period ended March 31, 2015, increased $234.3 million or 8.5 percent to $3,003.8 million, compared to $2,769.5 million for the same period in the prior year.
Loans are the largest component of interest earning assets. Average net loans increased $296.8 million or 18.4 percent to $1,912.6 million for the three month period ended March 31, 2015, compared to $1,615.8 million for the same period in the prior year. The increase in average loans resulted from new production in excess of payoffs and paydowns. The average yield on loans was 4.45 percent for the three month period ended March 31, 2015, compared to 4.84 percent for the same period in the prior year. This reduction resulted primarily from continued historically low interest rates and their effect on the yield of new and renewing loans. Interest income on loans was higher for the three month period ended March 31, 2015, compared to the same period in the prior year, due to higher volume.
Average total securities, including FHLB stock and excluding net unrealized gains and losses, increased $256.0 million or 46.7 percent to $804.1 million for the three month period ended March 31, 2015, compared to $548.1 million for the same period in the prior year. The increase in average total securities resulted primarily from the $304 million of securities purchased in June 2014. The average tax equivalent basis yield on securities was 2.06 percent for the three month period ended March 31, 2015, compared to 2.40 percent for the same period in the prior year. Tax equivalent basis interest income on securities increased for the three month period ended March 31, 2015, compared to the same period in the prior year, due to higher volume, partially offset by lower interest rates.
Interest expense is a function of the volume of, and rates paid for, interest bearing liabilities, comprised of deposits and borrowings. Interest expense increased $0.1 million or 9.1 percent to $1.2 million for the three month period ended March 31, 2015, compared to $1.1 million for the same period in the prior year. Average interest bearing liabilities increased $140.2 million or 8.6 percent to $1,761.1 million for the three month period ended March 31, 2015, compared to $1,620.9 million for the same period in the prior year. The increase in average interest bearing liabilities for the three month period ended March 31, 2015, compared to the same period in the prior year, was due to volume increases in interest bearing deposits, partially offset by volume decreases in securities sold under repurchase agreements and other borrowings. The average interest rate paid on interest bearing liabilities remained unchanged at 0.27 percent for both of the three month periods ended March 31, 2015 and 2014.
Average non-interest bearing demand deposits increased $73.3 million or 7.3 percent to $1,072.2 million for the three month period ended March 31, 2015 compared to $998.9 million for the same period in the prior year. Non-interest bearing demand deposits are an important component of the Company’s ongoing asset liability management, and also have a direct impact on the determination of net interest income.
Provision for Loan Losses
The provision for loan losses for the three months ended March 31, 2015 was $1.4 million compared to $0.1 million for the same period in 2014. The increase in the provision for loan losses was primarily predicated upon the growth of gross loans receivable and net charge-offs totaling $0.3 million for the three months ended March 31, 2015 compared to net recoveries of $0.8 million for the same period in the prior year.
Non-Interest Income
Non-interest income totaled $2.5 million for both the three months ended March 31, 2015 and 2014.
Investment advisory fees decreased $1.8 million dollars for the three months ended March 31, 2015 compared to the same period in 2014. The decrease is attributable to the sale of ARS in January 2015.
32
Non-interest income for the three months ended March 31, 2014 included a $1.9 million pre-tax prepayment penalty for the redemption of all of the Company’s outstanding FHLB borrowings in January 2014.
Non-Interest Expense
Non-interest expense decreased $1.9 million, or 8.7 percent, to $19.9 million for the three months ended March 31, 2014 compared to $21.8 million for the same period in 2014. The decrease in non-interest expense was primarily due to decreases in salaries and employee benefits.
Salaries and employee benefits, the largest component of non-interest expense, decreased $1.7 million, or 13.1 percent, to $11.3 million for the three months ended March 31, 2015 as compared to $13.0 million during the same period in 2014. The decrease in 2015 resulted primarily from the sale of ARS coupled with employee turnover prior to the consummation of the Merger.
Professional service fees increased $0.5 million or 29.4 percent to $2.2 million for the three month period ended March 31, 2015, compared to $1.7 million for the same period in the prior year, primarily due to Merger related legal and advisory fees.
Business development expense decreased $0.3 million or 42.9 percent to $0.4 million for the three month period ended March 31, 2015, compared to $0.7 million for the same period in the prior year, primarily due to lower advertising costs.
