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 June 30, 2017
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, a smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act. (Check one):
Large Accelerated Filer
 
ý
  
Accelerated Filer
 
¨
 
 
 
 
Non-Accelerated Filer
 
¨
  
Smaller Reporting Company
 
¨
 
 
 
 
 
 
 
 
Emerging Growth Company
 
¨

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨
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 August 1, 2017 there were 83,209,293 shares issued and 66,755,350 shares outstanding of the Registrant’s Common Stock, par value $0.01 per share, including 305,645 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 June 30, 2017 (unaudited) and December 31, 2016
 
 
 
 
Consolidated Statements of Income for the three and six months ended June 30, 2017 and 2016 (unaudited)
 
 
 
 
Consolidated Statements of Comprehensive Income for the three and six months ended June 30, 2017 and 2016 (unaudited)
 
 
 
 
Consolidated Statements of Changes in Stockholders’ Equity for the six months ended June 30, 2017 and 2016 (unaudited)
 
 
 
 
Consolidated Statements of Cash Flows for the six months ended June 30, 2017 and 2016 (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
June 30, 2017 (Unaudited) and December 31, 2016
(Dollars in Thousands)
 
 
 
June 30, 2017
 
December 31, 2016
ASSETS
 
 
 
 
Cash and due from banks
 
$
101,028

 
$
92,508

Short-term investments
 
52,374

 
51,789

Total cash and cash equivalents
 
153,402

 
144,297

Securities available for sale, at fair value
 
1,038,968

 
1,040,386

Investment securities held to maturity (fair value of $501,338 at June 30, 2017 (unaudited) and $489,287 at December 31, 2016)
 
492,737

 
488,183

Federal Home Loan Bank stock
 
78,949

 
75,726

Loans
 
7,031,048

 
7,003,486

Less allowance for loan losses
 
62,862

 
61,883

Net loans
 
6,968,186

 
6,941,603

Foreclosed assets, net
 
6,603

 
7,991

Banking premises and equipment, net
 
80,349

 
84,092

Accrued interest receivable
 
27,090

 
27,082

Intangible assets
 
421,499

 
422,937

Bank-owned life insurance
 
188,432

 
188,527

Other assets
 
83,068

 
79,641

Total assets
 
$
9,539,283

 
$
9,500,465

 
 
 
 
 
LIABILITIES AND STOCKHOLDERS’ EQUITY
 
 
 
 
Deposits:
 
 
 
 
Demand deposits
 
$
4,743,488

 
$
4,803,426

Savings deposits
 
1,107,051

 
1,099,020

Certificates of deposit of $100,000 or more
 
308,208

 
290,295

Other time deposits
 
341,790

 
360,888

Total deposits
 
6,500,537

 
6,553,629

Mortgage escrow deposits
 
28,941

 
24,452

Borrowed funds
 
1,676,219

 
1,612,745

Other liabilities
 
49,985

 
57,858

Total liabilities
 
8,255,682

 
8,248,684

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 66,441,753 shares outstanding at June 30, 2017 and 66,082,283 outstanding at December 31, 2016
 
832

 
832

Additional paid-in capital
 
1,008,479

 
1,005,777

Retained earnings
 
573,350

 
550,768

Accumulated other comprehensive loss
 
(1,277
)
 
(3,397
)
Treasury stock
 
(261,215
)
 
(264,221
)
Unallocated common stock held by the Employee Stock Ownership Plan
 
(36,568
)
 
(37,978
)
Common stock acquired by the Directors’ Deferred Fee Plan
 
(5,511
)
 
(5,846
)
Deferred compensation – Directors’ Deferred Fee Plan
 
5,511

 
5,846

Total stockholders’ equity
 
1,283,601

 
1,251,781

Total liabilities and stockholders’ equity
 
$
9,539,283

 
$
9,500,465

See accompanying notes to unaudited consolidated financial statements.

