NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
Note 1. Summary of Significant Accounting Policies
A. Basis of Financial Statement Presentation
The accompanying unaudited consolidated financial statements include the accounts of Provident Financial Services, Inc. and its wholly owned subsidiary, Provident Bank (the “Bank,” together with Provident Financial Services, Inc., the “Company”).
In preparing the interim unaudited consolidated financial statements, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the consolidated statements of financial condition and the consolidated statements of income for the periods presented. Actual results could differ from these estimates. The allowance for loan losses and the valuation of deferred tax assets are material estimates that are particularly susceptible to near-term change.
The interim unaudited consolidated financial statements reflect all normal and recurring adjustments, which are, in the opinion of management, considered necessary for a fair presentation of the financial condition and results of operations for the periods presented. The results of operations for the three and nine months ended September 30, 2019 are not necessarily indicative of the results of operations that may be expected for all of 2019.
Certain information and note disclosures normally included in financial statements prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) have been condensed or omitted pursuant to the rules and regulations of the Securities and Exchange Commission.
These unaudited consolidated financial statements should be read in conjunction with the December 31, 2018 Annual Report to Stockholders on Form 10-K.
B. Earnings Per Share
The following is a reconciliation of the numerators and denominators of the basic and diluted earnings per share calculations for the three and nine months ended September 30, 2019 and 2018 (dollars in thousands, except per share amounts):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended September 30,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2019
|
|
|
|
|
|
2018
|
|
|
|
|
|
|
|
Net
Income
|
|
Weighted
Average
Common
Shares
Outstanding
|
|
Per
Share
Amount
|
|
Net
Income
|
|
Weighted
Average
Common
Shares
Outstanding
|
|
Per
Share
Amount
|
|
Net income
|
|
$
|
31,399
|
|
|
|
|
|
|
$
|
35,468
|
|
|
|
|
|
|
Basic earnings per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income available to common stockholders
|
|
$
|
31,399
|
|
|
64,511,956
|
|
|
$
|
0.49
|
|
|
$
|
35,468
|
|
|
65,037,779
|
|
|
$
|
0.55
|
|
|
Dilutive shares
|
|
|
|
120,329
|
|
|
|
|
|
|
146,102
|
|
|
|
|
Diluted earnings per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income available to common stockholders
|
|
$
|
31,399
|
|
|
64,632,285
|
|
|
$
|
0.49
|
|
|
$
|
35,468
|
|
|
65,183,881
|
|
|
$
|
0.54
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine months ended September 30,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2019
|
|
|
|
|
|
2018
|
|
|
|
|
|
|
|
Net
Income
|
|
Weighted
Average
Common
Shares
Outstanding
|
|
Per
Share
Amount
|
|
Net
Income
|
|
Weighted
Average
Common Shares Outstanding
|
|
Per
Share
Amount
|
|
Net income
|
|
$
|
86,682
|
|
|
|
|
|
|
$
|
82,624
|
|
|
|
|
|
|
Basic earnings per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income available to common stockholders
|
|
$
|
86,682
|
|
|
64,720,642
|
|
|
$
|
1.34
|
|
|
$
|
82,624
|
|
|
64,907,210
|
|
|
$
|
1.27
|
|
|
Dilutive shares
|
|
|
|
132,341
|
|
|
|
|
|
|
171,417
|
|
|
|
|
Diluted earnings per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income available to common stockholders
|
|
$
|
86,682
|
|
|
64,852,983
|
|
|
$
|
1.34
|
|
|
$
|
82,624
|
|
|
65,078,627
|
|
|
$
|
1.27
|
|
|
Anti-dilutive stock options and awards at September 30, 2019 and 2018, totaling 678,583 shares and 429,878 shares, respectively, were excluded from the earnings per share calculations.
Note 2. Business Combinations
On April 1, 2019, Beacon Trust Company ("Beacon") completed its acquisition of certain assets of Tirschwell & Loewy, Inc. ("T&L"), a New York City-based independent registered investment adviser. Beacon is a wholly owned subsidiary of Provident Bank which, in turn, is wholly owned by the Company. This acquisition expanded the Company’s wealth management business by $822.4 million of assets under management at the time of acquisition.
The acquisition was accounted for under the acquisition method of accounting. The Company recorded goodwill of $8.2 million, a customer relationship intangible of $12.6 million and $800,000 of other identifiable intangibles related to the acquisition. In addition, the Company recorded a contingent consideration liability at its fair value of $6.6 million. The contingent consideration arrangement requires the Company to pay additional cash consideration to T&L's former stakeholders over a three-year period after the closing date of the acquisition if certain financial and business retention targets are met. The acquisition agreement limits the total additional payment to a maximum of $11.0 million, to be determined based on actual future results. Total cost of the acquisition was $21.6 million, which included cash consideration of $15.0 million and contingent consideration with a fair value of $6.6 million. Tangible assets acquired in the transaction were nominal. No liabilities were assumed in the acquisition. The goodwill recorded in the transaction is deductible for tax purposes.
The calculation of goodwill is subject to change for up to one year after the closing date of the transaction as additional information relative to closing date estimates and uncertainties becomes available. As the Company finalizes its analysis of these assets, there may be adjustments to the recorded carrying values.
Note 3. Investment Securities
At September 30, 2019, the Company had $1.05 billion and $461.7 million in available for sale debt securities and held to maturity debt securities, respectively. Many factors, including lack of liquidity in the secondary market for certain securities, variations in pricing information, regulatory actions, changes in the business environment or any changes in the competitive marketplace could have an adverse effect on the Company’s investment portfolio which could result in other-than-temporary impairment ("OTTI") in future periods. The total number of available for sale and held to maturity debt securities in an unrealized loss position at September 30, 2019 totaled 88, compared with 509 at December 31, 2018. All securities with unrealized losses at September 30, 2019 were analyzed for OTTI. Based upon this analysis, the Company believes that, as of September 30, 2019, such securities with unrealized losses do not represent impairments that are other-than-temporary.
Available for Sale Debt Securities
The following tables present the amortized cost, gross unrealized gains, gross unrealized losses and the fair value for available for sale debt securities at September 30, 2019 and December 31, 2018 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2019
|
|
|
|
|
|
|
|
|
Amortized
cost
|
|
Gross
unrealized
gains
|
|
Gross
unrealized
losses
|
|
Fair
value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage-backed securities
|
|
$
|
1,009,953
|
|
|
14,504
|
|
|
(916)
|
|
|
1,023,541
|
|
State and municipal obligations
|
|
3,920
|
|
|
168
|
|
|
—
|
|
|
4,088
|
|
Corporate obligations
|
|
25,034
|
|
|
344
|
|
|
(12)
|
|
|
25,366
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,038,907
|
|
|
15,016
|
|
|
(928)
|
|
|
1,052,995
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2018
|
|
|
|
|
|
|
|
|
Amortized
cost
|
|
Gross
unrealized
gains
|
|
Gross
unrealized
losses
|
|
Fair
value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage-backed securities
|
|
$
|
1,048,415
|
|
|
2,704
|
|
|
(16,150)
|
|
|
1,034,969
|
|
State and municipal obligations
|
|
2,828
|
|
|
84
|
|
|
—
|
|
|
2,912
|
|
Corporate obligations
|
|
25,039
|
|
|
268
|
|
|
(109)
|
|
|
25,198
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,076,282
|
|
|
3,056
|
|
|
(16,259)
|
|
|
1,063,079
|
|
The amortized cost and fair value of available for sale debt securities at September 30, 2019, by contractual maturity, are shown below (in thousands). Expected maturities may differ from contractual maturities due to prepayment or early call privileges of the issuer.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2019
|
|
|
|
|
Amortized
cost
|
|
Fair
value
|
Due in one year or less
|
|
$
|
—
|
|
|
—
|
|
Due after one year through five years
|
|
3,004
|
|
|
3,079
|
|
Due after five years through ten years
|
|
25,950
|
|
|
26,375
|
|
Due after ten years
|
|
—
|
|
|
—
|
|
|
|
$
|
28,954
|
|
|
29,454
|
|
Mortgage-backed securities totaling $1.01 billion at amortized cost and $1.02 billion at fair value are excluded from the table above as their expected lives are likely to be shorter than the contractual maturity date due to principal prepayments.
For the three and nine months ended September 30, 2019 and 2018, no securities were sold or called from the available for sale debt securities portfolio.
The following tables present the fair values and gross unrealized losses for available for sale debt securities with temporary impairment at September 30, 2019 and December 31, 2018 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2019 Unrealized Losses
|
|
|
|
|
|
|
|
|
|
|
|
|
Less than 12 months
|
|
|
|
12 months or longer
|
|
|
|
Total
|
|
|
|
|
Fair
value
|
|
Gross
unrealized
losses
|
|
Fair
value
|
|
Gross
unrealized
losses
|
|
Fair
value
|
|
Gross
unrealized
losses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage-backed securities
|
|
$
|
98,998
|
|
|
(363)
|
|
|
69,399
|
|
|
(553)
|
|
|
168,397
|
|
|
(916)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate obligations
|
|
2,018
|
|
|
(12)
|
|
|
—
|
|
|
—
|
|
|
2,018
|
|
|
(12)
|
|
|
|
$
|
101,016
|
|
|
(375)
|
|
|
69,399
|
|
|
(553)
|
|
|
170,415
|
|
|
(928)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2018 Unrealized Losses
|
|
|
|
|
|
|
|
|
|
|
|
|
Less than 12 months
|
|
|
|
12 months or longer
|
|
|
|
Total
|
|
|
|
|
Fair
value
|
|
Gross
unrealized
losses
|
|
Fair
value
|
|
Gross
unrealized
losses
|
|
Fair
value
|
|
Gross
unrealized
losses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage-backed securities
|
|
$
|
218,175
|
|
|
(2,173)
|
|
|
545,880
|
|
|
(13,977)
|
|
|
764,055
|
|
|
(16,150)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate obligations
|
|
7,897
|
|
|
(109)
|
|
|
—
|
|
|
—
|
|
|
7,897
|
|
|
(109)
|
|
|
|
$
|
226,072
|
|
|
(2,282)
|
|
|
545,880
|
|
|
(13,977)
|
|
|
771,952
|
|
|
(16,259)
|
|
The number of available for sale debt securities in an unrealized loss position at September 30, 2019 totaled 45, compared with 175 at December 31, 2018. The decrease in the number of securities in an unrealized loss position at September 30, 2019 was due to lower current market interest rates compared to rates at December 31, 2018. All temporarily impaired securities were investment grade at September 30, 2019. At September 30, 2019, there was one private label mortgage-backed security in an unrealized loss position, with an amortized cost of $18,000 and an unrealized loss of $1,000.
Based on its detailed review of the available for sale debt securities portfolio, the Company believes that as of September 30, 2019, securities with unrealized loss positions shown above do not represent impairments that are other-than-temporary. The Company does not have the intent to sell securities in a temporary loss position at September 30, 2019, nor is it more likely than not that the Company will be required to sell the securities before the anticipated recovery.
Held to Maturity Debt Securities
The following tables present the amortized cost, gross unrealized gains, gross unrealized losses and the estimated fair value for held to maturity debt securities at September 30, 2019 and December 31, 2018 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2019
|
|
|
|
|
|
|
|
|
Amortized
cost
|
|
Gross
unrealized
gains
|
|
Gross
unrealized
losses
|
|
Fair
value
|
Agency obligations
|
|
$
|
4,948
|
|
|
11
|
|
|
(11)
|
|
|
4,948
|
|
Mortgage-backed securities
|
|
134
|
|
|
3
|
|
|
—
|
|
|
137
|
|
State and municipal obligations
|
|
445,896
|
|
|
15,035
|
|
|
(122)
|
|
|
460,809
|
|
Corporate obligations
|
|
10,760
|
|
|
55
|
|
|
(11)
|
|
|
10,804
|
|
|
|
$
|
461,738
|
|
|
15,104
|
|
|
(144)
|
|
|
476,698
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2018
|
|
|
|
|
|
|
|
|
Amortized
cost
|
|
Gross
unrealized
gains
|
|
Gross
unrealized
losses
|
|
Fair
value
|
Agency obligations
|
|
$
|
4,989
|
|
|
1
|
|
|
(94)
|
|
|
4,896
|
|
Mortgage-backed securities
|
|
187
|
|
|
3
|
|
|
—
|
|
|
190
|
|
State and municipal obligations
|
|
463,801
|
|
|
4,329
|
|
|
(3,767)
|
|
|
464,363
|
|
Corporate obligations
|
|
10,448
|
|
|
1
|
|
|
(158)
|
|
|
10,291
|
|
|
|
$
|
479,425
|
|
|
4,334
|
|
|
(4,019)
|
|
|
479,740
|
|
The Company generally purchases securities for long-term investment purposes, and differences between amortized cost and fair values may fluctuate during the investment period. There were no sales of securities from the held to maturity debt securities portfolio for the three and nine months ended September 30, 2019 and 2018. For the three and nine months ended September 30, 2019, proceeds from calls on securities in the held to maturity debt securities portfolio totaled $14.4 million and $26.6 million, respectively. As to these calls of securities, for the three months ended September 30, 2019, there were no gross gains and no gross losses, while for the nine months ended September 30, 2019, there were $29,000 of gross gains and no gross losses. For the three and nine months ended September 30, 2018, proceeds from calls of securities in the held to maturity debt securities portfolio totaled $10.4 million and $30.9 million, respectively. There were gross gains on calls of securities of $3,000 and $4,000 for the three and nine months ended September 30, 2018, respectively, and a gross loss of $1,000 for both the three and nine month periods.
