SEC Document



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 March 31, 2016
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 May 2, 2016 there were 83,209,293 shares issued and 66,089,794 shares outstanding of the Registrant’s Common Stock, par value $0.01 per share, including 353,625 shares held by the First Savings Bank Directors’ Deferred Fee Plan not otherwise considered outstanding under U.S. generally accepted accounting principles.




PROVIDENT FINANCIAL SERVICES, INC.
INDEX TO FORM 10-Q
 
Item Number
Page Number
 
 
 
 
1.
 
 
 
 
 
Consolidated Statements of Financial Condition as of March 31, 2016 (unaudited) and December 31, 2015
 
 
 
 
Consolidated Statements of Income for the three months ended March 31, 2016 and 2015 (unaudited)
 
 
 
 
Consolidated Statements of Comprehensive Income for the three months ended March 31, 2016 and 2015 (unaudited)
 
 
 
 
Consolidated Statements of Changes in Stockholders’ Equity for the three months ended March 31, 2016 and 2015 (unaudited)
 
 
 
 
Consolidated Statements of Cash Flows for the three months ended March 31, 2016 and 2015 (unaudited)
 
 
 
 
 
 
 
2.
 
 
 
3.
 
 
 
4.
 
 
 
 
1.
 
 
 
1A.
 
 
 
2.
 
 
 
3.
Defaults Upon Senior Securities
 
 
 
4.
 
 
 
5.
 
 
 
6.
 
 

2



PART I—FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS.
PROVIDENT FINANCIAL SERVICES, INC. AND SUBSIDIARY
Consolidated Statements of Financial Condition
March 31, 2016 (Unaudited) and December 31, 2015
(Dollars in Thousands)
 
 
 
March 31, 2016
 
December 31, 2015
ASSETS
 
 
 
 
Cash and due from banks
 
$
107,252

 
$
100,899

Short-term investments
 
859

 
1,327

Total cash and cash equivalents
 
108,111

 
102,226

Securities available for sale, at fair value
 
984,206

 
964,534

Investment securities held to maturity (fair value of $491,349 at March 31, 2016 (unaudited)
and $488,331 at December 31, 2015)
 
472,934

 
473,684

Federal Home Loan Bank stock
 
72,135

 
78,181

Loans
 
6,638,127

 
6,537,674

Less allowance for loan losses
 
62,191

 
61,424

Net loans
 
6,575,936

 
6,476,250

Foreclosed assets, net
 
11,029

 
10,546

Banking premises and equipment, net
 
88,249

 
88,987

Accrued interest receivable
 
25,399

 
25,766

Intangible assets
 
425,260

 
426,277

Bank-owned life insurance
 
184,389

 
183,057

Other assets
 
78,526

 
82,149

Total assets
 
$
9,026,174

 
$
8,911,657

 
 
 
 
 
LIABILITIES AND STOCKHOLDERS’ EQUITY
 
 
 
 
Deposits:
 
 
 
 
Demand deposits
 
$
4,353,814

 
$
4,198,788

Savings deposits
 
1,005,430

 
985,478

Certificates of deposit of $100,000 or more
 
389,985

 
324,215

Other time deposits
 
405,633

 
415,506

Total deposits
 
6,154,862

 
5,923,987

Mortgage escrow deposits
 
25,636

 
23,345

Borrowed funds
 
1,570,141

 
1,707,632

Other liabilities
 
61,413

 
60,628

Total liabilities
 
7,812,052

 
7,715,592

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
65,732,579 shares outstanding at March 31, 2016 (unaudited) and 65,489,354 outstanding
at December 31, 2015
 
832

 
832

Additional paid-in capital
 
1,001,919

 
1,000,810

Retained earnings
 
517,365

 
507,713

Accumulated other comprehensive income (loss)
 
4,169

 
(2,546
)
Treasury stock
 
(269,105
)
 
(269,014
)
Unallocated common stock held by the Employee Stock Ownership Plan
 
(41,058
)
 
(41,730
)
Common stock acquired by the Directors’ Deferred Fee Plan
 
(6,350
)
 
(6,517
)
Deferred compensation – Directors’ Deferred Fee Plan
 
6,350

 
6,517

Total stockholders’ equity
 
1,214,122

 
1,196,065

Total liabilities and stockholders’ equity
 
$
9,026,174

 
$
8,911,657

See accompanying notes to unaudited consolidated financial statements.

