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 credit 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 months ended March 31, 2020 are not necessarily indicative of the results of operations that may be expected for all of 2020.
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, 2019 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 months ended March 31, 2020 and 2019 (dollars in thousands, except per share amounts):
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Three months ended March 31,
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2020
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2019
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Net
Income
|
|
Weighted
Average
Common
Shares
Outstanding
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|
Per
Share
Amount
|
|
Net
Income
|
|
Weighted
Average
Common
Shares
Outstanding
|
|
Per
Share
Amount
|
|
|
Net income
|
|
$
|
14,931
|
|
|
|
|
|
|
$
|
30,890
|
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|
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|
|
Basic earnings per share:
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Income available to common stockholders
|
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$
|
14,931
|
|
|
64,386,138
|
|
|
$
|
0.23
|
|
|
$
|
30,890
|
|
|
64,766,619
|
|
|
$
|
0.48
|
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|
Dilutive shares
|
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|
|
71,125
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|
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|
|
146,119
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|
Diluted earnings per share:
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Income available to common stockholders
|
|
$
|
14,931
|
|
|
64,457,263
|
|
|
$
|
0.23
|
|
|
$
|
30,890
|
|
|
64,912,738
|
|
|
$
|
0.48
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|
|
Anti-dilutive stock options and awards at March 31, 2020 and 2019, totaling 905,673 shares and 688,655 shares, respectively, were excluded from the earnings per share calculations.
C. Loans Receivable and Allowance for Credit Losses
On January 1, 2020, the Company adopted ASU 2016-13, "Measurement of Credit Losses on Financial Instruments,” which
replaces the incurred loss methodology with an expected loss methodology that is referred to as the current expected credit loss
(“CECL”) methodology. The Company used the modified retrospective method for all financial assets measured at amortized cost and off-balance sheet credit exposures. Results for reporting periods beginning after January 1, 2020 are presented under CECL, while prior period amounts continue to be recorded with previously applicable GAAP. Further information regarding the impact of CECL can be found in Note 3. Investment Securities, Note 4. Loans Receivable and Note 8. Off-balance sheet credit exposures.
Note 2. Business Combinations
SB One Bancorp Acquisition
On March 11, 2020, the Company entered into a definitive merger agreement pursuant to which SB One Bancorp ("SB One") will merge with and into the Company, and SB One Bank, a wholly owned subsidiary of SB One, will merge with and into Provident Bank, a wholly owned subsidiary of the Company. The merger agreement has been unanimously approved by the boards of directors of both companies. The actual value of the Company’s common stock to be recorded as consideration in the Merger will be based on the closing price of the Company’s common stock at the time of the Merger completion date. Under the Merger Agreement, each share of SB One common stock will be exchanged for 1.357 shares of the Company's common stock plus cash in lieu of fractional shares. The merger is expected to close in the third quarter of 2020, subject to satisfaction of customary closing conditions, including receipt of required regulatory approvals and approval by the shareholders of SB One. At December 31, 2019, SB One had $2.0 billion in assets and operated 18 full-service banking offices in New Jersey and New York.
Acquisition of Tirschwell & Loewy, Inc.
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. This acquisition expanded the Company’s wealth management business by $822.4 million of assets under management at the time of acquisition.
The T&L 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. The total cost of the T&L 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 were nominal, and no liabilities were assumed in the T&L acquisition. The goodwill recorded in the transaction is deductible for tax purposes.
In the fourth quarter of 2019, the Company recognized a $2.8 million increase in the estimated fair value of the contingent consideration liability. While performance of the acquired business has been adversely impacted in the first quarter of 2020 due to worsening economic conditions and declining asset valuations attributable to the COVID-19 pandemic, management has not identified a reduction in assets under management due to a declining customer base. Therefore, the $9.4 million fair value of the contingent liability was unchanged at March 31, 2020, from December 31, 2019, with maximum potential future payments totaling $11.0 million.
Note 3. Investment Securities
At March 31, 2020, the Company had $989.8 million and $445.4 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. The total number of available for sale and held to maturity debt securities in an unrealized loss position at March 31, 2020 totaled 41, compared with 85 at December 31, 2019.
On January 1, 2020, the Company adopted CECL which replaces the incurred loss methodology with an expected loss methodology. The adoption of the new standard resulted in the Company recording a $70,000 increase to the allowance for credit losses on held to maturity debt securities with a corresponding cumulative effect adjustment to decrease retained earnings by $52,000, net of income taxes. (See Adoption of CECL table below for additional detail.)
Management measures expected credit losses on held to maturity debt securities on a collective basis by security type. Management classifies the held-to-maturity debt securities portfolio into the following security types:
•Agency obligations;
•Mortgage-backed securities;
•State and municipal obligations; and
•Corporate obligations.
All of the agency obligations held by the Company are issued by U.S. government entities and agencies. These securities are either explicitly or implicitly guaranteed by the U.S. government, are highly rated by major rating agencies and have a long history of no credit losses. The majority of the state and municipal, and corporate obligations carry no lower than A ratings. At March 31, 2020, the Company had one security rated with a triple-B by Moody’s Investors Service.
The Company adopted CECL using the prospective transition approach for debt securities for which other-than-temporary impairment had been recognized prior to January 1, 2020. As a result, the amortized cost basis remains the same before and after the effective date of CECL.
Available for Sale Debt Securities
The following tables present the amortized cost, gross unrealized gains, gross unrealized losses and the fair value for available for sale debt securities at March 31, 2020 and December 31, 2019 (in thousands):
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March 31, 2020
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Amortized
cost
|
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Gross
unrealized
gains
|
|
Gross
unrealized
losses
|
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Fair
value
|
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Mortgage-backed securities
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$
|
926,561
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34,130
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(514)
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960,177
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State and municipal obligations
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3,894
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155
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—
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4,049
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Corporate obligations
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25,030
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|
614
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(37)
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25,607
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$
|
955,485
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34,899
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(551)
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|
989,833
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December 31, 2019
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Amortized
cost
|
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Gross
unrealized
gains
|
|
Gross
unrealized
losses
|
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Fair
value
|
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Mortgage-backed securities
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$
|
936,196
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|
12,367
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|
(1,133)
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|
947,430
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|
State and municipal obligations
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|
3,907
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|
|
172
|
|
|
—
|
|
|
4,079
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|
|
Corporate obligations
|
|
25,032
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|
393
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(15)
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|
25,410
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|
$
|
965,135
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|
12,932
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|
|
(1,148)
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|
|
976,919
|
|
The amortized cost and fair value of available for sale debt securities at March 31, 2020, 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.
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|
March 31, 2020
|
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|
Amortized
cost
|
|
Fair
value
|
|
Due in one year or less
|
|
$
|
—
|
|
|
—
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|
|
Due after one year through five years
|
|
3,002
|
|
|
3,040
|
|
|
Due after five years through ten years
|
|
25,922
|
|
|
26,616
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|
|
Due after ten years
|
|
—
|
|
|
—
|
|
|
|
|
$
|
28,924
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|
|
29,656
|
|
Mortgage-backed securities totaling $926.6 million at amortized cost and $960.2 million at fair value are excluded from the table above as their expected lives are anticipated to be shorter than the contractual maturity date due to principal prepayments.
For the three month periods ended March 31, 2020 and 2019, 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 in an unrealized loss position at March 31, 2020 and December 31, 2019 (in thousands):
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|
March 31, 2020
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|
|
Less than 12 months
|
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|
|
12 months or longer
|
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|
Total
|
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|
|
|
|
Fair
value
|
|
Gross
unrealized
losses
|
|
Fair
value
|
|
Gross
unrealized
losses
|
|
Fair
value
|
|
Gross
unrealized
losses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage-backed securities
|
|
$
|
45,567
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|
|
(510)
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|
|
14
|
|
|
(4)
|
|
|
45,581
|
|
|
(514)
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate obligations
|
|
1,990
|
|
|
(37)
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|
|
—
|
|
|
—
|
|
|
1,990
|
|
|
(37)
|
|
|
|
|
$
|
47,557
|
|
|
(547)
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|
|
14
|
|
|
(4)
|
|
|
47,571
|
|
|
(551)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2019
|
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|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
$
|
136,270
|
|
|
(629)
|
|
|
46,819
|
|
|
(504)
|
|
|
183,089
|
|
|
(1,133)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate obligations
|
|
2,013
|
|
|
(15)
|
|
|
—
|
|
|
—
|
|
|
2,013
|
|
|
(15)
|
|
|
|
|
$
|
138,283
|
|
|
(644)
|
|
|
46,819
|
|
|
(504)
|
|
|
185,102
|
|
|
(1,148)
|
|
The number of available for sale debt securities in an unrealized loss position at March 31, 2020 totaled 14, compared with 50 at December 31, 2019. The decrease in the number of securities in an unrealized loss position at March 31, 2020 was due to lower current market interest rates compared to rates at December 31, 2019. At March 31, 2020, 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 $4,000.