The FDIC assessment decreased $0.1 million or 16.7 percent to $0.5 million for the three month period ended March 31, 2015, compared to $0.6 million for the same period in the prior year, primarily due to changes in the Bank’s premium calculation base and assessment rate.
Income Taxes
Income taxes of $0.6 million were recorded in the three month period ended March 31, 2015, compared to $0.7 million for the same period in the prior year. The overall effective income tax rate was 11.2 percent for the three month period ended March 31, 2015, compared to 31.5 percent for the same period in the prior year. The 2015 effective rate included a $1.2 million tax benefit related to the sale of ARS. Absent the tax benefit recognized in relation to the sale of ARS, the effective tax rate would have approximated 33.5 percent.
The Company is currently subject to a statutory Federal tax rate of 35 percent, a New York State tax rate of 7.1 percent plus a 17 percent surcharge, and a New York City tax rate of approximately 9 percent. Prior to the consolidation/closure of our Connecticut branches, we were also subject to a Connecticut State tax rate of 7.5 percent.
Effective January 1, 2015, the Company’s Bank subsidiary became subject to Article 9(A) for New York State income taxes.
In the normal course of business, the Company’s Federal, New York State and New York City Corporation Tax returns are subject to examination. The Company is currently open to examination by the Internal Revenue Service for years after 2011. The Company is currently undergoing a routine examination by New York State for years 2009 through 2012. This examination has not yet been completed and no significant issues have yet been raised. The Company does not expect any material adjustments as a result of this examination, however, until the examination is completed, the Company cannot predict the final outcome.
Financial Condition at March 31, 2015 and December 31, 2014
Assets
The Company had total assets of $3,208.3 million at March 31, 2015, an increase of $69.7 million or 2.2 percent from $3,138.6 million at December 31, 2014.
Cash and Due from Banks
Cash and due from banks was $365.5 million at March 31, 2015, an increase of $72.6 million or 24.8 percent from $292.9 million at December 31, 2014. Included in cash and due from banks is interest earning deposits of $323.6 million at March 31, 2015, compared to $259.7 million at December 31, 2014. The increase was primarily due to maturities of investment securities and an increase in deposit accounts.
Federal Funds Sold
Federal funds sold totaled $11.7 million at March 31, 2015, a decrease of $2.0 million or 14.6 percent from $13.7 million at December 31, 2014. Federal funds sold were also used to fund loan originations.
33
Securities Portfolio
Securities are selected to provide safety of principal, liquidity, pledging capabilities (to collateralize certain deposits and borrowings), income, and to leverage capital. The Company’s investment strategy focuses on maximizing income while providing for safety of principal, maintaining appropriate utilization of capital, providing adequate liquidity to meet loan demand or deposit outflows and to manage overall interest rate risk. The Company selects individual securities whose credit, cash flow, maturity and interest rate characteristics, in the aggregate, affect the stated strategies.
Securities are classified as either available for sale, representing securities the Company may sell in the ordinary course of business, or as held to maturity, representing securities the Company has the ability and positive intent to hold until maturity. Securities available for sale are reported at fair value with unrealized gains and losses (net of tax) excluded from operations and reported in other comprehensive income. Securities held to maturity are stated at amortized cost.
The available for sale portfolio totaled $779.5 million at March 31, 2015 which was a decrease of $36.2 million or 4.4 percent from $815.7 million at December 31, 2014. The amortized cost of mortgage-backed securities decreased $28.8 million, U.S. Treasury and agency securities decreased $8.1 million, obligations of states and political subdivisions decreased $3.7 million, while other debt securities remained the same.
The held to maturity portfolio totaled $3.5 million at March 31, 2015, which was a decrease of $0.7 million or 16.7 percent from $4.2 million at December 31, 2014. The decrease was due to principal payments on mortgage-backed securities and maturities of obligations of states and political subdivisions.
The Bank, as a member of the FHLB, invests in stock of the FHLB as a prerequisite to obtaining funding under various programs offered by the FHLB. The Bank must purchase additional shares of FHLB stock to obtain increases in such borrowings. Shares in excess of required amounts for outstanding borrowings are generally redeemed by the FHLB. The investment in FHLB stock totaled $2.4 million at both March 31, 2015, and December 31, 2014.