3



PROVIDENT FINANCIAL SERVICES, INC. AND SUBSIDIARY
Consolidated Statements of Income
Three and six months ended June 30, 2017 and 2016 (Unaudited)
(Dollars in Thousands, except per share data)
 
 
 
Three months ended June 30,
 
Six months ended June 30,
 
 
2017
 
2016
 
2017
 
2016
Interest income:
 
 
 
 
 
 
 
 
Real estate secured loans
 
$
47,009

 
$
44,916

 
$
93,020

 
$
89,149

Commercial loans
 
18,100

 
15,374

 
34,920

 
30,326

Consumer loans
 
5,196

 
5,394

 
10,210

 
11,030

Securities available for sale and Federal Home Loan Bank Stock
 
6,548

 
5,718

 
13,111

 
11,498

Investment securities held to maturity
 
3,292

 
3,331

 
6,540

 
6,662

Deposits, Federal funds sold and other short-term investments
 
298

 
72

 
555

 
114

Total interest income
 
80,443

 
74,805

 
158,356

 
148,779

Interest expense:
 
 
 
 
 
 
 
 
Deposits
 
4,653

 
4,135

 
9,105

 
7,956

Borrowed funds
 
6,735

 
6,760

 
13,161

 
13,844

Total interest expense
 
11,388

 
10,895

 
22,266

 
21,800

Net interest income
 
69,055

 
63,910

 
136,090

 
126,979

Provision for loan losses
 
1,700

 
1,700

 
3,200

 
3,200

Net interest income after provision for loan losses
 
67,355

 
62,210

 
132,890

 
123,779

Non-interest income:
 
 
 
 
 
 
 
 
Fees
 
7,255

 
6,711

 
13,260

 
13,172

Wealth management income
 
4,509

 
4,511

 
8,722

 
8,822

Bank-owned life insurance
 
2,549

 
1,369

 
3,938

 
2,701

Net gain on securities transactions
 
11

 
1

 
11

 
97

Other income
 
495

 
1,232

 
1,353

 
2,050

Total non-interest income
 
14,819

 
13,824

 
27,284

 
26,842

Non-interest expense:
 
 
 
 
 
 
 
 
Compensation and employee benefits
 
26,910

 
25,741

 
53,758

 
51,771

Net occupancy expense
 
6,195

 
6,068

 
13,150

 
12,502

Data processing expense
 
3,531

 
3,272

 
6,988

 
6,517

FDIC insurance
 
999

 
1,293

 
2,098

 
2,615

Amortization of intangibles
 
695

 
856

 
1,447

 
1,861

Advertising and promotion expense
 
945

 
901

 
1,802

 
1,780

Other operating expenses
 
8,065

 
7,766

 
14,221

 
13,729

Total non-interest expense
 
47,340

 
45,897

 
93,464

 
90,775

Income before income tax expense
 
34,834

 
30,137

 
66,710

 
59,846

Income tax expense
 
10,451

 
8,781

 
18,819

 
17,517

Net income
 
$
24,383

 
$
21,356

 
$
47,891

 
$
42,329

Basic earnings per share
 
$
0.38

 
$
0.34

 
$
0.75

 
$
0.67

Weighted average basic shares outstanding
 
64,357,684

 
63,553,694

 
64,263,065

 
63,452,393

Diluted earnings per share
 
$
0.38

 
$
0.34

 
$
0.74

 
$
0.67

Weighted average diluted shares outstanding
 
64,541,071

 
63,726,513

 
64,455,873

 
63,623,134


See accompanying notes to unaudited consolidated financial statements.

4



PROVIDENT FINANCIAL SERVICES, INC. AND SUBSIDIARY
Consolidated Statements of Comprehensive Income
Three and six months ended June 30, 2017 and 2016 (Unaudited)
(Dollars in Thousands)
 
 
 
Three months ended June 30,
 
Six months ended June 30,
 
 
2017
 
2016
 
2017
 
2016
Net income
 
$
24,383

 
$
21,356

 
$
47,891

 
$
42,329

Other comprehensive income, net of tax:
 
 
 
 
 
 
 
 
Unrealized gains and losses on securities available for sale:
 
 
 
 
 
 
 
 
Net unrealized gains arising during the period
 
1,228

 
2,979

 
1,999

 
10,073

Reclassification adjustment for gains included in net income
 

 

 

 
(57
)
Total
 
1,228

 
2,979

 
1,999

 
10,016

Unrealized (losses) gains on derivatives
 
(3
)
 
(170
)
 
52

 
(591
)
Amortization related to post-retirement obligations
 
37

 
140

 
69

 
239

Total other comprehensive income
 
1,262

 
2,949

 
2,120

 
9,664

Total comprehensive income
 
$
25,645

 
$
24,305

 
$
50,011

 
$
51,993

See accompanying notes to unaudited consolidated financial statements.


