2
0
1
7
A N N U A L
R
E
P O R
T
O U R M I S S I O N
To offer the
community banking
products and
services shaped
by emerging ideas
and technologies,
combined with
time-honored values
of trust, integrity,
and commitment;
to provide the highest
quality service with a
sense of urgency.
22222 0000 000000000 88 -- 22222 000000 11111111111 88
Empire National Bank
announces that Sunday,
February 25, 2018 marked
our 10th Anniversary!
Please join us in celebrating
the achievement of this
milestone. It was the result
of shareholders like you,
the commitment to our
customers and communities
we serve, and the hard work
of dedicated staff.
Thank you for being part of
making this 10th Anniversary
milestone a reality. Our first
ten years set the foundation
for now and going forward.
S E L E C T E D F I N A N C I A L D A T A
(dollars in thousands)
TOTAL ASSETS
$900,031
$781,4435
$629,133
$46767676767,00,0,00068688868
$5080808,0,0,06969
2013
2014141
2015
2016
2001717117
TOTAL DEPOSITS
TOTAL LOANS
$812$
,464,46
$670,6833
$518,033
$494$$
,274274
$5195$519$51 ,540,545
$461,780,77
$379,652
$2949 ,471
$390$39 ,931931
$395,125
2013
2014
200001515151515
20202020202 1616161616
20202020201717171717
202020202 13113
2014
2015
202016
2020200017177717
TOTAL STOCKHOLDERS’ EQUITY
NET INCOME
$62,421
$
$64,
$64,
$64,
$64,
$64,
154 4
154
154154154
$62,$62,$62,$62,$62,992992992992992
$67,$ 7 585
$2,7$2,7$2,7$2,7, 90 90 90 90 90
$2,5$2,5$2,5$2,5$2, 34 343443
$38,460
$1,8$1,8$1,8$1,8$1,81,844 444 44
$1,2$1,2$1,21,2$1,2868686 86 86
$1,4$1,4$1,4$1,4$1,4474747 4747
2020220131313133
2014
2000015151515
202020202016166161
20000171
2020202020201313131313
202020202201414141414
20202020200151515115
2020202020161616161616
20202020202 1717171717
22
|||| EMPEMPM IREIRER BABANCONCORP,RP,RP,P,P, INININC.
2 0 0 8 - 2 0 1 8
BASIC EARNINGS PER SHARE
DILUTED EARNINGS PER SHARE
$0.442 2
$0.4$0.4$
222
$0.4$0$0$0.4$00 00
$$0.40.0.40.411
$0.4$0.40.440 40 0 00
$0$0.30.30.30.37777
$0.29
$0.29
$0.20
$0.2$0.2$0.2$0.2$0.20 0
2013
2014
2015
2016
2017
2013
2014
2015
2016
2017
RETURN ON AVERAGE ASSETS
RETURN ON AVERAGE EQUITY
0.47%
0.38%
0.39%
0.29%
0.17%
4.434.43.43% % %%
3.93.98993.98% %
4.194.19114.19%%%% %%
3.193.193.19%%%
2.166% %%%
2013
2014
2015
2016
2017
2022202001313131
2020201414444
202022020202 151515
20202022 1616166666
2020001717177
BOOK VALUE
NET INTEREST MARGIN
$8.78
$9.07
$9.32
$9.07
$9.26
3.555%%%
3.753.753.73.753 73 %% %
3.29.2 %
3 053 053 053.05%%%%%
2.98%
20013131
20201414
202 15
2016
2017
2013
2014
2015
2016
2017
OPERATING EFFICIENCY RATIO
NON-PERFORMING LOANS TO TOTAL LOANS
84.31%
77.37%
76.58%
79.60%
74.42%
1.14%
0.810.80.8888 %
0.48%
0.310.310.313313 % % % %%
0.120.120 120 120 1212% %%%
2013333
2014
2020202020015
201616161616
202020202017171717171
200013313133
2022 14
202020200151111
2001616161616
2017
ANNUAL REPORT 2017 |
33333
F I N A N C I A L H I G H L I G H T S
(in thousands, except per share data and finaancin al al l ratratratr
iosios))
For the year ended December 31,
202020201717177171
2020202020161616616
2020202015151515
20202020141414144
202020201313133
FINANCIAL CONDITION DATA:
Total Assets
Total Loans
Total Deposits
Total Demand Deposits
Total Stockholders’ Equity
SELECTED STATISTICAL DATA:
Net Interest Margin
Return on Average Assets
Return on Average Equity
Efficiency Ratio
RATIOS:
Net Charge-offs to Average Loans
Non-performing Loans to Total Loans
Non-performing Assets to Total Assets
Allowance for Loan Losses to Total Loans
Tier 1 Leverage Capital Ratio
Common Equity Tier 1 Risk-Based Capital Ratio
Tier 1 Risk-Based Capital Ratio
Total Risk-Based Capital Ratio
OPERATING DATA:
Net Interest Income
Provision for Loan Losses
Other (Loss) Income
Other Expense
Net Income
PER SHARE DATA:
Diluted Earnings Per Share
Book Value, As Converted
NOTES:
$9$9$9$ 00000000,0,0,0,0313131313
$7$7$7$781818181,4,4,4,435353535
$$$$626262629,9,99 1313133133333
$$$$$5050050508,8,8,8,88 06060606066699999
$$$$464646467,7,7,7,060606068888
$5$5$55$ 19191919,5,5,5,540404040
$4$4$4$49494949444 222,22,2747474747474
$$$$$$464646461,1,1,1 787878780000
$$$$373737379,9,9,9,656565652222
$$$$29292929294,4,4,4,4 47474747477111111
$8$8$8$8$$81212121 4,44,4644646464
$6$6$6$66707070707070,6,6,6,666838383838
$$$$$515151518,8,88,03030303033333333
$$$$393939395,5,55 121212125555
$$$$$$3939393933 0,0,0,0,00,9393939311111
$1$1$$ 646464646464,7,7,7,7, 90909090
$1$1$1$17777777777,2,2,2,29999999999
$1$$1$1$1$ 898989899,2,2,2,22000000000
$$$$$$181818818189,9,9,9,9,9,20202022020044444
$$$$171717177,7,7,7 252525255522222
$$$$$$ 67676767,5585858585
$ $ $$$ 66662,2,22,9999999999922222
$$$$$ 6464666 ,1,154444454
$$$$$$ 62626262,4,4,4,442121212121
$$$$$ 38383838,4,4,4,460606060600
2.2.2 98989898%%%%
0.0000 17171717%%%%
2.2.22 161616%%%%
3.05050505%%%%
0.000 39393939%%%
4.444 191999%%%%
3.3.3.3.3 75757575%%%%
0.0.00 47474747%%%%%
3.33 9898%%%
3.3.3 55555555%%%%
0.3838%
4.4 43333%%%%
3.3.3.3.29292929%%%%
0.000 29292929%%%%
3.3.33 19999%%%%
747444.44442%2%2%2%
797999.66660%0%0%0%
7676767 .55558%8%8%8%8
77777777.33.37%7%7%7%
848484848 3.3331%1%1%1%
0.0 111 %%
1.1.1..141441414%%%%%%
0.0 666666%%%%
1..1313%%%%
9.9 0606%%%%
1444.99.93%3%%
14 9.9993%3%3%%3%3
166.001%1%%%
0.0.00 0202%%%%
0.484884848%%%%
0.30%%%%
1.1.11 171711 %%
0101010.2.2222%2%2%2%
161616161 .22226%6%
16616161616 222.2.26%6%6%6%%6%
17171717.446%6%6
0.000 010111%%%%
0.0.0.0.12121212%%%%
0.000 09090909%%%%
1.1.1.1 1414144%%%%
12121212.2.2222%2%2%2%
1616161 .8.88833%3%3%
16161616.8.8883%3%3%3%
118181818.0.0001%1%1%1%
0.0.00.0 0101010100 %%%%
0.000 313131313 %%%%
0.0.0.0 23232323233%%%%%
1.1.111 1717171711 %%%%%
12121212.6.6665%5%5%5%5%5
––
0.0.0.0.0 080808080808%%%%%%%
0.0.0.0.818181811%%%%%%%%
0.00.00.0 515151511%%%%%
1.1.1.1.1 4444444444 %%%%%%
9.9.9.99.010101011%%%%%%
––––
16161616.0.0.0.02%2%2%2%2%2%
121212121212.7.7.7.778%8%8%8%8%%
17171717.1.1117%7%7%7%
141414141414.0.0.00003%3%3%3%
$ 24,7,71616
$ $$$ 222221,1,1,1 56565655 7777
$$$$ 191919199,8,8,8,815151515
$$$$ 16161616,8,88,863636363
$$$$ 1414141411 ,4,4,4,4437373737373
$
646444
$ $$$ 636363632222
$$$$$
868686867777
$$$$
242424242 3333
–––
$ (1188)
$ $ 11,4,4,447777777777
$$$$$ 111,1,1 000000000 5555
$$$$ 1,1,1,1,03030303333333
$$$$$$
898989898989888888
$ 199,4922
$ $ 118,8,8,,0606668888
$$$$$ 15151515151 ,9,9,9,9989898989
$$$$$ 13131313133,8,8,8,8825252525525
$$$$$ 131313131313,0,0,0,0,00545454545454
$ 1,4477
$ $ 22,7,779090990
$$$$$ 2,2,2,2,2,2 535353533534 4 4 4 44
$$$$$ 1,11,1,1,1 848484848484444444
$$$$$ 1,1,1,1,1,282828282828666
$ 0.20
$ 00.4400
$ 9.26
$ 9.0777
$$$$
$$$
0.0.00 37373737373
9.99.32323232
$$$$$$
$$$$
0.0.0.000 414141414141
99.9999 0707000707
$$$$$$
$$$
00.299
8.8.7878
• Selected financial data and financial highlights from 2013 through 2017 were derived from the auditditeded conconsols idad tedted fifinanna ciaciaiall ststateatemenmenmenme ts ts of of
Empire Bancorp, Inc.
• Regulatory capital ratios are presented on a bank-only basis
• For the year ended December 31, 2014, book values, as converted, treats the Series A preferred sstock as hhaviav ng ng beeb n converteed id intonton
cocommommmm n
stock because it has been structured as a nonvoting common stock equivalent
• Efficiency ratio is the ratio of noninterest expense to net interest income and noninterest income, excluding gg gainns andnd losossssses es on on onoon salsalsals esese of of o secsecuriritieti s
• For the periods presented, nonperforming assets consist solely of nonperforming loans and nononperforminming lg loanoa s cs consonsnso istists ss soleololeolelly oy oy oy f nf nf nonaonaccrccrc ual loloansn
4
| EMPIRE BANCORP, INC.
2 0 0 8 - 2 0 1 8
Douglas C. Manditch,
ChaChaChaC irmirmirman an & C& hief Executive Officer (left)
witwitwitthhh hh Thomas M. Buonaiuto,
PrePreeeessidsiddenentent & & ChiCh ef ff f OpeOpOpeeOpOp ratraratinging Officer
DEAR SHAREHOLDER
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upupuupupu wawawwawawardrdrdrdrd aaaaandnndnn obtainingng ccreredidit t wawas s eeeaeasysysys .... NNot long after we closed our initial public offerrini g, belieievevedddd totototo bbbbbe e e thththht eee hihhihh ghghhhhhheseseessee tttt
dodododdollllllll ararara vvvvololoollo umumumumumme de nnovovo o babanknk rraiaisese eeevevev r rr cococc mmpleted on Long Island at $37 million, the Great Recessionon hhititt tthehe gglobaaaal l
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vavavv lululuuue e e ininnn uuupcpcpcpcpcomomomommomininnininggg g g yeyeara s too oour ffououndnddinnng investors as well as those who have joined us along the way. As we have
bububuuilii t t ouououoouurrr babababalalalalancncncncceeeeee shshshshsheet wewe have likeewiw sssese nurtured our corporate culture. Our Board of Directors has played a vital
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wiwiwiththt ininn tthehee iiintntnn enenensesesesese cccccomomomoommpep tititiononn oooof ff ouououurr NeNNew w York metropolitan market. We are mindful of the rapidly progressing
finan ncnciaial l prprp efefeffererenennencecececec s s s oofofoo thee ccononnnsusummmerr ininnclcluding online, remote capture and mobile services. Broadly distributed branch
neetwwwooro ksks sseeeeeeem m leleelessssss rrrrreleeele evevanannt assa ttheeh iindndustry evolves. Part of the formula for our success has been keeping pace with
the techchnonolooogygygygg rrroloo leeled ddd ouoout byby tthhehehee llaara geeg r r finanancial institutions. Exemplary personal service remains our differentiator from
the mamamanyy ooooothththherererr pppprororooviviviv dededeeersrs oof f fif nananaaancncnciaiai
l servvici es.
ANNUAL REPORT 2017 |
5
Conservative credit standards cultivated thrrouuoughghgg oourururururur
many years of experience have been at tht e e cocoocoreree oooof f ff ouououur r
credit risk management from the start. WeWe conono tititinunue e tototo
closely monitor the commercial real estatee rrenenntatal l trtrtrenenenendsds
and remain within our comfort zone in thhee mamaamarkrkr etete .
Recently, we have expanded our Small Bussininese s
Administration loan program, specifically SBSBA A 7((a)a)
lending, as well as our residential lending prp odducuct t susuitite e
into jumbo mortgages. Entry into these prrogograramsmsms wwwwwasasasass
designed to diversify our revenue streams and d brbroaoadedeedenn
prospects in the loan market. Reassuringly, tododayyyy wwweee
maintain the same prudent underwriting standdarardsdsds
established in our formative years.
This past year we formed an internal committt ee to
begin preparing for the upcoming implementation n
of the Financial Accounting Standards Board cuurrennt
expected credit loss model known as CECL. This
significant change in the accounting for credit losses
requires us to understand the life of loan loss rate as
compared to using an annual net charge off rate over
lookback periods. It requires us to make reasonable and
supportable forecasts about the future. During 2017 we
saw an uptick in our nonaccrual loans resulting largely
from one customer relationship. Nonetheless our overall
credit quality remains solid; at year end the loan portfolio
did not include a single past due loan delinquent for
more than thirty days. We closed the year with an
allowance for loan losses at 1.13% of total loans. Our
provision for loan losses increased slightly by $12
thousand year over year.
The basics of sensible credit underwriting are largely
tried and true while the nuances of cybersecurity
risks change daily. Personal information interconnects
between numerous locations, and is repeatedly shared
and transferred. Attacks such as data breaches and
identity fraud are ever more complex in nature. The
dark realities associated with digital enterprise threaten
even the finest information technology security systems.
The focus of cybersecurity is being driven to redirect
from prevention to early detection, response and
mitigation of losses. Small to midsized firms face the
same cybersecurity risks as large organizations.
6
| EMPIRE BANCORP, INC.
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over year.
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bank industry earninngs matattere iaialllll y yy hihihhighghhhghg ererr. In n FeFeFeebrbrbrbrbb uauauu ryry
of 2018 we proududlyly jjoined d the ee rar nknks ss offffof comompapanin es
who reacted to reduction inn coorprpororatate e tatax x raratetes ss bybyyy
compensating their eemplooyeyeeses. . AAAt t ththhe e e BaBaBB nknknkk wwwe ee
increased companywidee sasalarieses bby y 55 percent, uppedd
our 401(k) match proogrg am bby y twtwo percent, aandnd gggavave e
all nonexecutivee fulu l timeme empploloyeeeses ooneene-t-t-timimmme eee bobobobonunusessess
ofofo $$$1,1,0000,, alsso o pap ying the federal and state taxes due
fofofor ththee reecicc pip ennt, as a result of the benefits derived frommm
ththt eeee rerececentntn fedderral taxa overhaul. Returning a piece of
ououourr rr sasaaviviv ngnggs s toto tthee ffulu l team seemed fitting and timely ass
wewewewwew ccelelebebbrararatete oourur ttenenen yyear tenure.
TrTrTrTryiyiyiyingngngng ttto o o prprppredededdicicict tt ththe ee neenet impact of tax reform is
sosososoomemememmewhwhwhwhwhatatatat ttttriririickckckckc y.y.y A A A popoporttrtioon n ofof ouru tax reform cutback
hahahaahahas s sss alalalaaa rerereereeadadadadada y y y y bebebebebeenenenenenen iiinvnvnvnveesesteteted in hhumu an resource initiatives.
ReReReReR fififififininnininin ngngnggng oooooururururu iiiiinfnfnfnfnffrararararr stststs rururuuucttctctctc urururuu e e and expap nding our footprint
ararararre e e ee popopopopopossssssssssssibibibibibibililililililititititititieieieieiees.s.s.ss MuMuMuMuMuMuchchchch oooooof ffff ththhe reeduction will be retained
boboboboboosososostititititingngnggngg ccccapapapapapapitititttalalalaal lllleveveveve elelelellss s s anananand d d ddd itititi
cocococorprprprprpporororoo atatatateeee ininininincococococomememmememe ttttttaxaxaxaxaxx dddddececececece rererereasassee wiwiw llll bbbe e lost to industry
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iiss prrobobo able that a portion of
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ininininn ttttthehehehehe ffffffouououourtrttrttthh h hhh ququququququaraararara tetetetetterr rrr ofofofofoff 222220101010101017.7.7.7.7.7 OuOuOuOuO r r rr eaearnrnnings for the
ququququququararararara teteteteteteer rrrr ananananand d d d d yeyeyeyeyey ararararaa eeeeendndndnd rrrefefefefefeflelelelelelectctctctededededede aaaaa sssububuu ststanantit al one-time
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rereerecococococ gngngngngnizizizizizizedededededed uuuuupopopopoponn n n n enenenenene acacacacacctmmmmmmenenenenee t t t tt t ofofofofoff tttttthhehehehehe llegegee isislalation as the
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lololooolowewewewewewerr r r r cucucucucurrrrrrrrrreneenenent t t t tatatatatatax x x x xx rararararar tetetetetee oooooffff ff 2121212121%.%.%% TTTTThihihihihih s s s ss adadaddddjjujuj stment reduced
neneneneenet t tt inininininincocoococoomememememe bbbby y y yy apapapapappprprprprproxoxoxoxoximimimimimimatatatatatelelely y y $1$1$1$1$11.88.8.8.88 mmmmmmilillilililionooo aandn was
rererererecococococordrdrdrdrddedededededed aaaaaass s s s adadadaddididididititttt onononononalalalalal iiiiiincncncncnccomomomomomome e e e e tatatatataxx x xx exexexxexxpepeepeennsnse for rr the fourth
qquququq ararara teteteteter rr r ofofofofofo 22222010101017.7.7.7.7 OuOuOuOuOur rrr cacacacacaapipipipipipitatatatataallll rarararaaratitittit ososososs rrrrrrememmmmaiaiainn wew ll above all
mimimininininimumumumumuum m m mm rererereeegugugugugulalalalaatotototooryryryryry cccapapapapititittittalalalalala rreqeqeqeqeqequuuiuireremementntn s.
DuDuDuDuuririririr ngngngnggng ttttttheheheheh fffffouououo rth quuara ter r ofof 201017,7, wwwe rererereststruructured
ououououourr r r r bababaaab lalalalalancncncncnnce ee e shshshshshsheeeeee t to ttakke adadvavantn agage e ofofofo tttthhehehhe ttax benefit
asasasaassososoosociciciciatatatttatedededededed wwwwwwitititthhhh a higher ccororpoporaratete ttaxxaxx rraataatateee ini 222017.
ThThThhhisisisisis wwwwwwasasassa aaaaacccccccccomomommpplppp ishedd byby sele lilingng aapppprororooroxixixx mmammm tely $41.6
mimimimmmillllllioioioioon n n n ofofofofofo iiiinvnvnvnvnvesesesesese tmtmtmtmtt enneeee t sesecucuriitit ess ooutut oof ththhhee aaava ailable for
sasasasas lelelelee ppppppororortftftfftftfololoolololioioioiooio aaandndndndndd iiiinnncncururriingng losssesess, netet ooof ff tatax,x of $1.0
mimimimm llllllioioioon.nnn.nn. OOOOOurururururu pppppplalalaalannnn isisisss tttoo ree-l- evvereragagee tht e e baabaalalal nncnce sheet
fofofoor rrr fufufuuf tututut rererereee pppppererererrioioioioioodsdsdsdsdsd uuuuusissis ngng thehe pproroceeededs s prrprininnncicipapalll y to
fufuundndnn lllloaoaoaoaoaoansnsnssns.. GGGGGoioioiooio ngngngggg ffffffororororo waw rdrd, nenet t inintetererestst inncn omome earned
onono rrrrrepeeplalalalaaceceecec mememmementntnt oooooofff f f thhthththee e assesetsts wwilll beb ssububjejeeectct to oo the
nenew w 2112 % %%%%% mamamamaargrgrginininnnalalala cccorororooro poratete ffededeeral incnccommoo ee tax
raaatete. PProroor jejeeectctttctioioiooionsnsns ssssshohohohow w www ththisis strtratategegy y y y totooto bbbeee acaccretive
tot eeearararniningngnnggs s ininnn 22222010110118.8.8.8.8 NeNeNeNNet t incomeme fforooror 222220011777 ddecreased
$1$1.3 mmilillliliononn, , orror 44448.888.1%1%1%11%,, totottooo $$1..44 mimilllioion,n, aass s cocompm ared
to 2201010 6.66. AdAdAA jujuujuststststeedede ffffforoororoo tttthehehehh iimpmpacacaa ttt off ttthhehe dddefefere red tax
asset rerevavaluluuatattiooioion n nn n ananaaanddd ththththe ee e ee babalalaancncn ee ee shshhs eeeeeeet resttructure, net
incomem tttoto alalededede $$$4.44.4 2222 mimimimm lllllllioiioion,n, ann innincrcrcreaeaasesesse oofff $1$1.5 million.