The Company continues to exercise a conservative approach to investing by purchasing high credit quality investments with various maturities and cash flows to provide for liquidity needs and prudent asset liability management. The Company’s securities portfolio provides for a significant source of income and liquidity and is utilized in managing Company-wide interest rate risk. These securities are used to collateralize borrowings and deposits to the extent required or permitted by law. Therefore, the securities portfolio is an integral part of the Company’s funding strategy.
Loan Portfolio
Net loans totaled $1,943.7 million at March 31, 2015, an increase of $42.9 million or 2.3 percent from $1,900.8 million at December 31, 2014. The overall increase in loans was primarily driven by loan originations and purchases totaling $68.4 million, partially offset by $25.5 million of pay-downs, payoffs, and other changes.
The loan portfolio, excluding loans held for sale, is comprised of the following:
|
| March 31 |
|
| December 31 |
| ||
|
| 2015 |
|
|
| 2014 |
| |
|
| (In thousands) |
| |||||
Real estate: |
|
|
|
|
|
|
|
|
Commercial |
| $ | 623,160 |
|
| $ | 617,299 |
|
Construction |
|
| 103,727 |
|
|
| 101,802 |
|
Residential multi-family |
|
| 328,277 |
|
|
| 326,416 |
|
Residential other |
|
| 391,265 |
|
|
| 394,820 |
|
Commercial & industrial |
|
| 485,037 |
|
|
| 448,628 |
|
Individuals & lease financing |
|
| 40,077 |
|
|
| 38,439 |
|
Total loans |
|
| 1,971,543 |
|
|
| 1,927,404 |
|
Deferred loan costs, net |
|
| 518 |
|
|
| 752 |
|
Allowance for loan losses |
|
| (28,355 | ) |
|
| (27,342 | ) |
Loans, net |
| $ | 1,943,706 |
|
| $ | 1,900,814 |
|
|
|
|
|
|
|
|
|
|
34
The following table illustrates the trend in nonperforming assets from March 2014 to March 2015:
| Mar 31 |
|
| Dec 31 |
|
| Sep 30 |
|
| Jun 30 |
|
| Mar 31 |
| |||||
|
| 2015 |
|
|
| 2014 |
|
|
| 2014 |
|
|
| 2014 |
|
|
| 2014 |
|
| (Dollars in thousands) |
| |||||||||||||||||
Total loans past due 90 days or more and still accruing |
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Non-accrual loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial | $ | 13,071 |
|
| $ | 13,781 |
|
| $ | 15,490 |
|
| $ | 6,916 |
|
| $ | 6,526 |
|
Construction |
| 879 |
|
|
| 879 |
|
|
| 879 |
|
|
| 879 |
|
|
| 879 |
|
Residential |
| 7,311 |
|
|
| 7,474 |
|
|
| 10,658 |
|
|
| 12,751 |
|
|
| 13,093 |
|
Total real estate |
| 21,261 |
|
|
| 22,134 |
|
|
| 27,027 |
|
|
| 20,546 |
|
|
| 20,498 |
|
Commercial & industrial |
| 460 |
|
|
| 250 |
|
|
| — |
|
|
| — |
|
|
| 508 |
|
Lease financing & other |
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Total non-accrual loans |
| 21,721 |
|
|
| 22,384 |
|
|
| 27,027 |
|
|
| 20,546 |
|
|
| 21,006 |
|
Other real estate owned |
| 222 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Total nonperforming assets including loans held for sale | $ | 21,943 |
|
| $ | 22,384 |
|
| $ | 27,027 |
|
| $ | 20,546 |
|
| $ | 21,006 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net charge-offs during quarter | $ | 341 |
|
| $ | 983 |
|
| $ | 202 |
|
| $ | 89 |
|
| $ | (836 | ) |
Nonperforming assets to total assets |
| 0.68 | % |
|
| 0.71 | % |
|
| 0.87 | % |
|
| 0.64 | % |
|
| 0.72 | % |
Non-accrual loans totaled $21.7 million at March 31, 2015, compared to $22.4 million at December 31, 2014. There was no interest income on non-accrual loans included in net income for the three month period ended March 31, 2015 and the year ended December 31, 2014. Gross interest income that would have been recorded if these borrowers had been current in accordance with their original loan terms was $0.3 million for the three month period ended March 31, 2015.
Net income is adversely impacted by the level of nonperforming assets caused by the deterioration of the borrowers’ ability to meet scheduled interest and principal payments. In addition to forgone revenue, the Company must increase the level of provision for loan losses and incur higher collection costs and other costs associated with the management and disposition of foreclosed properties.
