PFS-9.30.2013-10Q
Table of Contents

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
 
ý
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
 
 
For the quarterly period ended September 30, 2013
or
 
¨
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
 
 
For the transition period from              to
Commission File Number: 001-31566
PROVIDENT FINANCIAL SERVICES, INC.
(Exact Name of Registrant as Specified in Its Charter)
 
Delaware
 
42-1547151
(State or Other Jurisdiction of Incorporation or Organization)
 
(I.R.S. Employer Identification No.)
 
 
239 Washington Street, Jersey City, New Jersey
 
07302
(Address of Principal Executive Offices)
 
(Zip Code)
(732) 590-9200
(Registrant’s Telephone Number, Including Area Code)
Indicate by check mark whether the Registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding twelve months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    YES  ý    NO  ¨
Indicate by check mark whether the Registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding twelve months (or for such shorter period that the Registrant was required to submit and post such files).    YES  ý    NO  ¨
Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer”, “accelerated filer”, and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
 
Large Accelerated Filer
 
ý
  
Accelerated Filer
 
¨
 
 
 
 
Non-Accelerated Filer
 
¨
  
Smaller Reporting Company
 
¨
Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    YES  ¨    NO  ý
As of November 1, 2013 there were 83,209,293 shares issued and 59,895,345 shares outstanding of the Registrant’s Common Stock, par value $0.01 per share, including 412,163 shares held by the First Savings Bank Directors’ Deferred Fee Plan not otherwise considered outstanding under U.S. generally accepted accounting principles.


Table of Contents

PROVIDENT FINANCIAL SERVICES, INC.
INDEX TO FORM 10-Q
 
Item Number
Page Number
 
 
 
 
1.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
2.
 
 
 
3.
 
 
 
4.
 
 
 
 
1.
 
 
 
1A.
 
 
 
2.
 
 
 
3.
 
 
 
4.
 
 
 
5.
 
 
 
6.
 
 

2

Table of Contents

PART I—FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS.
PROVIDENT FINANCIAL SERVICES, INC. AND SUBSIDIARY
Consolidated Statements of Financial Condition
September 30, 2013 (Unaudited) and December 31, 2012
(Dollars in Thousands)
 
 
 
September 30, 2013
 
December 31, 2012
ASSETS
 
 
 
 
Cash and due from banks
 
$
92,971

 
$
101,850

Short-term investments
 
2,315

 
1,973

Total cash and cash equivalents
 
95,286

 
103,823

Securities available for sale, at fair value
 
1,146,144

 
1,264,002

Investment securities held to maturity (fair value of $359,424 at September 30, 2013 (unaudited) and $374,916 at December 31, 2012)
 
358,641

 
359,464

Federal Home Loan Bank stock
 
49,645

 
37,543

Loans
 
5,083,100

 
4,904,699

Less allowance for loan losses
 
66,008

 
70,348

Net loans
 
5,017,092

 
4,834,351

Foreclosed assets, net
 
7,282

 
12,473

Banking premises and equipment, net
 
67,406

 
66,120

Accrued interest receivable
 
21,302

 
24,002

Intangible assets
 
356,708

 
357,907

Bank-owned life insurance
 
149,269

 
147,286

Other assets
 
72,240

 
76,724

Total assets
 
$
7,341,015

 
$
7,283,695

 
 
 
 
 
LIABILITIES AND STOCKHOLDERS’ EQUITY
 
 
 
 
Deposits:
 
 
 
 
Demand deposits
 
$
3,488,066

 
$
3,556,011

Savings deposits
 
921,685

 
914,787

Certificates of deposit of $100,000 or more
 
283,084

 
324,901

Other time deposits
 
562,838

 
632,572

Total deposits
 
5,255,673

 
5,428,271

Mortgage escrow deposits
 
21,953

 
21,238

Borrowed funds
 
1,016,446

 
803,264

Other liabilities
 
50,251

 
49,676

Total liabilities
 
6,344,323

 
6,302,449

Stockholders’ Equity:
 
 
 
 
Preferred stock, $0.01 par value, 50,000,000 shares authorized, none issued
 

 

Common stock, $0.01 par value, 200,000,000 shares authorized, 83,209,293 shares issued and 59,863,653 shares outstanding at September 30, 2013 and 59,937,955 outstanding at December 31, 2012
 
832

 
832

Additional paid-in capital
 
1,024,589

 
1,021,507

Retained earnings
 
417,716

 
389,549

Accumulated other comprehensive income
 
(5,600
)
 
7,716

Treasury stock
 
(390,881
)
 
(386,270
)
Unallocated common stock held by the Employee Stock Ownership Plan
 
(49,964
)
 
(52,088
)
Common stock acquired by the Directors’ Deferred Fee Plan
 
(7,228
)
 
(7,298
)
Deferred compensation – Directors’ Deferred Fee Plan
 
7,228

 
7,298

Total stockholders’ equity
 
996,692

 
981,246

Total liabilities and stockholders’ equity
 
$
7,341,015

 
$
7,283,695

See accompanying notes to unaudited consolidated financial statements.