Exxecuttioioon nn ofoff thihihis ss ststststrararaar teteteeegygygygyyy mmmadadee sesensnsnse e aaasa thehe return
fromm thehehe douuublbllble e ee e dididdd gigiit ttt t dedededed clclc ininne e inin tttthehe cccccooro poporaratete tax rate is
prp ojjece tet d toto bbbboooooooststssts ttthehehehe rratatateee e ofofo fuutuu urururreeee eeaearnrninngsgs expanding
our capapacicitytyy ttto o prprpprododododododucucucceee cac pipip tataall.l.
Lawmakers in Washington debate the rollback of
restrictions placed on our industry after the financial
crisis while we, as community bankers, warily
await meaningful relaxation of rules and regulatory
obo ligations. A strong argument could be made that
ththtthtthee Dodd-Frank legislation has hurt the community
bbaababanknnknkn s did sps roportionately as larger financial institutions
momomooomorerereeere reaeeeadid ly absorb the additional expenses. Today’s
reregugugugugugulalaalalalatotootooryryyy eenvironment makes it almost prohibitive
fofofoof r rr nenenenenenewwwww w bababaab nknknkn s to form largely because the additional
cocompmpmpmpplilililiianananananancecececece ccccososooso tsss aare excessive. Consistent with the
hihighghh ccccososososoo tssss ooof ffff f prprprioiooioor rrrr yeyears, in 2017 we estimate we spent
closse e totooo $$3.3.33 2 2 mim llioionnn onon rregegulatory related compliance
costs whwhhhw icicich hhh asas aa pperercentage off total revenue totaled
approxo immmmmatatatatteleleelee yy y y 1111% % ththe e e fiifif scscala year.
Over the yeaearsrsrsrs ooouuru sstrtrataattattegegegegggiccic pppplalaaaann hah s progressed
as our industrryy chchchchhananangegeg ddddd bboooboboththththhth llococoo alalaa llyy and globally.
These pasts ten yyeaeaarsrsrsrs hhavvve e e ee bebebebebebeeneneneneen ccchhahahaallenengingn yet
rewarding. Oncnn e e agaga aiaaiain,n,n,n oon nnn bebebebebehahahahahhalflflff oooooooff f ououououour rrr BoBoB ard of
Directors and managegeg mememementnnt tteaeam,m, wwwwe e ee clclclcllossossoo e eeee bybyybyybyy thankn ing
our shareholders, emememmplplplp oyoyeeeeeees,s,ss ccccusustotomemersrs aandndndd oooothththt ererere
stakeholders for theirr supuppuppopoorttrtr tttttthihihihihis s s s papapapapapastststss yyeaear asas wwwwelelele ll
as this past decade. Wee iinnvnvn ititi ee e yoyoyyyoy u uuuu tototototottto jjjjjjjoooioioiooo n n n nnn ususu aat t ouour r
shareholder meeting on Mayayay 111177,7,77,7 222200101011018,8,8,8,,88, bbbbeieieieingngngngngng hhhhhhhelelelelele d d ddd atat
the Hyatt Regency Loong Islannd,d,d 1171717117777 MoMMoMotototoor rrrr PaPPaPPaP rkrkrkrkrkrkwawawawawawaaway,yyy,y,y,y,y,
Hauppauge, New York.k
God bless the United States off Americaa.
Douglas C. Manditch
Chairman and Chief Executive Officer
Thomas M. Buonaiuto
President and Chief Operating Officer
ANNUAL REPORT 2017 |
7
FORWARD LOOKING STATEMENTS
This Annual Report contains forward-looking statements within the meaning of Section 27A of the Securities Act of
1933 and 21E of the Securities Exchange Act of 1934. These forward-looking statements include statements that
reflect the current views of our senior management with respect to our financial performance and future events with
respect to our business and the banking industry in general. These statements are often, but not always, made
through the use of words or phrases such as “may,” “should,” “could,” “predict,” “potential,” “believe,” “will likely
result,” “expect,” “will continue,” “anticipate,” “seek,” “estimate,” “intend,” “plan,” “projection,” “would” and
“outlook,” and similar expressions of a future or forward-looking nature. These statements involve estimates,
assumptions, risks and uncertainties. Accordingly, there are or will be important factors that could cause our actual
results to differ materially from those indicated in these statements.
We believe that these factors include, but are not limited to the following: our ability to successfully implement our
growth strategy; the accuracy of the assumptions underlying the elements of our growth strategy; changes in the
strength of the United States economy in general, as well as the economy in our local market areas, and the
corresponding impact of those changes on the ability of our customers to transact business with us on profitable
terms, including the ability of our borrowers to repay their loans according to their terms or the sufficiency of any
related collateral; changes in interest rates and market prices and the corresponding impact of those changes on our
net interest margin, asset valuations and expense expectations; changes in the levels of loan prepayments and the
resulting effects on the value of our loan portfolio; increased competition for deposits and loans adversely affecting
rates and terms; our ability to adequately measure and monitor the credit risk inherent in our loan and securities
portfolios; the failure of assumptions underlying our allowance for credit losses; a determination or downgrade in
the credit quality and credit agency ratings of the securities in our securities portfolio; increased asset levels and
changes in the composition of assets and the resulting impact on our capital levels and regulatory capital ratios;
changes in the availability of funds resulting in increased costs or reduced liquidity; the loss of senior management
or operating personnel and the potential inability to hire qualified personnel at reasonable compensation levels; our
ability to adequately manage the risks associated with technology and security; our ability to access capital markets
on acceptable terms as necessary to support the continued growth and safety and soundness of our organization;
legislative or regulatory developments, including changes in laws and regulations concerning taxes, banking,
securities, insurance and other aspects of the financial securities industry, such as the Dodd-Frank Wall Street
Reform and Consumer Protection Act (the “Dodd-Frank Act”), and the extensive rule making undertaken by various
regulatory agencies under the Dodd-Frank Act; further government intervention in the U.S. financial system;
changes in statutes and government regulations or their interpretations applicable to us, including changes in tax
requirements and tax rates; acts of terrorism, an outbreak of hostilities or other international or domestic calamities,
weather or other acts of God and other matters beyond our control; and other risks and uncertainties listed from time
to time in our reports and documents filed with the Office of the Comptroller of the Currency (“OCC”).
The foregoing factors should not be construed as exhaustive and should be read together with the other cautionary
statements included in this Annual Report. If one or more events related to these or other risks or uncertainties
materialize, or if our underlying assumptions prove to be incorrect, actual results may differ materially from what
we anticipate. Accordingly, you should not place undue reliance on any such forward-looking statements. Any
forward-looking statement speaks only as of the date on which it is made, and we do not undertake any obligation to
update any forward-looking statement to reflect events or circumstances after the date on which the statement is
made or to reflect the occurrence of unanticipated events. New factors emerge from time to time, and we cannot
predict all such factors. In addition, we cannot assess the impact of each factor on our business or the extent to
which any factor, or combination of factors, may cause actual results to differ materially from those contained in any
forward-looking statements.
Unless we state otherwise or the context otherwise requires, references in this management’s discussion and analysis
to “we,” “our” and “us” are to Empire Bancorp, Inc. and Empire National Bank, on a consolidated basis, and
references to “Bank” or “the bank” are to Empire National Bank, on a bank-only basis.
1
SELECTED HISTORICAL FINANCIAL INFORMATION
The following table sets forth selected historical financial and operating data regarding our organization. The
information is presented on a consolidated basis. You should review this information together with the discussion
that follows and the audited financial statements and related notes included elsewhere in this Annual Report.
Substantially all average balances were computed based on daily balances. Our historical results may not be
indicative of our future performance. All dollars are in thousands, except per share data.
Income Statement Data:
Interest income
Interest expense
Net interest income
Provision for loan losses
Net interest income after provision
Other (loss) income
Other expense
Income before income taxes
Income tax expense
(1)
Net income
(1)
Period-End Balance Sheet Data:
Investment securities, available-for-sale
Loans, net of allowance for loan losses
Allowance for loan losses
Total assets
Noninterest-bearing deposits
Interest-bearing deposits
Stockholders’ equity
Per Share Data:
Diluted earnings
Basic earnings
(2)
Book value, as converted
Performance Ratios:
Return on average equity
Return on average assets
Net interest margin
(3)
Efficiency ratio
Asset Quality Ratios:
(4)
Nonperforming assets to total assets
(4)
Nonperforming loans to total loans
Allowance for loan losses to total loans
Net charge-offs to average loans
(5)
As of and for the year ended December 31,
2017
2016
2015
2014
2013
$
$
$
$
$
$
$
$
29,632
4,916
24,716
644
24,072
(118)
19,492
4,462
3,015
1,447
299,969
513,665
5,875
900,031
164,790
647,674
67,585
0.20
0.20
9.26
2.16 %
0.17
2.98
74.42
$
$
$
$
24,868
3,301
21,567
632
20,935
1,477
18,068
4,344
1,554
2,790
264,734
488,475
5,799
781,435
177,299
493,384
62,992
0.40
0.40
9.07
4.19 %
0.39
3.05
79.60
$
$
$
$
21,504
1,689
19,815
867
18,948
1,005
15,998
3,955
1,421
2,534
151,043
456,512
5,268
629,133
189,200
328,833
64,154
0.37
0.42
9.32
3.98 %
0.47
3.75
76.58
$
$
$
$
18,540
1,677
16,863
243
16,620
1,033
13,825
3,828
1,984
1,844
100,617
375,199
4,453
508,069
189,204
205,921
62,421
0.41
0.42
9.07
4.43 %
0.38
3.55
77.37
16,216
1,779
14,437
-
14,437
898
13,054
2,281
995
1,286
152,639
290,227
4,244
467,068
177,252
213,679
38,460
0.29
0.29
8.78
3.19 %
0.29
3.29
84.31
0.66 %
0.30 %
0.09 %
0.23 %
0.51 %
1.14
1.13
0.11
0.48
1.17
0.02
0.12
1.14
0.01
0.31
1.17
0.01
0.81
1.44
0.08
9.01 %
-
12.78
14.03
:
Capital Ratios (bank level only)
Tier 1 leverage capital
Common equity tier 1 risk-based capital
Tier 1 risk(cid:827)based capital
Total risk(cid:827)based capital
(1) For the year ended December 31, 2017, net income includes income tax expense of $1.8 million associated with the write-down of deferred tax assets due to the enactment of the Tax Cuts and Jobs Act.
12.22 %
16.83
16.83
18.01
10.22 %
16.26
16.26
17.46
12.65 %
-
16.02
17.17
9.06 %
14.93
14.93
16.01
(2) For the year ended December 31, 2014, book value, as converted, treats the Series A preferred stock as having been converted into common stock because it has been structured as a nonvoting common stock equivalent.
(3) Efficiency ratio is the ratio of noninterest expense to net interest income and noninterest income, excluding gains and losses on sales of securities.
(4) For the periods presented, nonperforming assets consist solely of nonperforming loans and nonperforming loans consist solely of nonaccrual loans.
(5) Capital ratios at December 31, 2017, 2016 and 2015 are calculated under Basel III guidelines.
2
Overview
OUR BUSINESS
Empire Bancorp, Inc (the “Corporation”) is a bank holding company, headquartered in Islandia, New York, which
offers a broad range of financial services through our wholly-owned banking subsidiary, Empire National Bank (the
“Bank”). Our primary market is the counties of Suffolk, Nassau, Kings, Queens, Bronx and New York in the State
of New York, which we serve from our main office located at 1707 Veterans Highway, Islandia, New York, three
branch offices located in Shirley, Port Jefferson Station and Mineola, New York and a loan and private banking-
style branch office located in Manhattan, New York. We believe that our market presents attractive demographic
attributes and favorable competitive dynamics, providing long-term growth opportunities for our organization.
We are led by a team of experienced bankers, all of whom have substantial banking experience and relationships on
Long Island and throughout New York City. We believe that our management’s long-standing presence in the area
gives us insight into the local market and, as a result, the ability to tailor our products and services, particularly the
structure of our loans, more closely to the needs of our targeted customers. We seek to develop comprehensive,
long-term banking relationships by cross-selling loans and core deposits, offering a diverse array of products and
services and delivering high quality customer service.
Our operating strategy
Our business model focuses on a traditional, relationship-based, community bank structure guided by the following
principles: disciplined risk management; responsive, high-quality service; focus on building long-term relationships;
credibility within our communities; and efficiency. We believe our flexible organizational structure, service
philosophy, and depth of market knowledge acquired by our management over their banking careers differentiates
us from other financial institutions. Our operating strategy focuses on steady, long-term growth and increased
profitability.
To execute our business model, we have implemented a number of operating strategies, including:
(cid:120) Hiring and retaining qualified banking officers with extensive experience in our markets;
(cid:120) Utilizing technology and strategic outsourcing to provide a broad array of secure and convenient products
and services in a cost-effective manner;
(cid:120) Diversifying and expanding loan product offerings;
(cid:120) Developing municipal relationships as a funding source;
(cid:120) Developing a suite of focused products and services tailored for professional practice customers in our
market;
(cid:120) Operating from highly visible and accessible banking offices in close proximity to a concentration of
targeted commercial businesses and professionals;
(cid:120) Expanding our geographic footprint within our primary market through additional branch locations;
(cid:120) Providing individualized attention with consistent, prompt local decision-making authority; and
(cid:120) Leveraging the diverse community involvement, client referrals and professional expertise of our directors
and officers.
3
Our competitive strengths
We believe that we are well-positioned to create value for our shareholders, particularly as a result of the following
competitive strengths:
Each member of our senior management team has experience at growing financial institutions in the New York
metropolitan area.
Cohesive core management team with extensive local banking experience. Our executive and senior management
team is comprised of seasoned local bankers. For many in this group, their entrepreneurial skills steered them to our
organization, attracted to the opportunity to grow and develop a de novo start up national bank. Several of them
started before, or shortly after, the official opening of our bank in February 2008 while others joined as our growth
demanded more leaders with different proficiencies. Our entire senior management team has experience in all facets
of banking having worked at various other financial institutions that were mostly located in our market area on and
around Long Island and in New York City. Their areas of expertise include strategic and tactical planning, capital
management, commercial and industrial lending, real estate lending and consumer lending, as well as accounting
and finance, branch and back office operations, financial technology, business development, municipal banking,
human resources, risk management and regulatory compliance.
Stable and scalable platform. Throughout our operating history, we have maintained a stable banking platform with
strong capital levels and sound asset quality. Because we have total consolidated assets of less than $1 billion, our
regulatory capital levels are evaluated on a bank-only basis. At December 31, 2017, the Bank had a 9.06% tier 1
leverage capital ratio, a 14.93% common equity tier 1 risk-based capital ratio, a 14.93% tier 1 risk-based capital
ratio and a 16.01% total risk-based capital ratio. Contributing to our stability is our track record of sound asset
quality. The highest annual ratio of net loan charge-offs to average loans over the last past five years was recorded
in 2017 for 0.11%, or $568 thousand, and the average annual rate of net loan charge-offs to average loans over the
same period was 0.05%. Utilizing the prior experience of our management team at larger banks operating within
our primary market, we believe that we have built a scalable corporate infrastructure, including technology and
banking processes, capable of supporting continued growth, while improving operational efficiencies. We enhanced
our capital strength during the fourth quarter of 2014 when we completed a private placement of our capital stock,
generating $18.7 million in net proceeds. We believe that our strong capital and asset quality levels will allow us to
grow and that our operating platform will allow us to manage that growth effectively, resulting in greater efficiency
and improved profitability.
Growing deposit base. A significant driver of our franchise is the growth and stability of our deposits, which we use
to fund our loans and investment portfolio. At December 31, 2017, our total deposits were $812.5 million,
representing a compounded annual growth rate of 20.1% since December 31, 2013. Our deposit growth has been
driven significantly by the growth in our savings, N.O.W. and money market deposits primarily from new and
existing municipal banking relationships. Savings, N.O.W. and money market deposits represented approximately
76.5% of our total deposits at December 31, 2017, up from 35.7% of our total deposits at December 31, 2013.
Active solicitation of municipal deposits over the past three years significantly contributed to total deposit growth.
We seek to cross-sell deposit products at loan origination, which provide a basis for expanding our banking
relationships and a stable source of funding.
Our challenges
In implementing our business model, we have faced, and expect to continue to face, a number of challenges that
could impact our financial condition, operating results and prospects in future periods. We believe that the most
consequential risks to our business include the following:
(cid:120) Our business is concentrated on Long Island and in certain boroughs of New York City, and we are
more sensitive than our more geographically diversified competitors to adverse changes in the local
economy;
(cid:120) We face significant competition to attract and retain customers;
4
(cid:120) We operate in a highly regulated environment, which could restrain our growth and profitability;
(cid:120) We depend heavily on our information technology and telecommunications systems, which are subject
to system failures, interruptions and security risks;
(cid:120) We may not be able to adequately measure and limit our credit risk, which could impact our
profitability; and
(cid:120) Our profitability largely depends on our ability to manage our assets and liabilities during periods of
changing interest rates. Accordingly, the fair value of our investment securities can fluctuate due to
factors outside of our control.
Our market
Our primary market is the counties of Suffolk, Nassau, Kings, Queens, Bronx and New York in the State of New
York, which we serve from our main office located at 1707 Veterans Highway, Islandia, New York, three branch
offices located in Shirley, Port Jefferson Station and Mineola, New York and a loan and private banking-style
branch office located in Manhattan, New York. The economy of our markets reflects a diverse cross section of
employment sectors, with a mix of services; wholesale/retail trade; federal, state and local government; healthcare;
banking and education.
Our primary market is diverse, in terms of educational attainment, income level and ethnic background. According
to data provided by the U.S. Census Bureau, the population of Suffolk County was approximately 1,492,583
residents as of July 1, 2016, which represented no material growth in population since April 1, 2010. The
population of Nassau County was approximately 1,361,500 residents as of July 1, 2016, which represented a 1.6%
increase in population since April 1, 2010. In addition, as of 2016, the median household incomes in Suffolk
County and Nassau County were $90,128 and $102,044, compared to a New York state household income median
of $60,741. Further, according to data provided by the FDIC, between June 30, 2010 and June 30, 2017, FDIC-
insured deposits in Suffolk County and Nassau County have increased by approximately 58.1% and 34.1%,
respectively. Although overall population growth has been limited within our markets, the stability of the
population levels, reducing levels of unemployment and the attractive demographics within our markets have
continued to attract businesses to the area and led to growth in the local service economy, and, while it is not certain,
we expect that this trend will continue. As a community bank, we are focused on serving the needs of the small-and
medium-sized businesses, professionals, nonprofit organizations, municipalities, real estate investors and
consumers.
We compete with a wide range of financial institutions in our market, including local, regional and national
commercial banks, thrifts and credit unions. Consolidation activity involving financial institutions based outside of
Long Island has altered the competitive landscape in our market within recent years. As of June 30, 2017, less than
17% of the deposits in Suffolk and Nassau counties were held in banks that were based on Long Island, due in large
part to the acquisitions of locally-based financial institutions by larger banks based outside of our primary market
area. Although competition within our market area is strong, we believe that the customer disruption associated
with these acquisitions, as well as the loss of in-market decision-making and relationship-based banking, will
continue to provide us with additional growth opportunities. We also compete with mortgage companies,
investment banking firms, brokerage houses, mutual fund managers, investment advisors, and other “non-bank”
companies for certain of our products and services. Some of our competitors are not subject to the degree of
supervision and regulatory restrictions that we are.
Interest rates, both on loans and deposits, and prices on fee-based services are significant competitive factors among
financial institutions generally. Many of our competitors are much larger financial institutions that have greater
financial resources than we do and that compete aggressively for market share. These competitors attempt to gain
market share through their financial product mix, pricing strategies and banking center locations. Due to the
benefits of scale, our larger regional and national bank competitors can, in many cases offer pricing that is more
attractive than that which we can offer, although this pricing has historically been reserved for customers of a size
for which we generally would not compete. Other important competitive factors in our market area include office
5
locations and hours, quality of customer service, community reputation, continuity of personnel and services,
capacity and willingness to extend credit, and ability to offer sophisticated cash management and other commercial
banking services. Many of our competitors are organized along lines of business and use efficient but impersonal
approaches to providing products and services to customers. While we seek to be competitive with respect to rates,
we believe that we compete most successfully on the basis of our service and relationship-based culture.
Loans
General. Lending has the highest priority for our asset utilization. Our primary lending focus is to serve small and
medium-sized businesses, professionals, nonprofit organizations, and other organizations in our primary market with
a variety of financial products and services, while maintaining strong and disciplined credit policies and procedures.
We offer a full array of commercial and consumer lending products to serve the needs of our customers.
Commercial lending products include commercial real estate loans, multi-family loans, real estate construction and
development loans and general commercial loans (such as business term loans, equipment financing, small business
administration loans and lines of credit). Consumer lending products include home equity loans, lines of credit,
residential mortgages and consumer installment loans, such as loans to purchase cars, boats and other recreational
vehicles. We do not engage in a material amount of consumer lending, which is offered primarily as an
accommodation to our commercial customers and their executives and employees. In addition, our lending policies
do not provide for any loans that are highly speculative, sub-prime, or that have high loan-to-value ratios.
We market our lending products and services to qualified borrowers through conveniently located banking offices,
relationship networks and high touch personal service. Our relationship managers actively target long-standing
businesses operating in the communities we serve. We seek to attract new lending customers through professional
service, relationship networks and competitive pricing.