During the three month period ended March 31, 2015:
· | Non-accrual commercial real estate loans decreased $0.7 million resulting from principal payments of $0.2 million and charge-offs of $0.5 million. |
· | Non-accrual construction loans remained unchanged at $0.9 million. |
· | Non-accrual residential loans decreased $0.2 million resulting from principal payments of $0.1 million and the transfer of one loan totaling $0.2 million to OREO, partially offset by the addition of one loan totaling $0.1 million. |
· | Non-accrual commercial and industrial loans increased $0.2 million resulting from the addition of four loans totaling $0.3 million, partially offset by principal payments of $0.1 million. |
There were no loans past due 90 days or more and still accruing at March 31, 2015 and December 31, 2014. The Company had $19.0 million and $7.9 million of loans that were 31-89 days delinquent and still accruing at March 31, 2015 and December 31, 2014, respectively.
There were twenty-three loans totaling $25.5 million and twenty-three loans totaling $25.8 million at March 31, 2015 and December 31, 2014, respectively, that were considered troubled debt restructurings. There were fifteen loans totaling $19.9 million at March 31, 2015 and fifteen loans totaling $20.1 million at December 31, 2014 that were performing in accordance with their restructured terms. The remaining loans which totaled $5.6 million and $5.7 million at March 31, 2015 and December 31, 2014, respectively, were on non-accrual status.
Allowance for Loan Losses
The Company maintains an allowance for loan losses to absorb inherent probable losses in the loan portfolio based on ongoing quarterly assessments of the estimated losses. The Company’s methodology for assessing the appropriateness of the allowance consists of a specific component for identified problem loans and a formula component to consider historical loan loss experience and additional risk factors affecting the portfolio.
35
A summary of the components of the allowance for loan losses, changes in the components and the impact of charge-offs/recoveries on the resulting provision for loan losses for the dates indicated is as follows:
|
|
|
|
|
| Change |
|
|
|
|
|
|
|
|
|
| Change |
|
|
|
|
| ||
|
| Mar 31 |
|
| During |
|
| Dec 31 |
|
| Mar 31 |
|
| During |
|
| Dec 31 |
| ||||||
|
|
| 2015 |
|
|
| 2015 |
|
|
| 2014 |
|
|
| 2014 |
|
|
| 2014 |
|
|
| 2013 |
|
|
| (Dollars in thousands) |
| |||||||||||||||||||||
Components |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Specific: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Construction |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Residential |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Commercial & industrial |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Lease financing & other |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Total specific component |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Formula: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial |
| $ | 11,771 |
|
| $ | 545 |
|
| $ | 11,226 |
|
| $ | 11,538 |
|
| $ | 307 |
|
| $ | 11,231 |
|
Construction |
|
| 3,816 |
|
|
| 173 |
|
|
| 3,643 |
|
|
| 4,314 |
|
|
| (327 | ) |
|
| 4,641 |
|
Residential |
|
| 6,119 |
|
|
| (154 | ) |
|
| 6,273 |
|
|
| 6,537 |
|
|
| 301 |
|
|
| 6,236 |
|
Commercial & industrial |
|
| 6,383 |
|
|
| 606 |
|
|
| 5,777 |
|
|
| 4,085 |
|
|
| 649 |
|
|
| 3,436 |
|
Lease financing & other |
|
| 266 |
|
|
| (157 | ) |
|
| 423 |
|
|
| 430 |
|
|
| (16 | ) |
|
| 446 |
|
Total formula component |
|
| 28,355 |
|
|
| 1,013 |
|
|
| 27,342 |
|
|
| 26,904 |
|
|
| 914 |
|
|
| 25,990 |
|
Total allowance |
| $ | 28,355 |
|
|
|
|
|
| $ | 27,342 |
|
| $ | 26,904 |
|
|
|
|
|
| $ | 25,990 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net change |
|
|
|
|
|
| 1,013 |
|
|
|
|
|
|
|
|
|
|
| 914 |
|
|
|
|
|
Net charge-offs (recoveries) (1) |
|
|
|
|
|
| 341 |
|
|
|
|
|
|
|
|
|
|
| (836 | ) |
|
|
|
|
Provision for loan losses |
|
|
|
|
| $ | 1,354 |
|
|
|
|
|
|
|
|
|
| $ | 78 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Coverage ratio (2) |
|
| 131 | % |
|
|
|
|
|
| 122 | % |
|
| 128 | % |
|
|
|
|
|
| 111 | % |
Coverage ratio excluding partial charge-offs |
|
| 130 | % |
|
|
|
|
|
| 121 | % |
|
| 128 | % |
|
|
|
|
|
| 110 | % |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) | Includes partial charge-offs of $0.5 million and $0.6 million related to nonperforming and impaired loans for the three month periods ended March 31, 2015 and 2014, respectively. |