Held to Maturity Debt Securities
The following tables present the amortized cost, gross unrealized gains, gross unrealized losses, allowance for credit losses and the estimated fair value for held to maturity debt securities at March 31, 2020 and December 31, 2019 (in thousands):
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|
|
|
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|
|
|
|
|
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|
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|
|
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|
|
|
|
|
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|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2020
|
|
|
|
|
|
|
|
|
|
|
|
Amortized
cost
|
|
Gross
unrealized
gains
|
|
Gross
unrealized
losses
|
|
Allowance for credit losses
|
|
Fair
value
|
|
Agency obligations
|
|
$
|
7,417
|
|
|
15
|
|
|
—
|
|
|
—
|
|
|
7,432
|
|
|
Mortgage-backed securities
|
|
104
|
|
|
4
|
|
|
—
|
|
|
—
|
|
|
108
|
|
|
State and municipal obligations
|
|
428,691
|
|
|
13,876
|
|
|
(121)
|
|
|
(80)
|
|
|
442,366
|
|
|
Corporate obligations
|
|
9,319
|
|
|
45
|
|
|
(39)
|
|
|
(7)
|
|
|
9,318
|
|
|
Total held to maturity debt securities
|
|
$
|
445,531
|
|
|
13,940
|
|
|
(160)
|
|
|
(87)
|
|
|
459,224
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2019
|
|
|
|
|
|
|
|
|
|
|
|
Amortized
cost
|
|
Gross
unrealized
gains
|
|
Gross
unrealized
losses
|
|
Allowance for credit losses
|
|
Fair
value
|
|
Agency obligations
|
|
$
|
6,599
|
|
|
11
|
|
|
(9)
|
|
|
—
|
|
|
6,601
|
|
|
Mortgage-backed securities
|
|
118
|
|
|
4
|
|
|
—
|
|
|
—
|
|
|
122
|
|
|
State and municipal obligations
|
|
437,074
|
|
|
14,394
|
|
|
(115)
|
|
|
—
|
|
|
451,353
|
|
|
Corporate obligations
|
|
9,838
|
|
|
58
|
|
|
(6)
|
|
|
—
|
|
|
9,890
|
|
|
Total held to maturity debt securities
|
|
$
|
453,629
|
|
|
14,467
|
|
|
(130)
|
|
|
—
|
|
|
467,966
|
|
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 months ended March 31, 2020 and 2019. For the three months ended March 31, 2020, proceeds from calls on securities in the held to maturity debt securities portfolio totaled $13.3 million with gross gains of $11,000 and no gross losses. For the three months ended March 31, 2019, proceeds from calls of securities in the held to maturity debt securities portfolio totaled $9.3 million with no gross gains and no gross losses.
The gross amortized cost and gross fair value of investment securities in the held to maturity debt securities portfolio at March 31, 2020 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.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2020
|
|
|
|
|
|
Amortized
cost
|
|
Fair
value
|
|
Due in one year or less
|
|
$
|
9,461
|
|
|
9,477
|
|
|
Due after one year through five years
|
|
115,043
|
|
|
117,204
|
|
|
Due after five years through ten years
|
|
240,321
|
|
|
248,418
|
|
|
Due after ten years
|
|
80,602
|
|
|
84,104
|
|
|
|
|
$
|
445,427
|
|
|
459,203
|
|
Mortgage-backed securities totaling $104,000 at amortized cost and $108,000 at fair value are excluded from the table above as their expected lives are anticipated to be shorter than the contractual maturity date due to principal prepayments. Additionally, allowance for credit losses totaling $87,000 is excluded from the table above.
The following table illustrates the impact of the January 1, 2020 adoption of CECL on held to maturity debt securities (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
January 1, 2020
|
|
|
|
|
|
|
|
As reported under CECL
|
|
Prior to CECL
|
|
Impact of CECL adoption
|
|
Held to Maturity Debt Securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for credit losses on corporate securities
|
|
$
|
6
|
|
|
|
—
|
|
|
|
6
|
|
|
Allowance for credit losses on municipal securities
|
|
64
|
|
|
|
—
|
|
|
|
64
|
|
|
Allowance for credit losses on held to maturity securities
|
|
$
|
70
|
|
|
|
—
|
|
|
|
70
|
|
For the three months ended March 31, 2020, the Company recorded a $17,000 provision for credit losses on held to maturity debt securities.
The following tables present the fair value and gross unrealized losses for held to maturity debt securities in an unrealized loss position at March 31, 2020 and December 31, 2019 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2020
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less than 12 months
|
|
|
|
12 months or longer
|
|
|
|
Total
|
|
|
|
|
|
Fair
value
|
|
Gross
unrealized
losses
|
|
Fair
value
|
|
Gross
unrealized
losses
|
|
Fair
value
|
|
Gross
unrealized
losses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
State and municipal obligations
|
|
$
|
10,143
|
|
|
(103)
|
|
|
407
|
|
|
(18)
|
|
|
10,550
|
|
|
(121)
|
|
|
Corporate obligations
|
|
3,516
|
|
|
(39)
|
|
|
—
|
|
|
—
|
|
|
3,516
|
|
|
(39)
|
|
|
|
|
$
|
13,659
|
|
|
(142)
|
|
|
407
|
|
|
(18)
|
|
|
14,066
|
|
|
(160)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
$
|
3,601
|
|
|
(9)
|
|
|
—
|
|
|
—
|
|
|
3,601
|
|
|
(9)
|
|
|
State and municipal obligations
|
|
7,675
|
|
|
(42)
|
|
|
2,093
|
|
|
(73)
|
|
|
9,768
|
|
|
(115)
|
|
|
Corporate obligations
|
|
3,254
|
|
|
(6)
|
|
|
—
|
|
|
—
|
|
|
3,254
|
|
|
(6)
|
|
|
|
|
$
|
14,530
|
|
|
(57)
|
|
|
2,093
|
|
|
(73)
|
|
|
16,623
|
|
|
(130)
|
|
The number of held to maturity debt securities in an unrealized loss position at March 31, 2020 totaled 27, compared with 35 at December 31, 2019. The decrease in the number of securities in an unrealized loss position at March 31, 2020 was due to lower current market interest rates compared to rates at December 31, 2019.
Credit Quality Indicators. The following table provides the amortized cost of held to maturity debt securities by credit rating as of March 31, 2020 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2020
|
|
|
|
|
|
|
|
|
|
|
|
Total Portfolio
|
|
AAA
|
|
AA
|
|
A
|
|
BBB
|
|
Not Rated
|
|
Total
|
|
Agency obligations
|
|
$
|
7,417
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
—
|
|
|
7,417
|
|
|
Mortgage-backed securities
|
|
104
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
—
|
|
|
104
|
|
|
State and municipal obligations
|
|
46,868
|
|
|
326,291
|
|
|
|
54,414
|
|
|
|
1,118
|
|
|
—
|
|
|
428,691
|
|
|
Corporate obligations
|
|
—
|
|
|
3,121
|
|
|
|
5,423
|
|
|
|
750
|
|
|
25
|
|
|
9,319
|
|
|
|
|
$
|
54,389
|
|
|
329,412
|
|
|
|
59,837
|
|
|
|
1,868
|
|
|
25
|
|
|
445,531
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2019
|
|
|
|
|
|
|
|
|
|
|
|
Total Portfolio
|
|
AAA
|
|
AA
|
|
A
|
|
BBB
|
|
Not Rated
|
|
Total
|
|
Agency obligations
|
|
$
|
6,599
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
—
|
|
|
6,599
|
|
|
Mortgage-backed securities
|
|
118
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
—
|
|
|
118
|
|
|
State and municipal obligations
|
|
49,316
|
|
|
330,322
|
|
|
|
56,317
|
|
|
|
1,119
|
|
|
—
|
|
|
437,074
|
|
|
Corporate obligations
|
|
—
|
|
|
3,128
|
|
|
|
6,335
|
|
|
|
350
|
|
|
25
|
|
|
9,838
|
|
|
|
|
$
|
56,033
|
|
|
333,450
|
|
|
|
62,652
|
|
|
|
1,469
|
|
|
25
|
|
|
453,629
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Credit quality indicators are metrics that provide information regarding the relative credit risk of debt securities. At March 31, 2020, the held to maturity debt securities portfolio was comprised of 12% rated triple-A, 74% rated double-A, 13% rated single-A, and less than 1% either below a single-A rating or not rated by Moody’s Investors Service or Standard and Poor’s. Securities not explicitly rated were grouped where possible under the credit rating of the issuer of the security.
At March 31, 2020, the allowance for credit losses on held to maturity debt securities was $87,000.
Note 4. Loans Receivable and Allowance for Credit Losses on Loans
On January 1, 2020, the Company adopted CECL, which replaces the incurred loss methodology with an expected loss methodology. The adoption of the new standard resulted in the Company recording a $7.9 million increase to the allowance for credit losses on loans with a corresponding cumulative effect adjustment to decrease retained earnings by $5.9 million, net of income taxes. (See Adoption of CECL table below for additional detail.)