Commercial real estate loans. We offer real estate loans for commercial property that is owner-occupied as well as
commercial property owned by real estate investors. Commercial real estate loan terms generally are limited to ten
to twenty years or less, although payments may be structured on a longer amortization basis. The interest rates on
our commercial real estate loans may be fixed or adjustable, although rates typically are not fixed for a period
exceeding five to ten years. We generally charge a documentation or loan processing fee for our services. With the
exception of our multi-family lending, which is generally non-recourse, we require personal guarantees from the
principal owners of the business supported by a review of the principal owners’ personal financial statements. We
may not require personal guarantees when lending to not-for-profit entities, religious organizations, condominium
associations, financial institutions and municipal entities. We make efforts to limit our risks with respect to
commercial real estate loans by analyzing borrowers’ cash flow and collateral value. The real estate securing our
as
existing
offices/warehouses/production facilities, office buildings, hotels, mixed-use residential/commercial, retail centers
and multi-family properties.
a wide variety of property
commercial
includes
types,
estate
loans
such
real
Construction loans. We finance the construction of owner occupied and income producing properties. Construction
financing generally requires preapproved permanent financing, unless made on a speculative basis. Construction
and development loans are generally made with a term of one to two years and interest is paid monthly. The ratio of
the loan principal to the value of the collateral, as established by independent appraisal, typically will not exceed
industry standards. Any speculative loans are based on the borrower’s financial strength and ability to generate cash
flow. Loan proceeds are disbursed based on the percentage of completion and only after the project has been
inspected by an experienced construction lender or third-party inspector.
Commercial loans. We offer a wide range of commercial loans, including business term loans, equipment financing
and lines of credit either through traditional means or through our recently implemented U.S. Small Business
Administration 7(a) program. Our target commercial loan market is professional establishments and small to
medium-sized businesses. The terms of these loans vary by purpose and by type of underlying collateral, if
any. Our commercial loans primarily are underwritten on the basis of the borrower’s ability to service the loan from
cash flow. We make equipment loans with conservative margins generally for a term of five years or less at fixed or
variable rates, with the loan fully amortizing over the term. Loans to support working capital typically have terms
not exceeding one year, unless accompanied by a guarantee from the U.S. Small Business Administration, and
usually are secured by accounts receivable, inventory and personal guarantees of the principals of the business. For
6
loans secured by accounts receivable or inventory, principal typically is repaid as the assets securing the loan are
converted into cash, and for loans secured with other types of collateral, principal amortizes over the term of the
loan. The quality of the commercial borrower’s management and its ability both to properly evaluate changes in the
supply and demand characteristics affecting its markets for products and services and to effectively respond to such
changes are significant factors in a commercial borrower’s creditworthiness. Although most loans are made on a
secured basis, loans may be made on an unsecured basis where warranted by the overall financial condition of the
borrower. We typically hold all of our originated loans in the portfolio; however, on a case by case basis we may
look to sell the guaranteed portion of the U.S. Small Business Administration 7(a) loans.
Consumer loans. We make a variety of loans to individuals for personal purposes, including secured and unsecured
installment loans, home equity lines of credit and adjustable rate mortgages. The amortization of second mortgages
generally does not exceed fifteen years and the rates generally are not fixed for over twelve months. Adjustable rate
mortgages typically have terms of thirty years with initial fixed interest rates for three, five, seven or ten years with
annual rate adjustments thereafter based upon a spread over a predetermined index. These loans may have an
additional interest only period, but will be fully amortized by the thirtieth anniversary of the loan closing. We
expect to hold these loans in our portfolio. Consumer loans secured by depreciable assets, such as boats, cars and
trailers, are typically amortized over the useful life of the asset. We review the borrower’s past credit history, past
income level, debt history and, when applicable, cash flow and evaluate the impact of all these factors on the ability
of the borrower to make future payments as agreed.
Investments
In addition to our lending activities, we purchase investment securities that are principally either direct debt
obligations of the United States Treasury or one of the agencies of the United States government. We may also
invest in mortgage-backed securities issued by the Government National Mortgage Association, the Federal
National Mortgage Association, the Federal Home Loan Mortgage Corporation, the Federal Home Loan Bank and
the Federal Farm Credit Bureau. Each of these issuer’s securities are backed by mortgages conforming to its
underwriting guidelines and each issuer guarantees the timely payment of principal and interest on its securities.
Our approved policies also allow for investment in both tax exempt and taxable municipal securities, corporate
securities and certain equity securities as might be required to deal with various government agencies or banking
associations. We regularly evaluate the composition of this category as changes occur with respect to the interest
rate yield curve. Overall investment goals are established by the Bank’s Investment Committee, which reviews the
investment portfolio on a periodic basis, and monitors and makes adjustments as necessary based upon current
market interest rates and the economic environment, as well as our established policies and strategies. The Bank's
investment strategies seek to maximize long-term investment earnings through managing securities gains and losses
as well as interest income. Day-to-day activities pertaining to the investment portfolio are conducted under the
supervision of the Bank’s President and Chief Operating Officer.
Deposits
Deposits are our primary source of funds to support our earning assets. We offer traditional depository products,
including checking, savings, money market and certificates of deposit with a variety of rates. Deposit products are
structured to be competitive with rates, fees, and features offered by other local institutions. The primary sources of
core deposits are professional practice monies, small to medium-sized businesses and their employees, and
consumers located within our primary market. We generate deposits through our business development efforts as
well as referrals from our existing customers, officers and directors as well as various marketing campaigns. In
2014, we joined ICS®, an Insured Cash Sweep® service to provide an additional collateral product for our growing
public fund deposit base. In 2012, we met the requirements established by the United States Trustee for deposits of
bankruptcy funds. In addition, we participate in the Certificate of Deposit Account Registry Service, or CDARS®,
which allows us to provide unlimited FDIC insurance for depositors by placing the portion of the deposit in excess
of FDIC insurance limits with other FDIC-insured institutions that are members of the CDARS® network.
Supervision and regulation
We are subject to extensive regulation and supervision that govern almost all aspects of our operations at the holding
company and bank levels. We are regulated by the Federal Reserve at the holding company level and by the Office
7
of the Comptroller of the Currency at the bank level. Banking laws, regulations and policies, and the supervisory
framework that oversees their administration, are primarily intended to protect consumers, depositors, the Deposit
Insurance Fund and the banking system as a whole, and not shareholders and counterparties. In addition, these laws,
regulations and policies are subject to continual review by governmental authorities, and changes to these laws,
regulations and policies, including changes in their interpretation or implementation, or the adoption of new laws,
regulations or policies, can affect us in substantial and unpredictable ways.
In the aftermath of the most recent recession, new legislation has been enacted, and new regulations promulgated,
that were designed to strengthen the financial system as a whole. These laws and regulations have imposed
significant additional costs on all financial institutions and impacted the banking industry in numerous other ways.
A number of the most significant changes in laws and regulations affecting the banking industry are discussed
below. However, the discussion that follows is only a brief summary of certain of these laws and regulations, and
there are many other laws and regulations that affect our operations, other than those discussed below.
Dodd-Frank Act
The Dodd-Frank Act, enacted on July 21, 2010, aimed to restore responsibility and accountability to the financial
system by significantly altering the regulation of financial institutions and the financial services industry. The Act,
among other things: (i) established the Consumer Financial Protection Bureau, an independent organization within
the Federal Reserve dedicated to promulgating and enforcing consumer protection laws applicable to all entities
offering consumer financial products or services; (ii) established the Financial Stability Oversight Council, tasked
with the authority to identify and monitor institutions and systems that pose a systemic risk to the financial system,
and to impose standards regarding capital, leverage, liquidity, risk management, and other requirements for financial
firms; (iii) changed the base for FDIC insurance assessments; (iv) increased the minimum reserve ratio for the
Deposit Insurance Fund from 1.15% to 1.35%; (v) permanently increased federal deposit insurance coverage from
$100,000 to $250,000; (vi) directed the Federal Reserve to establish interchange fees for debit cards pursuant to a
restrictive “reasonable and proportional cost” per transaction standard; (vii) limited the ability of banking
organizations to sponsor or invest in private equity and hedge funds and to engage in proprietary trading;
(viii) granted the U.S. government authority to liquidate or take emergency measures with respect to troubled
nonbank financial companies that fall outside the existing resolution authority of the FDIC; (ix) increased regulation
of asset-backed securities; (x) increased regulation of consumer protections regarding mortgage originations,
including originator compensation, minimum repayment standards, and prepayment considerations; and
(xi) established new disclosure and other requirements relating to executive compensation and corporate
governance.
Some of these provisions have the consequence of increasing our expenses, decreasing our revenues, and changing
the activities in which we choose to engage. The specific impact on our current activities or new financial activities
that we may consider in the future, our financial performance and the markets in which we operate will depend on
the manner in which the relevant agencies develop and implement the required rules and the reaction of market
participants to these regulatory developments. Many aspects of the Dodd-Frank Act are subject to rulemaking that
will take effect over the next several years, making it difficult to anticipate the overall financial impact on the
financial industry, in general, and on us.
Regulatory capital requirements
Effective January 1, 2015, we became subject to new rules designed to implement the recommendations with respect
to regulatory capital standards, commonly known as Basel III, approved by the International Basel Committee on
Banking Supervision. The Basel III framework is applicable to all top tier bank holding companies with
consolidated assets of $1.0 billion or more and all banks, regardless of size. Accordingly, at this time, we are
subject to Basel III only at the bank level.
The new Basel III rules establish the following minimum regulatory capital ratios:
(cid:120) A leverage ratio of 4.0%;
(cid:120) A new ratio of common equity tier 1 capital to total risk-weighted assets of not less than 4.5%;
8
(cid:120) A tier 1 risk-based capital ratio of 6.0% (an increase from 4.0%); and
(cid:120) A total risk-based capital ratio of 8.0%.
The Basel III rules also changed the regulatory capital requirements for purposes of the prompt corrective action
regulations. Accordingly, to be categorized as well capitalized, the bank must have a minimum leverage capital
ratio of at least 5.0%, common equity tier 1 capital ratio of at least 6.5%, a tier 1 risk-based capital ratio of at least
8.0%, and a total risk-based capital ratio of at least 10.0%. The rules also implemented a requirement for all
banking organizations to maintain a capital conservation buffer above the minimum capital requirements to avoid
certain restrictions on capital distributions and discretionary bonus payments to executive officers. The capital
conservation buffer is being phased in over a three-year period, to be fully phased-in by January 1, 2019. The
capital conservation buffer must be composed of common equity tier 1 capital. The capital conservation buffer
requirement will effectively require banking organizations to maintain regulatory capital ratios at least 50 basis
points higher than well capitalized levels with respect to the risk-weighted capital measures to avoid the restrictions
on capital distributions and discretionary bonus payments to executive officers. In addition, the final rule establishes
more conservative standards for including instruments in regulatory capital and imposes certain deductions from and
adjustments to the measure of tier 1 capital and tier 2 capital. The final rule alters the method under which banking
organizations must calculate risk-weighted assets in an effort to make the calculation of risk-weighted assets more
risk-sensitive, to better account for risk mitigation techniques, and to create substitutes for credit ratings (in
accordance with the Dodd-Frank Act).
Although management is continuing to evaluate the impact the final rule will have on our organization, we were in
compliance with all applicable minimum regulatory capital requirements as of December 31, 2017 and expect to
meet all minimum regulatory capital requirements under the final rule, as if fully phased in.
The final Basel III framework also requires banks and bank holding companies to measure their liquidity against
specific liquidity tests. However, under the proposed rules, the Basel III liquidity framework applies only to
banking organizations with $250 billion or more in consolidated assets or $10 billion or more in foreign exposures.
As a result, unless modified, the Basel III liquidity framework does not apply to us.
9
MANAGEMENT’S DISCUSSION OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis presents management’s perspective on our financial condition and results of
operations on a consolidated basis. However, because we conduct all of our material business operations through
Empire National Bank, the discussion and analysis relates to activities primarily conducted at the subsidiary level.
The discussion is intended to highlight and supplement other data and information presented elsewhere in this
annual report, including our audited consolidated financial statements and the related notes. Please note that the
performance related to the prior periods described in this annual report may not be indicative of our future financial
performance.
As a bank holding company that operates through one segment, community banking, we generate most of our
revenue from interest on loans and investments, service charges and gains on the sale of investment securities. Our
primary source of funding for our loans is deposits, and our largest expenses are interest of these deposits and
salaries and related employee benefits. We measure our performance through our net income, net interest margin,
return on average assets and return on average equity, while maintaining appropriate regulatory leverage and risk-
based capital ratios.
Performance summary
Our total assets increased $118.6 million, or 15.2%, to $900.0 million as of December 31, 2017, compared to $781.4
million as of December 31, 2016. Our asset growth was driven by an increase in interest earning deposits with banks
of $41.5 million, an increase of $35.3 million or 13.3% in securities available for sale, and by an increase in loans of
$25.3 million or 5.1%. The asset base also increased as a result of our investment of $20.3 million in bank-owned
life insurance. Our asset quality remained solid, with total nonperforming loans comprising 1.14% of total loans as
of December 31, 2017, compared to 0.48% as of December 31, 2016. Total deposits increased $141.8 million, or
21.1%, to $812.5 million as of December 31, 2017, compared to $670.7 million as of December 31, 2016. Our
deposit growth was driven primarily by savings, N.O.W. and money market growth of $155.8 million or 33.5% to
$621.7 million as of December 31, 2017 compared to $465.9 million for the prior year. The growth in these
deposits was driven in large part by new and existing municipal banking relationships. Noninterest-bearing deposits,
which represent our lowest cost of funding, decreased $12.5 million or 7.1% to $164.8 million as of December 31,
2017, compared to $177.3 million as of December 31, 2016. The percentage of noninterest-bearing deposits to total
deposits declined from 26.4% to 20.3% as a result of growth in savings, N.O.W. and money market accounts,
comprised of primarily public fund deposits. There were no short-term borrowings as of December 31, 2017, as
compared to $26.5 million as of December 31, 2016. Total stockholders’ equity increased $4.6 million to $67.6
million as of December 31, 2017, from $63.0 million as of December 31, 2016. The year over year increase in
stockholders’ equity resulted from net decrease in the net unrealized loss on securities available for sale, net of taxes
of $2.2 million, net income of $1.4 million, and $934 thousand associated with stock compensation plans and the
exercise of both warrants and stock options.
Net income for the year ended December 31, 2017 was $1.4 million or $0.20 per diluted share, compared to net
income of $2.8 million, or $0.40 per diluted share, in 2016, a decrease of $1.4 million, or 48.1%. The decline in net
income year over year is principally attributed to two items. First, on December 22, 2017, H.R.1, also known as the
Tax Cuts and Jobs Act was enacted into law. Beginning in 2018, this legislation reduces the federal marginal tax rate
for corporations from 34/35% to 21% and changes or limits certain tax deductions. Consequently, we recorded a
one-time downward revaluation of deferred tax assets to income tax expense for $1.8 million. Secondly, to take
advantage of the tax benefit associated with a higher corporate tax rate in 2017, we sold approximately $41.6 million
of investment securities out of the available for sale investment securities portfolio, incurring losses, net of tax, of
$1.0 million. The plan was to re-leverage the balance sheet for future periods principally to fund loans. We expect
this repositioning strategy to be accretive to earnings in 2018.
Other income decreased year over year by $1.6 million, or 108.0%, to $(118) thousand for year ended December 31,
2017, primarily as a result of the net securities losses before tax, of $1.6 million taxes compared to net securities
gains of $346 thousand recognized in 2016. Other expenses increased $1.4 million, or 7.9%, to $19.5 million as
compared to $18.1 million at the year ended December 31, 2016. The increase in other expense was primarily
attributable to an increase in salaries and employee benefits of $806 thousand, or 8.4%, to $10.4 million in 2017
compared to $9.6 million over the previous year, as a result of hiring of new employees to support growth and
10
strategic plans as well as additional cost associated with the implementation of a recognition and retention plan for
key employees during 2016. The advertising and business development expenses increased $246 thousand, or
25.0%, to $1.2 million from $985 thousand for the same period in 2016, and other operating expenses increased by
$290 thousand or 13.4% to $2.5 million compared to $2.2 million at the end of fiscal year 2016.
The increase in net interest income year over year outpaced the increase in noninterest expenses, which resulted in a
lower efficiency ratio of 74.42% in 2017, as compared to 79.60% in 2016. Basic and diluted earnings per share for
the year ended December 31, 2017 were $0.20, compared to $0.40 for 2016. The return on average assets was
0.17% for 2017, as compared to 0.39% for 2016, and our return on average equity was 2.16% for 2017, as compared
to 4.19% for 2016.
Comparison of operating results for the years ended December 31, 2017 and 2016
Analysis of net interest income
Net interest income, the primary contributor to our earnings, represents the difference between the income that we
earn on our interest-earning assets and the cost to us of our interest-bearing liabilities. Our net interest income
depends upon the volume of interest-earning assets and interest-bearing liabilities and the interest rates that we earn
or pay on them. The following table presents, for the periods indicated, the average balances of our interest-earning
assets and interest-bearing liabilities, average yields and costs, and certain other information. Nonaccrual loans are
included in loans, and interest on nonaccrual loans is included only to the extent reflected in the consolidated
statements of income.
Average
Balance
2017
Interest
Earned/Paid
Year Ended December 31,
Average
Yield/Cost
Average
Balance
( in thousands)
2016
Interest
Earned/Paid
Average
Yield/Cost
Interest earning assets:
Loans (including fee income)
(1)
$
496,679
$
21,939
4.42 %
$
470,380
$
20,275
4.31 %
(2)
Securities, taxable
Deposits with banks
Federal funds sold
Total interest-earning assets
Non interest-earning assets:
Cash and due from banks
Other assets
Total assets
Interest bearing liabilities:
Savings, N.O.W. and money
market deposits
Certificates of deposit of
$100,000 or more
Other time deposits
Subordinated debentures
Borrowed funds
Total interest-bearing liabilities
Non interest-bearing liabilities:
Demand deposits
Other liabilities
Total liabilities
Stockholders’ equity
312,922
19,651
6
829,258
7,495
198
-
29,632
2.40
1.01
-
3.57
227,689
9,014
80
707,163
4,545
48
-
24,868
2.00
0.53
-
3.52
5,225
11,352
845,835
$
7,826
6,735
721,724
$
$
550,531
$
3,454
0.63 %
$
394,230
$
1,740
0.44%
11,998
8,497
14,756
12,011
597,793
174,925
6,164
778,882
66,953
132
75
1,099
156
4,916
1.10
0.88
7.45
1.30
0.82
27,741
10,079
14,717
9,420
456,187
192,121
6,866
655,174
66,550
290
118
1,092
61
3,301
1.05
1.17
7.42
0.65
0.72
Total liabilities and stockholders’
equity
$
845,835
Net interest income
Net interest spread(3)
Net interest earning assets
Net interest margin(4)
(1) Amounts are net of deferred origination costs/(fees) and the allowance for loan loss.
$
231,465
$
24,716
$
721,724
$
250,976
2.75%
2.98 %
$
21,567
2.80 %
3.05 %
(2) Unrealized gains / (losses) on securities available for sale are included in other assets.
(3) Net interest spread is the weighted average yield on interest-earning assets minus the weighted average rate on interest-bearing liabilities.
(4) Net interest margin is net interest income divided by average interest-earning assets.
11
Net interest income increased $3.1 million, or 14.6%, for the year ended December 31, 2017 over the prior year.
Interest from loans and securities were primarily responsible for the growth in total interest income while the cost of
savings, N.O.W., and money market deposits and short term borrowings made up the increase of total interest
expense. Net interest margin was 2.98% for 2017, a decrease from 3.05% from the year ended December 31, 2016.
The decrease of the net interest margin year over year was derived from an increase of five basis points in the
average yield of interest earning assets, offset by an increase of 10 basis points in the average cost of total interest
bearing liabilities. The total average interest earning assets in 2017 increased by $122.1 million or 17.3% to $829.3
million from $707.2 million in 2016, yielding 3.57% compared to 3.52% the prior year. The increase in total
average interest earning assets was driven primarily by an increase in average yield on loans to 4.42% from 4.31%
over the same period in 2016, resulting from higher average volume and yields on loans, as well as higher
prepayment penalties on loan payoffs recognized in 2017 compared to 2016. Higher average balance on investment
securities and on deposits with banks also were contributing to higher total interest earning assets.
The decrease in net interest margin was impacted by an increase of 10 basis points in the cost of average interest
bearing liabilities to 0.82% for the year ended December 31, 2017 from 0.72% for the prior year. In 2017, the total
average interest bearing liabilities increased by $141.6 million or 31.0% to $597.8 million from $456.2 million in
2016. The increase in the interest paid on average interest bearing liabilities was driven primarily by an increase of
19 basis points in average cost of funds on savings N.O.W. and money market deposits from 0.44% in 2016 to
0.63% for 2017. The increase in the average volume of these accounts was the primary driver for the increase of
$1.6 million in interest expense year over year. The other components that contributed to higher cost of funds in
2017 were an increase of five basis points on certificates of deposit of $100,000 up to 1.10% in 2017 from 1.05% in
2016 and an increase of 65 basis points on borrowed funds up to 1.30% from 0.65% in 2016. The average balance of
noninterest-bearing demand deposits decreased for the year ended December 31, 2017 by $17.2 million or 9.0% to
$174.9 million from $192.1 million in 2016.
Rate/volume analysis
The following table analyzes the dollar amount of changes in interest income and interest expense for the primary
components of interest-earning assets and interest-bearing liabilities. The table shows the amount of the change in
interest income or expense caused by either changes in outstanding balances (volume) or changes in interest rates.
The effect of a change in volume is measured by applying the average rate during the first period to the volume
change between the two periods. The effect of changes in rate is measured by applying the change in rate between
the two periods to the average volume during the first period. Changes attributable to both rate and volume that
cannot be segregated have been allocated proportionately to the absolute value of the change due to volume and the
change due to rate.