(2) | Coverage ratio is the allowance for loan losses divided by total nonperforming loans. |
The specific component of the allowance for loan losses is the result of our analysis of impaired loans and our determination of the amount required to reduce the carrying amount of such loans to estimated fair value. Accordingly, such allowance is dependent on the particular loans and their characteristics at each measurement date, not necessarily the total amount of such loans. The Company usually records partial charge-offs as opposed to specific reserves for impaired loans that are real estate collateral dependent and for which independent appraisals have determined the fair value of the collateral to be less than the carrying amount of the loan. During the three months ended March 31, 2015, the Company recorded $0.5 million of charge-offs related to impaired loans. At March 31, 2015 and December 31, 2014, the Company had no specific reserves allocated, as partial charge-offs were recorded for all identified impairments. The Company’s analyses as of March 31, 2015 and December 31, 2014 indicated that impaired loans were principally real estate collateral dependent and that there was sufficient underlying value to indicate expected recovery of the carrying amount of the loans.
The changes in the formula component of the allowance for loan losses are the result of the application of historical loss experience to outstanding loans by type. Loss experience for each year is based upon average charge-off experience for the prior three year period by loan type. The formula component is then adjusted to reflect changes in other relevant factors affecting loan collectability. Management periodically adjusted the formula component to an amount that, when considered with the specific component, represented its best estimate of probable losses in the loan portfolio as of each balance sheet date.
Actual losses can vary significantly from the estimated amounts. The Company’s methodology permits adjustments to the allowance in the event that, in management’s judgment, significant factors which affect the collectability of the loan portfolio as of the evaluation date have changed. By assessing the estimated losses inherent in the loan portfolio on a quarterly basis, the Bank is able to
36
adjust specific and probable loss estimates based upon any more recent information that has become available. Additional information related to the Company’s allowance for loan losses is contained in Note 4 to the Company’s condensed consolidated financial statements presented in this Form 10-Q.
Management believes the allowance for loan losses is the best estimate of probable losses which have been incurred as of March 31, 2015. There is no assurance that the Company will not be required to make future adjustments to the allowance in response to changing economic conditions or regulatory examinations.
Deposits
Deposits totaled $2,858.8 million at March 31, 2015, an increase of $77.7 million or 2.8 percent from $2,781.1 million at December 31, 2014. The increase resulted primarily from higher checking and money market account balances. The Company continued to emphasize its core deposit growth, while placing less emphasis on non-core deposits including deposits which are obtained on a bid basis. The following table presents a summary of deposits at the dates indicated:
|
| March 31 |
|
| December 31 |
|
| Increase |
| |||
|
|
| 2015 |
|
|
| 2014 |
|
| (Decrease) |
| |
|
| (In thousands) |
| |||||||||
Demand deposits |
| $ | 1,102,742 |
|
| $ | 1,081,251 |
|
| $ | 21,491 |
|
Money market accounts |
|
| 961,855 |
|
|
| 962,487 |
|
|
| (632 | ) |
Savings accounts |
|
| 130,377 |
|
|
| 128,252 |
|
|
| 2,125 |
|
Time deposits of $100,000 or more |
|
| 78,165 |
|
|
| 80,332 |
|
|
| (2,167 | ) |
Time deposits of less than $100,000 |
|
| 27,263 |
|
|
| 27,739 |
|
|
| (476 | ) |
Checking with interest |
|
| 558,410 |
|
|
| 501,011 |
|
|
| 57,399 |
|
Total deposits |
| $ | 2,858,812 |
|
| $ | 2,781,072 |
|
| $ | 77,740 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Borrowings
Total borrowings were $19.9 million at March 31, 2015, a decrease of $8.3 million or 29.4 percent from $28.2 million at December 31, 2014. These borrowings consist of securities sold under repurchase agreements which can fluctuate on a daily basis. Borrowings are utilized as part of the Company’s continuing efforts to effectively leverage its capital and to manage interest rate risk.
