In the normal course of operations, the Company engages in a variety of financial transactions that, in accordance with generally accepted accounting principles, are not recorded in the financial statements, or are recorded in amounts that differ from the notional amounts. These transactions involve, to varying degrees, elements of credit, interest rate, and liquidity risk. Such transactions are used by the Company for general corporate purposes or for customer needs. The Company minimizes its exposure to loss under these commitments by subjecting them to credit approval and monitoring procedures.
The Company’s off-balance sheet arrangements, which principally include lending commitments, are described below. At September 30, 2010 and 2009, the Company had no interests in non-consolidated special purpose entities.
The consolidated financial statements have been prepared in conformity with accounting principles generally accepted in | |
1. | Identify potential impairments by comparing the United States of America. In preparing the consolidated financial statements, management is required to make estimates and assumptions that affect the reported amounts of assets, liabilities, income and expense. Certain amounts from prior years have been reclassified to conform to the current fiscal year presentation.
(a) Nature of Business
Provident New York Bancorp (“Provident Bancorp” or the “Company”), a unitary savings and loan holding company, is a Delaware corporation that owns all of the outstanding shares of Provident Bank (the “Bank”). Provident Bancorp was formed in connection with the second step offering on January 14, 2004.
On June 29, 2005, Provident Bancorp, Inc. changed its name to Provident New York Bancorp in order to differentiate itself from the numerous bank holding companies with similar names. It began trading on the NASDAQ under the stock symbol “PBNY” on that date. Prior to that date, from January 7, 1999 its common stock traded under the stock symbol “PBCP.”
The Bank is a community bank offering financial services to individuals and businesses primarily in Rockland and Orange Counties, New York and the contiguous Sullivan, Ulster, Westchester and Putnam Counties, New York and Bergen County, New Jersey. The Bank’s principal business is accepting deposits and, together with funds generated from operations and borrowings, investing in various types of loans and securities. The Bank is a federally-chartered savings association and its deposits are insured up to applicable limits by the Deposit Insurance Fund of the Federal Deposit Insurance Corporation (FDIC). The Office of Thrift Supervision (OTS) is the primary regulator for the Bank and for Provident New York Bancorp. Of the Bank’s loans 86% are collateralized or dependent on real estate.
(b) Use of estimates
The consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America. In preparing the consolidated financial statements, management is required to make estimates and assumptions that affect the reported amounts of assets, liabilities, income and expense. Actual results could differ significantly from these estimates. An estimate that is particularly susceptible to significant near-term change is the allowance for loan losses, which is discussed below. Also subject to change are estimates involving goodwill impairment evaluations, mortgage servicing rights, benefit plans, deferred income taxes and fair values of financial instruments.
(c) Cash Flows
For purposes of reporting cash flows, cash equivalents include highly liquid, short-term investments such as overnight federal funds, as well as cash and deposits with other financial institutions. Net cash flows are reported for customer loan and deposit transactions and short-term borrowings with an original maturity of 90 days or less.
PROVIDENT NEW YORK BANCORP AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollars in thousands, except per share data)
(d) Long Term Assets
Premises and equipment, core deposit and other intangible assets are reviewed annually for impairment or when events indicate their carrying amount may not be recoverable from future undiscounted cash flows. If impaired, the assets are recorded at fair value.
(e) Fair Values of Financial Instruments
Fair values of financial instruments are estimated using relevant market information and other assumptions, as more fully disclosed in a separate note. Fair value estimates involve uncertainties and matters of significant judgment regarding interest rates, credit risk, prepayments, and other factors, especially in the absence of broad markets for particular items. Changes in assumptions or in market conditions could significantly affect the estimates.
(f) Adoption of New Accounting Standards
ASC Topic 715-20-65-2 Employers’ Disclosures about Postretirement Benefit Plan Assets requires the expansion of disclosure by requiring the following: 1) how investment allocation decisions are made by management; 2) major categories of plan assets; and 3) significant concentrations of risk. Additionally, ASC 715-20-65-2 requires employers to disclose information about the valuation of plan assets similar to that required in ASC topic 820 Fair Value Measurements and Disclosures. The effect of adopting this new guidance was immaterial.
ASC Topic 815-10-65-3 Derivatives and hedging expands the disclosure requirements for derivative instruments and hedging activities. ASC 815-10-65-3 requires qualitative disclosure about objectives and strategies for using derivative and hedging instruments, quantitative disclosures about fair value amounts of the instruments and gains and losses on such instruments, as well as disclosures about credit-risk features in derivative agreements. The effect of adopting this new guidance was immaterial.
ASC Topic 260-10-45-65-2 Earnings Per share addresses whether instruments granted in share-based payment transactions are participating securities prior to vesting and, therefore, included in the earnings allocation in computing earnings per share (‘EPS”) under the two-class method. ASC 260-10-45-65-2 provides that unvested share-based payment awards that contain non-forfeitable rights to dividends or dividend equivalents (whether paid or unpaid) are participating securities and shall be included in the computation of EPS pursuant to the two-class method. The effect of adopting this new guidance was immaterial.
(g) Securities
Securities include U.S. Treasury, U.S. Government Agency and Government Sponsored Agencies, municipal and corporate bonds, mortgage backed securities, collateralized mortgage obligations and marketable equity securities.
The Company can classify its securities among three categories: held to maturity, trading, and available for sale. Management determines the appropriate classification of the Company’s securities at the time of purchase.
Held-to-maturity securities are limited to debt securities for which management has the intent and the Company has the ability to hold to maturity. These securities are reported at amortized cost.
Trading securities are debt and equity securities held principally for the purpose of selling them in the near term. These securities are reported at fair value, with unrealized gains and losses included in earnings. The Company does not engage in securities trading activities.
All other debt and marketable equity securities are classified as available for sale. These securities are reported at fair value, with unrealized gains and losses (net of the related deferred income tax effect) excluded from earnings and reported in a separate component of stockholders’ equity (accumulated other comprehensive income or loss). Available-for-sale securities include securities that management intends to hold for an indefinite period of time, such as securities to be used as part of the Company’s asset/liability management strategy or securities that may be sold in response to changes in interest rates, changes in prepayment risks, the need to increase capital, or similar factors.
PROVIDENT NEW YORK BANCORP AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollars in thousands, except per share data)
Premiums and discounts on debt securities are recognized in interest income on a level-yield basis over the period to maturity. Amortization of premiums and accretion of discounts on mortgage backed securities are based on the estimated cash flows of the mortgage backed securities, periodically adjusted for changes in estimated lives, on a level yield basis. The cost of securities sold is determined using the specific identification method. Unrealized losses are charged to earnings when management determines that the decline in fair value of a security is other than temporary.
Securities are evaluated at least quarterly, and more frequently when economic and market conditions warrant such an evaluation. For securities in an unrealized loss position, management considers the extent and duration of the unrealized loss, and the financial condition of the issuer. Management also assesses whether it intendsreporting unit to sell, or is more likely than not that it will be required to sell, a security in an unrealized loss position before recovery of its amortized cost basis. If either criteria regarding intent to sell is met, the entire difference between amortized cost and fair value is recognized as impairment through earnings. If the Company does not expect to recover the entire amortized cost basis of the security, the Company does not intend to sell the security and itcarrying amount, including goodwill. Goodwill is not more likely than not th at the Company will be required to sell the security before recovery of its amortized cost basis, the other than temporary impairment is separated into a) the amount representing the credit loss and b) the amount related to all other factors. The amount of other than temporary impairment related to credit loss is recognized in earnings while the amount related to other factors is recognized in other comprehensive income, net of applicable taxes. The cost basis of individual equity securities is written down to estimated fair value through a charge to earnings when declines in value below cost are considered to be other than temporary. Based on a review of each of the securities in the investment portfolio in accordance with FASB ASC 320 at September 30, 2010, the Company concluded that it expects to recover the amortized cost basis of its investments and therefore there were no impairment charges. As of September 30, 2010 the Company does not intend to sell nor is it more lik ely than not that it would be required to sell any of its securities with unrealized losses prior to recovery of its amortized cost basis less any current-period credit loss.
(h) Loans
Loans where management has the intent and ability to hold for the foreseeable future or until maturity or payoff (other than loans held for sale) are reported at amortized cost less the allowance for loan losses. Mortgage loans originated and held for sale in the secondary market (if any) are reported at the lower of aggregate cost or estimated fair value. Fair value is estimated based on outstanding investor commitments or, in the absence of such commitments, based on current investor yield requirements. Net unrealized losses are recognized in a valuation allowance by a charge to earnings. Interest income on loans is accrued on the level yield method.
A loan is placed on non-accrual status when management has determined that the borrower may likely be unable to meet contractual principal or interest obligations, or when payments are 90 days or more past due, unless well secured and in the process of collection. Accrual of interest ceases and, in general, uncollected past due interest is reversed and charged against current interest income, related to the current year and interest, recorded in the prior year, is charged to the allowance for loan losses. Interest payments received on non-accrual loans, including impaired loans, are not recognized as income unless warranted based on the borrower’s financial condition and payment record.
The Company defers nonrefundable loan origination and commitment fees, and certain direct loan origination costs, and amortizes the net amountlong as an adjustment of the yield over the estimated life of the loan. If a loan is prepaid or sold, the net deferred amount is recognized in the statement of income at that time. Interest and fees on loans include prepayment fees and late charges collected.
PROVIDENT NEW YORK BANCORP AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollars in thousands, except per share data)
(i) Allowance for Loan Losses
The allowance for loan losses is established through provisions for losses charged to earnings. Losses on loans (including impaired loans) are charged to the allowance for loan losses when management believes that the collection of principal is unlikely. Recoveries of loans previously charged-off are credited to the allowance when realized.
The allowance for loan losses is an amount that management believes is necessary to absorb probable incurred losses on existing loans that may become uncollectible. Management’s evaluations, which are subject to periodic review by the OTS, take into consideration factors such as the Company’s past loan loss experience, changes in the nature and volume of the loan portfolio, overall portfolio quality, review of specific problem loans and collateral values, and current economic conditions that may affect the borrowers’ ability to pay. Future adjustments to the allowance for loan losses may be necessary, based on changes in economic and real estate market conditions, further information obtained regarding known problem loans, results of regulatory examinations, the identification of additional problem loans, and other f actors. The process of assessing the adequacy of the allowance for loan loss is subjective, particularly in times of economic downturns. It is reasonably possible that future credit losses may exceed historical loss levels and may also exceed management’s current estimates. As such there can be no assurance that future charge-offs will not exceed management’s current estimate of what constitutes a reasonable allowance for loan losses.
The Company considers a loan to be impaired when, based on current information and events, it is probable that the borrower will be unable to comply with contractual principal and interest payments due. Certain loans are individually evaluated for collectability in accordance with the Company’s ongoing loan review procedures (principally commercial real estate, commercial business and construction loans). Smaller-balance homogeneous loans are collectively evaluated for impairment, such as residential mortgage loans and consumer loans. Impaired loans are based on one of three measures — the present value of expected future cash flows discounted at the loan’s effective interest rate, the loan’s observable market price, or the fair value of the collateral if the loanreporting unit is collateral dependent. If the measure of an i mpaired loan is lessgreater than its recorded investment,carrying value. The second step is only required if a portion ofpotential impairment to goodwill is identified in step one.
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2. | Compare the allowance for loan losses is allocated so that the loan is reported, net, at its measured value.
(j) Troubled Debt Restructuring
Troubled debt restructurings are renegotiated loans for which concessions have been granted to the borrower that the Company would not have otherwise granted and the borrower is experiencing financial difficulty. Restructured loans are recorded in accrual status when said loans have demonstrated performance, generally evidenced by six months of payment performance in accordance with the restructured terms, or by the presence of other significant items.. The Company has troubled debt restructurings of $21,504, $674, and $0 as of September 30, 2010, 2009 and 2008, respectively. As of September 30,2010, $5,457 of restructured loans were in nonaccrual and $16,047 were making payments in accordance with current terms.
(k) Mortgage Servicing Assets
Servicing assets represent theimplied fair value of retained servicing rightsgoodwill to its carrying amount, where the implied fair value of goodwill is computed on loans sold (as well asa residual basis, that is, by subtracting the costsum of purchased rights). Servicing assets are expensed in proportion to,the fair values of the individual asset categories (tangible and overintangible) from the period of, estimated net servicing revenues. Impairment is evaluated based on theindicated fair value of the assets, using groupings of the underlying loansreporting unit as to interest rates and then, secondarily, as to loan type and investor. Fair value is determined using prices for similar assets with similar characteristics, when available, or based upon discounted cash flows using market-based assumptions. Any impairment of a grouping is reported as a valuation allowance, to the extent that fair value is less than the capitalized amount for a grouping. Upon adoption of FASB ASC Topic # 860- Transfers and Servicing, the Company elected to continue to use the amortization method.
PROVIDENT NEW YORK BANCORP AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollars in thousands, except per share data)
(l) Federal Home Loan Bank Stock
As a member of the Federal Home Loan Bank (FHLB) of New York, the Bank is required to hold a certain amount of FHLB stock. This stock is a non-marketable equity security and, accordingly, is reported at cost.
(m) Premises and Equipment
Land is reported at cost, while premises and equipment are reported at cost, less accumulated depreciation and amortization. Depreciation is computed using the straight-line method over the estimated useful lives of the related assets, which range from three years for equipment and 40 years for premises. Leasehold improvements are amortized on a straight-line basis over the terms of the respective leases, including renewal options, or the estimated useful lives of the improvements, whichever is shorter. Routine holding costs are charged to expense as incurred, while significant improvements are capitalized.
(n) Goodwill and Other Intangible Assets
Goodwill resulting from business combinations prior to January 1, 2009 represents the excess of the purchase price over the fair value of the net assets of business acquired. Goodwill resulting from business combinations after January 1, 2009 represents the future economic benefits arising from other assets acquired that are not individually identified and separately recognized. Goodwill and intangible assets acquired in a purchase business combination and determined to have an indefinite useful life are not amortized, but tested for impairment at least annually. Goodwill is the only intangible asset with an indefinite life on our balance sheet.
We asses the carrying value of our goodwill at least annually in order to determine if this intangible asset is impaired. In reviewing the carrying value of our goodwill we asses the recoverability of such assets by evaluating the fair value of the related business unit.under step one. If the carrying amount of goodwill exceeds its implied fair value, an impairment loss is recognized for the amount of the excess and the carrying value of goodwillrecognized. That loss is reduced accordingly. An impairment would be requiredequal to be recorded during the period identified.
Testing for impairment of goodwill and intangible assets involves the identification of reporting units and the estimation of fair values. The estimation of fair values involves a high degree of judgment and subjectivity in the assumptions used. Using a discount rate of 12% and a terminal multiple of 14 times expected earnings, the net present value of Provident New York Bancorp shares exceed recorded book value by 17% as of September 30, 2010.
The core deposit intangibles recorded in acquisitions are amortized to expense using an accelerated method over their estimated lives of approximately eight years. Intangibles related to HVIA are amortized over 10 years on a straight-line basis. Impairment losses on intangible assets are charged to expense, if and when they occur.
(n) Real Estate Owned
Real estate properties acquired through loan foreclosures are recorded initially at estimated fair value, less expected sales costs, with any resulting write-down charged to the allowance for loan losses. Subsequent valuations are performed by management, and the carrying amount of a property is adjusted by a charge to expense to reflect any subsequent declines in estimated fair value. Fair value estimates are based on recent appraisals and other available information. Routine holding costs are charged to expense as incurred, while significant improvements are capitalized. Gains and losses on sales of real estate owned are recognized upon disposition. Total foreclosed properties included in other assets are $3.9 million and $1.7 million at September 30, 20010 and 2009, respectively.
PROVIDENT NEW YORK BANCORP AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollars in thousands, except per share data)
(o) Securities Repurchase Agreements
In securities repurchase agreements, the Company transfers securities to a counterparty under an agreement to repurchase the identical securities at a fixed price on a future date. These agreements are accounted for as secured financing transactions since the Company maintains effective control over the transferred securities and the transfer meets other specified criteria. Accordingly, the transaction proceeds are recorded as borrowings and the underlying securities continue to be carried in the Company’s securities portfolio. Disclosure of the pledged securities is made in the consolidated statements of financial condition if the counterparty has the right by contract to sell or re-pledge such collateral.
(p) Income Taxes
Net deferred taxes are recognized for the estimated future tax effects attributable to “temporary differences” between the financial statement carrying amounts and the tax bases of existing assets and liabilities. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which the temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax laws or rates is recognized in income tax expense in the period that includes the enactment date of the change.
A deferred tax liability is recognized for all temporary differences that will result in future taxable income. A deferred tax asset is recognized for all temporary differences that will result in future tax deductions, subject to reduction of the asset by a valuation allowance in certain circumstances. This valuation allowance is recognized if, based on an analysis of available evidence, management determines that it is more likely than not that some portion, or all of the deferred tax asset will not be realized. The valuation allowance is subject to ongoing adjustment based on changes in circumstances that affect management’s judgment about the realizability of the deferred tax asset. Adjustments to increase or decrease the valuation allowance are charged or credited, respectively, to income tax expense. The Company recognizes interest and/or penalties related to income tax matters in income tax expense.
The Company evaluates uncertain tax positions in a two step process. The first step is recognition, which requires a determination whether it is more likely than not that a tax position will be sustained upon examination. The second step is measurement. Under the measurement step, a tax position that meets the more likely than not recognition threshold is measured at the largest amount of benefitgoodwill that is greater than fifty percent likely of being realized upon ultimate settlement. Tax positions that previously failed to meet the more likely than not recognition threshold should be recognized in the first subsequent financial reporting period in which that threshold is met. Previously recognized tax position that no longer meet the more likely than not recognition threshold should be derecognized in the first subsequent financial reporting period in which the threshold is no longer met. The Company did not have any such position as of September 30, 2010. See note 10 of the “Notes to Consolidated Financial Statements”.
(q) Bank Owned Life Insurance (BOLI)
The Company has purchased life insurance policies on certain key executives. Bank owned life insurance is recorded at its cash surrender value (or the amount that can be realized).
(r) Stock-Based Compensation Plans
Compensation expense is recognized for the Employee stock ownership plan (“ESOP”) equal to the fair value of shares that have been allocated or committed to be released for allocation to participants. Any difference between the fair value at that time and the ESOP’s original acquisition cost is charged or credited to stockholders’ equity (additional paid-in capital). The cost of ESOP shares that have not yet been allocated or committed to be released for allocation is deducted from stockholders’ equity.
The Company applies FASB ASC Topic 718 “Compensation- Stock Based” in accounting for its stock option plan. During 2010, 2009 and 2008 the Company issued 321,976, 88,861 and 275,134 new stock-based option awards and recognized total non-cash stock-based compensation cost of $247, $768 and $1,196. As of September 30, 2010, the total remaining unrecognized compensation cost related to non-vested stock options was $998. Options granted in 2010 have a two year vesting period.
PROVIDENT NEW YORK BANCORP AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollars in thousands, except per share data)
The Company’s stock-based compensation plans allow for accelerated vesting when employees retire under circumstances in accordance with the terms of the plans. Grants issued subsequent to adoption of FASB ASC Topic 718 (October 1, 2005), which are subject to such accelerated vesting, are expensed over the shorter of the time to retirement age or the vesting schedule in accordance with the grant. Thus the vesting period can be less than the vesting period expressed in the option agreement, depending upon the age of the grantee. As of September 30, 2010, 600 restricted shares and 36,000 stock options were potentially subject to accelerated vesting, and have been expensed. The Company recognized expense associated with the acceleration of 0 ,0, and 10,000 restricted shares in 2010, 2009 and 2008, respectively. The Company recognize d expense associated with the acceleration of 27,000, 0, and 3,100 stock option shares in 2010, 2009 and 2008, respectively.
(s) Earnings Per Share
Basic earnings per share (EPS) is computed by dividing net income applicable to common stock by the weighted average number of common shares outstanding during the period.
Diluted EPS is computed in a similar manner, except that the weighted average number of common shares is increased to include incremental shares (computed using the treasury stock method) that would have been outstanding if all potentially dilutive stock options were exercised and unvested RRP shares became vested during the periods. For purposes of computing both basic and diluted EPS, outstanding shares exclude unallocated ESOP shares.
(t) Segment Information
Public companies are required to report certain financial information about significant revenue- producing segments of the business for which such information is available and utilized by the chief operating decision maker. As a community-oriented financial institution, substantially all of the Company’s operations involve the delivery of loan and deposit products to customers. Management makes operating decisions and assesses performance based on an ongoing review of the community banking operation, which constitutes the Company’s only operating segment for financial reporting purposes.
PROVIDENT NEW YORK BANCORP AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollars in thousands, except per share data)
(2) Acquisitions
Summary of Acquisition Transactions. Below is the summary of the acquisition transactions for Warwick Community Bancorp (2005) “WSB”, Ellenville National Bank (2004) “ENB”, National Bank of Florida (2002) “NBF”, one purchase in 2005 of a branch office of HSBC Bank USA, National Association (“HSBC”) and Hudson Valley Investment Advisors (“HVIA”).
| | HVIA | | | HSBC | | | WSB | | | ENB | | | NBF | | | Total | | At Acquisition Date | | | | | | | | | | | | | | | | | | | Number of shares issued | | | 208,331 | | | | - | | | | 6,257,896 | | | | 3,969,676 | | | | - | | | | 10,435,903 | | Loans acquired | | $ | - | | | $ | 2,045 | | | $ | 284,522 | | | $ | 213,730 | | | $ | 23,112 | | | $ | 523,409 | | Deposits assumed | | | - | | | | 23,319 | | | | 475,150 | | | | 327,284 | | | | 88,182 | | | | 913,935 | | Cash paid/(received) | | | 2,500 | | | | (18,938 | ) | | | 72,601 | | | | 36,773 | | | | 28,100 | | | | 121,036 | | Goodwill | | | 2,531 | | | | - | | | | 91,576 | | | | 51,794 | | | | 13,063 | | | | 158,964 | | Core deposit/other intangibles | | | 2,830 | | | | 1,690 | | | | 10,395 | | | | 6,624 | | | | 1,787 | | | | 23,326 | | At September 30, 2010 | | | | | | | | | | | | | | | | | | | | | | | | | Goodwill | | $ | 3,279 | | | $ | - | | | $ | 92,145 | | | $ | 52,101 | | | $ | 13,336 | | | $ | 160,861 | | Accumulated core deposit/other amortization | | | 1,227 | | | | 1,511 | | | | 8,697 | | | | 6,498 | | | | 1,753 | | | | 19,686 | | Net core deposit/other intangible | | | 1,603 | | | | 179 | | | | 1,698 | | | | 126 | | | | 34 | | | | 3,640 | |
* In addition to the above, the Company also carries $1,172 in mortgage servicing rights included in other assets at September 30, 2010
The changes to goodwill, reflected above, are due to tax related items in connection with acquisitions and the $750 settlement of the earn out provision for HVIA in 2007.
Future Amortization of Core Deposit and Other Intangible Assets. The following table sets forth the future amortization of core deposit and other intangible assets:
| | September 30, | | | September 30, | | Amoritization Schedule | | 2010 | | | 2009 | | Less than one year | | $ | 1,364 | | | $ | 1,853 | | One to two years | | | 941 | | | | 1,360 | | Two to three years | | | 580 | | | | 941 | | Three to four years | | | 283 | | | | 580 | | Four to five years | | | 283 | | | | 283 | | Beyond five years | | | 189 | | | | 472 | | Total | | $ | 3,640 | | | $ | 5,489 | |
Goodwill is not amortized to expense and is reviewed for impairment at least annually, with impairment losses charged to expense, if and when they occur. The core deposit and other intangible assets are recognized apart from goodwill and they are amortized to expense over their estimated useful lives and evaluated at least annually for impairment.
PROVIDENT NEW YORK BANCORP AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollars in thousands, except per share data)
(3)Securities Available for Sale
The following is a summary of securities available for sale:
| | Amortized Cost | | | Gross Unrealized Gains | | | Gross Unrealized Losses | | | Fair Value | | September 30, 2010 | | | | | | | | | | | | | Mortgage-backed securities-residential | | | | | | | | | | | | | Fannie Mae | | $ | 149,084 | | | $ | 4,105 | | | $ | (1 | ) | | $ | 153,188 | | Freddie Mac | | | 56,632 | | | | 1,820 | | | | - | | | | 58,452 | | Ginnie Mae | | | 9,047 | | | | 268 | | | | - | | | | 9,315 | | CMO/Other MBS | | | 38,338 | | | | 680 | | | | (359 | ) | | | 38,659 | | | | | 253,101 | | | | 6,873 | | | | (360 | ) | | | 259,614 | | Investment securities | | | | | | | | | | | | | | | | | U.S. Government securities | | | 71,071 | | | | 1,222 | | | | - | | | | 72,293 | | Federal agencies | | | 344,154 | | | | 1,919 | | | | (54 | ) | | | 346,019 | | Corporate bonds | | | 29,406 | | | | 1,134 | | | | - | | | | 30,540 | | State and municipal securities | | | 180,879 | | | | 10,798 | | | | (20 | ) | | | 191,657 | | Equities | | | 1,146 | | | | - | | | | (257 | ) | | | 889 | | | | | 626,656 | | | | 15,073 | | | | (331 | ) | | | 641,398 | | | | | | | | | | | | | | | | | | | Total available for sale | | $ | 879,757 | | | $ | 21,946 | | | $ | (691 | ) | | $ | 901,012 | | | | | | | | | | | | | | | | | | | September 30, 2009 | | | | | | | | | | | | | | | | | Mortgage-backed securities-residential | | | | | | | | | | | | | | | | | Fannie Mae | | $ | 238,723 | | | $ | 4,606 | | | $ | (266 | ) | | $ | 243,063 | | Freddie Mac | | | 92,885 | | | | 1,621 | | | | - | | | | 94,506 | | Ginnie Mae | | | 26,586 | | | | 358 | | | | (15 | ) | | | 26,929 | | CMO/Other MBS | | | 66,784 | | | | 174 | | | | (941 | ) | | | 66,017 | | | | | 424,978 | | | | 6,759 | | | | (1,222 | ) | | | 430,515 | | Investment securities | | | | | | | | | | | | | | | | | U.S. Government securities | | | 20,893 | | | | 183 | | | | - | | | | 21,076 | | Federal agencies | | | 186,301 | | | | 678 | | | | (279 | ) | | | 186,700 | | Corporate bonds | | | 25,245 | | | | 579 | | | | (1 | ) | | | 25,823 | | State and municipal securities | | | 158,007 | | | | 9,591 | | | | (14 | ) | | | 167,584 | | Equities | | | 1,145 | | | | - | | | | (260 | ) | | | 885 | | | | | 391,591 | | | | 11,031 | | | | (554 | ) | | | 402,068 | | | | | | | | | | | | | | | | | | | Total available for sale | | $ | 816,569 | | | $ | 17,790 | | | $ | (1,776 | ) | | $ | 832,583 | |
PROVIDENT NEW YORK BANCORP AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollars in thousands, except per share data)
The following is a summary of the amortized cost and fair value of investment securities available for sale (other than equity securities), by remaining period to contractual maturity. Actual maturities may differ because certain issuers have the right to call or prepay their obligations.
| | September 30, 2010 | | | | Amortized Cost | | | Fair Value | | Remaining period to contractual maturity | | | | | | | Less than one year | | $ | 5,353 | | | $ | 5,424 | | One to five years | | | 408,318 | | | | 412,796 | | Five to ten years | | | 149,075 | | | | 156,636 | | Greater than ten years | | | 62,764 | | | | 65,653 | | Total | | $ | 625,510 | | | $ | 640,509 | |
Proceeds from sales of securities available for sale during the years ended September 30, 2010, 2009 and 2008 totaled $443,389, $556,796 and $40,438, respectively. These sales resulted in gross realized gains of $8,518, $18,043 and $983 for the years ended September 30, 2010, 2009, and 2008 respectively, and gross realized losses of $361, $0, $0, in fiscal year 2010, 2009, and 2008 respectively.
Securities, including held to maturity securities, with carrying amounts of $228,442 and $231,190 were pledged as collateral for borrowings at September 30, 2010 and September 30, 2009, respectively. Securities with carrying amounts of $490,730 and $290,038 were pledged as collateral for municipal deposits and other purposes at September 30, 2010 and September 30, 2009, respectively.
Securities Available for Sale with Unrealized Losses. The following table summarizes those securities available for sale with unrealized losses, segregated by the length of time in a continuous unrealized loss position:
| | Continuous Unrealized Loss Position | | | | | | | | | | Less Than 12 Months | | | 12 Months or Longer | | | Total | | As of September 30, 2010 | | Fair Value | | | Unrealized Losses | | | Fair Value | | | Unrealized Losses | | | Fair Value | | | Unrealized Losses | | | | | | | | | | | | | | | | | | | | | Mortgage-backed securities-residential | | $ | 610 | | | $ | (8 | ) | | $ | 5,511 | | | $ | (352 | ) | | $ | 6,121 | | | $ | (360 | ) | U.S. Government and agency securities | | | 40,638 | | | | (54 | ) | | | - | | | | - | | | | 40,638 | | | | (54 | ) | State and municipal securities | | | 1,541 | | | | (20 | ) | | | - | | | | - | | | | 1,541 | | | | (20 | ) | Equity securities | | | 99 | | | | (6 | ) | | | 790 | | | | (251 | ) | | | 889 | | | | (257 | ) | Total | | $ | 42,888 | | | $ | (88 | ) | | $ | 6,301 | | | $ | (603 | ) | | $ | 49,189 | | | $ | (691 | ) |
| | Continuous Unrealized Loss Position | | | | | | | | | | Less Than 12 Months | | | 12 Months or Longer | | | Total | | As of September 30, 2009 | | Fair Value | | | Unrealized Losses | | | Fair Value | | | Unrealized Losses | | | Fair Value | | | Unrealized Losses | | | | | | | | | | | | | | | | | | | | | Mortgage-backed securities-residential | | $ | 63,965 | | | $ | (494 | ) | | $ | 9,651 | | | $ | (728 | ) | | $ | 73,616 | | | $ | (1,222 | ) | U.S. Government and agency securities | | | 64,689 | | | | (278 | ) | | | 42 | | | | (1 | ) | | | 64,731 | | | | (279 | ) | Corporate bonds | | | 2,185 | | | | (1 | ) | | | - | | | | - | | | | 2,185 | | | | (1 | ) | State and municipal securities | | | 1,710 | | | | (14 | ) | | | - | | | | - | | | | 1,710 | | | | (14 | ) | Equity securities | | | - | | | | - | | | | 885 | | | | (260 | ) | | | 885 | | | | (260 | ) | Total | | $ | 132,549 | | | $ | (787 | ) | | $ | 10,578 | | | $ | (989 | ) | | $ | 143,127 | | | $ | (1,776 | ) |
PROVIDENT NEW YORK BANCORP AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollars in thousands, except per share data)
The Company, as of June 30, 2009 adopted the provisions under FASB ASC Topic 320 – Investments- Debt and Equity Securities which requires a forecast of recovery of cost basis through cash flow collection on all debt securities with a fair value less than its amortized cost less any current period credit loss with an assertion on the lack of intent to sell (or requirement to sell prior to recovery of cost basis). Based on a review of each of the securities in the investment portfolio in accordance with FASB ASC 320 at September 30, 2010, the Company concluded that it expects to recover the amortized cost basis of its investments and therefore there were no impairment charges. As of September 30, 2 010 the Company does not intend to sell nor is it more than likely than not that it would be required to sell any of its securities with unrealized losses prior to recovery of its amortized cost basis less any current-period credit loss.
Substantially all of the unrealized losses at September 30, 2010 relate to investment grade securities and are attributable to changes in market interest rates subsequent to purchase. There were no securities with unrealized losses that were individually significant dollar amounts at September 30, 2010. A total of 16 available for sale securities were in a continuous unrealized loss position for less than 12 months and 11 securities for 12 months or longer. For securities with fixed maturities, there are no securities past due or securities for which the Company currently believes it is not probable that it will collect all amounts due according to the contractual terms of the investment.
Within the collateralized mortgage-backed securities (CMO’s) category of the available for sale portfolio there are four individual private label CMO’s that have an amortized cost of $6,355 and a fair value (carrying value) of $5,996 as of September 30, 2010. One of the four securities is below investment grade and has an amortized cost of $2,308 and a fair value of $2,044 at September 30, 2010. The remaining three securities are rated at or above Aa3.
These securities were all performing as of September 30, 2010 and are expected to perform based on current information. In determining whether there existed other than temporary impairment on these securities the Company evaluated the present value of cash flows expected to be collected based on collateral specific assumptions, including credit risk and liquidity risk, and determined that no losses are expected. The Company will continue to evaluate its portfolio in this manner on a quarterly basis.
PROVIDENT NEW YORK BANCORP AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollars in thousands, except per share data)
(4) Securities Held to Maturity
The following is a summary of securities held to maturity:
| | Amortized Cost | | | Gross Unrealized Gains | | | Gross Unrealized Losses | | | Fair Value | | September 30, 2010 | | | | | | | | | | | | | Mortgage-backed securities-residential | | | | | | | | | | | | | Fannie Mae | | $ | 1,835 | | | $ | 96 | | | $ | - | | | $ | 1,931 | | Freddie Mac | | | 2,389 | | | | 124 | | | | - | | | | 2,513 | | Ginnie Mae | | | 16 | | | | 1 | | | | - | | | | 17 | | CMO/Other MBS | | | 729 | | | | 19 | | | | - | | | | 748 | | | | | 4,969 | | | | 240 | | | | - | | | | 5,209 | | Investment securities | | | | | | | | | | | | | | | | | State and municipal securities | | | 27,879 | | | | 980 | | | | (44 | ) | | | 28,815 | | Other | | | 1,000 | | | | 38 | | | | - | | | | 1,038 | | | | | 28,879 | | | | 1,018 | | | | (44 | ) | | | 29,853 | | | | | | | | | | | | | | | | | | | Total held to maturity | | $ | 33,848 | | | $ | 1,258 | | | $ | (44 | ) | | $ | 35,062 | | | | | | | | | | | | | | | | | | | September 30, 2009 | | | | | | | | | | | | | | | | | Mortgage-backed securities-residential | | | | | | | | | | | | | | | | | Fannie Mae | | $ | 2,713 | | | $ | 110 | | | $ | - | | | $ | 2,823 | | Freddie Mac | | | 2,834 | | | | 82 | | | | - | | | | 2,916 | | Ginnie Mae | | | 45 | | | | - | | | | - | | | | 45 | | CMO/Other MBS | | | 860 | | | | 6 | | | | - | | | | 866 | | | | | 6,452 | | | | 198 | | | | - | | | | 6,650 | | Investment securities | | | | | | | | | | | | | | | | | State and municipal securities | | | 37,162 | | | | 940 | | | | (47 | ) | | | 38,055 | | Equities | | | 1,000 | | | | 34 | | | | - | | | | 1,034 | | | | | 38,162 | | | | 974 | | | | (47 | ) | | | 39,089 | | | | | | | | | | | | | | | | | | | Total held to maturity | | $ | 44,614 | | | $ | 1,172 | | | $ | (47 | ) | | $ | 45,739 | |
The following is a summary of the amortized cost and fair value of investment securities held to maturity, by remaining period to contractual maturity. Actual maturities may differ because certain issuers have the right to call or repay their obligations.
| | September 30, 2010 | | | | Amortized Cost | | | Fair Value | | Remaining period to contractual maturity | | | | | | | Less than one year | | $ | 12,592 | | | $ | 12,665 | | One to five years | | | 8,927 | | | | 9,324 | | Five to ten years | | | 2,086 | | | | 2,304 | | Greater than ten years | | | 5,274 | | | | 5,560 | | Total | | $ | 28,879 | | | $ | 29,853 | |
PROVIDENT NEW YORK BANCORP AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollars in thousands, except per share data)
Proceeds from sales of securities held to maturity during the years ended September 30, 2010, 2009 and 2008 totaled $0 , $625, and $0 respectively. These sales resulted in gross realized gains of $0, $33, and $0 for the years ended September 30, 2010, 2009, and 2008 respectively, and gross realized losses of $0 in fiscal year 2010, 2009, and 2008 respectively. These securities can be considered maturities per FASB ASC Topic #320, Investments – Debt & Equity securities, as the sale of the securities occurred after at least 85 percent of the principal outstanding had been collected since acquisition.