5



PROVIDENT FINANCIAL SERVICES, INC. AND SUBSIDIARY
Consolidated Statements of Changes in Stockholders’ Equity
Six months ended June 30, 2017 and 2016 (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, 2015
 
$
832

 
$
1,000,810

 
$
507,713

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

 
$
1,196,065

Net income
 

 

 
42,329

 

 

 

 

 

 
42,329

Other comprehensive income, net of tax
 

 

 

 
9,664

 

 

 

 

 
9,664

Cash dividends declared
 

 

 
(23,222
)
 

 

 

 

 

 
(23,222
)
Distributions from DDFP
 

 
59

 

 

 

 

 
335

 
(335
)
 
59

Purchases of treasury stock
 

 

 

 

 
(1,557
)
 

 

 

 
(1,557
)
Purchase of employee restricted shares to fund statutory tax withholding
 

 

 

 

 
(1,145
)
 

 

 

 
(1,145
)
Shares issued dividend reinvestment plan
 

 
95

 

 

 
656

 

 

 

 
751

Stock option exercises
 

 
37

 

 

 
2,593

 

 

 

 
2,630

Allocation of ESOP shares
 

 
186

 

 

 

 
1,344

 

 

 
1,530

Allocation of SAP shares
 

 
2,371

 

 

 

 

 

 

 
2,371

Allocation of stock options
 

 
88

 

 

 

 

 

 

 
88

Balance at June 30, 2016
 
$
832

 
$
1,003,646

 
$
526,820

 
$
7,118

 
$
(268,467
)
 
$
(40,386
)
 
$
(6,182
)
 
$
6,182

 
$
1,229,563

See accompanying notes to unaudited consolidated financial statements.

6





PROVIDENT FINANCIAL SERVICES, INC. AND SUBSIDIARY
Consolidated Statements of Changes in Stockholders’ Equity
Six months ended June 30, 2017 and 2016 (Unaudited) (Continued)
(Dollars in Thousands)
 
 
 
COMMON
STOCK
 
ADDITIONAL
PAID-IN
CAPITAL
 
RETAINED
EARNINGS
 
ACCUMULATED
OTHER
COMPREHENSIVE
(LOSS) iNCOME
 
TREASURY
STOCK
 
UNALLOCATED
ESOP
SHARES
 
COMMON
STOCK
ACQUIRED
BY DDFP
 
DEFERRED
COMPENSATION
DDFP
 
TOTAL
STOCKHOLDERS’
EQUITY
Balance at December 31, 2016
 
$
832

 
$
1,005,777

 
$
550,768

 
$
(3,397
)
 
$
(264,221
)
 
$
(37,978
)
 
$
(5,846
)
 
$
5,846

 
$
1,251,781

Net income
 

 

 
47,891

 

 

 

 

 

 
47,891

Other comprehensive income, net of tax
 

 

 

 
2,120

 

 

 

 

 
2,120

Cash dividends declared
 

 

 
(25,309
)
 

 

 

 

 

 
(25,309
)
Distributions from DDFP
 

 
114

 

 

 

 

 
335

 
(335
)
 
114

Purchases of treasury stock
 

 

 

 

 
(443
)
 

 

 

 
(443
)
Purchase of employee restricted shares to fund statutory tax withholding
 

 

 

 

 
(709
)
 

 

 

 
(709
)
Shares issued dividend reinvestment plan
 

 
284

 

 

 
626

 

 

 

 
910

Stock option exercises
 

 
(1,017
)
 

 

 
3,532

 

 

 

 
2,515

Allocation of ESOP shares
 

 
710

 

 

 

 
1,410

 

 

 
2,120

Allocation of SAP shares
 

 
2,514

 

 

 

 

 

 

 
2,514

Allocation of stock options
 

 
97

 

 

 

 

 

 

 
97

Balance at June 30, 2017
 
$
832

 
$
1,008,479

 
$
573,350

 
$
(1,277
)
 
$
(261,215
)
 
$
(36,568
)
 
$
(5,511
)
 
$
5,511

 
$
1,283,601

See accompanying notes to unaudited consolidated financial statements.