Stockholders’ Equity
Stockholders’ equity totaled $303.8 million at March 31, 2015, an increase of $6.2 million or 2.1 percent from $297.6 million at December 31, 2014. The increase in stockholders’ equity resulted from net income of $4.8 million, an increase in accumulated other comprehensive income of $2.9 million, restricted stock issued of $0.1 million, partially offset by cash dividends paid on common stock of $1.6 million.
The Company’s and the Bank’s capital ratios at the dates indicated were as follows:
|
|
|
|
|
|
|
|
| Minimum to be |
| |
| March 31 |
|
| December 31 |
|
| Considered |
| |||
|
| 2015 |
|
|
| 2014 |
|
| Well Capitalized |
| |
Tier 1 leverage: |
|
|
|
|
|
|
|
|
|
|
|
Company |
| 9.4% |
|
|
| 9.3% |
|
| N/A |
| |
HVB |
| 9.2% |
|
|
| 9.1% |
|
|
| 5.0% |
|
Common equity tier 1 risk-based capital: (1) |
|
|
|
|
|
|
|
|
|
|
|
Company |
| 13.9% |
|
| N/A |
|
| N/A |
| ||
HVB |
| 13.6% |
|
| N/A |
|
|
| 6.5% |
| |
Tier 1 risk-based capital: |
|
|
|
|
|
|
|
|
|
|
|
Company |
| 13.9% |
|
|
| 13.9% |
|
| N/A |
| |
HVB |
| 13.6% |
|
|
| 13.6% |
|
|
| 8.0% |
|
Total risk-based capital: |
|
|
|
|
|
|
|
|
|
|
|
Company |
| 15.1% |
|
|
| 15.1% |
|
| N/A |
| |
HVB |
| 14.9% |
|
|
| 14.8% |
|
|
| 10.0% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) | New capital ratio requirement effective January 1, 2015. |
37
Liquidity
The Asset/Liability Strategic Committee (“ALSC”) of the Board of Directors of HVB establishes specific policies and operating procedures governing the Company’s liquidity levels and develops plans to address future liquidity needs, including contingent sources of liquidity. The primary functions of asset liability management are to provide safety of depositor and investor funds, assure adequate liquidity and maintain an appropriate balance between interest earning assets and interest bearing liabilities. Liquidity management involves the ability to meet the cash flow requirement of depositors wanting to withdraw funds or borrowers needing assurance that sufficient funds will be available to meet their credit needs. Interest rate sensitivity management seeks to manage fluctuating net interest margins and to enhance consistent growth of net interest income through periods of changing interest rates.
The Company’s liquid assets at March 31, 2015 include cash and due from banks of $41.9 million, $323.6 million of interest earning deposits and federal funds sold of $11.7 million. Interest earning deposits and federal funds sold represent the Company’s excess liquid funds which are invested with other financial institutions and are available daily.
Other sources of liquidity include maturities and principal and interest payments on loans and securities. The loan and securities portfolios are of high credit quality and of mixed maturity, providing a constant stream of maturing and re-investable assets, which can be converted into cash should the need arise. The ability to redeploy these funds is an important source of medium to long term liquidity. The amortized cost of securities having contractual maturities, expected call dates or average lives of one year or less amounted to $99.0 million at March 31, 2015. This represented 11.6 percent of the amortized cost of the securities portfolio. Excluding installment loans to individuals, real estate loans other than construction loans and lease financing, $189.8 million, or 9.6 percent of loans at March 31, 2015, mature in one year or less. The Company may increase liquidity by selling certain residential mortgages, or exchanging them for mortgage-backed securities that may be sold in the secondary market.
Non-interest bearing demand deposits and interest bearing deposits from businesses, professionals, not-for-profit organizations and individuals are relatively stable, low-cost sources of funds. The deposits of the Bank generally have shown a steady growth trend as well as a generally consistent deposit mix. However, there can be no assurance that deposit growth will continue or that the deposit mix will not shift to higher rate products.
HVB is a member of the FHLB. As a member, HVB is able to participate in various FHLB borrowing programs which require certain investments in FHLB common stock as a prerequisite to obtaining funds. As of March 31, 2015, HVB had short-term borrowing lines with the FHLB of $182 million with no amounts outstanding. These and various other FHLB borrowing programs available to members are subject to availability of qualifying loan and/or investment securities collateral and other terms and conditions.