The following table summarizes those securities held to maturity with unrealized losses, segregated by the length of time in a continuous unrealized loss position:
| | Continuous Unrealized Loss Position | | | | | | | | | | Less Than 12 Months | | | 12 Months or Longer | | | Total | | As of September 30, 2010 | | Fair Value | | | Unrealized Losses | | | Fair Value | | | Unrealized Losses | | | Fair Value | | | Unrealized Losses | | | | | | | | | | | | | | | | | | | | | State and municipal securities | | $ | - | | | $ | - | | | $ | 676 | | | $ | (44 | ) | | $ | 676 | | | $ | (44 | ) | Total | | $ | - | | | $ | - | | | $ | 676 | | | $ | (44 | ) | | $ | 676 | | | $ | (44 | ) |
| | Continuous Unrealized Loss Position | | | | | | | | | | Less Than 12 Months | | | 12 Months or Longer | | | Total | | As of September 30, 2009 | | Fair Value | | | Unrealized Losses | | | Fair Value | | | Unrealized Losses | | | Fair Value | | | Unrealized Losses | | | | | | | | | | | | | | | | | | | | | State and municipal securities | | | 1,019 | | | | (47 | ) | | | - | | | | - | | | | 1,019 | | | | (47 | ) | Total | | $ | 1,019 | | | $ | (47 | ) | | $ | - | | | $ | - | | | $ | 1,019 | | | $ | (47 | ) |
All of the unrealized losses on held to maturity securities at September 30, 2010 relate to local municipal general obligation bonds and are attributable to changes in market interest rates and credit risk spreads subsequent to purchase. There were no securities with unrealized losses that were individually significant dollar amounts at September 30, 2010. There were no held-to-maturity securities in a continuous unrealized loss position for less than 12 months, and one security for 12 months or longer. For securities with fixed maturities, there are no securities past due or securities for which the Company currently believes it is not probable that it will collect all amounts due according to the contractual terms of the investment. Because the Company has the ability and intent to hold securities with unrealized losses until maturit y, the Company did not consider these investments to be other-than-temporarily impaired at September 30, 2010.
PROVIDENT NEW YORK BANCORP AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollars in thousands, except per share data)
(5) Loans
The components of the loan portfolio, excluding loans held for sale, were as follows:
| | September 30, | | | | 2010 | | | 2009 | | | | | | | | | One- to four-family residential mortgage loans: | | | | | | | Fixed rate | | $ | 369,417 | | | $ | 419,863 | | Adjustable rate | | | 41,822 | | | | 40,865 | | | | | 411,239 | | | | 460,728 | | Commercial real estate loans | | | 581,965 | | | | 546,767 | | Commercial business loans | | | 240,650 | | | | 242,629 | | Acquisition, development & construction loans | | | 229,463 | | | | 201,611 | | | | | 1,052,078 | | | | 991,007 | | Consumer loans: | | | | | | | | | Home equity lines of credit | | | 176,134 | | | | 180,205 | | Homeowner loans | | | 48,941 | | | | 54,941 | | Other consumer loans, including overdrafts | | | 13,149 | | | | 16,376 | | | | | 238,224 | | | | 251,522 | | Total loans | | | 1,701,541 | | | | 1,703,257 | | Allowance for loan losses | | | (30,843 | ) | | | (30,050 | ) | Total loans, net | | $ | 1,670,698 | | | $ | 1,673,207 | |
Total loans include net deferred loan origination costs of $720 and $1,651 at September 30, 2010 and September 30, 2009, respectively.
A substantial portion of the Company’s loan portfolio is secured by residential and commercial real estate located in Rockland and Orange Counties of New York and contiguous areas such as Ulster, Sullivan, Putnam and Westchester Counties of New York and Bergen County, New Jersey. The ability of the Company’s borrowers to make principal and interest payments is dependent upon, among other things, the level of overall economic activity and the real estate market conditions prevailing within the Company’s concentrated lending area. Commercial real estate and acquisition, development and construction loans are considered by management to be of somewhat greater credit risk than loans to fund the purchase of a primary residence due to the generally larger loan amounts and dependency on income production or sale of the real estate. Substantially all of these loans are collateralized by real estate located in the Company’s primary market area.
PROVIDENT NEW YORK BANCORP AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollars in thousands, except per share data)
The principal balances of non-performing loans were as follows:
| | 2010 | | | 2009 | | | | 90 days past due and still accruing | | | Non-Accrual | | | 90 days past due and still accruing | | | Non-Accrual | | | | | | | | | | | | | | | | | | | | | | | | | | | | One- to four-family residential mortgage loans | | $ | 1,953 | | | $ | 6,080 | | | $ | 2,932 | | | $ | 4,425 | | Commercial real estate loans | | | 2,971 | | | | 6,886 | | | | 977 | | | | 5,826 | | Commercial business loans | | | - | | | | 1,376 | | | | - | | | | 457 | | Acquisition, development & construction loans | | | - | | | | 5,730 | | | | 440 | | | | 10,830 | | Consumer loans | | | 503 | | | | 1,341 | | | | 211 | | | | 371 | | Total non-performing loans | | $ | 5,427 | | | $ | 21,413 | | | $ | 4,560 | | | $ | 21,909 | | | | | | | | | | | | | | | | | | | Troubled debt restructured still accruing | | $ | 16,047 | | | | | | | $ | 674 | | | | | |
Gross interest income that would have been recorded if the foregoing non-accrual loans had remained current in accordance with their contractual terms totaled $1,201, $1,429 and $1,129 for the years ended September 30, 2010, 2009 and 2008, respectively, compared to interest income actually recognized (including income recognized on a cash basis) of $383, $724 and $724, respectively.
Substantially all impaired loans are collateral-dependent loans measured based on the fair value of the collateral. The Company determines the need for a specific allocation of the allowance for loan losses on a loan-by-loan basis for impaired loans. Impaired loans were as follows:
| | 2010 | | | 2009 | | | | | | | | | Year end loans with no allocated allowance for loan losses | | $ | 10,319 | | | $ | 7,895 | | Year end loans with allocated allowance for loan loses | | | 31,763 | | | | 14,206 | | Total impaired loans | | $ | 42,082 | | | $ | 22,101 | | | | | | | | | | | Amount of the allowance for loan losses allocated | | $ | 3,046 | | | | 2,349 | | Average of individually impaired loans during year | | | 27,032 | | | | 19,310 | | Interest income recognized during impairment | | | 1,975 | | | | 1,429 | | Cash-basis interest income recognized | | | 1,157 | | | | 723 | |
Activity in the allowance for loan losses is summarized as follows:
| | Year ended September 30, | | | | 2010 | | | 2009 | | | 2008 | | Balance at beginning of year | | $ | 30,050 | | | $ | 23,101 | | | $ | 20,389 | | Provision for loan losses | | | 10,000 | | | | 17,600 | | | | 7,200 | | | | | | | | | | | | | | | Charge-offs | | | (10,330 | ) | | | (11,289 | ) | | | (4,929 | ) | Recoveries | | | 1,123 | | | | 638 | | | | 441 | | Net Charge offs | | | (9,207 | ) | | | (10,651 | ) | | | (4,488 | ) | Balance at end of year | | $ | 30,843 | | | $ | 30,050 | | | $ | 23,101 | |
PROVIDENT NEW YORK BANCORP AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollars in thousands, except per share data)
Certain residential mortgages originated by the Company are sold in the secondary market. Non-interest income includes net gains on such sales of $867 in fiscal 2010, $961 in fiscal 2009, and $0 in fiscal 2008. At September 30, 2010 and 2009 there were $5,890 and $1,213 residential mortgage loans held for sale, respectively.
Other assets at September 30, 2010 and 2009 include capitalized mortgage servicing rights with a carrying amount of $1,172 and $840, respectively, which are recorded at the lower of amortized cost or fair market value, net of a valuation allowance of $54 at September 30, 2010 and $115 at September 30, 2009. No valuation allowance was required at September 30, 2008. The Company generally retains the servicing rights on mortgage loans sold. Servicing loans for others involves collecting payments, maintaining escrow accounts, making remittances to investors and, if necessary, processing foreclosures. Mortgage loans serviced for others, including loan participations, totaled approximately $186,562, $163,621 and $129,331 at September 30, 2010, 2009 and 2008, respectively. Mortgage escrow funds include balances of $1,390 and $1,01 8 at September 30, 2010 and 2009, respectively, related to loans serviced for others. Mortgage servicing income recorded in other income was $630, $141, and $240 in 2010, 2009 and 2008 respectively.
(6) Accrued Interest Receivable
The components of accrued interest receivable were as follows:
| | September 30, | | | | 2010 | | | 2009 | | Loans | | $ | 5,728 | | | $ | 5,417 | | Securities | | | 5,341 | | | | 5,055 | | Total accrued interest receivable | | $ | 11,069 | | | $ | 10,472 | |
(7) Premises and Equipment, Net
Premises and equipment are summarized as follows:
| | September 30, | | | | 2010 | | | 2009 | | Land and land improvements | | $ | 7,505 | | | $ | 4,320 | | Buildings | | | 31,480 | | | | 31,332 | | Leasehold improvements | | | 8,965 | | | | 8,553 | | Furniture, fixtures and equipment | | | 34,857 | | | | 30,963 | | | | | 82,807 | | | | 75,168 | | Accumulated depreciation and amortization | | | (39,209 | ) | | | (34,476 | ) | Total premises and equipment, net | | $ | 43,598 | | | $ | 40,692 | |
PROVIDENT NEW YORK BANCORP AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollars in thousands, except per share data)
(8) Deposits
Deposit balances and weighted average interest rates at September 30, 2010 and 2009 are summarized as follows:
| | September 30, | | | | 2010 | | | 2009 | | | | Amount | | | Rate | | | Amount | | | Rate | | Demand Deposits | | | | | | | | | | | | | Retail | | $ | 174,731 | | | | — | % | | $ | 169,122 | | | | — | % | Commercial | | | 277,217 | | | | — | | | | 236,516 | | | | — | | Municipal | | | 77,909 | | | | — | | | | 86,596 | | | | — | | Total Non-interest bearing deposits | | | 529,857 | | | | 492,234 | | | | | | | | | | NOW Deposits | | | | | | | | | | | | | | | | | Retail | | | 139,517 | | | | 0.05 | | | | 127,595 | | | | 0.11 | | Commercial | | | 34,105 | | | | 0.31 | | | | 36,972 | | | | 0.22 | | Municipal | | | 241,995 | | | | 0.23 | | | | 188,074 | | | | 0.28 | | Total Transaction deposits | | | 945,474 | | | | 844,875 | | | | | | | | | | Savings deposits | | | 392,321 | | | | 0.11 | | | | 357,814 | | | | 0.11 | | Money market deposits | | | 427,334 | | | | 0.29 | | | | 384,632 | | | | 0.43 | | Certificates of deposit | | | 377,573 | | | | 1.12 | | | | 494,961 | | | | 1.83 | | Total deposits | | $ | 2,142,702 | | | | 0.31 | % | | $ | 2,082,282 | | | | 0.57 | % |
Municipal deposits held by PMB totaled $513,760 and $470,170 at September 30, 2010 and September 30, 2009, respectively. See Note 3, “Securities Available for Sale,” for the amount of securities that are pledged as collateral for municipal deposits and other purposes. Deposits received for tax receipts were $219,000 and $201,000 at September 30, 2010 and September 30, 2009, respectively.
Certificates of deposit had remaining periods to contractual maturity as follows:
| | September 30, | | | | 2010 | | | 2009 | | Remaining period to contractual maturity: | | | | | | | Less than one year | | $ | 316,096 | | | $ | 439,642 | | One to two years | | | 24,844 | | | | 19,081 | | Two to three years | | | 13,273 | | | | 10,952 | | Three to four years | | | 16,623 | | | | 8,741 | | Four to five years | | | 6,737 | | | | 16,545 | | Total certificates of deposit | | $ | 377,573 | | | $ | 494,961 | |
Certificate of deposit accounts with a denomination of $100 or more totaled $105,717 and $160,660 at September 30, 2010 and 2009, respectively. The Company had $18,554 (including certificates of deposit account registry service (CDAR’s) reciprocal CDs of $7,889) and $20,578 ($10,558 of which were reciprocal CDAR’s) of brokered deposits as of September 30, 2010 and 2009, respectively.
PROVIDENT NEW YORK BANCORP AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollars in thousands, except per share data)
Interest expense on deposits is summarized as follows:
| | Years ended September 30, | | | | 2010 | | | 2009 | | | 2008 | | Savings deposits | | $ | 403 | | | $ | 758 | | | $ | 1,244 | | Money market and NOW deposits | | | 2,035 | | | | 3,377 | | | | 6,313 | | Certificates of deposit | | | 6,079 | | | | 14,240 | | | | 20,787 | | Total interest expense | | $ | 8,517 | | | $ | 18,375 | | | $ | 28,344 | |
(9) FHLB and Other Borrowings
The Company’s FHLB and other borrowings and weighted average interest rates are summarized as follows:
| | September 30, | | | | 2010 | | | 2009 | | | | Amount | | | Rate | | | Amount | | | Rate | | By type of borrowing: | | | | | | | | | | | | | Advances | | $ | 141,251 | | | | 4.16 | % | | $ | 200,628 | | | | 4.16 | % | Repurchase agreements | | | 222,500 | | | | 3.98 | % | | | 230,000 | | | | 3.95 | % | Senior unsecured debt (FDIC insured) | | | 51,496 | | | | 2.75 | % | | | 51,494 | | | | 2.74 | % | Total borrowings | | $ | 415,247 | | | | 3.88 | % | | $ | 482,122 | | | | 3.91 | % | By remaining period to maturity: | | | | | | | | | | | | | | | | | Less than one year | | $ | 44,873 | | | | 3.82 | % | | $ | 62,677 | | | | 4.09 | % | One to two years | | | 73,996 | | | | 3.14 | % | | | 44,921 | | | | 3.79 | % | Two to three years | | | 27,708 | | | | 4.00 | % | | | 73,994 | | | | 3.14 | % | Three to four years | | | 25,125 | | | | 4.14 | % | | | 31,639 | | | | 3.98 | % | Four to five years | | | 20,000 | | | | 2.96 | % | | | 25,159 | | | | 4.14 | % | Greater than five years | | | 223,545 | | | | 4.19 | % | | | 243,732 | | | | 4.09 | % | Total borrowings | | $ | 415,247 | | | | 3.88 | % | | $ | 482,122 | | | | 3.91 | % |
As a member of the FHLB, the Bank may borrow in the form of term and overnight borrowings up to the amount of eligible residential mortgage loans and securities that have been pledged as collateral under a blanket security agreement. As of September 30, 2010 and 2009, the Bank had pledged residential mortgage loans totaling $313,587 and $350,538, respectively. The Bank had also pledged securities with carrying amounts of $228,442 and $231,190 as of September 30, 2010 and September 30, 2009, respectively, to secure repurchase agreements. As of September 30, 2010, the Bank may increase its borrowing capacity by pledging securities and mortgages not required to be pledged for other purposes with a market value of $367,215. FHLB advances are subject to prepayment penalties if repaid prior to maturity.
Securities repurchase agreements had weighted average remaining terms to maturity of approximately 5.38 years and 6.2 years at September 30, 2010 and 2009, respectively. Average borrowings under securities repurchase agreements were $224,375 and $238,750 during the years ended September 30, 2010 and 2009, respectively, and the maximum outstanding month-end balance was $230,000 and $250,000, respectively.
FHLB borrowings (includes advance and repurchase agreements) of $227,500 and $227,500 at September 30, 2010 and 2009 respectively are putable quarterly, at the discretion of the FHLB. These borrowings have a weighted average remaining term to the contractual maturity dates of approximately 6.16 year and 6.75 years and weighted average interest rates of 4.24% and 4.63% at September 30, 2010 and 2009, respectively. An additional $40 million are putable on a one time basis after initial lockout periods beginning in February 2011 with an weighted average interest rate of 3.27%.
PROVIDENT NEW YORK BANCORP AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollars in thousands, except per share data)
(10) Derivatives
The Company purchased two interest rate caps in the first quarter of fiscal 2010 to assist in offsetting a portion of interest rate exposure should short term rate increases lead to rapid increases in general levels of market interest rates on deposits. These caps are linked to LIBOR and have strike prices of 3.50% and 4.0%. These caps are stand alone derivatives and therefore changes in fair value are reported in current period earnings, the amount for fiscal year 2010 was a loss of $1.1 million. The fair value of the interest rate caps at September 30, 2010, is reflected in other assets with a corresponding credit (charge) to income recorded as a gain (loss) to non-interest income.
The Company acts as an interest rate swap counterparty with certain commercial customers and manage this risk by entering into corresponding and offsetting interest rate risk agreements with third parties. The swaps are considered a derivative instrument and must be carried at fair value. As the swaps are not a designated qualifying hedge, the change in fair value is recognized in current earnings, with no offset from any other instrument. There was no net gain or loss recorded in earnings during fiscal year 2010. Interest rate swaps are recorded on our consolidated statements of financial condition as a other asset or other liability at estimated fair value.
At September 30, 2010, summary information regarding these derivatives is presented below:
| | September 30, 2010 | | | | Notional Amount | | | Average Maturity | | | Weighted Average Rate | | | Weighted Average Variable Rate | | | Fair Value | | | | | | | | | | | | | | | | | | Interest Rate Caps | | $ | 50,000 | | | | 4.18 | | | | 3.75 | | | NA | % | | $ | 262 | | 3rd party interest rate swap | | | 1,182 | | | | 9.37 | | | | 6.25 | | | | 1 m Libor + 2.5 | % | | | 173 | | Customer interest rate swap | | | (1,182 | ) | | | 9.37 | | | | 6.25 | | | | 1 m Libor + 2.5 | % | | | (173 | ) |
The Company enters into various commitments to sell real estate loans into the secondary market. Such commitments are considered to be derivative financial instruments and, therefore are carried at estimated fair value on the consolidated balance sheets. The fair values of these commitments are not considered material.
(11) Income Taxes
Income tax expense consists of the following:
| | Years ended September 30, | | | | 2010 | | | 2009 | | | 2008 | | Current tax expense: | | | | | | | | | | Federal | | $ | 5,410 | | | $ | 10,369 | | | $ | 10,774 | | State | | | 1,437 | | | | 1,446 | | | | 1,658 | | | | | 6,847 | | | | 11,815 | | | | 12,432 | | Deferred tax expense (benefit): | | | | | | | | | | | | | Federal | | | 375 | | | | (1,567 | ) | | | (2,056 | ) | State | | | (349 | ) | | | (73 | ) | | | (472 | ) | | | | 26 | | | | (1,640 | ) | | | (2,528 | ) | Total income tax expense | | $ | 6,873 | | | $ | 10,175 | | | $ | 9,904 | |
PROVIDENT NEW YORK BANCORP AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollars in thousands, except per share data)
Actual income tax expense differs from the tax computed based on pre-tax income and the applicable statutory Federal tax rate, for the following reasons:
| | Years ended September 30, | | | | 2010 | | | 2009 | | | 2008 | | Tax at Federal statutory rate of 35% | | $ | 9,578 | | | $ | 12,612 | | | $ | 11,789 | | | | | | | | | | | | | | | State income taxes, net of Federal tax benefit | | | 652 | | | | 892 | | | | 771 | | Tax-exempt interest | | | (2,645 | ) | | | (2,536 | ) | | | (2,241 | ) | BOLI income | | | (715 | ) | | | (964 | ) | | | (641 | ) | Other, net | | | 3 | | | | 171 | | | | 226 | | Actual income tax expense | | $ | 6,873 | | | $ | 10,175 | | | $ | 9,904 | | Effective income tax rate | | | 25.1 | % | | | 28.2 | % | | | 29.4 | % |
The tax effects of temporary differences that give rise to deferred tax assets and liabilities are summarized below. The net amount is reported in other assets or other liabilities in the consolidated statements of financial condition.
| | September 30, | | | | 2010 | | | 2009 | | Deferred tax assets: | | | | | | | Allowance for loan losses | | $ | 12,525 | | | $ | 12,203 | | Deferred compensation | | | 3,370 | | | | 3,715 | | Purchase accounting adjustments | | | 13 | | | | 105 | | Accrued post retirement expense | | | 1,121 | | | | 1,111 | | Other | | | 190 | | | | 1,014 | | Total deferred tax assets | | | 17,219 | | | | 18,148 | | Deferred tax liabilities: | | | | | | | | | Undistributed earnings of subsidiary not consolidated for tax return purposes (REIT Income) | | | 6,138 | | | | 6,518 | | Prepaid pension costs | | | 3,592 | | | | 3,866 | | Core deposit intangibles | | | 32 | | | | 367 | | Purchase accounting fair value adjustments | | | 165 | | | | 249 | | Depreciation of premises and equipment | | | 743 | | | | 705 | | Other comprehensive income | | | 3,577 | | | | 1,694 | | Goodwill | | | 53 | | | | (184 | ) | Other | | | 876 | | | | 980 | | Total deferred tax liabilities | | | 15,176 | | | | 14,195 | | Net deferred tax asset | | $ | 2,043 | | | $ | 3,953 | |
Based on management’s consideration of historical and anticipated future pre-tax income, as well as the reversal period for the items giving rise to the deferred tax assets and liabilities, a valuation allowance for deferred tax assets was not considered necessary at September 30, 2010 and 2009.
The Bank is subject to special provisions in the Federal and New York State tax laws regarding its allowable tax bad debt deductions and related tax bad debt reserves. Tax bad debt reserves consist of a defined “base-year” amount, plus additional amounts accumulated after the base year. Deferred tax liabilities are recognized with respect to reserves accumulated after the base year, as well as any portion of the base-year amount that is expected to become taxable (or recaptured) in the foreseeable future. The Bank’s base-year tax bad debt reserves for Federal tax purposes were $9,313 at both September 30, 2010 and 2009. The Bank’s tax bad debt reserves for NY State purposes were $44,340 and $46,555 at September 30, 2010 and 2009, respectively. Associated deferred tax liabilities of $5,755 and $5,872 have not bee n recognized at those dates since the Company does not expect that the Federal base-year reserves ($3,260) and New York State bad debt reserves $(3,839) and ($2,612) net of federal benefit at September 30, 2010 and 2009, respectively will become taxable in the foreseeable future. Under the tax laws, events that would result in taxation of certain of these reserves include redemptions of the Bank’s stock or certain excess distributions by the Bank to Provident New York Bancorp.
PROVIDENT NEW YORK BANCORP AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollars in thousands, except per share data)
In 2010 the New York State law was modified to conform to the Federal treatment of the tax bad debt deduction. These changes in the law are effective for taxable years beginning on or after January 1, 2010. Therefore, going forward, there will no longer be a separate New York State deduction for bad debts, and the establishment and maintenance of a New York reserve is no longer necessary for thrift institutions. Taxpayers that cease to be a thrift institution will not be required to recapture any amounts of the New York reserve for losses.
Unrecognized Tax Benefits
The Company does not have unrecognized tax benefits as of September 2010 or September 2009.
The total amount of interest and penalties recorded in the consolidated statement of income in income tax expense (benefit) for the years ended September 30, 2010, September 30, 2009, and September 30, 2008 were $0, ($89), and $58, respectively.
The Company and its subsidiaries are subject to U.S. federal income tax as well as income tax of the state of New York and various other state income taxes. The tax years that are currently open for audit are 2006 and later for both federal and for New York State income tax.
(12) Employee Benefit Plans and Stock-Based Compensation Plans
(a) Pension Plans
The Company has a noncontributory defined benefit pension plan covering employees that were eligible as of September 30, 2006. In July, 2006 the Board of Directors of the Company approved a curtailment to the Provident Bank Defined Benefit Pension Plan (“the Plan”) as of September 30, 2006. At that time, all benefit accruals for future service ceased and no new participants may enter the plan. The purpose of the Plan curtailment was to afford flexibility in the retirement benefits the Company provides, while preserving all retirement plan participants’ earned and vested benefits, and to manage the increasing costs associated with the defined benefit pension plan. The Company’s funding policy is to contribute annually an amount sufficient to meet statutory minimum funding requirements, but not in excess of the m aximum amount deductible for Federal income tax purposes. Contributions are intended to provide not only for benefits attributed to service to date, but also for benefits expected to be earned in the future.
PROVIDENT NEW YORK BANCORP AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollars in thousands, except per share data)
The following is a summary of changes in the projected benefit obligation andits implied fair value, of plan assets. The Company uses a September 30th measurement date for its pension plans.
| | September 30, | | | | 2010 | | | 2009 | | Changes in projected benefit obligation: | | | | | | | Beginning of year | | $ | 27,963 | | | $ | 23,100 | | Service cost | | | - | | | | - | | Interest cost | | | 1,555 | | | | 1,593 | | Actuarial loss | | | 3,296 | | | | 4,130 | | Contract conversion | | | - | | | | - | | Benefits paid | | | (1,705 | ) | | | (860 | ) | End of year | | | 31,109 | | | | 27,963 | | Changes in fair value of plan assets: | | | | | | | | | Beginning of year | | | 25,503 | | | | 20,926 | | Actual gain on plan assets | | | 2,498 | | | | 287 | | Employer contributions | | | 500 | | | | 5,150 | | Benefits and distributions paid | | | (1,705 | ) | | | (860 | ) | End of year | | | 26,796 | | | | 25,503 | | Funded status at end of year | | $ | (4,313 | ) | | $ | (2,460 | ) |
Amounts recognized in accumulated other comprehensive income (loss) at September 30, 2010 and 2009 consisted of:
| | 2010 | | | 2009 | | Unrecognized actuarial loss | | $ | (13,159 | ) | | $ | (11,980 | ) | Deferred tax asset | | | 5,344 | | | | 4,865 | | Net amount recognized in accumulated other comprehensive income (loss) | | $ | (7,815 | ) | | $ | (7,115 | ) |
Discount rates of 5.00%, 5.75% and 7.0% were used in determining the actuarial present value of the projected benefit obligation at September 30, 2010, 2009 and 2008, respectively. No compensation increases were used as the plan is frozen. The weighted average long-term rate of return on plan assets was 7.75% for fiscal years ended 2010, 2009 and 2008. The accumulated benefit obligation was $31,109 and $27,963 at year end September 30, 2010 and 2009 respectively. The discount rate used in the determination of net periodic pension expense were 5.75%, 7.0% and 6.25%, for the years ending September 30, 2010, 2009 and 2008, respectively.
The following benefit payments, which reflect expected future service, as appropriate, are expected toit must be paid:
2011 | | $ | 1,406 | | 2012 | | | 1,375 | | 2013 | | | 1,462 | | 2014 | | | 1,509 | | 2015 | | | 1,965 | | 2016 - 2019 | | | 9,054 | |
PROVIDENT NEW YORK BANCORP AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollars in thousands, except per share data)
The components of the net periodic pension expense (benefit) were as follows:
| | Years ended September 30, | | | | 2010 | | | 2009 | | | 2008 | | Service cost | | $ | - | | | $ | - | | | $ | - | | Interest cost | | | 1,555 | | | | 1,593 | | | | 1,558 | | Expected return on plan assets | | | (1,890 | ) | | | (1,778 | ) | | | (2,110 | ) | Amortization of unrecognized loss | | | 1,509 | | | | 826 | | | | - | | Recognized net actuarial loss | | | - | | | | - | | | | - | | Net periodic pension expense (benefit) | | $ | 1,174 | | | $ | 641 | | | $ | (552 | ) |
Unrecognized actuarial loss and prior service cost totaling $2.0 million is expected to be amortized to pension expense during the next fiscal year ending September 30, 2011.
Equity, Debt, Invest Funds and Other Securities: The fair values for investment securities are determined by quoted market prices, if available (Level 1). For securities where quoted prices are not readily available, fair values are calculated based on market prices of similar securities (Level 2). For securities where quoted prices or market prices of similar securities are not available, fair values are calculated using discounted cash flows or other market indicators (Level 3).
The fair value of the plan assets at September 30, 2010, by asset category, is as follows:
| | Fair Value Measurements at September 30, 2010 | | | Level 1 | | | Level 2 | | | Level 3 | | Asset Category | | | | | | | | | | | | | Large U.S. equity | | $ | 14,355 | | | $ | - | | | $ | 14,355 | | | $ | - | | Small Mid U.S. equity | | | 2,848 | | | | - | | | | 2,848 | | | | - | | International Equity | | | 2,792 | | | | - | | | | 2,792 | | | | - | | Total Equity | | | 19,995 | | | | - | | | | 19,995 | | | | - | | | | | | | | | | | | | | | | | | | High yield bond | | | 1,043 | | | | - | | | | 1,043 | | | | - | | Intermediate term bond | | | 4,727 | | | | - | | | | 4,727 | | | | - | | Inflation protected bond | | | 1,031 | | | | - | | | | 1,031 | | | | | | Total Fixed Income | | | 6,801 | | | | - | | | | 6,801 | | | | - | | | | | | | | | | | | | | | | | | | Cash | | | - | | | | - | | | | - | | | | - | | | | | | | | | | | | | | | | | | | Total Assets | | $ | 26,796 | | | $ | - | | | $ | 26,796 | | | $ | - | |
PROVIDENT NEW YORK BANCORP AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollars in thousands, except per share data)
Weighted-average pension plan asset allocations based on the fair value of such assets at September 30, 2010, and September 30, 2009 and target allocations for 2011, by asset category, are as follows:
| | September 30, 2009 | | | September 30, 2010 | | | Target Allocation Range 2011 | | | Weighted Average Expected Rate of Return | | | | | | | | | | | | | | | Large U.S. equity securities | | | 50 | % | | | 54 | % | | | 40% - 85 | % | | | 7.00 | % | Small mid U.S. equity securities | | | 10 | % | | | 11 | % | | | 40% - 85 | % | | | 15.00 | % | International equity securities | | | 10 | % | | | 10 | % | | | 40% - 85 | % | | | 12.00 | % | Total equity securities | | | 70 | % | | | 75 | % | | | 40% - 85 | % | | | 8.84 | % | | | | | | | | | | | | | | | | | | High yield bond | | | 3 | % | | | 4 | % | | | 20% - 40 | % | | | 8.00 | % | Intermediate term bond | | | 23 | % | | | 17 | % | | | 20% - 40 | % | | | 6.00 | % | Inflation protected bond | | | 4 | % | | | 4 | % | | | 20% - 40 | % | | | 3.00 | % | Total fixed income | | | 30 | % | | | 25 | % | | | 20% - 40 | % | | | 5.85 | % | | | | | | | | | | | | | | | | | | Cash | | | 0 | % | | | 0 | % | | | 0% - 20 | % | | | 0 | % |
The expected long-term rate of return assumption as of each measurement date was determined by taking into consideration asset allocations as of each such date, historical returns on the types of assets held, and current economic factors. Under this method, historical investment returns for each major asset category are applied to the expected future investment allocation in that categorypresented as a percentage of total plan assets, and a weighted average is determined. The Company’s investment policy for determining the asset allocation targets was developed basedseparate line item on the desire to optimize total return while placing a strong emphasis on preservation of capital. In general, it is hoped that, in the aggregate, changes in the fair value of plan assets will be less volatile than similar changes in appropriate market indices. Re turns on invested assets are periodically compared with target market indices for each asset type to aid management in evaluating such returns.financial statements.
|
At September 30, 2013 the Company assessed goodwill for impairment using qualitative factors and concluded the two-step process was unnecessary. Changes in the local and national economy, the federal and state legislative and regulatory environments for financial institutions, the stock market, interest rates and other external factors (such as natural disasters or significant world events) may occur from time to time, often with great unpredictability, and may materially impact the fair value of publicly traded financial institutions and could result in an impairment charge at a future date.
Core deposit intangibles recorded in acquisitions are amortized to expense using an accelerated method over their estimated lives of approximately eight years. Intangibles related to the naming rights on Provident Bank Ball Park are amortized over 10 years on a straight-line basis. Impairment losses on intangible assets are charged to expense, if and when they occur.
(q) Other Real Estate Owned
Real estate properties acquired through loan foreclosures are recorded initially at estimated fair value, less expected sales costs, with any resulting write-down charged to the allowance for loan losses. Subsequent valuations are performed by management, and the carrying amount of a property is adjusted by a charge to expense to reflect any subsequent declines in estimated fair value. Fair value estimates are based on recent appraisals and other available information. Routine holding costs are charged to expense as incurred, while significant improvements are capitalized. Gains and losses on sales of real estate owned properties are recognized upon disposition. Other real estate owned totaled $6.0 million and $6.4 million at September 30, 2013 and 2012, respectively.
(r) Securities Repurchase Agreements
In securities repurchase agreements, the Company transfers securities to counterparty under an agreement to repurchase the identical securities at a fixed price on a future date. These agreements are accounted for as secured financing transactions since the Company maintains effective control over the transferred securities and the transfer meets other specified criteria. Accordingly, the transaction proceeds are recorded as borrowings and the underlying securities continue to be carried in the Company’s investment securities portfolio. Disclosure of the pledged securities is made in the consolidated balance sheets if the counterparty has the right by contract to sell or re-pledge such collateral.
STERLING BANCORP AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollars in thousands, except per share data)
(s)Income Taxes
Net deferred taxes are recognized for the estimated future tax effects attributable to “temporary differences” between the financial statement carrying amounts and the tax bases of existing assets and liabilities. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which the temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax laws or rates is recognized in income tax expense in the period that includes the enactment date of the change.
A deferred tax liability is recognized for all temporary differences that will result in future taxable income. A deferred tax asset is recognized for all temporary differences that will result in future tax deductions, subject to reduction of the asset by a valuation allowance in certain circumstances. This valuation allowance is recognized if, based on an analysis of available evidence, we determine that it is more likely than not that some portion, or all of the deferred tax asset will not be realized.
The valuation allowance is subject to ongoing adjustment based on changes in circumstances that affect management’s judgment about the realizability of the deferred tax asset. Adjustments to increase or decrease the valuation allowance are charged or credited, respectively, to income tax expense. The Company recognizes interest and/or penalties related to income tax matters in income tax expense.
The Company evaluates uncertain tax positions in a two step process. The first step is recognition, which requires a determination of whether it is more likely than not that a tax position will be sustained upon examination. The second step is measurement. Under the measurement step, a tax position that meets the more likely than not recognition threshold is measured at the largest amount of benefit that is greater than fifty percent likely of being realized upon ultimate settlement. Tax positions that previously failed to meet the more likely than not recognition threshold should be recognized in the first subsequent financial reporting period in which that threshold is met. Previously recognized tax position that no longer meet the more likely than not recognition threshold should be derecognized in the first subsequent financial reporting period in which the threshold is no longer met. The Company did not have any such position as of September 30, 2013. See Note 10 “Income Taxes”.
(t) Bank Owned Life Insurance (BOLI)
The Company has purchased life insurance policies on certain officers and key executives. Bank owned life insurance is recorded at its cash surrender value (or the amount that can be realized).