3



PROVIDENT FINANCIAL SERVICES, INC. AND SUBSIDIARY
Consolidated Statements of Income
Three months ended March 31, 2016 and 2015 (Unaudited)
(Dollars in Thousands, except per share data)
 
 
 
Three months ended March 31,
 
 
2016
 
2015
Interest income:
 
 
 
 
Real estate secured loans
 
$
44,233

 
$
43,289

Commercial loans
 
14,952

 
13,439

Consumer loans
 
5,636

 
5,794

Securities available for sale and Federal Home Loan Bank Stock
 
5,780

 
6,301

Investment securities held to maturity
 
3,331

 
3,396

Deposits, Federal funds sold and other short-term investments
 
42

 
12

Total interest income
 
73,974

 
72,231

Interest expense:
 
 
 
 
Deposits
 
3,821

 
3,588

Borrowed funds
 
7,084

 
6,715

Total interest expense
 
10,905

 
10,303

Net interest income
 
63,069

 
61,928

Provision for loan losses
 
1,500

 
600

Net interest income after provision for loan losses
 
61,569

 
61,328

Non-interest income:
 
 
 
 
Fees
 
6,461

 
6,054

Wealth management income
 
4,311

 
2,558

Bank-owned life insurance
 
1,332

 
1,348

Net gain on securities transactions
 
96

 
2

Other income
 
818

 
341

Total non-interest income
 
13,018

 
10,303

Non-interest expense:
 
 
 
 
Compensation and employee benefits
 
26,030

 
24,201

Net occupancy expense
 
6,434

 
7,172

Data processing expense
 
3,245

 
3,027

FDIC insurance
 
1,322

 
1,218

Amortization of intangibles
 
1,005

 
927

Advertising and promotion expense
 
879

 
761

Other operating expenses
 
5,963

 
6,131

Total non-interest expense
 
44,878

 
43,437

Income before income tax expense
 
29,709

 
28,194

Income tax expense
 
8,736

 
8,392

Net income
 
$
20,973

 
$
19,802

Basic earnings per share
 
$
0.33

 
$
0.32

Weighted average basic shares outstanding
 
63,351,093

 
62,673,887

Diluted earnings per share
 
$
0.33

 
$
0.32

Weighted average diluted shares outstanding
 
63,519,755

 
62,840,951


See accompanying notes to unaudited consolidated financial statements.

4



PROVIDENT FINANCIAL SERVICES, INC. AND SUBSIDIARY
Consolidated Statements of Comprehensive Income
Three months ended March 31, 2016 and 2015 (Unaudited)
(Dollars in Thousands)
 
 
 
Three months ended March 31,
 
 
2016
 
2015
Net income
 
$
20,973

 
$
19,802

Other comprehensive income, net of tax:
 
 
 
 
Unrealized gains and losses on securities available for sale:
 
 
 
 
Net unrealized gains arising during the period
 
7,094

 
3,711

Reclassification adjustment for gains included in net income
 
(57
)
 
(1
)
Total
 
7,037

 
3,710

Unrealized losses on derivatives
 
(421
)
 

Amortization (accretion) related to post-retirement obligations
 
99

 
(4
)
Total other comprehensive income
 
6,715

 
3,706

Total comprehensive income
 
$
27,688

 
$
23,508

See accompanying notes to unaudited consolidated financial statements.


5



PROVIDENT FINANCIAL SERVICES, INC. AND SUBSIDIARY
Consolidated Statements of Changes in Stockholders’ Equity
Three months ended March 31, 2016 and 2015 (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, 2014
 
$
832

 
$
995,053

 
$
465,276

 
$
29

 
$
(271,779
)
 
$
(45,312
)
 
$
(7,113
)
 
$
7,113

 
$
1,144,099

Net income
 

 

 
19,802

 

 

 

 

 

 
19,802

Other comprehensive income, net of tax
 

 

 

 
3,706

 

 

 

 

 
3,706

Cash dividends declared
 

 

 
(10,798
)
 

 

 

 

 

 
(10,798
)
Distributions from DDFP
 

 

 

 

 

 

 
23

 
(23
)
 

Purchases of treasury stock
 

 

 

 

 
(1,882
)
 

 

 

 
(1,882
)
Shares issued dividend reinvestment plan
 

 
23

 

 

 
354

 

 

 

 
377

Stock option exercises
 

 
(17
)
 

 

 
412

 

 

 

 
395

Allocation of ESOP shares
 

 
38

 

 

 

 
649

 

 

 
687

Allocation of SAP shares
 

 
1,213

 

 

 

 

 

 

 
1,213

Allocation of stock options
 

 
72

 

 

 

 

 

 

 
72

Balance at March 31, 2015
 
$
832

 
$
996,382

 
$
474,280

 
$
3,735

 
$
(272,895
)
 
$
(44,663
)
 
$
(7,090
)
 
$
7,090

 
$
1,157,671

See accompanying notes to unaudited consolidated financial statements.