HVB also has unsecured overnight borrowing lines totaling $75 million with three major financial institutions which were all unused and available at March 31, 2015. In addition, HVB has approved lines under Retail Certificate of Deposit Agreements with three major financial institutions approximating $1.2 billion of which no balances were outstanding as at March 31, 2015. Utilization of these lines is subject to product availability and other restrictions.
Additional liquidity is also provided by the Company’s ability to borrow from the Federal Reserve Bank’s discount window. In response to the current economic crisis, the Federal Reserve Bank has increased the ability of banks to borrow from this source through its Borrower-in-Custody (“BIC”) program, which expanded the types of collateral which qualify as security for such borrowings. HVB has been approved to participate in the BIC program. There were no balances outstanding with the Federal Reserve at March 31, 2015.
As of March 31, 2015, the Company had qualifying loan and investment securities totaling approximately $746 million which could be utilized under available borrowing programs thereby increasing liquidity.
Management considers the Company’s sources of liquidity to be adequate to meet any expected funding needs and to be responsive to changing interest rate markets.
Contractual Obligations and Off-Balance Sheet Arrangements
The Company has outstanding, at any time, a significant number of commitments to extend credit and provide financial guarantees to third parties. These arrangements are subject to strict credit control assessments. Guarantees specify limits to the Company’s obligations. Because many commitments and almost all guarantees expire without being funded in whole or in part, the contract amounts are not estimates of future cash flows. The Company is also obligated under leases or license agreements for certain of its branches and equipment. There have been no material changes to those obligations or arrangements outside the ordinary course of business since the most recent fiscal year end as reported in the Company’s Annual Report on Form 10-K.
38
Impact of Inflation and Changing Prices
The Condensed Consolidated Financial Statements and Notes thereto presented herein have been prepared in accordance with GAAP, which requires the measurement of financial position and operating results in terms of historical dollar amounts or estimated fair value without considering the changes in the relative purchasing power of money over time due to inflation. The impact of inflation is reflected in the increased cost of the Company’s operations. Unlike industrial companies, nearly all of the assets and liabilities of the Company are monetary in nature. As a result, interest rates have a greater impact on the Company’s 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 price of goods and services.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Quantitative and qualitative disclosures about market risk at December 31, 2014 were previously reported in the Company’s 2014 Annual Report on Form 10-K. There have been no material changes in the Company’s market risk exposure at March 31, 2015 compared to December 31, 2014.
The Company’s primary market risk exposure is interest rate risk since substantially all transactions are denominated in U.S. dollars with no direct foreign exchange or changes in commodity price exposure.
All market risk sensitive instruments are classified either as available for sale or held to maturity with no financial instruments entered into for trading purposes. The Company from time to time uses derivative financial instruments to manage risk. The Company did not enter into any new derivative financial instruments during the three month period ended March 31, 2015. The Company had no derivative financial instruments in place at March 31, 2015 and December 31, 2014.
The Company uses a simulation analysis to evaluate market risk to changes in interest rates. The simulation analysis at March 31, 2015 shows the Company’s net interest income increasing slightly if interest rates rise and decreasing slightly if interest rates fall, considering a continuation of the current yield curve. A change in the shape or steepness of the yield curve will impact our market risk to change in interest rates.
The Company also prepares a static gap analysis which, at March 31, 2015, shows a positive cumulative static gap of $460.3 million in the one year time frame.
The following table illustrates the estimated exposure under a rising rate scenario and a declining rate scenario calculated as a percentage change in estimated net interest income assuming a gradual shift in interest rates for the next 12 month measurement period, beginning March 31, 2015.
|
| Percent Change in Estimated |
|
|
| |
|
| Net Interest Income from |
|
|
| |
Gradual Change in Interest Rates |
| March 31, 2015 |
|
| Policy Limit | |
+200 basis points |
|
| 2.0% |
|
| (12.5)% |
-100 basis points |
| (2.5)% |
|
| (7.5)% |
Beginning on March 31, 2008, a 100 basis point downward change was substituted for the 200 basis point downward scenario previously used, as management believes that a 200 basis point downward change is not a meaningful analysis in light of current interest rate levels. The percentage change in estimated net income in the +200 and -100 basis points scenario is within the Company’s policy limits.