Interest income on interest-earning assets:
Loans (including fee income)
Securities, taxable
Deposits with banks
Total increase in interest income
Interest expense on interest-bearing liabilities:
Savings, N.O.W. and money market deposits
Certificates of deposit of $100,000 or more
Other time deposits
Borrowed money
Subordinated debentures
Total increase in interest expense
Total increase in net interest income
Year Ended December 31, 2017 Over 2016
Increase/(Decrease) Due To
Average Volume
Average Rate
Net Change
(in thousands)
$
1,153
1,892
85
3,130
$
511
1,058
65
1,634
$
1,664
2,950
150
4,764
831
(172)
(17)
20
3
665
2,465
$
883
14
(26)
75
4
950
684
$
1,714
(158)
(43)
95
7
1,615
3,149
$
12
Provision for loan losses
We consider a number of factors in determining the required level of our allowance for loan losses and the provision
required to achieve that level, including loan growth, loan quality rating trends, nonperforming loan levels,
delinquencies, net charge-offs, industry concentrations and economic trends in our market and throughout the
nation. We recorded a $644 thousand provision for loan losses for the year ended December 31, 2017 and a $632
thousand provision for loan losses for the year ended December 31, 2016.
Other income
Total other income comprised of customer related fees and service charges, professional practice revenue, net
securities (losses) gains, and other operating income decreased $1.6 million or 108.0% for the year ended December
31, 2017, as compared to 2016, primarily as a result of a $1.6 million loss recognized on sale of securities in 2017
compared to a gain of $346 thousand recorded for the same period last year. The loss on securities was offset by an
increase in customer related fees and service charges of $122 thousand or 32.2%, as well as an increase in other
operating income of $307 thousand or 67.9%. The main reason of the increase in other operating income is the $254
thousand recorded year to date in 2017 in income from bank owned life insurance.
Other expense
Total other expenses consist primarily of salaries and employee benefits, occupancy and other expenses related to
our operation and expansion. Total other expenses increased by approximately $1.4 million, or 7.9%, during 2017,
as compared to 2016, primarily from expenses associated with our continued growth. The largest component of the
increase in other expenses was salaries and benefits, which increased $806 thousand, or 8.4%, during 2017, largely
due to base salary increases, benefit plans to support strategic plans and employee recognition and retention, and
new employees. Assets per employee increased to $12.3 million as of December 31, 2017 from $10.9 million as of
December 31, 2016. Advertising and business development increased $246 thousand or 25.0% and professional
fees increased $125 thousand or 18.8%. Net occupancy and equipment costs increased $17 thousand, or 0.6%.
Offsetting these increases, FDIC insurance expense decreased $72 thousand or 20.5%. Costs associated with the
collateralization of municipal deposits increased $69 thousand over the same period last year.
Provision for income taxes
The Tax Cuts and Jobs Act (“the Act”) was enacted on December 22, 2017. The income tax effects of changes in tax
laws are recognized in the period when enacted. The Act provides for numerous significant tax law changes and
modifications with varying effective dates, which includes reducing the U.S. federal corporate income tax rate from
34/35% to 21%. We premeasured our deferred tax assets and liabilities based on the rates at which they are expected
to reverse in the future, which is generally 21%. The provisional amount recorded related to the remeasurement of
deferred tax balance was a net tax expense of $1.8 million.
The year to date 2017 effective income tax rate was 67.6% as compared to 35.8% for the year ended December 31,
2016. Notwithstanding the additional income tax recorded on the revaluation of the deferred tax assets, the effective
tax rate for 2017 would have been 28.2%. Additionally, we recognized excess tax benefits relative to the exercise of
stock options by employees in the fourth quarter of 2017. There were no excess tax benefits recognized by us in
2016.
Financial condition
Our total assets increased $118.6 million, or 15.2%, to $900.0 million as of December 31, 2017, compared to $781.4
million as of December 31, 2016. Net loans increased $25.2 million, or 5.2%, to $513.7 million as of December 31,
2017, compared to $488.5 million as of December 31, 2016. As a result of management’s assessment of the credit
quality of the loan portfolio, the allowance for loan losses to total loans was 1.13%, or $5.9 million, at December 31,
2017 as compared to 1.17%, or $5.8 million, as of December 31, 2016. Securities available for sale increased $35.3
million, or 13.3%, to $300.0 million as of December 31, 2017, from $264.7 million as of December 31, 2016.
13
Our asset growth for the year ended December 31, 2017 was funded primarily by deposit growth. Total deposits
increased $141.8 million, or 21.1%, to $812.5 million as of December 31, 2017, compared to $670.7 million as of
December 31, 2016. Demand deposits, which represent a value funding source, decreased $12.5 million or 7.06% to
$164.8 million as of December 31, 2017, compared to $177.3 million as of December 31, 2016. The average balance
of these noninterest-bearing deposits decreased $17.2 million or 9%. Savings, N.O.W. and money market deposits
increased $155.8 million, or 33.5%, to $621.7 million as of December 31, 2017 compared to $465.9 million over the
same period in 2016. The growth in these deposits was driven in large part by new and existing municipal banking
relationships. Certificates of deposit of $100,000 or more increased slightly to $0.2 million, or 1.2%, to $18.3
million compared to $18.1 million in 2016, while other time deposits decreased by $1.7 million, or 18.8%, to $7.7
million at December 31, 2017 compared to $9.4 million in 2016. As of December 31, 2017, our loan to deposit ratio
was 63.9%, as compared to 73.7% as of December 31, 2016. The balance of subordinated debentures, net of debt
issuance costs, increased $0.1 million or 0.29% to $14.8 million at December 31, 2017 compared to $14.7 million
from 2016.
Total stockholders’ equity increased $4.6 million to $67.6 million as of December 31, 2017, from $63.0 million as
of December 31, 2016. The year over year increase in stockholders’ equity resulted from net decrease in the net
unrealized loss on securities available for sale, net of taxes of $2.2 million, net income of $1.4 million, and $934
thousand associated with stock compensation plans and the exercise of both warrants and stock options. At
December 31, 2017, the bank was “well capitalized” as defined by OCC regulation, with tier 1 leverage, common
equity tier 1 risk-based, tier 1 risk-based and total risk-based capital ratios of 9.06%, 14.93%, 14.93% and 16.01%,
respectively.
Loans
Our primary source of income is interest on loans. Our primary target market is small and medium-sized businesses
and real estate investors in our market area. Our loan portfolio consists primarily of commercial and industrial loans
and real estate loans secured by multi-family and commercial real estate properties located in our primary area. Our
loan portfolio represents the highest yielding component of our earning asset base.
The following table sets forth the amount of loans, by category, as of the respective periods:
December 31, 2017
December 31, 2016
Amount
Percent
Amount
Percent
Commercial real estate - multi-family
Commercial real estate mortgages
Commercial and industrial
One-to-four family
Real estate - construction
Home equity lines of credit
Lease financing
Installment/consumer
Total
Allowance for loan losses
Net loans
$
195,571
155,204
77,373
68,374
14,457
6,436
1,490
635
519,540
(5,875)
513,665
(in thousands)
37.6 %
$
29.9
14.9
13.2
2.8
1.2
0.3
0.1
100.0 %
192,168
133,432
87,649
59,801
13,540
5,068
2,319
297
494,274
(5,799)
488,475
38.9 %
27.0
17.7
12.1
2.7
1.0
0.5
0.1
100.0 %
$
$
We continued to experience growth in our loan portfolio, and the composition of our loan portfolio continues to
evolve primarily maintaining focus on commercial real estate mortgages and multi-family lending, while also
increasing the percentage of commercial and industrial loans as well as one-to-four family loans in our overall mix.
14
The following table sets forth the contractual maturity ranges, and the amount of loans with fixed and variable rates,
in each maturity range as of December 31, 2017:
Within One
Year
After One But
Within Five
Years
After Five
Years
Total
$
$
$
$
4,889
8,214
38,651
3,268
8,263
-
242
255
63,782
(in thousands)
18,654
38,298
19,298
3,188
6,194
2,991
1,248
380
90,251
172,028
108,692
19,424
61,918
-
3,445
-
-
365,507
195,571
155,204
77,373
68,374
14,457
6,436
1,490
635
519,540
$
$
$
$
56,235
7,547
63,782
$
39,476
50,775
90,251
$
357,244
8,263
365,507
$
452,955
66,585
519,540
$
Commercial real estate - multi-family
Commercial real estate mortgages
Commercial and industrial
One-to-four family
Real estate - construction
Home equity lines of credit
Lease financing
Installment/consumer
Total
Rate provisions:
Amounts with variable interest rates
Amounts with fixed interest rates
Total
Asset Quality
We have identified certain assets as risk elements. These assets include nonaccrual loans, loans that are
contractually 90 days or more past due as to principal or interest payments and still accruing and troubled debt
restructurings (“TDRs”). These assets present more than the normal risk. Information about these risk elements is
set forth below:
December 31,
2017
2016
(in thousands)
Nonaccrual loans
Troubled debt restructuring
Other
Total nonaccrual loans
Loans past due 90 days or more and still accruing
Other real estate owned
Total nonperforming assets
Troubled debt restructurings - performing
Total risk elements
$
$
772
5,159
5,931
-
-
5,931
1,871
7,802
317
2,033
2,350
-
-
2,350
2,198
4,548
$
$
Gross interest income on nonaccrual loans and troubled debt restructurings:
Amount that has not been paid or recorded during the year under original terms
Actual amount recorded during the year
$
148
250
$
49
273
The allowance for loan losses to total loans (reserve coverage ratio) was 1.13% at December 31, 2017 compared to
1.17% at year-end 2016. The decline was the result of the growth in the portfolio, relative movement in the
criticized/classified portfolio as well as a shift in the makeup of the overall portfolio. Loans outstanding at the end
of 2017 were $519.5 million representing an increase of $25.2 million compared to $494.3 million at the end of the
2016. Notwithstanding the increase in overall portfolio, our commercial and industrial lending segment decreased
$10.3 million year over year. Since this is the segment that maintains the largest allocation at 2.10%, a decrease in
this segment will result in a lower overall reserve relative to the total portfolio. Credit quality remained sound as we
have not wavered from our rigorous underwriting standards despite improving economic conditions. At December
31, 2017 we had no delinquencies over thirty days past due in the loan portfolio. The nonaccrual loans at December
31, 2017 were $5.9 million or 1.14% of total loans outstanding. Troubled debt restructurings totaled $2.6 million at
15
December 31, 2017. Of this amount, $1.9 million were performing in accordance with their modified terms and $0.7
million were nonaccrual and included in the aforementioned amount of nonaccrual loans.
The credit quality of our securities portfolio also remained strong at December 31, 2017. The portfolio consisted of
U.S. government agency obligations, U.S Treasury securities, and mortgage-backed securities backed by the full
faith and credit obligations of the U.S. government, or by obligations of U.S. government sponsored entities. The
portfolio contains three corporate debt obligations as of December 31, 2017.
We have maintained low levels of nonperforming assets since our inception in 2008. Our nonaccrual loans
comprised 1.14% of total loans as of December 31, 2017, compared to 0.48% as of December 31, 2016. The year
over year increase in total non-accrual loans was attributable to management’s decision to place a single relationship
on non-accrual status, notwithstanding the fact that these loans are collateralized and we are working with a
cooperative borrower who remains current on all payment obligations. We believe that our historically low level of
nonperforming assets reflects our long-term knowledge and relationships with a significant percentage of our
borrowers, management’s experience and knowledge with respect to our market and our underwriting discipline. In
2017, we had charge-offs of $633 thousand and recoveries of $65 thousand. We had net charge-offs of $568
thousand and $101 thousand for the years ended December 31, 2017 and 2016, respectively. However, historical
performance is not necessarily an indicator of future performance, particularly considering our limited operating
history. Future results could differ materially. However, management believes, based upon known factors,
management’s judgment and regulatory methodologies, that the current methodology used to determine the
adequacy of the allowance for loan losses is reasonable. An analysis of our allowance for loan losses and net
charge-offs is presented in the notes to our consolidated financial statements, which are included in this Annual
Report.
Allowance for Loan Losses
We maintain an allowance for loan losses that represents management’s best estimate of the probable incurred loan
losses and risks inherent in the loan portfolio. In determining the allowance for loan losses, we estimate losses on
specific loans, or groups of loans, where the probable incurred loss can be identified and reasonably determined.
The balance of the allowance for loan losses is based on internally assigned risk classifications of loans, historical
loan loss rates, changes in the nature of the loan portfolio, overall portfolio quality, industry concentrations,
delinquency trends, current economic factors and the estimated impact of current economic conditions on certain
historical loan loss rates, among other things. The allowance for loan losses consists of specific and general
components, as well as an unallocated component. The unallocated component is maintained to cover uncertainties
that could affect management’s estimate of probable losses. The unallocated component reflects the margin of
imprecision inherent in the underlying assumptions used in the methodologies for estimating specific and general
losses in the portfolio. In 2017, we had an unallocated portion totaling $54 thousand. The allowance for loan losses
is increased by our loan loss provision, which was discussed above, and reduced by net loan charge-offs. Loans are
charged-off when we determine that collection has become unlikely. Recoveries are recorded only when cash
payments are received. We held no other real estate owned at any of the reported periods.
We consider a loan to be impaired when, based on current information and events, it is probable that we will be
unable to collect the scheduled payments of principal or interest when due according to the contractual terms of the
loan agreement. Factors considered by management in determining impairment include payment status and the
probability of collecting scheduled principal and interest payments when due. Loans for which the terms have been
modified as a concession to the borrower due to the borrower experiencing financial difficulties are considered
troubled debt restructurings and are classified as impaired. Loans considered to be troubled debt restructurings can
be categorized as nonaccrual or performing. The impairment of a loan is measured at the value of expected future
cash flows using the loan’s effective interest rate, or at the loan’s observable market price or the fair value of the
collateral less costs to sell if the loan is collateral dependent. Generally, we measure impairment of such loans by
reference to the fair value of the collateral less costs to sell. Loans that experience minor payment delays and
payment shortfall generally are not classified as impaired.
16
The following table sets forth changes in the allowance for loan losses:
Year ended December 31,
2017
2016
Beginning balance
Charge-offs:
Commercial real estate mortgages
Commercial and industrial
Installment/consumer
Total
Recoveries:
Commercial real estate mortgages
Commercial and industrial
Installment/consumer
Total
Net charge-offs
Provision for loan losses charged to operations
Ending balance
Ratio of net charge-offs during period to
average loans outstanding
(in thousands)
5,799
$
5,268
$
-
(616)
(17)
(633)
-
(111)
-
(111)
-
65
-
65
(568)
644
5,875
$
10
-
-
10
(101)
632
5,799
$
0.11%
0.02%
The following table sets forth the allocation of the total allowance for loan losses by loan type and sets forth the
percentage of loans in each category to gross loans. The allocation of the allowance for loan losses as shown in the
table should neither be interpreted as an indication of future charge-offs, nor as an indication that charge-offs in
future periods will necessarily occur in these amounts or in the indicated proportions.
2017
2016
Percentage of
Loans to Total
Loans
Amount
(in thousands)
Percentage of
Loans to Total
Loans
Amount
$
$
Commercial real estate - multi-family
Commercial real estate mortgages
Commercial and industrial
One-to-four family
Real estate - construction
Home equity lines of credit
Lease financing
Installment/consumer
Unallocated
Total
1,658
1,949
1,581
477
116
16
13
11
54
5,875
37.6 %
29.9
14.9
13.2
2.8
1.2
0.3
0.1
-
100.0 %
1,705
1,373
2,110
417
109
10
20
1
54
5,799
$
$
38.9 %
27.0
17.7
12.1
2.7
1.0
0.5
0.1
-
100.0 %
Although we believe that our allowance for loan losses was adequate to provide for probable incurred losses in our
loan portfolio as of December 31, 2017, future provisions will be subject to ongoing evaluations of the risks in our
loan portfolio.
Securities
Our securities portfolio is used to make various term investments, to provide a source of liquidity, and to serve as
collateral for certain types of deposits and borrowings and to provide interest income. We manage our investment
portfolio according to a written investment policy approved by our Board of Directors. Investment balances in our
securities portfolio are subject to change over time based on our funding needs and interest rate risk management
objectives. Our liquidity levels take into account anticipated future cash flows and all available sources of credits
and are maintained at levels management believes are appropriate to assure future flexibility in meeting our
anticipated funding needs.
17
As of December 31, 2017, our securities portfolio consisted primarily of government agency obligations, mortgage-
backed securities with varying contractual maturities, and U.S treasuries, and corporate debt securities. However,
these maturities do not necessarily represent the expected life of the securities as many of the securities may be
called or paid down without penalty. No investment in any of those instruments exceeds any applicable limitation
imposed by law or regulation. The Investment Committee reviews the investment portfolio on an ongoing basis in
order to ensure that the investments conform to our investment policy as approved by the Board of Directors. As of
December 31, 2017, our investment portfolio consisted almost entirely of available for sale securities. During 2017,
we added two corporate debt obligations to the portfolio. The carrying values of our available for sale investment
securities are adjusted for unrealized gain or loss as a valuation allowance, and any gain or loss is reported on an
after-tax basis as a component of stockholders’ equity.
The following table presents a summary of the amortized cost and estimated fair value of our investment portfolio as
of the dates presented:
December 31, 2017
December 31, 2016
Amortized
Cost
Estimated
Fair Value
Amortized
Cost
Estimated
Fair Value
(in thousands)
Available for sale:
Mortgage backed securities – residential
U.S. government agency securities
U.S. treasury
Total available for sale
Held to maturity:
Corporate bonds
Total held to maturity
$
$
131,704
154,001
18,866
304,571
$
$
129,738
151,415
18,816
299,969
$
$
143,496
129,191
-
272,687
$
$
139,385
125,349
-
264,734
$
$
4,750
4,750
$
$
4,848
4,848
$
$
3,000
3,000
$
$
3,032
3,032
All of our mortgage-backed securities are agency securities. We do not hold any Fannie Mae or Freddie Mac
preferred stock, collateralized debt obligations, collateralized loan obligations, structured investment vehicles,
private label collateralized mortgage obligations, sub-prime, Alt-A, or second lien elements in our investment
portfolio. At December 31, 2017, our investment portfolio did not contain any securities that are directly backed by
subprime or Alt-A mortgages.
The expected maturities presented below will differ from contractual maturities because borrowers may have the
right to call or prepay obligations with or without call or prepayment penalties. The following table sets forth the
amortized cost, the estimated fair value, maturities and approximated weighted average yield based on estimated
annual income divided by the average amortized cost of our securities portfolio at December 31, 2017.
Amortized
Cost
Estimated
Fair Value
(in thousands)
Yield
Available for sale:
Due in one year or less
Due from one to five years
Due from five to ten years
Due after ten years
Mortgage backed securities – residential
Total available for sale
$
$
18,866
8,996
145,005
-
131,704
304,571
18,816
8,853
142,562
-
129,738
299,969
1.20 %
2.06
2.45
-
2.81
2.52 %
$
$
Held to maturity:
Due from five to ten years
Total held to maturity
Amortized
Cost
Estimated
Fair Value
(in thousands)
Yield
$
$
4,750
4,750
$
$
4,848
4,848
5.21 %
5.21 %
18
Deposits
Deposits are our primary source of funds to support our earning assets. Total deposits were $812.5 million as of
December 31, 2017 compared to $670.7 million as of December 31, 2016. To expand and diversify our deposit
base, we deployed the following strategies:
(cid:120) Expansion of our suite of products and services targeting professional practices;
(cid:120) Strategic initiative to increase municipal deposit relationships in our market area;
(cid:120) Focus on developing and maintaining long-term relationships between our relationship bankers and
customers through high quality service; and
(cid:120) Commitment to the implementation of technology to enhance customer access to banking products and
services.
In addition to our deposit growth, the composition of our deposit base has changed substantially since our inception
in 2008. In our initial years of operation, we relied significantly on certificates of deposit, including brokered
deposits, due to our limited branch network, deposit pricing and the timing of our funding needs. Since that time,
we have expanded our geographic footprint with three additional branch locations. We experienced significant
growth in savings, N.O.W. and money market deposits during 2017 and 2016 as a result of our strategic initiatives
focused on municipal deposit growth.
The following table shows the average balances and weighted average interest rates for each type of deposit at
December 31, 2017 and December 2016 respectively:
For the year ended December 31,
2017
2016
Average
Balance
Percent
Weighted
Average
Rate
Average
Balance
Percent
Weighted
Average
Rate
Savings, N.O.W. and
money market deposits
Demand deposits
Certificates of deposit of
$100,000 or more
Other time deposits
Total deposits
$
550,531
174,925
11,998
8,497
745,951
$
73.8 %
23.5
1.6
1.1
100.0 %
(in thousands)
0.63 %
-
$
394,230
192,121
1.10
0.88
0.49 %
27,741
10,079
624,171
$
63.2 %
30.8
4.4
1.6
100.0 %
0.44 %
-
1.05
1.17
0.34 %
The following table presents a summary of the Corporation’s time deposits in amounts of $100,000 or more by
remaining term to maturity at December 31, 2017:
Time Deposits of $100,000 or More Maturing Within
0-3
Months
Over 3 to
6 Months
Over 6 to
12 Months
(in thousands)
Over 12
Months
Total
$
1,120
$
1,518
$
8,804
$
6,835
$
18,277
19
Capital resources
Stockholders’ equity totaled $67.6 million at December 31, 2017, an increase of $4.6 million from $63.0 million at
December 31, 2016. The year over year increase in stockholders’ equity resulted from net decrease in the net
unrealized loss on securities available for sale, net of taxes of $2.2 million, net income of $1.4 million, and $934
thousand associated with stock compensation plans and the exercise of both warrants and stock options. As of
December 31, 2017, our equity structure consisted entirely of shares of common stock. Historically, we have not
paid cash dividends on our common stock, but instead have retained our earnings to support the continued growth of
our organization. We expect to continue this practice for the foreseeable future.
We are subject to various regulatory capital requirements administered by the federal banking agencies. At this
time, these regulatory capital requirements apply only at the bank level. As of December 31, 2017, we were in
compliance with all applicable regulatory capital requirements, and the Bank was classified as “well capitalized” for
purposes of the OCC’s prompt corrective action regulations with leverage, common equity tier 1 risk-based, tier 1
risk-based and total risk-based capital ratios of 9.06%, 14.93%, 14.93% and 16.01%, respectively. “Well
capitalized” is the highest capital classification for FDIC-insured financial institutions in the United States. As we
employ our capital and continue to grow our operations, our capital levels may decrease depending on our level of
earnings. However, we expect to monitor and control our growth in order to remain a “well capitalized” under the
applicable regulatory guidelines and in compliance with all regulatory capital standards applicable to us.