Loans receivable at March 31, 2020 and December 31, 2019 are summarized as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2020
|
|
December 31, 2019
|
|
Mortgage loans:
|
|
|
|
|
|
Residential
|
|
$
|
1,106,670
|
|
|
1,077,689
|
|
|
Commercial
|
|
2,555,091
|
|
|
2,578,393
|
|
|
Multi-family
|
|
1,222,313
|
|
|
1,225,551
|
|
|
Construction
|
|
408,944
|
|
|
429,812
|
|
|
Total mortgage loans
|
|
5,293,018
|
|
|
5,311,445
|
|
|
Commercial loans:
|
|
|
|
|
|
Commercial owner occupied
|
|
935,669
|
|
|
853,269
|
|
|
Commercial non-owner occupied
|
|
719,780
|
|
|
732,277
|
|
|
Other commercial loans
|
|
48,220
|
|
|
49,213
|
|
|
Total commercial loans
|
|
1,703,669
|
|
|
1,634,759
|
|
|
Consumer loans
|
|
379,597
|
|
|
391,360
|
|
|
Total gross loans
|
|
7,376,284
|
|
|
7,337,564
|
|
|
Purchased credit-deteriorated ("PCD") loans
|
|
737
|
|
|
746
|
|
|
Premiums on purchased loans
|
|
2,300
|
|
|
2,474
|
|
|
Unearned discounts
|
|
(26)
|
|
|
(26)
|
|
|
Net deferred fees
|
|
(7,251)
|
|
|
(7,873)
|
|
|
Total loans
|
|
$
|
7,372,044
|
|
|
7,332,885
|
|
The following tables summarize the aging of loans receivable by portfolio segment and class of loans, excluding PCD loans (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2020
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
30-59 Days
|
|
60-89 Days
|
|
Non-accrual
|
|
Recorded
Investment
> 90 days
accruing
|
|
Total Past
Due
|
|
Current
|
|
Total Loans
Receivable
|
|
Non-accrual loans with no related allowance
|
|
Mortgage loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential
|
|
$
|
6,240
|
|
|
4,075
|
|
|
6,145
|
|
|
—
|
|
|
16,460
|
|
|
1,090,210
|
|
|
1,106,670
|
|
|
1,522
|
|
|
Commercial
|
|
424
|
|
|
—
|
|
|
5,264
|
|
|
—
|
|
|
5,688
|
|
|
2,549,403
|
|
|
2,555,091
|
|
|
—
|
|
|
Multi-family
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1,222,313
|
|
|
1,222,313
|
|
|
—
|
|
|
Construction
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
408,944
|
|
|
408,944
|
|
|
—
|
|
|
Total mortgage loans
|
|
6,664
|
|
|
4,075
|
|
|
11,409
|
|
|
—
|
|
|
22,148
|
|
|
5,270,870
|
|
|
5,293,018
|
|
|
1,522
|
|
|
Commercial loans
|
|
13,793
|
|
|
1
|
|
|
23,086
|
|
|
—
|
|
|
36,880
|
|
|
1,666,789
|
|
|
1,703,669
|
|
|
1,344
|
|
|
Consumer loans
|
|
1,707
|
|
|
661
|
|
|
844
|
|
|
—
|
|
|
3,212
|
|
|
376,385
|
|
|
379,597
|
|
|
664
|
|
|
Total gross loans
|
|
$
|
22,164
|
|
|
4,737
|
|
|
35,339
|
|
|
—
|
|
|
62,240
|
|
|
7,314,044
|
|
|
7,376,284
|
|
|
3,530
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
30-59 Days
|
|
60-89 Days
|
|
Non-accrual
|
|
Recorded
Investment
> 90 days
accruing
|
|
Total Past
Due
|
|
Current
|
|
Total Loans Receivable
|
|
Non-accrual loans with no related allowance
|
|
Mortgage loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential
|
|
$
|
5,905
|
|
|
2,579
|
|
|
8,543
|
|
|
—
|
|
|
17,027
|
|
|
1,060,662
|
|
|
1,077,689
|
|
|
2,989
|
|
|
Commercial
|
|
—
|
|
|
—
|
|
|
5,270
|
|
|
—
|
|
|
5,270
|
|
|
2,573,123
|
|
|
2,578,393
|
|
|
—
|
|
|
Multi-family
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1,225,551
|
|
|
1,225,551
|
|
|
—
|
|
|
Construction
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
429,812
|
|
|
429,812
|
|
|
—
|
|
|
Total mortgage loans
|
|
5,905
|
|
|
2,579
|
|
|
13,813
|
|
|
—
|
|
|
22,297
|
|
|
5,289,148
|
|
|
5,311,445
|
|
|
2,989
|
|
|
Commercial loans
|
|
2,383
|
|
|
95
|
|
|
25,160
|
|
|
—
|
|
|
27,638
|
|
|
1,607,121
|
|
|
1,634,759
|
|
|
3,238
|
|
|
Consumer loans
|
|
1,276
|
|
|
337
|
|
|
1,221
|
|
|
—
|
|
|
2,834
|
|
|
388,526
|
|
|
391,360
|
|
|
569
|
|
|
Total gross loans
|
|
$
|
9,564
|
|
|
3,011
|
|
|
40,194
|
|
|
—
|
|
|
52,769
|
|
|
7,284,795
|
|
|
7,337,564
|
|
|
6,796
|
|
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 $35.3 million and $40.2 million at March 31, 2020 and December 31, 2019, respectively. Included in non-accrual loans were $16.0 million and $13.1 million of loans which were less than 90 days past due at March 31, 2020 and December 31, 2019, respectively. There were no loans 90 days or greater past due and still accruing interest at March 31, 2020 or December 31, 2019.
Management has elected not to measure an allowance for credit losses for accrued interest receivables related to its loan portfolio as its policy is to write-off uncollectible accrued interest receivable balances in a timely manner. Accrued interest is written off by reversing interest income during the quarter the loan is moved from an accrual to a non-accrual status.
The Company defines an impaired loan as a non-homogeneous loan greater than $1.0 million, for which, based on current information, the Bank does not expect to collect all amounts due under the contractual terms of the loan agreement. Impaired loans also include all loans modified as troubled debt restructurings (“TDRs”). An allowance for impaired loans that have been modified in a TDR is measured based on the present value of expected future cash flows discounted at the loan’s effective interest rate, the loan’s observable market price, or the estimated fair value of the collateral, less any selling costs, if the loan is collateral-dependent. The Company uses third-party appraisals to determine the fair value of the underlying collateral in its analysis of collateral-dependent loans. A third-party appraisal is generally ordered as soon as a loan is designated as a collateral-dependent loan and updated annually, or more frequently if required.
A financial asset is considered collateral-dependent when the debtor is experiencing financial difficulty and repayment is expected to be provided substantially through the sale or operation of the collateral. For all classes of loans deemed collateral-dependent, the Company estimates expected credit losses based on the collateral’s fair value less cost to sell. A specific allocation of the allowance for credit losses is established for each collateral-dependent loan with a carrying balance greater than the collateral’s fair value, less estimated costs to sell. In most cases, the Company records a partial charge-off to reduce the loan’s carrying value to the collateral’s fair value less cost to sell. At each fiscal quarter end, if a loan is designated as collateral-dependent and the third-party appraisal has not yet been received, an evaluation of all available collateral is made 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 as a result of this process.
At March 31, 2020, there were 158 impaired loans totaling $65.7 million. Included in this total were 129 TDRs related to 125 borrowers totaling $39.1 million that were performing in accordance with their restructured terms and which continued to accrue interest at March 31, 2020. At December 31, 2019, there were 158 impaired loans totaling $70.6 million, of which 147 loans totaling $48.3 million were TDRs. Included in this total were 133 TDRs related to 128 borrowers totaling $42.7 million that were performing in accordance with their restructured terms and which continued to accrue interest at December 31, 2019.
At March 31, 2020 and December 31, 2019, the Company had $15.9 million and $20.4 million of collateral-dependent impaired loans, respectively. The collateral-dependent impaired loans at March 31, 2020 consisted of $12.8 million in commercial loans, $3.0 million in residential real estate loans, and $174,000 in consumer loans. The collateral for these impaired loans was primarily real estate.
The activity in the allowance for credit losses by portfolio segment for the three months ended March 31, 2020 and 2019 was as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended March 31,
|
|
Mortgage loans
|
|
Commercial loans
|
|
Consumer loans
|
|
Total Portfolio Segments
|
|
|
|
|
|
2020
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at beginning of period
|
|
$
|
25,511
|
|
|
28,263
|
|
|
1,751
|
|
|
55,525
|
|
|
|
|
|
|
Retained earnings (due to initial CECL adoption)
|
|
14,188
|
|
|
(9,974)
|
|
|
3,706
|
|
|
7,920
|
|
|
|
|
|
|
Provision charged (credited) to operations
|
|
7,710
|
|
|
7,619
|
|
|
(629)
|
|
|
14,700
|
|
|
|
|
|
|
Recoveries of loans previously charged-off
|
|
93
|
|
|
313
|
|
|
123
|
|
|
529
|
|
|
|
|
|
|
Loans charged-off
|
|
(2)
|
|
|
(3,380)
|
|
|
(149)
|
|
|
(3,531)
|
|
|
|
|
|
|
Balance at end of period
|
|
$
|
47,500
|
|
|
22,841
|
|
|
4,802
|
|
|
75,143
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at beginning of period
|
|
$
|
27,678
|
|
|
25,693
|
|
|
2,191
|
|
|
55,562
|
|
|
|
|
|
|
Provision (credited) charged to operations
|
|
(982)
|
|
|
1,282
|
|
|
(100)
|
|
|
200
|
|
|
|
|
|
|
Recoveries of loans previously charged-off
|
|
230
|
|
|
52
|
|
|
130
|
|
|
412
|
|
|
|
|
|
|
Loans charged-off
|
|
—
|
|
|
(676)
|
|
|
(145)
|
|
|
(821)
|
|
|
|
|
|
|
Balance at end of period
|
|
$
|
26,926
|
|
|
26,351
|
|
|
2,076
|
|
|
55,353
|
|
|
|
|
|
As a result of the January 1, 2020 adoption of CECL, the Company recorded a $7.9 million increase to the allowance for credit losses on loans. For the three months ended March 31, 2020, the Company recorded a $14.7 million provision for credit losses on loans. The increase in provision for credit losses for the quarter resulted primarily from the impact of reserve build related to the COVID-19 pandemic, with the largest increase in the commercial loans and commercial real estate portfolios.