The amortized cost and fair value of investment securities in the held to maturity debt securities portfolio at September 30, 2019 by contractual maturity are shown below (in thousands). Expected maturities may differ from contractual maturities due to prepayment or early call privileges of the issuer.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2019
|
|
|
|
|
Amortized
cost
|
|
Fair
value
|
Due in one year or less
|
|
$
|
11,752
|
|
|
11,768
|
|
Due after one year through five years
|
|
99,205
|
|
|
101,073
|
|
Due after five years through ten years
|
|
252,531
|
|
|
261,072
|
|
Due after ten years
|
|
98,116
|
|
|
102,648
|
|
|
|
$
|
461,604
|
|
|
476,561
|
|
Mortgage-backed securities totaling $134,000 at amortized cost and $137,000 at fair value are excluded from the table above as their expected lives are likely to be shorter than the contractual maturity date due to principal prepayments.
The following tables present the fair value and gross unrealized losses for held to maturity debt securities with temporary impairment at September 30, 2019 and December 31, 2018 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2019 Unrealized Losses
|
|
|
|
|
|
|
|
|
|
|
|
|
Less than 12 months
|
|
|
|
12 months or longer
|
|
|
|
Total
|
|
|
|
|
Fair
value
|
|
Gross
unrealized
losses
|
|
Fair
value
|
|
Gross
unrealized
losses
|
|
Fair
value
|
|
Gross
unrealized
losses
|
Agency obligations
|
|
$
|
3,348
|
|
|
(11)
|
|
|
—
|
|
|
—
|
|
|
3,348
|
|
|
(11)
|
|
State and municipal obligations
|
|
12,352
|
|
|
(52)
|
|
|
2,097
|
|
|
(70)
|
|
|
14,449
|
|
|
(122)
|
|
Corporate obligations
|
|
4,327
|
|
|
(11)
|
|
|
—
|
|
|
—
|
|
|
4,327
|
|
|
(11)
|
|
|
|
$
|
20,027
|
|
|
(74)
|
|
|
2,097
|
|
|
(70)
|
|
|
22,124
|
|
|
(144)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2018 Unrealized Losses
|
|
|
|
|
|
|
|
|
|
|
|
|
Less than 12 months
|
|
|
|
12 months or longer
|
|
|
|
Total
|
|
|
|
|
Fair
value
|
|
Gross
unrealized
losses
|
|
Fair
value
|
|
Gross
unrealized
losses
|
|
Fair
value
|
|
Gross
unrealized
losses
|
Agency obligations
|
|
$
|
—
|
|
|
—
|
|
|
4,525
|
|
|
(94)
|
|
|
4,525
|
|
|
(94)
|
|
State and municipal obligations
|
|
96,412
|
|
|
(918)
|
|
|
81,663
|
|
|
(2,849)
|
|
|
178,075
|
|
|
(3,767)
|
|
Corporate obligations
|
|
—
|
|
|
—
|
|
|
9,004
|
|
|
(158)
|
|
|
9,004
|
|
|
(158)
|
|
|
|
$
|
96,412
|
|
|
(918)
|
|
|
95,192
|
|
|
(3,101)
|
|
|
191,604
|
|
|
(4,019)
|
|
The number of held to maturity debt securities in an unrealized loss position at September 30, 2019 totaled 43, compared with 334 at December 31, 2018. The decrease in the number of securities in an unrealized loss position at September 30, 2019, was due to lower current market interest rates compared to rates at December 31, 2018. All temporarily impaired investment securities were investment grade at September 30, 2019.
Based on its detailed review of the held to maturity debt securities portfolio, the Company believes that as of September 30, 2019, securities with unrealized loss positions shown above do not represent impairments that are other-than-temporary. The Company does not have the intent to sell securities in a temporary loss position at September 30, 2019, nor is it more likely than not that the Company will be required to sell the securities before the anticipated recovery.
Note 4. Loans Receivable and Allowance for Loan Losses
Loans receivable at September 30, 2019 and December 31, 2018 are summarized as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2019
|
|
December 31, 2018
|
Mortgage loans:
|
|
|
|
|
Residential
|
|
$
|
1,072,175
|
|
|
1,099,464
|
|
Commercial
|
|
2,437,117
|
|
|
2,299,313
|
|
Multi-family
|
|
1,298,630
|
|
|
1,339,677
|
|
Construction
|
|
399,501
|
|
|
388,999
|
|
Total mortgage loans
|
|
5,207,423
|
|
|
5,127,453
|
|
Commercial loans
|
|
1,659,866
|
|
|
1,695,021
|
|
Consumer loans
|
|
403,576
|
|
|
431,428
|
|
Total gross loans
|
|
7,270,865
|
|
|
7,253,902
|
|
Purchased credit-impaired ("PCI") loans
|
|
842
|
|
|
899
|
|
Premiums on purchased loans
|
|
2,716
|
|
|
3,243
|
|
Unearned discounts
|
|
(26)
|
|
|
(33)
|
|
Net deferred fees
|
|
(7,403)
|
|
|
(7,423)
|
|
Total loans
|
|
$
|
7,266,994
|
|
|
7,250,588
|
|
The following tables summarize the aging of loans receivable by portfolio segment and class of loans, excluding PCI loans (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
30-59 Days
|
|
60-89 Days
|
|
Non-accrual
|
|
Recorded
Investment
> 90 days
accruing
|
|
Total Past
Due
|
|
Current
|
|
Total Loans
Receivable
|
Mortgage loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential
|
|
$
|
6,013
|
|
|
2,333
|
|
|
6,456
|
|
|
—
|
|
|
14,802
|
|
|
1,057,373
|
|
|
1,072,175
|
|
Commercial
|
|
—
|
|
|
—
|
|
|
1,728
|
|
|
—
|
|
|
1,728
|
|
|
2,435,389
|
|
|
2,437,117
|
|
Multi-family
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1,298,630
|
|
|
1,298,630
|
|
Construction
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
399,501
|
|
|
399,501
|
|
Total mortgage loans
|
|
6,013
|
|
|
2,333
|
|
|
8,184
|
|
|
—
|
|
|
16,530
|
|
|
5,190,893
|
|
|
5,207,423
|
|
Commercial loans
|
|
10
|
|
|
1,548
|
|
|
30,436
|
|
|
—
|
|
|
31,994
|
|
|
1,627,872
|
|
|
1,659,866
|
|
Consumer loans
|
|
716
|
|
|
556
|
|
|
1,361
|
|
|
—
|
|
|
2,633
|
|
|
400,943
|
|
|
403,576
|
|
Total gross loans
|
|
$
|
6,739
|
|
|
4,437
|
|
|
39,981
|
|
|
—
|
|
|
51,157
|
|
|
7,219,708
|
|
|
7,270,865
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
30-59 Days
|
|
60-89 Days
|
|
Non-accrual
|
|
Recorded
Investment
> 90 days
accruing
|
|
Total Past
Due
|
|
Current
|
|
Total Loans Receivable
|
Mortgage loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential
|
|
$
|
4,188
|
|
|
5,557
|
|
|
5,853
|
|
|
—
|
|
|
15,598
|
|
|
1,083,866
|
|
|
1,099,464
|
|
Commercial
|
|
—
|
|
|
—
|
|
|
3,180
|
|
|
—
|
|
|
3,180
|
|
|
2,296,133
|
|
|
2,299,313
|
|
Multi-family
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1,339,677
|
|
|
1,339,677
|
|
Construction
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
388,999
|
|
|
388,999
|
|
Total mortgage loans
|
|
4,188
|
|
|
5,557
|
|
|
9,033
|
|
|
—
|
|
|
18,778
|
|
|
5,108,675
|
|
|
5,127,453
|
|
Commercial loans
|
|
425
|
|
|
13,565
|
|
|
15,391
|
|
|
—
|
|
|
29,381
|
|
|
1,665,640
|
|
|
1,695,021
|
|
Consumer loans
|
|
1,238
|
|
|
610
|
|
|
1,266
|
|
|
—
|
|
|
3,114
|
|
|
428,314
|
|
|
431,428
|
|
Total gross loans
|
|
$
|
5,851
|
|
|
19,732
|
|
|
25,690
|
|
|
—
|
|
|
51,273
|
|
|
7,202,629
|
|
|
7,253,902
|
|
Included in loans receivable are loans for which the accrual of interest income has been discontinued due to deterioration in the financial condition of the borrowers. The principal amounts of these non-accrual loans were $40.0 million and $25.7 million at
September 30, 2019 and December 31, 2018, respectively. Included in non-accrual loans were $17.0 million and $11.1 million of loans which were less than 90 days past due at September 30, 2019 and December 31, 2018, respectively. There were no loans 90 days or greater past due and still accruing interest at September 30, 2019 or December 31, 2018.
The Company defines an impaired loan as a non-homogeneous loan greater than $1.0 million for which it is probable, based on current information, all amounts due under the contractual terms of the loan agreement will not be collected. Impaired loans also include all loans modified as troubled debt restructurings (“TDRs”). A loan is deemed to be a TDR when a loan modification resulting in a concession is made in an effort to mitigate potential loss arising from a borrower’s financial difficulty. Smaller balance homogeneous loans, including residential mortgages and other consumer loans, are evaluated collectively for impairment and are excluded from the definition of impaired loans, unless modified as a TDR. The Company separately calculates the reserve for loan losses on impaired loans. The Company may recognize impairment of a loan based upon: (1) the present value of expected cash flows discounted at the effective interest rate; (2) if a loan is collateral dependent, the fair value of collateral; or (3) the fair value of the loan. Additionally, if impaired loans have risk characteristics in common, those loans may be aggregated and historical statistics may be used as a means of measuring those impaired loans.
The Company uses third-party appraisals to determine the fair value of the underlying collateral in its analysis of collateral dependent impaired loans. A third-party appraisal is generally ordered as soon as a loan is designated as a collateral dependent impaired loan and is generally updated annually or more frequently, if required.
A specific allocation of the allowance for loan losses is established for each collateral dependent impaired loan with a carrying balance greater than the collateral’s fair value, less estimated costs to sell. Charge-offs are generally taken for the amount of the specific allocation when operations associated with the respective property cease and it is determined that collection of amounts due will be derived primarily from the disposition of the collateral. At each quarter end, if a loan is designated as a collateral dependent impaired loan and the third-party appraisal has not yet been received, Management makes an evaluation of all available collateral using the best information available at the time, including rent rolls, borrower financial statements and tax returns, prior appraisals, management’s knowledge of the market and collateral, and internally prepared collateral valuations based upon market assumptions regarding vacancy and capitalization rates, each as and where applicable. Once the appraisal is received and reviewed, the specific reserves are adjusted to reflect the appraised value. The Company believes there have been no significant time lapses in the recognition of changes in collateral values as a result of this process.
At September 30, 2019, there were 160 impaired loans totaling $71.3 million. Included in this total were 133 TDRs related to 129 borrowers totaling $44.2 million that were performing in accordance with their restructured terms and which continued to accrue interest at September 30, 2019. At December 31, 2018, there were 152 impaired loans totaling $50.7 million. Included in this total were 129 TDRs to 124 borrowers totaling $35.6 million that were performing in accordance with their restructured terms and which continued to accrue interest at December 31, 2018.