20
CONSOLIDATED STATEMENTS OF CONDITION
ASSETS
Cash and due from banks
Interest earning deposits with banks
Federal funds sold
Total cash and cash equivalents
Securities available for sale, at fair value
Securities, held to maturity (fair value of $4,848 and $3,032, respectively )
Securities, restricted
Loans
Less: Allowance for loan losses
Loans, net
Premises and equipment, net
Bank-owned life insurance
Accrued interest receivable
Deferred tax asset, net
Other assets
Total Assets
LIABILITIES AND STOCKHOLDERS' EQUITY
Demand deposits
Savings, N.O.W. and money market deposits
Certificates of deposit of $100,000 or more
Other time deposits
Total deposits
Short-term borrowings
Subordinated debentures, net
Total borrowings
Accrued interest payable
Other liabilities
Total Liabilities
Stockholders' Equity:
Common stock, par value $0.01 per share; 100,000,000 authorized shares;
5,470,164 issued and outstanding at December 31, 2017 and 5,015,252 issued
and outstanding at December 31, 2016
Non-voting common stock, par value $0.01 per share; 20,000,000 authorized shares;
1,831,250 issued and outstanding at December 31, 2017 and 1,931,250 issued and
outstanding at December 31, 2016
Surplus
Retained earnings
At December 31,
2017
2016
(in thousands, except share
and per share amounts)
$
2,406
43,467
6
45,879
$
4,386
1,962
6
6,354
299,969
4,750
2,946
519,540
(5,875)
513,665
264,734
3,000
4,131
494,274
(5,799)
488,475
5,506
20,254
2,933
2,778
1,351
900,031
$
6,052
-
2,610
5,602
477
781,435
$
$
164,790
621,742
18,277
7,655
812,464
$
177,299
465,890
18,068
9,426
670,683
-
14,778
14,778
105
5,099
832,446
55
18
65,061
6,086
71,220
26,477
14,735
41,212
110
6,438
718,443
50
19
64,131
4,041
68,241
Accumulated other comprehensive loss
Total Stockholders' Equity
Total Liabilities and Stockholders' Equity
(3,635)
67,585
900,031
$
(5,249)
62,992
781,435
$
See accompanying notes to the Consolidated Financial Statements.
21
CONSOLIDATED STATEMENTS OF INCOME
Interest income:
Loans (including fee income)
Securities, taxable
Deposits with banks
Total interest income
Interest expense:
Savings, N.O.W. and money market deposits
Certificates of deposit of $100,000 or more
Other time deposits
Short-term borrowings
Subordinated debentures
Total interest expense
Net interest income
Provision for loan losses
Net interest income after provision for loan losses
Other income:
Customer related fees and service charges
Professional practice revenue
Net securities (losses) gains
Other operating income
Total other (loss) income
Other expense:
Salaries and employee benefits
Occupancy and equipment, net
Software services
Advertising and business development
Professional fees
FDIC insurance
Other operating expenses
Total other expenses
Income before income taxes
Income tax expense
Year Ended December 31,
2017
2016
(in thousands, except per
share amounts)
$
21,939
7,495
198
29,632
$
20,275
4,545
48
24,868
3,454
132
75
156
1,099
4,916
24,716
644
24,072
501
218
(1,596)
759
(118)
10,449
2,839
1,442
1,231
789
280
2,462
19,492
4,462
3,015
1,740
290
118
61
1,092
3,301
21,567
632
20,935
379
300
346
452
1,477
9,643
2,822
1,430
985
664
352
2,172
18,068
4,344
1,554
Net income
$
1,447
$
2,790
Basic earnings per share
Diluted earnings per share
$
$
0.20
0.20
$
$
0.40
0.40
See accompanying notes to the Consolidated Financial Statements.
22
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
Net income
Other comprehensive income (loss):
Unrealized holding gains (losses) arising during the period
Reclassification adjustment for losses (gains) included in net
securities (losses) gains on the consolidated statements of income
Change in unrealized net gains (losses) before income taxes
Tax effect
Year Ended December 31,
2017
2016
(in thousands)
$
1,447
$
2,790
4,947
1,596
3,351
(6,159)
(346)
(6,505)
(1,139)
2,213
Other comprehensive income (loss)
Total other comprehensive income (loss)
2,212
3,659
$
(4,292)
(1,502)
$
See accompanying notes to the Consolidated Financial Statements.
23
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
Voting Common Stock
Non-Voting Common Stock
Shares
Outstanding
Amount
Shares
Outstanding
Amount
Surplus
Retained
Earnings
(in thousands, except shares amounts)
Accumulated
Other
Comprehensive
Loss
Total
Balance at January 1, 2016
5,723,720
$
57
1,156,250
$
12
$
63,791
$
1,251
$
(957)
$
64,154
Exchange of voting common stock
to non-voting common stock
Exercise of stock options
Issuance of voting common
restricted stock
Share based compensation expense
Net Income
Other comprehensive loss, net of
deferred income taxes
Balance at December 31, 2016
Exchange of voting common stock
to non-voting common stock
Exercise of stock options
Repurchase and retirement of shares
Exercise of warrants
Issuance of voting common
restricted stock
Forfeiture of restricted stock
Share based compensation expense
Net Income
Other comprehensive income, net of
deferred income taxes
Impact of Tax Cuts and Jobs Act related to
accumulated other comprehensive income
reclassification
Balance at December 31, 2017
(775,000)
5,800
60,732
-
-
(7)
-
-
-
-
775,000
-
-
-
-
7
-
-
-
-
-
58
-
282
-
-
-
-
-
2,790
-
-
-
-
-
-
58
-
282
2,790
-
5,015,252
-
50
$
-
1,931,250
-
19
$
-
64,131
$
-
4,041
$
(4,292)
(5,249)
$
(4,292)
62,992
$
100,000
337,750
(262,663)
95,000
186,015
(1,190)
-
-
-
1
1
-
1
2
-
-
-
-
(100,000)
-
-
-
-
-
-
-
-
(1)
-
-
-
-
-
-
-
-
-
3,377
(3,948)
949
-
-
552
-
-
-
-
-
-
-
-
-
1,447
-
-
-
-
-
-
-
-
-
-
3,378
(3,948)
950
2
-
552
1,447
2,212
2,212
-
5,470,164
-
55
$
-
1,831,250
-
18
$
-
65,061
$
598
6,086
$
(598)
(3,635)
$
-
67,585
$
24
CONSOLIDATED STATEMENTS OF CASH FLOW
Cash flows from operating activities:
Net income
Adjustments to reconcile net income to net cash from operating activities:
Provision for loan losses
Depreciation and amortization
Amortization of premium and accretion of discount on investment
securities, net
Amortization of debt issuance costs
Share based compensation expense
Increase in cash surrender value of bank owned life insurance
Net securities losses (gains)
Increase in accrued interest receivable
(Increase) decrease in other assets
(Decrease) increase in accrued interest payable and other liabilities
Decrease (increase) in deferred income tax
Next cash provided by operating activities
Cash flows from investing activities:
Purchases of securities available for sale
Sales of securities available for sale
Calls/redemptions of securities available for sale
Purchase of securities held to maturity
Purchase of securities, restricted
Sales of securities, restricted
Net increase in loans
Purchase of banking premises and equipment, net of disposals
Purchase of bank-owned life insurance
Net cash used by investing activities
Cash flows from financing activities:
Net increase in deposits
(Decrease) increase in short-term borrowings
Proceeds from exercise of warrants
Proceeds from exercise of stock options
Repurchase and retirement of shares
Net cash provided by financing activities
Year Ended December 31,
2017
2016
(in thousands)
$
1,447
$
2,790
644
1,023
620
43
552
(254)
1,596
(323)
(874)
(1,344)
1,687
4,817
(135,367)
77,609
23,658
(1,750)
(20,351)
21,536
(25,834)
(477)
(20,000)
(80,976)
141,781
(26,477)
950
64
(634)
115,684
632
1,062
744
38
282
-
(346)
(715)
215
363
(418)
4,647
(367,937)
71,910
175,433
(3,000)
(11,694)
11,275
(32,595)
(427)
-
(157,035)
152,650
413
-
58
-
153,121
Increase in cash and cash equivalents
Cash and cash equivalents at beginning of period
Cash and cash equivalents at end of period
39,525
6,354
45,879
$
733
5,621
6,354
$
Supplemental information-cash flows:
Cash paid for:
Interest
Income taxes
Supplemental non-cash disclosures:
Net settlement of stock option exercises
See accompanying notes to the Consolidated Financial Statements.
$
$
4,921
2,652
$
$
3,322
2,121
$
3,315
$
-
25
EMPIRE BANCORP, INC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
1.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The consolidated financial statements include the accounts of Empire Bancorp, Inc. and its wholly-owned subsidiary
Empire National Bank. Throughout these notes, “Corporation” refers to Empire Bancorp, Inc. and its consolidated
subsidiary, except as the context otherwise requires, and “Bank” refers only to Empire National Bank.
Because the Bank is the sole material asset of the Corporation, other than cash, the Corporation’s financial condition
and operating results principally reflects those of the Bank. The Bank is a national banking association domiciled in
Islandia, New York, which commenced operations on February 25, 2008. The principal business office of the
Corporation and the Bank is located at 1707 Veterans Highway, Islandia, New York.
The financial statements have been prepared in accordance with accounting principles generally accepted in the
United States (“GAAP”) and to general practices within the financial institution industry. Certain reclassifications
have been made to prior year amounts to conform to the current year presentation. The following is a description of
the significant accounting policies that the Corporation follows in preparing its financial statements.
a)
Use of Estimates
In preparing the financial statements, management has made estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenue and expense during the reported periods. Such estimates are subject
to change in the future as additional information becomes available or previously existing circumstances are
modified. Actual future results could differ significantly from those estimates.
b)
Cash Flows
Cash and cash equivalents include cash, deposits with other financial institutions with maturities fewer than 90 days,
and federal funds sold. Net cash flows are reported for customer loan and deposit transactions, interest bearing
deposits in other financial institutions, and federal funds purchased and repurchase agreements.
c)
Securities
Current accounting standards require that investment securities be classified as held to maturity, trading or available
for sale. The trading category is not applicable to any securities in the Corporation’s portfolio because the
Corporation does not buy or hold debt or equity securities principally for the purpose of selling in the near term.
Debt securities are classified as held to maturity and carried at amortized cost when management has the positive
intent and ability to hold them to maturity. Debt securities are classified as available for sale when they might be
sold before maturity. Available for sale securities, or debt and equity securities which are neither held to maturity
securities nor trading securities, are reported at fair value, with unrealized gains and losses, net of the related income
tax effect, included in other comprehensive income, a separate component of stockholders’ equity. Restricted
securities, as disclosed on the balance sheet consisting of Atlantic Community Bankers Bank stock, Federal Home
Loan Bank stock, and Federal Reserve Bank stock, are carried at cost.
Interest income includes amortization of purchase premium or accretion of discount. Premiums and discounts on
securities are amortized or accreted on the level-yield method. Prepayments are anticipated for mortgage-backed
securities. Realized gains and losses on the sale of securities are determined using the specific identification
method.
Investment securities are evaluated for other-than-temporary (“OTTI”) no less often than quarterly. In determining
OTTI, management considers many factors, including: (1) the length of time and the extent to which the fair value
26
has been less than cost; (2) the financial condition and near-term prospects of the issuer; (3) whether the market
decline was affected by macroeconomic conditions; and (4) whether management has the intent to sell the debt
security or more likely than not will be required to sell the debt security before its anticipated recovery. The
assessment of whether an other-than-temporary decline exists involves a high degree of subjectivity and judgment
and is based on information available to management at a point in time.
When other-than-temporary loss occurs, management considers whether it intends to sell, or, more likely than not,
will be required to sell a security in an unrealized loss position before recovery of its amortized cost basis. If either
of these criteria is met, the entire difference between amortized cost and fair value is recognized in earnings. For
securities that do not meet the aforementioned criteria, the amount of impairment recognized in earnings is limited
to the amount related to credit losses, while impairment related to other factors is recognized in other comprehensive
income.
d)
Federal Home Loan Bank and Federal Reserve Bank Stock
The Bank is a member of and owns stock in the Federal Home Loan Bank of New York (“FHLB”) and the Federal
Reserve Bank of New York. The FHLB requires member banks to own a certain amount of stock based on the level
of borrowings and other factors, and additional amounts may be invested. The stock of both entities is carried at
cost, classified as restricted securities and periodically evaluated for impairment based on the prospects for the
ultimate recovery of par value. Both cash and stock dividends, if any, are reported as income.
e)
Bank-Owned Life Insurance
The Bank has purchased life insurance policies on certain employees. Bank-owned life insurance is recorded at the
amount that can be realized under the insurance contract at the balance sheet date, which is the cash surrender value
adjusted for other charges or other amounts due that are probable at settlement.
f)
Loans and Allowance for Loan Losses
Loans that management has the intent and ability to hold for the foreseeable future or until maturity or payoff are
stated at the principal amount outstanding less any charge-offs, net of deferred origination fees and costs, and an
allowance for loan losses. Interest on loans is credited to income based on the principal amount outstanding. Loan
origination and commitment fees and certain direct and indirect costs incurred in connection with loan originations
are deferred and amortized to income over the life of the related loans without anticipating prepayments and as an
adjustment to yield. When a loan prepays, the remaining unamortized net deferred origination fees and costs are
recognized immediately upon payoff.
Past due status is based on the contractual terms of the loan. Loans that are deemed uncollectable according to the
terms of the loan agreement, or are 90 days past due, are placed on nonaccrual and previously accrued interest is
reversed and charged against interest income. An exception is made for 90-day past due loans that are well secured
and in the process of collection. In all cases, loans are placed on nonaccrual or charged-off at an earlier date if
collection of principal or interest is considered doubtful. Interest received on nonaccrual loans is accounted for on
the cash basis or cost-recovery method until the loans qualify for return to an accrual status. However, if the
Corporation believes that the loan will be fully collectible based upon the individual loan evaluation assessing
factors such as collateral and collectability, accrued interest will be recognized upon attainment of certain
events. Loans are returned to accrual status when all the principal and interest amounts contractually due are
brought current for a period of time, and future payments are reasonably assured. When the accrual of interest
income is discontinued on a loan, any accrued but unpaid interest is reversed against current period income. Unless
otherwise noted, the above policy is applied consistently to all loan classes.
The allowance for loan losses is a valuation allowance for probable incurred credit losses. Loan losses are charged
against the allowance when management believes the uncollectibility of a loan balance is confirmed. Subsequent
recoveries, if any, are credited to the allowance. Management estimates the allowance balance required using past
loss experience, the nature and volume of the portfolio, information about specific borrower situations and estimated
collateral values, economic conditions, and other factors. Allocations of the allowance may be made for specific
loans, but the entire allowance is available for any loan that, in management’s judgement, should be charged off.
27
The process for estimating credit losses and determining the allowance for loan losses as of any balance sheet date is
subjective in nature and requires material estimates. Actual results could differ significantly from those estimates.
The allowance for loan losses is established through provisions for loan losses charged against income. When
available information confirms that specific loans or portions thereof, are uncollectible, these amounts are charged
against the allowance for loan losses, and subsequent recoveries, if any, are credited to the allowance. The
allowance consists of specific and general components. The specific component relates to loans that are individually
classified as impaired when, based on current information and events, it is probably that the Corporation will be
unable to collect all amounts due according to the contractual terms of the loan agreement. Loans for which the
terms have been modified resulting in a concession, and for which the borrower is experiencing financial
difficulties, are considered troubled debt restructurings (“TDRs”) and classified as impaired.
Management currently estimates the general component of the allowance based upon factors including, but not
limited to, an evaluation of inherent risks in the loan portfolio, industry experience, credit risk grades assigned to
loans, adverse situations that may affect the borrowers’ ability to repay, the estimated value of any underlying
collateral, and current economic conditions. Future additions to the allowance may be necessary based on changes
in economic conditions or other factors used in management’s determination as well as probable incurred losses. In
addition, as part of their examination process, regulatory agencies may require additions to the allowance based on
their judgments about information available to them. An unallocated component is maintained to cover
uncertainties that could affect management’s estimate of probable incurred losses. The unallocated component of
the allowance reflects the margin of imprecision inherent in the underlying assumptions used in the methodologies
for estimating specific and general losses in the portfolio.
Factors considered by management in determining impairment include payment status, collateral value, and the
probability of collecting scheduled principal and interest payments when due. Loans that experience insignificant
payment delays and payment shortfalls generally are not classified as impaired. Management determines the
significance of payment delays and payment shortfalls on case-by-case basis, taking into consideration all of the
circumstances surrounding the loan and the borrower, including the length of the delay, the borrower’s prior
payment record, and the amount of the shortfall in relation to the principal and interest owed.
If a loan is impaired, a portion of the allowance is allocated so that the loan is reported, net, at the present value of
estimated future cash flows using the loan’s existing rate or at the fair value of collateral if repayment is expected
solely from the collateral.
Troubled debt restructurings are individually evaluated for impairment and included in the separately identified
impairment disclosures. TDRs are measured at the present value of estimated future cash flows using the loan’s
effective rate at inception. If a TDR is considered to be a collateral dependent loan, the loan is reported, net, at the
fair value of the collateral. For TDRs that subsequently default, the Corporation determines the amount of the
allowance on that loan in accordance with the accounting policy for the allowance for loan losses on loans
individually identified as impaired.
g)
Concentration of Credit Risk
The Corporation’s portfolio segments are comprised of commercial real estate - multi-family loans, commercial real
estate mortgages, commercial and industrial loans, one-to-four family loans, real estate – construction loans, home
equity lines of credit, lease financing, and installment/consumer loans. Risk characteristics of the Corporation’s
commercial real estate and real estate construction loans tend to be subjective due to vacancy rates, cash flows and
the underlying real estate values located in the Corporation’s market and primary service area of the counties of
Suffolk, Nassau, Kings, Queens, Bronx and New York. Commercial and industrial and lease financing risk
characteristics are driven by economic conditions and the management and capital strength of the borrower.
h)
Premises and Equipment
Buildings, furniture and fixtures and equipment are stated at cost less accumulated depreciation. Equipment,
computer hardware and software, and furniture and fixtures are depreciated using the straight-line method with a
28
range for useful lives of two to ten years. Leasehold improvements are amortized over the lives of the respective
leases, including any option extensions when expected to exercise or the service lives of the improvements
whichever is shorter.
Improvements and major repairs are capitalized, while the cost of ordinary maintenance, repairs and minor
improvements is charged to operations.
i)
Loan Commitments and Related Financial Instruments
Financial instruments include off-balance sheet credit instruments, such as commitments to make loans and stand-by
letters of credit, issued to meet customer-financing needs. The face amount for these items represents the exposure
to loss, before considering customer collateral or ability to repay.
j)
Income Taxes
Income tax expense is the total of the current year income tax due or refundable and the change in deferred tax
assets and liabilities. Deferred tax assets and liabilities are the expected future tax amounts to be recognized for the
temporary differences between carrying amounts and tax bases of assets and liabilities, computed using enacted tax
rates. Temporary differences are differences between the tax basis of assets and liabilities and their reported
amounts in the financial statements that will result in taxable or deductible amounts in future years. The effect on
deferred taxes of a change in tax rates is recognized in income in the period that includes the enactment date. A
valuation allowance is recorded for deferred tax assets if the Corporation cannot determine that the benefits will
more likely than not be realized.
In accordance with FASB ASU 740, “Accounting for Uncertainty in Income Taxes”, a tax position is recognized as
a benefit only if it is “more likely than not” that the tax position would be sustained in a tax examination, with a tax
examination being presumed to occur. The amount recognized is the largest amount of tax benefit that is greater than
50% likely of being realized on examination. For tax positions not meeting the “more likely than not” test, no tax
benefit is recorded. There are no such tax positions in the Corporation’s financial statements at December 31, 2017
and 2016.
k)
Earnings per Share
Earnings per share (“EPS”) is calculated in accordance with FASB ASC 260-10, “Determining Whether Instruments
Granted in Share-Based Payment Transactions Are Participating Securities”. This ASC 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 EPS. Basic earnings per common share is computed by
dividing net income attributable to common shareholders by the weighted average number of common shares
outstanding during the period. Diluted EPS, which reflects the potential dilution that could occur if outstanding
stock options and warrants were exercised, is computed by dividing net income attributable to common shareholders
including assumed conversions by the weighted average number of common shares and common equivalent shares
outstanding during the period.
l)
Stock Based Compensation Plans
Stock based compensation awards are recorded in accordance with FASB ASC No. 718, “Improvements to
Employee Share-Based Payment Accounting” which requires companies to record compensation cost for stock
options, restricted stock awards and stock awards granted to employees in return for employee service. The cost is
measured at the fair value of the options and awards when granted, and this cost is expensed over the employee
service period, which is normally the vesting period of the options and awards.
m)
Comprehensive Income
Comprehensive income includes net income and other comprehensive income. Other comprehensive income
includes revenues, expenses, gains and losses that under generally accepted accounting principles are included in
29
comprehensive income but excluded from net income. Comprehensive income and accumulated other
comprehensive income are reported net of related income taxes. Accumulated other comprehensive income for the
Corporation includes unrealized holding gains or losses on available for sale securities. Such gains or losses are net
of reclassification adjustments for realized gains (losses) on sales of available for sale securities.
n)
Fair Value of Financial Instruments
Fair values of financial instruments are estimated using relevant market information and other assumptions, as more
fully disclosed in a separate note. Fair value estimates involve uncertainties and matters of significant judgment
regarding interest rates, credit risk, prepayments, and other factors, especially in the absence of broad markets for
particular items. Changes in assumptions or in market conditions could significantly affect these estimates.
o)
New Accounting Standards
The following are new accounting standards that are likely to be broadly applicable to financial institutions.