(u) Stock-Based Compensation Plans
Compensation expense is recognized for the Employee stock ownership plan (“ESOP”) equal to the fair value of shares that have been allocated or committed to be released for allocation to participants. Any difference between the fair value at that time and the ESOP’s original acquisition cost is charged or credited to stockholders’ equity (additional paid-in capital). The cost of ESOP shares that have not yet been allocated or committed to be released for allocation is deducted from stockholders’ equity.
Compensation cost is recognized for stock options issued to employees, based on the fair value of these awards at the date of grant. A Black-Scholes model is utilized to estimate the fair value of stock options. Compensation cost is recognized over the required service period, generally defined as the vesting period.
During the fiscal years ended September 30, 2013, 2012 and 2011 the Company issued 360,500, 515,000 and 119,526 new stock option awards and recognized total non-cash stock-based compensation cost of $634, $521 and $558, respectively. As of September 30, 2013, the total remaining unrecognized compensation cost related to non-vested stock options was $1,360. Options granted in 2013 have 3 year vesting periods.
The Company also has a restricted stock plan in which shares awarded are transferred from treasury stock at cost with the difference between the fair market value on the grant date and the cost basis of the shares recorded as a reduction to retained earnings or an increase to additional paid-in capital, as applicable. The expense is amortized over the vesting period of the awards. The Company issued 186,900 shares during 2013 and 58,000 during 2012 and 63,870 shares were issued in 2011. The total restricted stock compensation cost recognized during 2013, 2012 and 2011 was $1,108, $276, and $168, respectively. As of September 30, 2013, the total remaining unrecognized compensation cost related to restricted stock was $1,239.
The Company’s stock-based compensation plans allow for accelerated vesting when employees retire under circumstances in accordance with the terms of the plans. Grants which are subject to such accelerated vesting, are expensed over the shorter
STERLING BANCORP AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollars in thousands, except per share data)
of the time to retirement age or the vesting schedule in accordance with the grant. Thus the vesting period can be less than the vesting period expressed in the stock based compensation agreement, depending upon the age of the grantee. As of September 30, 2013, 11,533 restricted shares and 48,121 stock options were potentially subject to accelerated vesting, and have been fully expensed. The Company recognized expense associated with the acceleration of restricted shares of $5 for fiscal 2013,and no expense in fiscal 2012 and 2011. The Company recognized expense associated with the acceleration of 2,000 shares in 2013, and no stock option shares in 2012 and 2011, respectively.
(v) Earnings Per Share
Basic earnings per share (“EPS”) is computed by dividing net income applicable to common stock by the weighted average number of common shares outstanding during the period.
Diluted EPS is computed in a similar manner, except that the weighted average number of common shares is increased to include incremental shares (computed using the treasury stock method) that would have been outstanding if all potentially dilutive stock options were exercised and unvested restricted stock shares became vested during the periods. For purposes of computing both basic and diluted EPS, outstanding shares include earned ESOP shares.
(w) Segment Information
Public companies are required to report certain financial information about significant revenue-producing segments of the business for which such information is available and utilized by the chief operating decision maker. Substantially all of the Company’s operations occur through the Bank and involve the delivery of loan and deposit products to customers. Management makes operating decisions and assesses performance based on an ongoing review of its banking operation, which constitutes the Company’s only operating segment for financial reporting purposes.
(x) Loss Contingencies
Loss contingencies, including claims and legal actions arising in the ordinary course of business, are recorded as liabilities when the likelihood of loss is probable and an amount or range of loss can be reasonably estimated. The Company does not believe there are such matters that will have a material effect on the financial statements.
(y) Derivatives
At the inception of a derivative contract, the Company designates the derivative as one of three types based on the Company’s intentions and belief as to likely effectiveness as a hedge. These three types are (1) a hedge of the fair value of a recognized asset or liability or of an unrecognized firm commitment (“fair value hedge”), (2) a hedge of a forecasted transaction or the variability of cash flows to be received or paid related to a recognized asset or liability (“cash flow hedge”), or (3) an instrument with no hedging designation (“stand-alone derivative”). For a fair value hedge, the gain or loss on the derivative, as well as the offsetting loss or gain on the hedged item, are recognized in current earnings as fair values change. For a cash flow hedge, the gain or loss on the derivative is reported in other comprehensive income and is reclassified into earnings in the same periods during which the hedged transaction affects earnings. For both types of hedges, changes in the fair value of derivatives that are not highly effective in hedging the changes in fair value or expected cash flows of the hedged item are recognized immediately in current earnings. Changes in the fair value of derivatives that do not qualify for hedge accounting are reported currently in earnings, as non-interest income. Net cash settlements on derivatives that qualify for hedge accounting are recorded in interest income or interest expense, based on the item being hedged. Net cash settlements on derivatives that do not qualify for hedge accounting are reported in non-interest income. Cash flows on hedges are classified in the cash flow statement the same as the cash flows of the items being hedged.
The Company formally documents the relationship between derivatives and hedged items, as well as the risk-management objective and the strategy for undertaking hedge transactions at the inception of the hedging relationship. This documentation includes linking fair value or cash flow hedges to specific assets and liabilities on the balance sheet or to specific firm commitments or forecasted transactions. The Company also formally assesses, both at the hedge’s inception and on an ongoing basis, whether the derivative instruments that are used are highly effective in offsetting changes in fair values or cash flows of the hedged items. The Company discontinues hedge accounting when it determines that the derivative is no longer effective in offsetting changes in the fair value or cash flows of the hedged item, the derivative is settled or terminates, a hedged forecasted transaction is no longer probable, a hedged firm commitment is no longer firm, or treatment of the derivative as a hedge is no longer appropriate or intended.
When hedge accounting is discontinued, subsequent changes in fair value of the derivative are recorded as non-interest income. When a fair value hedge is discontinued, the hedged asset or liability is no longer adjusted for changes in fair value and the
STERLING BANCORP AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollars in thousands, except per share data)
existing basis adjustment is amortized or accreted over the remaining life of the asset or liability. When a cash flow hedge is discontinued but the hedged cash flows or forecasted transactions are still expected to occur, gains or losses that were accumulated in other comprehensive income are amortized into earnings over the same periods which the hedged transactions will affect earnings.
(z) Loan Commitments and Related Financial Instruments
Financial instruments include off-balance sheet credit instruments, such as commitments to make loans and commercial letters of credit, issued to meet customer financing needs. The face amount for these items represents the exposure to loss, before considering customer collateral or ability to repay. Such financial instruments are recorded when they are funded.
There were no pension plan assets consisting of Provident New York Bancorp equity securities (common stock) at September 30, 2010 or at September 30, 2009.
The Company makes contributions to its funded qualified pension plans as required by government regulation or as deemed appropriate by management after considering the fair value of plan assets, expected returns on such assets, and the present value of benefit obligations of the plans. At this time, the Company has not determined whether contributions in 2011 will be made.
The Company has also established a non-qualified Supplemental Executive Retirement Plan to provide certain executives with supplemental retirement benefits in addition to the benefits provided by the pension plan due to amounts limited by the Internal Revenue Code of 1986, as amended (“IRS Code”). The periodic pension expense for the supplemental plan amounted to $87, $94 and $82 for the years ended September 30, 2010, 2009 and 2008, respectively. The actuarial present value of the projected benefit obligation was $1,763 and $1,587 at September 30, 2010 and 2009, respectively, and the vested benefit obligation was $1,763 and $1,587 for the same periods, respectively, all of which is unfunded.
(b) Other Postretirement Benefit Plans
The Company’s postretirement plans, which are unfunded, provide optional medical, dental and life insurance benefits to retirees or death benefit payments to beneficiaries of employees covered by the Company and Bank Owned Life Insurance policies. The Company has elected to amortize the transition obligation for accumulated benefits to retirees as an expense over a 20-year period.
PROVIDENT NEW YORK BANCORP AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollars in thousands, except per share data)
Data relating to the postretirement benefit plan follows:
| | September 30, | |
| | 2010 | | | 2009 | |
Change in accumulated postretirement benefit obligation: | | | | | | |
Beginning of year | | $ | 2,041 | | | $ | 1,720 | |
Service cost | | | 28 | | | | 22 | |
Interest cost | | | 107 | | | | 118 | |
Actuarial loss | | | 183 | | | | 272 | |
Plan participants' contributions | | | - | | | | - | |
Amendments | | | - | | | | - | |
Benefits paid | | | (98 | ) | | | (91 | ) |
End of year | | $ | 2,261 | | | $ | 2,041 | |
| | | | | | | | |
Changes in fair value of plan assets: | | | | | | | | |
Beginning of year | | $ | - | | | $ | - | |
Employer contributions | | | 98 | | | | 91 | |
Plan participants' contributions | | | - | | | | - | |
Benefits paid | | | (98 | ) | | | (91 | ) |
End of year | | $ | - | | | $ | - | |
| | | | | | | | |
Funded status | | $ | (2,261 | ) | | $ | (2,041 | ) |
Components of net periodic benefit expense (benefit):
| | For years ended September 30, | |
| | 2010 | | | 2009 | | | 2008 | |
Service Cost | | $ | 28 | | | $ | 22 | | | $ | 17 | |
Interest Cost | | | 107 | | | | 118 | | | | 94 | |
Amortization of transition obligation | | | 24 | | | | 24 | | | | 10 | |
Amortization of prior service cost | | | 49 | | | | 49 | | | | 20 | |
Amortization of net actuarial gain | | | (95 | ) | | | (119 | ) | | | (115 | ) |
Total | | $ | 113 | | | $ | 94 | | | $ | 26 | |
There is $13 unrecognized actuarial gain and prior service cost expected to be amortized out of accumulated other comprehensive income in 2011.
Estimated Future Benefit Payments
The following benefit payments are expected to be paid in future years:
2011 | | | 130 | |
2012 | | | 132 | |
2013 | | | 137 | |
2014 | | | 140 | |
2015 | | | 143 | |
2015-2019 | | | 751 | |
PROVIDENT NEW YORK BANCORP AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollars in thousands, except per share data)
Assumptions used for plan | | 2010 | | | 2009 | |
| | | | | | |
Medical trend rate next year | | | 4.50 | % | | | 4.50 | % |
Ultimate trend rate | | | 4.50 | % | | | 4.50 | % |
Discount rate | | | 4.50 | % | | | 5.50 | % |
Discount rate used to value periodic cost | | | 5.50 | % | | | 7.25 | % |
There is no impact of a 1% increase or decrease in health care trend rate due to the Company's cap on cost.
Amounts recognized in accumulated other comprehensive income (loss) at September 30, 2010 and 2009 consisted of:
| | 2010 | | | 2009 | |
Post retirement plan unrecognized gain | | $ | 1,047 | | | $ | 1,235 | |
Post retirement plan unrecognized service cost | | | (412 | ) | | | (461 | ) |
Post retirement unrecognized transition obligation | | | (51 | ) | | | (61 | ) |
Post retirement SERP | | | (306 | ) | | | (182 | ) |
Post employment BOLI | | | (152 | ) | | | (61 | ) |
Transition obligation | | | - | | | | (621 | ) |
Subtotal | | | 126 | | | | (151 | ) |
Deferred tax liability | | | (51 | ) | | | 61 | |
Net amount recognized in accumulated other comprehensive income (loss) | | $ | 75 | | | $ | (90 | ) |
(c) Employee Savings Plan
The Company also sponsors a defined contribution plan established under Section 401(k) of the IRS Code. Eligible employees may elect to contribute up to 50% of their compensation to the plan. The Company currently makes matching contributions equal to 50% of a participant’s contributions up to a maximum matching contribution of 3% of eligible compensation. Effective after September 30, 2006, the Bank amended the plan to include a profit sharing component which was 3% of eligible compensation, in addition to the matching contributions for 2010. Voluntary matching and profit sharing contributions are invested, in accordance with the participant’s direction, in one or a number of investment options. Savings plan expense was $1,751, $1,594 and $1,626 for the years ended September 30, 2010, 2009 and 2008, respectively.
(d) Employee Stock Ownership Plan
In connection with the reorganization and initial common stock offering in 1999, the Company established an ESOP for eligible employees who meet certain age and service requirements. The ESOP borrowed $3,760 from the Bank and used the funds to purchase 1,370,112 shares of common stock in the open market subsequent to the Offering. The Bank made periodic contributions to the ESOP sufficient to satisfy the debt service requirements of the loan which matured December 31, 2007. The ESOP used these contributions, any dividends received by the ESOP on unallocated shares and forfeitures beginning in 2007, to make principal and interest payments on the loan.
In connection with the Second-Step Stock Conversion and Offering in January 2004, the Company established an ESOP loan for eligible employees. The ESOP borrowed $9,987 from Provident New York Bancorp and used the funds to purchase 998,650 shares of common stock in the offering. The term of the second ESOP loan is twenty years.
ESOP shares are held by the plan trustee in a suspense account until allocated to participant accounts. Shares released from the suspense account are allocated to participants on the basis of their relative compensation in the year of allocation. Participants become vested in the allocated shares over a period not to exceed five years. Any forfeited shares were allocated to other participants in the same proportion as contributions through 2006 and beginning in 2007 are used by the plan to reduce debt service. A total of $29, $4 and $293 related to plan forfeitures were reversed against expense for the years ended September 30, 2010, 2009, and 2008 respectively.
PROVIDENT NEW YORK BANCORP AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollars in thousands, except per share data)
ESOP expense was $413 (net of forfeitures), $484 (net of forfeitures), and $802 (net of forfeitures) for the years ended September 30, 2010, 2009 and 2008, respectively. Through September 30, 2010 and 2009, a cumulative total of 1,705,078 shares and 1,655,146 shares, respectively, have been allocated to participants or committed to be released for allocation, respectively. The cost of ESOP shares that have not yet been allocated to participants or committed to be released for allocation is deducted from stockholders’ equity; 663,690 shares with a cost of $6,637 and a fair value of approximately $5,568 at September 30, 2010 and 713,622 shares with a cost of $7,136 and a fair value of approximately $6,815 at September 30, 2009, respectively.
A supplemental savings plan has also been established for certain senior officers to compensate executives for benefits provided under the Bank’s tax qualified plans (employee’s savings plan and ESOP) that are limited by the IRS Code. Expense recognized for this plan including the defined benefit component was $146, $212, and $234, for the years ended September 30, 2010, 2009 and 2008, respectively. Amounts accrued and recorded in other liabilities at September 30, 2010 and 2009, including the defined benefit component were $3.1 million and $2.8 million respectively.
(e) Recognition and Retention Plan
In February 2000, the Company’s stockholders approved the Provident Bank 2000 Recognition and Retention Plan (the RRP). The principal purpose of the RRP is to provide executive officers and directors a proprietary interest in the Company in a manner designed to encourage their continued performance and service. A total of 856,320 shares were awarded under the RRP in February 2000, and the grant-date fair value of these shares of $2,995 was charged to stockholders’ equity. The awards vested at a rate of 20% on each of five annual vesting dates, the first of which was September 30, 2000. As of February 2010, 27,413 shares remaining from this plan were no longer eligible to be granted. In January 2005, the Company’s stockholders approved the Provident Bancorp, Inc. 2004 Stock Incentive Plan, under the terms of which the Company is authorized to issue up to 798,920 shares of common stock as restricted stock awards. On March 10, 2005 a total of 762,400 shares were awarded under the RRP, and the grant-date fair value of $12.84 per share $(9,789), was charged to stockholders’ equity. The awards vested 10% on September 30, 2005. The remainder will vest 20% on each of four annual vesting dates beginning on September 30, 2006 and 10% on March 10, 2010. Employees who retire under circumstances in accordance with the terms of the Plan may be entitled to accelerate the vesting of individual awards. Such acceleration would require a charge to earnings for the award shares that would then vest. As of September 30, 2010, 600 shares were potentially subject to accelerated vesting.
Under the 2004 restricted stock plan, 49,620 shares of authorized but un-issued shares remain available for future grant at September 30, 2010. Forfeited shares are available for re-issuance. The Company also can fund the restricted stock plan with treasury stock. The fair market value of the shares awarded under the restricted stock plan is being amortized to expense on a straight-line basis over the five year vesting period of the underlying shares. Compensation expense related to the restricted stock plan was $883, $1.7 million, and $1.8 million for the years ended September 30, 2010, 2009 and 2008, respectively. The remaining unearned compensation cost is $84 as of September 30, 2010 and is recorded as a reduction of additional paid in capital. On grant date, shares awarded under the restricted stock plan were transferr ed from treasury stock at cost with the difference between the fair market value on the grant date and the cost basis of the shares recorded as a reduction to retained earnings or an increase to additional paid-in capital, as applicable. The fair value of the shares awarded, measured as of the grant date continues to be recognized and amortized on a straight-line basis to compensation expense over the vesting period of the awards.
PROVIDENT NEW YORK BANCORP AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollars in thousands, except per share data)
A summary of restricted stock award activity under the plan for the year ended September 30, 2010, is presented below:
| | Number of Shares | | | Weighted Average Grant-Date Fair Value | |
Nonvested shares at September 30, 2009 | | | 74,750 | | | $ | 12.93 | |
Granted | | | - | | | | - | |
Vested | | | 68,500 | | | | 12.88 | |
Forfeited | | | - | | | | - | |
Nonvested shares at September 30, 2010 | | | 6,250 | | | $ | 13.51 | |
The total fair value of restricted stock vested for fiscal year ended September 30, 2010, 2009 and 2008 was $575, $1.3 million, and $1.9 million, respectively.
(f) Stock Option Plan
The Company’s stockholders approved the Provident Bank 2000 Stock Option Plan (the Stock Option Plan) in February 2000. A total of 1,712,640 shares of authorized but unissued common stock was reserved for issuance under the Stock Option Plan, although the Company may also fund option exercises using treasury shares. The Company’s stockholders also approved the Provident Bancorp, Inc. 2004 Stock Incentive Plan, in February 2005. Under terms of the plan, a total of 1,997,300 shares of authorized but un-issued common stock were reserved for issuance under the Stock Option Plan. Under both plans, options have a ten-year term and may be either non-qualified stock options or incentive stock options. Reload options may be granted under the terms of the 2000 Stock Option Plan and provide for the automatic grant of a new option at the then-current market price in exchange for each previously owned share tendered by an employee in a stock-for-stock exercise. In February 2010, the 2000 Stock Option Plan expired with 338,594 options ungranted and were no longer eligible for grant. The 2004 Plan options do not contain reload options. However, the 2004 plan allows for the grant of stock appreciation rights. Each option entitles the holder to purchase one share of common stock at an exercise price equal to the fair market value of the stock on the grant date. Employees who retire under circumstances, in accordance with the terms of the Plan, may be entitled to accelerate the vesting of individual awards. As of September 30, 2010, 36,000 shares were potentially subject to accelerated vesting. Substantially, all stock options outstanding are expected to vest. Compensation expense related to stock option plans was $247, $768 and $1.2 million for the years ended September 30, 2010, 2009 and 2008 , respectively.
The following is a summary of activity in the Stock Option Plan:
| | Shares subject to option | | | Weighted Average exercise price | |
Outstanding at September 30, 2009 | | | 2,241,494 | | | $ | 11.66 | |
Granted | | | 321,976 | | | | 9.66 | |
Exercised | | | (324,929 | ) | | | 4.97 | |
Forfeited | | | (315,697 | ) | | | 11.62 | |
Outstanding shares at September 30, 2010 | | | 1,922,844 | | | $ | 12.47 | |
The total intrinsic value of stock options vested (exercisable) for fiscal years ended September 30, 2010, 2009 and 2008 was $0, $4.1 million and $5.6 million, respectively. The unrecognized compensation cost associated with stock options was $998 as of September 30, 2010. The intrinsic value of stock options exercised during 2010 was $1.1 million.
At September 30, 2010 and 2009, respectively, there were 93,257 shares and 363,154 shares available for future grant. The aggregate intrinsic value of options outstanding as of September 30, 2010 was $0. The aggregate intrinsic value represents the total pre-tax intrinsic value (the difference between the Company’s closing stock price on the last trading date of the year ended September 30, 2010 and the exercise price, multiplied by the number of in the money options). The cash received from option exercises was $984 and $354 for fiscal 2010 and 2009 respectively. There was no tax benefit recorded in the results of operations to the Company from the exercise of options for either fiscal 2010 or fiscal 2009.
PROVIDENT NEW YORK BANCORP AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollars in thousands, except per share data)
A summary of stock options at September 30, 2010 follows:
| | | Outstanding | | | Exercisable | |
| | | | | | | | | | | | | | | | | | | |
| | | | | | Weighted-Average | | | | | | Weighted-Average | |
| | | Number of Stock Options | | | Exercise Price | | | Life (in Years) | | | Number of Stock Options | | | Exercise Price | | | Life (in Years) | |
| | | | | | | | | | | | | | | | | | | |
Range of Exercise Price | | | | | | | | | | | | | | | | | | | |
$ | 10.03 to $11.85 | | | | 370,314 | | | $ | 10.61 | | | | 7.8 | | | | 120,314 | | | $ | 11.78 | | | | 7.8 | |
$ | 11.85 to $12.84 | | | | 1,321,700 | | | | 12.84 | | | | 4.3 | | | | 1,314,700 | | | | 12.84 | | | | 4.3 | |
$ | 12.84 to $15.66 | | | | 230,830 | | | | 13.34 | | | | 6.7 | | | | 125,530 | | | | 13.40 | | | | 6.7 | |
| | | | | 1,922,844 | | | $ | 12.47 | | | | 5.3 | | | | 1,560,544 | | | $ | 12.80 | | | | 4.8 | |
The aggregate intrinsic value of options currently exercisable as of September 30, 2010 was $0. All non vested shares are expected to vest.
The Company used an option pricing model to estimate the grant date fair value of stock options granted. The weighted-average estimated value per option granted was $2.69 in 2010, $1.97 in 2009 and $2.99 in 2008. The fair value of options granted was determined using the following weighted-average assumptions as of the grant date:
| | 2010 | | | 2009 | | | 2008 | |
Risk-free interest rate (1) | | | 2.2 | % | | | 1.9 | % | | | 3.4 | % |
Expected stock price volatility | | | 33.2 | % | | | 61.5 | % | | | 28.0 | % |
Dividend yield (2) | | | 1.9 | % | | | 3.3 | % | | | 1.9 | % |
Expected term in years | | | 7.7 | | | | .91 | | | | 5.5 | |
(1) represents the yield on a risk free rate of return (either the US Treasury curve or the SWAP curve, in periods with high volatility in US Treasury securities) with a remaining term equal to the expected option term
(2) represents the approximate annualized cash dividend rate paid with respect to a share of common stock at or near the grant date
PROVIDENT NEW YORK BANCORP AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollars in thousands, except per share data)
(13) Comprehensive Income (Loss)
Comprehensive income (loss) represents the sum of net income and items of other comprehensive income or loss that are reported directly in stockholders’ equity, such as the change during the period in the after-tax net unrealized gain or loss on securities available for sale and change in the funded status of defined benefit plans. The Company has reported its comprehensive income in the consolidated statements of changes in stockholders’ equity.
The components of other comprehensive income (loss) are summarized as follows:
| | Year ended September, 30, | |
| | 2010 | | | 2009 | | | 2008 | |
Net unrealized holding gain (loss) arising during the year on securities available for sale, net of related income tax expense (benefit) of $5,435 $17,834 and $(1,769), respectively | | $ | 7,963 | | | $ | 26,142 | | | $ | (1,391 | ) |
Reclassification adjustment for net realized (gains) included in net income, net of related income tax expense of $3,313, $7,328 and $399, respectively | | | (4,844 | ) | | | (10,748 | ) | | | (584 | ) |
| | | 3,119 | | | | 15,394 | | | | (1,975 | ) |
Change in funded status of defined benefit plans, net of related income tax benefit of $327, $2,280 and $2,326 | | | (472 | ) | | | (3,336 | ) | | | (3,402 | ) |
| | $ | 2,647 | | | $ | 12,058 | | | $ | (5,377 | ) |
The Company’s accumulated other comprehensive income (loss) included in stockholders’ equity at September 30, 2010 and 2009 consists of the after-tax net unrealized gain / (loss) on available for sale securities of $12,621 and $9,502 respectively, and the recognition of the funded status of defined benefit plans of $(7,497) and $(7,025), after tax, at September 30, 2010 and 2009, respectively.
PROVIDENT NEW YORK BANCORP AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollars in thousands, except per share data)
(14) Earnings Per Common Share
The following is a summary of the calculation of earnings per share (EPS):
| | Years ended September 30, | |
| | 2010 | | | 2009 | | | 2008 | |
| | | | | | | | | |
Net income | | $ | 20,492 | | | $ | 25,861 | | | $ | 23,778 | |
| | (in thousands) | | (in thousands) | |
Weighted average common shares outstanding for computation of basic EPS(1) | | | 38,161 | | | | 38,538 | | | | 38,907 | |
Common-equivalent shares due to the dilutive effect of stock options and RRP awards(2) | | | 24 | | | | 168 | | | | 320 | |
Weighted average common shares for computation of diluted EPS | | | 38,185 | | | | 38,706 | | | | 39,227 | |
Earnings per common share: | | | | | | | | | | | | |
Basic | | $ | 0.54 | | | $ | 0.67 | | | $ | 0.61 | |
Diluted | | $ | 0.54 | | | $ | 0.67 | | | $ | 0.61 | |
(1) Excludes unallocated ESOP shares and non vested RRP shares.
(2) Acquisitions
On August 10, 2012, the Company acquired 100% of the outstanding shares of Gotham Bank of New York (“Gotham”) in exchange for $40,510 in cash. Under the terms of the acquisition, common shareholders received cash equal to 125% of adjusted tangible net worth. The acquisition of Gotham allowed the Company to expand in the New York City market. Gotham delivered a long-term client base with core loan and deposit relationships, an attractive location in midtown Manhattan and our initial commercial banking team in New York City. Gotham’s results of operations were included in the Company’s results beginning on August 10, 2012. Acquisition-related costs of $5,925 are included in non-interest expense in the Company’s income statement for the year ended September 30, 2012.
The following table summarizes the consideration paid for Gotham and the amounts of the assets acquired and liabilities assumed recognized at the acquisition date:
|
| | | |
| August 10, |
| 2012 |
ASSETS: | |
Cash and due from banks | $ | 167,328 |
|
Securities, available for sale | 54,994 |
|
Total loans, net | 205,453 |
|
Federal Home Loan Bank (“FHLB”) stock | 1,045 |
|
Accrued interest receivable | 417 |
|
Premises and equipment, net | 490 |
|
Other assets | 1,793 |
|
Total assets acquired | $ | 431,520 |
|
| |
LIABILITIES: | |
Deposits | $ | 368,902 |
|
FHLB and other borrowings | 30,784 |
|
Other liabilities | 1,677 |
|
Total liabilities assumed | $ | 401,363 |
|
| |
Total identifiable net assets | $ | 30,157 |
|
Core deposit intangible | 4,818 |
|
Goodwill | 5,535 |
|
Cash paid | $ | 40,510 |
|
STERLING BANCORP AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollars in thousands, except per share data)
The following table presents pro forma information as if the acquisition had occurred at October 1, 2010. The pro forma information includes adjustments for interest income on loans and securities acquired, amortization of intangibles arising from the transaction, interest expense on deposits acquired and the related income tax effects. The pro forma financial information is not necessarily indicative of the results of operations that would have occurred had the transactions been effected on the assumed dates.
|
| | | | | | | |
| September 30, |
| 2012 | | 2011 |
Net interest income | $ | 103,999 |
| | $ | 102,447 |
|
Net income | 22,914 |
| | 16,068 |
|
Basic earnings per share | 0.60 |
| | 0.37 |
|
Diluted earnings per share | 0.60 |
| | 0.37 |
|
Future Amortization of Core Deposit and Other Intangible Assets. The following table sets forth the future amortization of core deposit and other intangible assets, including naming rights of $1,870 at September 30, 2013:
|
| | | | | | | |
| September 30, |
| 2013 | | 2012 |
Less than one year | $ | 925 |
| | $ | 853 |
|
One to two years | 771 |
| | 960 |
|
Two to three years | 726 |
| | 814 |
|
Three to four years | 695 |
| | 751 |
|
Four to five years | 669 |
| | 714 |
|
Beyond five years | 2,105 |
| | 3,072 |
|
Total | $ | 5,891 |
| | $ | 7,164 |
|
STERLING BANCORP AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollars in thousands, except per share data)
(3) Securities
A summary of amortized cost and estimated fair value of our securities is presented below:
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| September 30, 2013 | | September 30, 2012 |
| Amortized cost | | Gross unrealized gains | | Gross unrealized losses | | Fair value | | Amortized cost | | Gross unrealized gains | | Gross unrealized losses | | Fair value |
Available for sale | | | | | | | | | | | | | | | |
Residential mortgage-backed securities: | | | | | | | | | | | | | | | |
Fannie Mae | $ | 214,191 |
| | $ | 1,168 |
| | $ | (3,921 | ) | | $ | 211,438 |
| | $ | 155,601 |
| | $ | 5,806 |
| | $ | — |
| | $ | 161,407 |
|
Freddie Mac | 67,272 |
| | 593 |
| | (236 | ) | | 67,629 |
| | 81,509 |
| | 3,751 |
| | — |
| | 85,260 |
|
Ginnie Mae | 3,374 |
| | 88 |
| | — |
| | 3,462 |
| | 4,488 |
| | 290 |
| | — |
| | 4,778 |
|
CMO/Other MBS | 169,336 |
| | 356 |
| | (3,038 | ) | | 166,654 |
| | 191,867 |
| | 1,787 |
| | (590 | ) | | 193,064 |
|
Total residential mortgage-backed securities: | 454,173 |
| | 2,205 |
| | (7,195 | ) | | 449,183 |
| | 433,465 |
| | 11,634 |
| | (590 | ) | | 444,509 |
|
Other securities: | | | | | | | | | | | | | | | |
Federal agencies | 273,637 |
| | — |
| | (12,090 | ) | | 261,547 |
| | 404,820 |
| | 4,013 |
| | (10 | ) | | 408,823 |
|
Corporate bonds | 118,575 |
| | 153 |
| | (3,795 | ) | | 114,933 |
| | — |
| | — |
| | — |
| | — |
|
State and municipal | 127,324 |
| | 3,447 |
| | (2,041 | ) | | 128,730 |
| | 146,136 |
| | 10,349 |
| | (4 | ) | | 156,481 |
|
Equities | — |
| | — |
| | — |
| | — |
| | 1,087 |
| | — |
| | (28 | ) | | 1,059 |
|
Total other securities | 519,536 |
| | 3,600 |
| | (17,926 | ) | | 505,210 |
| | 552,043 |
| | 14,362 |
| | (42 | ) | | 566,363 |
|
Total available for sale | $ | 973,709 |
| | $ | 5,805 |
| | $ | (25,121 | ) | | $ | 954,393 |
| | $ | 985,508 |
| | $ | 25,996 |
| | $ | (632 | ) | | $ | 1,010,872 |
|
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| September 30, 2013 | | September 30, 2012 |
| Amortized cost | | Gross unrealized gains | | Gross unrealized losses | | Fair value | | Amortized cost | | Gross unrealized gains | | Gross unrealized losses | | Fair value |
Held to maturity | | | | | | | | | | | | | | | |
Residential mortgage-backed securities: | | | | | | | | | | | | | | | |
Fannie Mae | $ | 70,502 |
| | $ | 399 |
| | $ | (86 | ) | | $ | 70,815 |
| | $ | 28,637 |
| | $ | 1,212 |
| | $ | — |
| | $ | 29,849 |
|
Freddie Mac | 59,869 |
| | 317 |
| | (22 | ) | | 60,164 |
| | 42,706 |
| | 1,347 |
| | — |
| | 44,053 |
|
CMO/Other MBS | 25,776 |
| | 33 |
| | (315 | ) | | 25,494 |
| | 27,921 |
| | 226 |
| | (28 | ) | | 28,119 |
|
Total residential mortgage-backed securities | 156,147 |
| | 749 |
| | (423 | ) | | 156,473 |
| | 99,264 |
| | 2,785 |
| | (28 | ) | | 102,021 |
|
Other securities: | | | | | | | | | | | | | | | |
Federal agencies | 77,341 |
| | — |
| | (3,458 | ) | | 73,883 |
| | 22,236 |
| | 106 |
| | — |
| | 22,342 |
|
State and municipal | 19,011 |
| | 556 |
| | (546 | ) | | 19,021 |
| | 19,376 |
| | 1,059 |
| | — |
| | 20,435 |
|
Other | 1,500 |
| | 19 |
| | — |
| | 1,519 |
| | 1,500 |
| | 26 |
| | — |
| | 1,526 |
|
Total other securities | 97,852 |
| | 575 |
| | (4,004 | ) | | 94,423 |
| | 43,112 |
| | 1,191 |
| | — |
| | 44,303 |
|
Total held to maturity | $ | 253,999 |
| | $ | 1,324 |
| | $ | (4,427 | ) | | $ | 250,896 |
| | $ | 142,376 |
| | $ | 3,976 |
| | $ | (28 | ) | | $ | 146,324 |
|
STERLING BANCORP AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollars in thousands, except per share data)
The amortized cost and estimated fair value of securities at September 30, 2013 are presented below by contractual maturity. Actual maturities may differ from contractual maturities because issuers may have the right to call or prepay obligations. Residential mortgage-backed securities are shown separately since they are not due at a single maturity date.
|
| | | | | | | | | | | | | | | |
| September 30, 2013 |
| Available for sale | | Held to maturity |
| Amortized cost | | Fair value | | Amortized cost | | Fair value |
Other securities remaining period to contractual maturity: | | | | | | | |
One year or less | $ | 2,242 |
| | $ | 2,259 |
| | $ | 3,800 |
| | $ | 3,841 |
|
One to five years | 81,057 |
| | 81,596 |
| | 14,756 |
| | 14,578 |
|
Five to ten years | 417,655 |
| | 403,270 |
| | 73,152 |
| | 69,970 |
|
Greater than ten years | 18,582 |
| | 18,085 |
| | 6,144 |
| | 6,034 |
|
Total other securities | 519,536 |
| | 505,210 |
| | 97,852 |
| | 94,423 |
|
Residential mortgage-backed securities | 454,173 |
| | 449,183 |
| | 156,147 |
| | 156,473 |
|
Total securities | $ | 973,709 |
| | $ | 954,393 |
| | $ | 253,999 |
| | $ | 250,896 |
|
Sales of securities were as follows:
|
| | | | | | | | | | | |
| September 30, |
| 2013 | | 2012 | | 2011 |
Available for sale: | | | | | |
Proceeds from sales | $ | 339,123 |
| | $ | 344,431 |
| | $ | 540,145 |
|
Gross realized gains | 7,709 |
| | 10,468 |
| | 10,000 |
|
Gross realized losses | (377 | ) | | — |
| | — |
|
Income tax expense on realized net gains | 2,282 |
| | 2,475 |
| | 1,930 |
|
Held to maturity: (1) | | | | | |
Proceeds from sales | $ | 1,187 |
| | — |
| | $ | 357 |
|
Gross realized gains | 59 |
| | — |
| | 18 |
|
Income tax expense on realized gains | 18 |
| | — |
| | 3 |
|
(1) During the fiscal year ended September 30, 2013 and 2011 the Company sold held to maturity securities after the Company had already collected at least 85% of the principal balance outstanding at acquisition.