3

Table of Contents

PROVIDENT FINANCIAL SERVICES, INC. AND SUBSIDIARY
Consolidated Statements of Income
Three and nine months ended September 30, 2013 and 2012 (Unaudited)
(Dollars in Thousands, except per share data)
 
 
 
Three months ended September 30,
 
Nine months ended September 30,
 
 
2013
 
2012
 
2013
 
2012
Interest income:
 
 
 
 
 
 
 
 
Real estate secured loans
 
$
38,238

 
$
38,544

 
$
114,158

 
$
116,175

Commercial loans
 
10,092

 
10,242

 
30,118

 
30,817

Consumer loans
 
5,918

 
6,343

 
17,750

 
18,967

Securities available for sale and Federal Home Loan Bank Stock
 
6,033

 
6,599

 
18,345

 
22,743

Investment securities held to maturity
 
2,694

 
2,987

 
8,300

 
8,896

Deposits, Federal funds sold and other short-term investments
 
9

 
42

 
30

 
58

Total interest income
 
62,984

 
64,757

 
188,701

 
197,656

Interest expense:
 
 
 
 
 
 
 
 
Deposits
 
4,354

 
6,155

 
13,917

 
19,660

Borrowed funds
 
4,633

 
4,887

 
13,481

 
14,866

Total interest expense
 
8,987

 
11,042

 
27,398

 
34,526

Net interest income
 
53,997

 
53,715

 
161,303

 
163,130

Provision for loan losses
 
1,200

 
3,500

 
3,700

 
12,000

Net interest income after provision for loan losses
 
52,797

 
50,215

 
157,603

 
151,130

Non-interest income:
 
 
 
 
 
 
 
 
Fees
 
9,792

 
7,532

 
26,070

 
23,018

Bank-owned life insurance
 
1,201

 
1,273

 
5,355

 
3,895

Net gain on securities transactions
 
40

 
298

 
974

 
2,482

Other income
 
697

 
687

 
1,913

 
2,466

Total non-interest income
 
11,730

 
9,790

 
34,312

 
31,861

Non-interest expense:
 
 
 
 
 
 
 
 
Compensation and employee benefits
 
21,106

 
19,838

 
62,103

 
60,317

Net occupancy expense
 
5,072

 
5,142

 
15,322

 
15,330

Data processing expense
 
2,644

 
2,712

 
7,913

 
7,762

FDIC insurance
 
1,073

 
1,277

 
3,547

 
3,897

Amortization of intangibles
 
318

 
511

 
1,345

 
1,968

Advertising and promotion expense
 
718

 
1,036

 
2,741

 
2,849

Other operating expenses
 
5,533

 
6,380

 
18,252

 
19,320

Total non-interest expense
 
36,464

 
36,896

 
111,223

 
111,443

Income before income tax expense
 
28,063

 
23,109

 
80,692

 
71,548

Income tax expense
 
11,987

 
6,955

 
27,560

 
20,963

Net income
 
$
16,076

 
$
16,154

 
$
53,132

 
$
50,585

Basic earnings per share
 
$
0.28

 
$
0.28

 
$
0.93

 
$
0.89

Average basic shares outstanding
 
57,241,270

 
57,194,046

 
57,205,175

 
57,133,164

Diluted earnings per share
 
$
0.28

 
$
0.28

 
$
0.93

 
$
0.88

Average diluted shares outstanding
 
57,357,344

 
57,238,819

 
57,279,935

 
57,169,844


See accompanying notes to unaudited consolidated financial statements.

4

Table of Contents

PROVIDENT FINANCIAL SERVICES, INC. AND SUBSIDIARY
Consolidated Statements of Comprehensive Income
Three and nine months ended September 30, 2013 and 2012 (Unaudited)
(Dollars in Thousands)
 
 
 
Three months ended September 30,
 
Nine months ended September 30,
 
 
2013
 
2012
 
2013
 
2012
Net income
 
$
16,076

 
$
16,154

 
$
53,132

 
$
50,585

Other comprehensive income (loss), net of tax:
 
 
 
 
 
 
 
 
Unrealized gains and losses on securities available for sale:
 
 
 
 
 
 
 
 
Net unrealized gains (losses) arising during the period
 
779

 
3,352

 
(13,403
)
 
4,899

Reclassification adjustment for gains included in net income
 
(24
)
 
(176
)
 
(576
)
 
(1,468
)
Total
 
755

 
3,176

 
(13,979
)
 
3,431

Amortization related to post-retirement obligations
 
202

 
212

 
663

 
36

Total other comprehensive income (loss)
 
957

 
3,388

 
(13,316
)
 
3,467

Total comprehensive income
 
$
17,033

 
$
19,542

 
$
39,816

 
$
54,052

See accompanying notes to unaudited consolidated financial statements.