Item 4. Controls and Procedures
The Company’s Chief Executive Officer (CEO) and Chief Financial Officer (CFO), with the assistance of other members of the Company’s management, have evaluated the effectiveness of the Company’s disclosure controls and procedures (as defined in Rule 13a-15(e) or Rule 15d-15(e) under the Exchange Act) as of the end of the period covered by this Quarterly Report on Form 10-Q. Based on such evaluation, the Company’s CEO and CFO have concluded that the Company’s disclosure controls and procedures are effective as of the end of the period covered by this report.
The Company’s CEO and CFO have also concluded that there have not been any changes in the Company’s internal control over financial reporting during the quarter ended March 31, 2015 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
39
The Company’s management, including the CEO and CFO, does not expect that our disclosure controls and procedures or our internal controls will prevent all error and all fraud. A control system, no matter how well conceived and operated, provides reasonable, not absolute, assurance that the objectives of the control system are met. The design of a control system reflects resource constraints and the benefits of controls must be considered relative to their costs. Because there are inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been or will be detected.
These inherent limitations include the realities that judgments in decision-making can be faulty and that breakdowns occur because of simple error or mistake. Controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the control. The design of any system of controls is based in part upon certain assumptions about the likelihood of future events. There can be no assurance that any design will succeed in achieving its stated goals under all future conditions. Over time, controls may become inadequate because of changes in conditions or deterioration in the degree of compliance with the policies or procedures. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.
40
Our business is subject to various risks. These risks are included in our 2014 Annual Report on Form 10-K under “Risk Factors”. There have been no material changes in such risk factors since the date of such report.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
The following table sets forth information with respect to purchases made by the Company of its common stock during the periods indicated:
| Issuer Purchases of Equity Securities |
| ||||||||||||||
Period |
Total Number of Shares Purchased (1) |
|
|
| Average Price Paid Per Share |
|
|
| Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (2) |
|
|
| Maximum Number (or Approximate Dollar Value) of Shares That May Yet Be Purchased Under the Plans or Programs (2) |
| ||
January 1, 2015 – January 31, 2015 | — |
|
|
| — |
|
|
| — |
|
|
| — |
| ||
February 1, 2015 – February 28, 2015 | 7,824 |
|
|
| $25.77 |
|
|
| — |
|
|
| — |
| ||
March 1, 2015 – March 31, 2015 | 16,272 |
|
|
| 25.66 |
|
|
| — |
|
|
| — |
| ||
Total | 24,096 |
|
|
| $25.70 |
|
|
| — |
|
|
| — |
|
|
(1) | Represents shares of common stock withheld from employees to satisfy minimum tax withholding obligations relating to the vesting of restricted stock awards. |
(2) | The Company does not have a stock repurchase plan or program in place. |
3.1 |
| Restated Certificate of Incorporation of Hudson Valley Holding Corp. (1) |
3.2 |
| Amended and Restated By-Laws of Hudson Valley Holding Corp. (2) |
31.1 |
| Certification of the Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (3) |
31.2 |
| Certification of the Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (3) |
32.1 |
| Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (3) |
32.2 |
| Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (3) |
|
|
|
101.INS |
| XBRL Instance Document (3) |
|
|
|
101.SCH |
| XBRL Taxonomy Extension Schema (3) |
|
|
|
101.CAL |
| XBRL Taxonomy Extension Calculation Linkbase (3) |
|
|
|
101.LAB |
| XBRL Taxonomy Extension Label Linkbase (3) |
|
|
|
101.PRE |
| XBRL Taxonomy Extension Presentation Linkbase (3) |
|
|
|
101.DEF |
| XBRL Taxonomy Extension Definition Linkbase (3) |
|
(1) | Incorporated herein by reference to Exhibit 3.1 to the registrant’s Quarterly Report on Form 10-Q filed with the Commission on October 20, 2009 (File No. 001-34453). |
(2) | Incorporated herein by reference to Exhibit 3(ii) to the registrant’s Current Report on Form 8-K filed with the Commission on April 28, 2010 (File No. 001-34453). |
(3) | Filed herewith. |
41
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.
HUDSON VALLEY HOLDING CORP. | ||
|
| |
By: |
| /s/ Michael J. Indiveri |
|
| Michael J. Indiveri |
|
| Executive Vice President, |
|
| Chief Financial Officer |
May 6, 2015
42