STERLING BANCORP AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollars in thousands, except per share data)
The following table summarizes those securities available for sale with unrealized losses, segregated by the length of time in a continuous unrealized loss position:
|
| | | | | | | | | | | | | | | | | | | | | | | |
| Continuous unrealized loss position | | | | |
| Less than 12 months | | 12 months or longer | | Total |
| Fair value | | Unrealized losses | | Fair value | | Unrealized losses | | Fair value | | Unrealized losses |
Available for sale | | | | | | | | | | | |
As of September 30, 2013 | | | | | | | | | | | |
Residential mortgage-backed securities: | | | | | | | | | | | |
Agency-backed | $ | 137,265 |
| | $ | (4,157 | ) | | $ | — |
| | $ | — |
| | $ | 137,265 |
| | $ | (4,157 | ) |
CMO/other MBS | 122,324 |
| | (2,742 | ) | | 7,820 |
| | (296 | ) | | 130,144 |
| | (3,038 | ) |
Total residential mortgage-backed securities | 259,589 |
| | (6,899 | ) | | 7,820 |
| | (296 | ) | | 267,409 |
| | (7,195 | ) |
Federal agencies | 261,547 |
| | (12,090 | ) | | — |
| | — |
| | 261,547 |
| | (12,090 | ) |
Corporate | 95,013 |
| | (3,795 | ) | | — |
| | — |
| | 95,013 |
| | (3,795 | ) |
State and municipal | 43,585 |
| | (2,033 | ) | | 112 |
| | (8 | ) | | 43,697 |
| | (2,041 | ) |
Total | $ | 659,734 |
| | $ | (24,817 | ) | | $ | 7,932 |
| | $ | (304 | ) | | $ | 667,666 |
| | $ | (25,121 | ) |
As of September 30, 2012 | | | | | | | | | | | |
CMO/other MBS | $ | 64,065 |
| | $ | (590 | ) | | $ | — |
| | $ | — |
| | $ | 64,065 |
| | $ | (590 | ) |
Federal agencies | 4,993 |
| | (10 | ) | | — |
| | — |
| | 4,993 |
| | (10 | ) |
State and municipal | 716 |
| | (4 | ) | | — |
| | — |
| | 716 |
| | (4 | ) |
Equities | — |
| | — |
| | 809 |
| | (28 | ) | | 809 |
| | (28 | ) |
Total | $ | 69,774 |
| | $ | (604 | ) | | $ | 809 |
| | $ | (28 | ) | | $ | 70,583 |
| | $ | (632 | ) |
|
| | | | | | | | | | | | | | | | | | | | | | | |
| Continuous unrealized loss position | | | | |
| Less than 12 months | | 12 months or longer | | Total |
| Fair value | | Unrealized losses | | Fair value | | Unrealized losses | | Fair value | | Unrealized losses |
Held to maturity | | | | | | | | | | | |
As of September 30, 2013 | | | | | | | | | | | |
Fannie Mae | $ | 10,963 |
| | $ | (86 | ) | | $ | — |
| | $ | — |
| | $ | 10,963 |
| | $ | (86 | ) |
CMO other MBS | 31,412 |
| | (337 | ) | | — |
| | — |
| | 31,412 |
| | (337 | ) |
Federal agencies | 73,883 |
| | (3,458 | ) | | — |
| | — |
| | 73,883 |
| | (3,458 | ) |
Municipal bonds | 9,530 |
| | (546 | ) | | — |
| | — |
| | 9,530 |
| | (546 | ) |
Total | $ | 125,788 |
| | $ | (4,427 | ) | | $ | — |
| | $ | — |
| | $ | 125,788 |
| | $ | (4,427 | ) |
September 30, 2012 | | | | | | | | | | | |
Total | $ | 13,189 |
| | $ | (28 | ) | | $ | — |
| | $ | — |
| | $ | 13,189 |
| | $ | (28 | ) |
Substantially all of the unrealized losses at September 30, 2013 relate to investment grade debt securities and are attributable to changes in market interest rates subsequent to purchase. At September 30, 2013, a total of 323 available for sale securities were in a continuous unrealized loss position for less than 12 months and two securities were in an unrealized loss position for 12 months or longer. For securities with fixed maturities, there are no securities past due or securities for which the Company currently believes it is not probable that it will collect all amounts due according to the contractual terms of the investment.
STERLING BANCORP AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollars in thousands, except per share data)
Declines in the fair value of available for sale and held to maturity securities below their cost that are deemed to be other than temporary are reflected in earnings as realized losses to the extent the impairment is related to credit losses. The amount of the impairment related to other factors is recognized in other comprehensive income. In estimating other-than-temporary impairment losses (“OTTI”), management considers, among other things, (i) the length of time and the extent to which the fair value has been less than cost, (ii) the financial condition and near-term prospects of the issuer, and (iii) the intent and ability of the Company to retain the investment for a period of time sufficient to allow for an anticipated recovery in cost.
Within the CMO category of the available for sale portfolio there are four private label CMOs that had an amortized cost of $3,636 and a fair value (carrying value) of $3,613 as of September 30, 2013. Two of the four securities are considered to be OTTI and are below investment grade. The impaired private label CMOs had an amortized cost of $3,288 and a fair value of $3,263 at September 30, 2013. Impairment charges on these securities were $14 and $47 for the fiscal years ended September 30, 2013 and September 30, 2012, respectively. At September 30, 2013 total cumulative impairment charges on these two private label CMOs were $61. The remaining two securities are rated investment grade and were performing as of September 30, 2013 and are expected to continue to perform based on current information. In determining whether OTTI existed on these debt securities the Company evaluated the present value of cash flows expected to be collected based on collateral specific assumptions, including credit risk and liquidity risk, and determined that no additional credit losses were expected. The Company will continue to evaluate its investment securities portfolio for OTTI on at least a quarterly basis.
Excluding FHLB and New York Business Development Corporation stock, the Company owned one equity security with a balance of $809 at September 30, 2012, which was sold during the fiscal year ended September 30, 2013. For the twelve months ended September 30, 2013 and 2012, the Company incurred OTTI on this security of $18 and $0, respectively.
Securities pledged for borrowings at FHLB and other institutions, and securities pledged for municipal deposits and other purposes were as follows: |
| | | | | | | |
| September 30, |
| 2013 | | 2012 |
Available for sale securities pledged for borrowings, at fair value | $ | 199,642 |
| | $ | 192,482 |
|
Available for sale securities pledged for municipal deposits, at fair value | 580,756 |
| | 703,261 |
|
Available for sale securities pledged for customer back-to-back swaps, at fair value | 4,645 |
| | 4,174 |
|
Held to maturity securities pledged for borrowings, at amortized cost | 55,497 |
| | 53,507 |
|
Held to maturity securities pledged for municipal deposits, at amortized cost | 167,926 |
| | 138,855 |
|
Total securities pledged | $ | 1,008,466 |
| | $ | 1,092,279 |
|
STERLING BANCORP AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollars in thousands, except per share data)
(4) Loans
The components of the loan portfolio, excluding loans held for sale, were as follows:
|
| | | | | | | |
| September 30, |
| 2013 | | 2012 |
Residential mortgage | $ | 400,009 |
| | $ | 350,022 |
|
Commercial: | | | |
Commercial real estate | 1,277,037 |
| | 1,072,504 |
|
Commercial & industrial | 439,787 |
| | 343,307 |
|
Acquisition, development & construction | 102,494 |
| | 144,061 |
|
Total commercial | 1,819,318 |
| | 1,559,872 |
|
Consumer: | | | |
Home equity lines of credit | 156,995 |
| | 165,200 |
|
Other consumer loans | 36,576 |
| | 44,378 |
|
Total consumer | 193,571 |
| | 209,578 |
|
Total loans | 2,412,898 |
| | 2,119,472 |
|
Allowance for loan losses | (28,877 | ) | | (28,282 | ) |
Total loans, net | $ | 2,384,021 |
| | $ | 2,091,190 |
|
Total loans include net deferred loan origination costs (fees) of $1,201 and $(310) at September 30, 2013 and 2012, respectively.
Included in the Company’s loan portfolio are loans acquired from Gotham Bank. These loans were recorded at fair value at acquisition and carried a balance of $133,493 and $205,764 at September 30, 2013 and September 30, 2012, respectively. The discount associated with these loans which includes adjustments associated with market interest rates and expected credit losses, was $1,879 and $3,924 at September 30, 2013 and September 30, 2012, respectively. We evaluate these loans for impairment collectively. None of the Gotham Bank acquired loans were identified as purchase credit impaired at acquisition.
At September 30, 2013, the Company has pledged loans totaling $784.4 million to the FHLB as collateral for certain borrowing arrangements. See Note 8. Borrowings.
STERLING BANCORP AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollars in thousands, except per share data)
The following tables set forth the amounts and status of the Company’s loans and troubled debt restructurings (“TDRs”) at September 30, 2013 and September 30, 2012:
|
| | | | | | | | | | | | | | | | | | | | | | | |
| September 30, 2013 |
| Current loans | | 30-59 days past due | | 60-89 days past due | | 90+ days past due | | Non- accrual | | Total |
Residential mortgage | $ | 390,072 |
| | $ | 354 |
| | $ | 267 |
| | $ | 1,832 |
| | $ | 7,484 |
| | $ | 400,009 |
|
Commercial real estate | 1,263,933 |
| | 1,978 |
| | 2,357 |
| | 1,574 |
| | 7,195 |
| | 1,277,037 |
|
Commercial & industrial | 438,818 |
| | 178 |
| | 2 |
| | 289 |
| | 500 |
| | 439,787 |
|
Acquisition, development & construction | 96,306 |
| | 768 |
| | — |
| | — |
| | 5,420 |
| | 102,494 |
|
Consumer | 190,393 |
| | 566 |
| | — |
| | 404 |
| | 2,208 |
| | 193,571 |
|
Total loans | $ | 2,379,522 |
| | $ | 3,844 |
| | $ | 2,626 |
| | $ | 4,099 |
| | $ | 22,807 |
| | $ | 2,412,898 |
|
Total TDRs included above | $ | 23,754 |
| | $ | — |
| | $ | — |
| | $ | 141 |
| | $ | 2,199 |
| | $ | 26,094 |
|
Non-performing loans: | | | | | | | | | | | |
Loans 90+ days past due and still accruing | | | | | | | | | $ | 4,099 |
| | |
Non-accrual loans | | | | | | | | | 22,807 |
| | |
Total non-performing loans | | | | | | | | | $ | 26,906 |
| | |
|
| | | | | | | | | | | | | | | | | | | | | | | |
| September 30, 2012 |
| Current loans | | 30-59 Days past due | | 60-89 Days past due | | 90+ Days past due | | Non- accrual | | Total |
Residential mortgage | $ | 337,356 |
| | $ | 855 |
| | $ | 497 |
| | $ | 2,263 |
| | $ | 9,051 |
| | $ | 350,022 |
|
Commercial real estate | 1,060,176 |
| | 902 |
| | 973 |
| | 1,638 |
| | 8,815 |
| | 1,072,504 |
|
Commercial & industrial | 342,726 |
| | 96 |
| | 141 |
| | — |
| | 344 |
| | 343,307 |
|
Acquisition, development & construction | 121,590 |
| | 7,067 |
| | — |
| | — |
| | 15,404 |
| | 144,061 |
|
Consumer | 205,463 |
| | 1,551 |
| | 265 |
| | 469 |
| | 1,830 |
| | 209,578 |
|
Total loans | $ | 2,067,311 |
| | $ | 10,471 |
| | $ | 1,876 |
| | $ | 4,370 |
| | $ | 35,444 |
| | $ | 2,119,472 |
|
Total TDRs included above | $ | 13,543 |
| | $ | 270 |
| | $ | 264 |
| | $ | — |
| | $ | 10,870 |
| | $ | 24,947 |
|
Non-performing loans: | | | | | | | | | | | |
Loans 90+ days past due and accruing | | | | | | | | | $ | 4,370 |
| | |
Non-accrual loans | | | | | | | | | 35,444 |
| | |
Total non-performing loans | | | | | | | | | $ | 39,814 |
| | |
Activity in the allowance for loan losses for the year ended September 30, 2013, 2012 and 2011 is summarized below:
|
| | | | | | | | | | | | | | | | | | | | | | | |
| For the year ended September 30, 2013 |
| Beginning balance | | Charge-offs | | Recoveries | | Net charge-offs | | Provision | | Ending balance |
Residential mortgage | $ | 4,359 |
| | $ | (2,547 | ) | | $ | 101 |
| | $ | (2,446 | ) | | $ | 2,561 |
| | $ | 4,474 |
|
Commercial real estate | 7,230 |
| | (3,725 | ) | | 577 |
| | (3,148 | ) | | 5,885 |
| | 9,967 |
|
Commercial & industrial | 4,603 |
| | (1,354 | ) | | 410 |
| | (944 | ) | | 1,643 |
| | 5,302 |
|
Acquisition, development & construction | 8,526 |
| | (3,422 | ) | | 182 |
| | (3,240 | ) | | 520 |
| | 5,806 |
|
Consumer | 3,564 |
| | (2,009 | ) | | 232 |
| | (1,777 | ) | | 1,541 |
| | 3,328 |
|
Total loans | $ | 28,282 |
| | $ | (13,057 | ) | | $ | 1,502 |
| | $ | (11,555 | ) | | $ | 12,150 |
| | $ | 28,877 |
|
Net charge-offs to average loans outstanding | | | | | | | | | | | 0.52 | % |
STERLING BANCORP AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollars in thousands, except per share data)
|
| | | | | | | | | | | | | | | | | | | | | | | |
| For the year ended September 30, 2012 |
| Beginning balance | | Charge-offs | | Recoveries | | Net charge-offs | | Provision | | Ending balance |
Residential mortgage | $ | 3,498 |
| | $ | (2,551 | ) | | $ | 356 |
| | $ | (2,195 | ) | | $ | 3,056 |
| | $ | 4,359 |
|
Commercial real estate | 5,568 |
| | (2,707 | ) | | 528 |
| | (2,179 | ) | | 3,841 |
| | 7,230 |
|
Commercial & industrial | 5,945 |
| | (1,526 | ) | | 1,116 |
| | (410 | ) | | (932 | ) | | 4,603 |
|
Acquisition, development & construction | 9,895 |
| | (4,124 | ) | | 299 |
| | (3,825 | ) | | 2,456 |
| | 8,526 |
|
Consumer | 3,011 |
| | (1,901 | ) | | 263 |
| | (1,638 | ) | | 2,191 |
| | 3,564 |
|
Total loans | $ | 27,917 |
| | $ | (12,809 | ) | | $ | 2,562 |
| | $ | (10,247 | ) | | $ | 10,612 |
| | $ | 28,282 |
|
Net charge-offs to average loans outstanding | | | | | | | | | | | 0.56 | % |
|
| | | | | | | | | | | | | | | | | | | | | | | |
| For the year ended September 30, 2011 |
| Beginning balance | | Charge-offs | | Recoveries | | Net charge-offs | | Provision | | Ending balance |
Residential mortgage | $ | 2,641 |
| | $ | (2,140 | ) | | $ | 15 |
| | $ | (2,125 | ) | | $ | 2,982 |
| | $ | 3,498 |
|
Commercial real estate | 5,915 |
| | (1,802 | ) | | 2 |
| | (1,800 | ) | | 1,453 |
| | 5,568 |
|
Commercial & industrial | 8,970 |
| | (5,400 | ) | | 605 |
| | (4,795 | ) | | 1,770 |
| | 5,945 |
|
Acquisition, development & construction | 9,752 |
| | (8,939 | ) | | 10 |
| | (8,929 | ) | | 9,072 |
| | 9,895 |
|
Consumer | 3,565 |
| | (1,989 | ) | | 128 |
| | (1,861 | ) | | 1,307 |
| | 3,011 |
|
Total loans | $ | 30,843 |
| | $ | (20,270 | ) | | $ | 760 |
| | $ | (19,510 | ) | | $ | 16,584 |
| | $ | 27,917 |
|
Net charge-offs to average loans outstanding | | | | | | |
|
| | | | 1.17 | % |
Management considers a loan to be impaired when, based on current information and events, it is determined that the Company will not be able to collect all amounts due according to the loan contract, including scheduled interest payments. Determination of impairment is treated the same across all classes of loans on a loan-by-loan basis. When management identifies a loan as impaired, the impairment is measured based on the present value of expected future cash flows, discounted at the loan’s effective interest rate, except when the sole remaining source of repayment of the loan is the operation or liquidation of the collateral. In these cases management uses the current fair value of the collateral, less selling costs when foreclosure is probable, instead of discounted cash flows. If management determines that the value of the impaired loan is less than the recorded investment in the loan (net of previous charge-offs, deferred loan fees or costs and unamortized premium or discount), impairment is recognized through an allowance estimate or a charge-off to the allowance for loan losses.
When the ultimate collectibility of the total principal of an impaired loan is in doubt and the loan is on non-accrual status, all payments are applied to principal, under the cost recovery method. When the ultimate collectibility of the total principal of an impaired loan is not in doubt and the loan is on non-accrual status, contractual interest is credited to interest income when received, under the cash basis method. Impaired loans, or portions thereof, are charged-off when deemed uncollectible.
During the third quarter of fiscal 2013, we modified the methodology we use to determine the allowance for loan losses required for residential mortgage loans and home equity lines of credit. In prior periods, we evaluated these loans for impairment on an individual basis. Effective the third quarter of fiscal 2013, we evaluate residential mortgage loans and home equity lines of credit with an outstanding balance of $500 or less on a homogeneous pool basis. This modified approach to our methodology did not have a material impact on the allowance for loan losses.
STERLING BANCORP AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollars in thousands, except per share data)
The following table sets forth the loans evaluated for impairment by segment and the allowance evaluated by segment at September 30, 2013:
|
| | | | | | | | | | | | | | | | | | | | | | | |
| Loans evaluated by segment | | Allowance evaluated by segment |
| Individually evaluated for impairment | | Collectively evaluated for impairment | | Total loans | | Individually evaluated for impairment | | Collectively evaluated for impairment | | Total allowance for loan losses |
Residential mortgage | $ | 515 |
| | $ | 399,494 |
| | $ | 400,009 |
| | $ | — |
| | $ | 4,474 |
| | $ | 4,474 |
|
Commercial real estate | 14,091 |
| | 1,262,946 |
| | 1,277,037 |
| | 803 |
| | 9,164 |
| | 9,967 |
|
Commercial & industrial | 2,631 |
| | 437,156 |
| | 439,787 |
| | 249 |
| | 5,053 |
| | 5,302 |
|
Acquisition, development & construction | 19,582 |
| | 82,912 |
| | 102,494 |
| | 540 |
| | 5,266 |
| | 5,806 |
|
Consumer | 2 |
| | 193,569 |
| | 193,571 |
| | 1 |
| | 3,327 |
| | 3,328 |
|
Total loans | $ | 36,821 |
| | $ | 2,376,077 |
| | $ | 2,412,898 |
| | $ | 1,593 |
| | $ | 27,284 |
| | $ | 28,877 |
|
The following table sets forth the loans evaluated for impairment by segment and the allowance evaluated by segment at September 30, 2012:
|
| | | | | | | | | | | | | | | | | | | | | | | |
| Loans evaluated by segment | | Allowance evaluated by segment |
| Individually evaluated for impairment | | Collectively evaluated for impairment | | Total loans | | Individually evaluated for impairment | | Collectively evaluated for impairment | | Total allowance for loan losses |
Residential mortgage | $ | 12,739 |
| | $ | 337,283 |
| | $ | 350,022 |
| | $ | 871 |
| | $ | 3,488 |
| | $ | 4,359 |
|
Commercial real estate | 13,017 |
| | 1,059,487 |
| | 1,072,504 |
| | 1,036 |
| | 6,194 |
| | 7,230 |
|
Commercial & industrial | 357 |
| | 342,950 |
| | 343,307 |
| | 48 |
| | 4,555 |
| | 4,603 |
|
Acquisition, development & construction | 24,880 |
| | 119,181 |
| | 144,061 |
| | 996 |
| | 7,530 |
| | 8,526 |
|
Consumer | 2,299 |
| | 207,279 |
| | 209,578 |
| | 263 |
| | 3,301 |
| | 3,564 |
|
Total loans | $ | 53,292 |
| | $ | 2,066,180 |
| | $ | 2,119,472 |
| | $ | 3,214 |
| | $ | 25,068 |
| | $ | 28,282 |
|
STERLING BANCORP AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollars in thousands, except per share data)
The following table presents loans individually evaluated for impairment by segment at September 30, 2013 and 2012:
|
| | | | | | | | | | | | | | | | | | | | | | | |
| September 30, 2013 | | September 30, 2012 |
| Unpaid principal balance | | Recorded investment | | Related allowance | | Unpaid principal balance | | Recorded investment | | Related allowance |
With no related allowance recorded: | | | | | | | | | | | |
Residential mortgage | $ | 515 |
| | $ | 515 |
| | $ | — |
| | $ | 6,193 |
| | $ | 5,413 |
| | $ | — |
|
Commercial real estate | 12,451 |
| | 11,820 |
| | — |
| | 9,296 |
| | 7,837 |
| | — |
|
Commercial & industrial | 2,175 |
| | 2,131 |
| | — |
| | 262 |
| | 262 |
| | — |
|
Acquisition, development and construction | 17,971 |
| | 17,945 |
| | — |
| | 24,144 |
| | 20,597 |
| | — |
|
Consumer | — |
| | — |
| | — |
| | 1,146 |
| | 1,122 |
| | — |
|
Subtotal | 33,112 |
| | 32,411 |
| | — |
| | 41,041 |
| | 35,231 |
| | — |
|
With an allowance recorded: | | | | | | | | | | | |
Residential mortgage | — |
| | — |
| | — |
| | 8,485 |
| | 7,326 |
| | 871 |
|
Commercial real estate | 3,150 |
| | 2,271 |
| | 803 |
| | 5,942 |
| | 5,180 |
| | 1,036 |
|
Commercial & industrial | 500 |
| | 500 |
| | 249 |
| | 95 |
| | 95 |
| | 48 |
|
Acquisition, development & construction | 2,753 |
| | 1,637 |
| | 540 |
| | 7,159 |
| | 4,283 |
| | 996 |
|
Consumer | 2 |
| | 2 |
| | 1 |
| | 1,400 |
| | 1,177 |
| | 263 |
|
Subtotal | 6,405 |
| | 4,410 |
| | 1,593 |
| | 23,081 |
| | 18,061 |
| | 3,214 |
|
Total | $ | 39,517 |
| | $ | 36,821 |
| | $ | 1,593 |
| | $ | 64,122 |
| | $ | 53,292 |
| | $ | 3,214 |
|
STERLING BANCORP AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollars in thousands, except per share data)
The following table presents the average recorded investment and interest income recognized related to loans individually evaluated for impairment by segment for the year ended September 30, 2013, 2012 and 2011:
|
| | | | | | | | | | | | | | | | | | | | | | | |
| 2013 | | 2012 |
| YTD average recorded investment | | Interest income recognized | | Cash-basis interest income recognized | | YTD average recorded investment | | Interest income recognized | | Cash-basis interest income recognized |
With no related allowance recorded: | | | | | | | | | | | |
Residential mortgage | $ | 309 |
| | $ | — |
| | $ | — |
| | $ | 5,493 |
| | $ | 310 |
| | $ | 137 |
|
Commercial real estate | 17,325 |
| | 286 |
| | 275 |
| | 7,869 |
| | 520 |
| | 291 |
|
Commercial & industrial | 1,821 |
| | 91 |
| | 86 |
| | 467 |
| | 26 |
| | 26 |
|
Acquisition, development and construction | 12,827 |
| | 631 |
| | 587 |
| | 22,043 |
| | 636 |
| | 367 |
|
Consumer | 61 |
| | — |
| | — |
| | 1,113 |
| | 28 |
| | 8 |
|
Subtotal | 32,343 |
| | 1,008 |
| | 948 |
| | 36,985 |
| | 1,520 |
| | 829 |
|
With an allowance recorded: | | | | | | | | | | | |
Residential mortgage | 1,602 |
| | 14 |
| | 10 |
| | 7,770 |
| | 180 |
| | 141 |
|
Commercial real estate | 6,646 |
| | 7 |
| | 7 |
| | 5,970 |
| | 84 |
| | 84 |
|
Commercial & industrial | 705 |
| | — |
| | — |
| | 99 |
| | 76 |
| | 76 |
|
Acquisition, development & construction | 1,104 |
| | — |
| | — |
| | 5,868 |
| | 18 |
| | 6 |
|
Consumer | 228 |
| | — |
| | — |
| | 1,503 |
| | — |
| | — |
|
Subtotal | 10,285 |
| | 21 |
| | 17 |
| | 21,210 |
| | 358 |
| | 307 |
|
Total | $ | 42,628 |
| | $ | 1,029 |
| | $ | 965 |
| | $ | 58,195 |
| | $ | 1,878 |
| | $ | 1,136 |
|
|
| | | | | | | | | | | |
| 2011 |
| YTD average recorded investment | | Interest income recognized | | Cash-basis interest income recognized |
With no related allowance recorded: | | | | | |
Residential mortgage | $ | 2,702 |
| | $ | 92 |
| | $ | 51 |
|
Commercial real estate | 8,917 |
| | 497 |
| | 248 |
|
Commercial & industrial | 862 |
| | 42 |
| | 42 |
|
Acquisition, development and construction | 26,111 |
| | 1,892 |
| | 1,454 |
|
Consumer | 1,860 |
| | 61 |
| | 13 |
|
Subtotal | 40,452 |
| | 2,584 |
| | 1,808 |
|
With an allowance recorded: | | | | | |
Residential mortgage | 6,319 |
| | 159 |
| | 159 |
|
Commercial real estate | 6,505 |
| | 199 |
| | 144 |
|
Acquisition, development & construction | 6,963 |
| | 114 |
| | 96 |
|
Consumer | 642 |
| | 33 |
| | 22 |
|
Subtotal | 20,429 |
| | 505 |
| | 421 |
|
Total | $ | 60,881 |
| | $ | 3,089 |
| | $ | 2,229 |
|
STERLING BANCORP AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollars in thousands, except per share data)
Troubled Debt Restructurings
A TDR is a formally renegotiated loan in which the Bank, for economic or legal reasons related to a borrower’s financial difficulties, grants a concession to the borrower that would not have been granted to the borrower otherwise. The restructuring of a loan may include, but is not limited to: (1) the transfer from the borrower to the Bank of real estate, receivables from third parties, other assets, or an equity interest in the borrower to the Bank in full or partial satisfaction of the loan, (2) a modification of the loan terms, such as a reduction of the stated interest rate, principal, or accrued interest or an extension of the maturity date at a stated interest rate lower than the current market rate for new debt with similar risk, or (3) a combination of the above.
In order to determine whether a borrower is experiencing financial difficulty, an evaluation is performed of the probability that the borrower will be in payment default on any of its debt in the foreseeable future without modification. This evaluation is performed under the Bank’s internal underwriting policy. Modifications have involved a reduction of the stated interest rate of the loan for period ranging from three months to 30 years. Modifications involving an extension of the maturity date were for periods ranging from three months to 30 years. Restructured loans are recorded in accrual status when the loans have demonstrated performance, generally evidenced by six months of payment performance in accordance with the restructured terms, or by the presence of other significant characteristics.
All loans whose terms have been modified in a TDR, including both commercial and consumer loans, must be evaluated for impairment. Not all loans that are restructured as a TDR are classified as non-accrual before the restructuring occurs. If the subsequent TDR designation of these accruing loans has been assigned because of a below market interest rate or an extension of time, the new restructured loan may remain on accrual when management determines it is probable that all contractual principal and interest due under the restructured terms will be collected. TDRs that were on non-accrual before or while the loan was designated a TDR require a minimum of six months of performance in accordance with regulatory guidelines to return the loan to accrual status.
TDRs at September 30, 2013 and 2012 were as follows:
|
| | | | | | | | | | | | | | | | | | | | | | | |
| September 30, 2013 |
| Current loans | | 30-59 days past due | | 60-89 days past due | | 90+ days past due | | Non- accrual | | Total |
Residential mortgage | $ | 2,416 |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | 1,792 |
| | $ | 4,208 |
|
Commercial real estate | 5,305 |
| | — |
| | — |
| | — |
| | — |
| | 5,305 |
|
Commercial & industrial | 1,843 |
| | — |
| | — |
| | 141 |
| | — |
| | 1,984 |
|
Acquisition, development & construction | 14,190 |
| | — |
| | — |
| | — |
| | 151 |
| | 14,341 |
|
Consumer | — |
| | — |
| | — |
| | — |
| | 256 |
| | 256 |
|
Total | $ | 23,754 |
| | $ | — |
| | $ | — |
| | $ | 141 |
| | $ | 2,199 |
| | $ | 26,094 |
|
Allowance for loan losses | $ | 438 |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | 439 |
| | $ | 877 |
|
|
| | | | | | | | | | | | | | | | | | | | | | | |
| September 30, 2012 |
| Current loans | | 30-59 days past due | | 60-89 days past due | | 90+ days past due | | Non- accrual | | Total |
Residential mortgage | $ | 1,226 |
| | $ | — |
| | $ | 264 |
| | $ | — |
| | $ | 2,178 |
| | $ | 3,668 |
|
Commercial real estate | 2,640 |
| | 270 |
| | — |
| | — |
| | — |
| | 2,910 |
|
Acquisition, development & construction | 9,677 |
| | — |
| | — |
| | — |
| | 8,692 |
| | 18,369 |
|
Total | $ | 13,543 |
| | $ | 270 |
| | $ | 264 |
| | $ | — |
| | $ | 10,870 |
| | $ | 24,947 |
|
Allowance for loan losses | $ | — |
| | $ | — |
| | $ | 41 |
| | $ | — |
| | $ | 955 |
| | $ | 996 |
|
The Company has outstanding commitments to lend additional amounts of $4,101 and $4,225 to customers with loans that are classified as TDRs as of September 30, 2013 and September 30, 2012, respectively.
STERLING BANCORP AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollars in thousands, except per share data)
The following table presents loans by segment modified as TDRs in the fiscal year ended September 30, 2013 and 2012:
|
| | | | | | | | | | | | | | | | | | | |
| September 30, 2013 | | September 30, 2012 |
| | | Recorded investment | | | | Recorded investment |
| Number | Pre- modification | | Post- modification | | Number | Pre- modification | | Post- modification |
Residential mortgage | 6 | | $ | 1,436 |
| | $ | 1,372 |
| | 5 | | $ | 1,525 |
| | $ | 1,295 |
|
Commercial real estate | 2 | | 2,682 |
| | 2,682 |
| | 3 | | 2,336 |
| | 2,351 |
|
Commercial & industrial | 5 | | 2,001 |
| | 2,001 |
| | — | | — |
| | — |
|
Acquisition, development & construction | 7 | | 5,772 |
| | 5,772 |
| | 4 | | 5,299 |
| | 5,299 |
|
Consumer | 1 | | 302 |
| | 302 |
| | — | | — |
| | — |
|
Total restructured loans | 21 | | $ | 12,193 |
| | $ | 12,129 |
| | 12 | | $ | 9,160 |
| | $ | 8,945 |
|
The TDRs described above increased the allowance for loan losses by $300 and $134 and resulted in charge-offs of $110 and $0 for the years ended September 30, 2013 and 2012, respectively.
There was one consumer loan totaling $256 that was modified as TDRs during the last twelve months that had subsequently defaulted during the twelve months ended September 30, 2013.
Credit Quality Indicators
As part of the on-going monitoring of the credit quality of the Company’s loan portfolio, management tracks certain credit quality indicators including trends related to (i) the weighted-average risk grade of commercial loans, (ii) the level of classified commercial loans, (iii) the delinquency status of consumer loans (residential mortgage and HELOC) (iv) net charge-offs, (v) non-performing loans (see details above) and (vi) the general economic conditions in the greater New York metropolitan region. The Bank analyzes loans individually by classifying the loans as to credit risk. This analysis is performed on at least a quarterly basis on all criticized/classified loans. The Bank uses the following definitions of risk ratings:
1 and 2 - These grades include loans that are secured by cash, marketable securities or cash surrender value of life insurance policies.
3 - This grade includes loans to borrowers with strong earnings and cash flow and that have the ability to service debt. The borrower’s assets and liabilities are generally well matched and are above average quality. The borrower has ready access to multiple sources of funding including alternatives such as term loans, private equity placements or trade credit.
4 - This grade includes loans to borrowers with above average cash flow, adequate earnings and debt service coverage ratios. The borrower generates discretionary cash flow, assets and liabilities are reasonably matched, and the borrower has access to other sources of debt funding or additional trade credit at market rates.
5 - This grade includes loans to borrowers with adequate earnings and cash flow and reasonable debt coverage ratios. Overall leverage is acceptable and there is average reliance upon trade debt. Management has a reasonable amount of experience and modest debt owners are willing to invest available, outside capital as necessary.
6 - This grade includes loans to borrowers where there is evidence of some strain, earnings are inconsistent and volatile, and the borrowers’ outlook is uncertain. Generally such borrowers have higher leverage than those with a better risk rating. These borrowers typically have limited access to alternative sources of bank debt and may be dependent upon funding for working capital support.
7 - Special Mention (OCC definition) - Other Assets Especially Mentioned (OAEM) are loans that are currently protected but are potentially weak. Loans with special mention ratings have potential weaknesses which may, if not reviewed or corrected, weaken the asset or inadequately protect the bank’s credit position at some future date. Such assets constitute an undue and unwarranted credit risk but not to the point of justifying a classification of substandard. The credit risk may be relatively minor yet constitute an unwarranted risk in light of the circumstances surrounding a specific asset.
8 - Substandard (OCC definition) - These loans are inadequately protected by the current sound worth and paying capacity of the obligor or of the collateral pledged, if any. Assets so classified must have a well-defined weakness that jeopardizes the liquidation of the debt. They are
STERLING BANCORP AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollars in thousands, except per share data)
characterized by the distinct possibility that the Bank will sustain some loss if the deficiencies are not corrected. Loss potential, while existing in the aggregate amount of substandard assets, does not have to exist in individual assets classified as substandard.
9 - Doubtful (OCC definition)- These loans have all the weakness inherent in one classified as substandard with the added characteristics that the weakness makes collection or liquidation in full, on the basis of currently existing facts, conditions, and values, highly questionable and improbable. The possibility of loss is extremely high, but because of certain important and reasonably specific pending factors which may work to the advantage and strengthening of the asset, its classification as an estimated loss is deferred until its more exact status may be determined. Pending factors include proposed merger, acquisition, or liquidating procedures, capital injection, perfecting liens or additional collateral and refinancing plans.
10 - Loss (OCC definition) - These loans are charged-off because they are determined to be uncollectible and unbankable assets. This classification does not reflect that the asset has no absolute recovery or salvage value, but rather it is not practical or desirable to defer writing off this asset even though partial recovery may be effected in the future. Losses should be taken in the period in which they are determined to be uncollectible.