6





PROVIDENT FINANCIAL SERVICES, INC. AND SUBSIDIARY
Consolidated Statements of Changes in Stockholders’ Equity
Three months ended March 31, 2016 and 2015 (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, 2015
 
$
832

 
$
1,000,810

 
$
507,713

 
$
(2,546
)
 
$
(269,014
)
 
$
(41,730
)
 
$
(6,517
)
 
$
6,517

 
$
1,196,065

Net income
 

 

 
20,973

 

 

 

 

 

 
20,973

Other comprehensive income, net of tax
 

 

 

 
6,715

 

 

 

 

 
6,715

Cash dividends declared
 

 

 
(11,321
)
 

 

 

 

 

 
(11,321
)
Distributions from DDFP
 

 
30

 

 

 

 

 
167

 
(167
)
 
30

Purchases of treasury stock
 

 

 

 

 
(2,697
)
 

 

 

 
(2,697
)
Shares issued dividend reinvestment plan
 

 
34

 

 

 
331

 

 

 

 
365

Stock option exercises
 

 
46

 

 

 
2,275

 

 

 

 
2,321

Allocation of ESOP shares
 

 
74

 

 

 

 
672

 

 

 
746

Allocation of SAP shares
 

 
879

 

 

 

 

 

 

 
879

Allocation of stock options
 

 
46

 

 

 

 

 

 

 
46

Balance at March 31, 2016
 
$
832

 
$
1,001,919

 
$
517,365

 
$
4,169

 
$
(269,105
)
 
$
(41,058
)
 
$
(6,350
)
 
$
6,350

 
$
1,214,122

See accompanying notes to unaudited consolidated financial statements.


7



PROVIDENT FINANCIAL SERVICES, INC. AND SUBSIDIARY
Consolidated Statements of Cash Flows
Three months ended March 31, 2016 and 2015 (Unaudited)
(Dollars in Thousands)
 
 
 
Three months ended March 31,
 
 
2016
 
2015
Cash flows from operating activities:
 
 
 
 
Net income
 
$
20,973

 
$
19,802

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
 
Depreciation and amortization of intangibles
 
3,323

 
3,333

Provision for loan losses
 
1,500

 
600

Deferred tax expense
 
456

 
1,748

Increase in cash surrender value of Bank-owned life insurance
 
(1,332
)
 
(1,348
)
Net amortization of premiums and discounts on securities
 
2,401

 
2,655

Accretion of net deferred loan fees
 
(687
)
 
(946
)
Amortization of premiums on purchased loans, net
 
198

 
292

Net increase in loans originated for sale
 
(2,598
)
 
(3,869
)
Proceeds from sales of loans originated for sale
 
2,921

 
4,056

Proceeds from sales of foreclosed assets
 
1,063

 
288

ESOP expense
 
746

 
687

Allocation of stock award shares
 
723

 
852

Allocation of stock options
 
46

 
72

Net gain on sale of loans
 
(323
)
 
(187
)
Net gain on securities transactions
 
(96
)
 
(2
)
Net gain on sale of premises and equipment
 
(4
)
 
(5
)
Net (gain) loss on sale of foreclosed assets
 
(26
)
 
32

Decrease in accrued interest receivable
 
367

 
686

Increase in other assets
 
(2,659
)
 
(4,621
)
Increase (decrease) in other liabilities
 
785

 
(2,897
)
Net cash provided by operating activities
 
27,777

 
21,228

Cash flows from investing activities:
 
 
 
 
Proceeds from maturities, calls and paydowns of investment securities held to maturity
 
11,805

 
5,343

Purchases of investment securities held to maturity
 
(11,259
)
 
(10,220
)
Proceeds from sales of securities
 
2,106

 

Proceeds from maturities, calls and paydowns of securities available for sale
 
40,818

 
45,848

Purchases of securities available for sale
 
(52,513
)
 
(14,769
)
Net decrease in Federal Home Loan Bank stock
 
6,046

 
2,334

Purchases of loans
 
(28,590
)
 
(23,692
)
Net increase in loans
 
(72,894
)
 
(15,994
)
Proceeds from sales of premises and equipment
 
4

 
5

Purchases of premises and equipment
 
(1,758
)
 
(2,148
)
Net cash used in investing activities
 
(106,235
)
 
(13,293
)
Cash flows from financing activities:
 
 
 
 
Net increase in deposits
 
230,875

 
30,528

Increase in mortgage escrow deposits
 
2,291

 
2,004

Purchases of treasury stock
 
(2,697
)
 
(1,882
)
Cash dividends paid to stockholders
 
(11,321
)
 
(10,798
)
Shares issued through the dividend reinvestment plan
 
365

 
377

Stock options exercised
 
2,321

 
395


8



 
 
Three months ended March 31,
 
 
2016
 
2015
Proceeds from long-term borrowings
 
167,858

 
82,917

Payments on long-term borrowings
 
(206,068
)
 