7



PROVIDENT FINANCIAL SERVICES, INC. AND SUBSIDIARY
Consolidated Statements of Cash Flows
Six months ended June 30, 2017 and 2016 (Unaudited)
(Dollars in Thousands)
 
 
 
Six months ended June 30,
 
 
2017
 
2016
Cash flows from operating activities:
 
 
 
 
Net income
 
$
47,891

 
$
42,329

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
 
Depreciation and amortization of intangibles
 
5,971

 
6,585

Provision for loan losses
 
3,200

 
3,200

Deferred tax expense
 
840

 
112

Income on Bank-owned life insurance
 
(3,938
)
 
(2,701
)
Net amortization of premiums and discounts on securities
 
4,911

 
5,037

Accretion of net deferred loan fees
 
(2,422
)
 
(1,627
)
Amortization of premiums on purchased loans, net
 
516

 
514

Net increase in loans originated for sale
 
(13,752
)
 
(7,750
)
Proceeds from sales of loans originated for sale
 

 
8,457

Proceeds from sales of foreclosed assets
 
3,540

 
2,501

ESOP expense
 
2,120

 
1,530

Allocation of stock award shares
 
2,514

 
2,215

Allocation of stock options
 
97

 
88

Excess tax benefits related to stock-based compensation
 
1,199

 

Net gain on sale of loans
 
(348
)
 
(707
)
Net gain on securities transactions
 
(11
)
 
(97
)
Net gain on sale of premises and equipment
 

 
(4
)
Net gain on sale of foreclosed assets
 
(501
)
 
(235
)
(Increase) decrease in accrued interest receivable
 
(8
)
 
289

Increase in other assets
 
(3,723
)
 
(15,876
)
(Decrease) increase in other liabilities
 
(7,873
)
 
13,162

Net cash provided by operating activities
 
40,223

 
57,022

Cash flows from investing activities:
 
 
 
 
Proceeds from maturities, calls and paydowns of investment securities held to maturity
 
25,638

 
17,336

Purchases of investment securities held to maturity
 
(31,572
)
 
(23,930
)
Proceeds from sales of securities
 

 
2,193

Proceeds from maturities, calls and paydowns of securities available for sale
 
100,502

 
92,819

Purchases of securities available for sale
 
(99,268
)
 
(130,788
)
Proceeds from redemption of Federal Home Loan Bank stock
 
57,658

 
30,758

Purchases of Federal Home Loan Bank stock
 
(60,881
)
 
(28,887
)
Purchases of loans
 

 
(28,590
)
Net increase in loans
 
(13,922
)
 
(216,119
)
Proceeds from sales of premises and equipment
 

 
4

Purchases of premises and equipment
 
(1,108
)
 
(2,411
)
Net cash used in investing activities
 
(22,953
)
 
(287,615
)
Cash flows from financing activities:
 
 
 
 
Net (decrease) increase in deposits
 
(53,092
)
 
305,899

Increase in mortgage escrow deposits
 
4,489

 
4,893

Cash dividends paid to stockholders
 
(25,309
)
 
(23,222
)
Shares issued through the dividend reinvestment plan
 
910

 
751


8



 
 
Six months ended June 30,
 
 
2017
 
2016
Purchases of treasury stock
 
(443
)
 
(1,557
)
Purchase of employee restricted shares to fund statutory tax withholding
 
(709
)
 
(1,145
)
Stock options exercised
 
2,515

 
2,630

Proceeds from long-term borrowings
 
171,980

 
251,652

Payments on long-term borrowings
 
(202,019
)
 
(295,336
)
Net increase in short-term borrowings
 
93,513

 
1,329

Net cash (used in) provided by financing activities
 
(8,165
)
 
245,894

Net increase in cash and cash equivalents
 
9,105

 
15,301

Cash and cash equivalents at beginning of period
 
144,297

 
102,226

Cash and cash equivalents at end of period
 
$
153,402

 
$
117,527

Cash paid during the period for:
 