The following table illustrates the impact of the January 1, 2020 adoption of CECL on the loan portfolio:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
January 1, 2020
|
|
|
|
|
|
|
|
As reported under CECL
|
|
Prior to CECL
|
|
Impact of CECL adoption
|
|
Loans
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential
|
|
$
|
8,950
|
|
|
|
3,411
|
|
|
|
5,539
|
|
|
Commercial
|
|
17,118
|
|
|
|
12,885
|
|
|
|
4,233
|
|
|
Multi-family
|
|
9,519
|
|
|
|
3,370
|
|
|
|
6,149
|
|
|
Construction
|
|
4,152
|
|
|
|
5,885
|
|
|
|
(1,733)
|
|
|
Total mortgage loans
|
|
39,739
|
|
|
|
25,551
|
|
|
|
14,188
|
|
|
Commercial loans
|
|
18,254
|
|
|
|
28,228
|
|
|
|
(9,974)
|
|
|
Consumer loans
|
|
5,452
|
|
|
|
1,746
|
|
|
|
3,706
|
|
|
|
|
|
|
|
|
|
|
Allowance for credit losses on loans
|
|
$
|
63,445
|
|
|
|
55,525
|
|
|
|
7,920
|
|
The following tables summarize loans receivable by portfolio segment and impairment method at March 31, 2020 and December 31, 2019 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2020
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage
loans
|
|
Commercial
loans
|
|
Consumer
loans
|
|
Total Portfolio
Segments
|
|
|
|
Individually evaluated for impairment
|
|
$
|
39,592
|
|
|
24,026
|
|
|
2,114
|
|
|
65,732
|
|
|
|
|
Collectively evaluated for impairment
|
|
5,253,426
|
|
|
1,679,643
|
|
|
377,483
|
|
|
7,310,552
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total gross loans
|
|
$
|
5,293,018
|
|
|
1,703,669
|
|
|
379,597
|
|
|
7,376,284
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2019
|
|
|
|
|
|
|
|
|
|
Mortgage
loans
|
|
Commercial
loans
|
|
Consumer
loans
|
|
Total Portfolio
Segments
|
|
Individually evaluated for impairment
|
|
$
|
39,910
|
|
|
28,357
|
|
|
2,374
|
|
|
70,641
|
|
|
Collectively evaluated for impairment
|
|
5,271,535
|
|
|
1,606,402
|
|
|
388,986
|
|
|
7,266,923
|
|
|
Total gross loans
|
|
$
|
5,311,445
|
|
|
1,634,759
|
|
|
391,360
|
|
|
7,337,564
|
|
The allowance for credit losses is summarized by portfolio segment and impairment classification as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2020
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage
loans
|
|
Commercial loans
|
|
Consumer loans
|
|
|
|
|
|
Total
|
|
Individually evaluated for impairment
|
|
$
|
1,590
|
|
|
4,073
|
|
|
36
|
|
|
|
|
|
|
5,699
|
|
|
Collectively evaluated for impairment
|
|
45,910
|
|
|
18,768
|
|
|
4,766
|
|
|
|
|
|
|
69,444
|
|
|
Total gross loans
|
|
$
|
47,500
|
|
|
22,841
|
|
|
4,802
|
|
|
|
|
|
|
75,143
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage
loans
|
|
Commercial loans
|
|
Consumer
loans
|
|
|
|
|
|
Total
|
|
Individually evaluated for impairment
|
|
$
|
1,580
|
|
|
3,462
|
|
|
25
|
|
|
|
|
|
|
5,067
|
|
|
Collectively evaluated for impairment
|
|
23,931
|
|
|
24,801
|
|
|
1,726
|
|
|
|
|
|
|
50,458
|
|
|
Total gross loans
|
|
$
|
25,511
|
|
|
28,263
|
|
|
1,751
|
|
|
|
|
|
|
55,525
|
|
Loan modifications to borrowers experiencing financial difficulties that are considered TDRs primarily 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, management 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 months ended March 31, 2020 and 2019, along with their balances immediately prior to the modification date and post-modification as of March 31, 2020 and 2019 (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the three months ended
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2020
|
|
|
|
|
|
March 31, 2019
|
|
|
|
|
|
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:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
—
|
|
|
$
|
—
|
|
|
—
|
|
|
1
|
|
|
$
|
14,010
|
|
|
14,010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total mortgage loans
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1
|
|
|
14,010
|
|
|
14,010
|
|
|
Commercial loans
|
|
2
|
|
|
746
|
|
|
731
|
|
|
4
|
|
|
2,013
|
|
|
2,013
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total restructured loans
|
|
2
|
|
|
$
|
746
|
|
|
$
|
731
|
|
|
5
|
|
|
$
|
16,023
|
|
|
$
|
16,023
|
|
All TDRs are impaired loans, which are individually evaluated for impairment. During the three months ended March 31, 2020 $2.7 million of charge-offs were recorded on collateral-dependent impaired loans. For the three months ended March 31, 2020,
the allowance for loan losses associated with the TDRs presented in the preceding tables totaled $448,000 and was included in the allowance for loan losses for loans individually evaluated for impairment.
The TDRs presented in the preceding tables had a weighted average modified interest rate of approximately 6.99% compared to a weighted average rate of 7.19% prior to modification, for the three months ended March 31, 2020.
The following table presents loans modified as TDRs within the previous 12 months from March 31, 2020 and 2019, and for which there was a payment default (90 days or more past due) at the quarter ended March 31, 2020 and 2019.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2020
|
|
|
|
March 31, 2019
|
|
|
|
Troubled Debt Restructurings Subsequently Defaulted
|
|
Number of Loans
|
|
Outstanding Recorded Investment
|
|
Number of Loans
|
|
Outstanding Recorded
Investment
|
|
|
|
($ in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial loans
|
|
—
|
|
|
$
|
—
|
|
|
3
|
|
|
$
|
540
|
|
|
|
|
|
|
|
|
|
|
|
|
Total restructured loans
|
|
—
|
|
|
$
|
—
|
|
|
3
|
|
|
$
|
540
|
|
|
|
|
|
|
|
|
|
|
|
There were no loans which had a payment default (90 days or more past due) for loans modified as TDRs within the 12 month period ending March 31, 2020. 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 March 31, 2019. For TDR’s that subsequently default, the Company determines the amount of the allowance on that loan in accordance with the accounting policy for the allowance for credit losses on loans individually evaluated for impairment.
As allowed by CECL, the Company elected to maintain pools of loans accounted for under ASC 310-30. At December 31, 2019, purchased credit impaired (“PCI”) loans totaled $746,000. In accordance with the CECL standard, management did not reassess whether modifications of individually acquired financial assets accounted for in pools were TDRs as of the date of adoption. All loans considered to be PCI prior to January 1, 2020 were converted to purchased credit deteriorated ("PCD") loans on that date. PCD loans totaled $737,000 at March 31, 2020. Subsequent to January 1, 2020, should the Company acquire loans that experience more-than-insignificant deterioration in credit quality since origination, these loans will be classified as PCD.
The following table presents loans individually evaluated for impairment by class and loan category, excluding PCD loans (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2020
|
|
|
|
|
|
|
|
|
|
December 31, 2019
|
|
|
|
|
|
|
|
|
|
|
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
|
$
|
12,644
|
|
|
10,187
|
|
|
—
|
|
|
10,257
|
|
|
118
|
|
|
13,478
|
|
|
10,739
|
|
|
—
|
|
|
10,910
|
|
|
533
|
|
|
Commercial
|
14,295
|
|
|
14,180
|
|
|
—
|
|
|
14,183
|
|
|
128
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Multi-family
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Construction
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Total
|
26,939
|
|
|
24,367
|
|
|
—
|
|
|
24,440
|
|
|
246
|
|
|
13,478
|
|
|
10,739
|
|
|
—
|
|
|
10,910
|
|
|
533
|
|
|
Commercial loans
|
3,943
|
|
|
2,135
|
|
|
—
|
|
|
3,417
|
|
|
18
|
|
|
3,927
|
|
|
3,696
|
|
|
—
|
|
|
4,015
|
|
|
17
|
|
|
Consumer loans
|
1,661
|
|
|
1,128
|
|
|
—
|
|
|
1,139
|
|
|
17
|
|
|
2,086
|
|
|
1,517
|
|
|
—
|
|
|
1,491
|
|
|
86
|
|
|
Total impaired loans
|
$
|
32,543
|
|
|
27,630
|
|
|
—
|
|
|
28,996
|
|
|
281
|
|
|
19,491
|
|
|
15,952
|
|
|
—
|
|
|
16,416
|
|
|
636
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans with an allowance recorded
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential
|
$
|
10,777
|
|
|
10,273
|
|
|
876
|
|
|
10,308
|
|
|
112
|
|
|
10,860
|
|
|
10,326
|
|
|
829
|
|
|
10,454
|
|
|
428
|
|
|
Commercial
|
4,828
|
|
|
4,828
|
|
|
694
|
|
|
4,832
|
|
|
14
|
|
|
18,845
|
|
|
18,845
|
|
|
751
|
|
|
18,862
|
|
|
569
|
|
|
Multi-family
|
182
|
|
|
124
|
|
|
20
|
|
|
124
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Construction
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Total
|
15,787
|
|
|
15,225
|
|
|
1,590
|
|
|
15,264
|
|
|
126
|
|
|
29,705
|
|
|
29,171
|
|
|
1,580
|
|
|
29,316
|
|
|
997
|
|
|
Commercial loans
|
24,763
|
|
|
21,891
|
|
|
4,073
|
|
|
24,152
|
|
|
104
|
|
|
27,762
|
|
|
24,661
|
|
|
3,462
|
|
|
27,527
|
|
|
444
|
|
|
Consumer loans
|
997
|
|
|
986
|
|
|
36
|
|
|
8,560
|
|
|
11
|
|
|
868
|
|
|
857
|
|
|
25
|
|
|
878
|
|
|
46
|
|
|
Total impaired loans
|
$
|
41,547
|
|
|
38,102
|
|
|
5,699
|
|
|
47,976
|
|
|
241
|
|
|
58,335
|
|
|
54,689
|
|
|
5,067
|
|
|
57,721
|
|
|
1,487
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total impaired loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential
|
$
|
23,421
|
|
|
20,460
|
|
|
876
|
|
|
20,565
|
|
|
230
|
|
|
24,338
|
|
|
21,065
|
|
|
829
|
|
|
21,364
|
|
|
961
|
|
|
Commercial
|
19,123
|
|
|
19,008
|
|
|
694
|
|
|
19,015
|
|
|
142
|
|
|
18,845
|
|
|
18,845
|
|
|
751
|
|
|
18,862
|
|
|
569
|
|
|
Multi-family
|
182
|
|
|
124
|
|
|
20
|
|
|
124
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
42,726
|
|
|
39,592
|
|
|
1,590
|
|
|
39,704
|
|
|
372
|
|
|
43,183
|
|
|
39,910
|
|
|
1,580
|
|
|
40,226
|
|
|
1,530
|
|
|
Commercial loans
|
28,706
|
|
|
24,026
|
|
|
4,073
|
|
|
27,569
|
|
|
122
|
|
|
31,689
|
|
|
28,357
|
|
|
3,462
|
|
|
31,542
|
|
|
461
|
|
|
Consumer loans
|
2,658
|
|
|
2,114
|
|
|
36
|
|
|
9,699
|
|
|
28
|
|
|
2,954
|
|
|
2,374
|
|
|
25
|
|
|
2,369
|
|
|
132
|
|
|
Total impaired loans
|
$
|
74,090
|
|
|
65,732
|
|
|
5,699
|
|
|
76,972
|
|
|
522
|
|
|
77,826
|
|
|
70,641
|
|
|
5,067
|
|
|
74,137
|
|
|
2,123
|
|
Specific allocations of the allowance for credit losses attributable to impaired loans totaled $5.7 million at March 31, 2020 and $5.1 million at December 31, 2019. At March 31, 2020 and December 31, 2019, impaired loans for which there was no related allowance for credit losses totaled $27.6 million and $16.0 million, respectively. The average balance of impaired loans for the three months ended March 31, 2020 and December 31, 2019 was $77.0 million and $74.1 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.