(87,000
)
Net decrease in short-term borrowings
 
(99,281
)
 
(37,364
)
Net cash provided by (used in) financing activities
 
84,343

 
(20,823
)
Net increase (decrease) in cash and cash equivalents
 
5,885

 
(12,888
)
Cash and cash equivalents at beginning of period
 
102,226

 
103,762

Cash and cash equivalents at end of period
 
$
108,111

 
$
90,874

Cash paid during the period for:
 
 
 
 
Interest on deposits and borrowings
 
$
10,856

 
$
9,804

Income taxes
 
$
3,125

 
$
8,057

Non-cash investing activities:
 
 
 
 
Transfer of loans receivable to foreclosed assets
 
$
1,520

 
$
1,146

See accompanying notes to unaudited consolidated financial statements.

9



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, the valuation of securities available for sale 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, 2016 are not necessarily indicative of the results of operations that may be expected for all of 2016.
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, 2015 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, 2016 and 2015 (dollars in thousands, except per share amounts):
 
 
Three months ended March 31,
 
 
 
2016
 
2015
 
 
 
Net
Income
 
Weighted
Average
Common
Shares
Outstanding
 
Per
Share
Amount
 
Net
Income
 
Weighted
Average
Common
Shares
Outstanding
 
Per
Share
Amount
 
Net income
 
$
20,973

 
 
 
 
 
$
19,802

 
 
 
 
 
Basic earnings per share:
 
 
 
 
 
 
 
 
 
 
 
 
 
Income available to common stockholders
 
$
20,973

 
63,351,093

 
$
0.33

 
$
19,802

 
62,673,887

 
$
0.32

 
Dilutive shares
 
 
 
168,662

 
 
 
 
 
167,064

 
 
 
Diluted earnings per share:
 
 
 
 
 
 
 
 
 
 
 
 
 
Income available to common stockholders
 
$
20,973

 
63,519,755

 
$
0.33

 
$
19,802

 
62,840,951

 
$
0.32

 
Anti-dilutive stock options and awards at March 31, 2016 and 2015, totaling 633,989 shares and 818,059 shares, respectively, were excluded from the earnings per share calculations.
Note 2. Business Combinations
On April 1, 2015, Beacon Trust Company ("Beacon"), a wholly owned subsidiary of The Provident Bank, completed its acquisition of certain assets and liabilities of The MDE Group, Inc. and the equity interests of Acertus Capital Management, LLC (together "MDE"), both Morristown, New Jersey-based registered investment advisory firms that manage assets for affluent and high net-worth clients. MDE was acquired with both cash and contingent consideration.
The Company recognized goodwill of $18.3 million and a customer relationship intangible of $7.0 million related to the acquisition. The Company recognized a contingent consideration liability at its fair value of $338,000. The contingent consideration arrangement requires the Company to pay additional cash consideration to MDE’s former stakeholders four years after the closing

10



of the acquisition if certain revenue targets are met. The fair value of the contingent consideration was estimated using a discounted cash flow model. The acquisition agreement limits the total payment to a maximum of $12.5 million, to be determined based on actual future results.
Note 3. Investment Securities
At March 31, 2016, the Company had $984.2 million and $472.9 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 ("OTTI") on certain investment securities in future periods. The total number of held to maturity and available for sale securities in an unrealized loss position as of March 31, 2016 totaled 53, compared with 163 at December 31, 2015. All securities with unrealized losses at March 31, 2016 were analyzed for other-than-temporary impairment. Based upon this analysis, the Company believes that as of March 31, 2016, such securities with unrealized losses do not represent impairments that are other-than-temporary.
Securities Available for Sale
The following tables present the amortized cost, gross unrealized gains, gross unrealized losses and the fair value for securities available for sale at March 31, 2016 and December 31, 2015 (in thousands):
 

March 31, 2016
 

Amortized
cost

Gross
unrealized
gains

Gross
unrealized
losses
 
Fair
value
US Treasury obligations
 
$
8,003

 
44

 

 
8,047

Agency obligations

79,307


296


(3
)
 
79,600

Mortgage-backed securities

868,946


17,856


(161
)
 
886,641

State and municipal obligations

4,183


139



 
4,322

Corporate obligations
 
5,016

 
72

 
(13
)
 
5,075

Equity securities

397


124



 
521

 

$
965,852


18,531


(177
)
 
984,206

 
 
December 31, 2015
 
 
Amortized
cost
 
Gross
unrealized
gains
 
Gross
unrealized
losses
 
Fair
value
US Treasury obligations
 
$
8,006

 

 
(2
)
 
8,004

Agency Obligations
 
82,396

 
82

 
(148
)
 
82,330

Mortgage-backed securities
 
857,430

 
9,828

 
(3,397
)
 
863,861

State and municipal obligations
 
4,193

 
115

 