5

Table of Contents

PROVIDENT FINANCIAL SERVICES, INC. AND SUBSIDIARY
Consolidated Statements of Changes in Stockholders’ Equity
Nine months ended September 30, 2013 and 2012 (Unaudited)
(Dollars in Thousands)
 
 
 
COMMON
STOCK
 
ADDITIONAL
PAID-IN
CAPITAL
 
RETAINED
EARNINGS
 
ACCUMULATED
OTHER
COMPREHENSIVE
INCOME (LOSS)
 
TREASURY
STOCK
 
UNALLOCATED
ESOP
SHARES
 
COMMON
STOCK
ACQUIRED
BY DDFP
 
DEFERRED
COMPENSATION
DDFP
 
TOTAL
STOCKHOLDERS’
EQUITY
Balance at December 31, 2011
 
$
832

 
$
1,019,253

 
$
363,011

 
$
9,571

 
$
(384,725
)
 
$
(55,465
)
 
$
(7,390
)
 
$
7,390

 
$
952,477

Net income
 

 

 
50,585

 

 

 

 

 

 
50,585

Other comprehensive income, net of tax
 

 

 

 
3,467

 

 

 

 

 
3,467

Cash dividends declared
 

 

 
(23,081
)
 

 

 

 

 

 
(23,081
)
Distributions from DDFP
 

 

 

 

 

 

 
69

 
(69
)
 

Purchases of treasury stock
 

 

 

 

 
(5,620
)
 

 

 

 
(5,620
)
Shares issued dividend reinvestment plan
 

 
(1,641
)
 

 

 
7,065

 

 

 

 
5,424

Stock option exercises
 

 
(6
)
 

 

 
24

 

 

 

 
18

Allocation of ESOP shares
 

 
(290
)
 

 

 

 
2,101

 

 

 
1,811

Allocation of SAP shares
 

 
3,246

 

 

 

 

 

 

 
3,246

Allocation of stock options
 

 
216

 

 

 

 

 

 

 
216

Balance at September 30, 2012
 
$
832

 
$
1,020,778

 
$
390,515

 
$
13,038

 
$
(383,256
)
 
$
(53,364
)
 
$
(7,321
)
 
$
7,321

 
$
988,543

See accompanying notes to unaudited consolidated financial statements.

6

Table of Contents



PROVIDENT FINANCIAL SERVICES, INC. AND SUBSIDIARY
Consolidated Statements of Changes in Stockholders’ Equity
Nine months ended September 30, 2013 and 2012 (Unaudited) (Continued)
(Dollars in thousands)
 
 
 
COMMON
STOCK
 
ADDITIONAL
PAID-IN
CAPITAL
 
RETAINED
EARNINGS
 
ACCUMULATED
OTHER
COMPREHENSIVE
INCOME (LOSS)
 
TREASURY
STOCK
 
UNALLOCATED
ESOP
SHARES
 
COMMON
STOCK
ACQUIRED
BY DDFP
 
DEFERRED
COMPENSATION
DDFP
 
TOTAL
STOCKHOLDERS’
EQUITY
Balance at December 31, 2012
 
$
832

 
$
1,021,507

 
$
389,549

 
$
7,716

 
$
(386,270
)
 
$
(52,088
)
 
$
(7,298
)
 
$
7,298

 
$
981,246

Net income
 

 

 
53,132

 

 

 

 

 

 
53,132

Other comprehensive loss, net of tax
 

 

 

 
(13,316
)
 

 

 

 

 
(13,316
)
Cash dividends paid
 

 

 
(24,965
)
 

 

 

 

 

 
(24,965
)
Distributions from DDFP
 

 

 

 

 

 

 
70

 
(70
)
 

Purchases of treasury stock
 

 

 

 

 
(5,883
)
 

 

 

 
(5,883
)
Shares issued dividend reinvestment plan
 

 
(96
)
 

 

 
997

 

 

 

 
901

Stock option exercises
 

 
(76
)
 

 

 
275

 

 

 

 
199

Allocation of ESOP shares
 

 
(168
)
 

 

 

 
2,124

 

 

 
1,956

Allocation of SAP shares
 

 
3,212

 

 

 

 

 

 

 
3,212

Allocation of stock options
 

 
210

 

 

 

 

 

 

 
210

Balance at September 30, 2013
 
$
832

 
$
1,024,589

 
$
417,716

 
$
(5,600
)
 
$
(390,881
)
 
$
(49,964
)
 
$
(7,228
)
 
$
7,228

 
$
996,692

See accompanying notes to unaudited consolidated financial statements.


7

Table of Contents

PROVIDENT FINANCIAL SERVICES, INC. AND SUBSIDIARY
Consolidated Statements of Cash Flows
Nine months ended September 30, 2013 and 2012 (Unaudited)
(Dollars in Thousands)
 
 
 
Nine months ended September 30,
 
 
2013
 
2012
Cash flows from operating activities:
 
 
 
 
Net income
 
$
53,132

 
$
50,585

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
 
Depreciation and amortization of intangibles
 
6,691

 
7,094

Provision for loan losses
 
3,700

 
12,000

Deferred tax expense (benefit)
 
4,863

 
(4,921
)
Increase in cash surrender value of Bank-owned life insurance
 
(5,355
)
 
(3,895
)
Net amortization of premiums and discounts on securities
 
10,482

 
12,115

Accretion of net deferred loan fees
 
(2,957
)
 
(2,603
)
Amortization of premiums on purchased loans, net
 
1,068

 
1,272

Net increase in loans originated for sale
 
(20,539
)
 