In response to the COVID-19 pandemic and its adverse economic impact on both our commercial and retail borrowers, we implemented a short-term modification program to defer principal or principal and interest payments for up to 90 days to borrowers directly impacted by the pandemic and who were not more than 30 days past due as of December 31, 2019 all in accordance with the Coronavirus Aid, Relief, and Economic Security ("CARES") Act. As of April 28, 2020, deferred payment relief had been provided to 638 borrowers representing total principal loan balances of $889.0 million.
In addition, the Company participated in the Paycheck Protection Program (“PPP”) through the United States Department of the Treasury and Small Business Administration. As of April 28, 2020 the Company secured 820 PPP loans for its customers totaling $377.5 million.
The following table summarizes the Company's gross loans held for investment by year of origination and internally assigned credit grades:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Portfolio as of March 31, 2020
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential
|
|
Commercial mortgage
|
|
Multi-family
|
|
Construction
|
|
Total
mortgages
|
|
Commercial
|
|
Consumer
|
|
Total loans
|
|
Special mention
|
|
$
|
4,075
|
|
|
19,848
|
|
|
—
|
|
|
—
|
|
|
23,923
|
|
|
114,858
|
|
|
661
|
|
|
139,442
|
|
|
Substandard
|
|
9,050
|
|
|
12,722
|
|
|
124
|
|
|
6,181
|
|
|
28,077
|
|
|
51,689
|
|
|
1,032
|
|
|
80,798
|
|
|
Doubtful
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
732
|
|
|
—
|
|
|
732
|
|
|
Loss
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Total classified and criticized
|
|
13,125
|
|
|
32,570
|
|
|
124
|
|
|
6,181
|
|
|
52,000
|
|
|
167,279
|
|
|
1,693
|
|
|
220,972
|
|
|
Pass/Watch
|
|
1,093,545
|
|
|
2,522,521
|
|
|
1,222,189
|
|
|
402,763
|
|
|
5,241,018
|
|
|
1,536,390
|
|
|
377,904
|
|
|
7,155,312
|
|
|
Total gross loans
|
|
$
|
1,106,670
|
|
|
2,555,091
|
|
|
1,222,313
|
|
|
408,944
|
|
|
5,293,018
|
|
|
1,703,669
|
|
|
379,597
|
|
|
7,376,284
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2020
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Special mention
|
|
$
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Substandard
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Doubtful
|
|
—
|
|
|
—
|
|
|
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Loss
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Total classified and criticized
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Pass/Watch
|
|
67,775
|
|
|
99,722
|
|
|
34,785
|
|
|
2,005
|
|
|
204,287
|
|
|
59,721
|
|
|
8,587
|
|
|
272,595
|
|
|
Total gross loans
|
|
$
|
67,775
|
|
|
99,722
|
|
|
34,785
|
|
|
2,005
|
|
|
204,287
|
|
|
59,721
|
|
|
8,587
|
|
|
272,595
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Special mention
|
|
$
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1,231
|
|
|
—
|
|
|
1,231
|
|
|
Substandard
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
228
|
|
|
—
|
|
|
228
|
|
|
Doubtful
|
|
—
|
|
|
—
|
|
|
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Loss
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Total classified and criticized
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1,459
|
|
|
—
|
|
|
1,459
|
|
|
Pass/Watch
|
|
155,718
|
|
|
505,804
|
|
|
141,727
|
|
|
143,297
|
|
|
946,546
|
|
|
231,465
|
|
|
55,899
|
|
|
1,233,910
|
|
|
Total gross loans
|
|
$
|
155,718
|
|
|
505,804
|
|
|
141,727
|
|
|
143,297
|
|
|
946,546
|
|
|
232,924
|
|
|
55,899
|
|
|
1,235,369
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Special mention
|
|
$
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
4,656
|
|
|
—
|
|
|
4,656
|
|
|
Substandard
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
757
|
|
|
—
|
|
|
757
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Doubtful
|
|
—
|
|
|
—
|
|
|
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Loss
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Total classified and criticized
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
5,413
|
|
|
—
|
|
|
5,413
|
|
|
Pass/Watch
|
|
96,683
|
|
|
357,530
|
|
|
115,282
|
|
|
188,523
|
|
|
758,018
|
|
|
195,828
|
|
|
48,203
|
|
|
1,002,049
|
|
|
Total gross loans
|
|
$
|
96,683
|
|
|
357,530
|
|
|
115,282
|
|
|
188,523
|
|
|
758,018
|
|
|
201,241
|
|
|
48,203
|
|
|
1,007,462
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Special mention
|
|
$
|
—
|
|
|
220
|
|
|
—
|
|
|
—
|
|
|
220
|
|
|
3,204
|
|
|
—
|
|
|
3,424
|
|
|
Substandard
|
|
568
|
|
|
995
|
|
|
—
|
|
|
—
|
|
|
1,563
|
|
|
8,264
|
|
|
—
|
|
|
9,827
|
|
|
Doubtful
|
|
—
|
|
|
—
|
|
|
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Loss
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Total classified and criticized
|
|
568
|
|
|
1,215
|
|
|
—
|
|
|
—
|
|
|
1,783
|
|
|
11,468
|
|
|
—
|
|
|
13,251
|
|
|
Pass/Watch
|
|
92,471
|
|
|
399,107
|
|
|
136,620
|
|
|
68,938
|
|
|
697,136
|
|
|
207,256
|
|
|
38,057
|
|
|
942,449
|
|
|
Total gross loans
|
|
$
|
93,039
|
|
|
400,322
|
|
|
136,620
|
|
|
68,938
|
|
|
698,919
|
|
|
218,724
|
|
|
38,057
|
|
|
955,700
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016 and prior
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Special mention
|
|
$
|
4,075
|
|
|
19,628
|
|
|
—
|
|
|
—
|
|
|
23,703
|
|
|
105,767
|
|
|
661
|
|
|
130,131
|
|
|
Substandard
|
|
8,482
|
|
|
11,727
|
|
|
124
|
|
|
6,181
|
|
|
26,514
|
|
|
42,440
|
|
|
1,032
|
|
|
69,986
|
|
|
Doubtful
|
|
—
|
|
|
—
|
|
|
|
|
|
—
|
|
|
—
|
|
|
732
|
|
|
—
|
|
|
732
|
|
|
Loss
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Total classified and criticized
|
|
12,557
|
|
|
31,355
|
|
|
124
|
|
|
6,181
|
|
|
50,217
|
|
|
148,939
|
|
|
1,693
|
|
|
200,849
|
|
|
Pass/Watch
|
|
680,898
|
|
|
1,160,358
|
|
|
793,775
|
|
|
—
|
|
|
2,635,031
|
|
|
842,120
|
|
|
227,158
|
|
|
3,704,309
|
|
|
Total gross loans
|
|
$
|
693,455
|
|
|
1,191,713
|
|
|
793,899
|
|
|
6,181
|
|
|
2,685,248
|
|
|
991,059
|
|
|
228,851
|
|
|
3,905,158
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Portfolio as of December 31, 2019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential
|
|
Commercial mortgage
|
|
Multi-family
|
|
Construction
|
|
Total
mortgages
|
|
Commercial
|
|
Consumer
|
|
Total loans
|
|
Special mention
|
|
$
|
2,402
|
|
|
46,758
|
|
|
—
|
|
|
—
|
|
|
49,160
|
|
|
79,248
|
|
|
286
|
|
|
128,694
|
|
|
Substandard
|
|
10,204
|
|
|
13,458
|
|
|
—
|
|
|
6,181
|
|
|
29,843
|
|
|
57,015
|
|
|
1,668
|
|
|
88,526
|
|
|
Doubtful
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
836
|
|
|
—
|
|
|
836
|
|
|
Loss
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Total classified and criticized
|
|
12,606
|
|
|
60,216
|
|
|
—
|
|
|
6,181
|
|
|
79,003
|
|
|
137,099
|
|
|
1,954
|
|
|
218,056
|
|
|
Pass/Watch
|
|
1,065,083
|
|
|
2,518,177
|
|
|
1,225,551
|
|
|
423,631
|
|
|
5,232,442
|
|
|
1,497,660
|
|
|
389,406
|
|
|
7,119,508
|
|
|
Total gross loans
|
|
$
|
1,077,689
|
|
|
2,578,393
|
|
|
1,225,551
|
|
|
429,812
|
|
|
5,311,445
|
|
|
1,634,759
|
|
|
391,360
|
|
|
7,337,564
|
|
Note 5. Deposits
Deposits at March 31, 2020 and December 31, 2019 are summarized as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2020
|
|
December 31, 2019
|
|
Savings
|
|
$
|
990,844
|
|
|
983,714
|
|
|
Money market
|
|
1,782,445
|
|
|
1,738,202
|
|
|
NOW
|
|
2,164,779
|
|
|
2,092,413
|
|
|
Non-interest bearing
|
|
1,575,926
|
|
|
1,554,253
|
|
|
Certificates of deposit
|
|
696,766
|
|
|
734,027
|
|
|
Total deposits
|
|
$
|
7,210,760
|
|
|
7,102,609
|
|
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 months ended March 31, 2020 and 2019 includes the following components (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended March 31,
|
|
|
|
|
|
|
|
|
|
|
Pension benefits
|
|
|
|
Other post-retirement benefits
|
|
|
|
|
|
|
2020
|
|
2019
|
|
2020
|
|
2019
|
|
|
Service cost
|
|
$
|
—
|
|
|
—
|
|
|
20
|
|
|
20
|
|
|
|
Interest cost
|
|
250
|
|
|
300
|
|
|
178
|
|
|
210
|
|
|
|
Expected return on plan assets
|
|
(737)
|
|
|
(641)
|
|
|
—
|
|
|
—
|
|
|
|
Amortization of prior service cost
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
Amortization of the net loss (gain)
|
|
174
|
|
|
254
|
|
|
(62)
|
|
|
(207)
|
|
|
|
Net periodic (decrease) increase in benefit cost
|
|
$
|
(313)
|
|
|
(87)
|
|
|
136
|
|
|
23
|
|
|
In its consolidated financial statements for the year ended December 31, 2019, the Company previously disclosed that it does not expect to contribute to the pension plan in 2020. As of March 31, 2020, no contributions have been made to the pension plan.