 
4,308

Corporate obligations
 
5,516

 
6

 
(10
)
 
5,512

Equity securities
 
397

 
122

 

 
519

 
 
$
957,938

 
10,153

 
(3,557
)
 
964,534

The amortized cost and fair value of securities available for sale at March 31, 2016, 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, 2016
 
 
Amortized
cost
 
Fair
value
Due in one year or less
 
$
31,520

 
31,566

Due after one year through five years
 
59,038

 
59,328

Due after five years through ten years
 
3,680

 
3,778

Due after ten years
 
2,271

 
2,372

 
 
$
96,509

 
97,044

Mortgage-backed securities totaling $868.9 million at amortized cost and $886.6 million at fair value are excluded from the table above as their expected lives are likely to be shorter than the contractual maturity date due to principal prepayments. Also excluded from the table above are equity securities of $397,000 at amortized cost and $521,000 at fair value.

11



For the three months ended March 31, 2016, proceeds from sales on securities available for sale totaled $2,106,000 resulting in gross gains of $95,000 and no gross losses. For the same period last year, there were no sales of securities from the available for sale portfolio. For the three months ended March 31, 2016, there were no calls of securities from the available for sale portfolio. For the three months ended March 31, 2015, proceeds from calls on securities available for sale totaled $465,000, resulting in gross gains of $2,000 and no gross losses.
The Company did not incur an OTTI charge on securities in the available for sale portfolio for the three months ended March 31, 2016 and 2015.
The following tables represent the Company’s disclosure regarding securities available for sale with temporary impairment at March 31, 2016 and December 31, 2015 (in thousands):
 

March 31, 2016 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

10,033

 
(3
)
 

 

 
10,033

 
(3
)
Mortgage-backed securities

31,086

 
(74
)
 
16,614

 
(87
)
 
47,700

 
(161
)
Corporate obligations
 
999

 

 
989

 
(13
)
 
1,988

 
(13
)


$
42,118

 
(77
)
 
17,603

 
(100
)
 
59,721

 
(177
)
 

December 31, 2015 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
U.S. Treasury obligations
 
$
8,004

 
(2
)
 

 

 
8,004

 
(2
)
Agency obligations
 
59,197

 
(148
)
 

 

 
59,197

 
(148
)
Mortgage-backed securities
 
327,263

 
(2,427
)
 
47,911

 
(970
)
 
375,174

 
(3,397
)
Corporate obligations
 
500

 

 
992

 
(10
)
 
1,492

 
(10
)


$
394,964

 
(2,577
)
 
48,903

 
(980
)
 
443,867

 
(3,557
)
The temporary loss position associated with certain 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. The Company does not have the intent to sell securities in a temporary loss position at March 31, 2016, nor is it more likely than not that the Company will be required to sell the securities before their prices recover.
The number of available for sale securities in an unrealized loss position at March 31, 2016 totaled 15, compared with 64 at December 31, 2015. At March 31, 2016, there were three private label mortgage-backed securities in an unrealized loss position, with an amortized cost of $690,000 and an unrealized loss of $5,000. These private label mortgage-backed securities were investment grade at March 31, 2016.
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 months ended March 31, 2016. The Company believes that no other-than-temporary impairment of the securities available for sale portfolio existed for the three months ended March 31, 2016.

12



Investment Securities Held to Maturity
The following tables present the amortized cost, gross unrealized gains, gross unrealized losses and the estimated fair value for investment securities held to maturity at March 31, 2016 and December 31, 2015 (in thousands):
 
 
March 31, 2016
 
 
Amortized
cost
 
Gross
unrealized
gains
 
Gross
unrealized
losses
 
Fair
value
Agency obligations

$
4,197

 
8

 

 
4,205

Mortgage-backed securities

1,403

 
55

 

 
1,458

State and municipal obligations

457,427

 
18,557

 
(251
)
 
475,733

Corporate obligations

9,907

 
52

 
(6
)
 
9,953

 

$
472,934

 
18,672

 
(257
)
 
491,349

 
 
 
 
 
 
 
 
 
 
 
December 31, 2015
 
 
Amortized
cost
 
Gross
unrealized
gains
 
Gross
unrealized
losses
 
Fair
value
Agency obligations
 
$
4,096

 
9

 
(8
)
 
4,097

Mortgage-backed securities
 
1,597

 
61

 

 
1,658

State and municipal obligations
 
458,062

 
15,094

 
(495
)
 
472,661

Corporate obligations
 
9,929

 
11

 
(25
)
 
9,915

 
 
$
473,684

 
15,175

 
(528
)
 