(32,826
)
Proceeds from sales of loans originated for sale
 
21,500

 
34,581

Proceeds from sales of foreclosed assets
 
10,998

 
13,465

ESOP expense
 
1,956

 
1,811

Allocation of stock award shares
 
3,562

 
3,246

Allocation of stock options
 
210

 
216

Net gain on sale of loans
 
(961
)
 
(1,753
)
Net gain on securities transactions
 
(974
)
 
(2,482
)
Net gain on sale of premises and equipment
 
(42
)
 
(32
)
Net (gain) loss on sale of foreclosed assets
 
(18
)
 
227

Decrease in accrued interest receivable
 
2,700

 
2,063

Increase in other assets
 
(7,008
)
 
(6,343
)
Increase (decrease) in other liabilities
 
575

 
(195
)
Net cash provided by operating activities
 
83,583

 
83,625

Cash flows from investing activities:
 
 
 
 
Proceeds from maturities, calls and paydowns of investment securities held to maturity
 
77,817

 
61,882

Purchases of investment securities held to maturity
 
(78,608
)
 
(66,579
)
Proceeds from sales of securities
 
14,834

 
51,090

Proceeds from maturities, calls and paydowns of securities available for sale
 
298,894

 
353,493

Purchases of securities available for sale
 
(227,101
)
 
(368,859
)
Purchases of loans
 
(22,005
)
 
(115,428
)
Net increase in loans
 
(160,914
)
 
(63,404
)
Proceeds from sales of premises and equipment
 
35

 
65

Purchases of premises and equipment
 
(6,623
)
 
(6,410
)
Net cash used in investing activities
 
(103,671
)
 
(154,150
)
Cash flows from financing activities:
 
 
 
 
Net (decrease) increase in deposits
 
(172,598
)
 
217,080

Increase in mortgage escrow deposits
 
715

 
385

Purchase of treasury Stock
 
(5,883
)
 
(5,620
)
Cash dividends paid to stockholders
 
(24,965
)
 
(23,081
)
Shares issued dividend reinvestment plan
 
901

 
5,424

Stock options exercised
 
199

 
18

Proceeds from long-term borrowings
 
215,000

 


8

Table of Contents

Payments on long-term borrowings
 
(52,193
)
 
(26,197
)
Net increase (decrease) in short-term borrowings
 
50,375

 
(59,563
)
Net cash provided by financing activities
 
11,551

 
108,446

Net (decrease) increase in cash and cash equivalents
 
(8,537
)
 
37,921

Cash and cash equivalents at beginning of period
 
103,823

 
69,632

Cash and cash equivalents at end of period
 
$
95,286

 
$
107,553

Cash paid during the period for:
 
 
 
 
Interest on deposits and borrowings
 
$
27,532

 
$
34,854

Income taxes
 
$
21,321

 
$
20,318

Non cash investing activities:
 
 
 
 
Transfer of loans receivable to foreclosed assets
 
$
6,408

 
$
14,813

Fair Value of Assets Acquired
 
$

 
$
672

Goodwill and customer relationship intangible
 
$

 
$
(672
)
See accompanying notes to unaudited consolidated financial statements

9

Table of Contents

PROVIDENT FINANCIAL SERVICES, INC. AND SUBSIDIARY
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, The 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 statements of financial condition and the results of operations for the periods presented. Actual results could differ from these estimates. The allowance for loan losses and the valuation of securities available for sale are material estimates that are particularly susceptible to near-term change. The current unstable economic environment has resulted in a heightened degree of uncertainty inherent in these material estimates.
The interim unaudited consolidated financial statements reflect all normal and recurring adjustments, which are, in the opinion of management, considered necessary for a fair presentation of the financial condition and results of operations for the periods presented. The results of operations for the three and nine months ended September 30, 2013 are not necessarily indicative of the results of operations that may be expected for all of 2013.
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, 2012 Annual Report to Stockholders on Form 10-K.
B. Earnings Per Share
The following is a reconciliation of the numerators and denominators of the basic and diluted earnings per share calculations for the three and nine months ended September 30, 2013 and 2012:
 
 
Three months ended September 30,
 
 
 
2013
 
2012
 
 
 
Net
Income
 
Weighted
Average
Common
Shares
Outstanding
 
Per
Share
Amount
 
Net
Income
 
Weighted
Average
Common
Shares
Outstanding
 
Per
Share
Amount
 
Net income
 
$
16,076

 
 
 
 
 
$
16,154

 
 
 
 
 
Basic earnings per share:
 
 
 
 
 
 
 
 
 
 
 
 
 
Income available to common stockholders
 
$
16,076

 
57,241,270

 
$
0.28

 
$
16,154

 
57,194,046

 
$
0.28

 
Dilutive shares
 
 
 
116,074

 
 
 
 
 
44,773

 
 
 
Diluted earnings per share:
 
 
 
 
 
 
 
 
 
 
 
 
 
Income available to common stockholders
 
$
16,076

 
57,357,344

 
$
0.28

 
$
16,154

 
57,238,819

 
$
0.28

 


10

Table of Contents

 
 