Loans risk-rated 1 through 6 as defined above are considered to be pass-rated loans. As of September 30, 2013 and September 30, 2012, the risk category of gross loans by segment was as follows:
|
| | | | | | | | | | | | | | | | | | | | | | | |
| September 30, 2013 | | September 30, 2012 |
| Special Mention | | Substandard | | Doubtful | | Special Mention | | Substandard | | Doubtful |
Residential mortgage | $ | 824 |
| | $ | 9,786 |
| | $ | — |
| | $ | 830 |
| | $ | 11,314 |
| | $ | — |
|
Commercial real estate | 7,279 |
| | 24,561 |
| | 227 |
| | 20,729 |
| | 27,674 |
| | — |
|
Commercial & industrial | 3,545 |
| | 3,855 |
| | 365 |
| | 14,920 |
| | 3,995 |
| | 338 |
|
Acquisition, development & construction | 1,867 |
| | 19,410 |
| | — |
| | 5,669 |
| | 42,871 |
| | — |
|
Consumer | 15 |
| | 2,891 |
| | — |
| | 274 |
| | 2,482 |
| | — |
|
Total | $ | 13,530 |
| | $ | 60,503 |
| | $ | 592 |
| | $ | 42,422 |
| | $ | 88,336 |
| | $ | 338 |
|
(5) Premises and Equipment, Net
Premises and equipment are summarized as follows:
|
| | | | | | | |
| September 30, |
| 2013 | | 2012 |
Land and land improvements | $ | 7,282 |
| | $ | 7,331 |
|
Buildings | 30,558 |
| | 31,903 |
|
Leasehold improvements | 8,136 |
| | 7,931 |
|
Furniture, fixtures and equipment | 40,164 |
| | 38,292 |
|
Total premises and equipment, gross | 86,140 |
| | 85,457 |
|
Accumulated depreciation and amortization | (49,620 | ) | | (46,974 | ) |
Total premises and equipment, net | $ | 36,520 |
| | $ | 38,483 |
|
(6) Goodwill
The change in goodwill during the year is as follows:
|
| | | | | | | | | | | |
| September 30, |
| 2013 | | 2012 | | 2011 |
Beginning of year balance | $ | 163,247 |
| | $ | 160,861 |
| | $ | 160,861 |
|
Acquisitions | (130 | ) | | 5,665 |
| | — |
|
Disposals | — |
| | (3,279 | ) | | — |
|
End of year balance | $ | 163,117 |
| | $ | 163,247 |
| | $ | 160,861 |
|
STERLING BANCORP AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollars in thousands, except per share data)
During the fiscal year ended September 30, 2013, the Company decreased the identifiable assets acquired in connection with the Gotham Bank acquisition by $130 based on the completion of the analysis of fair value of the net assets acquired.
Included in core deposit and other intangible assets is an intangible asset associated with the naming rights to Provident bank ball park stadium which is located in Rockland County, New York. The Company has determined that in connection with the Merger it will write-off the intangible asset and incur an impairment charge of approximately $965 in the first fiscal quarter of 2014.
(7) Deposits
Deposit balances at September 30, 2013 and 2012 are summarized as follows:
|
| | | | | | | |
| September 30, |
| 2013 | 2012 |
Non-interest bearing | $ | 943,934 |
| | $ | 947,304 |
|
Interest bearing | 434,398 |
| | 448,123 |
|
Savings | 580,125 |
| | 506,538 |
|
Money market | 735,709 |
| | 821,704 |
|
Certificates of deposit | 268,128 |
| | 387,482 |
|
Total deposits | $ | 2,962,294 |
| | $ | 3,111,151 |
|
Municipal deposits totaled $757,066 and $901,739 at September 30, 2013 and September 30, 2012, respectively. See Note 3. Securities for the amount of securities that were pledged as collateral for municipal deposits and other purposes. Municipal deposits received for tax receipts were approximately $374,348 and $424,610 at September 30, 2013 and 2012, respectively.
Certificates of deposit had remaining periods to contractual maturity as follows: |
| | | | | | | |
| September 30, |
| 2013 | | 2012 |
Remaining period to contractual maturity: | | | |
Less than one year | $ | 239,104 |
| | $ | 344,033 |
|
One to two years | 17,248 |
| | 26,407 |
|
Two to three years | 5,185 |
| | 10,601 |
|
Three to four years | 3,062 |
| | 3,261 |
|
Four to five years | 3,529 |
| | 3,180 |
|
Total certificates of deposit | $ | 268,128 |
| | $ | 387,482 |
|
STERLING BANCORP AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollars in thousands, except per share data)
Certificates of deposit accounts with a denomination of $100 or more totaled $104,225 and $203,516 at September 30, 2013 and 2012, respectively. Listed below are the Company’s brokered deposits:
|
| | | | | | | |
| September 30, |
| 2013 | | 2012 |
Savings | $ | — |
| | $ | 13,344 |
|
Money market | 34,571 |
| | 46,566 |
|
Reciprocal CDAR’s 1 | 1,343 |
| | 1,354 |
|
CDAR’s one way | 768 |
| | 764 |
|
Total brokered deposits | $ | 36,682 |
| | $ | 62,028 |
|
1 Certificate of deposit account registry service
(8) Borrowings
The Company’s borrowings and weighted average interest rates are summarized as follows:
|
| | | | | | | | | | | | | |
| September 30, |
| 2013 | | 2012 |
| Amount | | Rate | | Amount | | Rate |
By type of borrowing: | | | | | | | |
FHLB advances and overnight | $ | 442,602 |
| | 2.77 | % | | $ | 324,529 |
| | 3.71 | % |
Repurchase agreements | 20,351 |
| | 0.88 |
| | 20,647 |
| | 0.88 |
|
Senior notes | 98,033 |
| | 5.98 |
| | — |
| | — |
|
Total borrowings | $ | 560,986 |
| | 3.26 | % | | $ | 345,176 |
| | 3.54 | % |
By remaining period to maturity: | | | | | | | |
Less than one year | $ | 158,897 |
| | 0.95 | % | | $ | 10,136 |
| | 1.88 | % |
One to two years | 78,717 |
| | 1.97 |
| | 56,819 |
| | 2.00 |
|
Two to three years | 191 |
| | 5.32 |
| | 52,693 |
| | 2.89 |
|
Three to four years | 202,414 |
| | 4.21 |
| | 201 |
| | 5.32 |
|
Four to five years | 118,033 |
| | 5.57 |
| | 202,386 |
| | 4.21 |
|
Greater than five years | 2,734 |
| | 4.92 |
| | 22,941 |
| | 3.74 |
|
Total borrowings | $ | 560,986 |
| | 3.26 | % | | $ | 345,176 |
| | 3.54 | % |
As a member of the FHLB, the Bank may borrow up to the amount of eligible mortgages and securities that have been pledged as collateral under a blanket security agreement. As of September 30, 2013 and 2012, the Bank had pledged residential mortgage and commercial real estate loans totaling $784,422 and $613,554, respectively. The Bank had also pledged securities to secure borrowings, which are disclosed in Note 3. Securities. As of September 30, 2013, the Bank may increase its borrowing capacity by pledging securities and mortgage loans not required to be pledged for other purposes with a collateral value of $531,209.
FHLB borrowings which are putable quarterly at the discretion of the FHLB were $200,000 at September 30, 2013 and 2012. These borrowings have a weighted average remaining term to the contractual maturity dates of approximately 3.56 years and 4.56 years and weighted average interest rates of 4.23% at September 30, 2013 and 2012, respectively.
The Bank had two $10,000 repurchase agreements with a financial institution. The Bank has pledged a portion of the securities disclosed in Note 3. Securities as collateral for these borrowings.
On July 2, 2013 the Company issued $100,000 principal amount of 5.50% fixed rate Senior Notes through a private placement at a discount of 1.75%. The cost of issuance was $303, and at September 30, 2013 the unamortized discount was $1,967, which will be accreted to interest expense over the life of the Senior Notes, resulting in an all-in cost of 5.98%. Interest is due semi-annually
STERLING BANCORP AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollars in thousands, except per share data)
in arrears on January 2 and July 2 of each year beginning January 2, 2014 until maturity on July 2, 2018. The Senior Notes were issued under an indenture (the “Indenture”) between the Company and U.S. Bank National Association, as trustee.
The senior notes are unsecured obligations of the Company and rank equally with all other unsecured unsubordinated indebtedness, and will be effectively subordinated to any secured indebtedness to the extent of the value of the collateral securing such indebtedness, and structurally subordinated to the existing and future indebtedness of the Company’s subsidiaries.
The indenture includes provisions that, among other things, restrict the Company’s ability to dispose of or issue shares of voting stock of a principal subsidiary bank (as defined in the Indenture) or transfer the entirety of or a substantial amount of the Company’s assets or merge or consolidate with or into other entities, without satisfying certain conditions.
The Senior Notes will not be registered under the Securities Act and may not be offered or sold in the U.S. absent registration or an applicable exemption from registration requirements.
(9) Derivatives
The Company purchased two interest rate caps in the first quarter of fiscal 2010 to offset a portion of interest rate exposure should short-term rate increases lead to rapid increases in general levels of market interest rates on deposits. These caps are linked to LIBOR and have strike prices of 3.5% and 4.0%. These caps are stand alone derivatives and therefore changes in fair value are reported in current period earnings. Losses recognized in earnings were $2 and $63 in fiscal 2013 and 2012, respectively. The fair value of the interest rate caps at September 30, 2013, is reflected in other assets with a corresponding credit (charge) to income recorded as a gain (loss) to non-interest income.
The Company has entered into certain interest rate swap contracts that are not designated as hedging instruments. These derivative contracts relate to transactions in which the Company enters into an interest rate swap with a customer while at the same time entering into an offsetting interest rate swap with another financial institution. In connection with each swap transaction, the Corporation agrees to pay interest to the customer on a notional amount at a variable interest rate and receive interest from the customer on a similar notional amount at a fixed interest rate. At the same time, the Company agrees to pay another financial institution the same fixed interest rate on the same notional amount and receive the same variable interest rate on the same notional amount. The transaction allows the Company’s customer to effectively convert a variable rate loan to a fixed rate. Because the Company acts as an intermediary for its customer, changes in the fair value of the underlying derivative contracts for the most part offset each other and do not significantly impact the Company’s results of operations.
The Company pledged collateral to another financial institution in the form of investment securities with an amortized cost of $5,040 and a fair value of $4,645 as of September 30, 2013. The Company does not typically require its commercial customers to post cash or securities as collateral on its program of back-to-back swaps. However, certain language is written into the International Swaps and Derivatives Association agreement and loan documents where, in default situations, the Company is allowed to access collateral supporting the loan relationship to recover any losses suffered on the derivative asset or liability. The Company may need to post additional collateral in the future in proportion to potential increases in unrealized loss positions.
STERLING BANCORP AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollars in thousands, except per share data)
Summary information regarding these derivatives is presented below:
|
| | | | | | | | | | | | | | |
| Notional amount | | Average maturity (in years) | | Weighted average fixed rate | | Weighted average variable rate | | Fair value |
September 30, 2013 | | | | | | | | | |
Interest rate caps | $ | 50,000 |
| | 1.18 | | 3.75 | % | | NA | | $ | — |
|
3rd party interest rate swap | 54,180 |
| | 5.76 | | 4.22 |
| | 1 m Libor + 2.45 | | 997 |
|
Customer interest rate swap | (54,180 | ) | | 5.76 | | 4.22 |
| | 1 m Libor + 2.45 | | (997 | ) |
September 30, 2012 | | | | | | | | | |
Interest rate caps | $ | 50,000 |
| | 2.18 | | 3.75 | % | | NA | | $ | 2 |
|
3rd party interest rate swap | 42,332 |
| | 7.30 | | 4.29 |
| | 1 m Libor + 2.28 | | 2,485 |
|
Customer interest rate swap | (42,332 | ) | | 7.30 | | 4.29 |
| | 1 m Libor + 2.28 | | (2,485 | ) |
The Company enters into various commitments to sell real estate loans into the secondary market. Such commitments are considered to be derivative financial instruments; however, the fair value of these commitments is not material.
STERLING BANCORP AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollars in thousands, except per share data)
(10) Income Taxes
Income tax expense consists of the following:
|
| | | | | | | | | | | |
| For the year ended September 30, |
| 2013 | | 2012 | | 2011 |
Current tax expense: | | | | | |
Federal | $ | 9,146 |
| | $ | 5,538 |
| | $ | 1,912 |
|
State | 1,549 |
| | 685 |
| | 777 |
|
Total current tax expense | 10,695 |
| | 6,223 |
| | 2,689 |
|
Deferred tax expense (benefit): | | | | | |
Federal | 522 |
| | (261 | ) | | 282 |
|
State | 197 |
| | 197 |
| | (164 | ) |
Total deferred tax expense (benefit) | 719 |
| | (64 | ) | | 118 |
|
Total income tax expense | $ | 11,414 |
| | $ | 6,159 |
| | $ | 2,807 |
|
Actual income tax expense differs from the tax computed based on pre-tax income and the applicable statutory Federal tax rate for the following reasons:
|
| | | | | | | | | | | |
| For the year ended September 30, |
| 2013 | | 2012 | | 2011 |
Tax at Federal statutory rate of 35% | $ | 12,833 |
| | $ | 9,116 |
| | $ | 5,090 |
|
State and local income taxes, net of Federal tax benefit | 1,135 |
| | 573 |
| | 430 |
|
Tax-exempt interest, net of disallowed interest | (2,192 | ) | | (2,448 | ) | | (2,551 | ) |
BOLI income | (699 | ) | | (718 | ) | | (714 | ) |
Non-deductible compensation expense | — |
| | — |
| | 594 |
|
Non-deductible acquisition related costs | 416 |
| | 418 |
| | — |
|
Other, net | (79 | ) | | (782 | ) | | (42 | ) |
Actual income tax expense | $ | 11,414 |
| | $ | 6,159 |
| | $ | 2,807 |
|
Effective income tax rate | 31.1 | % | | 23.6 | % | | 19.3 | % |
STERLING BANCORP AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollars in thousands, except per share data)
The following table presents the Company’s deferred tax position at September 30, 2013 and 2012:
|
| | | | | | | |
| September 30, |
| 2013 | | 2012 |
Deferred tax assets: | | | |
Allowance for loan losses | $ | 11,809 |
| | $ | 11,566 |
|
Deferred compensation | 798 |
| | 1,429 |
|
Other accrued compensation and benefits | 1,497 |
| | 1,722 |
|
Accrued post retirement expense | 1,441 |
| | 1,512 |
|
Deferred rent | 1,059 |
| | 873 |
|
Intangibles amortization | — |
| | 109 |
|
Other comprehensive loss (securities) | 7,844 |
| | — |
|
Other comprehensive loss (defined benefit plans) | 2,638 |
| | 5,612 |
|
Other | 2,172 |
| | 2,971 |
|
Total deferred tax assets | 29,258 |
| | 25,794 |
|
Deferred tax liabilities: | | | |
Undistributed earnings of subsidiary not consolidated for tax return purposes (income from REITs) | 4,483 |
| | 5,195 |
|
Prepaid pension costs | 3,758 |
| | 4,189 |
|
Purchase accounting adjustments | 1,057 |
| | 597 |
|
Depreciation of premises and equipment | 2,686 |
| | 2,822 |
|
Other comprehensive income (securities) | — |
| | 10,300 |
|
Intangibles amortization | 112 |
| | — |
|
Other | 2,207 |
| | 2,187 |
|
Total deferred tax liabilities | 14,303 |
| | 25,290 |
|
Net deferred tax asset | $ | 14,955 |
| | $ | 504 |
|
Based on the Company’s consideration of historical and anticipated future pre-tax income, as well as the reversal period for the items giving rise to the deferred tax assets and liabilities, a valuation allowance for deferred tax assets was not considered necessary at September 30, 2013 and 2012.
Retained earnings at September 30, 2013 and 2012 include approximately $9,313 for which no provision for federal income taxes has been made. This amount represents the tax bad debt reserve at December 31, 1987, which is the end of the Bank’s base year for purposes of calculating the bad debt deduction for tax purposes. If this portion of retained earnings is used in the future for any purposes other than to absorb bad debts, the amount used will be added to future taxable income. The unrecorded deferred tax liability on the above amount at September 30, 2013 and 2012 was approximately $3,260.
As of September 30, 2013 and 2012, the Company had no unrecognized tax benefits or accrued interest and penalties recorded. The Company does not expect the total amount of unrecognized tax benefits to significantly increase within the next twelve months. The Company records interest and penalties as a component of income tax expense.
Sterling Bancorp and its subsidiaries are subject to U.S. federal income tax as well as income tax of the state of New York and various other states. The Company is no longer subject to examination by Federal and New York taxing authorities for tax years prior to 2010.
(11) Employee Benefit Plans and Stock-Based Compensation Plans
(a)Pension Plans
The Company has a noncontributory defined benefit pension plan covering employees that were eligible as of September 30, 2006. In July, 2006, the Board of Directors approved a curtailment to the Provident Bank Defined Benefit Pension Plan (the “Plan”) effective September 30, 2006. At that time, all benefit accruals for future service ceased and no new participants were allowed to enter the plan. The purpose of the Plan curtailment was to afford flexibility in the retirement benefits the Company provides, while preserving all retirement plan participants’ earned and vested benefits, and to manage the increasing costs associated with the
STERLING BANCORP AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollars in thousands, except per share data)
defined benefit pension plan. The Company’s funding policy is to contribute annually an amount sufficient to meet statutory minimum funding requirements, but not in excess of the maximum amount deductible for Federal income tax purposes. Contributions are intended to provide not only for benefits attributed to service to date, but also for benefits expected to be earned in the future.
The following is a summary of changes in the projected benefit obligation and fair value of plan assets. The Company uses a September 30 measurement date for its pension plans.
|
| | | | | | | |
| September 30, |
| 2013 | | 2012 |
Changes in projected benefit obligation: | | | |
Beginning of year balance | $ | 35,471 |
| | $ | 30,612 |
|
Service cost | — |
| | — |
|
Interest cost | 1,452 |
| | 1,501 |
|
Actuarial (gain) loss | (3,672 | ) | | 4,961 |
|
Benefits and distributions paid | (1,546 | ) | | (1,603 | ) |
End of year balance | 31,705 |
| | 35,471 |
|
Changes in fair value of plan assets: | | | |
Beginning of year balance | 32,657 |
| | 28,312 |
|
Actual gain on plan assets | 4,306 |
| | 5,948 |
|
Employer contributions | — |
| | — |
|
Benefits and distributions paid | (1,546 | ) | | (1,603 | ) |
End of year balance | 35,417 |
| | 32,657 |
|
Funded status at end of year | $ | 3,712 |
| | $ | (2,814 | ) |
Amounts recognized in accumulated other comprehensive (loss) at September 30, 2013 and 2012 consisted of:
|
| | | | | | | |
| September 30, |
| 2013 | | 2012 |
Unrecognized actuarial loss | $ | (5,479 | ) | | $ | (13,056 | ) |
Deferred tax asset | 2,225 |
| | 5,612 |
|
Net amount recognized in accumulated other comprehensive (loss) | $ | (3,254 | ) | | $ | (7,444 | ) |
The discount rates used to determine the actuarial present value of the projected benefit obligation and the net periodic pension expense were 5.2%, 4.1% and 5.0% at September 30, 2013, 2012 and 2011, respectively. No compensation increases were used as the Plan is frozen. The expected weighted average long-term rate of return on plan assets was 7.8% for the fiscal years ended 2013 and 2012.
Estimated future benefit payments are the following for the years ending September 30:
|
| | | |
2014 | $ | 1,570 |
|
2015 | 1,670 |
|
2016 | 1,790 |
|
2017 | 1,716 |
|
2018 | 1,937 |
|
2019 - 2023 | 10,326 |
|
STERLING BANCORP AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollars in thousands, except per share data)
The components of the net periodic pension expense were as follows:
|
| | | | | | | | | | | |
| For the year ended September 30, |
| 2013 | | 2012 | | 2011 |
Service cost | $ | — |
| | $ | — |
| | $ | — |
|
Interest cost | 1,452 |
| | 1,501 |
| | 1,498 |
|
Expected return on plan assets | (2,462 | ) | | (2,125 | ) | | (2,343 | ) |
Amortization of unrecognized actuarial loss | 2,062 |
| | 2,316 |
| | 1,667 |
|
Settlement charge | — |
| | — |
| | 490 |
|
Net periodic pension expense | $ | 1,052 |
| | $ | 1,692 |
| | $ | 1,312 |
|
The amount of unrecognized actuarial loss and prior service cost that is expected to be amortized to pension expense during the fiscal year ending September 30, 2014 is $400.
The following is a description of the valuation methodologies used for assets measured at fair value. There were no changes in the methodologies used at September 30, 2013 and 2012. See Note 17. Fair Value Measurements for a detailed discussion of the three levels of inputs that may be used to measure fair values.
The fair value of the Plan assets is based on the lowest level of any input that is significant to the fair value measurement within the fair value hierarchy. Plan assets consisted of pooled separate accounts at September 30, 2013. The fair value of shares of units of participation in pooled separate accounts are based on the net asset values of the funds reported by the fund managers as of September 30, 2013 and recent transaction prices (Level 2 inputs). Assets allocated to these pooled separate accounts can include, but are not limited to stocks (both domestic and foreign), bonds and mutual funds. While some pooled separate accounts may have publicly quoted prices (Level 1 inputs), the units of separate accounts are not publicly quoted and are therefore classified as Level 2. The fair value of Plan assets by asset category as of September 30, 2013 and 2012, was the following:
|
| | | | | | | | | | | | | | | |
| September 30, 2013 |
| Fair value | | Level 1 inputs | | Level 2 inputs | | Level 3 inputs |
Asset category: | | | | | | | |
Large cap U.S. equity | $ | 16,378 |
| | $ | — |
| | $ | 16,378 |
| | $ | — |
|
Small and mid cap U.S. equity | 4,443 |
| | — |
| | 4,443 |
| | — |
|
International equity | 3,654 |
| | — |
| | 3,654 |
| | — |
|
Total equity | 24,475 |
| | — |
| | 24,475 |
| | — |
|
Total balanced asset allocation | 1,691 |
| | — |
| | 1,691 |
| | — |
|
High yield bond | 1,018 |
| | — |
| | 1,018 |
| | — |
|
Intermediate term bond | 8,233 |
| | — |
| | 8,233 |
| | — |
|
Total fixed income | 9,251 |
| | — |
| | 9,251 |
| | — |
|
Total assets | $ | 35,417 |
| | $ | — |
| | $ | 35,417 |
| | $ | — |
|
STERLING BANCORP AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollars in thousands, except per share data)
|
| | | | | | | | | | | | | | | |
| September 30, 2012 |
| Fair value | | Level 1 inputs | | Level 2 inputs | | Level 3 inputs |
Asset category: | | | | | | | |
Large cap U.S. equity | $ | 14,358 |
| | $ | — |
| | $ | 14,358 |
| | $ | — |
|
Small and mid cap U.S. equity | 3,672 |
| | — |
| | 3,672 |
| | — |
|
International equity | 3,284 |
| | — |
| | 3,284 |
| | — |
|
Total equity | 21,314 |
| | — |
| | 21,314 |
| | — |
|
Total balanced asset allocation | 1,646 |
| | — |
| | 1,646 |
| | — |
|
High yield bond | 981 |
| | — |
| | 981 |
| | — |
|
Intermediate term bond | 8,716 |
| | — |
| | 8,716 |
| | — |
|
Total fixed income | 9,697 |
| | — |
| | 9,697 |
| | — |
|
Total assets | $ | 32,657 |
| | $ | — |
| | $ | 32,657 |
| | $ | — |
|
The Company’s policy is to invest the Plan assets in a prudent manner for the purpose of providing benefit payments to participants and offseting reasonable expenses of administration. The Company’s investment strategy is designed to provide a total return that, over the long-term, places a strong emphasis on the preservation of capital. The strategy attempts to maximize investment returns on assets at a level of risk deemed appropriate by the Company while complying with applicable regulations and laws.
The Plan’s investment policy prohibits the direct investment in real estate but allows the Plan’s mutual funds to include a small percentage of real estate related investments. The investment strategy utilizes asset allocation as a principal determinant for establishing an appropriate risk profile. Weighted-average pension plan asset allocations based on the fair value of such assets at September 30, 2013, and September 30, 2012 and target allocations for 2013, by asset category, are as follows:
|
| | | | | | | | | | |
| 2013 | | 2012 | | Target allocation range 2013 | | Weighted average expected rate of return |
Large cap U.S. equity | 44 | % | | 46 | % | |
| | 10.0 | % |
Small and mid cap U.S. equity | 11 |
| | 13 |
| |
| | 15.5 |
|
International equity | 10 |
| | 10 |
| |
| | 12.0 |
|
Total equity | 65 |
| | 69 |
| | 45% - 70% | | 11.3 |
|
Total balanced asset allocation | 5 |
| | 5 |
| |
| | 6.0 |
|
High yield bond | 3 |
| | 3 |
| |
| | 8.0 |
|
Intermediate term bond | 27 |
| | 23 |
| |
| | 6.0 |
|
Total fixed income | 30 |
| | 26 |
| | 20% - 40% | | 6.2 |
|
Total assets | 100 | % | | 100 | % | | | | 9.7 |
|
Cash | — |
| | — |
| | 0% - 20% | | — |
|
The expected long-term rate of return assumption as of each measurement date was determined by taking into consideration asset allocations as of each such date, historical returns on the types of assets held, and current economic factors. Under this method, historical investment returns for each major asset category are applied to the expected future investment allocation in that category as a percentage of total plan assets, and a weighted average is determined. The Company’s investment policy for determining the asset allocation targets was developed based on the desire to optimize total return while placing a strong emphasis on preservation of capital. In general, it is hoped that, in the aggregate, changes in the fair value of plan assets will be less volatile than similar changes in appropriate market indices. Returns on invested assets are periodically compared with target market indices for each asset type to aid us in evaluating such returns.
There were no pension plan assets consisting of Sterling Bancorp equity securities (common stock) at September 30, 2013 or at September 30, 2012.
The Company makes contributions to its funded qualified pension plans as required by government regulation or as deemed appropriate by management after considering the fair value of plan assets, expected returns on such assets, and the present value of benefit obligations of the plans. At this time, the Company has not determined whether contributions in fiscal 2014 will be made.
STERLING BANCORP AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollars in thousands, except per share data)
The Company has also established a non-qualified Supplemental Executive Retirement Plan (“SERP”) to provide certain executives with supplemental retirement benefits in addition to the benefits provided by the pension plan due to amounts limited by the Internal Revenue Code of 1986, as amended (“IRS Code”). The periodic pension expense for the supplemental plan amounted to $49, $41 and $44 for the years ended September 30, 2013, 2012 and 2011, respectively. Additionally, a settlement charge of $278 in 2011 was recorded reflecting the partial settlement of the defined benefit portion of the SERP relating to the benefit obligation of a former employee. The actuarial present value of the projected benefit obligation and the vested benefit obligation was $1,194 and $1,016 at September 30, 2013 and 2012, respectively, and the vested benefit obligation was $1,180 and $1,016 for the same periods, respectively, all of which is unfunded. Discount rates of 3.0% and 3.8% were used in determining the actuarial projected benefit at September 30, 2013 and 2.5% and 3.25% for September 30, 2012.
(b) Other Post retirement Benefit Plans
The Company’s other post retirement benefit plans, which are unfunded, provide optional medical, dental and life insurance benefits to retirees or death benefit payments to beneficiaries of employees covered by the Company and Bank Owned Life Insurance policies. The Company elected to amortize the transition obligation for accumulated benefits to retirees as an expense over a 20 year period.
Data relating to the post retirement benefit plan is the following:
|
| | | | | | | |
| September 30, |
| 2013 | | 2012 |
Changes in accumulated post retirement benefit obligation: | | | |
Beginning of year | $ | 3,103 |
| | $ | 2,509 |
|
Service cost | 48 |
| | 46 |
|
Interest cost | 134 |
| | 125 |
|
Actuarial loss | 177 |
| | 548 |
|
Plan participants’ contributions | — |
| | — |
|
Amendments | — |
| | — |
|
Benefits paid | (160 | ) | | (125 | ) |
End of year | 3,302 |
| | 3,103 |
|
Changes in fair value of plan assets: | | | |
Beginning of year | $ | — |
| | $ | — |
|
Employer contributions | 160 |
| | 125 |
|
Plan participants’ contributions | — |
| | — |
|
Benefits paid | (160 | ) | | (125 | ) |
End of year | — |
| | — |
|
Funded status | $ | (3,302 | ) | | $ | (3,103 | ) |
Components of net periodic benefit expense:
|
| | | | | | | | | | | |
| For the year ended September 30, |
| 2013 | | 2012 | | 2011 |
Service cost | $ | 48 |
| | $ | 46 |
| | $ | 38 |
|
Interest cost | 134 |
| | 125 |
| | 107 |
|
Amortization of transition obligation | 24 |
| | 24 |
| | 24 |
|
Amortization of prior service cost | 47 |
| | 47 |
| | 48 |
|
Amortization of net actuarial loss (gain) | 2 |
| | (25 | ) | | (60 | ) |
Total | $ | 255 |
| | $ | 217 |
| | $ | 157 |
|
Total unrecognized actuarial gain and prior service cost expected to be amortized from accumulated other comprehensive income in fiscal year 2014 is $20.
STERLING BANCORP AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollars in thousands, except per share data)
Estimated future benefit payments are the following for the years ending September 30:
|
| | | |
2014 | $ | 208 |
|
2015 | 209 |
|
2016 | 211 |
|
2017 | 212 |
|
2018 | 215 |
|
2019 - 2023 | 1,107 |
|
Plan assumptions include the following:
|
| | | | | |
| For the year ended September 30, |
| 2013 | | 2012 |
Medical trend rate next year | 4.5 | % | | 4.5 | % |
Ultimate trend rate | 4.5 |
| | 4.5 |
|
Discount rate | 4.2 |
| | 4.1 |
|
Discount rate used to value periodic cost | 4.1 |
| | 4.3 |
|
There is no impact of a 1% increase or decrease in health care trend rate due to the Company’s cap on cost.
Amounts recognized in accumulated other comprehensive (loss) at September 30, 2013 and 2012 consisted of the following:
|
| | | | | | | |
| For the year ended September 30, |
| 2013 | | 2012 |
Post retirement plan unrecognized actuarial (gain) loss | $ | (20 | ) | | $ | 175 |
|
Post retirement plan unrecognized service cost | (270 | ) | | (317 | ) |
Post retirement unrecognized transition obligation | (20 | ) | | (30 | ) |
Post retirement SERP | (307 | ) | | (400 | ) |
Post employment BOLI | (399 | ) | | (122 | ) |
Subtotal | (1,016 | ) | | (694 | ) |
Deferred tax asset | 413 |
| | 282 |
|
Net amount recognized in accumulated other comprehensive (loss) | $ | (603 | ) | | $ | (412 | ) |
(c) Employee Savings Plan
The Company also sponsors a defined contribution plan established under Section 401(k) of the IRS Code. Eligible employees may elect to contribute up to 50.0% of their compensation to the plan. The Company currently makes matching contributions equal to 50.0% of a participant’s contributions up to a maximum matching contribution of 3.0% of eligible compensation. The plan also provides for a discretionary profit sharing component, in addition to the matching contributions. Fiscal year 2013 did not include a profit sharing component. Voluntary matching and profit sharing contributions are invested in accordance with the participant’s direction in one or a number of investment options. Savings plan expense was $935, $1,029 and $1,875 for the years ended September 30, 2013, 2012 and 2011, respectively.
(d) Employee Stock Ownership Plan (“ESOP”)
In connection with the Second-Step Stock Conversion and Offering in January 2004, the Company established an ESOP for substantially all eligible employees who meet certain age and service requirements. The ESOP borrowed $9,987 from Sterling Bancorp and used the funds to purchase 998,650 shares of common stock in the offering. The term of this ESOP loan is twenty years.
ESOP shares are held by the plan trustee in a suspense account until allocated to participant accounts. Shares released from the suspense account are allocated to participants on the basis of their relative compensation in the year of allocation. Participants become vested in the allocated shares over a period not to exceed five years.
STERLING BANCORP AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollars in thousands, except per share data)
ESOP expense was $497, $390, and $436 for the years ended September 30, 2013, 2012 and 2011, respectively. Of the 998,650 shares of common stock acquired by the ESOP through September 30, 2013 and 2012, a total of 439,388 and 389,456 common shares, respectively, have been allocated to participants or committed to be released for allocation. The cost of ESOP shares that have not yet been allocated to participants or committed to be released for allocation is deducted from stockholders’ equity; this was 549,262 shares with a cost of $5,493 and a fair value of approximately $5,981 at September 30, 2013 and 599,194 shares with a cost of $5,992 and a fair value of approximately $5,638 at September 30, 2012.
Effective October 30, 2013, the Company terminated the ESOP plan. In accordance with the provisions of the plan, all participants will receive contributions the calendar year 2013 and will become 100% vested in their accounts. Unallocated shares will be liquidated and used to retire the outstanding loan obligation. The Company estimates plan termination costs of approximately $150 which will be incurred in fiscal 2014.
The Company established a supplemental savings plan for certain senior officers to compensate executives for benefits provided under the Bank’s tax qualified plans (employee’s savings plan and ESOP) that are limited by the IRS Code. Expense recognized for this plan including the defined benefit component was $79, $0, and $340, for the years ended September 30, 2013, 2012 and 2011, respectively. Amounts accrued and recorded in other liabilities at September 30, 2013 and 2012, including the defined benefit component were $1.2 million.
(e) Stock Compensation Plans
The Company has two active stock compensation plans, the 2004 Stock Incentive Plan (the “2004 Plan”) and the 2012 Stock Incentive Plan (the “2012 Plan”). Both the 2004 Plan and the 2012 Plan were established to help the Company promote growth and profitability by providing certain directors, key officers and employees with an incentive to achieve corporate objectives through a participation interest in the performance of the common stock of the Company.
Under the 2004 Plan, the Company may grant among other things, nonqualified stock options, incentive stock options, restricted stock awards, stock appreciation rights, or any combination thereof to certain employees and directors. The Company’s stockholders authorized the issuance of up to 798,920 shares of common stock as restricted stock awards, and 1,997,300 shares available for stock options and stock appreciation rights. The awards are subject to accelerated vesting for death, retirement and change in control. As of September 30, 2013, 11,533 restricted shares were potentially subject to accelerated vesting as the employees were eligible for retirement. A total of 191,724 options and 7,120 restricted stock awards remain available for future grant at September 30, 2013.
Under the 2012 Plan the Company may grant, in addition to the types of grants available under the 2004 Plan, performance based awards, restricted stock unit awards, other stock-based awards, or any combination thereof to certain employees and directors.
The Company’s stockholders authorized the issuance of up to 2,900,000 shares of common stock. Stock options or stock appreciation rights awards are accounted as one share for every share granted. Other awards permitted under the 2012 Plan are accounted as 3.6 shares for every share granted. As of September 30, 2013, 48,121 restricted shares were potentially subject to accelerated vesting as the employees were eligible for retirement. A total of 1,867,340 shares of common stock remain available for future grant as of September 30, 2013.
In addition to the above plans, the Company provided awards under its 2011 Employment Inducement Stock Program which included options to purchase 107,256 shares of common stock and restricted stock awards covering 29,550 shares of common stock, both of which vest in four equal installments through July 2015, and performance-based restricted stock awards covering 11,820 shares which vest upon attainment of designated performance conditions in combination with continued service through December 31, 2014. These awards are governed by the terms of an award notice and the terms of the 2004 Plan.
Under the Company’s stock based compensation plans, forfeited shares are available for re-issuance. The Company generally funds restricted stock awards with treasury stock. On grant date, restricted shares awarded under the 2004 Plan and the 2012 Plan were transferred from treasury stock at cost with the difference between the fair market value on the grant date and the cost basis of the shares recorded as a reduction to retained earnings or an increase to additional paid-in capital, as applicable.
The fair market value of the restricted shares awarded under the plans is being amortized to expense on a straight-line basis over the vesting period of the underlying shares. Compensation expense related to restricted stock awards was $1,108, $276, and $168 for the years ended September 30, 2013, 2012 and 2011, respectively. The remaining unearned compensation cost of $1,239 as of September 30, 2013 is recorded as a reduction of additional paid-in capital and will be expensed over three years. The total fair value of restricted stock vested for the fiscal years ended September 30, 2013, 2012 and 2011 was $716, $157, and $73, respectively.
STERLING BANCORP AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollars in thousands, except per share data)
Under both plans, options vest over periods ranging from two to five years and have a ten-year contractual term and may be either non-qualified stock options or incentive stock options. The Company uses shares held as treasury stock to satisfy share option exercises. Currently, the Company has a sufficient number of treasury shares to satisfy expected share option exercises. Each option entitles the holder to purchase one share of common stock at an exercise price equal to the fair market value of the stock on the grant date. Employees who retire under circumstances in accordance with the terms of the Plan, may be entitled to accelerated vesting of individual awards.