488,331

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 portfolio for the three months ended March 31, 2016 and 2015. For the three months ended March 31, 2016, the Company recognized gross gains of $1,000 and no gross losses related to calls of certain securities in the held to maturity portfolio, with proceeds from the calls totaling $516,000. For the same period in 2015, proceeds from calls on securities held to maturity totaled $4.1 million, with no gross gains or losses recognized.
The amortized cost and fair value of investment securities in the held to maturity portfolio at March 31, 2016 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, 2016
 
 
Amortized
cost
 
Fair
value
Due in one year or less

$
11,538

 
11,589

Due after one year through five years

52,697

 
53,797

Due after five years through ten years

221,145

 
231,977

Due after ten years

186,151

 
192,528



$
471,531

 
489,891

Mortgage-backed securities totaling $1.4 million at amortized cost and $1.5 million at fair value are excluded from the table above as their expected lives are likely to be shorter than the contractual maturity date due to principal prepayments.

13



The following tables represent the Company’s disclosure on investment securities held to maturity with temporary impairment at March 31, 2016 and December 31, 2015 (in thousands):
 
 
March 31, 2016 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

10,388

 
(71
)
 
9,984

 
(180
)
 
20,372

 
(251
)
Corporate obligations

1,245

 
(6
)
 

 

 
1,245

 
(6
)
 

$
11,633

 
(77
)
 
9,984

 
(180
)
 
21,617

 
(257
)
 
 
December 31, 2015 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
 
$
1,244

 
(6
)
 
278

 
(2
)
 
1,522

 
(8
)
State and municipal obligations
 
24,266

 
(165
)
 
17,746

 
(330
)
 
42,012

 
(495
)
Corporate obligations
 
5,840

 
(18
)
 
744

 
(7
)
 
6,584

 
(25
)
 
 
$
31,350

 
(189
)
 
18,768

 
(339
)
 
50,118

 
(528
)
Based upon the review of the held to maturity securities portfolio, the Company believes that as of March 31, 2016, 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 their prices recover.
The number of held to maturity securities in an unrealized loss position at March 31, 2016 totaled 38, compared with 99 at December 31, 2015. The decrease in the number of securities in an unrealized loss position at March 31, 2016, was largely due to an increase in market interest rates from December 31, 2015. All temporarily impaired investment securities were investment grade at March 31, 2016.

14



Note 4. Loans Receivable and Allowance for Loan Losses
Loans receivable at March 31, 2016 and December 31, 2015 are summarized as follows (in thousands):
 
 
March 31, 2016
 
December 31, 2015
Mortgage loans:
 
 
 
 
Residential
 
$
1,263,109

 
1,254,036

Commercial
 
1,709,054

 
1,714,923

Multi-family
 
1,318,143

 
1,233,792

Construction
 
309,656

 
331,649

Total mortgage loans
 
4,599,962

 
4,534,400

Commercial loans
 
1,479,145

 
1,433,447

Consumer loans
 
556,056

 
566,175

Total gross loans
 
6,635,163

 
6,534,022

Purchased credit-impaired ("PCI") loans
 
2,683

 
3,435

Premiums on purchased loans
 
6,011

 
5,740

Unearned discounts
 
(40
)
 
(41
)
Net deferred fees
 
(5,690
)
 
(5,482
)
Total loans
 
$
6,638,127

 
6,537,674

The following tables summarize the aging of loans receivable by portfolio segment and class of loans, excluding PCI loans (in thousands):
 
 
March 31, 2016
 
 
30-59
Days
 
60-89
Days
 
Non-accrual
 
Recorded
Investment
> 90 days
accruing
 
Total Past
Due
 
Current
 
Total Loans
Receivable
Mortgage loans:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Residential
 
$
9,002

 
4,491

 
14,063

 

 
27,556

 
1,235,553

 
1,263,109

Commercial
 
1,115

 
3,351

 
1,306

 

 
5,772

 
1,703,282

 
1,709,054

Multi-family
 
47

 
751

 
1,240

 

 
2,038

 
1,316,105

 
1,318,143

Construction
 

 

 
2,517

 

 
2,517

 
307,139

 
309,656

Total mortgage loans
 
10,164

 
8,593

 
19,126

 

 
37,883

 
4,562,079

 
4,599,962

Commercial loans
 
1,108

 

 
28,527

 

 
29,635

 
1,449,510

 
1,479,145

Consumer loans
 
2,762

 
441

 
2,996

 

 
6,199

 
549,857

 
556,056

Total gross loans
 
$
14,034

 
9,034

 
50,649

 

 
73,717

 
6,561,446

 
6,635,163

 
 
December 31, 2015
 
 
30-59
Days
 
60-89
Days
 
Non-accrual
 
Recorded
Investment
> 90 days
accruing
 
Total Past
Due
 
Current
 
Total Loans
Receivable
Mortgage loans:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Residential
 
$
8,983

 
5,434

 
12,031

 