ASU 2016-09, Compensation- Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment
Accounting
In March 2016, the FASB amended existing guidance to simplify several aspects of the accounting for share-based
payment award transactions, including: income tax consequences, classification of awards as either equity or
liabilities, classification on the statement of cash flow and policy election to estimate the number of awards that are
expected to vest (current GAAP) or account for forfeitures when they occur. ASU 2016-09 is effective for annual
periods, and interim periods within those annual periods, beginning after December 15, 2016, with early adoption
permitted. The Company adopted ASU 2016-09 in the first quarter of 2017. The adoption of ASU 2016-09 did not
have a material impact on the Corporation’s consolidated financial statements.
ASU 2018-02, Income Statement-Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax
Effects from Accumulated Other Comprehensive Income
In February 2018, the FASB amended existing guidance to allow a reclassification from accumulated other
comprehensive income to retained earnings for stranded tax effects resulting from the Tax Cuts and Jobs Act (“Tax
Act”). Consequently, the amendments eliminate the stranded tax effects resulting from the Tax Act and will improve
the usefulness of information reported to financial statement users. However, because the amendments only relate to
the reclassification of the income tax effects of the Tax Act, the underlying guidance that requires that the effect of a
change in tax laws or rates be included in income from continuing operations is not affected. The amendments in
this update are effective for all entities for fiscal years beginning after December 15, 2018, and interim periods
within those fiscal years, with early adoption, including adoption in an interim period, permitted. The Corporation
adopted ASU 2018-02 at December 31, 2017 and reclassified $598 thousand from accumulated other comprehensive
income to retained earnings.
p)
Impact of Issued but Not Yet Effective Accounting Standards
ASU 2014-09, Revenue from Contracts with Customers (Topic 606)
In May 2014, the FASB amended existing guidance related to revenue from contracts with customers. This
amendment supersedes and replaces nearly all existing revenue recognition guidance, establishes a new control-
based revenue recognition model, changes the basis for deciding when revenue is recognized over time or at a point
in time, provides new and more detailed guidance on specific topics and expands and improves disclosures about
revenue. In addition, the amendment specifies the accounting for some costs to obtain or fulfill a contract with a
customer. These amendments are effective for public business entities for annual reporting periods beginning after
December 15, 2017, including interim periods within that reporting period. Early adoption is permitted only as of
annual reporting periods beginning after December 15, 2016, including interim reporting periods within that period.
The amendments allow for one of two transition methods: full retrospective or modified retrospective. The full
retrospective approach requires application to all periods presented. The modified retrospective transition requires
application to uncompleted contracts at the date of adoption. Periods prior to the date of adoption are not
retrospectively revised, but a cumulative effect is recognized at the date of initial application on uncompleted
contracts. While the guidance in ASU 2014-09 supersedes most existing industry-specific revenue recognition
accounting guidance, much of the Corporation’s revenue comes from financial instruments such as debt securities
30
and loans, which are scoped-out of the guidance. The Corporation determined its service charges on deposit
accounts and fees for other customer services within non-interest income are in scope of the amended guidance. As a
result of the Corporation’s assessment of revenue recognition, it has determined the recognition, measurement and
presentation of services charges on deposit accounts and fees for other customer services will not change. The
Corporation has not identified any material differences in the amount and timing of revenue recognition for these
revenue streams that are within the scope of ASU 2014-09. The Corporation adopted the guidance in the first quarter
of 2018. The Corporation’s adoption did not have a material impact on its consolidated financial statements.
Accounting Standards Update (“ASU”) 2016-01, Financial Instruments – Overall (Subtopic 825-10): Recognition
and Measurement of Financial Assets and Financial Liabilities
In January 2016, the FASB amended existing guidance that requires equity investments (except those accounted for
under the equity method of accounting, or those that result in consolidation of the investee) to be measured at fair
value with changes in fair value recognized in net income. It requires public business entities to use the exit price
notion when measuring the fair value of financial instruments for disclosure purposes. It requires separate
presentation of financial assets and financial liabilities by measurement category and form of financial asset. It
eliminates the requirement for public business entities to disclose the method(s) and significant assumptions used to
estimate the fair value that is required to be disclosed for financial instruments measured at amortized cost. The
amendments in ASU 2016-01 for public entities such as the Corporation is effective for interim and annual reporting
beginning after December 15, 2017. The Corporation adopted ASU 2016-01 as of effective date at December 15,
2017 and the adoption of this standard did not have a material effect on the Corporation’s financial position, results
of operations and disclosures.
ASU 2016-02, Leases (Topic 842)
In February 2016, the FASB amended existing guidance that requires lessees recognize the following for all leases
(with the exception of short-term leases) at the commencement date (1) A lease liability, which is a lessee’s
obligation to make lease payments arising from a lease, measured on a discounted basis; and (2) A right-of-use
asset, which is an asset that represents the lessee’s right to use, or control the use of, a specified asset for the lease
term. Under the new guidance, lessor accounting is largely unchanged. Certain targeted improvements were made to
align, where necessary, the lessor accounting model and Topic 606, Revenue from Contracts with Customers. ASU
2016-02 is effective for public business entities for fiscal years beginning after December 15, 2018, including
interim periods within those fiscal years. Early application is permitted. Lessees (for capital and operating leases)
and lessors (for sales-type, direct financing, and operating leases) must apply a modified retrospective transition
approach for leases existing at, or entered into after, the beginning of the earliest comparative period presented in the
financial statements. The modified retrospective approach would not require any transition accounting for leases that
expired before the earliest comparative period presented. Lessees and lessors may not apply a full retrospective
transition approach. The Corporation is currently evaluating the impact of ASU 2016-02 on the consolidated
financial statements. Based on leases outstanding at December 31, 2017, the Corporation does not expect the
updates to have a material impact on the income statement, but does anticipate the adoption of ASU 2016-02 will
result in an increase in the Corporation’s consolidated balance sheet as a result of recognizing right-of-use assets and
lease liabilities.
ASU 2016-13, Financial Instruments – Credit Losses (Topic 326)
In June 2016, FASB issued guidance to replace the incurred loss model with an expected loss model, which is
referred to as the current expected credit loss (“CECL”) model. The CECL model is applicable to the measurement
of credit losses on financial assets measured at amortized cost, including loan receivables, held-to maturity debt
securities, and reinsurance receivables. It also applies to off-balance sheet credit exposures not accounted for as
insurance (loan commitments, standby letters of credit, financial guarantees, and other similar instruments) and net
investments in leases recognized by a lessor. For debt securities with other-than temporary impairment (OTTI), the
guidance will be applied prospectively. For all other assets within the scope of CECL, a cumulative-effect
adjustment will be recognized in retained earnings as of the beginning of the first reporting period in which the
guidance is effective. The ASU 2016-13 for public business entities such as the Corporation is effective for interim
and annual reporting periods beginning after December 15, 2020. The Corporation has created a cross-functional
committee responsible for evaluating the impact of adopting ASU 2016-13, assessing data and system needs, and
implementing required changes to loss estimation methods under the CECL model. The Corporation cannot yet
determine the overall impact this guidance will have on the Corporation’s consolidated financial statements.
31
ASU 2017-09, Compensation – Stock Compensation (Topic 718) – Scope of Modification Accounting
In May 2017, the FASB provided guidance about which changes to the terms or conditions of a share-based
payment award require an entity to apply modification accounting in Topic 718. The current disclosure requirements
in Topic 718 apply regardless of whether an entity is required to apply modification accounting under the
amendments in ASU 2017-09. The amendments in ASU 2017-09 are effective for all entities for annual periods, and
interim periods within those annual periods, beginning after December 15, 2017. Early adoption is permitted,
including adoption in any interim period, for reporting periods for which financial statements have not yet been
issued. The amendments should be applied prospectively to an award modified on or after the adoption date. The
adoption of ASU 2017-09 at January 1, 2018 had no material effect on the Corporation’s operating results or
financial condition.
q)
Subsequent Events
The Corporation has evaluated subsequent events for recognition and disclosure through March 30, 2018, which is
the date the financial statements were available to be issued.
2.
SECURITIES
The following tables summarize the amortized cost and estimated fair value of available-for-sale and held-to-
maturity securities and the corresponding amounts of gross unrealized/unrecognized gains and losses at December
31, 2017 and 2016:
Amortized
Cost
December 31, 2017
Gross
Unrealized
Gains
Gross
Unrealized
Losses
(in thousands)
Estimated
Fair Value
Available for sale:
Mortgage-backed securities-residential
U.S. government agency securities
U.S. treasury
Total available for sale
Held to maturity:
Corporate bonds
Total held to maturity
Available for sale:
Mortgage-backed securities-residential
U.S. government agency securities
U.S. treasury
Total available for sale
$
$
$
$
131,704
154,001
18,866
304,571
186
-
-
186
(2,152)
(2,586)
(50)
(4,788)
129,738
151,415
18,816
299,969
$
$
$
$
Amortized
Cost
Gross
Unrecognized
Gains
Gross
Unrecognized
Losses
(in thousands)
Estimated
Fair Value
$
$
4,750
4,750
$
$
98
98
-
$
$
-
$
$
4,848
4,848
Amortized
Cost
December 31, 2016
Gross
Unrealized
Gains
Gross
Unrealized
Losses
(in thousands)
Estimated
Fair Value
$
$
$
$
143,496
129,191
-
272,687
95
-
-
95
(4,206)
(3,842)
-
(8,048)
139,385
125,349
-
264,734
$
$
$
$
Held to maturity:
Corporate bonds
Total held to maturity
Amortized
Cost
Gross
Unrecognized
Gains
Gross
Unrecognized
Losses
(in thousands)
Estimated
Fair Value
$
$
3,000
3,000
$
$
32
32
-
$
$
-
$
$
3,032
3,032
32
Securities with gross unrealized losses at December 31, 2017 and 2016 aggregated by category and length of time
that individual securities have been in a continuous unrealized loss position are as follows:
Less than 12 months
Gross
Unrealized
Losses
Estimated
Fair Value
December 31, 2017
Greater than 12 months
Gross
Unrealized
Losses
Estimated
Fair Value
(in thousands)
Total
Estimated
Fair Value
Gross
Unrealized
Losses
Available for sale:
Mortgage-backed securities-residential
U.S. government agency securities
U.S. treasury
Total available for sale
Available for sale:
Mortgage-backed securities-residential
U.S. government agency securities
U.S. treasury
Total available for sale
$
$
$
$
$
$
20,075
97,187
18,816
136,078
(101)
(1,105)
(50)
(1,256)
83,990
54,228
-
138,218
(2,051)
(1,481)
-
(3,532)
104,065
151,415
18,816
274,296
(2,152)
(2,586)
(50)
(4,788)
$
$
$
$
$
$
Less than 12 months
Gross
Unrealized
Losses
Estimated
Fair Value
December 31, 2016
Greater than 12 months
Gross
Unrealized
Losses
Estimated
Fair Value
(in thousands)
Total
Estimated
Fair Value
Gross
Unrealized
Losses
$
$
$
$
$
$
117,762
125,349
-
243,111
(3,661)
(3,842)
-
(7,503)
10,774
-
-
10,774
(545)
-
-
(545)
128,536
125,349
-
253,885
(4,206)
(3,842)
-
(8,048)
$
$
$
$
$
$
At December 31, 2017, all of the mortgage-backed securities and U.S. government agency securities held by the
Corporation were issued by U.S. government-sponsored entities and agencies, primarily Ginnie Mae and Fannie
Mae, institutions which the government has affirmed its commitment to support. Because the decline in fair value is
attributable to changes in interest rates and illiquidity, and not credit quality, and because the Corporation does not
have the intent to sell these mortgage-backed securities and U.S. government agency securities, and it is likely that it
will not be required to sell the securities before their anticipated recovery, the Corporation does not consider these
securities to be other-than-temporarily impaired at December 31, 2017.
The fair estimated value of debt securities and carrying amount, if different, at December 31, 2017 by contractual
maturity were as follows. Securities not due at a single maturity date, solely mortgage-backed securities, are shown
separately.
December 31, 2017
Available for Sale
Amortized
Cost
Estimated
Fair Value
(in thousands)
Due in one year or less
Due from one to five years
Due from five to ten years
Due after ten years
Mortgage-backed securities-residential
Total available for sale
Due from five to ten years
Total held to maturity
$
$
18,866
8,996
145,005
-
131,704
304,571
18,816
8,853
142,562
-
129,738
299,969
$
$
Held to Maturity
Amortized
Cost
Estimated
Fair Value
(in thousands)
4,750
4,750
$
$
4,848
4,848
$
$
33
Proceeds from sales and calls of securities available for sale were $101.3 million and $247.3 million for the years
ended December 31, 2017 and 2016, respectively. There were gross gains of $37 thousand realized on the sale and
call of securities during 2017 as compared to $406 thousand in 2016. There were gross losses on the sale and call of
securities in 2016 and 2015 of $1.6 million and $60 thousand, respectively.
At December 31, 2017, investment securities with a carrying value of $272.8 million were pledged as collateral to
secure public and bankruptcy deposits.
3.
LOANS
The following table sets forth the major classifications of loans:
December 31,
2017
2016
(in thousands)
$
$
Commercial real estate-multi family
Commercial real estate mortgages
Commercial and industrial
One-to-four family
Real estate - construction
Home equity lines of credit
Lease financing
Installment/consumer
Total
Allowance
Net loans
Allowance for Loan Losses
195,571
155,204
77,373
68,374
14,457
6,436
1,490
635
519,540
(5,875)
513,665
192,168
133,432
87,649
59,801
13,540
5,068
2,319
297
494,274
(5,799)
488,475
$
$
$
$
An evaluation of the allowance for loan losses is performed on a quarterly basis. To adequately assess the
allowance for loan losses the following quantitative and qualitative factors are considered:
Quantitative factors:
(cid:120) Delinquency trends of the Corporation;
(cid:120) Historical loss experience of the Corporation; and
(cid:120) Results of internal and external loan reviews.
Qualitative factors:
(cid:120) Allowance levels and trends for peer banks;
(cid:120) Changes in lending policies, procedures, underwriting criteria, as well as collection, charge-off and
recovery practices;
(cid:120) Changes in international, national, regional, and local economic and business conditions;
(cid:120) Changes in portfolio nature and volume;
(cid:120) Changes in the experience, ability, and depth of lending management and related staff;
(cid:120) Changes in the volume and severity of past due loans, nonaccrual loans, criticized and classified loans;
(cid:120) Changes in the quality of the Corporation’s loan review system;
(cid:120) Changes in the value of underlying collateral for collateral-dependent loans;
34
(cid:120) Existence and effect of any concentrations of credit and changes in the level of each such
concentration;
(cid:120) Effect of other external factors such as competition and legal and regulatory requirements;
(cid:120) Comparison of the Corporation’s performance versus that of its peer group; and
(cid:120) Delinquency trends for peer banks.
The following tables present the balance in the allowance for loan losses and the recorded investment in loans by
portfolio segment and based on impairment methods as of December 31, 2017 and 2016:
2017
Commercial
real estate-
multi family
Commercial
real estate
mortgages
Commercial
and industrial
loans
One-to-
four
family
Real estate-
construction
loans
(in thousands)
Home equity
lines of
credit
Lease
financing
Installment/
consumer
loans
Unallocated
Total
$
$
$
$
$
$
$
$
$
1,705
(47)
-
-
-
1,658
1,373
577
-
-
-
1,950
2,110
38
(633)
65
(568)
1,580
417
60
-
-
-
477
109
7
-
-
-
116
20
(7)
-
-
-
13
1
$
10
-
-
-
11
$
54
-
-
-
-
54
5,799
644
(633)
65
(568)
5,875
$
$
$
$
$
$
$
$
$
Beginning balance
Provision for loan losses
Charge-offs
Recoveries
Net charge-offs/recoveries
Ending balance
Ending balance: individually evaluated
for impairment
Ending balance: collectively evaluated
for impairment
Loans
Ending balance: individually evaluated
for impairment
Ending balance: collectively evaluated
for impairment
Beginning balance
Provision for loan losses
Charge-offs
Recoveries
Net charge-offs/recoveries
Ending balance
Ending balance: individually evaluated
for impairment
Ending balance: collectively evaluated
for impairment
Loans
Ending balance: individually evaluated
for impairment
Ending balance: collectively evaluated
for impairment
-
472
79
-
-
-
-
-
-
551
$
1,658
$
1,478
$
1,501
$
477
$
116
$
16
$
13
$
11
$
54
$
5,324
$
195,571
$
155,204
$
77,373
$
68,374
$
14,457
$
6,436
$
1,490
$
635
$
-
$
519,540
-
5,767
2,035
-
-
-
-
-
7,802
$
195,571
$
149,437
$
75,338
$
68,374
$
14,457
$
6,436
$
1,490
$
635
$
-
$
511,738
2016
Commercial
real estate-
multi family
Commercial
real estate
mortgages
Commercial
and industrial
loans
One-to-
four
family
Real estate-
construction
loans
(in thousands)
Home equity
lines of
credit
Lease
financing
Installment/
consumer
loans
Unallocated
Total
$
$
$
$
$
$
$
$
$
1,852
(147)
-
-
-
1,705
1,289
74
-
10
10
1,373
1,446
775
(111)
-
(111)
2,110
379
38
-
-
-
417
150
(41)
-
-
-
109
23
(3)
-
-
-
20
2
$
(1)
-
-
-
$
1
117
(63)
-
-
-
54
5,268
632
(111)
10
(101)
5,799
$
$
$
$
$
$
$
$
$
-
-
538
-
-
-
-
-
-
538
$
1,705
$
1,373
$
1,572
$
417
$
109
$
10
$
20
$
1
$
54
$
5,261
$
192,168
$
133,432
$
87,649
$
59,801
$
13,540
$
5,068
$
2,319
$
297
$
-
$
494,274
2,198
854
1,496
-
-
-
-
-
-
4,548
$
189,970
$
132,578
$
86,153
$
59,801
$
13,540
$
5,068
$
2,319
$
297
$
-
$
489,726
10
6
-
-
-
16
10
-
-
-
-
10
Troubled Debt Restructurings
A restructuring constitutes a troubled debt restructuring when the restructuring includes a concession by the Bank
and the borrower is experiencing financial difficulty. In order to determine whether a borrower is experiencing
financial difficulty, an evaluation is performed of the probability that the borrower will be in payment default on any
of its debt in the foreseeable future without modification. The Bank performs the evaluation under its internal
underwriting policy.
As of December 31, 2017 and 2016, the Corporation had a recorded investment in seven troubled debt restructurings
loans totaling $2.6 million and $2.5 million, respectively. The Corporation had allocated $79 thousand and $38
thousand of specific allowances for those loans at December 31, 2017 and 2016, respectively, and has not
committed to lend additional amounts.
35
In 2017 there were five new relationships in new troubled debt restructuring totaling $2.4 million. During 2017 one
troubled debt restructuring totaling $8 thousand went in default and was subsequently fully charged
off. Additionally another troubled debt restructuring was partially charged off in the amount of $608
thousand. There were no troubled debt restructurings for which there was a payment default during 2016 that were
modified during the twelve-month period prior to default. A loan is typically declared to be in payment default once
it is contractually past due and reaches 90 days or it is deemed uncollectable under the modified terms.
To determine whether a borrower is experiencing financial difficulty, an evaluation is performed of the probability
that the borrower will be in payment default on any of its debt in the foreseeable future without the modification.
This evaluation is performed under the Bank’s internal underwriting policy.
Past Due and Nonaccrual Loans
The following table presents the recorded investment in nonaccrual and loans past due over 90 days still on accrual
by class of loans as of December 31, 2017 and 2016:
2017
2016
Loan Past
Due Over 90
Days still
Accruing
Nonaccrual
(in thousands)
$
-
-
-
-
-
-
-
-
$
-
$
-
854
1,496
-
-
-
-
-
2,350
$
Loan Past
Due Over 90
Days still
Accruing
$
-
-
-
-
-
-
-
-
$
-
Nonaccrual
$
-
5,159
772
-
-
-
-
-
5,931
$
Commercial real estate- multi-family
Commercial real estate mortgages
Commercial and industrial
One-to-four family
Real estate - construction
Home equity lines of credit
Lease financing
Installment/consumer
Total
36
The following table presents information related to impaired loans by class of loans as of and for the year ended
December 31, 2017 and 2016:
December 31, 2017
Recorded
Investment
Unpaid
Principal
Balance
Average
Recorded
Investment
Interest
Income
Recognized
Related
Allowance
(in thousands)
$
1,385
1,753
3,138
$
1,438
2,422
3,860
-
$
-
-
$
1,455
2,446
3,901
$
38
44
82
4,382
282
4,664
7,802
$
4,400
551
4,951
8,811
$
472
79
551
551
$
4,323
552
4,875
8,776
$
168
-
168
250
$
December 31, 2016
Recorded
Investment
Unpaid
Principal
Balance
Average
Recorded
Investment
Interest
Income
Recognized
Related
Allowance
(in thousands)
$
2,198
854
3,052
$
2,258
854
3,112
$
-
-
-
$
2,278
866
3,144
$
160
53
213
1,496
1,496
4,548
$
1,732
1,732
4,844
$
538
538
538
$
1,873
1,873
5,017
$
60
60
273
$
With no related allowance recorded:
Commercial real estate mortgages
Commercial and industrial
Subtotal
With an allowance recorded:
Commercial real estate mortgages
Commercial and industrial
Subtotal
Total
With no related allowance recorded:
Commercial real estate-multi family
Commercial real estate mortgages
Subtotal
With an allowance recorded:
Commercial and industrial
Subtotal
Total
The Corporation categorizes loans into risk categories based on relevant information about the ability of borrowers
to service their debt such as current financial information, historical payment experience, credit documentation,
public information, and current economic trends, among other factors. The Corporation analyzes loans individually
by rating the loans based on credit risk. A loan is assigned a risk rating as part of the underwriting process. A risk
rating for a loan is reviewed periodically in conjunction with annual credit reviews, external loan review or when
one or more events occur such as an event requiring credit approval, changes to an existing credit facility or
whenever material favorable or unfavorable information regarding the credit is obtained. The Corporation uses the
following definitions for risk ratings:
Pass - Non-criticized and non-classified asset.