As of September 30, 2013, 48,121 shares were potentially subject to accelerated vesting. Substantially all stock options outstanding are expected to vest. Compensation expense related to stock option awards was $634, $521 and $558 for the years ended September 30, 2013, 2012 and 2011, respectively.
The following table summarizes the activity in the Company’s active stock-based compensation plans for
September 30, 2013:
|
| | | | | | | | | | | | | | | | |
| | | Non-vested stock awards/stock units outstanding | | Stock options outstanding |
| Shares available for grant | | Number of shares | | Weighted average grant date fair value | | Number of shares | | Weighted average exercise price |
Balance at October 1, 2012 | 2,875,877 |
| | 97,817 |
| | $ | 8.31 |
| | 1,972,480 |
| | $ | 11.04 |
|
Granted (1) | (1,028,140 | ) | | 186,900 |
| | 9.04 |
| | 360,500 |
| | 9.04 |
|
Stock awards vested | — |
| | (65,720 | ) | | 8.94 |
| | — |
| | — |
|
Exercised | — |
| | — |
| | — |
| | (8,250 | ) | | 7.51 |
|
Forfeited | 225,501 |
| | (9,300 | ) | | 7.28 |
| | (203,167 | ) | | 11.06 |
|
Canceled/expired | (7,054 | ) | | — |
| | — |
| | (7,054 | ) | | 13.97 |
|
Balance at September 30, 2013 | 2,066,184 |
| | 209,697 |
| | $ | 8.73 |
| | 2,114,509 |
| | $ | 10.71 |
|
Exercisable at September 30, 2013 | | | | | | | 1,386,619 |
| | $ | 11.90 |
|
(1) Reflects certain non-vested stock awards that count as 3.6 shares for each share granted.
The total intrinsic value of stock options vested (exercisable) for the fiscal years ended September 30, 2013, 2012 and 2011 was $651, $33 and $0 respectively. The unrecognized compensation expense associated with stock options was $1,360 as of September 30, 2013 and is expected to be recognized over a period of 3 years.
The aggregate intrinsic value of options outstanding as of September 30, 2013 was $2,428. The aggregate intrinsic value represents the total pre-tax intrinsic value (the difference between the Company’s closing stock price on the last trading day of the year ended September 30, 2013 and the exercise price, multiplied by the number of in-the-money options). The cash received from option exercises was $62 and $0 for fiscal 2013 and 2012, respectively. There was no tax benefit recorded from the exercise of options for fiscal 2013 or fiscal 2012.
A summary of stock options at September 30, 2013 follows:
|
| | | | | | | | | | | | | | | | | |
| Outstanding | | Exercisable |
| | | Weighted-average | | | | Weighted-average |
| Number of stock options | | Exercise price | | Life (in years) | | Number of stock options | | Exercise price | | Life (in years) |
Range of exercise price: | | | | | | | | | | | |
$6.71 to $9.00 | 875,309 |
| | $ | 8.34 |
| | 8.55 | | 187,419 |
| | $ | 8.12 |
| | 8.55 |
$9.28 to $12.64 | 263,000 |
| | 10.41 |
| | 5.64 | | 223,000 |
| | 10.60 |
| | 5.64 |
$12.84 to $13.92 | 976,200 |
| | 12.92 |
| | 1.79 | | 976,200 |
| | 12.92 |
| | 1.79 |
| 2,114,509 |
| | $ | 10.71 |
| | 5.06 | | 1,386,619 |
| | $ | 11.90 |
| | 5.06 |
STERLING BANCORP AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollars in thousands, except per share data)
The Company uses an option pricing model to estimate the grant date fair value of stock options granted. The weighted-average estimated value per option granted was $2.74 in 2013, $2.31 in 2012, and $2.27 in 2011.
The fair value of options granted was determined using the following weighted-average assumptions as of the grant date:
|
| | | | | | | | |
| For the year ended September 30, |
| 2013 | | 2012 | | 2011 |
Risk-free interest rate | 1.0 | % | | 1.4 | % | | 2.2 | % |
Expected stock price volatility | 40.8 |
| | 40.0 |
| | 34.5 |
|
Dividend yield (1) | 2.6 |
| | 3.0 |
| | 2.8 |
|
Expected term in years | 5.75 |
| | 5.82 |
| | 5.90 |
|
(1) Represents the approximate annualized cash dividend rate paid with respect to a share of common stock at or near the grant date.
(12) Other Non-interest Expense
Other non-interest expense items are presented in the following table. Components exceeding 1% of the aggregate of total net interest income and total non-interest income are presented separately.
|
| | | | | | | | | | | | |
| | For the year ended September 30, |
| | 2013 | | 2012 | | 2011 |
Other non-interest expense: | | | | | | |
Defined benefit settlement charge / CEO transition | | $ | — |
| | $ | — |
| | $ | 1,772 |
|
Restructuring charge (severance / branch consolidation) | | — |
| | — |
| | 3,201 |
|
Advertising and promotion | | 1,502 |
| | 1,849 |
| | 3,328 |
|
Professional fees | | 3,393 |
| | 4,247 |
| | 4,389 |
|
Data and check processing | | 2,520 |
| | 2,802 |
| | 2,763 |
|
ATM/debt card expense | | 1,722 |
| | 1,711 |
| | 1,584 |
|
Other | | 8,239 |
| | 7,782 |
| | 7,980 |
|
Total other non-interest expense | | $ | 17,376 |
| | $ | 18,391 |
| | $ | 25,017 |
|
| | | | | | |
(13) Earnings Per Common Share
The following is a summary of the calculation of earnings per share (“EPS”):
|
| | | | | | | | | | | |
| For the year ended September 30, |
| 2013 | | 2012 | | 2011 |
Net income | $ | 25,254 |
| | $ | 19,888 |
| | $ | 11,739 |
|
Weighted-average common shares outstanding for computation of basic EPS (1) | 43,734,425 |
| | 38,227,653 |
| | 37,452,596 |
|
Common-equivalent shares due to the dilutive effect of stock options (2) | 48,628 |
| | 20,393 |
| | 946 |
|
Weighted average common shares for computation of diluted EPS | 43,783,053 |
| | 38,248,046 |
| | 37,453,542 |
|
Earnings per common share: | | | | | |
Basic | $ | 0.58 |
| | $ | 0.52 |
| | $ | 0.31 |
|
Diluted | $ | 0.58 |
| | $ | 0.52 |
| | $ | 0.31 |
|
| |
(1) | Includes earned ESOP shares. |
STERLING BANCORP AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollars in thousands, except per share data)
| |
(2) | Represents incremental shares computed using the treasury stock method.
As of September 30, 2010, 2009 and 2008 there were 1,826,519, 1,934,637 and 1,155,653 stock options, respectively, that were considered anti-dilutive for these periods and were not included in common-equivalent shares.
(15)
|
As of September 30, 2013, 2012 and 2011 there were 1,786,608, 1,771,132 and 1,871,299 stock options, respectively, that were considered anti-dilutive and were not included in common-equivalent shares.
(14) Stockholders’ Equity
(a) Regulatory Capital Requirements
OTS regulations require banks to maintain a minimum ratio of tangible capital to total adjusted assets of 1.5%, a minimum ratio of Tier 1 (core) capital to total adjusted assets of 4.0%, and a minimum ratio of total (core and supplementary) capital to risk-weighted assets of 8.0%.
Under its prompt corrective action regulations, the OTS is required to take certain supervisory actions (and may take additional discretionary actions) with respect to an undercapitalized institution. Such actions could have a direct material effect on the institution’s financial statements.
The regulations establish a framework for the classification of banks into five categories: well capitalized; adequately capitalized; undercapitalized; significantly undercapitalized; and critically undercapitalized. Generally, an institution is considered well-capitalized if it has a Tier 1 (core) capital ratio of at least 5.0%, a Tier 1 risk-based capital ratio of at least 6.0%, and a total risk-based capital ratio of at least 10.0%.
The foregoing capital ratios are based, in part, on specific quantitative measures of assets, liabilities and certain off-balance-sheet items, as calculated under regulatory accounting practices. Capital amounts and classifications are also subject to qualitative judgments by the OTS about capital components, risk weightings and other factors. These capital requirements apply only to the Bank, and do not consider additional capital retained by Provident New York Bancorp.
Management believes that, as of September 30, 2010 and 2009 the Bank met all capital adequacy requirements to which it was subject. Further, the most recent OTS notification categorized the Bank as a well-capitalized institution under the prompt corrective action regulations. There have been no conditions or events since that notification that management believes have changed the Bank’s capital classification.
PROVIDENT NEW YORK BANCORP AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollars in thousands, except per share data)
The following is a summary of the Bank’s actual regulatory capital amounts and ratios at September 30, 2010 and 2009, compared to the OTS requirements for minimum capital adequacy and for classification as a well-capitalized institution. PMB is also subject to certain regulatory capital requirements, which it satisfied as of September 30, 2010 and 2009.
| | | | | | | | OTS requirements | |
| | | | | | | | Minimum capital | | | Classification as well | |
| | Bank actual | | | adequacy | | | capitalized | |
| | Amount | | | Ratio | | | Amount | | | Ratio | | | Amount | | | Ratio | |
September 30, 2010: | | | | | | | | | | | | | | | | | | |
Tangible Capital | | $ | 240,230 | | | | 8.4 | % | | $ | 42,734 | | | | 1.5 | % | | $ | - | | | | - | |
Tier 1 (core) capital | | | 240,230 | | | | 8.4 | | | | 113,958 | | | | 4.0 | | | | 142,447 | | | | 5.0 | % |
Risk-based capital: | | | | | | | | | | | | | | | | | | | | | | | | |
Tier 1 | | | 240,230 | | | | 12.1 | | | | - | | | | - | | | | 119,251 | | | | 6.0 | |
Total | | | 265,148 | | | | 13.3 | | | | 159,002 | | | | 8.0 | | | | 198,752 | | | | 10.0 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
September 30, 2009: | | | | | | | | | | | | | | | | | | | | | | | | |
Tangible Capital | | $ | 246,339 | | | | 8.6 | % | | $ | 42,784 | | | | 1.5 | % | | $ | - | | | | - | |
Tier 1 (core) capital | | | 246,339 | | | | 8.6 | | | | 114,090 | | | | 4.0 | | | | 142,613 | | | | 5.0 | % |
Risk-based capital: | | | | | | | | | | | | | | | | | | | | | | | | |
Tier 1 | | | 246,339 | | | | 12.6 | | | | - | | | | - | | | | 117,447 | | | | 6.0 | |
Total | | | 270,807 | | | | 13.8 | | | | 156,596 | | | | 8.0 | | | | 195,746 | | | | 10.0 | |
Tangible and Tier 1 capital amounts represent the stockholder’s equity of the Bank, less intangible assets and after-tax net unrealized gains (losses) on securities available for sale and any other disallowed assets, such as deferred income taxes. Total capital represents Tier 1 capital plus the allowance for loan losses up to a maximum amount equal to 1.25% of risk-weighted assets.
The following is a reconciliation of the Bank’s total stockholder’s equity under accounting principles generally accepted in the United States of America (“GAAP”) and its regulatory capital:
| | September 30, | |
| | 2010 | | | 2009 | |
Total GAAP stockholder's equity (Provident Bank) | | $ | 403,630 | | | $ | 408,555 | |
Goodwill and certain intangible assets | | | (158,127 | ) | | | (159,600 | ) |
Unrealized (gains) losses on securities available for sale included in other accumulated comprehensive income | | | (12,770 | ) | | | (9,641 | ) |
Other Comprehensive loss (income) | | | 7,497 | | | | 7,025 | |
Tangible, tier 1 core and Tier 1 risk-based capital | | | 240,230 | | | | 246,339 | |
Allowance for loan losses | | | 24,918 | | | | 24,468 | |
Total risk-based capital | | $ | 265,148 | | | $ | 270,807 | |
(b) Dividend Payments
Under OTS regulations, savings associations such as the Bank generally may declare annual cash dividends up to an amount equal to the sum of net income for the current calendar year and net income retained for the two preceding calendar years. Dividend payments in excess of this amount require OTS approval. After September 30, 2010 the amount that can be paid to Provident New York Bancorp by Provident Bank is $16.2 million plus earnings for the remainder of calendar year 2010. The Bank paid $29.4 million in dividends to Provident New York Bancorp during the fiscal year ended September 30, 2010 ($10.5 million during the year ended 2009 and $19 million during the year ended September 30, 2008).
PROVIDENT NEW YORK BANCORP AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollars in thousands, except per share data)
Unlike the Bank, Provident New York Bancorp is not subject to OTS regulatory limitations on the payment of dividends to its stockholders.
(c) Stock Repurchase Programs
The Company announced its fifth stock repurchase program on December 17, 2009, authorizing the repurchase of 2,000,000 shares, of which 1,234,167 remain to be purchased at September 30, 2010.
The total number of shares repurchased under repurchase programs during the fiscal year ended September 30, 2010, 2009, and 2008, was 1,515,923, 415,811, and 1,570,757, respectively at a total cost of $12.9 million, $3.5 million, and $19.8 million, respectively.
(d) Liquidation Rights
Upon completion of the second-step conversion in January 2004, the Bank established a special “liquidation account” in accordance with OTS regulations. The account was established for the benefit of Eligible Account Holders and Supplemental Eligible Account Holders (as defined in the plan of conversion) in an amount equal to the greater of (i) the Mutual Holding Company’s ownership interest in the retained earnings of Provident Federal as of the date of its latest balance sheet contained in the prospectus, or (ii) the retained earnings of the Bank at the time that the Bank reorganized into the Mutual Holding Company in 1999. Each Eligible Account Holder and Supplemental Eligible Account Holder that continues to maintain his or her deposit account at the Bank would be entitled, in the event of a complete liquidation o f the Bank, to a pro rata interest in the liquidation account prior to any payment to the stockholders of the Holding Company. The liquidation account is reduced annually on December 31 to the extent that Eligible Account Holders and Supplemental Eligible Account Holders have reduced their qualifying deposits as of each anniversary date. Subsequent increases in deposits do not restore such account holder’s interest in the liquidation account. The Bank may not pay cash dividends or make other capital distributions if the effect thereof would be to reduce its stockholder’s equity below the amount of the liquidation account.
PROVIDENT NEW YORK BANCORP AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollars in thousands, except per share data)
(16) Off-Balance-Sheet Financial Instruments
In the normal course of business, the Company is a party to off-balance-sheet financial instruments that involve, to varying degrees, elements of credit risk and interest rate risk in addition to the amounts recognized in the consolidated financial statements. The contractual or notional amounts of these instruments, which reflect the extent of the Company’s involvement in particular classes of off-balance-sheet financial instruments, are summarized as follows:
| | September 30, | |
| | 2010 | | | 2009 | |
Lending-related instruments: | | | | | | |
Loan origination commitments | | $ | 114,822 | | | $ | 133,547 | |
Unused lines of credit | | | 282,428 | | | | 302,455 | |
Letters of credit | | | 23,104 | | | | 24,569 | |
As of September 30, 2010 and September 30, 2009, 86%, and 94% respectively of lending related off balance sheet instruments were at variable rates.
The contractual amounts of loan origination commitments, unused lines of credit and letters of credit represent the Company’s maximum potential exposure to credit loss, assuming (i) the instruments are fully funded at a later date, (ii) the borrowers do not meet the contractual payment obligations, and (iii) any collateral or other security proves to be worthless. The contractual amounts of these instruments do not necessarily represent future cash requirements since certain of these instruments may expire without being funded and others may not be fully drawn upon. Substantially all of these lending-related instruments have been entered into with customers located in the Company’s primary market area described in Note 5 (“Loans”).
Loan origination commitments are legally-binding agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments have fixed expiration dates (generally ranging up to 60 days) or other termination clauses, and may require payment of a fee by the customer. The Company evaluates each customer’s credit worthiness on a case-by-case basis. The amount of collateral, if any, obtained by the Company upon extension of credit, is based on management’s credit evaluation of the borrower. Collateral varies but may include mortgages on residential and commercial real estate, deposit accounts with the Company, and other property. The Company’s loan origination commitments at September 30, 2010 provide for interest rates ranging principally from 2.19% to 7.75%.
Unused lines of credit are legally-binding agreements to lend to a customer as long as there is no violation of any condition established in the contract. Lines of credit generally have fixed expiration dates or other termination clauses. The amount of collateral obtained, if deemed necessary by the Company, is based on management’s credit evaluation of the borrower.
Letters of credit are commitments issued by the Company on behalf of its customer in favor of a beneficiary that specify an amount the Company can be called upon to pay upon the beneficiary’s compliance with the terms of the letter of credit. These commitments are nearly all standby letters of credit and are primarily issued in favor of local municipalities to support the obligor’s completion of real estate development projects. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loan facilities to customers.
As of September 30, 2010, the Company had $23,104 in outstanding letters of credit, of which $10,276 were secured by collateral.
PROVIDENT NEW YORK BANCORP AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollars in thousands, except per share data)
(17) Commitments and Contingencies
Certain premises and equipment are leased under operating leases with terms expiring through 2033. The Company has the option to renew certain of these leases for additional terms. Future minimum rental payments due under non-cancelable operating leases with initial or remaining terms of more than one year at September 30, 2010 were as follows (for fiscal years ending September 30th):
2011 | | $ | 2,537 | |
2012 | | | 2,483 | |
2013 | | | 2,332 | |
2014 | | | 2,118 | |
2015 | | | 1,983 | |
2016 and thereafter | | | 16,729 | |
| | $ | 28,182 | |
Occupancy and office operations expense include net rent expense of $2,802, $2,726, and $2,398, for the years ended September 30, 2010, 2009 and 2008, respectively.
The Company is a defendant in certain claims and legal actions arising in the ordinary course of business. Management, after consultation with legal counsel, does not anticipate losses on any of these claims or actions that would have a material adverse effect on the consolidated financial statements.
PROVIDENT NEW YORK BANCORP AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollars in thousands, except per share data)
(18) Fair value measurements
Effective October 1, 2008, the Company adopted provisions of FASB Codification Topic 820: Fair Value Measurements and Disclosure. This topic establishes a hierarchy for valuation inputs that gives the highest priority to quoted prices in active markets for identical assets or liabilities and the lowest priority to unobservable inputs. The fair values hierarchy is as follows:
LEVEL 1 – Valuation is based on quoted prices in active markets for identical assets and liabilities.
LEVEL 2 – Valuation is determined from quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar instruments in markets that are not active or by model-based techniques in which all significant inputs are observable in the market.
LEVEL 3 – Valuation is derived from model-based techniques in which at least one significant input is unobservable and based on the Company’s own estimates about the assumptions that the market participants would use to value the asset or liability.
When available, the Company attempts to use quoted market prices in active markets to determine fair value and classifies such items as Level 1 or Level 2. If quoted market prices in active markets are not available, fair value is often determined using model-based techniques incorporating various assumptions including interest rates, prepayment speeds and credit losses. Assets and liabilities valued using model-based techniques are classified as either Level 2 or Level 3, depending on the lowest level classification of an input that is considered significant to the overall valuation.
The following is a description of the valuation methodologies used for the Company’s assets and liabilities that are measured on a recurring basis at estimated fair value.
Investment securities available for sale
The majority of the Company’s available for sale investment securities have been valued by reference to prices for similar securities or through model-based techniques in which all significant inputs are observable and, therefore, such valuations have been classified as Level 2. Certain investments are actively traded and therefore have been classified as Level 1 valuations (U.S. Treasuries and certain government sponsored agencies).
The Company utilizes an outside vendor to obtain valuations for its traded securities as well as information received from a third party investment advisor. The majority of the Company’s available for sale investment securities (mortgage backed securities issued by US government corporations and government sponsored entities) have been valued by reference to prices for similar securities or through model-based techniques in which all significant inputs are observable (Level 2). The Company utilizes prices from a leading provider of market data information and compares them to dealer indicative bids from the Company’s external investment advisor. For securities where there is limited trading activity (private label CMO’s) and less observable valuation inputs, the Company has classified such valuations as Level 3.
The Company reviewed the volume and level of activity for its available for sale securities to identify transactions which may not be orderly or reflective of significant activity and volume. Although estimated prices were generally obtained for such securities, there has been a decline in the volume and level of activity in the market for its private label mortgage backed securities. The market assumptions regarding credit adjusted cash flows and liquidity influences on discount rates were difficult to observe at the individual bond level. Because of the inactivity in the markets and the lack of observable valuation inputs the Company has classified the valuation of privately issued residential mortgage backed securities as Level 3 as of April 1, 2009 with at a fair value of $9,534. As of Se ptember 30, 2010, these securities have an amortized cost of $6,355 and a fair value of $5,996. In determining the fair value of these securities the Company utilized unobservable inputs which reflect assumptions regarding the inputs that market participants would use in pricing these securities in an orderly market. Present value estimated cash flow models were used discounted at a rate that was reflective of similarly structured securities in an orderly market. The resultant prices were averaged with prices obtained from two independent third parties to arrive at the fair value as of September 30, 2010. These securities have a weighted average coupon rate of 3.22%, a weighted average life of 4.18 years, a weighted average 1 month prepayment history of 8.17 years and a weighted average twelve month default rate of 2.91 CDR. One of the four securities is below investment grade and has an amortized cost of $2,308 and a fair value of $2,044 at September 30, 2010. The remaining three securities are rated at or above Aa3.
PROVIDENT NEW YORK BANCORP AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollars in thousands, except per share data)
Derivatives
The fair values of derivatives are based on valuation models using observable market data as of the measurement date (Level 2).
Commitments to sell real estate loans
The Company enters into various commitments to sell real estate loans into the secondary market. Such commitments are considered to be derivative financial instruments and, therefore are carried at estimated fair value on the consolidated balance sheets. The estimated fair values of these commitments were generally calculated by reference to quoted prices in secondary markets for commitments to sell to certain government sponsored agencies. The fair values of these commitments generally result in a Level 2 classification. The fair values of these commitments are not considered material.
A summary of assets and liabilities at September 30, 2010 measured at estimated fair value on a recurring basis were as follows:
| | Fair Value Measurements at September 30, 2010 | | | Level 1 | | | Level 2 | | | Level 3 | |
Investment securities available for sale: | | | | | | | | | | | | |
U.S. Treasury and federal agencies | | $ | 418,312 | | | $ | 418,312 | | | $ | - | | | $ | - | |
Obligations of states and political subdivisions | | | 191,657 | | | | - | | | | 191,657 | | | | - | |
Government issued or guaranteed mortgage-backed securities | | | 253,618 | | | | - | | | | 253,618 | | | | - | |
Privately issued collateralized mortgage obligation | | | 5,996 | | | | - | | | | - | | | | 5,996 | |
Corporate debt securities | | | 30,540 | | | | - | | | | 30,540 | | | | - | |
Equities | | | 889 | | | | - | | | | 889 | | | | - | |
Total investment securities available for sale | | | 901,012 | | | | 418,312 | | | | 476,704 | | | | 5,996 | |
| | | | | | | | | | | | | | | | |
Other assets 1 | | | 435 | | | | - | | | | 435 | | | | - | |
| | | | | | | | | | | | | | | | |
Total assets | | $ | 901,447 | | | $ | 418,312 | | | $ | 477,139 | | | $ | 5,996 | |
| | | | | | | | | | | | | | | | |
Other liabilities2 | | $ | 173 | | | $ | - | | | $ | 173 | | | $ | - | |
| | | | | | | | | | | | | | | | |
Total Liabilities | | $ | 173 | | | $ | - | | | $ | 173 | | | $ | - | |
1 | Interest rate caps and swaps |
(a) Regulatory CapitalOCC regulations require banks to maintain a minimum ratio of tangible capital to total adjusted assets of 1.5%, a minimum ratio of Tier 1 (core) capital to total adjusted assets of 4.0%, and a minimum ratio of total (core and supplementary) capital to risk-weighted assets of 8.0%. The Bank met these capital requirements as of September 30, 2013.
In connection with the Merger, the Company became a bank holding company and a financial holding company as defined by the Bank Holding Company Act of 1956, as amended. Effective the quarter ending December 31, 2013, Sterling Bancorp is subject to capital ratio requirements including: Tier 1 leverage capital to average assets, tier 1 leverage capital to risk-weighted assets, and total capital to risk-weighted assets.
Under its prompt corrective action regulations, the OCC is required to take certain supervisory actions (and may take additional discretionary actions) with respect to an undercapitalized institution. Such actions could have a direct material effect on the institution’s financial statements.
The regulations establish a framework for the classification of banks into five categories: well-capitalized; adequately capitalized; undercapitalized; significantly undercapitalized; and critically undercapitalized. Generally, an institution is considered well-capitalized if it has a Tier 1 (core) capital to total adjusted assets ratio of at least 5.0%, a Tier 1 risk-based capital ratio of at least 6.0%, and a total risk-based capital ratio of at least 10.0%.
The foregoing capital ratios are based, in part, on specific quantitative measures of assets, liabilities and certain off-balance-sheet items, as calculated under regulatory accounting practices. Capital amounts and classifications are also subject to qualitative judgments by the OCC about capital components, risk weightings and other factors. These capital requirements apply only to the Bank, and do not consider additional capital retained by Sterling Bancorp.
We believe that, as of September 30, 2013 and 2012 the Bank met all capital adequacy requirements to which it was subject. Further, the most recent OCC notification categorized the Bank as a well-capitalized institution under the prompt corrective action regulations. There have been no conditions or events since that notification that we believe have changed the Bank’s capital classification.
The following is a summary of the Bank’s actual regulatory capital amounts and ratios at September 30, 2013 and 2012, compared to the OCC requirements for minimum capital adequacy and for classification as a well-capitalized institution.
STERLING BANCORP AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollars in thousands, except per share data)
|
| | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | OCC requirements |
| | Bank actual | | Minimum capital adequacy | | Classification as well- capitalized |
|
| | Amount | | Ratio | | Amount | | Ratio | | Amount | | Ratio |
| September 30, 2013: | | | | | | | | | | | |
| Tier 1 leverage | $ | 363,274 |
| | 9.3 | % | | $ | 155,670 |
| | 4.0 | % | | $ | 194,587 |
| | 5.0 | % |
| Risk-based capital: | | | | | | | | | | | |
| Tier 1 | 363,274 |
| | 13.2 |
| | — |
| | — |
| | 165,352 |
| | 6.0 |
|
| Total | 392,376 |
| | 14.2 |
| | 220,469 |
| | 8.0 |
| | 275,587 |
| | 10.0 |
|
| September 30, 2012: | | | | | | | | | | | |
| Tier 1 leverage | $ | 289,441 |
| | 7.5 | % | | $ | 153,469 |
| | 4.0 | % | | $ | 191,836 |
| | 5.0 | % |
| Risk-based capital: | | | | | | | | | | | |
| Tier 1 | 289,441 |
| | 12.1 |
| | — |
| | — |
| | 143,085 |
| | 6.0 |
|
| Total | 317,929 |
| | 13.3 |
| | 190,780 |
| | 8.0 |
| | 238,475 |
| | 10.0 |
|
Tangible and Tier 1 capital amounts represent the stockholder’s equity of the Bank, less intangible assets and after-tax net unrealized gains (losses) on securities available for sale and any other disallowed assets, such as deferred income taxes. Total capital represents Tier 1 capital plus the allowance for loan losses up to a maximum amount equal to 1.3% of risk-weighted assets.
The following is a reconciliation of the Bank’s total stockholder’s equity under accounting principles generally accepted in the United States of America (“GAAP”) and its regulatory capital:
|
| | | | | | | |
| September 30, |
| 2013 | | 2012 |
Total GAAP stockholder’s equity (Sterling National Bank) | $ | 516,281 |
| | $ | 466,037 |
|
Goodwill and certain intangible assets | (168,122 | ) | | (169,525 | ) |
Unrealized losses (gains) on securities available for sale included in other accumulated comprehensive income (loss) | 11,455 |
| | (15,077 | ) |
Disallowed servicing asset | (198 | ) | | (162 | ) |
Other comprehensive loss | 3,858 |
| | 8,168 |
|
Tier 1 risk-based capital | 363,274 |
| | 289,441 |
|
Allowance for loan losses and off-balance sheet commitments | 29,102 |
| | 28,488 |
|
Total risk-based capital | $ | 392,376 |
| | $ | 317,929 |
|
(b) Dividend Payments
OCC regulations limit the amount of cash dividends that can be made by the Bank to the Company. Furthermore, because the Bank is a subsidiary of a holding company, it must file a notice with the Federal Reserve at least 30 days before the Bank’s Board of Directors declares a dividend. This notice may be disapproved if the Federal Reserve finds that:
the Bank would be undercapitalized or worse following the dividend;
the proposed dividend raises safety and soundness concerns; or
the dividend would violate a prohibition contained in any statute, regulation, enforcement action, or agreement with or condition imposed by an appropriate federal banking agency.
Under OCC regulations, the Bank generally may declare annual cash dividends up to an amount equal to the sum of net income for the current calendar year and net income retained for the two preceding calendar years. Dividend payments in excess of this amount require OCC approval. After September 30, 2013 the amount that can be paid to Sterling Bancorp by Sterling National Bank is $35.8 million plus earnings for the remainder of calendar year 2013. The Bank did not pay dividends to Sterling Bancorp during the fiscal year ended September 30, 2013. The Bank paid dividends to Sterling Bancorp of $6.0 million during the fiscal year ended 2012 and $10.0 million during the fiscal year ended September 30, 2011.
STERLING BANCORP AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollars in thousands, except per share data)
The Company has 776,713 shares that are available to be purchased under an announced stock repurchase program. There were no shares repurchased under the repurchase programs during the fiscal year ended September 30, 2013 and 2012 . The total number of shares repurchased under repurchase programs during fiscal2011 was 457,454 at a total cost of $3.8 million.
(c) Liquidation Rights
Upon completion of the second-step conversion in January 2004, the Bank established a special “liquidation account” in accordance with OCC regulations. The account was established for the benefit of Eligible Account Holders and Supplemental Eligible Account Holders (as defined in the plan of conversion) in an amount equal to the greater of (i) the Mutual Holding Company’s ownership interest in the retained earnings of the Bank as of the date of its latest balance sheet contained in the prospectus, or (ii) the retained earnings of the Bank at the time that the Bank reorganized into the Mutual Holding Company in 1999. Each Eligible Account Holder and Supplemental Eligible Account Holder that continues to maintain his or her deposit account at the Bank would be entitled, in the event of a complete liquidation of the Bank, to a pro rata interest in the liquidation account prior to any payment to the stockholders of the Holding Company. The liquidation account is reduced annually on September 30 to the extent that Eligible Account Holders and Supplemental Eligible Account Holders have reduced their qualifying deposits as of each anniversary date. At September 30, 2013 the liquidation account had a balance of $13.3 million. Subsequent increases in deposits do not restore such account holder’s interest in the liquidation account. The Bank may not pay cash dividends or make other capital distributions if the effect thereof would be to reduce its stockholder’s equity below the amount of the liquidation account.
(15) Off-Balance-Sheet Financial Instruments
In the normal course of business, the Company enters into various transactions, which in accordance with generally accepted accounting principles are not included in its consolidated balance sheet. The Company enters into these transactions to meet the financing needs of its customers. These transactions include commitments to extend credit and standby letters of credit, which involve, to varying degrees, elements of credit risk and interest rate risk in excess of the amounts recognized in the consolidated balance sheets. The Company minimizes its exposure to loss under these commitments by subjecting them to credit approval and monitoring procedures.
The Company enters into contractual commitments to extend credit, normally with fixed expiration dates or termination clauses, at specified rates and for specific purposes. Substantially all of the Company’s commitments to extend credit are contingent upon customers maintaining specific credit standards at the time of loan funding. Standby letters of credit are written conditional commitments issued by the Company to guarantee the performance of a customer to a third party. In the event the customer does not perform in accordance with the terms of the agreement with the third party, the Company would be required to fund the commitment. The maximum potential amount of future payments the Company could be required to make is represented by the contractual amount of the commitment. If the commitment were funded, the Company would be entitled to seek recovery from the customer. Based on the Company’s credit-risk exposure assessment of standby letter of credit arrangements, the arrangements contain security and debt covenants similar to those contained in loan agreements. As of September 30, 2013, the Company had $35,052 in outstanding letters of credit, of which $17,159 were secured by collateral.
The contractual or notional amounts of these instruments, which reflect the extent of the Company’s involvement in particular classes of off-balance sheet financial instruments, are summarized as follows:
|
| | | | | | | |
| September 30, |
| 2013 | | 2012 |
Loan origination commitments | $ | 171,032 |
| | $ | 125,729 |
|
Unused lines of credit | 207,201 |
| | 265,940 |
|
Letters of credit | 35,052 |
| | 26,441 |
|
STERLING BANCORP AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollars in thousands, except per share data)
(16) Commitments and Contingencies
Certain premises and equipment are leased under operating leases with terms expiring through 2033. The Company has the option to renew certain of these leases for additional terms. Future minimum rental payments due under non-cancelable operating leases with initial or remaining terms of more than one year at September 30, 2013 were as follows:
|
| | | |
2014 | $ | 3,458 |
|
2015 | 3,220 |
|
2016 | 3,131 |
|
2017 | 3,152 |
|
2018 | 3,118 |
|
2019 and thereafter | 16,083 |
|
| $ | 32,162 |
|
Occupancy and office operations expense includes net rent expense of $3,340, $2,952 and $2,845 for the years ended September 30, 2013, 2012 and 2011, respectively.
Litigation
The Company and the Bank are involved in a number of judicial proceedings concerning matters arising from conducting their business activities. These include routine legal proceedings arising in the ordinary course of business. These proceedings also include actions brought against the Company and the Bank with respect to corporate matters and transactions in which the Company and the Bank were involved. In addition, the Company and the Bank may be requested to provide information or otherwise cooperate with government authorities in the conduct of investigations of other persons or industry groups.
There can be no assurance as to the ultimate outcome of a legal proceeding; however, the Company and the Bank have generally denied, or believe they have meritorious defenses and will deny, liability in all significant litigation pending against us, including the matters described below, and we intend to defend vigorously each case, other than matters we describe as having settled. We accrue a liability for legal claims when payments associated with the claims become probable and the costs can be reasonably estimated. The actual costs of resolving legal claims may be substantially higher or lower than the amounts accrued for those claims.
Between April 9, 2013 and June 5, 2013, eight actions were filed on behalf of a putative class of Legacy Sterling shareholders against Legacy Sterling, its current directors, and Provident New York Bancorp in connection with the Merger described in Note 22. Subsequent Events. The first seven of the actions were filed in the Supreme Court of the State of New York, New York County; the eighth action was filed in the United States District Court for the Southern District of New York. On May 17, 2013, the seven state court actions were consolidated under the caption In re Sterling Shareholders Litigation, Index No. 651263/2013 (Sup. Ct., N.Y. Cnty.). On June 21, 2013, the lead plaintiffs in the consolidated state court action filed an amended class action complaint alleging that Legacy Sterling’s board of directors breached its fiduciary duties by agreeing to the proposed merger transaction and by failing to disclose all material information to shareholders. The consolidated and amended complaint also alleges that Provident New York Bancorp has aided and abetted those alleged fiduciary breaches. The consolidated state court action seeks, among other things, an order enjoining the defendants from proceeding with or consummating the merger, as well as other equitable relief and/or money damages in the event that the transaction is consummated. The federal action, captioned Miller v. Sterling Bancorp, et al., No. 13 CV 3845 (S.D.N.Y.), alleges the same breach of fiduciary duty and aiding and abetting claims against defendants, and also alleges defendants’ preliminary proxy statement was inaccurate or incomplete in violation of Sections 14(a) and 20(a) of the Securities Exchange Act of 1934. The plaintiff in the federal action agreed to coordinate his case with the earlier-filed consolidated state court action.