Nine months ended September 30,
 
 
2013
 
2012
 
 
Net
Income
 
Weighted
Average
Common
Shares
Outstanding
 
Per
Share
Amount
 
Net
Income
 
Weighted
Average
Common
Shares
Outstanding
 
Per
Share
Amount
Net income
 
$
53,132

 
 
 
 
 
$
50,585

 
 
 
 
Basic earnings per share:
 
 
 
 
 
 
 
 
 
 
 
 
Income available to common stockholders
 
$
53,132

 
57,205,175

 
$
0.93

 
$
50,585

 
57,133,164

 
$
0.89

Dilutive shares
 
 
 
74,760

 
 
 
 
 
36,680

 
 
Diluted earnings per share:
 
 
 
 
 
 
 
 
 
 
 
 
Income available to common stockholders
 
$
53,132

 
57,279,935

 
$
0.93

 
$
50,585

 
57,169,844

 
$
0.88

Anti-dilutive stock options and awards totaling 1,049,455 shares at September 30, 2013, were excluded from the earnings per share calculations.

Note 2. Investment Securities
At September 30, 2013, the Company had $1.15 billion and $358.6 million in available for sale and held to maturity investment securities, respectively. Many factors, including lack of liquidity in the secondary market for certain securities, variations in pricing information, regulatory actions, changes in the business environment or any changes in the competitive marketplace could have an adverse effect on the Company’s investment portfolio which could result in other-than-temporary impairment on certain investment securities in future periods. Included in the Company’s investment portfolio are private label mortgage-backed securities. These investments may pose a higher risk of future impairment charges as a result of the uncertain economic environment and the potential negative effect on future performance of these private label mortgage-backed securities. The total number of all held to maturity and available for sale securities in an unrealized loss position as of September 30, 2013 totaled 269, compared with 65 at December 31, 2012. All securities with unrealized losses at September 30, 2013 were analyzed for other-than-temporary impairment. Based upon this analysis, no other-than-temporary impairment existed at September 30, 2013.
Securities Available for Sale
The following table presents the amortized cost, gross unrealized gains, gross unrealized losses and the estimated fair value for securities available for sale at September 30, 2013 and December 31, 2012 (in thousands):
 

September 30, 2013
 

Amortized
cost

Gross
unrealized
gains

Gross
unrealized
losses
 
Fair
value
Agency obligations

$
86,327


414


(131
)
 
86,610

Mortgage-backed securities

1,045,042


17,395


(12,806
)
 
1,049,631

State and municipal obligations

9,429


211


(114
)
 
9,526

Equity securities

307


70



 
377

 

$
1,141,105


18,090


(13,051
)
 
1,146,144

 






 

 
 
December 31, 2012
 
 
Amortized
cost
 
Gross
unrealized
gains
 
Gross
unrealized
losses
 
Fair
value
Agency obligations
 
$
90,443

 
574

 

 
91,017

Mortgage-backed securities
 
1,134,647

 
27,934

 
(256
)
 
1,162,325

State and municipal obligations
 
9,933

 
384

 
(1
)
 
10,316

Equity securities
 
307

 
37

 

 
344

 
 
$
1,235,330

 
28,929

 
(257
)
 
1,264,002

The amortized cost and fair value of securities available for sale at September 30, 2013, 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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September 30, 2013
 
 
Amortized
cost
 
Fair
value
Due in one year or less
 
$
23,090

 
23,201

Due after one year through five years
 
69,231

 
69,600

Due after five years through ten years
 
407

 
421

Due after ten years
 
3,028

 
2,914

Mortgage-backed securities
 
1,045,042

 
1,049,631

Equity securities
 
307

 
377

 
 
$
1,141,105

 
1,146,144


No securities were sold from the available for sale portfolio during the three months ended September 30, 2013. For the same period last year, proceeds from the sale of securities available for sale were $3,959,000 resulting in gross gains of $266,000 and no gross losses.
For the nine months ended September 30, 2013, proceeds from the sale of securities available for sale were $14,310,000, resulting in gross gains of $888,000 and no gross losses. For the same period last year, proceeds from the sale of securities available for sale were $51,090,000, resulting in gross gains of $2,425,000 and no gross losses. Also, for the nine months ended September 30, 2013, proceeds from calls on securities available for sale totaled $896,000, with no gains or losses recognized. There were no calls on securities available for sale for the nine months ended September 30, 2012.
The following table presents a roll-forward of the credit loss component of other-than-temporary impairment (“OTTI”) on debt securities for which a non-credit component of OTTI was recognized in other comprehensive income. OTTI recognized in earnings for credit-impaired debt securities is presented in two components based upon whether the current period is the first time a debt security was credit-impaired (initial credit impairment), or whether the current period is not the first time a debt security was credit impaired (subsequent credit impairment). Changes in the credit loss component of credit-impaired debt securities were as follows (in thousands):
 
 
Three months ended September 30,
 
Nine months ended September 30,
 

2013

2012

2013

2012
Beginning credit loss amount

$
1,240

 
1,240

 
1,240

 
1,240

Add: Initial OTTI credit losses


 

 

 

Subsequent OTTI credit losses


 

 

 

Less: Realized losses for securities sold


 

 

 

Securities intended or required to be sold


 