Special Mention - A special mention asset has potential weaknesses that deserve management’s close
attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment
prospects for the asset, or, in the institutions credit position at some future date. Special mention assets are
not adversely classified and do not expose an institution to sufficient risk to warrant adverse classification.
A special mention loan is not a “classified” asset.
Substandard - A substandard asset is inadequately protected by the current creditworthiness and paying
capacity of the obligor or of the collateral pledged, if any. Assets so classified must have a well-defined
weakness or weaknesses that jeopardize the liquidation of debt. They are characterized by the distinct
possibility that the institution will sustain some loss if the deficiencies are not corrected.
37
Doubtful - An asset classified as doubtful has all the weaknesses inherent in one classified substandard with
the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently
existing facts, conditions, and values, highly questionable and improbable.
Loss - An asset classified as loss is considered uncollectible and of such little value that continuance as a
bankable asset is not warranted. This classification does not mean that the asset has absolutely no recovery
or salvage value, but rather it is not practical or desirable to defer writing off this basically worthless asset
even though partial recovery may be affected in the future.
The following tables present risk grades for all loans including classified loans by product class as of December 31,
2017 and 2016. Classified loans included loans in risk categories of Special Mention, Substandard, Doubtful and
Loss.
December 31, 2017
Sub-
standard
(in thousands)
$
-
6,247
2,335
-
-
-
-
-
8,582
$
Doubtful
-
$
-
-
-
-
-
-
-
$
-
Special
Mention
-
$
1,838
745
-
-
-
-
-
2,583
$
Pass
$
195,571
147,119
74,293
68,374
14,457
6,436
1,490
635
508,375
$
$
$
Special
Mention
December 31, 2016
Sub-
standard
(in thousands)
-
$
2,695
3,200
-
-
-
-
-
5,895
$
2,198
2,403
1,926
-
-
-
-
-
6,527
Doubtful
-
$
-
-
-
-
-
-
-
$
-
Pass
189,970
128,334
82,523
59,801
13,540
5,068
2,319
297
481,852
$
$
Loss
-
$
-
-
-
-
-
-
-
$
-
Loss
-
$
-
-
-
-
-
-
-
$
-
Commercial real estate - multi-family
Commercial real estate mortgages
Commercial and industrial loans
One-to-four family
Real estate - construction loans
Home equity lines of credit
Lease financing
Installment/consumer loans
Commercial real estate - multi-family
Commercial real estate mortgages
Commercial and industrial loans
One-to-four family
Real estate - construction loans
Home equity lines of credit
Lease financing
Installment/consumer loans
Related Party Loans
Certain directors and their related parties, including their immediate families and companies in which they are
principal owners, were loan customers of the Corporation during 2017. The balances of related party loans for the
years ended December 31, 2017 and December 31, 2016 were $7.0 million and $7.6 million, respectively. There
were no loans to directors or executive officers in nonaccrual, and there were $3.7 million in unadvanced lines of
credit as of December 31, 2017.
Loans to principal officers, directors, and their affiliates during 2017 were as follows:
Beginning Balance:
New Loans
Advances on existing loans
Paydowns
Ending Balance
2017
(in thousands)
$
7,627
1,833
131
(2,618)
6,973
$
38
4.
PREMISES AND EQUIPMENT
Premises and equipment consisted of:
December 31,
2017
2016
Furniture and fixtures
Leasehold improvements
Less: accumulated depreciation and amortization
$
(in thousands)
6,682
7,060
13,742
(8,236)
5,506
$
6,516
7,060
13,576
(7,524)
6,052
$
$
Depreciation and amortization expense was $1.0 million and $1.1 million for 2017 and 2016, respectively.
Leases
The Corporation is obligated to make minimum annual rental payments under non-cancelable operating leases on its
premises. Projected minimum rentals under existing leases are as follows:
2018
2019
2020
2021
2022
Thereafter
December 31, 2017
(in thousands)
$
1,282
1,310
1,311
1,329
1,375
10,670
Certain leases contain renewal options and rent escalation clauses. In addition, certain leases provide for additional
payments based upon real estate taxes, interest and other charges. Rental expenses under these leases for the years
ended December 31, 2017 and 2016 approximated $1.2 million and $1.1 million, respectively. The above chart
includes the minimum annual rental payments through lease renewal periods based upon management’s intentions to
execute the renewal options.
5.
DEPOSITS
Time Deposits
The following table sets forth the remaining maturities of the Corporation’s time deposits at December 31, 2017:
Less than
$100,000
$100,000 or
Greater
(in thousands)
Total
2018
2019
2020
2021
2022
$
$
$
5,144
2,088
293
102
28
7,655
11,442
2,711
3,478
251
395
18,277
16,586
4,799
3,771
353
423
25,932
$
$
$
39
The total amounts of time deposits that met or exceeded the FDIC insurance limit of $250,000 at December 31, 2017
and 2016 were $4.7 million and $6.2 million, respectively.
The total amounts of brokered deposits at December 31, 2017 and 2016 were $155.6 million and $108.5 million,
respectively. Deposits from principal officers, directors, and their affiliates at year-end 2017 and 2016 were $13.9
million and $17.3 million, respectively.
6.
SHORT-TERM BORROWINGS
At December 31, 2017, the Corporation had no short-term borrowings compared to $26.5 million outstanding with
the Federal Home Loan Bank (“FHLB”) at December 31, 2016. FHLB advances were collateralized by a blanket
lien on commercial mortgages with a lendable value of $240.9 million at December 31, 2017 and $232.8 million at
December 31, 2016.
During 2017, the Bank maintained an overnight line of credit with the FHLB. The Bank has the ability to borrow
against its unencumbered mortgages and investment securities owned by the Bank.
As a member of the Federal Reserve Bank, the Bank may borrow on a collateralized basis at the discount window.
There were no borrowings from the discount window at December 31, 2017.
At December 31, 2017, the Bank had aggregate lines of credit of $40.0 million with unaffiliated correspondent
banks to provide short-term credit for liquidity requirements. Of these aggregate lines of credit, $36.0 million were
available on an unsecured basis. As of December 31, 2017, the Bank had no such borrowings outstanding.
7.
SUBORDINATED DEBENTURES
In December 2015, the Corporation issued $15.3 million in aggregate principal amount of fixed and fixed-to-floating
rate subordinated debentures (“Notes”). $7.5 million of the Notes have a stated maturity of December 17, 2025 and
bear interest at a fixed annual rate of 7.375% per year, from and including December 17, 2015 up to but excluding
December 17, 2025. The fixed rate Notes are subject to redemption beginning on December 17, 2020 at an amount
equal to 103% of the principal amount outstanding, plus accrued and unpaid interest, with the redemption premium
decreasing by 50 basis points on each subsequent anniversary. The remaining $7.75 million of the Notes have a
stated maturity of December 17, 2025 and bear interest at a rate of 6.50% per year, from and including December
17, 2015 up to but excluding December 20, 2020. From and including December 20, 2020 to the maturity date or
early redemption date, the interest rate will reset quarterly to an annual interest rate equal to the then-current three-
month LIBOR plus 488 basis points. The fixed-to-floating Notes are subject to redemption beginning on December
17, 2020 at par. The fixed and fixed-to-floating Notes are subject to redemption under certain limited circumstances
at par prior to December 17, 2020. The Notes were structured to qualify as Tier 2 capital under Federal Reserve
regulations. The Notes are recorded net of unamortized issuance costs of $472 thousand and $515 thousand at
December 31, 2017 and December 31, 2016, respectively.
40
8.
INCOME TAXES
Income tax expense components were the following:
Current:
Federal
State and local
Total current
Deferred:
Federal
State and local
Total deferred
Change in valuation allowance
Total income tax expense
For the years ended December 31,
2017
2016
(in thousands)
$
1,393
-
1,393
$
1,973
-
1,973
1,622
(966)
656
966
3,015
$
(419)
(920)
(1,339)
920
1,554
$
The Tax Cuts and Jobs Act (“the Act”) was enacted on December 22, 2017. The income tax effects of changes in tax
laws are recognized in the period when enacted. The Act provides for numerous significant tax law changes and
modifications with varying effective dates, which includes reducing the U.S. federal corporate income tax rate from
34/35% to 21%. In response to the enactment of the Act in late 2017, the U.S. Securities and Exchange Commission
issued Staff Accounting Bulletin No. 118 (“SAB 118”) to address situations where the accounting is incomplete for
certain income tax effects of the Act upon issuance of an entity’s financial statements for the reporting period in
which the Act was enacted. Under SAB 118, a company may record provisional amounts during a measurement
period for specific income tax effects of the Act for which the accounting is incomplete but a reasonable estimate
can be determined, and when unable to determine a reasonable estimate for any income tax effects, report
provisional amounts in the first reporting period in which a reasonable estimate can be determined.
The Corporation has recorded the impact of the tax effects of the Act, relying on reasonable estimates where the
accounting is incomplete as of December 31, 2017. As guidance and technical corrections are issued in the
upcoming quarters, the Corporation will record updates to its original provisional estimates. The Corporation
remeasured its deferred tax assets and liabilities based on the rates at which they are expected to reverse in the
future, which is generally 21%. The provisional amount recorded related to the remeasurement of deferred tax
balance was a net tax expense of $1.8 million.
The reconciliation of the expected federal income tax expense at the statutory tax rate to the actual provision
follows:
For the years ended December 31,
2016
2017
Federal income tax benefit computed by applying the
statutory rate to income before income taxes
State and local tax, net of federal
Corporate tax rate change
Incentive stock options
Other
Valuation allowance
Provision for income taxes
Percentage
of Pre-tax
Earnings
34.0 %
(21.2)
-
0.3
1.5
21.2
35.8 %
Amount
Percentage
of Pre-tax
Earnings
Amount
(dollars in thousands)
$
$
34.0 %
(21.6)
39.4
(5.3)
(0.6)
21.7
67.6 %
1,477
(920)
-
13
64
920
1,554
$
$
1,517
(966)
1,759
(235)
(26)
966
3,015
41
Deferred tax assets and liabilities are comprised of the following:
Deferred tax assets:
NYS and NYC net operating loss
Allowance for loan losses
Net unrealized losses on available for sale securities
Deferred rent expense
Organizational and start-up costs
Other
Stock compensation expense
Nonaccrual loan interest income
Depreciation
Nonqualified stock options
Total deferred tax assets
Deferred tax liabilities:
Net deferred loan costs
Other
Depreciation
Total deferred tax liabilities
For the years ended December 31,
2017
2016
(in thousands)
$
1,754
1,704
966
567
258
187
144
117
84
-
5,781
$
927
2,298
2,704
769
430
237
83
104
-
240
7,792
(326)
(141)
-
(467)
(499)
(88)
(33)
(620)
Valuation allowance
(2,536)
(1,570)
Net deferred tax asset
$
2,778
$
5,602
At December 2017, the Corporation had no federal net operating loss carryforwards. The Corporation had New
York State and New York City net operating loss carryforwards of $17.4 million and $8.7 million, respectively,
which will expire between 2035 to 2037. Deferred tax assets are not recognized for New York State and New York
City net operating losses, as the benefit of such losses is not more likely not to be realized.
At December 31, 2017 and December 31, 2016, the Corporation had no unrecognized tax benefits. The Corporation
does not expect the amount of unrecognized tax benefits to significantly change within the next twelve months. The
Corporation is not currently under Federal or New York State audit. The Corporation is subject to U.S. Federal and
New York state income tax. The tax years 2013 through 2017 remain open to examination by the Internal Revenue
Services and 2014 through 2017 by New York State.
9.
STOCKHOLDERS’ EQUITY
The non-voting common stock is mandatorily convertible into voting common stock of the Corporation on a one-
for-one basis upon (i) the consummation of the transfer by a holder of non-voting common stock to third parties in a
widely dispersed offering or (ii) in the case of an investor whose ownership of the common stock issuable upon a
proposed conversion is conditioned upon the execution of passivity commitments in a form acceptable to the Board
of Governors of the Federal Reserve System (acting itself or on delegated authority), upon the execution of such
passivity commitments. Holders of non-voting common stock have no voting rights, except as required by law.
During 2017, 100,000 shares of voting common stock were exchanged for non-voting common stock.
42
10.
EMPLOYEE BENEFITS
401(K) Plan
The Corporation participates in a contributory retirement and savings plan, which meets the requirements of Section
401(k) of the Internal Revenue Code and covers substantially all current employees. Newly hired employees can
elect to participate in the savings plan after completing one year and 1,000 hours of service. Under the provisions of
the savings plan, employee contributions are partially matched by the Corporation with cash contributions.
Participants can invest their account balances into several investment alternatives. As of December 31, 2017, the
savings plan did not allow for investment in the common stock of the Corporation. During the years ended
December 31, 2017 and 2016, the Corporation recorded compensation expense related to the plan of approximately
$339 thousand and $158 thousand, respectively.
Stock Based Compensation
The Corporation maintains the Empire National Bank 2008 Stock Incentive Plan (“2008 Plan”), which authorizes
the issuance of an aggregate of 600,000 stock options to such individuals and in such amounts as may be designated
by the Board of Directors or its Compensation Committee. This plan provides for the issuance of “incentive stock
options” and “nonqualified stock options” to certain qualified individuals. All stock options issued by the Bank
prior to the holding company reorganization transaction were assumed by the Corporation as of the effective date of
the reorganization. All stock options that have been issued under the plan have a ten-year term and vest at a rate of
twenty percent on each of the first five annual anniversary dates from the date of grant. Each option entitles the
holder to purchase one share of the Corporation’s common stock at an exercise price not less than fair market value
at the time of issuance. Since the effectiveness of the 2015 Plan discussed below, no further awards have been
issued under this plan.
In 2015, the Empire Bancorp, Inc. 2015 Omnibus Stock and Incentive Plan (“2015 Plan”) was adopted, effective
May 21, 2015 which authorizes the issuance of an aggregate of 303,700 stock options, restricted stock, restricted
stock units, stock appreciation rights and other cash and equity-based awards to such individuals and in such
amounts as may be designated by the Board of Directors or its Compensation Committee.
Stock Options
A summary of the status of the Corporation’s stock options as of December 31, 2017 follows:
Number of
Options
Weighted
Average
Exercise Price
Weighted
Average
Remaining
Contractual Life
Aggregate
Intrinsic
Value
(in thousands)
Outstanding, beginning of year
Granted
Exercised
Forfeited
Outstanding, end of year
Exercisable, end of year
Vested or expected to vest
436,500
-
337,750
-
98,750
98,750
98,750
$
$
10.00
-
10.00
-
10.00
10.00
10.00
Range of exercise prices
Number of
Shares
98,750
Price
$
10.00
43
2.55 years
2.55 years
2.55 years
$
481
tjkdtyk481
tjkdtyk481
Compensation expense attributable to these options was $20 thousand and $37 thousand for the years ended
December 31, 2017 and 2016, respectively. As of December 31, 2017, there are no unrecognized compensation
costs related to nonvested stock options granted under the Plan.
A summary of activity related to the stock options follows:
December 31,
2017
2016
Intrinsic value of options exercised
Cash received from options exercised
Tax benefit realized from option exercised
Weighted average fair value of options granted
Restricted Stock Awards
$
$
(in thousands)
1,645
64
1,246
-
16
58
-
-
The 2015 Omnibus Plan provides for the issuance of shares to directors and officers. Compensation expense is
recognized over the vesting period of the awards based on the fair value of the stock at issue date. The fair value of
the stock was determined using the fair value on the date of the grant. Of the shares granted in 2017, 15,470 shares
vest over twelve months, 101,559 vests ratably over five years and 67,796 shares vest ratably over ten years. There
were 1,190 shares forfeited in 2017. Of the shares granted in 2016, 37,990 shares vest ratably over five years and
22,742 shares vest over one year. Such shares are subject to restrictions based on continued service as employees of
the Corporation or its subsidiaries.
A summary of the status of the Corporation’s shares of unvested restricted stock for the year ended December 31,
2017 follows:
Unvested, January 1, 2017
Granted
Vested
Forfeited
Unvested, December 31, 2017
Weighted
Average
Grant-Date
Fair Value
9.21
$
13.53
9.22
12.60
12.93
$
Shares
60,732
186,015
30,340
1,190
215,217
Compensation expense attributable to these awards was approximately $532 thousand and $245 thousand for the
years ended December 31, 2017 and 2016. The total fair value of shares unvested during the year ended December
31, 2017 and December 31, 2016 was $2.8 million and $559 thousand respectively. As of December 31, 2017, there
was $2.3 million of total unrecognized compensation costs related to unvested restricted stock awards granted under
the Plan. This cost is expected to be recognized over a weighted-average period of 5.5 years. The tax benefit from
stock compensation awards were $292 thousand and $0 in 2017 and 2016, respectively.
11.
WARRANTS
At December 31, 2017, the Corporation had 499,376 warrants issued and outstanding. Of this amount, 312,500
warrants were issued by the Bank at inception to the members of its organizational group in exchange for amounts
advanced during the organizational stage. Additionally, 52,500 warrants were issued by the Bank at inception to
two vendors in exchange for services rendered in connection with the Bank’s organization. The warrants originally
issued by the Bank were assumed by the Corporation at the time of the holding company reorganization, and have
an exercise price of $10.00 per share. Through February 24, 2018, the expiration date of the warrants, a total of
205,500 warrants had been exercised. These warrants may be subject to exercise or forfeiture in the event that the
Corporation’s capital levels have fallen below regulatory minimums (or higher levels as the regulatory agencies may
44
determine). On December 19, 2014, the Corporation issued a total of 229,376 warrants to certain institutional
investors as a part of their respective equity investments in the Corporation made on the same date. These warrants
have an exercise price of $9.00 per share and a term of five years from the grant date. At December 31, 2017 the
issued and outstanding warrants have an aggregate intrinsic value of $2.7 million.
12.
EARNINGS PER SHARE
Financial Accounting Standards Board Accounting Standards Codification (“FASB ASC”) No. 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 certain restricted stock units granted by the Corporation 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. The
following is a reconciliation of earnings per share for December 31, 2017 and 2016.
For the years ended December 31,
2017
2016
(in thousands, except per share
amounts)
Net income
Earnings allocated to participating securities
Income attributable to common stock
Weighted average common shares outstanding,
including participating securities
Weighted average participating securities
Weighted average common shares outstanding
$
$
1,447
(31)
1,416
2,790
(23)
2,767
$
$
7,109,671
(153,444)
6,956,227
6,936,561
(56,338)
6,880,223
Basic earnings per share
$
0.20
$
0.40
Income attributable to common stock
$
1,416
$
2,767
Weighted average common shares outstanding
Incremental shares from conversions of stock options
Incremental shares from conversion of stock warrants
Weighted average common shares outstanding
6,956,227
91,287
166,885
7,214,399
6,880,223
-
19,432
6,899,655
Diluted earnings per share
$
0.20
$
0.40
FASB ASC No. 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
EPS. The restricted stock awards granted by the Corporation have the same rights as common stockholders and are
considered participating securities whereas the Corporation is required to calculate basic and diluted EPS using the
two class method. Under the two-class method, net income for the period is allocated between the common
stockholders and participating securities according to participation rights in undistributed earnings.
As of the end of the 2017 fiscal year, there were no anti-dilutive stock options or warrants. There are 98,750 options
and 499,376 warrants outstanding at December 31, 2017. There were 435,500 options and 664,376 warrants
outstanding at December 31, 2016 that were not included in the computation of diluted earnings per share because
the exercise prices were greater than the average market price of common stock and were, therefore, antidilutive.
45
13.
OTHER OPERATING EXPENSES
Expenses included in other operating expenses that exceed one percent of the aggregate of total interest income and
noninterest income in the years shown are as follows:
Directors compensation
$
536
$
531
2017
2016
(in thousands)
14.
COMMITMENTS, CONTINGENCIES AND OTHER MATTERS
In the normal course of business, the Corporation has various outstanding commitments and contingent liabilities,
such as claims and legal actions, minimum annual rental payments under non-cancelable operating leases,
guarantees and commitments to extend credit, which are not reflected in Corporation’s financial statements. No
material losses are anticipated as a result of these actions or claims.
Loan Commitments
Some financial instruments, such as loan commitments, credit lines, letters of credit, and overdraft protection, are
issued to meet customer financing needs. These are agreements to provide credit or to support the credit of others,
as long as conditions established in the contract are met, and usually have expiration dates. Commitments may
expire without being used. Off-balance-sheet risk to credit loss exists up to the face amount of these instruments,
although material losses are not anticipated. The same credit policies are used to make such commitments as are
used for loans, often including obtaining collateral at exercise of the commitment.
The following represents commitments outstanding:
December 31,
2017
2016
Fixed Rate
Variable Rate
Fixed Rate
Variable Rate
Standby letters of credit
Unused loan commitments
Commitments to make loans
Total commitments outstanding
$
$
$
$
1,035
-
20,938
21,973
(in thousands)
1,755
103,740
1,000
106,495
1,544
-
796
2,340
$
$
$
$
1,755
63,424
17,200
82,379
15.
ESTIMATED FAIR VALUE MEASUREMENTS
FAS ASC, “Fair Value Measurements and Disclosures,” establishes a fair value hierarchy which requires an entity
to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value.
The standard describes three levels of inputs that may be used to measure fair value:
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.
46
The fair values of securities available for sale are determined by obtaining quoted prices on nationally recognized
securities exchanges (Level 1 inputs) or matrix pricing, which is a mathematical technique widely used within 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 (Level 2 inputs).