The following table summarizes loans receivable by portfolio segment and impairment method, excluding PCI loans (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2019
|
|
|
|
|
|
|
|
|
Mortgage
loans
|
|
Commercial
loans
|
|
Consumer
loans
|
|
Total Portfolio
Segments
|
Individually evaluated for impairment
|
|
$
|
36,378
|
|
|
32,824
|
|
|
2,069
|
|
|
71,271
|
|
Collectively evaluated for impairment
|
|
5,171,045
|
|
|
1,627,042
|
|
|
401,507
|
|
|
7,199,594
|
|
Total gross loans
|
|
$
|
5,207,423
|
|
|
1,659,866
|
|
|
403,576
|
|
|
7,270,865
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2018
|
|
|
|
|
|
|
|
|
Mortgage
loans
|
|
Commercial
loans
|
|
Consumer
loans
|
|
Total Portfolio
Segments
|
Individually evaluated for impairment
|
|
$
|
24,680
|
|
|
23,747
|
|
|
2,257
|
|
|
50,684
|
|
Collectively evaluated for impairment
|
|
5,102,773
|
|
|
1,671,274
|
|
|
429,171
|
|
|
7,203,218
|
|
Total gross loans
|
|
$
|
5,127,453
|
|
|
1,695,021
|
|
|
431,428
|
|
|
7,253,902
|
|
The allowance for loan losses is summarized by portfolio segment and impairment classification as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2019
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage
loans
|
|
Commercial loans
|
|
Consumer loans
|
|
|
|
|
|
Total
|
Individually evaluated for impairment
|
|
$
|
908
|
|
|
4,353
|
|
|
45
|
|
|
|
|
|
|
5,306
|
|
Collectively evaluated for impairment
|
|
24,173
|
|
|
25,990
|
|
|
1,875
|
|
|
|
|
|
|
52,038
|
|
Total gross loans
|
|
$
|
25,081
|
|
|
30,343
|
|
|
1,920
|
|
|
|
|
|
|
57,344
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2018
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage
loans
|
|
Commercial loans
|
|
Consumer
loans
|
|
|
|
|
|
Total
|
Individually evaluated for impairment
|
|
$
|
1,026
|
|
|
92
|
|
|
47
|
|
|
|
|
|
|
1,165
|
|
Collectively evaluated for impairment
|
|
26,652
|
|
|
25,601
|
|
|
2,144
|
|
|
|
|
|
|
54,397
|
|
Total gross loans
|
|
$
|
27,678
|
|
|
25,693
|
|
|
2,191
|
|
|
|
|
|
|
55,562
|
|
Loan modifications to borrowers experiencing financial difficulties that are considered TDRs generally involve lowering the monthly payments on such loans through either a reduction in interest rate below a market rate, an extension of the term of the loan without a corresponding adjustment to the risk premium reflected in the interest rate, or a combination of these two methods. These modifications generally do not result in the forgiveness of principal or accrued interest. In addition, the Company attempts to obtain additional collateral or guarantor support when modifying such loans. If the borrower has demonstrated performance under the previous terms and our underwriting process shows the borrower has the capacity to continue to perform under the restructured terms, the loan will continue to accrue interest. Non-accruing restructured loans may be returned to accrual status when there has been a sustained period of repayment performance (generally six consecutive months of payments) and both principal and interest are deemed collectible.
The following tables present the number of loans modified as TDRs during the three and nine months ended September 30, 2019 and 2018, along with their balances immediately prior to the modification date and post-modification as of September 30, 2019 and 2018 (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the three months ended
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2019
|
|
|
|
|
|
September 30, 2018
|
|
|
|
|
Troubled Debt Restructurings
|
|
Number of
Loans
|
|
Pre-Modification
Outstanding
Recorded
Investment
|
|
Post-Modification
Outstanding
Recorded Investment
|
|
Number of
Loans
|
|
Pre-Modification
Outstanding
Recorded Investment
|
|
Post-Modification
Outstanding
Recorded Investment
|
|
|
($ in thousands)
|
|
|
|
|
|
|
|
|
|
|
Mortgage loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential
|
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
3
|
|
|
$
|
693
|
|
|
$
|
694
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total mortgage loans
|
|
—
|
|
|
—
|
|
|
—
|
|
|
3
|
|
|
693
|
|
|
694
|
|
Commercial loans
|
|
—
|
|
|
—
|
|
|
—
|
|
|
2
|
|
|
5,919
|
|
|
6,062
|
|
Consumer loans
|
|
1
|
|
|
20
|
|
|
16
|
|
|
1
|
|
|
336
|
|
|
335
|
|
Total restructured loans
|
|
1
|
|
|
$
|
20
|
|
|
$
|
16
|
|
|
6
|
|
|
$
|
6,948
|
|
|
$
|
7,091
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the nine months ended
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2019
|
|
|
|
|
|
September 30, 2018
|
|
|
|
|
Troubled Debt Restructurings
|
|
Number of
Loans
|
|
Pre-Modification
Outstanding
Recorded
Investment
|
|
Post-Modification
Outstanding
Recorded Investment
|
|
Number of
Loans
|
|
Pre-Modification
Outstanding
Recorded Investment
|
|
Post-Modification
Outstanding
Recorded Investment
|
|
|
($ in thousands)
|
|
|
|
|
|
|
|
|
|
|
Mortgage loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential
|
|
2
|
|
|
$
|
749
|
|
|
$
|
716
|
|
|
4
|
|
|
$
|
811
|
|
|
$
|
797
|
|
Commercial
|
|
1
|
|
|
14,010
|
|
|
14,010
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total mortgage loans
|
|
3
|
|
|
14,759
|
|
|
14,726
|
|
|
4
|
|
|
811
|
|
|
797
|
|
Commercial loans
|
|
7
|
|
|
2,707
|
|
|
1,878
|
|
|
6
|
|
|
12,545
|
|
|
8,752
|
|
Consumer loans
|
|
1
|
|
|
20
|
|
|
16
|
|
|
1
|
|
|
336
|
|
|
335
|
|
Total restructured loans
|
|
11
|
|
|
$
|
17,486
|
|
|
$
|
16,620
|
|
|
11
|
|
|
$
|
13,692
|
|
|
$
|
9,884
|
|
All TDRs are impaired loans, which are individually evaluated for impairment. During the three and nine months ended September 30, 2019, $5.7 million and $7.7 million of charge-offs were recorded on collateral dependent impaired loans. During the three and nine months ended September 30, 2018, $6.3 million and $8.3 million of charge-offs were recorded on collateral dependent impaired loans, respectively. For the nine months ended September 30, 2019, the allowance for loan losses associated with the TDRs presented in the preceding tables totaled $141,000, while there was no allowance associated with TDR's for the three months ended September 30, 2019, respectively, and was included in the allowance for loan losses for loans individually evaluated for impairment.
For the three and nine months ended September 30, 2019, the TDRs presented in the preceding tables had a weighted average modified interest rate of approximately 5.63% and 3.83%, respectively, compared to a weighted average rate of 5.38% and 3.98% prior to modification, for the three and nine months ended September 30, 2019, respectively.
The following table presents loans modified as TDRs within the previous 12 months from September 30, 2019 and 2018, and for which there was a payment default (90 days or more past due) at the quarter ended September 30, 2019 and 2018.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2019
|
|
|
|
September 30, 2018
|
|
|
Troubled Debt Restructurings Subsequently Defaulted
|
|
Number of Loans
|
|
Outstanding Recorded Investment
|
|
Number of Loans
|
|
Outstanding Recorded
Investment
|
|
|
($ in thousands)
|
|
|
|
|
|
|
Mortgage loans:
|
|
|
|
|
|
|
|
|
Residential
|
|
1
|
|
|
$
|
578
|
|
|
—
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
Total mortgage loans
|
|
1
|
|
|
578
|
|
|
—
|
|
|
—
|
|
Commercial loans
|
|
—
|
|
|
$
|
—
|
|
|
3
|
|
|
$
|
1,344
|
|
|
|
|
|
|
|
|
|
|
Total restructured loans
|
|
1
|
|
|
$
|
578
|
|
|
3
|
|
|
$
|
1,344
|
|
|
|
|
|
|
|
|
|
|
There was one loan which had a payment default (90 days or more past due) for loans modified as TDRs within the 12 month period ending September 30, 2019. There were three payment defaults (90 days or more past due) to one borrower for loans modified as TDRs within the 12 month period ending September 30, 2018. TDRs that subsequently default are considered collateral dependent impaired loans and are evaluated for impairment based on the estimated fair value of the underlying collateral less expected selling costs.
PCI loans are loans acquired at a discount primarily due to deteriorated credit quality. These loans are accounted for at fair value, based upon the present value of expected future cash flows, with no related allowance for loan losses. PCI loans totaled $842,000 at September 30, 2019 and $899,000 at December 31, 2018.
The activity in the allowance for loan losses by portfolio segment for the three and nine months ended September 30, 2019 and 2018 was as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended September 30,
|
|
Mortgage loans
|
|
Commercial loans
|
|
Consumer loans
|
|
|
|
|
|
Total
|
2019
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at beginning of period
|
|
$
|
27,280
|
|
|
33,549
|
|
|
1,981
|
|
|
|
|
|
|
62,810
|
|
Provision (credited) charged to operations
|
|
(2,092)
|
|
|
2,880
|
|
|
(288)
|
|
|
|
|
|
|
500
|
|
Recoveries of loans previously charged-off
|
|
24
|
|
|
126
|
|
|
343
|
|
|
|
|
|
|
493
|
|
Loans charged-off
|
|
(131)
|
|
|
(6,212)
|
|
|
(116)
|
|
|
|
|
|
|
(6,459)
|
|
Balance at end of period
|
|
$
|
25,081
|
|
|
30,343
|
|
|
1,920
|
|
|
|
|
|
|
57,344
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2018
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at beginning of period
|
|
$
|
27,161
|
|
|
29,494
|
|
|
2,164
|
|
|
|
|
|
|
58,819
|
|
Provision charged (credited) to operations
|
|
88
|
|
|
915
|
|
|
(3)
|
|
|
|
|
|
|
1,000
|
|
Recoveries of loans previously charged-off
|
|
303
|
|
|
36
|
|
|
297
|
|
|
|
|
|
|
636
|
|
Loans charged-off
|
|
(57)
|
|
|
(6,302)
|
|
|
(186)
|
|
|
|
|
|
|
(6,545)
|
|
Balance at end of period
|
|
$
|
27,495
|
|
|
24,143
|
|
|
2,272
|
|
|
|
|
|
|
53,910
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine months ended September 30,
|
|
Mortgage
loans
|
|
Commercial
loans
|
|
Consumer
loans
|
|
|
|
|
|
Total
|
2019
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at beginning of period
|
|
$
|
27,678
|
|
|
25,693
|
|
|
2,191
|
|
|
|
|
|
|
55,562
|
|
Provision (credited) charged to operations
|
|
(2,814)
|
|
|
13,337
|
|
|
(323)
|
|
|
|
|
|
|
10,200
|
|
Recoveries of loans previously charged-off
|
|
361
|
|
|
291
|
|
|
596
|
|
|
|
|
|
|
1,248
|
|
Loans charged-off
|
|
(144)
|
|
|
(8,978)
|
|
|
(544)
|
|
|
|
|
|
|
(9,666)
|
|
Balance at end of period
|
|
$
|
25,081
|
|
|
30,343
|
|
|
1,920
|
|
|
|
|
|
|
57,344
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2018
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at beginning of period
|
|
$
|
28,052
|
|
|
29,814
|
|
|
2,329
|
|
|
|
|
|
|
60,195
|
|
Provision (credited) charged to operations
|
|
(716)
|
|
|
22,740
|
|
|
(124)
|
|
|
|
|
|
|
21,900
|
|
Recoveries of loans previously charged-off
|
|
435
|
|
|
268
|
|
|
689
|
|
|
|
|
|
|
1,392
|
|
Loans charged-off
|
|
(276)
|
|
|
(28,679)
|
|
|
(622)
|
|
|
|
|
|
|
(29,577)
|
|
Balance at end of period
|
|
$
|
27,495
|
|
|
24,143
|
|
|
2,272
|
|
|
|
|
|
|
53,910
|
|
The following table presents loans individually evaluated for impairment by class and loan category, excluding PCI loans (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2019
|
|
|
|
|
|
|
|
|
|
December 31, 2018
|
|
|
|
|
|
|
|
|
|
Unpaid Principal Balance
|
|
Recorded Investment
|
|
Related Allowance
|
|
Average Recorded Investment
|
|
Interest Income Recognized
|
|
Unpaid Principal Balance
|
|
Recorded Investment
|
|
Related Allowance
|
|
Average Recorded Investment
|
|
Interest Income Recognized
|
Loans with no related allowance
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential
|
$
|
13,974
|
|
|
11,170
|
|
|
—
|
|
|
11,393
|
|
|
874
|
|
|
15,013
|
|
|
12,005
|
|
|
—
|
|
|
12,141
|
|
|
594
|
|
Commercial
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1,550
|
|
|
1,546
|
|
|
—
|
|
|
1,546
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
13,974
|
|
|
11,170
|
|
|
—
|
|
|
11,393
|
|
|
874
|
|
|
16,563
|
|
|
13,551
|
|
|
—
|
|
|
13,687
|
|
|
594
|
|
Commercial loans
|
7,508
|
|
|
6,274
|
|
|
—
|
|
|
6,564
|
|
|
52
|
|
|
21,746
|
|
|
16,254
|
|
|
—
|
|
|
17,083
|
|
|
328
|
|
Consumer loans
|
1,714
|
|
|
1,159
|
|
|
—
|
|
|
1,357
|
|
|
59
|
|
|
1,871
|
|
|
1,313
|
|
|
—
|
|
|
1,386
|
|
|
90
|
|
Total impaired loans
|
$
|
23,196
|
|
|
18,603
|
|
|
—
|
|
|
19,314
|
|
|
985
|
|
|
40,180
|
|
|
31,118
|
|
|
—
|
|
|
32,156
|
|
|
1,012
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans with an allowance recorded
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential
|
$
|
10,640
|
|
|
10,177
|
|
|
800
|
|
|
10,262
|
|
|
322
|
|
|
10,573
|
|
|
10,090
|
|
|
954
|
|
|
10,186
|
|
|
425
|
|
Commercial
|
15,030
|
|
|
15,031
|
|
|
108
|
|
|
15,046
|
|
|
427
|
|
|
1,039
|
|
|
1,039
|
|
|
72
|
|
|
1,052
|
|
|
53
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
25,670
|
|
|
25,208
|
|
|
908
|
|
|
25,308
|
|
|
749
|
|
|
11,612
|
|
|
11,129
|
|
|
1,026
|
|
|
11,238
|
|
|
478
|
|
Commercial loans
|
27,674
|
|
|
26,550
|
|
|
4,353
|
|
|
27,851
|
|
|
295
|
|
|
7,493
|
|
|
7,493
|
|
|
92
|
|
|
9,512
|
|
|
435
|
|
Consumer loans
|
921
|
|
|
910
|
|
|
45
|
|
|
725
|
|
|
36
|
|
|
954
|
|
|
944
|
|
|
47
|
|
|
962
|
|
|
40
|
|
Total impaired loans
|
$
|
54,265
|
|
|
52,668
|
|
|
5,306
|
|
|
53,884
|
|
|
1,080
|
|
|
20,059
|
|
|
19,566
|
|
|
1,165
|
|
|
21,712
|
|
|
953
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total impaired loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential
|
$
|
24,614
|
|
|
21,347
|
|
|
800
|
|
|
21,655
|
|
|
1,196
|
|
|
25,586
|
|
|
22,095
|
|
|
954
|
|
|
22,327
|
|
|
1,019
|
|
Commercial
|
15,030
|
|
|
15,031
|
|
|
108
|
|
|
15,046
|
|
|
427
|
|
|
2,589
|
|
|
2,585
|
|
|
72
|
|
|
2,598
|
|
|
53
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
39,644
|
|
|
36,378
|
|
|
908
|
|
|
36,701
|
|
|
1,623
|
|
|
28,175
|
|
|
24,680
|
|
|
1,026
|
|
|
24,925
|
|
|
1,072
|
|
Commercial loans
|
35,183
|
|
|
32,824
|
|
|
4,353
|
|
|
34,415
|
|
|
347
|
|
|
29,239
|
|
|
23,747
|
|
|
92
|
|
|
26,595
|
|
|
763
|
|
Consumer loans
|
2,635
|
|
|
2,069
|
|
|
45
|
|
|
2,082
|
|
|
95
|
|
|
2,825
|
|
|
2,257
|
|
|
47
|
|
|
2,348
|
|
|
130
|
|
Total impaired loans
|
$
|
77,462
|
|
|
71,271
|
|
|
5,306
|
|
|
73,198
|
|
|
2,065
|
|
|
60,239
|
|
|
50,684
|
|
|
1,165
|
|
|
53,868
|
|
|
1,965
|
|
Specific allocations of the allowance for loan losses attributable to impaired loans totaled $5.3 million at September 30, 2019 and $1.2 million at December 31, 2018. At September 30, 2019 and December 31, 2018, impaired loans for which there was no related allowance for loan losses totaled $18.6 million and $31.1 million, respectively. The average balance of impaired loans for the nine months ended September 30, 2019 and December 31, 2018 was $73.2 million and $53.9 million, respectively.