 

 

Increases in expected cash flows on debt securities


 

 

 

Ending credit loss amount

$
1,240

 
1,240

 
1,240

 
1,240

The Company did not incur an OTTI charge on securities for the three and nine months ended September 30, 2013 or 2012, respectively.
The following table represents the Company’s disclosure regarding securities available for sale with temporary impairment at September 30, 2013 and December 31, 2012 (in thousands):
 

September 30, 2013 Unrealized Losses
 

Less than 12 months

12 months or longer

Total
 

Fair value

Gross
unrealized
losses

Fair
value

Gross
unrealized
losses

Fair
value

Gross
unrealized
losses
Agency obligations

$
18,325

 
(131
)
 

 

 
18,325

 
(131
)
Mortgage-backed securities

440,273

 
(12,805
)
 
344

 
(1
)
 
440,617

 
(12,806
)
State and municipal obligations

2,914

 
(114
)
 

 

 
2,914

 
(114
)


$
461,512

 
(13,050
)
 
344

 
(1
)
 
461,856

 
(13,051
)

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December 31, 2012 Unrealized Losses
 

Less than 12 months

12 months or longer

Total
 

Fair
value

Gross
unrealized
losses

Fair
value

Gross
unrealized
losses

Fair
value

Gross
unrealized
losses
Mortgage-backed securities

$
59,521

 
(205
)
 
11,012

 
(51
)
 
70,533

 
(256
)
State and municipal obligations


 

 
503

 
(1
)
 
503

 
(1
)


$
59,521

 
(205
)
 
11,515

 
(52
)
 
71,036

 
(257
)
The temporary loss position associated with securities available for sale was the result of changes in market interest rates relative to the coupon of the individual security and changes in credit spreads. In addition, there remains a lack of liquidity in certain sectors of the mortgage-backed securities market. Increases in delinquencies and foreclosures have resulted in limited trading activity and significant price declines, regardless of favorable movements in interest rates. The Company does not have the intent to sell securities in a temporary loss position at September 30, 2013, nor is it more likely than not that the Company will be required to sell the securities before the anticipated recovery.
The number of securities in an unrealized loss position at September 30, 2013 totaled 49, compared with 9 at December 31, 2012. The increase in the number of securities in an unrealized loss position at September 30, 2013, was a function of a steepened yield curve, as longer term market interest rates increased and spreads widened. At September 30, 2013, there were 4 private label mortgage-backed securities in an unrealized loss position, with an amortized cost of $10,551,000 and unrealized losses totaling $240,000. Two of these private label mortgage-backed securities were below investment grade at September 30, 2013.
The Company estimates the loss projections for each security by stressing the individual loans collateralizing the security and applying a range of expected default rates, loss severities, and prepayment speeds in conjunction with the underlying credit enhancement for each security. Based on specific assumptions about collateral and vintage, a range of possible cash flows was identified to determine whether other-than-temporary impairment existed during the three and nine months ended September 30, 2013. The Company concluded that no other-than-temporary impairment of the securities available for sale portfolio existed at September 30, 2013.
Investment Securities Held to Maturity
The following table presents the amortized cost, gross unrealized gains, gross unrealized losses and the estimated fair value for investment securities held to maturity at September 30, 2013 and December 31, 2012 (in thousands):
 
 
September 30, 2013
 
 
Amortized
cost
 
Gross
unrealized
gains
 
Gross
unrealized
losses
 
Fair
value
Agency obligations

$
6,380

 
22

 
(61
)
 
6,341

Mortgage-backed securities

6,150

 
264

 

 
6,414

State and municipal obligations

335,793

 
6,527

 
(5,988
)
 
336,332

Corporate obligations

10,318

 
80

 
(61
)
 
10,337

 

$
358,641

 
6,893

 
(6,110
)
 
359,424

 
 
 
 
 
 
 
 
 
 

December 31, 2012
 
 
Amortized
cost
 
Gross
unrealized
gains
 
Gross
unrealized
losses
 
Fair
value
Agency obligations

$
4,705

 
34

 

 
4,739

Mortgage-backed securities

11,123

 
460

 

 
11,583

State and municipal obligations

336,078

 
15,332

 
(585
)
 
350,825

Corporate obligations

7,558

 
211

 

 
7,769

 

$
359,464

 
16,037

 
(585
)
 
374,916

The Company generally purchases securities for long-term investment purposes, and differences between amortized cost and fair values may fluctuate during the investment period. For the three and nine months ended September 30, 2013, the Company recognized gross gains of $40,000 and $70,000, and gross losses of $0 and $2,000, respectively, related to calls on certain securities in the held to maturity portfolio, with proceeds from the calls totaling $19,635,000 and $42,113,000 for the three and nine months ended September 30, 2013, respectively. In addition, for the nine months ended September 30, 2013, the Company recognized gross gains of $18,000, and no gross losses, related to the sales of certain securities, with the proceeds totaling $524,000. The

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sales of these securities were in response to the credit deterioration of the issuers. There were no sales of securities from the held to maturity portfolio for the three months ended September 30, 2013.
For the three and nine months ended September 30, 2012, the Company recognized gains of $32,000 and $57,000, respectively, related to calls on certain securities in the held to maturity portfolio, with proceeds from the calls totaling $4,719,000 and $7,071,000, respectively. There were no sales of securities from the held to maturity portfolio for the three and nine months ended September 30, 2012.
The amortized cost and fair value of investment securities in the held to maturity portfolio at September 30, 2013 by contractual maturity are shown below (in thousands). Expected maturities may differ from contractual maturities due to prepayment or early call privileges of the issuer.
 