 
 
 
Interest on deposits and borrowings
 
$
22,422

 
$
21,821

Income taxes
 
$
15,491

 
$
15,676

Non-cash investing activities:
 
 
 
 
Transfer of loans receivable to foreclosed assets
 
$
2,019

 
$
2,529

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, Provident Bank (the “Bank,” together with Provident Financial Services, Inc., the “Company”).
In preparing the interim unaudited consolidated financial statements, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the consolidated statements of financial condition and the consolidated statements of income for the periods presented. Actual results could differ from these estimates. The allowance for loan losses, 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 and six months ended June 30, 2017 are not necessarily indicative of the results of operations that may be expected for all of 2017.
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. Certain reclassifications have been made in the consolidated financial statements to conform with current year classifications.
These unaudited consolidated financial statements should be read in conjunction with the December 31, 2016 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 six months ended June 30, 2017 and 2016 (dollars in thousands, except per share amounts):
 
 
Three months ended June 30,
 
 
 
2017
 
2016
 
 
 
Net
Income
 
Weighted
Average
Common
Shares
Outstanding
 
Per
Share
Amount
 
Net
Income
 
Weighted
Average
Common
Shares
Outstanding
 
Per
Share
Amount
 
Net income
 
$
24,383

 
 
 
 
 
$
21,356

 
 
 
 
 
Basic earnings per share:
 
 
 
 
 
 
 
 
 
 
 
 
 
Income available to common stockholders
 
$
24,383

 
64,357,684

 
$
0.38

 
$
21,356

 
63,553,694

 
$
0.34

 
Dilutive shares
 
 
 
183,387

 
 
 
 
 
172,819

 
 
 
Diluted earnings per share:
 
 
 
 
 
 
 
 
 
 
 
 
 
Income available to common stockholders
 
$
24,383

 
64,541,071

 
$
0.38

 
$
21,356

 
63,726,513

 
$
0.34

 

10



 
 
Six months ended June 30,
 
 
 
2017
 
2016
 
 
 
Net
Income
 
Weighted
Average
Common
Shares
Outstanding
 
Per
Share
Amount
 
Net
Income
 
Weighted
Average
Common
Shares
Outstanding
 
Per
Share
Amount
 
Net income
 
$
47,891

 
 
 
 
 
$
42,329

 
 
 
 
 
Basic earnings per share:
 
 
 
 
 
 
 
 
 
 
 
 
 
Income available to common stockholders
 
$
47,891

 
64,263,065

 
$
0.75

 
$
42,329

 
63,452,393

 
$
0.67

 
Dilutive shares
 
 
 
192,808

 
 
 
 
 
170,741

 
 
 
Diluted earnings per share:
 
 
 
 
 
 
 
 
 
 
 
 
 
Income available to common stockholders
 
$
47,891

 
64,455,873

 
$
0.74

 
$
42,329

 
63,623,134

 
$
0.67

 
Anti-dilutive stock options and awards at June 30, 2017 and 2016, totaling 437,904 shares and 580,314 shares, respectively, were excluded from the earnings per share calculations.
Note 2. Investment Securities
At June 30, 2017, the Company had $1.04 billion and $492.7 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 June 30, 2017 totaled 266, compared with 419 at December 31, 2016. All securities with unrealized losses at June 30, 2017 were analyzed for other-than-temporary impairment. Based upon this analysis, the Company believes that as of June 30, 2017, 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 June 30, 2017 and December 31, 2016 (in thousands):
 

June 30, 2017
 

Amortized
cost

Gross
unrealized
gains

Gross
unrealized
losses
 
Fair
value
US Treasury obligations
 
$
5,990

 

 
(2
)
 
5,988

Agency obligations

42,058


21


(30
)
 
42,049

Mortgage-backed securities

963,291


7,187


(5,382
)
 
965,096

State and municipal obligations

3,706


115



 
3,821

Corporate obligations
 
21,050

 
401

 
(13
)
 
21,438

Equity securities

397


179



 
576

 

$
1,036,492


7,903


(5,427
)
 
1,038,968

 
 