Management utilizes an internal nine-point risk rating system to summarize its loan portfolio into categories with similar risk characteristics. Loans deemed to be “acceptable quality” are rated 1 through 4, with a rating of 1 established for loans with minimal risk. Loans that are deemed to be of “questionable quality” are rated 5 (watch) or 6 (special mention). Loans with adverse classifications (substandard, doubtful or loss) are rated 7, 8 or 9, respectively. Commercial mortgage, commercial, multi-family and construction loans are rated individually, and each lending officer is responsible for risk rating loans in their portfolio. These risk ratings are then reviewed by the department manager and/or the Chief Lending Officer and by the Credit Department. The risk ratings are also confirmed through periodic loan review examinations which are currently performed by an independent third-party. Reports by the independent third-party are presented directly to the Audit Committee of the Board of Directors.
Loans receivable by credit quality risk rating indicator, excluding PCI loans, are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At September 30, 2019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential
|
|
Commercialmortgage
|
|
Multi-family
|
|
Construction
|
|
Total
mortgages
|
|
Commercial
|
|
Consumer
|
|
Total loans
|
Special mention
|
|
$
|
1,804
|
|
|
38,125
|
|
|
—
|
|
|
—
|
|
|
39,929
|
|
|
79,721
|
|
|
458
|
|
|
120,108
|
|
Substandard
|
|
8,394
|
|
|
10,708
|
|
|
—
|
|
|
6,181
|
|
|
25,283
|
|
|
64,151
|
|
|
1,811
|
|
|
91,245
|
|
Doubtful
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
865
|
|
|
—
|
|
|
865
|
|
Loss
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Total classified and criticized
|
|
10,198
|
|
|
48,833
|
|
|
—
|
|
|
6,181
|
|
|
65,212
|
|
|
144,737
|
|
|
2,269
|
|
|
212,218
|
|
Pass/Watch
|
|
1,061,977
|
|
|
2,388,284
|
|
|
1,298,630
|
|
|
393,320
|
|
|
5,142,211
|
|
|
1,515,129
|
|
|
401,307
|
|
|
7,058,647
|
|
Total
|
|
$
|
1,072,175
|
|
|
2,437,117
|
|
|
1,298,630
|
|
|
399,501
|
|
|
5,207,423
|
|
|
1,659,866
|
|
|
403,576
|
|
|
7,270,865
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31, 2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential
|
|
Commercialmortgage
|
|
Multi-family
|
|
Construction
|
|
Total
mortgages
|
|
Commercial
|
|
Consumer
|
|
Total loans
|
Special mention
|
|
$
|
5,071
|
|
|
14,496
|
|
|
228
|
|
|
—
|
|
|
19,795
|
|
|
67,396
|
|
|
610
|
|
|
87,801
|
|
Substandard
|
|
7,878
|
|
|
13,292
|
|
|
—
|
|
|
6,181
|
|
|
27,351
|
|
|
45,180
|
|
|
1,711
|
|
|
74,242
|
|
Doubtful
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
923
|
|
|
—
|
|
|
923
|
|
Loss
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Total classified and criticized
|
|
12,949
|
|
|
27,788
|
|
|
228
|
|
|
6,181
|
|
|
47,146
|
|
|
113,499
|
|
|
2,321
|
|
|
162,966
|
|
Pass/Watch
|
|
1,086,515
|
|
|
2,271,525
|
|
|
1,339,449
|
|
|
382,818
|
|
|
5,080,307
|
|
|
1,581,522
|
|
|
429,107
|
|
|
7,090,936
|
|
Total
|
|
$
|
1,099,464
|
|
|
2,299,313
|
|
|
1,339,677
|
|
|
388,999
|
|
|
5,127,453
|
|
|
1,695,021
|
|
|
431,428
|
|
|
7,253,902
|
|
Note 5. Deposits
Deposits at September 30, 2019 and December 31, 2018 are summarized as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2019
|
|
December 31, 2018
|
Savings
|
|
$
|
985,575
|
|
|
1,051,922
|
|
Money market
|
|
1,593,681
|
|
|
1,496,310
|
|
NOW
|
|
1,853,650
|
|
|
2,049,645
|
|
Non-interest bearing
|
|
1,683,772
|
|
|
1,481,753
|
|
Certificates of deposit
|
|
844,693
|
|
|
750,492
|
|
Total deposits
|
|
$
|
6,961,371
|
|
|
6,830,122
|
|
Note 6. Components of Net Periodic Benefit Cost
The Bank has a noncontributory defined benefit pension plan covering its full-time employees who had attained age 21 with at least one year of service as of April 1, 2003. The pension plan was frozen on April 1, 2003. All participants in the Plan are 100% vested. The pension plan’s assets are invested in investment funds and group annuity contracts currently managed by the Principal Financial Group and Allmerica Financial.
In addition to pension benefits, certain health care and life insurance benefits are currently made available to certain of the Bank’s retired employees. The costs of such benefits are accrued based on actuarial assumptions from the date of hire to the date the employee is fully eligible to receive the benefits. Effective January 1, 2003, eligibility for retiree health care benefits was frozen as to new entrants, and benefits were eliminated for employees with less than ten years of service as of
December 31, 2002. Effective January 1, 2007, eligibility for retiree life insurance benefits was frozen as to new entrants and retiree life insurance benefits were eliminated for employees with less than ten years of service as of December 31, 2006.
Net periodic (decrease) increase in benefit cost for pension benefits and other post-retirement benefits for the three and nine months ended September 30, 2019 and 2018 includes the following components (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended September 30,
|
|
|
|
|
|
|
|
Nine months ended September 30,
|
|
|
|
|
|
|
|
|
Pension benefits
|
|
|
|
Other post-retirement benefits
|
|
|
|
Pension benefits
|
|
|
|
Other post-retirement benefits
|
|
|
|
|
2019
|
|
2018
|
|
2019
|
|
2018
|
|
2019
|
|
2018
|
|
2019
|
|
2018
|
Service cost
|
|
$
|
—
|
|
|
—
|
|
|
20
|
|
|
29
|
|
|
$
|
—
|
|
|
—
|
|
|
60
|
|
|
87
|
|
Interest cost
|
|
299
|
|
|
273
|
|
|
209
|
|
|
196
|
|
|
899
|
|
|
821
|
|
|
628
|
|
|
590
|
|
Expected return on plan assets
|
|
(640)
|
|
|
(693)
|
|
|
—
|
|
|
—
|
|
|
(1,922)
|
|
|
(2,079)
|
|
|
—
|
|
|
—
|
|
Amortization of prior service cost
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Amortization of the net loss (gain)
|
|
254
|
|
|
199
|
|
|
(206)
|
|
|
(99)
|
|
|
762
|
|
|
597
|
|
|
(620)
|
|
|
(297)
|
|
Net periodic benefit (decrease) increase in benefit cost
|
|
$
|
(87)
|
|
|
(221)
|
|
|
23
|
|
|
126
|
|
|
$
|
(261)
|
|
|
(661)
|
|
|
68
|
|
|
380
|
|
In its consolidated financial statements for the year ended December 31, 2018, the Company previously disclosed that it does not expect to contribute to the pension plan in 2019. As of September 30, 2019, no contributions have been made to the pension plan.
The net periodic benefit (decrease) increase in benefit cost for pension benefits and other post-retirement benefits for the three and nine months ended September 30, 2019 were calculated using the January 1, 2019 pension and other post-retirement benefits actuarial valuations.
Note 7. Impact of Recent Accounting Pronouncements
Accounting Pronouncements Adopted in 2019
In October 2018, the Financial Accounting Standards Board ("FASB") issued ASU No. 2018-16, “Derivatives and Hedging (Topic 815) – Inclusion of the Secured Overnight Financing Rate (SOFR) Overnight Index Swap (OIS) Rate as a Benchmark Interest Rate for Hedge Accounting Purposes.” This ASU permits the use of the OIS rate based upon SOFR as a U.S. benchmark interest rate for hedge accounting purposes under Topic 815 in addition to the UST, the LIBOR swap rate, the OIS rate based on the Fed Funds Effective Rate, and the SIFMA Municipal Swap Rate. The amendments in ASU 2018-16 are required to be adopted concurrently with ASU 2017-12, "Derivatives and Hedging: Targeted Improvements to Accounting for Hedging," which was effective for public business entities for fiscal years beginning after December 15, 2018, with early adoption, including adoption in an interim period, permitted. ASU 2018-16 should be adopted on a prospective basis for qualifying new or redesignated hedging relationships entered into on or after the date of adoption. The Company adopted this guidance effective January 1, 2019. The adoption of this guidance had no impact on the Company’s consolidated financial statements.
In August 2017, the FASB issued ASU 2017-12, "Derivatives and Hedging: Targeted Improvements to Accounting for Hedging." The purpose of this updated guidance is to better align a company’s financial reporting for hedging activities with the economic objectives of those activities. ASU 2017-12 was effective for public business entities for fiscal years beginning after December 15, 2018. ASU 2017-12 requires a modified retrospective transition method in which the Company will recognize the cumulative effect of the change on the opening balance of each affected component of equity in the statement of financial position as of the date of adoption. The Company adopted this guidance effective January 1, 2019. The adoption of this guidance had no impact on the Company’s consolidated financial statements.
In March 2017, the FASB issued ASU 2017-08, “Receivables - Nonrefundable Fees and Other Costs (Subtopic 310-20): Premium Amortization on Purchased Callable Debt Securities.” This ASU shortens the amortization period for premiums on callable debt securities by requiring that premiums be amortized to the first (or earliest) call date instead of as an adjustment to the yield over the contractual life. This change more closely aligns the accounting with the economics of a callable debt security and the amortization period with expectations that already are included in market pricing on callable debt securities. This ASU does not change the accounting for discounts on callable debt securities, which will continue to be amortized to the maturity date. This guidance only includes instruments that are held at a premium and have explicit call features. It does not include instruments that contain prepayment features, such as mortgage backed securities; nor does it include call options that are contingent upon future events or in which the timing or amount to be paid is not fixed. This ASU was effective for fiscal
years beginning after December 15, 2018, including interim periods within the reporting period, with early adoption permitted. The Company adopted this guidance effective January 1, 2019. The adoption of this guidance had no impact on the Company’s consolidated financial statements.