On September 12, 2013, following certain coordinated discovery and negotiations among counsel, the parties to these actions entered into a memorandum of understanding regarding a settlement in principle of this litigation. Although Legacy Sterling and Provident New York Bancorp believed that the disclosures concerning the proposed merger were accurate and complete in all material respects, to avoid the risk that the lawsuits could delay or otherwise adversely affect the consummation of the proposed merger and to minimize the expense and burden of defending such actions, the defendants agreed to make certain supplemental disclosures, which were set forth in a Form 8-K Current Report filed by Legacy Sterling with the U.S. Securities and Exchange Commission on September 12, 2013. The proposed settlement is subject to, among other things, certain confirmatory discovery
STERLING BANCORP AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollars in thousands, except per share data)
and approval of the New York State Supreme Court. Under the terms of the proposed settlement, following final approval by the court, each of the state and federal actions will be dismissed with prejudice.
(17) Fair value measurements
Fair value is the exchange price that would be received for an asset or paid to transfer a liability (exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. There are three levels of inputs that may be used to measure fair values.
Level 1 Inputs – Unadjusted quoted prices in active markets for identical assets and liabilities that the reporting entity has the ability to access at the measurement date.
Level 2 Inputs – Inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly. These might include quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable for the asset or liability (such as interest rates, volatilities, prepayment speeds, credit risk etc.) or inputs that are derived principally from or corroborated by market data by correlation or other means.
Level 3 Inputs – Unobservable inputs for determining the fair values of assets or liabilities that reflect an entity’s own assumptions about the assumptions that market participants would use in pricing the assets or liabilities.
In general, fair value is based on quoted market prices, when available. If quoted market prices in active markets are not available, fair value is based on internally developed models that primarily use, as inputs, observable market-based parameters. Valuation adjustments may be made to ensure that financial instruments are recorded at fair value. These adjustments may include amounts to reflect counterparty credit quality and the Company’s creditworthiness, among other things, as well as unobservable parameters. Any such valuation adjustments are applied consistently over time. The Company’s valuation methodologies may produce a fair value calculation that may not be indicative of net realizable value or reflective of future fair values. While management believes the Company’s valuation methodologies are appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different estimate of fair value at the reporting date. Furthermore, the reported fair value amounts have not been comprehensively revalued since the presentation dates, and therefore, estimates of fair value after the balance sheet date may differ significantly from the amounts presented herein. A more detailed description of the valuation methodologies used for assets and liabilities measured at fair value is set forth below. Transfers between levels of the fair value hierarchy are recognized on the actual date of the event or circumstances that caused the transfer, which generally coincides with the Company’s monthly and/or quarterly valuation process.
Investment Securities Available for Sale
The majority of the Company’s available for sale investment securities are reported at fair value utilizing Level 2 inputs. For these securities, the Company obtains fair value measurements from an independent pricing service. The fair value measurements consider observable data that may include dealer quotes, market spreads, cash flows, the U.S. Treasury yield curve, live trading levels, trade execution data, market consensus prepayment speeds, credit information and the securities’ terms and conditions, among other things.
The Company reviews the prices supplied by the independent pricing service, as well as their underlying pricing methodologies, for reasonableness and to ensure such prices are aligned with traditional pricing matrices. In general, the Company does not purchase investment securities that have a complicated structure. The Company’s entire portfolio consists of traditional investments, nearly all of which are mortgage pass-through securities, state and municipal general obligation or revenue bonds, U.S. agency bullet and callable securities and corporate bonds. Pricing for such instruments is fairly generic and is easily obtained. From time to time, the Company validates, on a sample basis, prices supplied by the independent pricing service by comparison to prices obtained from third-party sources or derived using internal models.
The Company reports the fair value of private label collateralized mortgage obligations or “CMOs” with a rating from a national recognized bond rating agency of below investment grade using Level 3 inputs. As of September 30, 2013, these securities have an amortized cost of $3,636 and a fair value of $3,613. In determining the fair value of these securities the Company utilized unobservable inputs which reflect assumptions regarding the inputs that management believes market participants would use in pricing these securities in an orderly market. Significant increases (decreases) in any of the unobservable inputs would result in a
STERLING BANCORP AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollars in thousands, except per share data)
significantly lower (higher) fair value measurement of the securities. Present value estimated cash flow models were used to discount expected cash flows at the interest rate reflective of similarly structured securities in an orderly market. These securities have a weighted average coupon rate of 3.12%, a weighted average life of 3.49 years, and a weighted average twelve month constant prepayment rate history of 20.39 years.The two private label CMOs with sub-investment grade ratings have a weighted average twelve month constant default rate of 4.30%. There was $14 of OTTI recognized on these securities during the year ended September 30, 2013.
The credit ratings of these securities were as follows at September 30, 2013:
|
| | | | | | | |
| Amortized cost | | Fair value |
Baa1 | $ | 246 |
| | $ | 248 |
|
Ba1 | 102 |
| | 101 |
|
B1 | 1,931 |
| | 1,919 |
|
B3 | 1,357 |
| | 1,345 |
|
Total private label CMOs | $ | 3,636 |
| | $ | 3,613 |
|
Derivatives
The fair values of derivatives are based on valuation models using current market terms (including interest rates and fees), the remaining terms of the agreements and the credit worthiness of the counter-party as of the measurement date (Level 2). The Company’s derivatives consist of two interest rate caps and twelve interest rate swaps. See Note 9. Derivatives.
Commitments to Sell Real Estate Loans
The Company enters into various commitments to sell real estate loans in the secondary market. Such commitments are considered to be derivative financial instruments and therefore are carried at estimated fair value on the consolidated balance sheets. The estimated fair values of these commitments were generally calculated by reference to quoted prices in secondary markets for commitments to sell to certain government sponsored agencies. The fair values of these commitments generally result in a Level 2 classification. The fair value of these commitments is not material.
A summary of assets and liabilities at September 30, 2013 measured at estimated fair value on a recurring basis is as follows:
|
| | | | | | | | | | | | | | | |
| September 30, 2013 |
| Fair value | | Level 1 inputs | | Level 2 inputs | | Level 3 inputs |
Available for sale securities: | | | | | | | |
Residential mortgage-backed securities: | | | | | | | |
Fannie Mae | $ | 211,438 |
| | $ | — |
| | $ | 211,438 |
| | $ | — |
|
Freddie Mac | 67,629 |
| | — |
| | 67,629 |
| | — |
|
Ginnie Mae | 3,462 |
| | — |
| | 3,462 |
| | — |
|
CMO/Other MBS | 163,041 |
| | — |
| | 163,041 |
| | — |
|
Privately issued CMOs | 3,613 |
| | — |
| | — |
| | 3,613 |
|
Total residential mortgage-backed securities | 449,183 |
| | — |
| | 445,570 |
| | 3,613 |
|
Federal agencies | 261,547 |
| | — |
| | 261,547 |
| | — |
|
Corporate bonds | 114,933 |
| | — |
| | 114,933 |
| | — |
|
State and municipal | 128,730 |
| | — |
| | 128,730 |
| | — |
|
Total available for sale securities | 954,393 |
| | — |
| | 950,780 |
| | 3,613 |
|
Interest rate caps and swaps | 997 |
| | — |
| | 997 |
| | — |
|
Total assets | $ | 955,390 |
| | $ | — |
| | $ | 951,777 |
| | $ | 3,613 |
|
Swaps | $ | 997 |
| | $ | — |
| | $ | 997 |
| | $ | — |
|
Total liabilities | $ | 997 |
| | $ | — |
| | $ | 997 |
| | $ | — |
|
STERLING BANCORP AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollars in thousands, except per share data)
A summary of assets and liabilities at September 30, 2012 measured at estimated fair value on a recurring basis is the follows:
|
| | | | | | | | | | | | | | | |
| September 30, 2012 |
| Fair value | | Level 1 inputs | | Level 2 inputs | | Level 3 inputs |
Available for sale securities: | | | | | | | |
Residential mortgage-backed securities: | | | | | | | |
Fannie Mae | $ | 161,407 |
| | $ | — |
| | $ | 161,407 |
| | $ | — |
|
Freddie Mac | 85,260 |
| | — |
| | 85,260 |
| | — |
|
Ginnie Mae | 4,778 |
| | — |
| | 4,778 |
| | — |
|
CMO/Other MBS | 188,434 |
| | — |
| | 188,434 |
| | — |
|
Privately issued CMOs | 4,630 |
| | — |
| | — |
| | 4,630 |
|
Total residential mortgage-backed securities | 444,509 |
| | — |
| | 439,879 |
| | 4,630 |
|
Federal agencies | 408,823 |
| | — |
| | 408,823 |
| | — |
|
State and municipal | 156,481 |
| | — |
| | 156,481 |
| | — |
|
Equities | 1,059 |
| | — |
| | 1,059 |
| | — |
|
Total available for sale securities | 1,010,872 |
| | — |
| | 1,006,242 |
| | 4,630 |
|
Interest rate caps and swaps | 2,487 |
| | — |
| | 2,487 |
| | — |
|
Total assets | $ | 1,013,359 |
| | $ | — |
| | $ | 1,008,729 |
| | $ | 4,630 |
|
Swaps | $ | 2,485 |
| | $ | — |
| | $ | 2,485 |
| | $ | — |
|
Total liabilities | $ | 2,485 |
| | $ | — |
| | $ | 2,485 |
| | $ | — |
|
The changes in Level 3 assets measured at fair value on a recurring basis are summarized below:
|
| | | |
| Change in Level 3 assets |
Balance at September 30, 2010 | $ | 5,996 |
|
Paydowns | (908 | ) |
Accretion, net | 1 |
|
OTTI | (75 | ) |
Change in fair value | (163 | ) |
Balance at September 30, 2011 | 4,851 |
|
Paydowns | (675 | ) |
Accretion, net | 15 |
|
OTTI | (47 | ) |
Change in fair value | 486 |
|
Balance at September 30, 2012 | 4,630 |
|
Paydowns | (1,018 | ) |
Accretion, net | 3 |
|
OTTI | (14 | ) |
Change in fair value | 12 |
|
Balance at September 30, 2013 | $ | 3,613 |
|
Changes in fair value are included as part of net unrealized holding gains (losses) on securities available for sale net of related tax expense on the Consolidated Statements of Comprehensive Income (Loss).
STERLING BANCORP AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollars in thousands, except per share data)
The following categories of financial assets are not measured at fair value on a recurring basis, but are subject to fair value adjustments in certain circumstances:
Loans Held for Sale and Impaired Loans
Mortgage loans originated and intended for sale in the secondary market are carried at the lower of aggregate cost or fair value as determined by outstanding commitments from investors. Fair value of loans held for sale is determined using quoted prices for similar assets (Level 2 inputs).
When mortgage loans held for sale are sold with servicing rights retained, the carrying value of mortgage loans sold is reduced by the amount allocated to the value of the servicing rights which is equal to its fair value. Gains and losses on sales of mortgage loans are based on the difference between the selling price and the carrying value of the related loan sold.
The Company may record adjustments to the carrying value of loans based on fair value measurements for partial charge-offs of the uncollectible portions of these loans. These adjustments also include certain impairment amounts for collateral dependent loans calculated in accordance with FASB ASC Topic 310 – Receivables, when establishing the allowance for loan losses. Impairment amounts are generally based on the fair value of the underlying collateral supporting the loan and, as a result, the carrying value of the loan less the calculated impairment amount applicable to that loan does not necessarily represent the fair value of the loan. Real estate collateral is valued using independent appraisals or other indications of value based on recent comparable sales of similar properties or assumptions generally observable by market participants. However, due to the substantial judgment applied and limited volume of activity as compared to other assets, fair value is based on Level 3 inputs. Estimates of fair value used for collateral supporting commercial loans generally are based on assumptions not observable in the market place and are also based on Level 3 inputs. Impaired loans are evaluated on at least a quarterly basis for additional impairment and their carrying values are adjusted as needed. Loans subject to non-recurring fair value measurements were $35,230 and $50,078 which equals the carrying value less the allowance for loan losses allocated to these loans at September 30, 2013 and 2012, respectively. Changes in fair value recognized in provisions on loans held by the Company were $2,726 and $5,088 for the twelve months ended September 30, 2013 and 2012, respectively.
When valuing impaired loans that are collateral dependent, the Company charges-off the difference between the recorded investment in the loan and the appraised value, which is generally less than 12 months old. A discount for estimated costs to dispose of the asset is used when evaluating the impaired loans. Nearly all of our impaired loans are considered collateral dependent.
A summary of impaired loans at September 30, 2013 measured at estimated fair value on a non-recurring basis is the following:
|
| | | | | | | | | | | | | | | |
| September 30, 2013 |
| Fair value | | Level 1 inputs | | Level 2 inputs | | Level 3 inputs |
Commercial real estate | $ | 3,672 |
| | $ | — |
| | $ | — |
| | $ | 3,672 |
|
Commercial & industrial | 500 |
| | — |
| | — |
| | 500 |
|
Acquisition, development and construction | 1,839 |
| | — |
| | — |
| | 1,839 |
|
Consumer | 2 |
| | — |
| | — |
| | 2 |
|
Total impaired loans measured at fair value | $ | 6,013 |
| | $ | — |
| | $ | — |
| | $ | 6,013 |
|
A summary of impaired loans at September 30, 2012 measured at estimated fair value on a non-recurring basis is the following:
|
| | | | | | | | | | | | | | | |
| September 30, 2012 |
| Fair value | | Level 1 inputs | | Level 2 inputs | | Level 3 inputs |
Residential mortgage | $ | 8,628 |
| | $ | — |
| | $ | — |
| | $ | 8,628 |
|
Commercial real estate | 6,537 |
| | — |
| | — |
| | 6,537 |
|
Commercial & industrial | 95 |
| | — |
| | — |
| | 95 |
|
Acquisition, development and construction | 8,232 |
| | — |
| | — |
| | 8,232 |
|
Consumer | 1,215 |
| | — |
| | — |
| | 1,215 |
|
Total impaired loans measured at fair value | $ | 24,707 |
| | $ | — |
| | $ | — |
| | $ | 24,707 |
|
STERLING BANCORP AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollars in thousands, except per share data)
Mortgage Servicing Rights
When mortgage loans are sold with servicing retained, servicing rights are initially recorded at fair value with the income statement effect recorded in net gain on sales of loans. Fair value is based on market prices for comparable mortgage servicing contracts, when available, or alternatively, is based on a valuation model that calculates the present value of estimated future net servicing income.
The Company utilizes the amortization method to subsequently measure the carrying value of its servicing rights. In accordance with FASB ASC Topic 860 - Transfers and Servicing, the Company must record impairment charges on a non-recurring basis, when the carrying value exceeds the estimated fair value. To estimate the fair value of servicing rights the Company utilizes a third-party, which on a quarterly basis, considers the market prices for similar assets and the present value of expected future cash flows associated with the servicing rights. Assumptions utilized include estimates of the cost of servicing, loan default rates, an appropriate discount rate and prepayment speeds. The determination of fair value of servicing rights relies upon Level 3 inputs. The fair value of mortgage servicing rights at September 30, 2013 and 2012 were $1,978 and $1,624, respectively.
Assets Taken in Foreclosure of Defaulted Loans
Assets taken in foreclosure of defaulted loans are initially recorded at fair value less costs to sell when acquired, which establishes a new cost basis. These assets are subsequently accounted for at the lower of cost or fair value less costs to sell and are primarily comprised of commercial and residential real estate property and upon initial recognition, were re-measured and reported at fair value through a charge-off to the allowance for loan losses based on the fair value of the foreclosed asset. The fair value is generally determined using appraisals or other indications of value based on recent comparable sales of similar properties or assumptions generally observable in the market place. Adjustments are routinely made in the appraisal process by the independent appraisers to adjust for differences between comparable sales and income data available. The fair value is derived using Level 3 inputs. Appraisals are reviewed by our credit department, our external loan review consultant and verified by officers in our credit administration area. Assets taken in foreclosure of defaulted loans subject to non-recurring fair value measurement were $6,022 and $6,403 at September 30, 2013 and 2012. There were write-downs of $1,083 and $1,098 related to changes in fair value recognized through income for those foreclosed assets held by the Company during the twelve months ending September 30, 2013 and 2012, respectively.
STERLING BANCORP AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollars in thousands, except per share data)
Significant Unobservable Inputs to Level 3 Measurements
The following table presents quantitative information about significant unobservable inputs used in the fair value measurements for Level 3 assets at September 30, 2013:
|
| | | | | | | | | | |
Non-recurring fair value measurements | | Fair value | | Valuation technique | | Unobservable input / assumptions | | Range (1) (weighted average) |
Impaired loans: | | | | | | | | |
Commercial real estate | | $ | 3,672 |
| | Appraisal | | Adjustments for comparable properties | | 15.0% - 36.0% (22.0%) |
Commercial & industrial | | 500 |
| | Appraisal | | Adjustments for comparable properties | | 10.0% -19.0% (14.4%) |
Acquisition, development & construction | | 1,839 |
| | Appraisal | | Adjustments for comparable properties | | 10.0% - 30.0% (13.5%) |
Consumer | | 2 |
| | Appraisal | | Adjustments for comparable properties | | 0 |
Assets taken in foreclosure: | | | | | | | | |
Residential mortgage | | 998 |
| | Appraisal | | Adjustments by management to reflect current conditions/selling costs | | 16.0% - 59.0% (21.6%) |
Commercial real estate | | 3,320 |
| | Appraisal | | Adjustments by management to reflect current conditions/selling costs | | 20.0% - 37.0% (24.8%) |
Acquisition, development & construction | | 1,704 |
| | Appraisal | | Adjustments by management to reflect current conditions/selling costs | | 25.0% - 70.0% (30.2%) |
Mortgage servicing rights | | 1,978 |
| | Third-party | | Discount rates | | 9.3% - 12.8% |
| | | | Third-party | | Prepayment speeds | | 100 - 968 (224) |
FASB Codification Topic 825: Financial Instruments, requires disclosure of the fair value of financial assets and financial liabilities, including those financial assets and financial liabilities that are not measured and reported at fair value on a recurring basis or non-recurring basis. The estimated fair value approximates carrying value for cash and cash equivalents and accrued interest receivable.
The following paragraphs summarize the principal methods and assumptions used by the Company to estimate the fair value of the Company’s financial instruments.
Loans
The estimated fair value approximates carrying value for variable-rate loans that reprice frequently and with no significant change in credit risk. The fair value of fixed-rate loans and variable-rate loans which reprice on an infrequent basis is estimated by discounting future cash flows using the current interest rates at which similar loans with similar terms would be made to borrowers of similar credit quality. An overall valuation adjustment is made for specific credit risks as well as general portfolio credit risk.
FHLB of New York Stock
The redeemable carrying amount of these securities with limited marketability approximates their fair value.
Deposits and Mortgage Escrow Funds
In accordance with FASB Codification Topic 825, deposits with no stated maturity (such as savings, demand and money market deposits) are assigned fair values equal to the carrying amounts payable on demand. Certificates of deposit and mortgage escrow funds are segregated by account type and original term, and fair values are estimated by discounting the contractual cash flows. The discount rate for each account grouping is equivalent to the current market rates for deposits of similar type and maturity.
These fair values do not include the value of core deposit relationships that comprise a significant portion of the Company’s deposits. We believe that the Company’s core deposit relationships provide a relatively stable, low-cost funding source that has a substantial value separate from the deposit balances.
STERLING BANCORP AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollars in thousands, except per share data)
Borrowings and Senior notes
The estimated fair value approximates carrying value for short-term borrowings. The fair value of long-term fixed-rate borrowings is estimated using quoted market prices, if available, or by discounting future cash flows using current interest rates for similar financial instruments.
Other Financial Instruments
Other financial assets and liabilities listed in the table below have estimated fair values that approximate the respective carrying amounts because the instruments are payable on demand or have short-term maturities and present relatively low credit risk and interest rate risk.
The fair values of the Company’s off-balance-sheet financial instruments described in Note 15. Off Balance Sheet Financial Instruments were estimated based on current market terms (including interest rates and fees), considering the remaining terms of the agreements and the credit worthiness of the counterparties. At September 30, 2013 and September 30, 2012, the estimated fair value of these instruments approximated the related carrying amounts, which were not material.
The following is a summary of the carrying amounts and estimated fair value of financial assets and liabilities (none of which were held for trading purposes) as of September 30, 2013:
|
| | | | | | | | | | | | | | | |
| September 30, 2013 |
| Carrying amount | |
Level 1 inputs | |
Level 2 inputs | |
Level 3 inputs |
Financial assets: | | | | | | | |
Cash and due from banks | $ | 113,090 |
| | $ | 113,090 |
| | $ | — |
| | $ | — |
|
Securities available for sale | 954,393 |
| | — |
| | 950,780 |
| | 3,613 |
|
Securities held to maturity | 253,999 |
| | — |
| | 250,896 |
| | — |
|
Loans, net | 2,384,021 |
| | — |
| | — |
| | 2,422,824 |
|
Loans held for sale | 1,011 |
| | — |
| | 1,011 |
| |
|
|
Accrued interest receivable on securities | 4,892 |
| | — |
| | 4,892 |
| | — |
|
Accrued interest receivable on loans | 6,805 |
| | — |
| | — |
| | 6,805 |
|
FHLB stock | 24,312 |
| | — |
| | — |
| | — |
|
Interest rate caps and swaps | 997 |
| | — |
| | 997 |
| | — |
|
Financial liabilities: | | | | | | | |
Non-maturity deposits | (2,694,166 | ) | | (2,694,166 | ) | | — |
| | — |
|
Certificates of deposit | (268,128 | ) | | — |
| | (268,088 | ) | | — |
|
FHLB and other borrowings | (462,953 | ) | | — |
| | (488,369 | ) | | — |
|
Senior notes | (98,033 | ) | | — |
| | (98,142 | ) | | — |
|
Mortgage escrow funds | (12,646 | ) | | — |
| | (12,644 | ) | | — |
|
Accrued interest payable on deposits | (1,480 | ) | | — |
| | (1,480 | ) | | — |
|
Accrued interest payable on borrowings | (1,525 | ) | |
|
| | (1,525 | ) | |
|
|
Interest rate caps and swaps | (997 | ) | | — |
| | (997 | ) | | — |
|
STERLING BANCORP AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollars in thousands, except per share data)
The following is a summary of the carrying amounts and estimated fair value of financial assets and liabilities (none of which were held for trading purposes) as of September 30, 2012:
|
| | | | | | | | | | | | | | | |
| September 30, 2012 |
| Carrying amount | |
Level 1 inputs | |
Level 2 inputs | |
Level 3 inputs |
Financial assets: | | | | | | | |
Cash and due from banks | $ | 437,982 |
| | $ | 437,982 |
| | $ | — |
| | $ | — |
|
Securities available for sale | 1,010,872 |
| | — |
| | 1,006,242 |
| | 4,630 |
|
Securities held to maturity | 142,376 |
| | — |
| | 146,324 |
| | — |
|
Loans, net | 2,091,190 |
| | — |
| | — |
| | 2,157,133 |
|
Loans held for sale | 7,505 |
| | — |
| | 7,505 |
| | — |
|
Accrued interest receivable on securities | 4,011 |
| | — |
| | 4,011 |
| | — |
|
Accrued interest receivable on loans | 6,502 |
| | — |
| | — |
| | 6,502 |
|
FHLB stock | 19,249 |
| | — |
| | — |
| | — |
|
Interest rate caps and swaps | 2,487 |
| | — |
| | 2,487 |
| | — |
|
Financial liabilities: | | | | | | | |
Non-maturity deposits | (2,723,669 | ) | | (2,723,669 | ) | | — |
| | — |
|
Certificates of deposit | (387,482 | ) | | — |
| | (389,031 | ) | | — |
|
FHLB and other borrowings | (345,176 | ) | | — |
| | (377,906 | ) | | — |
|
Mortgage escrow funds | (11,919 | ) | | — |
| | (11,917 | ) | | — |
|
Accrued interest payable on deposits | (500 | ) | | — |
| | (500 | ) | | — |
|
Accrued interest payable on borrowings | (1,442 | ) | |
|
| | (1,442 | ) | |
|
|
Interest rate caps and swaps | (2,485 | ) | | — |
| | (2,485 | ) | | — |
|
(18) Recently Issued Accounting Standards Not Yet Adopted
Accounting Standards Update (“ASU”) 2013-11 - Income Taxes (Topic 740) - Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists was issued. This standard provides that an unrecognized tax benefit, or a portion thereof, should be presented in the financial statements as a reduction to a deferred tax asset for a net operating loss carryforward, as similar tax loss, or a tax credit carryforward, except to the extent that a net operation loss carryforward, a similar tax loss, or a tax credit carryforward is not available at the reporting date to settle any additional income taxes that would result from disallowance of a tax position, or the tax law does not require the entity to use and the entity does not intend to use, the deferred tax asset for such purpose, then the unrecognized tax benefit should be presented as a liability. This standard is effective for the Company October 1, 2014 and is not expected to have a material effect on the Company’s consolidated financial statements.
ASU 2013-10 - Derivatives and Hedging (Topic 815) - Inclusion of the Fed Funds Effective Swap Rate (or Overnight Index Swap Rate) as a Benchmark Interest Rate for Hedge Accounting Purposes was issued. This standard permits the Fed Funds Effective Swap Rate to be used as a U.S. benchmark interest rate for hedge accounting purposes, in addition to U.S. Treasury and LIBOR. The standard also removes the restriction on using different benchmark rates for similar hedges. This standard was effective for the Company July 17, 2013 and did not have a material effect on the Company’s consolidated financial statements.
ASU 2013-03 - Liabilities (Topic 405) - Obligations Resulting from Joint and Several Liability Arrangements for Which the Total Amount of the Obligation is Fixed at the Reporting Date was issued. This standard provides guidance for the recognition, measurement, and disclosure of obligations resulting from joint and several liability arrangements for which the total amount of the obligation within the scope of this guidance (e.g. debt arrangements, other contractual obligations and settled litigation and judicial rulings) is fixed at the reporting date. This standard is effective for the Company October 1, 2014 and is not expected to have a material effect on the Company’s consolidated financial statements.
See Note 1. Basis of Financial Statement Presentation and Summary of Significant Accounting Policy for a discussion of the adoption of new accounting standards.
STERLING BANCORP AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollars in thousands, except per share data)
(19) Accumulated Other Comprehensive (Loss) Income
Activity in accumulated other comprehensive (loss) income (“AOCI”), net of tax, for the periods ended September 30, 2013, 2012 and 2011, was as follows:
|
| | | | | | | | | | | |
| Unrealized gains(losses) on securities | | Unrealized gains (losses) for pension and other post-retirement obligations | | Total |
Balance at September 30, 2010 | $ | 12,622 |
| | $ | (7,498 | ) | | $ | 5,124 |
|
Period change | 981 |
| | (969 | ) | | 12 |
|
Balance at September 30, 2011 | $ | 13,603 |
| | $ | (8,467 | ) | | $ | 5,136 |
|
| | | | | |
Balance at September 30, 2011 | $ | 13,603 |
| | $ | (8,467 | ) | | $ | 5,136 |
|
Period change | 1,463 |
| | 300 |
| | 1,763 |
|
Balance at September 30, 2012 | $ | 15,066 |
| | $ | (8,167 | ) | | $ | 6,899 |
|
| | | | | |
Balance at September 30, 2012 | $ | 15,066 |
| | $ | (8,167 | ) | | $ | 6,899 |
|
Other comprehensive loss before reclassifications | (22,167 | ) | | 3,041 |
| | (19,126 | ) |
Amounts reclassified from AOCI | (4,371 | ) | | 1,268 |
| | (3,103 | ) |
Period change | (26,538 | ) | | 4,309 |
| | (22,229 | ) |
Balance at September 30, 2013 | $ | (11,472 | ) | | $ | (3,858 | ) | | $ | (15,330 | ) |
The following table presents the reclassification adjustments from AOCI included in net income and the impacted line items on the income statement for the period ended September 30, 2013:
|
| | | | | | |
Components of AOCI | | Amount reclassified from AOCI and impact on net income (1) | | Affected income statement line item |
| | | | |
Unrealized gains (losses) on available for sale securities | | | | |
| | $ | 7,391 |
| | Non-interest income - net gain on sale of securities |
| | (32 | ) | | Non-interest income - net impairment loss in earnings |
| | 7,359 |
| | Net change before tax |
| | (2,988 | ) | | Tax expense |
| | $ | 4,371 |
| | Net change after tax |
| | | | |
Amortization of defined benefit pension items | | | | |
Actuarial loss | | $ | (2,135 | ) | | Non-interest expense - compensation and employee benefits (2) |
| | 867 |
| | Tax benefit |
| | $ | (1,268 | ) | | Net change after tax |
| | | | |
(1) Amounts in parentheses indicate a reduction from income.
(2)These accumulated other comprehensive (loss) income components are included in the computation of net periodic pension expense see Note 11. Pensions and Other Post Retirement Employee Benefit Plans and Stock-based Compensation Plans.
STERLING BANCORP AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollars in thousands, except per share data)
(20) Condensed Parent Company Financial Statements
Set forth below are the condensed balance sheets of Sterling Bancorp and the related condensed statements of income and cash flows:
|
| | | | | | | |
| September 30, |
| 2013 | | 2012 |
Assets: | | | |
Cash | $ | 56,230 |
| | $ | 6,716 |
|
Loan receivable from ESOP | 6,437 |
| | 6,896 |
|
Securities available for sale at fair value | — |
| | 809 |
|
Investment in Sterling National Bank | 517,907 |
| | 467,295 |
|
Investment in non-bank subsidiaries | 3,271 |
| | 5,482 |
|
Other assets | 1,184 |
| | 5,371 |
|
Total assets | $ | 585,029 |
| | $ | 492,569 |
|
| | | |
Liabilities: | | | |
Senior notes | $ | 98,033 |
| | $ | — |
|
Other liabilities | 4,130 |
| | 1,447 |
|
Total liabilities | 102,163 |
| | 1,447 |
|
Stockholders’ equity | 482,866 |
| | 491,122 |
|
Total liabilities & stockholders’ equity | $ | 585,029 |
| | $ | 492,569 |
|
| | | |
The table below presents the condensed statement of income:
|
| | | | | | | | | | | |
| Year ended September 30, |
| 2013 | | 2012 | | 2011 |
Interest income | $ | 262 |
| | $ | 282 |
| | $ | 304 |
|
Dividend income on equity securities | 22 |
| | 30 |
| | 31 |
|
Dividends from Sterling National Bank | — |
| | 6,000 |
| | 10,000 |
|
Dividends from non-bank subsidiaries | 1,600 |
| | 500 |
| | 500 |
|
Bank owned life insurance income | — |
| | 10 |
| | 91 |
|
Interest expense | (1,431 | ) | | — |
| | — |
|
Non-interest expense | (2,700 | ) | | (1,838 | ) | | (1,819 | ) |
Income tax benefit | 898 |
| | 87 |
| | 157 |
|
(Loss) income before equity in undistributed earnings of subsidiaries | (1,349 | ) | | 5,071 |
| | 9,264 |
|
Equity in undistributed (excess distributed) earnings of: | | | | | |
Sterling National Bank | 27,174 |
| | 13,739 |
| | 1,498 |
|
Non-bank subsidiaries | (571 | ) | | 1,078 |
| | 977 |
|
Net income | $ | 25,254 |
| | $ | 19,888 |
| | $ | 11,739 |
|
STERLING BANCORP AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollars in thousands, except per share data)
The table below presents the condensed statement of cash flows:
|
| | | | | | | | | | | |
| Year ended September 30, |
| 2013 | | 2012 | | 2011 |
Cash flows from operating activities: | | | | | |
Net income | $ | 25,254 |
| | $ | 19,888 |
| | $ | 11,739 |
|
Adjustments to reconcile net income to net cash provided by operating activities: | | | | | |
Equity in (undistributed) excess distributed earnings of: | | | | | |
Sterling National Bank | (27,174 | ) | | (13,739 | ) | | (1,498 | ) |
Non-bank subsidiaries | 571 |
| | (1,078 | ) | | (977 | ) |
Other adjustments, net | 5,259 |
| | 380 |
| | (1,444 | ) |
Net cash provided by operating activities | 3,910 |
| | 5,451 |
| | 7,820 |
|
Cash flows from investing activities: | | | | | |
Purchase of equity securities, available for sale | — |
| | (105 | ) | | — |
|
Sales of securities | 818 |
| | 103 |
| | — |
|
Investment in subsidiaries | (45,000 | ) | | (44,203 | ) | | — |
|
ESOP loan principal repayments | 459 |
| | 441 |
| | 424 |
|
Net cash (used for) provided by investing activities | (43,723 | ) | | (43,764 | ) | | 424 |
|
Cash flows from financing activities: | | | | | |
Treasury shares purchased | — |
| | — |
| | (3,810 | ) |
Senior notes offering | 97,946 |
| | — |
| | — |
|
Equity capital raise | — |
| | 46,000 |
| | — |
|
Cash dividends paid | (10,642 | ) | | (9,100 | ) | | (8,973 | ) |
Stock option transactions including RRP | 1,758 |
| | 910 |
| | 770 |
|
Other equity transactions | 265 |
| | 527 |
| | 441 |
|
Net cash provided by (used for) financing activities | 89,327 |
| | 38,337 |
| | (11,572 | ) |
Net increase (decrease) in cash | 49,514 |
| | 24 |
| | (3,328 | ) |
Cash at beginning of year | 6,716 |
| | 6,692 |
| | 10,020 |
|
Cash at end of year | $ | 56,230 |
| | $ | 6,716 |
| | $ | 6,692 |
|
STERLING BANCORP AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollars in thousands, except per share data)
(21) Quarterly Results of Operations (Unaudited)
The following is a condensed summary of quarterly results of operations for the fiscal years ended September 30, 2013 and 2012:
|
| | | | | | | | | | | | | | | |
| First quarter | | Second quarter | | Third quarter | | Fourth quarter |
Year Ended September 30, 2013: | | | | | | | |
Interest and dividend income | $ | 33,145 |
| | $ | 32,420 |
| | $ | 32,593 |
| | $ | 33,903 |
|
Interest expense | 5,222 |
| | 4,601 |
| | 4,276 |
| | 5,795 |
|
Net interest income | 27,923 |
| | 27,819 |
| | 28,317 |
| | 28,108 |
|
Provision for loan losses | 2,950 |
| | 2,600 |
| | 3,900 |
| | 2,700 |
|
Non-interest income | 7,659 |
| | 6,852 |
| | 6,581 |
| | 6,600 |
|
Non-interest expense | 22,546 |
| | 23,339 |
| | 21,789 |
| | 23,367 |
|
Income before income tax | 10,086 |
| | 8,732 |
| | 9,209 |
| | 8,641 |
|
Income tax expense | 3,066 |
| | 2,203 |
| | 2,833 |
| | 3,312 |
|
Net income | $ | 7,020 |
| | $ | 6,529 |
| | $ | 6,376 |
| | $ | 5,329 |
|
Earnings per common share: | | | | | | | |
Basic | $ | 0.16 |
| | $ | 0.15 |
| | $ | 0.15 |
| | $ | 0.12 |
|
Diluted | 0.16 |
| | 0.15 |
| | 0.15 |
| | 0.12 |
|
Year Ended September 30, 2012: | | | | | | | |
Interest and dividend income | $ | 28,168 |
| | $ | 28,411 |
| | $ | 28,345 |
| | $ | 30,113 |
|
Interest expense | 4,930 |
| | 4,506 |
| | 4,263 |
| | 4,874 |
|
Net interest income | 23,238 |
| | 23,905 |
| | 24,082 |
| | 25,239 |
|
Provision for loan losses | 1,950 |
| | 2,850 |
| | 2,312 |
| | 3,500 |
|
Non-interest income | 7,176 |
| | 7,971 |
| | 7,979 |
| | 9,026 |
|
Non-interest expense | 20,721 |
| | 21,290 |
| | 21,162 |
| | 28,784 |
|
Income before income tax | 7,743 |
| | 7,736 |
| | 8,587 |
| | 1,981 |
|
Income tax expense (benefit) | 2,026 |
| | 2,035 |
| | 2,378 |
| | (280 | ) |
Net income | $ | 5,717 |
| | $ | 5,701 |
| | $ | 6,209 |
| | $ | 2,261 |
|
Earnings per common share: | | | | | | | |
Basic | $ | 0.15 |
| | $ | 0.15 |
| | $ | 0.17 |
| | $ | 0.06 |
|
Diluted | 0.15 |
| | 0.15 |
| | 0.17 |
| | 0.06 |
|
(22) Subsequent Events (Unaudited)
On October 31, 2013, Provident New York Bancorp completed its acquisition of Sterling Bancorp (“Legacy Sterling”) through the merger of Legacy Sterling into Provident New York Bancorp. Provident New York Bancorp was the accounting acquirer and the surviving entity. Provident New York Bancorp changed its legal entity name to Sterling Bancorp and became a bank holding company and a financial holding company as defined by the Bank Holding Company Act of 1956, as amended. Sterling National Bank merged into Provident Bank and Provident Bank changed its legal entity name to Sterling National Bank and converted to a national bank charter. Consistent with our strategy of expanding in the greater New York metropolitan region, we believe the Merger creates a larger, more diversified company that will accelerate the build-out of our differentiated strategy targeting small-to-middle market commercial and consumer clients.