December 31, 2016
 
 
Amortized
cost
 
Gross
unrealized
gains
 
Gross
unrealized
losses
 
Fair
value
US Treasury obligations
 
$
7,995

 
13

 

 
8,008

Agency obligations
 
57,123

 
90

 
(25
)
 
57,188

Mortgage-backed securities
 
952,992

 
7,249

 
(8,380
)
 
951,861

State and municipal obligations
 
3,727

 
19

 
(3
)
 
3,743

Corporate obligations
 
19,013

 
35

 
(11
)
 
19,037

Equity securities
 
397

 
152

 

 
549

 
 
$
1,041,247

 
7,558

 
(8,419
)
 
1,040,386


11



The amortized cost and fair value of securities available for sale at June 30, 2017, 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.
 
 
June 30, 2017
 
 
Amortized
cost
 
Fair
value
Due in one year or less
 
$
44,455

 
44,414

Due after one year through five years
 
7,444

 
7,511

Due after five years through ten years
 
20,905

 
21,371

Due after ten years
 

 

 
 
$
72,804

 
73,296

Mortgage-backed securities totaling $963.3 million at amortized cost and $965.1 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 $576,000 at fair value.
For the three and six months ended June 30, 2017, no securities were sold or called from the securities available for sale portfolio. For the three months ended June 30, 2016, no securities were sold from the available for sale portfolio. Proceeds from the sale of securities available for sale, for the six months ended June 30, 2016, totaled $2.2 million, resulting in gross gains of $95,000 and no gross losses. There were no calls of available for sale securities for the three and six months ended June 30, 2016.
The Company did not incur an OTTI charge on securities in the available for sale portfolio for the three and six months ended June 30, 2017 and 2016.
The following tables represent the Company’s disclosure regarding securities available for sale with temporary impairment at June 30, 2017 and December 31, 2016 (in thousands):
 

June 30, 2017 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
US Treasury obligations
 
$
5,988

 
(2
)
 

 

 
5,988

 
(2
)
Agency obligations

31,017

 
(30
)
 

 

 
31,017

 
(30
)
Mortgage-backed securities

480,698

 
(5,380
)
 
47

 
(2
)
 
480,745

 
(5,382
)
Corporate obligations
 

 

 
988

 
(13
)
 
988

 
(13
)


$
517,703

 
(5,412
)
 
1,035

 
(15
)
 
518,738

 
(5,427
)
 

December 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
 
$
14,000

 
(25
)
 

 

 
14,000

 
(25
)
Mortgage-backed securities
 
553,629

 
(8,377
)
 
65

 
(3
)
 
553,694

 
(8,380
)
State and municipal obligations
 
661

 
(3
)
 

 

 
661

 
(3
)
Corporate obligations
 

 

 
990

 
(11
)
 
990

 
(11
)


$
568,290

 
(8,405
)
 
1,055

 
(14
)
 
569,345

 
(8,419
)
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 June 30, 2017, 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 June 30, 2017 totaled 83, compared with 87 at December 31, 2016. At June 30, 2017, there were two private label mortgage-backed securities in an unrealized loss position,

12



with an amortized cost of $53,000 and an unrealized loss of $2,000. None of these private label mortgage-backed securities were below investment grade at June 30, 2017.
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 OTTI existed during the six months ended June 30, 2017. The Company believes that no OTTI of the securities available for sale portfolio existed for the three and six months ended June 30, 2017.
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 June 30, 2017 and December 31, 2016 (in thousands):
 
 
June 30, 2017
 
 
Amortized
cost
 
Gross
unrealized
gains
 
Gross
unrealized
losses
 
Fair
value
Agency obligations

$
4,306

 

 
(56
)
 
4,250

Mortgage-backed securities

579

 
20

 

 
599

State and municipal obligations

478,564

 
10,746

 
(2,082
)
 
487,228

Corporate obligations

9,288

 
7

 
(34
)
 
9,261

 

$
492,737

 
10,773

 
(2,172
)
 
501,338

 
 
 
 
 
 
 
 
 
 
 
December 31, 2016
 
 
Amortized
cost
 
Gross
unrealized
gains
 
Gross
unrealized
losses
 
Fair
value
Agency obligations
 
$
4,306

 
2

 
(83
)
 