In February 2016, the FASB issued ASU 2016-02, "Leases (Topic 842).” This ASU requires all lessees to recognize a lease liability and a right-of-use asset, measured at the present value of the future minimum lease payments, at the lease commencement date. Lessor accounting remains largely unchanged under the new guidance. The guidance is effective for fiscal years beginning after December 15, 2018, including interim reporting periods within that reporting period, with early adoption permitted. A modified retrospective approach must be applied for leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements. In July 2018, the FASB issued ASU No. 2018-11, “Leases - Targeted Improvements” to provide entities with relief from the costs of implementing certain aspects of ASU No. 2016-02. Specifically, under the amendments in ASU 2018-11: (1) entities may elect not to recast the comparative periods presented when transitioning to the new leasing standard, and (2) lessors may elect not to separate lease and non-lease components when certain conditions are met. The amendments have the same effective date as ASU 2016-02. In the first quarter of 2018, the Company formed a working group to guide the implementation efforts, including the identification and review of all lease agreements within the scope of the guidance. The working group has identified the inventory of leases and actively accumulated the requisite lease data necessary to apply the guidance. Also, the working group purchased and implemented a software platform to properly record and track all leases, monitor right-of-use assets and lease liabilities and support all accounting and disclosure requirements of the guidance. The Company adopted both ASU No. 2016-02 and ASU No. 2018-11 effective January 1, 2019 and elected to apply the guidance as of the beginning of the period of adoption (January 1, 2019) and not restate comparative periods. The Company also elected certain optional practical expedients, which allow the Company to forego a reassessment of (1) whether any expired or existing contracts are or contain leases, (2) the lease classification for any expired or existing leases, and (3) the initial direct costs for any existing leases. The adoption of the new standard resulted in the Company recording a right-of-use and an additional lease liability on its consolidated statement of financial condition of $44.9 million and $46.1 million, respectively, based on the present value of the expected remaining lease payments at January 1, 2019. It also resulted in additional footnote disclosures (see Note 12 - "Leases").
Accounting Pronouncements Not Yet Adopted
In April 2019, the FASB issued ASU No. 2019-04, "Codification Improvements to Topic 326, Financial Instruments-Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments" which clarifies and improves areas of guidance related to the recently issued standards on credit losses, hedging, recognition and measurement. The most significant provisions of the ASU relate to how companies will estimate expected credit losses under Topic 326 by incorporating (1) expected recoveries of financial assets, including recoveries of amounts expected to be written off and those previously written off, and (2) clarifying that contractual extensions or renewal options that are not unconditionally cancellable by the lender are considered when determining the contractual term over which expected credit losses are measured. ASU No. 2019-04 is effective for reporting periods beginning January 1, 2020. The Company continues to assess the impact that the guidance will have on the Company’s consolidated financial statements.
In May 2019, the FASB issued ASU No. 2019-05, “Financial Instruments - Credit Losses (Topic 326); Targeted Transition Relief.” This ASU allows entities to irrevocably elect, upon adoption of ASU 2016-13, the fair value option on financial instruments that (1) were previously recorded at amortized cost and (2) are within the scope of ASC 326-20 if the instruments are eligible for the fair value option under ASC 825-10. The fair value option election does not apply to held-to-maturity debt securities. Entities are required to make this election on an instrument-by-instrument basis. ASU 2019-05 has the same effective date as ASU 2016-13 (i.e., the first quarter of 2020). The Company continues to assess the impact that the guidance will have on the Company’s consolidated financial statements.
In August 2018, the FASB issued ASU No. 2018-13, “Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement.” This ASU eliminates, adds and modifies certain disclosure requirements for fair value measurements. Among the changes, entities will no longer be required to disclose the amount of and reasons for transfers between Level 1 and Level 2 of the fair value hierarchy, but will be required to disclose the range and weighted average used to develop significant unobservable inputs for Level 3 fair value measurements. ASU No. 2018-13 is effective for interim and annual reporting periods beginning after December 15, 2019; early adoption is permitted. Entities are also allowed to elect early adoption of the eliminated or modified disclosure requirements and delay adoption of the new disclosure requirements until their effective date. The Company does not expect the adoption of this guidance to have a significant impact on the Company’s consolidated financial statements.
In June 2016, the FASB issued ASU 2016-13, “Measurement of Credit Losses on Financial Instruments.” The main objective of this ASU is to provide financial statement users with more decision-useful information about the expected credit losses on financial instruments by a reporting entity at each reporting date. The amendments in this ASU require financial assets
measured at amortized cost to be presented at the net amount expected to be collected. The allowance for credit losses would represent a valuation account that would be deducted from the amortized cost basis of the financial asset(s) to present the net carrying value at the amount expected to be collected on the financial asset. The income statement would reflect the measurement of credit losses for newly recognized financial assets, as well as the expected increases or decreases of expected credit losses that have taken place during the period. The measurement of expected credit losses would be based on relevant information about past events, including historical experience, current conditions, and reasonable and supportable forecasts that affect the collectability of the reported amount. An entity will be required to use judgment in determining the relevant information and estimation methods that are appropriate in its circumstances. Furthermore, ASU 2016-13 will necessitate establishing an allowance for expected credit losses on held to maturity debt securities. The amendments in ASU 2016-13 are effective for fiscal years, including interim periods, beginning after December 15, 2019. Early adoption of this ASU is permitted for fiscal years beginning after December 15, 2018. As previously disclosed, the Company formed, in the first quarter of 2017, a cross-functional working group, under the direction of the Chief Credit Officer, Chief Financial Officer and Chief Risk Officer. The working group is comprised of individuals from various functional areas including credit, risk management, finance and information technology, among others. Management developed a detailed implementation plan which included an assessment of processes, portfolio segmentation, model development, model validation, system requirements, the identification of data and resource needs and the development of a governance and control structure, among other things. Management selected a system platform and has engaged with third-party vendors to assist with model development, data governance and financial and operational controls to support the adoption of this ASU. Recently, the Company identified and segmented the loan portfolio into several distinct portfolios for CECL modeling. The data sets for these portfolios have been identified, populated and are currently going through the validation process. During the remainder of 2019, the Company plans several parallel processing runs of our existing allowance for loan losses model compared to the CECL model, as well as model sensitivity analysis, determination of qualitative adjustments and the execution of the governance, data control, analytic and approval processes. The adoption of ASU 2016-13 may result in an increase in the allowance for loan losses as a result of changing from an "incurred loss" model, which encompasses allowances for current known and inherent losses within the portfolio, to an "expected loss" model, which encompasses allowances for losses expected to be incurred over the life of the portfolio. While the Company is currently unable to reasonably estimate the impact of adopting ASU 2016-13, it is expected that the impact upon adoption will be significantly influenced by the composition, characteristics and quality of our loan and securities portfolios as well as the prevailing economic conditions and forecasts as of the adoption date.
Note 8. Fair Value Measurements
The Company utilizes fair value measurements to record fair value adjustments to certain assets and liabilities and to determine fair value disclosures. The determination of fair values of financial instruments often requires the use of estimates. Where quoted market values in an active market are not readily available, Management utilizes various valuation techniques to estimate fair value.
Fair value is an estimate of the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. However, in many instances fair value estimates may not be substantiated by comparison to independent markets and may not be realized in an immediate sale of the financial instrument.
GAAP establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). The three levels of the fair value hierarchy are as follows:
|
|
|
|
|
|
|
|
|
Level 1:
|
|
Unadjusted quoted market prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities;
|
|
|
|
Level 2:
|
|
Quoted prices in markets that are not active, or inputs that are observable either directly or indirectly, for substantially the full term of the asset or liability; and
|
|
|
|
Level 3:
|
|
Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (i.e., supported by little or no market activity).
|
A financial instrument’s level within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement.
The valuation techniques are based upon the unpaid principal balance only, and exclude any accrued interest or dividends at the measurement date. Interest income and expense and dividend income are recorded within the consolidated statements of income depending on the nature of the instrument using the effective interest method based on acquired discount or premium.
Assets and Liabilities Measured at Fair Value on a Recurring Basis
The valuation techniques described below were used to measure fair value of financial instruments in the table below on a recurring basis as of September 30, 2019 and December 31, 2018.
Available for Sale Debt Securities, at Fair Value
For available for sale debt securities, fair value was estimated using a market approach. The majority of the Company’s securities are fixed income instruments that are not quoted on an exchange, but are traded in active markets. Prices for these instruments are obtained through third-party data service providers or dealer market participants with whom the Company has historically transacted both purchases and sales of securities. Prices obtained from these sources include market quotations and matrix pricing. Matrix pricing, a Level 2 input, is a mathematical technique used principally to value certain securities to benchmark to comparable securities. The Company evaluates the quality of Level 2 matrix pricing through comparison to similar assets with greater liquidity and evaluation of projected cash flows. As Management is responsible for the determination of fair value, it performs quarterly analyses on the prices received from the pricing service to determine whether the prices are reasonable estimates of fair value. Specifically, Management compares the prices received from the pricing service to a secondary pricing source. Additionally, Management compares changes in the reported market values and returns to relevant market indices to test the reasonableness of the reported prices. The Company’s internal price verification procedures and review of fair value methodology documentation provided by independent pricing services has generally not resulted in an adjustment in the prices obtained from the pricing service.
Equity Securities, at Fair Value
The Company holds equity securities that are traded in active markets with readily accessible quoted market prices that are considered Level 1 inputs.
Derivatives
The Company records all derivatives on the statements of financial condition at fair value. The accounting for changes in the fair value of derivatives depends on the intended use of the derivative, whether the Company has elected to designate a derivative in a hedging relationship and apply hedge accounting and whether the hedging relationship has satisfied the criteria necessary to apply hedge accounting. The Company has interest rate derivatives resulting from a service provided to certain qualified borrowers in a loan related transaction and, therefore, are not used to manage interest rate risk in the Company’s assets or liabilities. As such, all changes in fair value of the Company’s interest rate derivatives not used to manage interest rate risk are recognized directly in earnings.
The Company also uses interest rate swaps as part of its interest rate risk management strategy. Interest rate swaps designated as cash flow hedges, and which satisfy hedge accounting requirements, involve the receipt of variable amounts from a counterparty in exchange for the Company making fixed-rate payments over the life of the agreements without the exchange of the underlying notional amount. For derivatives designated and that qualify as cash flow hedges of interest rate risk, the changes in the fair value of derivatives designated and that qualify as cash flow hedges are recorded in accumulated other comprehensive income and are subsequently reclassified into earnings in the period that the hedged forecasted transaction affects earnings. These derivatives were used to hedge the variable cash outflows associated with Federal Home Loan Bank borrowings.
The fair value of the Company's derivatives is determined using discounted cash flow analysis using observable market-based inputs, which are considered Level 2 inputs.
Assets Measured at Fair Value on a Non-Recurring Basis
The valuation techniques described below were used to estimate fair value of financial instruments measured on a non-recurring basis as of September 30, 2019 and December 31, 2018.
Collateral Dependent Impaired Loans
For loans measured for impairment based on the fair value of the underlying collateral, fair value was estimated using a market approach. The Company measures the fair value of collateral underlying impaired loans primarily through obtaining independent appraisals that rely upon quoted market prices for similar assets in active markets. These appraisals include
adjustments, on an individual case-by-case basis, to comparable assets based on the appraisers’ market knowledge and experience, as well as adjustments for estimated costs to sell between 5% and 10%. Management classifies these loans as Level 3 within the fair value hierarchy.
Foreclosed Assets
Assets acquired through foreclosure or deed in lieu of foreclosure are carried at fair value, less estimated selling costs, which range between 5% and 10%. Fair value is generally based on independent appraisals that rely upon quoted market prices for similar assets in active markets. These appraisals include adjustments, on an individual case basis, to comparable assets based on the appraisers’ market knowledge and experience, and are classified as Level 3. When an asset is acquired, the excess of the loan balance over fair value less estimated selling costs is charged to the allowance for loan losses. A reserve for foreclosed assets may be established to provide for possible write-downs and selling costs that occur subsequent to foreclosure. Foreclosed assets are carried net of the related reserve. Operating results from real estate owned, including rental income, operating expenses, and gains and losses realized from the sales of real estate owned, are recorded as incurred.
There were no changes to the valuation techniques for fair value measurements as of September 30, 2019 and December 31, 2018.