 
September 30, 2013
 
 
Amortized
cost
 
Fair
value
Due in one year or less

$
35,518

 
35,687

Due after one year through five years

52,096

 
53,225

Due after five years through ten years

114,197

 
117,144

Due after ten years

150,680

 
146,954

Mortgage-backed securities

6,150

 
6,414



$
358,641

 
359,424

The following table represents the Company’s disclosure on investment securities held to maturity with temporary impairment at September 30, 2013 and December 31, 2012 (in thousands):
 

September 30, 2013 Unrealized Losses
 

Less than 12 months

12 months or longer

Total
 

Fair
value

Gross
unrealized
losses

Fair
value

Gross
unrealized
losses

Fair
value

Gross
unrealized
losses
Agency obligations

$
4,144

 
(61
)
 

 

 
4,144

 
(61
)
State and municipal obligations

112,898

 
(5,833
)
 
2,724

 
(155
)
 
115,622

 
(5,988
)
Corporate obligations

4,364

 
(61
)
 

 

 
4,364

 
(61
)
 

$
121,406

 
(5,955
)
 
2,724

 
(155
)
 
124,130

 
(6,110
)
 

December 31, 2012 Unrealized Losses
 

Less than 12 months

12 months or longer

Total
 

Fair
value

Gross
unrealized
losses

Fair
value

Gross
unrealized
losses

Fair
value

Gross
unrealized
losses
State and municipal obligations

$
30,992

 
(585
)
 

 

 
30,992

 
(585
)
 

$
30,992

 
(585
)
 

 

 
30,992

 
(585
)
Based upon the review of the held to maturity securities portfolio, the Company believes that as of September 30, 2013, securities with unrealized loss positions shown above do not represent impairments that are other-than-temporary. The review of the portfolio for other-than-temporary impairment considers the percentage and length of time the fair value of an investment is below book value, as well as general market conditions, changes in interest rates, credit risks, whether the Company has the intent to sell the securities and whether it is more likely than not that the Company would be required to sell the securities before the anticipated recovery.
The number of securities in an unrealized loss position at September 30, 2013 totaled 220, compared with 56 at December 31, 2012. The increase in the number of securities in an unrealized loss position at September 30, 2013, was a function of a steepened yield curve, as longer term market interest rates increased and spreads widened on municipal securities, which represents the majority of the held to maturity portfolio. All temporarily impaired investment securities were investment grade at September 30, 2013.

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Table of Contents

Note 3. Loans Receivable and Allowance for Loan Losses
Loans receivable at September 30, 2013 and December 31, 2012 are summarized as follows (in thousands):
 
 
September 30, 2013
 
December 31, 2012
Mortgage loans:
 
 
 
 
Residential
 
1,192,762

 
1,265,015

Commercial
 
1,375,372

 
1,349,950

Multi-family
 
859,908

 
723,958

Construction
 
190,526

 
120,133

Total mortgage loans
 
3,618,568

 
3,459,056

Commercial loans
 
891,510

 
866,395

Consumer loans
 
574,678

 
579,166

Total gross loans
 
5,084,756

 
4,904,617

Premiums on purchased loans
 
4,220

 
4,964

Unearned discounts
 
(63
)
 
(78
)
Net deferred fees
 
(5,813
)
 
(4,804
)
 
 
$
5,083,100

 
4,904,699

The following table summarizes the aging of loans receivable by portfolio segment and class as follows (in thousands):
 
 
September 30, 2013
 
 
30-59
Days
 
60-89
Days
 
Non-accrual
 
Total Past
Due and
Non-accrual
 
Current
 
Total Loans
Receivable
 
Recorded
Investment
> 90 days
accruing
Mortgage loans:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Residential
 
$
13,868

 
5,248

 
22,729

 
41,845

 
1,150,917

 
1,192,762

 

Commercial
 
690

 
318

 
26,921

 
27,929

 
1,347,443

 
1,375,372

 

Multi-family
 

 

 
412

 
412

 
859,496

 
859,908

 

Construction
 

 

 
8,561

 
8,561

 
181,965

 
190,526

 

Total mortgage loans
 
14,558

 
5,566

 
58,623

 
78,747

 
3,539,821

 
3,618,568

 

Commercial loans
 
125

 
36

 
19,573

 
19,734

 
871,776

 
891,510

 

Consumer loans
 
2,103

 
1,628

 
3,388

 
7,119

 
567,559

 
574,678

 

Total loans
 
$
16,786

 
7,230

 
81,584

 
105,600

 
4,979,156

 
5,084,756

 

 
 