Assets and liabilities measured at fair value on a recurring basis are summarized below:
Fair Value Measurements at December 31, 2017 using:
Quoted Prices in Active
Markets for Identical Assets
(Level 1)
Significant
Observable Inputs
(Level 2)
Significant
Unobservable Inputs
(Level 3)
Total
(in thousands)
Assets:
Mortgage-backed securities-residential
U.S government agency securities
U.S treasury
Total
-
$
-
-
$
-
$
$
129,738
151,415
18,816
299,969
-
$
-
-
$
-
$
$
129,738
151,415
18,816
299,969
Fair Value Measurements at December 31, 2016 using:
Quoted Prices in Active
Markets for Identical Assets
(Level 1)
Significant
Observable Inputs
(Level 2)
Significant
Unobservable Inputs
(Level 3)
Total
(in thousands)
Assets:
Mortgage-backed securities-residential
U.S government agency securities
Total
-
$
-
$
-
$
$
139,385
125,349
264,734
-
$
-
$
-
$
$
139,385
125,349
264,734
At December 31, 2017 and 2016, there were no material impaired loans carried at fair value.
As of December 31, 2017 and 2016, the carrying amounts and estimated fair values of financial instruments, not
previously presented, were as follows:
Level of
Fair Value
Hierarchy Carrying Amount
December 31, 2017
Fair Value
Financial assets:
Cash and cash equivalents
Securities, held to maturity
Securities, restricted
Loans
Accrued interest receivable:
Investment securities
Loans
Financial liabilities:
Demand, savings, N.O.W. and money market deposits
Certificates of deposits of $100,000 or more and other time
deposits
Subordinated debentures
Accrued interest payable:
Demand, savings, N.O.W. and money market deposits
Certificates of deposits of $100,000 or more and other time
deposits
Subordinated debentures
(in thousands)
$
45,879
4,750
2,946
513,665
$
45,879
4,848
N/A
502,053
1,253
1,680
1,253
1,680
Level 1
Level 2
Level 1
Level 3
Level 2
Level 3
Level 1
$
786,532
$
786,532
25,932
14,778
14
59
32
25,868
15,362
14
59
32
Level 2
Level 3
Level 1
Level 2
Level 3
47
Level of
Fair Value
Hierarchy Carrying Amount
December 31, 2016
Fair Value
Financial assets:
Cash and cash equivalents
Securities, held to maturity
Securities, restricted
Loans
Accrued interest receivable:
Investment securities
Loans
Financial liabilities:
Demand, savings, N.O.W. and money market deposits
Certificates of deposits of $100,000 or more and other time
deposits
Short-term borrowings
Subordinated debentures
Accrued interest payable:
Demand, savings, N.O.W. and money market deposits
Certificates of deposits of $100,000 or more and other time
deposits
Subordinated debentures
(in thousands)
$
6,354
3,000
4,131
488,475
$
6,354
3,032
N/A
482,906
1,018
1,592
1,018
1,592
Level 1
Level 2
Level 1
Level 3
Level 2
Level 3
Level 1
$
643,189
$
643,189
Level 2
Level 1
Level 3
Level 1
Level 2
Level 3
27,494
26,477
14,735
12
66
32
27,453
26,477
15,342
12
66
32
The carrying amounts of cash and cash equivalents approximate fair values and are classified as Level 1. It is not
practical to determine the fair value of restricted securities due to restrictions placed on its transferability. The fair
value of loans is computed by calculating the new present value of estimated future cash flows using the current
rates at which similar loans would be made to borrowers with similar credit ratings and for the remaining maturities
and terms, resulting in a Level 3 classification. The fair values disclosed for demand, savings, N.O.W. and money
market deposits are, by definition, equal to the amount payable on demand at the reporting date resulting in Level 1
classification. The fair value for certificates of deposit is computed by calculating the net present value of estimated
future cash flows, using the current rates at which similar certificates of deposit would be issued to depositors,
resulting in a Level 2 classification. The short term borrowings generally maturing within 90 days approximate their
fair values resulting in a Level 2 classification. For accrued interest receivable and payable, the recorded book value
is a reasonable estimate of fair value and the fair value level follows the underlying contract.
16.
REGULATORY MATTERS
Quantitative measures established by regulation to ensure capital adequacy require the Bank to maintain minimum
amounts and ratios (set forth in the following table) of total, tier 1, and common equity tier 1 capital to risk weighted
assets, and of tier 1 capital to average assets, as those terms are defined in applicable OCC regulations.
Banks are subject to regulatory capital requirements administered by federal banking agencies. Capital adequacy
guidelines and, additionally for banks, prompt corrective action regulations, involve quantitative measures of assets,
liabilities, and certain off-balance-sheet items calculated under regulatory accounting practices. Capital amounts
and classifications are also subject to qualitative judgments by regulators. Failure to meet capital requirements can
initiate regulatory action. The final rules implementing Basel Committee on Banking Supervision’s capital
guidelines for U.S. banks (Basel III rules) became effective for the Bank on January 1, 2015 with full compliance
with all of the requirements being phased in over a multi-year schedule, and fully phased in by January 1, 2019.
Under the Basel III rules, the Bank must hold a capital conservation buffer above the adequately capitalized risk-
based capital ratios. The capital conservation buffer is being phased in from 0.0% for 2015 to 2.50% by 2019. The
capital conservation buffer for 2017 is 1.25%. The net unrealized gain or loss on available for sale securities is not
included in computing regulatory capital. Management believes as of December 31, 2017, the Bank met all capital
adequacy requirements to which they are subject.
48
As of December 31, 2017 and December 31, 2016, the Bank was classified as “well capitalized,” for purposes of the
OCC’s prompt corrective action regulations. “Well capitalized” is the highest capital classification for FDIC-
insured financial institutions in the United States. To be categorized as “well capitalized,” the Bank must maintain
minimum total risk-based, tier 1 risk-based, common equity tier 1 risk-based and tier 1 leverage capital ratios as set
forth in the table below.
The Bank’s actual capital amounts and ratios are presented in the following table:
As of December 31,
2017
To be Adequately
Capitalized Under
Prompt Corrective
Action Provisions
Ratio
Amount
To be Well Capitalized
Under Prompt
Corrective Action
Provisions
Amount
Ratio
Actual
Amount
Ratio
Tier 1 leverage capital ratio
Common equity tier 1 risk-based capital ratio
Tier 1 risk-based capital ratio
Total risk-based capital ratio
$
81,293
81,293
81,293
87,186
Tier 1 leverage capital ratio
Common equity tier 1 risk-based capital ratio
Tier 1 risk-based capital ratio
Total risk-based capital ratio
$
78,532
78,532
78,532
84,334
9.06 %
14.93
14.93
16.01
10.22 %
16.26
16.26
17.46
$
(in thousands)
35,907
24,500
32,667
43,556
4.00 %
4.50
6.00
8.00
$
2016
(in thousands)
30,745
21,733
28,978
38,637
4.00 %
4.50
6.00
8.00
$
44,883
35,389
43,556
54,445
$
38,432
31,392
38,637
48,296
5.00 %
6.50
8.00
10.00
5.00 %
6.50
8.00
10.00
17.
PARENT COMPANY ONLY CONDENSED FINANCIAL INFORMATION
Condensed parent company only financial information of Empire Bancorp, Inc. is shown below. The parent
company has no significant operating activities.
CONDENSED STATEMENTS OF CONDITION
At December 31,
2017
2016
(in thousands)
ASSETS
Cash
Investment in the Bank
Other assets
Total Assets
$
$
4,730
77,657
43
82,430
4,472
73,283
43
77,798
$
$
LIABILITIES AND STOCKHOLDERS' EQUITY
Subordinated debentures, net
Accrued interest payable
Other liabilities
Total Liabilities
Total Stockholders' Equity
Total Liabilities and Stockholders' Equity
$
14,778
32
35
14,845
$
14,735
32
39
14,806
67,585
82,430
$
62,992
77,798
$
49
CONDENSED STATEMENTS OF INCOME
Year Ended December 31,
2017
2016
Interest expense
Other expense
Loss before income taxes and equity in undistributed earnings of the Bank
$
$
(in thousands)
1,099
108
(1,207)
1,092
104
(1,196)
Income tax benefit
Loss before equity in undistributed earnings of the Bank
Equity in undistributed earnings of the Bank
Net income
410
(797)
2,244
1,447
$
407
(789)
3,579
2,790
$
CONDENSED STATEMENTS OF CASH FLOW
Operating activities:
Net income
Adjustments to reconcile net cash (used by) provided by operating activities:
Amortization of debt issuance costs
Equity in undistributed earnings of the Bank
Decrease (increase) in other assets
(Decrease) increase in accrued interest payable
Decrease in other liabilities
Net cash used in operating activities
Investing activities:
Investments in the Bank
Net cash used by investing activities
Financing activities:
Proceeds from exercise of warrants
Proceeds from exercise of stock options
Net proceeds from issuance of subordinated debentures
Net cash provided by financing activities
Increase in cash and cash equivalents
Cash and cash equivalents at beginning of period
Cash and cash equivalents at end of period
Year Ended December 31,
2017
2016
(in thousands)
$
1,447
$
2,790
43
(2,244)
-
-
(2)
(756)
-
-
950
64
-
1,014
38
(3,579)
(15)
(12)
(30)
(808)
-
-
58
-
-
58
258
4,472
4,730
$
(750)
5,222
4,472
$
50
Crowe Horwath LLP
Independent Member Crowe
Horwath International
INDEPENDENT AUDITOR’S REPORT
Board of Directors and Stockholders
Empire Bancorp, Inc.
Islandia, New York
Report on the Financial Statements
We have audited the accompanying consolidated financial statements of Empire Bancorp, Inc., which comprise the
consolidated statements of condition as of December 31, 2017 and 2016, and the related consolidated statements of
operations, comprehensive (loss) income, stockholders’ equity, and cash flows for the years then ended, and the
related notes to the consolidated financial statements.
Management’s Responsibility for the Financial Statements
Management is responsible for the preparation and fair presentation of these consolidated financial statements in
accordance with accounting principles generally accepted in the United States of America; this includes the design,
implementation, and maintenance of internal control relevant to the preparation and fair presentation of consolidated
financial statements that are free from material misstatement, whether due to fraud or error.
Auditor’s Responsibility
Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We
conducted our audits in accordance with auditing standards generally accepted in the United States of America.
Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the
consolidated financial statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the
consolidated financial statements. The procedures selected depend on the auditor’s judgment, including the
assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or
error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and
fair presentation of the consolidated financial statements in order to design audit procedures that are appropriate in
the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal
control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of
accounting policies used and the reasonableness of significant accounting estimates made by management, as well
as evaluating the overall presentation of the consolidated financial statements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit
opinion.
51
Opinion
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the
financial position of Empire Bancorp, Inc. as of December 31, 2017 and 2016, and the results of its operations and its
cash flows for the years then ended in accordance with accounting principles generally accepted in the United States
of America.
New York, New York
March 30, 2018
Crowe Horwath LLP
52
I N V E S T O R R E L A T I O N S
Empire Bancorp, Inc. is a registered bank holding company for Empire National Baanknkk... . EmEmEmEmEE pippipip rereer
Bancorp, Innc.’s, common stock is listed on the OTCQB marketplace, which is the mmididddldldle e ee titititiererererer
of the OTCC market, under the symbol “EMPK.” Empire National Bank is a Long Islanannnd-d-d-d-d babababasesesesesed d ddd
independeent bank that specializes in serving the financial needs of small and medidiumummmm-s-sssizizizizededededd
businessess, professionals, nonprofit organizations, municipalities, real estate investors,s aaaaandndndndd
consumerss. The bank has four full-service banking offices located in Islandia, Shirleyey, , PoPoPoPortrtrtrt
Jefferson SStation and Mineola and a private banking branch office in Manhattan, NeNew w w w YoYoYoYorkrkrkrk.
The bank ttakes pride in understanding the needs of each and every customer sso o ththatatatt iiit t t t cacacacac nnnnnn
deliver thee highest quality service with a sense of urgency.
Additional copies of Empire Bancorp, Inc.’s Annual Report can be obtained in PDF ffororrrm m m frfrff omomomom
the Bank’s website (www.empirenb.com) in the Investor Relations section.
INVESTOR RELATIONS DIRECTOR
William T.. Franz, Senior Vice President
Islandia, NYY
631-881-55375
LEGAL COUNSEL
Geoffrey Scot Kay
Fenimore, Kay, Harrison & Ford, LLP
Austin, TX
INDEPENDENT REGISTERED PUBLIC ACCOUNTANTS
Crowe Hoorwath LLP
New York,, NY
TRANSFER AGENT
Broadridgge Corporate Issuer Solutions, Inc.
Brentwoodd, NY
877-830-44936
B O A R D O F D I R E C T O R S
Douglas C. Manditch
Chairman of the Board &
Chief Executive Officer
Empire National Bank
Thomas M. Buonaiuto, CPA
President &
Chief Operating Officer
Empire National Bank
John D. Caffrey, Jr.
Organizer & Vice Chairman
of the Board
Owner, Castle Financial
Advisors, LLC & Castle Asset
Management, LLC
John P. Bracken, Esq.
Organizer & Director
Managing Partner, Bracken
Margolin Besunder, LLP, Retired
Francis F. Boulton
Organizer & Director
CEO, Long Island Ducks
Professional Baseball Club, LLC
John L. Ciarelli, Esq.
Organizer & Director
President, John L. Ciarelli P.C.
Dr. Alan M. Coren
Organizer & Director
President, West Hills Animal
Hospital P.C.
Larry R. Davis, Esq.
Organizer & Director
Principal, Davis & Prager, P.C.
10
| EMPIRE BANCORP, INC.
2 0 0 8 - 2 0 1 8
Frank A. DiFazio
Organizer & Director
President, Dekal Services, Inc.
Robert D. Falese, Jr.
Director
Owner & President
Falese Investments, LLC
Salvatore Ferro
Organizer & Director
Owner, President/CEO, Alure
Home Improvements & Alure
Designs; President & CEO
Fusion Commercial Contracting
Mukeshkumar Patel
Organizer & Director
Managing Member PSA Realty
Corp. DBA La Quinta Hotels &
Priya Hospitality LLC
Charles C. Russo, Esq.
Organizer & Director
Senior Partner, Russo Karl
Widmaier & Cordano, PLLC
Joseph S. Tantillo, Jr.
Organizer & Director
Founder & CEO, Nassau Suffolk
Electrical & Mechanical
Paul J. Tonna
Organizer & Director
Molloy College’s Executive
Director for the Energeia
Partnership
*Each director serves on the Boards of Empire National Bank and Empire Bancorp, Inc.
ANNUAL REPORT 2017 | 11
E X E C U T I V E T E A M
EMPIRE BANCORP, INC.
EXECUTIVE OFFICERS
Douglas C. Manditch
Chairman of the Board, Chief Executive Officer & Secretary
SENIOR VICE PRESIDENTS
John D. Caffrey, Jr.
Vice Chairman of the Board
Thomas M. Buonaiuto, CPA
President, Chief Operating Officer & Assistant Secretary
John Pinna
Vice President
Janet T. Verneuille, CPA
Vice President & Chief Financial Officer
Diane L. Murray, CPA
Assistant Secretary
EMPIRE NATIONAL BANK
EXECUTIVE OFFICERS
Douglas C. Manditch
Chairman of the Board & Chief Executive Officer
Thomas M. Buonaiuto, CPA
President & Chief Operating Officer
Michael P. Locorriere
Executive Vice President & Director of Municipal Banking
Susanne Pheffer
Executive Vice President, Chief Technology Officer
& Security Officer
John Pinna
Executive Vice President & Chief Information Officer
Janet T. Verneuille, CPA
Executive Vice President & Chief Financial Officer
William T. Franz
Senior Vice President & Director of Marketing
& Investor Relations
Diane L. Murray, CPA
Senior Vice President & Chief Risk Officer
Raffaella Palazzo
Senior Vice President & Co-Chief Credit Officer
Matthew Ruppert
Senior Vice President & Co-Chief Credit Officer
Robert S. Schepis
Senior Vice President & Chief Lending Officer
12
| EMPIRE BANCORP, INC.
Craig Goldstein
Commercial Loan Officer
William Guiducci
Branch Manager, Shirley
Brian Handler
Residential Loan Officer
Adi Hecht
Senior Commercial Loan Officer
Edy Meyer
Branch Manager, Port Jefferson Station
Dorothy Overton
Branch Manager, Islandia
VICE PRESIDENTS
Philip T. Amico
Senior SBA Commercial Loan Officer
Richard Corrado
Senior Credit Analyst
Frank DeRosa
Commercial Loan Officer
Danielle DiGrazia
Operations Officer
Catherine Giamundo, CPA
Controller
Erik Griemsmann
IT Manager
Steven Post
Electronic Banking Manager
Jane Reid
Human Resources
Jeffrey B. Reid
Commercial Loan Officer
Neil Roberts
Senior Credit Analyst
Marguerite Smith
BSA & Compliance Officer
EXECUTIVE OFFICERS Left to Right: Matthew Ruppert, Raffaella Palazzo, Michael P. Locorriere, William T. Franz, Thomas M. Buonaiuto,
Douglas C. Manditch, Janet T. Verneuille, Diane L. Murray, Robert S. Schepis, Susanne Pheffer, John Pinna
S
ASSISTANT VICE PRESIDENTS
Linda Carman
Electronic Banking
Krista M. Classie
Branch Manager, Mineola
Tracey Cullen
Senior Credit Analyst
Jeanne M. Dahl
Assistant Branch Manager, Port Jefferson Station
Miranda M. D’Angelis
Assistant Controller
Ana Dezso
Financial Reporting Analyst
Margaret Downing
Assistant Branch Manager, Shirley
Gregory Durso
Senior Credit Analyst
Suzanne Fox
Assistant Branch Manager, Islandia
Nancy Leonard
Deposit Operations
Yi Lu
Loan Administration
Deborah McCullough
Assistant Branch Manager, Mineola
Jessica M. Michalski
Staff Accountant
Janet Weissman
Assistant Branch Manager, Islandia
MANAGERS
ASSISTANT BRANCH MANAGERS
Dorothy Lamboy
Assistant Branch Manager, Shirley
Theresa Naumann
Assistant Branch Manager, Shirley
Sueann Rando
Assistant Branch Manager, Port Jefferson Station
PRIVATE BANKING
Michael Wilk
Private Banking Officer
ANNUAL REPORT 2017 | 13
B R A N C H L O C A T I O N S
ISLANDIA
Headquarters
1707 Veterans Highway
Islandia, NY 11749
631-348-4444
14
| EMPIRE BANCORP, INC.
MINEOLA
170 Old Country Road, Suite 1WA
Mineola, NY 11501
516-741-0444
PORT JEFFERSON STATION
4747 Nesconset Highway, Unit 36
Port Jefferson Station, NY 11776
631-928-4444
SHIRLEY
1044 William Floyd Parkway
Shirley, NY 11967
631-395-9500
MANHATTAN
99 Park Ave, Suite 1510
New York, NY 10016
212-986-4444
ANNUAL REPORT 2017 | 15
S U P P O R T I N G O U R C O M M U N I T Y
We are well aware that a large para tt ofoofoo ooooururururr ssucuccceceeessssssss iiissss tititititit ededededee tttttooooo thththththeeeee stststststrererererengngngngn ththththth oooooof ff f f ththththhhe e e e lolololol cacacacallll ecececececonononononomomomomy.y.y.y.yy
As a community bank, we embrb ace e ououoo r r rr ppoposis titit onon wwwwwitittithihiihinnnnnn eaeaeaeaeae chchchchchch cccccomomomomomo mumumumum ninininin tytytyty aaaandndndndd llllooooooook k kk totototoo ffffacacacacililililititititatatatateeee
helping businesses and individuaalss gggroor w w anannddd prprpp ososospepepep r.r.r.
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Accountants Attorneys Networking
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American Cancer Society
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American Red Cross
Ancient Order of Hibernians
Arthritis Foundation - LI Chapter
Ascent Funding Organization
Association for Children with Down
Syndrome
Boy Scouts of America
Brookhaven Great South Bay
Lions Club
Central Nassau Guidance & Counseling
Central Islip-Hauppauge Ambulance
Chamber of Commerce of the Mastics
Chief Petty Officers of Miami Inc.
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The Energeia Partnershipp
Families in Arms
Friends of Chris Barnes
Girl Scouts of Suffolk CCounty
Great River Fire Department
Greenport Harbor Brewing Commpapanyny
Holocaust Memorial & Tolerance Centeer
Hope House Ministries Inc.
Independent Bankers Association of
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Child Care Council of Suffolk Inc.
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Children’s Medical Fund of NY
Interfaith Nutrition Network
Mastic FFiri e e DeDepapartment
16
| EMPIRE BANCORP, INC.
2 0 0 8 - 2 0 1 8
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St. Charles Hospital Foundation
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Empire National Bank
announces that Sunday,
February 25, 2018 marked
our 10th Anniversary!
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Shanti Fund
Shootout for Soldiers
Scope Education Services
Stony Brook Foundation
Suffolk County Village Officials
Suffolk County Fire District Officers
Suffolk Community College Foundation
Association
Association
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Please join us in celebrating
the achievement of this
milestone. It was the result
of shareholders like you,
the commitment to our
customers and communities
we serve, and the hard work
of dedicated staff.
The Leukemia & Lymphoma Society
The Fuoco Memorial Golf Feastival
The Crohn’s & Colitis Foundation
Suffolk Sports Hall of Fame
The Long Island Museum
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William Floyd School District
YMCA of Long Island Inc.
The Lustgarten Foundation
The Richard J. O’Brien Foundation
Three Village Chamber of Commerce
Thank you for being part of
making this 10th Anniversary
milestone a reality. Our first
ten years set the foundation
for now and going forward.
Theodore Roosevelt Association
ANNUAL REPORT 2017 | 17
HEADQUARTERS
1707 Veterans Highway
Islandia, NY 11749
631-348-4444
empirenb.com