The following tables present the assets and liabilities reported on the consolidated statements of financial condition at their fair values as of September 30, 2019 and December 31, 2018, by level within the fair value hierarchy:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements at Reporting Date Using:
|
|
|
|
|
|
|
(In thousands)
|
|
September 30, 2019
|
|
Quoted Prices in Active Markets for Identical Assets (Level 1)
|
|
Significant Other Observable Inputs (Level 2)
|
|
Significant Unobservable Inputs (Level 3)
|
Measured on a recurring basis:
|
|
|
|
|
|
|
|
|
Available for sale debt securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage-backed securities
|
|
$
|
1,023,541
|
|
|
—
|
|
|
1,023,541
|
|
|
—
|
|
State and municipal obligations
|
|
4,088
|
|
|
—
|
|
|
4,088
|
|
|
—
|
|
Corporate obligations
|
|
25,366
|
|
|
—
|
|
|
25,366
|
|
|
—
|
|
Total available for sale debt securities
|
|
$
|
1,052,995
|
|
|
—
|
|
|
1,052,995
|
|
|
—
|
|
Equity securities
|
|
728
|
|
|
728
|
|
|
—
|
|
|
—
|
|
Derivative assets
|
|
54,743
|
|
|
—
|
|
|
54,743
|
|
|
—
|
|
|
|
$
|
1,108,466
|
|
|
728
|
|
|
1,107,738
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
Derivative liabilities
|
|
$
|
54,838
|
|
|
—
|
|
|
54,838
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
Measured on a non-recurring basis:
|
|
|
|
|
|
|
|
|
Loans measured for impairment based on the fair value of the underlying collateral
|
|
$
|
19,025
|
|
|
—
|
|
|
—
|
|
|
19,025
|
|
Foreclosed assets
|
|
1,534
|
|
|
—
|
|
|
—
|
|
|
1,534
|
|
|
|
$
|
20,559
|
|
|
—
|
|
|
—
|
|
|
20,559
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements at Reporting Date Using:
|
|
|
|
|
|
|
(In thousands)
|
|
December 31, 2018
|
|
Quoted Prices in Active Markets for Identical Assets (Level 1)
|
|
Significant Other Observable Inputs (Level 2)
|
|
Significant Unobservable Inputs (Level 3)
|
Measured on a recurring basis:
|
|
|
|
|
|
|
|
|
Available for sale debt securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage-backed securities
|
|
$
|
1,034,969
|
|
|
—
|
|
|
1,034,969
|
|
|
—
|
|
State and municipal obligations
|
|
2,912
|
|
|
—
|
|
|
2,912
|
|
|
—
|
|
Corporate obligations
|
|
25,198
|
|
|
—
|
|
|
25,198
|
|
|
—
|
|
Total available for sale debt securities
|
|
$
|
1,063,079
|
|
|
—
|
|
|
1,063,079
|
|
|
—
|
|
Equity Securities
|
|
635
|
|
|
635
|
|
|
—
|
|
|
—
|
|
Derivative assets
|
|
15,634
|
|
|
—
|
|
|
15,634
|
|
|
—
|
|
|
|
$
|
1,079,348
|
|
|
635
|
|
|
1,078,713
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
Derivative liabilities
|
|
$
|
14,766
|
|
|
—
|
|
|
14,766
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
Measured on a non-recurring basis:
|
|
|
|
|
|
|
|
|
Loans measured for impairment based on the fair value of the underlying collateral
|
|
$
|
4,285
|
|
|
—
|
|
|
—
|
|
|
4,285
|
|
Foreclosed assets
|
|
1,565
|
|
|
—
|
|
|
—
|
|
|
1,565
|
|
|
|
$
|
5,850
|
|
|
—
|
|
|
—
|
|
|
5,850
|
|
There were no transfers between Level 1, Level 2 and Level 3 during the three and nine months ended September 30, 2019.
Other Fair Value Disclosures
The Company is required to disclose estimated fair value of financial instruments, both assets and liabilities on and off the balance sheet, for which it is practicable to estimate fair value. The following is a description of valuation methodologies used for those assets and liabilities.
Cash and Cash Equivalents
For cash and due from banks, federal funds sold and short-term investments, the carrying amount approximates fair value. Included in cash and cash equivalents at September 30, 2019 and December 31, 2018 was $27.3 million and $35.0 million, respectively, representing reserves required by banking regulations.
Held to Maturity Debt Securities
For held to maturity debt securities, fair value was estimated using a market approach. The majority of the Company’s securities are fixed income instruments that are not quoted on an exchange, but are traded in active markets. Prices for these instruments are obtained through third party data service providers or dealer market participants with whom the Company has historically transacted both purchases and sales of securities. Prices obtained from these sources include market quotations and matrix pricing. Matrix pricing, a Level 2 input, is a mathematical technique used principally to value certain securities to benchmark to comparable securities. Management evaluates the quality of Level 2 matrix pricing through comparison to similar assets with greater liquidity and evaluation of projected cash flows. As management is responsible for the determination of fair value, it performs quarterly analyses on the prices received from the pricing service to determine whether the prices are reasonable estimates of fair value. Specifically, management compares the prices received from the pricing service to a secondary pricing source. Additionally, management compares changes in the reported market values and returns to relevant market indices to test the reasonableness of the reported prices. The Company’s internal price verification procedures and review of fair value methodology documentation provided by independent pricing services has generally not resulted in adjustment in the prices obtained from the pricing service. The Company also holds debt instruments issued by the U.S. government and U.S. government agencies that are traded in active markets with readily accessible quoted market prices that are considered Level 1 within the fair value hierarchy.
Federal Home Loan Bank of New York ("FHLBNY") Stock
The carrying value of FHLBNY stock is its cost. The fair value of FHLBNY stock is based on redemption at par value. The Company classifies the estimated fair value as Level 1 within the fair value hierarchy.
Loans
Fair values are estimated for portfolios of loans with similar financial characteristics. Loans are segregated by type such as commercial mortgage, residential mortgage, commercial, construction and consumer. Each loan category is further segmented into fixed and adjustable rate interest terms and into performing and non-performing categories. The fair value of performing loans was estimated using a combination of techniques, including a discounted cash flow model that utilizes a discount rate that reflects the Company’s current pricing for loans with similar characteristics and remaining maturity, adjusted by an amount for estimated credit losses inherent in the portfolio at the balance sheet date (i.e. exit pricing). The rates take into account the expected yield curve, as well as an adjustment for prepayment risk, when applicable. The Company classifies the estimated fair value of its loan portfolio as Level 3.
The fair value for significant non-performing loans was based on recent external appraisals of collateral securing such loans, adjusted for the timing of anticipated cash flows. The Company classifies the estimated fair value of its non-performing loan portfolio as Level 3.
Deposits
The fair value of deposits with no stated maturity, such as non-interest bearing demand deposits and savings deposits, was equal to the amount payable on demand and classified as Level 1. The estimated fair value of certificates of deposit was based on the discounted value of contractual cash flows. The discount rate was estimated using the Company’s current rates offered for deposits with similar remaining maturities. The Company classifies the estimated fair value of its certificates of deposit portfolio as Level 2.
Borrowed Funds
The fair value of borrowed funds was estimated by discounting future cash flows using rates available for debt with similar terms and maturities and is classified by the Company as Level 2 within the fair value hierarchy.
Commitments to Extend Credit and Letters of Credit
The fair value of commitments to extend credit and letters of credit was estimated using the fees currently charged to enter into similar agreements, taking into account the remaining terms of the agreements and the present creditworthiness of the counterparties. For fixed rate loan commitments, fair value also considers the difference between current levels of interest rates and the committed rates. The fair value estimates of commitments to extend credit and letters of credit are deemed immaterial.
Limitations
Fair value estimates are made at a specific point in time, based on relevant market information and information about the financial instrument. These estimates do not reflect any premium or discount that could result from offering for sale at one time the Company’s entire holdings of a particular financial instrument. Because no market exists for a significant portion of the Company’s financial instruments, fair value estimates are based on judgments regarding future expected loss experience, current economic conditions, risk characteristics of various financial instruments, and other factors. These estimates are subjective in nature and involve uncertainties and matters of significant judgment and, therefore, cannot be determined with precision. Changes in assumptions could significantly affect the estimates.
Fair value estimates are based on existing on- and off-balance sheet financial instruments without attempting to estimate the value of anticipated future business and the value of assets and liabilities that are not considered financial instruments.
Significant assets and liabilities that are not considered financial assets or liabilities include goodwill and other intangibles, deferred tax assets and premises and equipment. In addition, the tax ramifications related to the realization of the unrealized gains and losses can have a significant effect on fair value estimates and have not been considered in the estimates.
The following tables present the Company’s financial instruments at their carrying and fair values as of September 30, 2019 and December 31, 2018. Fair values are presented by level within the fair value hierarchy.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements at September 30, 2019 Using:
|
|
|
|
|
|
|
(Dollars in thousands)
|
|
Carrying value
|
|
Fair value
|
|
Quoted Prices in Active Markets for Identical Assets (Level 1)
|
|
Significant Other Observable Inputs (Level 2)
|
|
Significant Unobservable Inputs (Level 3)
|
Financial assets:
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
260,860
|
|
|
260,860
|
|
|
260,860
|
|
|
—
|
|
|
—
|
|
Available for sale debt securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage-backed securities
|
|
1,023,541
|
|
|
1,023,541
|
|
|
—
|
|
|
1,023,541
|
|
|
—
|
|
State and municipal obligations
|
|
4,088
|
|
|
4,088
|
|
|
—
|
|
|
4,088
|
|
|
—
|
|
Corporate obligations
|
|
25,366
|
|
|
25,366
|
|
|
—
|
|
|
25,366
|
|
|
—
|
|
Total available for sale debt securities
|
|
$
|
1,052,995
|
|
|
1,052,995
|
|
|
—
|
|
|
1,052,995
|
|
|
—
|
|
Held to maturity debt securities:
|
|
|
|
|
|
|
|
|
|
|
Agency obligations
|
|
4,948
|
|
|
4,948
|
|
|
4,948
|
|
|
—
|
|
|
—
|
|
Mortgage-backed securities
|
|
134
|
|
|
137
|
|
|
—
|
|
|
137
|
|
|
—
|
|
State and municipal obligations
|
|
445,896
|
|
|
460,809
|
|
|
—
|
|
|
460,809
|
|
|
—
|
|
Corporate obligations
|
|
10,760
|
|
|
10,804
|
|
|
—
|
|
|
10,804
|
|
|
—
|
|
Total held to maturity debt securities
|
|
$
|
461,738
|
|
|
476,698
|
|
|
4,948
|
|
|
471,750
|
|
|
—
|
|
FHLBNY stock
|
|
68,721
|
|
|
68,721
|
|
|
68,721
|
|
|
—
|
|
|
—
|
|
Equity Securities
|
|
728
|
|
|
728
|
|
|
728
|
|
|
—
|
|
|
—
|
|
Loans, net of allowance for loan losses
|
|
7,209,650
|
|
|
7,260,050
|
|
|
—
|
|
|
—
|
|
|
7,260,050
|
|
Derivative assets
|
|
54,743
|
|
|
54,743
|
|
|
—
|
|
|
54,743
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial liabilities:
|
|
|
|
|
|
|
|
|
|
|
Deposits other than certificates of deposits
|
|
$
|
6,116,678
|
|
|
6,116,678
|
|
|
6,116,678
|
|
|
—
|
|
|
—
|
|
Certificates of deposit
|
|
844,693
|
|
|
844,095
|
|
|
—
|
|
|
844,095
|
|
|
—
|
|
Total deposits
|
|
$
|
6,961,371
|
|
|
6,960,773
|
|
|
6,116,678
|
|
|
844,095
|
|
|
—
|
|
Borrowings
|
|
1,380,063
|
|
|
1,382,650
|
|
|
—
|
|
|
1,382,650
|
|
|
—
|
|
Derivative liabilities
|
|
54,838
|
|
|
54,838
|
|
|
—
|
|
|
54,838
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements at December 31, 2018 Using:
|
|
|
|
|
|
|
(Dollars in thousands)
|
|
Carrying value
|
|
Fair value
|
|
Quoted Prices in Active Markets for Identical Assets (Level 1)
|
|
Significant Other Observable Inputs (Level 2)
|
|
Significant Unobservable Inputs (Level 3)
|
Financial assets:
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
142,661
|
|
|
142,661
|
|
|
142,661
|
|
|
—
|
|
|
—
|
|