The net periodic (decrease) increase in benefit cost for pension benefits and other post-retirement benefits for the three months ended March 31, 2020 was calculated using the January 1, 2020 pension and other post-retirement benefits actuarial valuations.
Note 7. Impact of Recent Accounting Pronouncements
Accounting Pronouncements Adopted in 2020
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 had the same effective date as ASU 2016-13 (i.e., the first quarter of 2020). The adoption of this guidance had no impact on the Company’s consolidated financial statements.
In April 2019, the Financial Accounting Standards Board ("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 this 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 adoption of this guidance had no impact related to Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments on the Company’s consolidated financial statements. At January 1, 2020, a $1.3 million allowance was recorded related to extensions on construction loans and is reflected below in the ASU 2016-13 calculation.
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 adoption of this guidance had no 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. This also applies to off-balance sheet credit exposures, which includes loan commitments, unused lines of credit and other similar instruments. The amendments in ASU 2016-13 are effective for fiscal years, including interim periods, beginning after December 15, 2019. Early adoption of this ASU was permitted for fiscal years beginning after December 15, 2018. The adoption of ASU 2016-13 involves changing from an "incurred loss" model, which encompasses allowances for current known and inherent losses within the portfolio, to an "expected loss" model (“CECL”), which encompasses allowances for losses expected to be incurred over the life of the portfolio. The Company adopted CECL on January 1, 2020 using the modified retrospective method for all financial assets measured at amortized cost and off-balance sheet ("OBS") credit exposures. Results for reporting periods beginning after January 1, 2020 are presented under ASC 326 while prior period amounts continue to be recorded with previously applicable GAAP. The Company recorded a $7.9 million increase to the allowance for credit losses and a $3.2 million liability for off-balance sheet credit exposures, which resulted in an $8.3 million cumulative effect adjustment decrease, net of tax to retained earnings. With regard to regulatory capital, the Company has elected to utilize the five-year CECL transition, which gives the option to delay for two years the estimated impact of CECL on regulatory capital relative to regulatory capital determined under the prior incurred loss methodology, followed by a three-year transition period to phase out the aggregate amount of the capital benefit provided during the initial two-year delay.
Accounting Pronouncements Not Yet Adopted
ASU 2020-04, "Reference Rate Reform (Topic 848)" ("ASU 2020-04") provides optional expedients and exceptions for applying GAAP to loan and lease agreements, derivative contracts, and other transactions affected by the anticipated transition away from LIBOR toward new interest rate benchmarks. For transactions that are modified because of reference rate reform and that meet certain scope guidance (i) modifications of loan agreements should be accounted for by prospectively adjusting the effective interest rate and the modification will be considered "minor" so that any existing unamortized origination fees/costs would carry forward and continue to be amortized and (ii) modifications of lease agreements should be accounted for as a continuation of the existing agreement with no reassessments of the lease classification and the discount rate or re-measurements of lease payments that otherwise would be required for modifications not accounted for as separate contracts. ASU 2020-04 also provides numerous optional expedients for derivative accounting. ASU 2020-04 is effective March 12, 2020 through December 31, 2022. An entity may elect to apply ASU 2020-04 for contract modifications as of January 1, 2020, or prospectively from a date within an interim period that includes or is subsequent to March 12, 2020, up to the date that the financial statements are available to be issued. Once elected for a Topic or an Industry Subtopic within the Codification, the amendments in this ASU must be applied prospectively for all eligible contract modifications for that Topic or Industry Subtopic. The Company anticipates this ASU will simplify any modifications we execute between the selected start date (yet to be determined) and December 31, 2022 that are directly related to LIBOR transition by allowing prospective recognition of the continuation of the contract, rather than the extinguishment of the old contract resulting in writing off unamortized fees/costs. The Company is evaluating the impacts of this ASU and have not yet determined whether LIBOR transition and this ASU will have material effects on the Company's business operations and consolidated financial statements.
Note 8. Allowance for Credit Losses on Off-Balance Sheet Credit Exposures
On January 1, 2020, the Company adopted CECL, which replaces the incurred loss methodology with an expected loss methodology and applies to off-balance sheet credit exposures, including loan commitments and lines of credit. The adoption of this new standard resulted in the Company recording a $3.2 million increase to the allowance for credit losses on off-balance sheet credit exposures with a corresponding cumulative effect adjustment to decrease retained earnings $2.4 million, net of income taxes.
Management analyzes the Company's exposure to credit losses for both on-balance sheet and off-balance sheet activity using a consistent methodology for the quantitative framework as well as the qualitative framework. For purposes of estimating the allowance for credit losses for off-balance sheet credit exposures, the exposure at default includes an estimated drawdown of unused credit based on historical credit utilization factors and current loss factors, resulting in a proportionate amount of expected credit losses.
The following table illustrates the impact of the January 1, 2020 adoption of CECL on off-balance sheet credit exposures:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
January 1, 2020
|
|
|
|
|
|
|
|
As reported under CECL
|
|
Prior to CECL
|
|
Impact of CECL adoption
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for credit losses on off-balance sheet credit exposure
|
|
$
|
3,206
|
|
|
|
—
|
|
|
|
3,206
|
|
For the three months ended March 31, 2020, the Company recorded a $1.0 million provision for credit losses on off-balance sheet credit exposures.
Note 9. 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, the Company 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 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 March 31, 2020 and December 31, 2019.
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 which 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 or 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 the Company 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, the Company compares the prices received from the pricing service to a secondary pricing source. Additionally, the Company 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 not historically 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 derivatives 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. These derivatives were used to hedge the variable cash outflows associated with FHLBNY borrowings. The change in the fair value of these derivatives is recorded in accumulated other comprehensive income, and is subsequently reclassified into earnings in the period that the hedged forecasted transaction affects earnings.
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 March 31, 2020 and December 31, 2019.
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%. The Company 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 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 credit 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 March 31, 2020 and December 31, 2019.