4,225

Mortgage-backed securities
 
893

 
31

 

 
924

State and municipal obligations
 
473,653

 
6,635

 
(5,436
)
 
474,852

Corporate obligations
 
9,331

 
7

 
(52
)
 
9,286

 
 
$
488,183

 
6,675

 
(5,571
)
 
489,287

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 and six months ended June 30, 2017 and 2016. For the three and six months ended June 30, 2017, proceeds from calls on certain securities in the held to maturity portfolio totaled $7.9 million and $20.7 million, respectively, with gross gains of $11,000 and no gross losses recognized in both the three and six month periods. For the three and six months ended June 30, 2016, proceeds from calls of certain securities in the held to maturity portfolio totaled $4.3 million and $14.9 million, respectively, with gross gains totaling $1,000 and $2,000, respectively and no gross losses recognized in either period.
The amortized cost and fair value of investment securities in the held to maturity portfolio at June 30, 2017 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.
 
 
June 30, 2017
 
 
Amortized
cost
 
Fair
value
Due in one year or less

$
22,961

 
23,006

Due after one year through five years

56,527

 
57,412

Due after five years through ten years

252,672

 
258,915

Due after ten years

159,998

 
161,406



$
492,158

 
500,739

Mortgage-backed securities totaling $579,000 at amortized cost and $599,000 at fair value are excluded from the table above as their expected lives are likely to be shorter than the contractual maturity date due to principal prepayments.

13



The following tables represent the Company’s disclosure on investment securities held to maturity with temporary impairment at June 30, 2017 and December 31, 2016 (in thousands):
 
 
June 30, 2017 Unrealized Losses
 
 
Less than 12 months
 
12 months or longer
 
Total
 
 
Fair
value
 
Gross
unrealized
losses
 
Fair
value
 
Gross
unrealized
losses
 
Fair
value
 
Gross
unrealized
losses
Agency obligations

$
3,851

 
(56
)
 

 

 
3,851

 
(56
)
State and municipal obligations

78,613

 
(1,814
)
 
9,198

 
(268
)
 
87,811

 
(2,082
)
Corporate obligations

6,836

 
(34
)
 

 

 
6,836

 
(34
)
 

$
89,300

 
(1,904
)
 
9,198

 
(268
)
 
98,498

 
(2,172
)
 
 
December 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
 
$
3,525

 
(83
)
 

 

 
3,525

 
(83
)
State and municipal obligations
 
172,152

 
(5,132
)
 
6,617

 
(304
)
 
178,769

 
(5,436
)
Corporate obligations
 
4,697

 
(52
)
 

 

 
4,697

 
(52
)
 
 
$
180,374

 
(5,267
)
 
6,617

 
(304
)
 
186,991

 
(5,571
)
Based upon the review of the held to maturity securities portfolio, the Company believes that as of June 30, 2017, securities with unrealized loss positions shown above do not represent impairments that are other-than-temporary. The review of the portfolio for OTTI 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 June 30, 2017 totaled 183, compared with 332 at December 31, 2016. The decrease in the number of securities in an unrealized loss position at June 30, 2017, was due to a slight decrease in market interest rates from December 31, 2016 and a tightening of spreads in the municipal bond sector. All temporarily impaired investment securities were investment grade at June 30, 2017.

14



Note 3. Loans Receivable and Allowance for Loan Losses
Loans receivable at June 30, 2017 and December 31, 2016 are summarized as follows (in thousands):
 
 
June 30, 2017
 
December 31, 2016
Mortgage loans:
 
 
 
 
Residential
 
$
1,168,557

 
1,211,672

Commercial
 
1,992,449

 
1,978,569

Multi-family
 
1,384,590

 
1,402,054

Construction
 
305,860

 
264,814

Total mortgage loans
 
4,851,456

 
4,857,109

Commercial loans
 
1,687,944

 
1,630,444

Consumer loans
 
492,838

 
516,755

Total gross loans
 
7,032,238

 
7,004,308

Purchased credit-impaired ("PCI") loans
 
1,266

 
1,272

Premiums on purchased loans
 
4,492

 
4,968

Unearned discounts
 
(37
)
 
(39
)
Net deferred fees
 
(6,911
)
 