Available for sale debt securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage-backed securities
|
|
1,034,969
|
|
|
1,034,969
|
|
|
—
|
|
|
1,034,969
|
|
|
—
|
|
State and municipal obligations
|
|
2,912
|
|
|
2,912
|
|
|
—
|
|
|
2,912
|
|
|
—
|
|
Corporate obligations
|
|
25,198
|
|
|
25,198
|
|
|
—
|
|
|
25,198
|
|
|
—
|
|
Total available for sale debt securities
|
|
$
|
1,063,079
|
|
|
1,063,079
|
|
|
—
|
|
|
1,063,079
|
|
|
—
|
|
Held to maturity debt securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Agency obligations
|
|
$
|
4,989
|
|
|
4,896
|
|
|
4,896
|
|
|
—
|
|
|
—
|
|
Mortgage-backed securities
|
|
187
|
|
|
190
|
|
|
—
|
|
|
190
|
|
|
—
|
|
State and municipal obligations
|
|
463,801
|
|
|
464,363
|
|
|
—
|
|
|
464,363
|
|
|
—
|
|
Corporate obligations
|
|
10,448
|
|
|
10,291
|
|
|
—
|
|
|
10,291
|
|
|
—
|
|
Total held to maturity debt securities
|
|
$
|
479,425
|
|
|
479,740
|
|
|
4,896
|
|
|
474,844
|
|
|
—
|
|
FHLBNY stock
|
|
68,813
|
|
|
68,813
|
|
|
68,813
|
|
|
—
|
|
|
—
|
|
Equity Securities
|
|
635
|
|
|
635
|
|
|
635
|
|
|
—
|
|
|
—
|
|
Loans, net of allowance for loan losses
|
|
7,195,026
|
|
|
7,104,380
|
|
|
—
|
|
|
—
|
|
|
7,104,380
|
|
Derivative assets
|
|
15,634
|
|
|
15,634
|
|
|
—
|
|
|
15,634
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial liabilities:
|
|
|
|
|
|
|
|
|
|
|
Deposits other than certificates of deposits
|
|
$
|
6,079,630
|
|
|
6,079,630
|
|
|
6,079,630
|
|
|
—
|
|
|
—
|
|
Certificates of deposit
|
|
750,492
|
|
|
746,753
|
|
|
—
|
|
|
746,753
|
|
|
—
|
|
Total deposits
|
|
$
|
6,830,122
|
|
|
6,826,383
|
|
|
6,079,630
|
|
|
746,753
|
|
|
—
|
|
Borrowings
|
|
1,442,282
|
|
|
1,431,001
|
|
|
—
|
|
|
1,431,001
|
|
|
—
|
|
Derivative liabilities
|
|
14,766
|
|
|
14,766
|
|
|
—
|
|
|
14,766
|
|
|
—
|
|
Note 9. Other Comprehensive Income (Loss)
The following table presents the components of other comprehensive income (loss), both gross and net of tax, for the three and nine months ended September 30, 2019 and 2018 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended September 30,
|
|
|
|
|
|
|
|
|
|
|
|
|
2019
|
|
|
|
|
|
2018
|
|
|
|
|
|
|
Before
Tax
|
|
Tax
Effect
|
|
After
Tax
|
|
Before
Tax
|
|
Tax
Effect
|
|
After
Tax
|
Components of Other Comprehensive Income:
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized gains and losses on available for sale debt securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net unrealized gains (losses) arising during the period
|
|
$
|
3,594
|
|
|
(980)
|
|
|
2,614
|
|
|
(6,547)
|
|
|
1,727
|
|
|
(4,820)
|
|
Reclassification adjustment for gains included in net income
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Total
|
|
3,594
|
|
|
(980)
|
|
|
2,614
|
|
|
(6,547)
|
|
|
1,727
|
|
|
(4,820)
|
|
Unrealized gains on derivatives (cash flow hedges)
|
|
188
|
|
|
(51)
|
|
|
137
|
|
|
62
|
|
|
(16)
|
|
|
46
|
|
Amortization related to post-retirement obligations
|
|
48
|
|
|
(13)
|
|
|
35
|
|
|
100
|
|
|
(25)
|
|
|
75
|
|
Total other comprehensive income (loss)
|
|
$
|
3,830
|
|
|
(1,044)
|
|
|
2,786
|
|
|
(6,385)
|
|
|
1,686
|
|
|
(4,699)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine months ended September 30,
|
|
|
|
|
|
|
|
|
|
|
|
|
2019
|
|
|
|
|
|
2018
|
|
|
|
|
|
|
Before
Tax
|
|
Tax
Effect
|
|
After
Tax
|
|
Before
Tax
|
|
Tax
Effect
|
|
After
Tax
|
Components of Other Comprehensive Income:
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized gains and losses on available for sale debt securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net unrealized gains (losses) arising during the period
|
|
$
|
27,291
|
|
|
(7,437)
|
|
|
19,854
|
|
|
(24,310)
|
|
|
6,413
|
|
|
(17,897)
|
|
Reclassification adjustment for gains included in net income
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Total
|
|
27,291
|
|
|
(7,437)
|
|
|
19,854
|
|
|
(24,310)
|
|
|
6,413
|
|
|
(17,897)
|
|
Unrealized (losses) gains on Derivatives (cash flow hedges)
|
|
(1,119)
|
|
|
306
|
|
|
(813)
|
|
|
985
|
|
|
(261)
|
|
|
724
|
|
Amortization related to post-retirement obligations
|
|
78
|
|
|
(21)
|
|
|
57
|
|
|
283
|
|
|
(72)
|
|
|
211
|
|
Total other comprehensive income (loss)
|
|
$
|
26,250
|
|
|
(7,152)
|
|
|
19,098
|
|
|
(23,042)
|
|
|
6,080
|
|
|
(16,962)
|
|
The following tables present the changes in the components of accumulated other comprehensive income (loss), net of tax, for the three and nine months ended September 30, 2019 and 2018 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Changes in Accumulated Other Comprehensive Income (Loss) by Component, net of tax
for the three months ended September 30,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2019
|
|
|
|
|
|
|
|
2018
|
|
|
|
|
|
|
|
|
Unrealized
Gains on
Available for Sale Debt Securities
|
|
Post- Retirement
Obligations
|
|
Unrealized (Losses) Gains on Derivatives (cash flow hedges)
|
|
Accumulated
Other
Comprehensive
Income
|
|
Unrealized
Losses on
Available for Sale Debt Securities
|
|
Post- Retirement
Obligations
|
|
Unrealized Gains on Derivatives (cash flow hedges)
|
|
Accumulated
Other
Comprehensive
Loss
|
Balance at
June 30,
|
|
$
|
7,635
|
|
|
(3,603)
|
|
|
(56)
|
|
|
3,976
|
|
|
(16,553)
|
|
|
(4,710)
|
|
|
1,351
|
|
|
(19,912)
|
|
Current - period other comprehensive income (loss)
|
|
2,614
|
|
|
35
|
|
|
137
|
|
|
2,786
|
|
|
(4,820)
|
|
|
75
|
|
|
46
|
|
|
(4,699)
|
|
Balance at September 30,
|
|
$
|
10,249
|
|
|
(3,568)
|
|
|
81
|
|
|
6,762
|
|
|
(21,373)
|
|
|
(4,635)
|
|
|
1,397
|
|
|
(24,611)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Changes in Accumulated Other Comprehensive Income (Loss) by Component, net of tax
for the nine months ended September 30,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2019
|
|
|
|
|
|
|
|
2018
|
|
|
|
|
|
|
|
|
Unrealized
Gains (Losses) on
Available for Sale Debt Securities
|
|
Post- Retirement
Obligations
|
|
Unrealized Gains on Derivatives (cash flow hedges)
|
|
Accumulated
Other
Comprehensive
Income (Loss)
|
|
Unrealized
Losses on
Available
for
Sale Debt Securities
|
|
Post- Retirement
Obligations
|
|
Unrealized Gains on Derivatives (cash flow hedges)
|
|
Accumulated
Other
Comprehensive
Loss
|
Balance at December 31,
|
|
$
|
(9,605)
|
|
|
(3,625)
|
|
|
894
|
|
|
(12,336)
|
|
|
(3,292)
|
|
|
(4,846)
|
|
|
673
|
|
|
(7,465)
|
|
Current - period other comprehensive income (loss)
|
|
19,854
|
|
|
57
|
|
|
(813)
|
|
|
19,098
|
|
|
(17,897)
|
|
|
211
|
|
|
724
|
|
|
(16,962)
|
|
Reclassification of unrealized gains on equity securities due to the adoption of ASU No. 2016-01
|
|
$
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(184)
|
|
|
—
|
|
|
—
|
|
|
(184)
|
|
Balance at September 30,
|
|
$
|
10,249
|
|
|
(3,568)
|
|
|
81
|
|
|
6,762
|
|
|
(21,373)
|
|
|
(4,635)
|
|
|
1,397
|
|
|
(24,611)
|
|
The following tables summarize the reclassifications from accumulated other comprehensive income (loss) to the consolidated statements of income for the three and nine months ended September 30, 2019 and 2018 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reclassifications From Accumulated Other Comprehensive
Income ("AOCI")
|
|
|
|
|
|
|
|
|
Amount reclassified from AOCI for the three months ended September 30,
|
|
|
|
Affected line item in the Consolidated
Statement of Income
|
|
|
|
|
2019
|
|
2018
|
|
|
|
|
Details of AOCI:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Post-retirement obligations:
|
|
|
|
|
|
|
|
|
Amortization of actuarial losses
|
|
$
|
48
|
|
|
100
|
|
|
Compensation and employee benefits (1)
|
|
|
|
|
(13)
|
|
|
(25)
|
|
|
Income tax expense
|
|
|
Total reclassification
|
|
$
|
35
|
|
|
75
|
|
|
Net of tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reclassifications From Accumulated Other Comprehensive
Income ("AOCI")
|
|
|
|
|
|
|
|
|
Amount reclassified from AOCI for the nine months ended September 30,
|
|
|
|
Affected line item in the Consolidated
Statement of Income
|
|
|
|
|
2019
|
|
2018
|
|
|
|
|
Details of AOCI:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Post-retirement obligations:
|
|
|
|
|
|
|
|
|
Amortization of actuarial losses
|
|
$
|
142
|
|
|
300
|
|
|
Compensation and employee benefits (1)
|
|
|
|
|
(39)
|
|
|
(78)
|
|
|
Income tax expense
|
|
|
Total reclassification
|
|
$
|
103
|
|
|
222
|
|
|
Net of tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) This item is included in the computation of net periodic benefit cost. See Note 6. Components of Net Periodic Benefit Cost.
Note 10. Derivative and Hedging Activities
The Company is exposed to certain risks arising from both its business operations and economic conditions. The Company principally manages its exposures to a wide variety of business and operational risks through the management of its core business activities. The Company manages economic risks, including interest rate, liquidity, and credit risk, primarily by managing the amount, sources, and duration of its assets and liabilities.
Non-designated Hedges. Derivatives not designated in qualifying hedging relationships are not speculative and result from a service the Company provides to certain qualified commercial borrowers in loan related transactions and, therefore, are not used to manage interest rate risk in the Company’s assets or liabilities. The Company executes interest rate swaps with qualified commercial banking customers to facilitate their respective risk management strategies. Those interest rate swaps are simultaneously hedged by offsetting interest rate swaps that the Company executes with a third party, such that the Company minimizes its net risk exposure resulting from such transactions. The interest rate swap agreement which the Company executes with the commercial borrower is collateralized by the borrower's commercial real estate financed by the Company. As the Company has not elected to apply hedge accounting and these interest rate swaps do not meet the hedge accounting requirements, changes in the fair value of both the customer swaps and the offsetting swaps are recognized directly in earnings. At September 30, 2019 and December 31, 2018, the Company had 82 and 62 interest rate swaps, respectively, with aggregate notional amounts of $1.41 billion and $1.01 billion, respectively.
The Company periodically enters into risk participation agreements ("RPAs") with the Company functioning as either the lead institution, or as a participant when another company is the lead institution on a commercial loan. These RPA's are entered into to manage the credit exposure on interest rate contracts associated with these loan participation agreements. Under the RPA's, the Company will either receive or make a payment if a borrower defaults on the related interest rate contract. At September 30, 2019 and December 31, 2018, the Company had 13 and 7 credit contracts, respectively, with aggregate notional amounts of $105.0 million and $66.8 million, respectively, from participations in interest rate swaps as part of these loan participation arrangements. At September 30, 2019 and December 31, 2018, the fair value of these credit derivatives were $61,000 and $251,000, respectively.
Cash Flow Hedges of Interest Rate Risk. The Company’s objective in using interest rate derivatives is to add stability to interest expense and to manage its exposure to interest rate movements. To accomplish this objective, the Company primarily uses interest rate swaps as part of its interest rate risk management strategy. Interest rate swaps designated as cash flow hedges involve the receipt of variable amounts from a counterparty in exchange for the Company making fixed-rate payments over the life of the agreements without exchange of the underlying notional amount.
Changes in the fair value of derivatives designated and that qualify as cash flow hedges of interest rate risk are recorded in accumulated other comprehensive income and are subsequently reclassified into earnings in the period that the hedged forecasted transaction affects earnings. During the three and nine months ended September 30, 2019 and 2018, such derivatives were used to hedge the variable cash outflows associated with Federal Home Loan Bank borrowings.
Amounts reported in accumulated other comprehensive income (loss) related to derivatives will be reclassified to interest expense as interest payments are made on the Company’s borrowings. During the next twelve months, the Company estimates that $295,000 will be reclassified as an increase to interest expense. As of September 30, 2019, the Company had five outstanding interest rate derivatives with an aggregate notional amount of $130.0 million that were designated as a cash flow hedge of interest rate risk.