The following tables present the assets and liabilities reported on the consolidated statements of financial condition at their fair values as of March 31, 2020 and December 31, 2019, by level within the fair value hierarchy:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements at Reporting Date Using:
|
|
|
|
|
|
|
|
(In thousands)
|
|
March 31, 2020
|
|
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
|
|
$
|
960,177
|
|
|
—
|
|
|
960,177
|
|
|
—
|
|
|
State and municipal obligations
|
|
4,049
|
|
|
—
|
|
|
4,049
|
|
|
—
|
|
|
Corporate obligations
|
|
25,607
|
|
|
—
|
|
|
25,607
|
|
|
—
|
|
|
Total available for sale debt securities
|
|
$
|
989,833
|
|
|
—
|
|
|
989,833
|
|
|
—
|
|
|
Equity securities
|
|
685
|
|
|
685
|
|
|
—
|
|
|
—
|
|
|
Derivative assets
|
|
111,608
|
|
|
—
|
|
|
111,608
|
|
|
—
|
|
|
|
|
$
|
1,102,126
|
|
|
685
|
|
|
1,101,441
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative liabilities
|
|
$
|
120,176
|
|
|
—
|
|
|
120,176
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
Measured on a non-recurring basis:
|
|
|
|
|
|
|
|
|
|
Loans measured for impairment based on the fair value of the underlying collateral
|
|
$
|
15,895
|
|
|
—
|
|
|
—
|
|
|
15,895
|
|
|
Foreclosed assets
|
|
4,219
|
|
|
—
|
|
|
—
|
|
|
4,219
|
|
|
|
|
$
|
20,114
|
|
|
—
|
|
|
—
|
|
|
20,114
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements at Reporting Date Using:
|
|
|
|
|
|
|
|
(In thousands)
|
|
December 31, 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
|
|
$
|
947,430
|
|
|
—
|
|
|
947,430
|
|
|
—
|
|
|
State and municipal obligations
|
|
4,079
|
|
|
—
|
|
|
4,079
|
|
|
—
|
|
|
Corporate obligations
|
|
25,410
|
|
|
—
|
|
|
25,410
|
|
|
—
|
|
|
Total available for sale debt securities
|
|
$
|
976,919
|
|
|
—
|
|
|
976,919
|
|
|
—
|
|
|
Equity Securities
|
|
825
|
|
|
825
|
|
|
—
|
|
|
—
|
|
|
Derivative assets
|
|
39,305
|
|
|
—
|
|
|
39,305
|
|
|
—
|
|
|
|
|
$
|
1,017,049
|
|
|
825
|
|
|
1,016,224
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative liabilities
|
|
$
|
39,356
|
|
|
—
|
|
|
39,356
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
Measured on a non-recurring basis:
|
|
|
|
|
|
|
|
|
|
Loans measured for impairment based on the fair value of the underlying collateral
|
|
$
|
20,403
|
|
|
—
|
|
|
—
|
|
|
20,403
|
|
|
Foreclosed assets
|
|
2,715
|
|
|
—
|
|
|
—
|
|
|
2,715
|
|
|
|
|
$
|
23,118
|
|
|
—
|
|
|
—
|
|
|
23,118
|
|
There were no transfers between Level 1, Level 2 and Level 3 during the three and three months ended March 31, 2020.
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 March 31, 2020 and December 31, 2019 was $128.7 million and $77.0 million, respectively, representing cash collateral pledged to secure loan level swaps and reserves required by banking regulations.
Held to Maturity Debt Securities, Net of Allowance for Credit Losses
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 which 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 or 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 the Company is responsible for the determination of fair value, it performs quarterly analysis of the prices received from the pricing service to determine whether the prices are reasonable estimates of fair value. Specifically, the Company compares the prices received from the pricing service to a secondary pricing source. Additionally, the Company 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 not historically 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 was 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. 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 March 31, 2020 and December 31, 2019. Fair values are presented by level within the fair value hierarchy.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements at March 31, 2020 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
|
|
$
|
370,577
|
|
|
370,577
|
|
|
370,577
|
|
|
—
|
|
|
—
|
|
|
Available for sale debt securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage-backed securities
|
|
960,177
|
|
|
960,177
|
|
|
—
|
|
|
960,177
|
|
|
—
|
|
|
State and municipal obligations
|
|
4,049
|
|
|
4,049
|
|
|
—
|
|
|
4,049
|
|
|
—
|
|
|
Corporate obligations
|
|
25,607
|
|
|
25,607
|
|
|
—
|
|
|
25,607
|
|
|
—
|
|
|
Total available for sale debt securities
|
|
$
|
989,833
|
|
|
989,833
|
|
|
—
|
|
|
989,833
|
|
|
—
|
|
|
Held to maturity debt securities, net of allowance for credit losses
|
|
|
|
|
|
|
|
|
|
|
|
Agency obligations
|
|
7,417
|
|
|
7,432
|
|
|
7,432
|
|
|
—
|
|
|
—
|
|
|
Mortgage-backed securities
|
|
104
|
|
|
108
|
|
|
—
|
|
|
108
|
|
|
—
|
|
|
State and municipal obligations
|
|
428,611
|
|
|
442,366
|
|
|
—
|
|
|
442,366
|
|
|
—
|
|
|
Corporate obligations
|
|
9,312
|
|
|
9,318
|
|
|
—
|
|
|
9,318
|
|
|
—
|
|
|
Total held to maturity debt securities, net of allowance for credit losses
|
|
$
|
445,444
|
|
|
459,224
|
|
|
7,432
|
|
|
451,792
|
|
|
—
|
|
|
FHLBNY stock
|
|
61,198
|
|
|
61,198
|
|
|
61,198
|
|
|
—
|
|
|
—
|
|
|
Equity Securities
|
|
685
|
|
|
685
|
|
|
685
|
|
|
—
|
|
|
—
|
|
|
Loans, net of allowance for credit losses
|
|
7,296,901
|
|
|
7,513,881
|
|
|
—
|
|
|
—
|
|
|
7,513,881
|
|
|
Derivative assets
|
|
111,608
|
|
|
111,608
|
|
|
—
|
|
|
111,608
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
Deposits other than certificates of deposits
|
|
$
|
6,513,994
|
|
|
6,513,994
|
|
|
6,513,994
|
|
|
—
|
|
|
—
|
|
|
Certificates of deposit
|
|
696,766
|
|
|
696,151
|
|
|
—
|
|
|
696,151
|
|
|
—
|
|
|
Total deposits
|
|
$
|
7,210,760
|
|
|
7,210,145
|
|
|
6,513,994
|
|
|
696,151
|
|
|
—
|
|
|
Borrowings
|
|
1,213,777
|
|
|
1,223,866
|
|
|
—
|
|
|
1,223,866
|
|
|
—
|
|
|
Derivative liabilities
|
|
120,176
|
|
|
120,176
|
|
|
—
|
|
|
120,176
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements at December 31, 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
|
|
$
|
186,748
|
|
|
186,748
|
|
|
186,748
|
|
|
—
|
|
|
—
|
|
|
Available for sale debt securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage-backed securities
|
|
947,430
|
|
|
947,430
|
|
|
—
|
|
|
947,430
|
|
|
—
|
|
|
State and municipal obligations
|
|
4,079
|
|
|
4,079
|
|
|
—
|
|
|
4,079
|
|
|
—
|
|
|
Corporate obligations
|
|
25,410
|
|
|
25,410
|
|
|
—
|
|
|
25,410
|
|
|
—
|
|
|
Total available for sale debt securities
|
|
$
|
976,919
|
|
|
976,919
|
|
|
—
|
|
|
976,919
|
|
|
—
|
|
|
Held to maturity debt securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Agency obligations
|
|
$
|
6,599
|
|
|
6,601
|
|
|
6,601
|
|
|
—
|
|
|
—
|
|
|
Mortgage-backed securities
|
|
118
|
|
|
122
|
|
|
—
|
|
|
122
|
|
|
—
|
|
|
State and municipal obligations
|
|
437,074
|
|
|
451,353
|
|
|
—
|
|
|
451,353
|
|
|
—
|
|
|
Corporate obligations
|
|
9,838
|
|
|
9,890
|
|
|
—
|
|
|
9,890
|
|
|
—
|
|
|
Total held to maturity debt securities
|
|
$
|
453,629
|
|
|
467,966
|
|
|
6,601
|
|
|
461,365
|
|
|
—
|
|
|
FHLBNY stock
|
|
57,298
|
|
|
57,298
|
|
|
57,298
|
|
|
—
|
|
|
—
|
|
|
Equity Securities
|
|
825
|
|
|
825
|
|
|
825
|
|
|
—
|
|
|
—
|
|
|
Loans, net of allowance for credit losses
|
|
7,277,360
|
|
|
7,296,744
|
|
|
—
|
|
|
—
|
|
|
7,296,744
|
|
|
Derivative assets
|
|
39,305
|
|
|
39,305
|
|
|
—
|
|
|
39,305
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
Deposits other than certificates of deposits
|
|
$
|
6,368,582
|
|
|
6,368,582
|
|
|
6,368,582
|
|
|
—
|
|
|
—
|
|
|
Certificates of deposit
|
|
734,027
|
|
|
734,047
|
|
|
—
|
|
|
734,047
|
|
|
—
|
|
|
Total deposits
|
|
$
|
7,102,609
|
|
|
7,102,629
|
|
|
6,368,582
|
|
|
734,047
|
|
|
—
|
|
|
Borrowings
|
|
1,125,146
|
|
|
1,127,569
|
|
|
—
|
|
|
1,127,569
|
|
|
—
|
|
|
Derivative liabilities
|
|
39,356
|
|
|
39,356
|
|
|
—
|
|
|
39,356
|
|
|
—
|
|
Note 10. Other Comprehensive Income
The following table presents the components of other comprehensive income, both gross and net of tax, for the three months ended March 31, 2020 and 2019 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended March 31,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2020
|
|
|
|
|
|
2019
|
|
|
|
|
|
|
|
Before
Tax
|
|
Tax
Effect
|
|
After
Tax
|
|
Before
Tax
|
|
Tax
Effect
|
|
After
Tax
|
|
Components of Other Comprehensive Income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized gains on available for sale debt securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net unrealized gains arising during the period
|
|
$
|
22,563
|
|
|
(5,817)
|
|
|
16,746
|
|
|
10,417
|
|
|
(2,839)
|
|
|
7,578
|
|
|
Reclassification adjustment for gains included in net income
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Total
|
|
22,563
|
|
|
(5,817)
|
|
|
16,746
|
|
|
10,417
|
|
|
(2,839)
|
|
|
7,578
|
|
|
Unrealized losses on derivatives (cash flow hedges)
|
|
(7,697)
|
|
|
1,984
|
|
|
(5,713)
|
|
|
(432)
|
|
|
118
|
|
|
(314)
|
|
|
Amortization related to post-retirement obligations
|
|
112
|
|
|
(28)
|
|
|
84
|
|
|
(16)
|
|
|
4
|
|
|
(12)
|
|
|
Total other comprehensive income
|
|
$
|
14,978
|
|
|
(3,861)
|
|
|
11,117
|
|
|
9,969
|
|
|
(2,717)
|
|
|
7,252
|
|
The following tables present the changes in the components of accumulated other comprehensive income (loss), net of tax, for the three months ended March 31, 2020 and 2019 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Changes in Accumulated Other Comprehensive Income (Loss) by Component, net of tax