(7,023
)
Total loans
 
$
7,031,048

 
7,003,486

The following tables summarize the aging of loans receivable by portfolio segment and class of loans, excluding PCI loans (in thousands):
 
 
June 30, 2017
 
 
30-59
Days
 
60-89
Days
 
Non-accrual
 
Recorded
Investment
> 90 days
accruing
 
Total Past
Due
 
Current
 
Total Loans
Receivable
Mortgage loans:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Residential
 
$
4,861

 
3,521

 
9,126

 

 
17,508

 
1,151,049

 
1,168,557

Commercial
 
522

 
1,010

 
8,727

 

 
10,259

 
1,982,190

 
1,992,449

Multi-family
 

 

 

 

 

 
1,384,590

 
1,384,590

Construction
 

 

 
2,517

 

 
2,517

 
303,343

 
305,860

Total mortgage loans
 
5,383

 
4,531

 
20,370

 

 
30,284

 
4,821,172

 
4,851,456

Commercial loans
 
557

 
25

 
16,089

 

 
16,671

 
1,671,273

 
1,687,944

Consumer loans
 
1,735

 
1,516

 
2,448

 

 
5,699

 
487,139

 
492,838

Total gross loans
 
$
7,675

 
6,072

 
38,907

 

 
52,654

 
6,979,584

 
7,032,238

 
 
December 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
 
$
5,891

 
6,563

 
12,021

 

 
24,475

 
1,187,197

 
1,211,672

Commercial
 

 
80

 
7,493

 

 
7,573

 
1,970,996

 
1,978,569

Multi-family
 

 

 
553

 

 
553

 
1,401,501

 
1,402,054

Construction
 

 

 
2,517

 

 
2,517

 
262,297

 
264,814

Total mortgage loans
 
5,891

 
6,643

 
22,584

 

 
35,118

 
4,821,991

 
4,857,109

Commercial loans
 
1,656

 
357

 
16,787

 

 
18,800

 
1,611,644

 
1,630,444

Consumer loans
 
2,561

 
1,199

 
3,030

 

 
6,790

 
509,965

 
516,755

Total gross loans
 
$
10,108

 
8,199

 
42,401

 

 
60,708

 
6,943,600

 
7,004,308


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 $38.9 million and $42.4 million at June 30, 2017 and December 31, 2016, respectively. Included in non-accrual loans were $724,000 and $7.3 million of loans which were less than 90 days past due at June 30, 2017 and December 31, 2016, respectively. There were no loans 90 days or greater past due and still accruing interest at June 30, 2017 or December 31, 2016.
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 analysis of collateral dependent impaired loans. A third-party appraisal is generally ordered as soon as a loan is designated as a collateral dependent impaired loan and is 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 in the recognition of changes in collateral values as a result of this process.
At June 30, 2017, there were 150 impaired loans totaling $52.7 million. Included in this total were 121 TDRs related to 117 borrowers totaling $31.3 million that were performing in accordance with their restructured terms and which continued to accrue interest at June 30, 2017. At December 31, 2016, there were 141 impaired loans totaling $52.0 million. Included in this total were 114 TDRs to 110 borrowers totaling $29.9 million that were performing in accordance with their restructured terms and which continued to accrue interest at December 31, 2016.
The following table summarizes loans receivable by portfolio segment and impairment method, excluding PCI loans (in thousands):
 

June 30, 2017
 

Mortgage
loans

Commercial
loans

Consumer
loans

Total Portfolio
Segments
Individually evaluated for impairment

$
30,779

 
19,557

 
2,334

 
52,670

Collectively evaluated for impairment

4,820,677

 
1,668,387

 
490,504

 
6,979,568

Total gross loans

$
4,851,456

 
1,687,944

 
492,838

 
7,032,238

 

December 31, 2016
 

Mortgage
loans

Commercial
loans

Consumer
loans

Total Portfolio
Segments
Individually evaluated for impairment

$
29,551

 
20,255

 
2,213

 
52,019

Collectively evaluated for impairment

4,827,558

 
1,610,189

 
514,542

 
6,952,289

Total gross loans

$
4,857,109

 
1,630,444

 
516,755

 
7,004,308


16



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

June 30, 2017