 
26,448

 
1,227,588

 
1,254,036

Commercial
 
1,732

 
543

 
1,263

 

 
3,538

 
1,711,385

 
1,714,923

Multi-family
 
763

 
506

 
742

 

 
2,011

 
1,231,781

 
1,233,792

Construction
 

 

 
2,351

 

 
2,351

 
329,298

 
331,649

Total mortgage loans
 
11,478

 
6,483

 
16,387

 

 
34,348

 
4,500,052

 
4,534,400

Commercial loans
 
632

 
801

 
23,875

 
165

 
25,473

 
1,407,974

 
1,433,447

Consumer loans
 
3,603

 
1,194

 
4,109

 

 
8,906

 
557,269

 
566,175

Total gross loans
 
$
15,713

 
8,478

 
44,371

 
165

 
68,727

 
6,465,295

 
6,534,022



15



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 $50.6 million and $44.4 million at March 31, 2016 and December 31, 2015, respectively. Included in non-accrual loans were $13.1 million and $18.3 million of loans which were less than 90 days past due at March 31, 2016 and December 31, 2015, respectively. There were no loans 90 days or greater past due and still accruing interest at March 31, 2016. At December 31, 2015, there was one commercial loan for $165,000 which was ninety days or greater past due and still accruing interest. This loan was past due for maturity and well secured at December 31, 2015, and subsequent to the end of the year was renewed by the Company.
The Company defines an impaired loan as a non-homogeneous loan greater than $1.0 million for which it is probable, based on current information, all amounts due under the contractual terms of the loan agreement will not be collected. Impaired loans also include all loans modified as troubled debt restructurings (“TDRs”). A loan is deemed to be a TDR when a loan modification resulting in a concession is made in an effort to mitigate potential loss arising from a borrower’s financial difficulty. Smaller balance homogeneous loans, including residential mortgages and other consumer loans, are evaluated collectively for impairment and are excluded from the definition of impaired loans, unless modified as 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; (2) if a loan is collateral dependent, the fair value of collateral; or (3) the fair value of the loan. Additionally, if impaired loans have risk characteristics in common, those loans may be aggregated and historical statistics may be used as a means of measuring those impaired loans.
The Company uses third-party appraisals to determine the fair value of the underlying collateral in its 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 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 March 31, 2016, there were 151 impaired loans totaling $54.2 million. Included in this total were 119 TDRs related to 117 borrowers totaling $25.1 million that were performing in accordance with their restructured terms and which continued to accrue interest at March 31, 2016. At December 31, 2015, there were 148 impaired loans totaling $50.9 million. Included in this total were 122 TDRs to 120 borrowers totaling $26.0 million that were performing in accordance with their restructured terms and which continued to accrue interest at December 31, 2015.
The following table summarizes loans receivable by portfolio segment and impairment method, excluding PCI loans (in thousands):
 

March 31, 2016
 

Mortgage
loans

Commercial
loans

Consumer
loans

Total Portfolio
Segments
Individually evaluated for impairment

$
26,688

 
25,186

 
2,319

 
54,193

Collectively evaluated for impairment

4,573,274

 
1,453,959

 
553,737

 
6,580,970

Total gross loans

$
4,599,962

 
1,479,145

 
556,056

 
6,635,163

 

December 31, 2015
 

Mortgage
loans

Commercial
loans

Consumer
loans

Total Portfolio
Segments
Individually evaluated for impairment

$
26,743

 
21,756

 
2,368

 
50,867

Collectively evaluated for impairment

4,507,657

 
1,411,691

 
563,807

 
6,483,155

Total gross loans

$
4,534,400

 
1,433,447

 
566,175

 
6,534,022


16



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

March 31, 2016
 

Mortgage
loans

Commercial
loans

Consumer
loans

Total Portfolio
Segments

Total
Individually evaluated for impairment

$
2,167

 
2,796

 
90

 
5,053

 
5,053

Collectively evaluated for impairment

28,682

 
25,459

 
2,997

 
57,138

 
57,138

Total gross loans

$
30,849

 
28,255

 
3,087

 
62,191

 
62,191

 
 

December 31, 2015
 

Mortgage
loans

Commercial
loans

Consumer
loans

Total Portfolio
Segments

Total
Individually evaluated for impairment

$
2,086

 
91

 
94

 
2,271

 
2,271

Collectively evaluated for impairment

30,008

 
25,738

 
3,407

 
59,153

 
59,153

Total gross loans

$
32,094

 
25,829

 
3,501

 
61,424

 
61,424

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, the Company attempts to obtain additional collateral or guarantor support when modifying such loans. If the borrower has demonstrated performance under the previous terms and our underwriting process shows the borrower has the capacity to continue to perform under the restructured terms, the loan will continue to accrue interest. Non-accruing restructured loans may be returned to accrual status when there has been a sustained period of repayment performance (generally six consecutive months of payments) and both principal and interest are deemed collectible.
The following tables present the number of loans modified as TDRs during the three months ended March 31, 2016 and 2015 along with their balances immediately prior to the modification date and post-modification as of March 31, 2016 and 2015. There were no loans modified as TDRs during the three months ended March 31, 2106.
 