for the three months ended March 31,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2020
|
|
|
|
|
|
|
|
2019
|
|
|
|
|
|
|
|
|
|
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) Gains on
Available for Sale Debt Securities
|
|
Post- Retirement
Obligations
|
|
Unrealized Gains (Losses) on Derivatives (cash flow hedges)
|
|
Accumulated
Other
Comprehensive
Loss
|
Balance at
December 31,
|
|
$
|
8,746
|
|
|
(5,240)
|
|
|
315
|
|
|
3,821
|
|
|
(9,605)
|
|
|
(3,625)
|
|
|
894
|
|
|
(12,336)
|
|
|
Current - period other comprehensive income (loss)
|
|
16,746
|
|
|
84
|
|
|
(5,713)
|
|
|
11,117
|
|
|
7,578
|
|
|
(12)
|
|
|
(314)
|
|
|
7,252
|
|
|
Balance at March 31,
|
|
$
|
25,492
|
|
|
(5,156)
|
|
|
(5,398)
|
|
|
14,938
|
|
|
(2,027)
|
|
|
(3,637)
|
|
|
580
|
|
|
(5,084)
|
|
The following tables summarize the reclassifications from accumulated other comprehensive income (loss) to the consolidated statements of income for the three months ended March 31, 2020 and 2019 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reclassifications From Accumulated Other Comprehensive
Income ("AOCI")
|
|
|
|
|
|
|
|
|
|
Amount reclassified from AOCI for the three months ended March 31,
|
|
|
|
Affected line item in the Consolidated
Statement of Income
|
|
|
|
|
|
2020
|
|
2019
|
|
|
|
|
|
Details of AOCI:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Post-retirement obligations:
|
|
|
|
|
|
|
|
|
|
Amortization of actuarial losses
|
|
$
|
112
|
|
|
47
|
|
|
Compensation and employee benefits (1)
|
|
|
|
|
|
(28)
|
|
|
(13)
|
|
|
Income tax expense
|
|
|
|
Total reclassification
|
|
$
|
84
|
|
|
34
|
|
|
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 11. 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 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. The collateral exceeds the maximum potential amount of future payments under the credit derivative. 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 March 31, 2020 and December 31, 2019, the Company had 116 and 92 interest rate swaps, respectively, with aggregate notional amounts of $1.97 billion and $1.61 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 March 31, 2020 and December 31, 2019, the Company had 13 credit derivatives, with aggregate notional amounts of $106.8 million and $106.0 million, respectively, from participations in interest rate swaps as part of these loan participation arrangements. At March 31, 2020 and December 31, 2019, the fair value of these credit derivatives were $90,000 and $47,000, 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 months ended March 31, 2020 and 2019, 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 $2.1 million will be reclassified as an increase to interest expense. As of March 31, 2020, the Company had nine
outstanding interest rate derivatives with an aggregate notional amount of $290.0 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 March 31, 2020 and December 31, 2019 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At March 31, 2020
|
|
|
|
|
|
|
|
|
|
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
|
|
$
|
118,787
|
|
|
Other liabilities
|
|
120,176
|
|
|
Credit contracts
|
|
Other assets
|
|
90
|
|
|
Other liabilities
|
|
—
|
|
|
Total derivatives not designated as a hedging instrument
|
|
|
|
$
|
118,877
|
|
|
|
|
120,176
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives designated as a hedging instrument:
|
|
|
|
|
|
|
|
|
|
Interest rate products
|
|
Other assets
|
|
$
|
(7,269)
|
|
|
Other liabilities
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
Total derivatives designated as a hedging instrument
|
|
|
|
$
|
(7,269)
|
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31, 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
|
|
$
|
38,830
|
|
|
Other liabilities
|
|
39,356
|
|
|
Credit contracts
|
|
Other assets
|
|
47
|
|
|
Other liabilities
|
|
—
|
|
|
Total derivatives not designated as a hedging instrument
|
|
|
|
$
|
38,877
|
|
|
|
|
39,356
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives designated as a hedging instrument:
|
|
|
|
|
|
|
|
|
|
Interest rate products
|
|
Other assets
|
|
$
|
428
|
|
|
Other liabilities
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
Total derivatives designated as a hedging instrument
|
|
|
|
$
|
428
|
|
|
|
|
—
|
|
The tables below present the effect of the Company’s derivative financial instruments on the Consolidated Statements of Income during the three months ended March 31, 2020 and 2019 (in thousands).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain (loss) recognized in income on derivatives for the three months ended
|
|
|
|
|
|
Consolidated Statements of Income
|
|
March 31, 2020
|
|
March 31, 2019
|
|
Derivatives not designated as a hedging instrument:
|
|
|
|
|
|
|
|
Interest rate products
|
|
Other income
|
|
$
|
(819)
|
|
|
(673)
|
|
|
Credit contracts
|
|
Other income
|
|
(1)
|
|
|
(4)
|
|
|
Total
|
|
|
|
$
|
(820)
|
|
|
(677)
|
|
|
|
|
|
|
|
|
|
|
Derivatives designated as a hedging instrument:
|
|
|
|
|
|
|
|
Interest rate products
|
|
Interest expense
|
|
$
|
106
|
|
|
162
|
|
|
Total
|
|
|
|
$
|
106
|
|
|
162
|
|
The Company has agreements with certain of its dealer counterparties that contain a provision that if the Company defaults on any of its indebtedness, including 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 that 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 March 31, 2020, 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 $127.7 million at March 31, 2020. The Company has minimum collateral posting thresholds with certain of its derivative counterparties, and has posted collateral of $128.7 million against its obligations under these agreements. If the Company had breached any of these provisions at March 31, 2020, it could have been required to settle its obligations under the agreements at the termination value.
Note 12. 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 ended March 31, 2020 and 2019, the out-of-scope revenue related to financial instruments was 84% and 88% of the Company's total revenue, respectively. Revenue-generating activities that are within the scope of Topic 606, are components of non-interest income. These revenue streams can generally be classified into 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 months ended March 31, 2020 and 2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended March 31,
|
|
|
|
|
|
|
(in-thousands)
|
2020
|
|
2019
|
|
|
|
|
Non-interest income
|
|
|
|
|
|
|
|
In-scope of Topic 606:
|
|
|
|
|
|
|
|
Wealth management fees
|
$
|
6,251
|
|
|
4,079
|
|
|
|
|
|
Banking service charges and other fees:
|
|
|
|
|
|
|
|
Service charges on deposit accounts
|
2,977
|
|
|
3,191
|
|
|
|
|
|
Debit card and ATM fees
|
1,210
|
|
|
1,307
|
|
|
|
|
|
Total banking service charges and other fees
|
4,187
|
|
|
4,498
|
|
|
|
|
|
Total in-scope non-interest income
|
10,438
|
|
|
8,577
|
|
|
|
|
|
Total out-of-scope non-interest income
|
6,553
|
|
|
3,611
|
|
|
|
|
|
Total non-interest income
|
$
|
16,991
|
|
|
12,188
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 April 1, 2019, 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 quarterly or monthly basis. The Company does not earn performance-based incentives. To a lesser extent, optional services such as tax return preparation 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 13. 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 income 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 properties 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 March 31, 2020 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Classification
|
|
March 31, 2020
|
|
December 31, 2019
|
|
Lease Right-of-Use Assets:
|
|
|
|
|
|
|
|
Operating lease right-of-use assets
|
|
Other assets
|
|
$
|
40,110
|
|
|
$
|
41,754
|
|
|
Lease Liabilities:
|
|
|
|
|
|
|
|
Operating lease liabilities
|
|
Other liabilities
|
|
$
|
41,144
|
|
|
$
|
42,815
|
|
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 March 31, 2020, the weighted-average remaining lease term and the weighted-average discount rate for the Company's operating leases were 9.4 years and 3.48%, 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 March 31, 2020
|
|
Three months ended March 31, 2019
|
|
Lease Costs:
|
|
|
|
|
|
Operating lease cost
|
|
$
|
2,130
|
|
|
$
|
2,050
|
|
|
|
|
|
|
|
|
Variable lease cost
|
|
607
|
|
|
760
|
|
|
|
|
|
|
|
|
Total Lease Cost
|
|
$
|
2,737
|
|
|
$
|
2,810
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid for amounts included in the measurement of lease liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
Operating cash flows from operating leases
|
|
$
|
2,125
|
|
|
$
|
2,044
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
During the three months ended March 31, 2020, the Company did not enter into any new lease obligations.
Future minimum payments for operating leases with initial or remaining terms of one year or more as of March 31, 2020 were as follows:
|
|
|
|
|
|
|
|
|
|
|
(in-thousands)
|
|
Operating Leases
|
|
Twelve months ended:
|
|
|
|
Remainder of 2020
|
|
$
|
6,274
|
|
|
2021
|
|
6,085
|
|
|
2022
|
|
5,257
|
|
|
2023
|
|
4,747
|
|
|
2024
|
|
4,346
|
|
|
Thereafter
|
|
22,195
|
|
|
Total future minimum lease payments
|
|
48,904
|
|
|
Amounts representing interest
|
|
7,760
|
|
|
Present value of net future minimum lease payments
|
|
$
|
41,144
|
|