The tables below presents the fair value of the Company’s derivative financial instruments as well as their classification on the Consolidated Statements of Financial Condition at September 30, 2019 and December 31, 2018 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At September 30, 2019
|
|
|
|
|
|
|
|
|
Asset Derivatives
|
|
|
|
Liability Derivatives
|
|
|
|
|
Consolidated Statements of Financial Condition
|
|
Fair
Value
|
|
Consolidated Statements of Financial Condition
|
|
Fair
Value
|
Derivatives not designated as a hedging instrument:
|
|
|
|
|
|
|
|
|
Interest rate products
|
|
Other assets
|
|
$
|
54,571
|
|
|
Other liabilities
|
|
54,838
|
|
Credit contracts
|
|
Other assets
|
|
61
|
|
|
Other liabilities
|
|
—
|
|
Total derivatives not designated as a hedging instrument
|
|
|
|
$
|
54,632
|
|
|
|
|
54,838
|
|
|
|
|
|
|
|
|
|
|
Derivatives designated as a hedging instrument:
|
|
|
|
|
|
|
|
|
Interest rate products
|
|
Other assets
|
|
$
|
111
|
|
|
Other liabilities
|
|
—
|
|
|
|
|
|
|
|
|
|
|
Total derivatives designated as a hedging instrument
|
|
|
|
$
|
111
|
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31, 2018
|
|
|
|
|
|
|
|
|
Asset Derivatives
|
|
|
|
Liability Derivatives
|
|
|
|
|
Consolidated Statements of Financial Condition
|
|
Fair
Value
|
|
Consolidated Statements of Financial Condition
|
|
Fair
Value
|
Derivatives not designated as a hedging instrument:
|
|
|
|
|
|
|
|
|
Interest rate products
|
|
Other assets
|
|
$
|
14,154
|
|
|
Other liabilities
|
|
14,766
|
|
Credit contracts
|
|
Other assets
|
|
251
|
|
|
Other liabilities
|
|
—
|
|
Total derivatives not designated as a hedging instrument
|
|
|
|
$
|
14,405
|
|
|
|
|
14,766
|
|
|
|
|
|
|
|
|
|
|
Derivatives designated as a hedging instrument:
|
|
|
|
|
|
|
|
|
Interest rate products
|
|
Other assets
|
|
$
|
1,229
|
|
|
Other liabilities
|
|
—
|
|
|
|
|
|
|
|
|
|
|
Total derivatives designated as a hedging instrument
|
|
|
|
$
|
1,229
|
|
|
|
|
—
|
|
The tables below present the effect of the Company’s derivative financial instruments on the Consolidated Statements of Income during the three and nine months ended September 30, 2019 and 2018 (in thousands).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain (loss) recognized in income on derivatives for the three months ended
|
|
|
|
|
Consolidated Statements of Income
|
|
September 30, 2019
|
|
September 30, 2018
|
Derivatives not designated as a hedging instrument:
|
|
|
|
|
|
|
Interest rate products
|
|
Other income
|
|
$
|
2,307
|
|
|
27
|
|
Credit contracts
|
|
Other income
|
|
(71)
|
|
|
(145)
|
|
Total
|
|
|
|
$
|
2,236
|
|
|
(118)
|
|
|
|
|
|
|
|
|
Derivatives designated as a hedging instrument:
|
|
|
|
|
|
|
Interest rate products
|
|
Interest expense
|
|
$
|
157
|
|
|
105
|
|
Total
|
|
|
|
$
|
157
|
|
|
105
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain (loss) recognized in income on derivatives for the nine months ended
|
|
|
|
|
Consolidated Statements of Income
|
|
September 30, 2019
|
|
September 30, 2018
|
Derivatives not designated as a hedging instrument:
|
|
|
|
|
|
|
Interest rate products
|
|
Other income
|
|
$
|
212
|
|
|
265
|
|
Credit contracts
|
|
Other income
|
|
(56)
|
|
|
(64)
|
|
Total
|
|
|
|
$
|
156
|
|
|
201
|
|
|
|
|
|
|
|
|
Derivatives designated as a hedging instrument:
|
|
|
|
|
|
|
Interest rate products
|
|
Interest expense
|
|
$
|
466
|
|
|
(185)
|
|
Total
|
|
|
|
$
|
466
|
|
|
(185)
|
|
The Company has agreements with certain of its dealer counterparties which contain a provision that if the Company defaults on any of its indebtedness, including a default where repayment of the indebtedness has not been accelerated by the lender, then the Company could also be declared in default on its derivative obligations.
In addition, the Company has agreements with certain of its dealer counterparties which contain a provision that if the Company fails to maintain its status as a well or adequately capitalized institution, then the counterparty could terminate the derivative positions and the Company would be required to settle its obligations under the agreements.
At September 30, 2019, the Company had four dealer counterparties. The Company had a net liability position with respect to all four of the counterparties. The termination value for this net liability position, which includes accrued interest, was $54.7 million at September 30, 2019. The Company has minimum collateral posting thresholds with certain of its derivative counterparties, and has posted collateral of $54.4 million against its obligations under these agreements. If the Company had breached any of these provisions at September 30, 2019, it could have been required to settle its obligations under the agreements at the termination value.
Note 11. Revenue Recognition
The Company generates revenue from several business channels. The guidance in ASU 2014-09, Revenue from Contracts with Customers (Topic 606) does not apply to revenue associated with financial instruments, including interest income on loans and investments, which comprise the majority of the Company's revenue. For the three months and nine months ended September 30, 2019, the out-of-scope revenue related to financial instruments was 83.8% and 85.9% of the Company's total revenue, respectively, compared to 85.1% and 86.1% for the three and nine months ended September 30, 2018, respectively. Revenue-generating activities that are within the scope of Topic 606, are components of non-interest income. These revenue streams are generally classified into two categories: wealth management revenue and banking service charges and other fees.
The following table presents non-interest income, segregated by revenue streams in-scope and out-of-scope of Topic 606, for the three and nine months ended September 30, 2019 and 2018:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended September 30,
|
|
|
|
Nine months ended September 30,
|
|
|
(in-thousands)
|
2019
|
|
2018
|
|
2019
|
|
2018
|
Non-interest income
|
|
|
|
|
|
|
|
In-scope of Topic 606:
|
|
|
|
|
|
|
|
Wealth management fees
|
$
|
6,084
|
|
|
4,570
|
|
|
16,406
|
|
|
13,572
|
|
Banking service charges and other fees:
|
|
|
|
|
|
|
|
Service charges on deposit accounts
|
3,386
|
|
|
3,356
|
|
|
9,853
|
|
|
9,910
|
|
Debit card and ATM fees
|
1,474
|
|
|
1,486
|
|
|
4,271
|
|
|
4,444
|
|
Total banking service charges and other fees
|
4,860
|
|
|
4,842
|
|
|
14,124
|
|
|
14,354
|
|
Total in-scope non-interest income
|
10,944
|
|
|
9,412
|
|
|
30,530
|
|
|
27,926
|
|
Total out-of-scope non-interest income
|
7,103
|
|
|
6,504
|
|
|
15,539
|
|
|
15,134
|
|
Total non-interest income
|
$
|
18,047
|
|
|
15,916
|
|
|
46,069
|
|
|
43,060
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Wealth management fee income represents fees earned from customers as consideration for asset management, investment advisory and trust services. The Company’s performance obligation is generally satisfied monthly and the resulting fees are recognized monthly. The fee is generally based upon the average market value of the assets under management ("AUM") for the month and the applicable fee rate. For customers acquired in the recently completed T&L transaction, the fee is based upon AUM at the end of the preceding quarter and the applicable fee rate. The monthly accrual of wealth management fees is recorded in other assets on the Company's Consolidated Statements of Financial Condition. Fees are received from the customer either on a monthly or quarterly basis. The Company does not earn performance-based incentives. Other optional services such as tax return preparation, financial planning and estate settlement are also available to existing customers. The Company’s performance obligation for these transaction-based services are generally satisfied, and related revenue recognized, at either a point in time when the service is completed, or in the case of estate settlement, over a relatively short period of time, as each service component is completed.
Service charges on deposit accounts include overdraft service fees, account analysis fees and other deposit related fees. These fees are generally transaction-based, or time-based services. The Company's performance obligation for these services are generally satisfied, and revenue recognized, at the time the transaction is completed, or the service rendered. Fees for these services are generally received from the customer either at the time of transaction, or monthly. Debit card and ATM fees are generally transaction-based. Debit card revenue is primarily comprised of interchange fees earned when a customer's Company card is processed through a card payment network. ATM fees are largely generated when a Company cardholder uses a non-Company ATM, or a non-Company cardholder uses a Company ATM. The Company's performance obligation for these services is satisfied when the service is rendered. Payment is generally received at time of transaction or monthly.
Out-of-scope non-interest income primarily consists of Bank-owned life insurance and net fees on loan level interest rate swaps, along with gains and losses on the sale of loans and foreclosed real estate, loan prepayment fees and loan servicing fees. None of these revenue streams are subject to the requirements of Topic 606.
Note 12. Leases
On January 1, 2019, the Company adopted ASU 2016-02, "Leases" (Topic 842) and all subsequent ASU's that modified Topic 842. For the Company, Topic 842 primarily affected the accounting treatment for operating lease agreements in which the Company is the lessee. The Company elected the modified retrospective transition option effective with the period of adoption, elected not to recast comparative periods presented when transitioning to the new leasing standard and adjustments, if required, are made at the beginning of the period through a cumulative-effect adjustment to opening retained earnings. The Company also elected practical expedients, which allowed the Company to forego a reassessment of (1) whether any expired or existing contracts are or contain leases, (2) the lease classification for any expired or existing leases, and (3) the initial direct costs for any existing leases. The adoption of the new standard resulted in the Company recording a right-of-use asset and an operating lease liability of $44.9 million and $46.1 million, respectively, based on the present value of the expected remaining lease payments at January 1, 2019.
Also, on January 1, 2019, the Company had $5.9 million of net deferred gains associated with several sale and leaseback transactions executed prior to the adoption of ASU 2016-02. In accordance with the guidance, these net deferred gains were adjusted, net of tax, as a cumulative-effect adjustment to opening retained earnings.
All of the leases in which the Company is the lessee are classified as operating leases and are primarily comprised of real estate property for branches and administrative offices with terms extending through 2040.
The following table represents the consolidated statements of financial condition classification of the Company’s right-of use-assets and lease liabilities at September 30, 2019 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Classification
|
|
September 30, 2019
|
Lease Right-of-Use Assets:
|
|
|
|
|
Operating lease right-of-use assets
|
|
Other assets
|
|
$
|
43,483
|
|
Lease Liabilities:
|
|
|
|
|
Operating lease liabilities
|
|
Other liabilities
|
|
$
|
44,562
|
|
The calculated amount of the right-of-use assets and lease liabilities in the table above are impacted by the length of the lease term and the discount rate used to present value the minimum lease payments. The Company’s lease agreements often include one or more options to renew at the Company’s discretion. If at lease inception the Company considers the exercising of a renewal option to be reasonably certain, the Company will include the extended term in the calculation of the right-of-use asset and lease liability. Generally, the Company considers the first renewal option to be reasonably certain and includes it in the
calculation of the right-of use asset and lease liability. Regarding the discount rate, Topic 842 requires the use of the rate implicit in the lease whenever this rate is readily determinable. As this rate is rarely determinable, the Company utilizes its incremental borrowing rate at lease inception based upon the term of the lease. For operating leases existing prior to January 1, 2019, the rate for the remaining lease term as of January 1, 2019 was applied.
At September 30, 2019, the weighted-average remaining lease term and the weighted-average discount rate for the Company's operating leases were 9.6 years and 3.45%, respectively.
The following table represents lease costs and other lease information for the Company's operating leases. The variable lease cost primarily represents variable payments such as common area maintenance and utilities (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in-thousands)
|
|
Three months ended September 30, 2019
|
|
Nine months ended September 30, 2019
|
Lease Costs
|
|
|
|
|
Operating lease cost
|
|
$
|
2,127
|
|
|
$
|
6,303
|
|
|
|
|
|
|
Variable lease cost
|
|
727
|
|
|
2,083
|
|
|
|
|
|
|
Total Lease Cost
|
|
$
|
2,854
|
|
|
$
|
8,386
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid for amounts included in the measurement of lease liabilities:
|
|
|
|
|
|
|
|
|
|
Operating cash flows from operating leases
|
|
$
|
6,179
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
During the three months ended September 30, 2019, the Company did not enter into any new lease obligations. During the nine months ended September 30, 2019, the Company entered into one new lease obligation related to the T&L acquisition. The Company recorded a $1.9 million right-of-use asset for this lease obligation.
Future minimum payments for operating leases with initial or remaining terms of one year or more as of September 30, 2019 were as follows:
|
|
|
|
|
|
|
|
|
(in-thousands)
|
|
Operating Leases
|
Twelve months ended:
|
|
|
Remainder of 2019
|
|
$
|
2,125
|
|
2020
|
|
8,316
|
|
2021
|
|
6,064
|
|
2022
|
|
5,263
|
|
2023
|
|
4,752
|
|
Thereafter
|
|
26,541
|
|
Total future minimum lease payments
|
|
53,061
|
|
Amounts representing interest
|
|
8,499
|
|
Present value of net future minimum lease payments
|
|
$
|
44,562
|
|
At December 31, 2018, operating lease commitments under lessee arrangements were $8.0 million, $7.6 million, $5.4 million, $3.8 million and $3.4 million for 2019 through 2023, respectively, and $10.7 million in aggregate for all years thereafter.