December 31, 2012
 
 
30-59
Days
 
60-89
Days
 
Non-accrual
 
Total Past
Due and
Non-accrual
 
Current
 
Total Loans
Receivable
 
Recorded
Investment
> 90 days
accruing
Mortgage loans:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Residential
 
$
15,752

 
11,986

 
29,293

 
57,031

 
1,207,984

 
1,265,015

 

Commercial
 
535

 
12,194

 
29,072

 
41,801

 
1,308,149

 
1,349,950

 

Multi-family
 

 

 
412

 
412

 
723,546

 
723,958

 

Construction
 

 

 
8,896

 
8,896

 
111,237

 
120,133

 

Total mortgage loans
 
16,287

 
24,180

 
67,673

 
108,140

 
3,350,916

 
3,459,056

 

Commercial loans
 
1,840

 
70

 
25,467

 
27,377

 
839,018

 
866,395

 

Consumer loans
 
4,144

 
1,808

 
5,850

 
11,802

 
567,364

 
579,166

 

Total loans
 
$
22,271

 
26,058

 
98,990

 
147,319

 
4,757,298

 
4,904,617

 


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 $81.6 million and $99.0 million at September 30, 2013 and December 31, 2012, respectively. Included in non-accrual loans were $30.3 million and $33.0 million of loans which were less than 90 days past due at September 30, 2013 and December 31, 2012, respectively. There were no loans ninety days or greater past due and still accruing interest at September 30, 2013, or December 31, 2012.

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Table of Contents

The Company defines an impaired loan as a non-homogenous loan greater than $1.0 million for which it is probable, based on current information, all amounts due under the contractual terms of the loan agreement will not be collected. Impaired loans also include all loans modified as troubled debt restructurings (“TDRs”). A loan is deemed to be a TDR when a loan modification resulting in a concession is made in an effort to mitigate potential loss arising from a borrower’s financial difficulty. Smaller balance homogeneous loans, including residential mortgages and other consumer loans, are evaluated collectively for impairment and are excluded from the definition of impaired loans, unless modified as TDRs. The Company separately calculates the reserve for loan losses on impaired loans. The Company may recognize impairment of a loan based upon: (1) the present value of expected cash flows discounted at the effective interest rate; or (2) if a loan is collateral dependent, the fair value of collateral; or (3)the market price of the loan. Additionally, if impaired loans have risk characteristics in common, those loans may be aggregated and historical statistics may be used as a means of measuring those impaired loans.
The Company uses third-party appraisals to determine the fair value of the underlying collateral in its analyses of collateral dependent impaired loans. A third party appraisal is generally ordered as soon as a loan is designated as a collateral dependent impaired loan and is updated annually or more frequently, if required.
A specific allocation of the allowance for loan losses is established for each collateral dependent impaired loan with a carrying balance greater than the collateral’s fair value, less estimated costs to sell. Charge-offs are generally taken for the amount of the specific allocation when operations associated with the respective property cease and it is determined that collection of amounts due will be derived primarily from the disposition of the collateral. At each fiscal quarter end, if a loan is designated as a collateral dependent impaired loan 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 September 30, 2013, there were 148 impaired loans totaling $113.0 million. Included in this total were 116 TDRs related to 107 borrowers totaling $60.3 million that were performing in accordance with their restructured terms and which continued to accrue interest at September 30, 2013. At December 31, 2012, there were 108 impaired loans totaling $109.6 million. Included in this total were 80 TDRs to 70 borrowers totaling $58.4 million that were performing in accordance with their restructured terms and which continued to accrue interest at December 31, 2012.
Loans receivable summarized by portfolio segment and impairment method are as follows (in thousands):
 

September 30, 2013
 

Mortgage
loans

Commercial
loans

Consumer
loans

Total Portfolio
Segments
Individually evaluated for impairment

$
82,531

 
28,382

 
2,124

 
113,037

Collectively evaluated for impairment

3,536,037

 
863,128

 
572,554

 
4,971,719

Total

$
3,618,568

 
891,510

 
574,678

 
5,084,756

 

December 31, 2012
 

Mortgage
loans

Commercial
loans

Consumer
loans

Total Portfolio
Segments
Individually evaluated for impairment

$
78,525

 
29,807

 
1,298

 
109,630

Collectively evaluated for impairment

3,380,531

 
836,588

 
577,868

 
4,794,987

Total

$
3,459,056

 
866,395

 
579,166

 
4,904,617

The allowance for loan losses is summarized by portfolio segment and impairment classification as follows (in thousands):
 

September 30, 2013
 

Mortgage
loans

Commercial
loans

Consumer
loans

Total Portfolio
Segments

Unallocated

Total
Individually evaluated for impairment

$
9,356

 
1,219

 
159

 
10,734

 

 
10,734

Collectively evaluated for impairment

26,047

 
22,208

 
4,405

 
52,660

 
2,614

 
55,274

Total

$
35,403

 
23,427

 
4,564

 
63,394

 
2,614

 
66,008

 

16

Table of Contents

 

December 31, 2012
 

Mortgage
loans

Commercial
loans

Consumer
loans

Total Portfolio
Segments

Unallocated

Total
Individually evaluated for impairment

$
5,172

 
1,949

 
90

 
7,211

 

 
7,211

Collectively evaluated for