For the three months ended
 

March 31, 2016

March 31, 2015
Troubled Debt Restructuring

Number  of
Loans

Pre-Modification
Outstanding
Recorded 
Investment

Post-Modification
Outstanding
Recorded  Investment

Number  of
Loans

Pre-Modification
Outstanding
Recorded  Investment

Post-Modification
Outstanding
Recorded  Investment
 

($ in thousands)
Mortgage loans:












Residential


 
$

 
$

 
2

 
$
322

 
$
321

Construction
 

 

 

 
1

 
2,600

 
347

Total mortgage loans


 

 

 
3

 
2,922

 
668

Commercial loans


 

 

 
4

 
6,659

 
6,898

Consumer loans


 

 

 
1

 
44

 
42

Total restructured loans


 
$

 
$

 
8

 
$
9,625

 
$
7,608

All TDRs are impaired loans, which are individually evaluated for impairment, as previously discussed. Estimated collateral values of collateral dependent impaired loans modified during the three months ended March 31, 2015 exceeded the carrying amounts of such loans. As a result, there were no charge-offs recorded on collateral dependent impaired loans presented in the preceding table for the three months ended March 31, 2015. The allowance for loan losses associated with the TDRs presented in the preceding table for the three months ended March 31, 2015 totaled $31,000 and was included in the allowance for loan losses for loans individually evaluated for impairment.
For the three months ended March 31, 2015, the TDRs had a weighted average modified interest rate of approximately 5.90%, compared to a rate of 5.83% prior to modification.

17



The following table presents loans modified as TDRs within the 12 month periods ending March 31, 2016 and 2015, and for which there was a payment default (90 days or more past due) within the respective one year period:
 
 
March 31, 2016
 
March 31, 2015
Troubled Debt Restructurings Subsequently Defaulted
 
Number of
Loans
 
Outstanding
Recorded  Investment
 
Number of
Loans
 
Outstanding
Recorded  Investment
 
 
($ in thousands)
Mortgage loans:
 
 
 
 
 
 
 
 
Construction
 
1

 
$
2,517

 

 
$

Total mortgage loans
 
1

 
2,517

 

 

Commercial loans
 
4

 
6,809

 

 
$

Total restructured loans
 
5

 
$
9,326

 

 
$

 
 
 
 
 
 
 
 
 
TDRs that subsequently default are considered collateral dependent impaired loans and are evaluated for impairment based on the estimated fair value of the underlying collateral less expected selling costs.
PCI loans are loans acquired at a discount primarily due to deteriorated credit quality. As part of the May 30, 2014 acquisition of Team Capital, $5.2 million of the loans acquired were determined to be PCI loans. At the date of acquisition, PCI loans were accounted for at fair value, based upon the present value of expected future cash flows, with no related allowance for loan losses.
The following table presents information regarding the estimates of the contractually required payments, the cash flows expected to be collected and the estimated fair value of the PCI loans acquired from Team Capital at May 30, 2014 (in thousands):
 
 
May 30, 2014
Contractually required principal and interest
 
$
12,505

Contractual cash flows not expected to be collected (non-accretable discount)
 
(6,475
)
Expected cash flows to be collected at acquisition
 
6,030

Interest component of expected cash flows (accretable yield)
 
(810
)
Fair value of acquired loans
 
$
5,220

PCI loans declined $750,000 to $2.7 million at March 31, 2016, from $3.4 million at December 31, 2015. The decrease from December 31, 2015, was largely due to the full repayment and greater than projected cash flows on certain PCI loans. This resulted in a $280,000 and a $76,000 increase in interest income for the three months ended March 31, 2016 and 2015, respectively, due to the acceleration of accretable and non-accretable discounts on these loans.
The following table summarizes the changes in the accretable yield for PCI loans during the three months ended March 31, 2016 and 2015 (in thousands):
 
Three months ended March 31,
 
2016
 
2015
Beginning balance
$
676

 
$
695

Acquisition

 

Accretion
(421
)
 
(198
)
Reclassification from non-accretable discount
248

 
184

Ending balance
$
503

 
$
681


18



The activity in the allowance for loan losses by portfolio segment for the three months ended March 31, 2016 and 2015 was as follows (in thousands):
Three months ended March 31,

Mortgage
loans

Commercial
loans

Consumer
loans

Total Portfolio
Segments

Unallocated

Total
2016