The Merger was a stock-for-stock transaction valued at $457.8 million based on the closing price of Provident New York Bancorp common stock on October 31, 2013. Legacy Sterling shareholders received a fixed ratio of 1.2625 shares of Provident New York Bancorp stock for each of the 30,937,004 shares of Legacy Sterling common stock that were outstanding. The Company’s stockholders authorized an increase in the number of common shares from 75 million to 200 million. The Company issued 39,057,968 shares of common stock in the Merger; post-Merger, total shares outstanding were 83,868,972. Legacy Provident
STERLING BANCORP AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollars in thousands, except per share data)
shareholders own approximately 53% of stock in the combined company and Legacy Sterling shareholders own approximately 47%.
On a pro forma combined basis, for the twelve months ended September 30, 2012, the companies had revenue of $253 million and $33 million in net income. The combined company is expected to have approximately $6.7 billion in total assets.
The Company has engaged an independent third-party to assist management in estimating the fair value of the majority of the assets acquired and liabilities assumed. The Company will file a Current Report on Form 8-K (or an amendment to a prior report) no later than January 15, 2014 that will include historical and pro forma information regarding Legacy Sterling and Sterling required in connection with the Merger.
PROVIDENT NEW YORK BANCORP AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollars in thousands, except per share data)
A summary of assets and liabilities at September 30, 2009 measured at estimated fair value on a recurring basis were as follows:
| | Fair Value Measurements at September 30, 2009 | | | Level 1 | | | Level 2 | | | Level 3 | |
Investment securities available for sale: | | | | | | | | | | | | |
U.S. Treasury and federal agencies | | $ | 207,776 | | | $ | 207,776 | | | $ | - | | | $ | - | |
Obligations of states and political subdivisions | | | 167,584 | | | | - | | | | 167,584 | | | | - | |
Government issued or guaranteed mortgage-backed securities | | | 420,104 | | | | - | | | | 420,104 | | | | - | |
Privately issued collateralized mortgage obligation | | | 10,411 | | | | - | | | | - | | | | 10,411 | |
Corporate debt securities | | | 25,823 | | | | - | | | | 25,823 | | | | - | |
Equities | | | 885 | | | | - | | | | 885 | | | | - | |
Total investment securities available for sale | | | 832,583 | | | | 207,776 | | | | 614,396 | | | | 10,411 | |
The changes in Level 3 assets measured at fair value on a recurring basis are summarized as follows for the period ending September 30, 2010:
| | Privately issued CMOS | |
Balance at September 30, 2009 | | $ | 10,411 | |
Pay downs | | | (1,946 | ) |
(Amortization) and accretion | | | 49 | |
Change in fair value | | | 380 | |
Loss recognized on Sale | | | (186 | ) |
Sale | | | (2,712 | ) |
Balance at September 30, 2010 | | $ | 5,996 | |
The following categories of financial assets, are not measured at fair value on a recurring basis, but are subject to fair value adjustments in certain circumstances:
Loans and Loans Held for Sale
Loans held for sale are not generally recorded at fair value on a recurring basis.
The Company may record nonrecurring adjustments to the carrying value of loans based on fair value measurements for partial charge-offs of the uncollectible portions of these loans. Nonrecurring adjustments also include certain impairment amounts for collateral dependant loans calculated in accordance with FASB ASC Topic 310 – Receivables, when establishing the allowance for credit losses. Such amounts are generally based on the fair value of the underlying collateral supporting the loan and, as a result, the carrying value of the loan less the calculated valuation amount does not necessarily represent the fair value of the loan. Real estate collateral is valued using independent appraisals or other indications of value based upon recent com parable sales of similar properties or assumptions generally observable by market participants. Any fair value adjustments for loans categorized here are classified as Level 2. Estimates of fair value used for other collateral supporting commercial loans generally are based on assumptions not observable in the market place and therefore such valuations have been classified as Level 3. Loans subject to nonrecurring fair value measurements were $28,717 and $11,857 which equals the carrying value less the allowance for loan losses allocated to these loans at September 30, 2010 and September 30, 2009, respectively. Loans subject to nonrecurring fair value measurements have been transferred from Level 2 to Level 3 as of September 30, 2010. | |
ITEM 9. | Changes in fair value recognized on provisions on loans held by the Company were $467 and $2,913 for the twelve months ended September 30, 2010 and 2009, respectively.
PROVIDENT NEW YORK BANCORP AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollars in thousands, except per share data)
Mortgage servicing rights
The Company utilizes the amortization method to subsequently measure the carrying value of its servicing asset. In accordance with FASB ASC Topic 860-Transfers and Servicing, the Company must record impairment charges on a nonrecurring basis, when the carrying value exceeds the estimated fair value. To estimate the fair value of servicing rights the Company utilizes a third party vendor, which considers the market prices for similar assets and the present value of expected future cash flows associated with the servicing rights. Assumptions utilized include estimates of the cost of servicing, loan default rates, an appropriate discount rate and prepayment speeds. The determination of fair value of servicing rights is considered a Level 3 valuation. Changes in fair value of mortgage servicing rights recognized for the twelve months ended in the fiscal year ended September 30, 2010 was an increase of $332. A valuation allowance of $54 and $115 was recorded at September 30, 2010 and 2009, respectively, reflecting the lower of amortized cost or fair market value.
Assets taken in foreclosure of defaulted loans
Assets taken in foreclosure of defaulted loans are primarily comprised of commercial and residential real property and upon initial recognition, were re-measured and reported at fair value through a charge-off to the allowance for loan losses based upon the fair value of the foreclosed asset. The fair value is generally determined using appraisals or other indications of value based on recent comparable sales of similar properties or assumptions generally observable in the market place, and the related nonrecurring fair value measurements adjustments have generally been classified as Level 2. Assets taken in foreclosure of defaulted loans subject to nonrecurring fair value measurement were $3,891 and $1,712 at September 30, 2010 and 2009, respectively. Changes in fair value recognized for those foreclos ed assets held by the Company totaled $44 and $186 at September 30, 2010 and 2009, respectively.
A summary of assets and liabilities at September 30, 2010 measured at estimated fair value on a non -recurring basis were as follows:
| | Fair Value Measurements at September 30, 2010 | | | Level 1 | | | Level 2 | | | Level 3 | | | | | | | | | | | | | | | Impaired loans with specific allowance allocations | | $ | 28,717 | | | $ | - | | | $ | - | | | $ | 28,717 | | Mortgage servicing rights | | | 1,172 | | | | - | | | | - | | | | 1,172 | | Total | | $ | 29,889 | | | $ | - | | | $ | - | | | $ | 29,889 | |
A summary of assets and liabilities at September 30, 2009 measured at estimated fair value on a non -recurring basis were as follows:
| | Fair Value Measurements at September 30, 2009 | | | Level 1 | | | Level 2 | | | Level 3 | | | | | | | | | | | | | | | Impaired loans with specific allowance allocations | | $ | 11,857 | | | $ | - | | | $ | 11,857 | | | $ | - | | Mortgage servicing rights | | | 840 | | | | - | | | | - | | | | 840 | | | | | | | | | | | | | | | | | | | Total | | $ | 840 | | | $ | - | | | $ | - | | | $ | 840 | |
PROVIDENT NEW YORK BANCORP AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollars in thousands, except per share data)
(19) Fair Values of Financial Instruments
FASB Codification Topic 825: Financial Instruments, requires disclosure of fair value information for those financial instruments for which it is practicable to estimate fair value, whether or not such financial instruments are recognized in the consolidated statements of financial condition for interim and annual periods. Fair value is the amount at which a financial instrument could be exchanged in a current transaction between willing parties, other than in a forced sale or liquidation.
Quoted market prices are used to estimate fair values when those prices are available, although active markets do not exist for many types of financial instruments. Fair values for these instruments must be estimated by management using techniques such as discounted cash flow analysis and comparison to similar instruments. These estimates are highly subjective and require judgments regarding significant matters, such as the amount and timing of future cash flows and the selection of discount rates that appropriately reflect market and credit risks. Changes in these judgments often have a material effect on the fair value estimates. Since these estimates are made as of a specific point in time, they are susceptible to material near-term changes. Fair values disclosed in accordance with FASB Topic 825 do not reflect any premium or discou nt that could result from the sale of a large volume of a particular financial instrument, nor do they reflect possible tax ramifications or estimated transaction costs.
The following is a summary of the carrying amounts and estimated fair values of financial assets and liabilities (none of which were held for trading purposes):
| | | | | | | | | | | | | | | September 30, | | | September 30, | | | | 2010 | | | 2009 | | | | Carrying amount | | | Estimated fair value | | | Carrying amount | | | Estimated fair value | | Financial assets: | | | | | | | | | | | | | Cash and due from banks | | $ | 90,872 | | | $ | 90,872 | | | $ | 160,408 | | | $ | 160,408 | | Securities available for sale | | | 901,012 | | | | 901,012 | | | | 832,583 | | | | 832,583 | | Securities held to maturity | | | 33,848 | | | | 35,062 | | | | 44,614 | | | | 45,739 | | Loans | | | 1,670,698 | | | | 1,680,939 | | | | 1,673,207 | | | | 1,674,490 | | Loans held for sale | | | 5,890 | | | | 5,934 | | | | 1,213 | | | | 1,242 | | Accrued interest receivable | | | 11,069 | | | | 11,069 | | | | 10,472 | | | | 10,472 | | FHLB of New York stock | | | 19,572 | | | | 19,572 | | | | 23,177 | | | | 23,177 | | Financial liabilities: | | | | | | | | | | | | | | | | | Non-maturity deposits | | | (1,765,129 | ) | | | (1,765,129 | ) | | | (1,587,321 | ) | | | (1,587,321 | ) | Certificates of Deposit | | | (377,573 | ) | | | (380,744 | ) | | | (494,961 | ) | | | (498,105 | ) | FHLB and other borrowings | | | (415,247 | ) | | | (473,785 | ) | | | (482,122 | ) | | | (524,187 | ) | Mortgage escrow funds | | | (8,198 | ) | | | (8,198 | ) | | | (8,405 | ) | | | (8,405 | ) | Accrued interest payable | | | (2,307 | ) | | | (2,307 | ) | | | (3,246 | ) | | | (3,246 | ) |
The following paragraphs summarize the principal methods and assumptions used by management to estimate the fair value of the Company’s financial instruments.
(a) Securities
The fair value measurements consider observable data that may include dealer quotes, market spreads, cash flows, live trading levels, market consensus prepayment speeds, credit information and the bond’s terms and conditions among other items. For certain securities, for which the inputs used by independent pricing services were derived from unobservable market information, the Company evaluated the appropriateness of each price. In accordance with adoption of FASB Codification Topic 820, the Company reviewed the volume and level of activity for its different classes of securities to determine whether transactions were not considered orderly. For these securities, the quoted prices received from independent pricing services may be adjusted, as necessary, to estimate fair value in accordance with FASB Codification Topic 820. If applicable, adjustments to fair value were based on averaging present value cash flow model projections with prices obtained from independent pricing services.
PROVIDENT NEW YORK BANCORP AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollars in thousands, except per share data)
(b) Loans
Fair values were estimated for portfolios of loans with similar financial characteristics. For valuation purposes, the total loan portfolio was segregated into adjustable-rate and fixed-rate categories. Fixed-rate loans were further segmented by type, such as residential mortgage, commercial mortgage, commercial business and consumer loans. Loans were also segmented by maturity dates. Fair values were estimated by discounting scheduled future cash flows through estimated maturity using a discount rate equivalent to the current market rate on loans that are similar with regard to collateral, maturity and the type of borrower. The discounted value of the cash flows was reduced by a credit risk adjustment based on loan categories. Based on the current composition of the Company’s loan portfolio, as well as past experienc e and current economic conditions and trends, the future cash flows were adjusted by prepayment assumptions that shortened the estimated remaining time to maturity and therefore affected the fair value estimates.
(c) FHLB of New York Stock
The redeemable carrying amount of these securities with limited marketability approximates their fair value.
(d) Deposits and Mortgage Escrow Funds
In accordance with FASB Codification Topic 825, deposits with no stated maturity (such as savings, demand and money market deposits) were assigned fair values equal to the carrying amounts payable on demand. Certificates of deposit and mortgage escrow funds were segregated by account type and original term, and fair values were estimated by discounting the contractual cash flows. The discount rate for each account grouping was equivalent to the current market rates for deposits of similar type and maturity.
These fair values do not include the value of core deposit relationships that comprise a significant portion of the Company’s deposit base. Management believes that the Company’s core deposit relationships provide a relatively stable, low-cost funding source that has a substantial value separate from the deposit balances.
(e) Borrowings
Fair values of FHLB and other borrowings were estimated by discounting the contractual cash flows. A discount rate was utilized for each outstanding borrowing equivalent to the then-current rate offered on borrowings of similar type and maturity.
(f) Other Financial Instruments
The other financial assets and liabilities listed in the preceding table have estimated fair values that approximate the respective carrying amounts because the instruments are payable on demand or have short-term maturities and present relatively low credit risk and interest rate risk.
The fair values of the Company’s off-balance-sheet financial instruments described in Note 15 (“Off Balance Sheet Financial Instruments”) were estimated based on current market terms (including interest rates and fees), considering the remaining terms of the agreements and the credit worthiness of the counterparties. At September 30, 2010 and September 30, 2009, the estimated fair values of these instruments approximated the related carrying amounts, which were insignificant.
PROVIDENT NEW YORK BANCORP AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollars in thousands, except per share data)
(20) Recently Issued Accounting Standards Not Yet Adopted
Accounting Standards Update (ASU) 2009-16, Transfers and Servicing (Topic 860)-Accounting for Transfers of Financial Assets has been issued. ASU 2009-16 will require more information about transfers of financial assets, including securitization transactions, and where entities have continuing exposure to the risks related to transferred financial assets. This standard is effective for the Company October 1, 2010 and is not expected to have a material effect on the Company’s consolidated financial statements.
ASC 2009-17, Consolidations (Topic 810)-Improvements to Financial Reporting by Enterprises Involved with Variable Interest Entities has been issued. ASU 2009-17 changes how a reporting entity determines when an entity that is insufficiently capitalized or is not controlled through voting (or similar rights) should be consolidated. This standard is effective for the Company October 1, 2010 and is not expected to have a material effect on the Company’s consolidated financial statements.
ASC 2010-06, Fair Value Measurements and Disclosures (Topic 820): Improving Disclosures about Fair Value Measurements has been issued. ASU 2010-06 requires some new disclosures and clarifies some existing disclosure requirements about fair value measurement. This standard is generally effective for the Company October 1, 2010 and is not expected to have a material effect on the Company’s consolidated financial statements.
ASU 2010-20, Receivables (Topic 310)-Disclosures abut the Credit Quality of Financing Receivables and the Allowance for Credit Losses will require significantly more information about credit quality in a financial institution’s portfolio. This statement addresses only disclosures and does not seek to change recognition or measurement. This standard is effective for the Company October 1, 2010 and is not expected to have a material effect on the Company’s consolidated financial statements.
See Note 1 for a discussion of adoption of new accounting standards.
(21) Condensed Parent Company Financial Statements
Set forth below are the condensed statements of financial condition of Provident New York Bancorp and the related condensed statements of income and cash flows:
Condensed Statements of Financial Condition | | September 30, | | | | 2010 | | | 2009 | | Assets: | | | | | | | Cash | | $ | 10,020 | | | $ | 2,466 | | Loan receivable from ESOP | | | 7,762 | | | | 8,170 | | Securities available for sale at fair value | | | 790 | | | | 790 | | Investment in Provident Bank | | | 404,755 | | | | 409,588 | | Non-bank subsidiaries | | | 8,702 | | | | 7,218 | | Other assets | | | 365 | | | | 690 | | Total assets | | $ | 432,394 | | | $ | 428,922 | | | | | | | | | | | Liabilities | | $ | 1,439 | | | $ | 1,466 | | Stockholders’ equity | | | 430,955 | | | | 427,456 | | | | | | | | | | | Total liabilities & stockholders' equity | | $ | 432,394 | | | $ | 428,922 | |
PROVIDENT NEW YORK BANCORP AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollars in thousands, except per share data)
| | Year ended September 30, | | | | 2010 | | | 2009 | | | 2008 | | Condensed Statements of Income | | | | | | | | | | Interest income | | $ | 326 | | | $ | 358 | | | $ | 473 | | Dividend income on equity securities | | | 28 | | | | 28 | | | | 27 | | Dividends from Provident Bank | | | 29,400 | | | | 10,500 | | | | 19,000 | | Dividends from non-bank subsidiaries | | | 400 | | | | 607 | | | | 650 | | Non-interest expense | | | (2,262 | ) | | | (3,372 | ) | | | (3,807 | ) | Income tax benefit | | | 321 | | | | 797 | | | | 962 | | Income before equity in undistributed earnings of subsidiaries | | | 28,213 | | | | 8,918 | | | | 17,305 | | Equity in undistributed (excess distributed) earnings of: | | | | | | | | | | | | | Provident Bank | | | (8,257 | ) | | | 17,076 | | | | 6,644 | | Non-bank subsidiaries | | | 536 | | | | (133 | ) | | | (171 | ) | Net income | | $ | 20,492 | | | $ | 25,861 | | | $ | 23,778 | |
| | Year ended September 30, | | | | 2010 | | | 2009 | | | 2008 | | Condensed Statements of Cash Flows | | | | | | | | | | Cash flows from operating activities: | | | | | | | | | | Net income | | $ | 20,492 | | | $ | 25,861 | | | $ | 23,778 | | Adjustments to reconcile net income to net cash provided by operating activities: | | | | | | | | | | | | | Equity in (undistributed) excess distributed earnings of Provident Bank | | | 8,257 | | | | (17,076 | ) | | | (6,644 | ) | Non-bank subsidiaries | | | (536 | ) | | | 133 | | | | 171 | | Other adjustments, net | | | (1,077 | ) | | | (475 | ) | | | 760 | | Net cash provided by operating activites | | | 27,136 | | | | 8,443 | | | | 18,065 | | Cash flows from investing activities: | | | | | | | | | | | | | Purchase of equity securities, available for sale | | | — | | | | — | | | | (1,041 | ) | ESOP loan principal repayments | | | 408 | | | | 392 | | | | 754 | | Net cash provided by (used in) investing activities | | | 408 | | | | 392 | | | | (287 | ) | Cash flows from financing activities: | | | | | | | | | | | | | Capital contribution to subsidiaries | | | (350 | ) | | | — | | | | — | | Treasury shares purchased | | | (13,062 | ) | | | (3,785 | ) | | | (20,230 | ) | Cash dividends paid | | | (9,216 | ) | | | (9,379 | ) | | | (9,525 | ) | Stock option transactions including RRP | | | 2,196 | | | | 3,055 | | | | 4,001 | | Other equity transactions | | | 442 | | | | 488 | | | | 1,382 | | Net cash used in financing activities | | | (19,990 | ) | | | (9,621 | ) | | | (24,372 | ) | Net increase (decrease) in cash | | | 7,554 | | | | (786 | ) | | | (6,594 | ) | Cash at beginning of year | | | 2,466 | | | | 3,252 | | | | 9,846 | | Cash at end of year | | $ | 10,020 | | | $ | 2,466 | | | $ | 3,252 | |
PROVIDENT NEW YORK BANCORP AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollars in thousands, except per share data)
(22) Quarterly Results of Operations (Unaudited)
The following is a condensed summary of quarterly results of operations for the years ended September 30, 2010 and 2009:
| | First quarter | | | Second quarter | | | Third quarter | | | Fourth quarter | | Year ended September 30, 2010 | | | | | | | | | | | | | Interest and dividend income | | $ | 30,418 | | | $ | 29,627 | | | $ | 30,408 | | | $ | 29,321 | | Interest expense | | | 7,532 | | | | 6,693 | | | | 6,210 | | | | 6,005 | | Net interest income | | | 22,886 | | | | 22,934 | | | | 24,198 | | | | 23,316 | | Provision for loan losses | | | 2,500 | | | | 2,500 | | | | 2,750 | | | | 2,250 | | Non-interest income | | | 8,093 | | | | 6,113 | | | | 5,281 | | | | 7,714 | | Non-interest expense | | | 19,894 | | | | 21,173 | | | | 20,741 | | | | 21,362 | | Income before income tax expense | | | 8,585 | | | | 5,374 | | | | 5,988 | | | | 7,418 | | Income tax expense | | | 2,419 | | | | 1,207 | | | | 1,232 | | | | 2,015 | | Net income | | $ | 6,166 | | | $ | 4,167 | | | $ | 4,756 | | | $ | 5,403 | | Earnings per common share: | | | | | | | | | | | | | | | | | Basic | | $ | 0.16 | | | $ | 0.11 | | | $ | 0.12 | | | $ | 0.14 | | Diluted | | $ | 0.16 | | | $ | 0.11 | | | $ | 0.12 | | | $ | 0.14 | | Year ended September 30, 2009 | | | | | | | | | | | | | | | | | Interest and dividend income | | $ | 35,871 | | | $ | 33,586 | | | $ | 31,651 | | | $ | 30,482 | | Interest expense | | | 10,825 | | | | 9,951 | | | | 8,925 | | | | 8,019 | | Net interest income | | | 25,046 | | | | 23,635 | | | | 22,726 | | | | 22,463 | | Provision for loan losses | | | 2,500 | | | | 7,100 | | | | 3,500 | | | | 4,500 | | Non-interest income | | | 5,771 | | | | 11,123 | | | | 15,255 | | | | 7,804 | | Non-interest expense | | | 19,235 | | | | 20,076 | | | | 21,517 | | | | 19,359 | | Income before income tax expense | | | 9,082 | | | | 7,582 | | | | 12,964 | | | | 6,408 | | Income tax expense | | | 2,791 | | | | 2,038 | | | | 4,014 | | | | 1,332 | | Net income | | $ | 6,291 | | | $ | 5,544 | | | $ | 8,950 | | | $ | 5,076 | | Earnings per common share: | | | | | | | | | | | | | | | | | Basic | | $ | 0.16 | | | $ | 0.14 | | | $ | 0.23 | | | $ | 0.13 | | Diluted | | $ | 0.16 | | | $ | 0.14 | | | $ | 0.23 | | | $ | 0.13 | |
ITEM 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Not Applicable.
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Not Applicable.
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ITEM 9A.Controls and Procedures.
Evaluation of Disclosure
| Controls and Procedures
As of September 30, 2010, under the supervision and with the participation of Provident New York Bancorp’s Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), management has evaluated the effectiveness of the design and operation of the Company’s disclosure controls and procedures. Based on the evaluation, the CEO and CFO concluded that the Company’s disclosure controls and procedures were effective at the reasonable assurance level in timely alerting them to material information required to be included in Provident New York
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(a) Evaluation of Disclosure Controls and Procedures
As of September 30, 2013, under the supervision and with the participation of Sterling Bancorp’s Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), management has evaluated the effectiveness of the design and operation of the Company’s disclosure controls and procedures. Based on that evaluation, the CEO and CFO concluded that the Company’s disclosure controls and procedures were effective at the reasonable assurance level in timely alerting them to material information required to be recorded, processed, summarized and reported in Sterling Bancorp’s periodic SEC reports. There were no changes in the Company’s internal controls over financial reporting during the fourth fiscal quarter of 2010 that have materially affected or are reasonably likely to materially affect the Company’s internal control over financial reporting.
Management’s Report on Internal Control over Financial Reporting (see “Report of Management on Internal Control Over Financial Reporting”)
Provident New York Bancorp’s management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rules 13a-15(f) and 15d-15(f). Under the supervision and with the participation of the management of Provident New York Bancorp’s, including Provident New York Bancorp’s CEO and CFO, Provident New York Bancorp conducted an evaluation of the effectiveness of the Company’s internal control over financial reporting as of September 30, 2010 based on the framework in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission, which is also referred to as COSO. Based on that evaluation, management of Provident New York Bancorp concluded that the Company 8217;s internal control over financial reporting was effective as of September 30, 2010. Management’s assessment of the effectiveness of internal control over financial reporting is expressed at the level of reasonable assurance because a control system, no matter how well designed and operated, can provide only reasonable, but not absolute, assurance that the control system’s objectives will be met.
The effectiveness of the Company’s internal control over financial reporting as of September 30, 2010 has been audited by Crowe Horwath LLP, as stated in their report which is included elsewhere herein.
ITEM 9B.Other Information
Not applicable.
Changes in Internal Control Over Financial Reporting
As of September 30, 2012, management’s assessment of the Company’s internal control over financial reporting identified two material weaknesses in internal control over financial reporting related to the provision for income taxes and to ensuring pension accounting matters were properly recorded and presented in the Consolidated Financial Statements. To remediate these weaknesses, during fiscal year 2013, made changes to senior accounting personnel, implemented systematic process and procedures to enable the Company to maintain effective internal controls over the provision for income taxes and deferred taxes and enhanced its internal controls over financial reporting related to pension accounting.
Except as disclosed herein, there were no changes in the Company’s internal control over financial reporting during the year ended September 30, 2013 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
(b) Management's Annual Report on Internal Control Over Financial Reporting
The management of Sterling Bancorp (the “Company”) is responsible for establishing and maintaining effective internal control over financial reporting. The Company’s system of internal controls is designed to provide reasonable assurance to the Company’s management and board of directors regarding the preparation and fair presentation of published financial statements in accordance with U.S. generally accepted accounting principles.
All internal control systems have inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Management assessed the Company’s internal control over financial reporting as of September 30, 2013. This assessment was based on criteria for effective internal control over financial reporting established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Based on this assessment, we have concluded that, as of September 30, 2013, the Company’s internal control over financial reporting is effective.
The effectiveness of the Company’s internal control over financial reporting as of September 30, 2013 has been audited by Crowe Horwath LLP, as stated in their report which is included elsewhere herein.
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ITEM 9B. | Other Information |
Not applicable.
PART III
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ITEM 10. | Directors, Executive Officers, and Corporate Governance |
ITEM 10. Directors, Executive Officers, and Corporate Governance
The “Proposal“Proposal I — Election of Directors” sectionand “Section 16(a) Beneficial Ownership Reporting Compliance” sections of Provident New YorkSterling Bancorp’s Proxy Statement for the Annual Meeting of Stockholders to be held in February 20112014 (the “Proxy Statement”) is incorporated herein by reference.
ITEM 11.Executive Compensation | |
ITEM 11. | Executive Compensation |
The “Proposal“Proposal I — Election of Directors” section of the Proxy Statement is incorporated herein by reference.
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ITEM 12. | Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters |
ITEM 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Provident New YorkSterling Bancorp does not have any equity compensation programs that were not approved by stockholders, other than its employee stock ownership plan.
Set forth below is certain information as of September 30, 2010,2013, regarding equity compensation that has been approved by stockholders.
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Equity compensation plans approved by stockholders | Number of securities to be issued upon exercise of outstanding options and rights | | Weighted average Exercise price (1) | | Number of securities remaining available for issuance under plan |
Stock Option Plans | 2,114,509 |
| | $ | 10.71 |
| | 2,066,184 |
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Equity compensation plans approved by stockholders | | Number of securities to be issued upon exercise of outstanding options and rights | | | Weighted average Exercise price | | | Number of securities remaining available for issuance under plan | |
Stock Option Plans | | | 1,922,844 | | | $ | 12.47 | | | | 93,257 | |
Recognition and Retention Plan (1) | | | 6,250 | | | | N/A | | | | 49,620 | |
Total (2) | | | 1,929,094 | | | $ | 12.47 | | | | 142,877 | |
(1) | Represents shares that have been granted but have not yet vested.
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(2)(1) | Weighted average exercise price represents Stock Option PlanPlans only, since RRPrestricted shares have no exercise price. |
The “Proposal I — Election of Directors” section of the Proxy Statement is incorporated herein by reference.
ITEM 13. Certain Relationships and Related Transactions and Director Independence
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ITEM 13. | Certain Relationships and Related Transactions and Director Independence |
The “Transactions with Certain Related Persons” section of the Proxy Statement is incorporated herein by reference.
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ITEM 14. | Principal Accountant Fees and Services |
ITEM 14. Principal Accountant Fees and Services
TheProposal III - Ratification of appointment of “Independent Registered Public Accounting Firm” section of the proxy statement is incorporated herein by reference.
PART IV
ITEM 15.Exhibits and Financial Statement Schedules
(1) Financial Statements
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ITEM 15. | Exhibits and Financial Statement Schedules |
The financial statements filed in Item 8 of this Form 10-K are as follows:
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(A) | Report of Independent Registered Public Accounting Firm on Financial Statements |
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(B) | Consolidated Statements of Financial ConditionBalance Sheets as of September 30, 20102013 and 20092012 |
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(C) | Consolidated Statements of Income for the years ended September 30, 2010, 20092013, 2012 and 20082011 |
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(D) | Consolidated Statements of Changes in Stockholders’ Equity for the years ended September 30, 2010, 20092013, 2012 and 20082011 |
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(E) | Consolidated Statements of Cash Flows for the years ended September 30, 2010, 20092013, 2012 and 20082011 |
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(F) | Notes to Consolidated Financial Statements |
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(G) | Financial Statement Schedules |
(2) Financial Statement Schedules
All financial statement schedules have been omitted as the required information is inapplicable or has been included in the Notes to Consolidated Financial Statements.
(3) Exhibits
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3.1 | Certificate of Incorporation of Provident New York Bancorpthe Company, as amended (incorporated by reference to Exhibit 3.1 of the Company’s Current Report on Form 8-K filed on November 1, 2013). |
3.2 | Bylaws of Provident New York Bancorp,the Company, as amended2 (incorporated by reference to Exhibit 3.2 of the Company’s Current Report on Form 8-K filed on November 1, 2013). |
4.1 | Form of Common Stock Certificate of the Company (incorporated by reference to Exhibit 4.1 of the Company’s Current Report on Form 8-K filed on November 1, 2013). |
4.2 | Form of Corporate Governance Agreement (incorporated by reference to Exhibit 10.2 of the Company’s Current Report on Form 8-K filed on August 7, 2012). |
4.3 | Pursuant to Item 601(b)(4)(iii)(A) of Regulation S-K, no instrument which defines the holders of long-term debt of the Company or any of its consolidated subsidiaries is filed herewith. Pursuant to this regulation, the Company hereby agrees to furnish a copy of any such instrument to the Commission upon request. |
10.1 | Employment Agreement, dated as of June 20, 2011, with Jack L. Kopnisky (incorporated by reference to Exhibit 10.1 of the Company’s Current Report on Form 8-K filed on June 21, 2011).* |
10.2 | Form of Amendment to Employment Agreement, dated as of November 26, 2012, with George Strayton3* Jack L. Kopnisky (incorporated by reference to Exhibit 10.3 of the Company’s Current Report on Form 8-K filed on November 26, 2012).* |
10.3 | Amendment No. 2 to Employment Agreement, dated as of April 3, 2013, with Daniel Rothstein4* Jack L. Kopnisky (incorporated by reference to Exhibit 10.1 of the Company’s Amendment No. 1 to Current Report on Form 8-K filed on April 9, 2013).* |
10.4 | Deferred CompensationEmployment Agreement, dated as amended and restated5* of November 1, 2013, with Luis Massiani (incorporated by reference to Exhibit 10.2 of the Company’s Current Report on Form 8-K filed on November 4, 2013).* |
10.5 | Form of Employment Agreement, dated as of November 22, 2011, with Rodney Whitwell (incorporated by reference to Exhibit 10.20 of the Company’s Annual Report on Form 10-K filed on December 14, 2012).* |
10.6 | Form of Reinstated Employment Agreement, dated as of November 26, 2012, with Rodney Whitwell (incorporated by reference to Exhibit 10.5 of the Company’s Current Report on Form 8-K filed on November 27, 2012).* |
10.7 | Employment Agreement, dated as of November 1, 2013, with David S. Bagatelle (incorporated by reference to Exhibit 10.1 of the Company’s Current Report on Form 8-K filed on November 4, 2013).* |
10.8 | Employment Agreement, dated as of November 1, 2013, with James R. Peoples (incorporated by reference to Exhibit 10.3 of the Company’s Current Report on Form 8-K filed on November 4, 2013).* |
10.9 | Services and Covenant Agreement, dated as of April 3, 2013, by and between the Company and Louis J. Cappelli (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on November 1, 2013).* |
10.10 | Services and Covenant Agreement, dated as of April 3, 2013, by and between the Company and John C. Millman (incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed on November 1, 2013).* |
10.11 | [Form[s] of Employment Agreement between Legacy Sterling and former Legacy Sterling executives who are now executives of the Company] |
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10.12 | Employment Agreement, dated as of July 1, 2012, with Daniel Rothstein (incorporated by reference to Exhibit 10.1 of the Company’s Current Report on Form 8-K filed on July 2, 2012). |
10.13 | Retention Award Letter, dated as of May 13, 2013, with Daniel G. Rothstein (incorporated by reference to Exhibit 10.1 of the Company’s Current Report on Form 8-K filed on May 14, 2013).* |
10.14 | Employment Agreement, dated as of January 9, 2012, with Stephen V. Masterson (incorporated by reference to Exhibit 10.1 of the Company’s Current Report on Form 8-K filed on January 10, 2012).* |
10.15 | Form of Separation Agreement, dated as of November 21, 2012, with Stephen V. Masterson (incorporated by reference to Exhibit 10.2 of the Company’s Current Report on Form 8-K filed on November 27, 2012).* |
10.16 | Provident Bank Amended and Restated 1995 Supplemental Executive Retirement Plan6* (incorporated by reference to Exhibit 10.1 of the Company’s Quarterly Report on Form 10-Q filed on August 11, 2008 (File No. 0-25233)).* |
10.5.110.17 | Provident Bank 2005 Supplemental Executive Retirement Plan7* (incorporated by reference to Exhibit 10.2 of the Company’s Quarterly Report on Form 10-Q filed on August 11, 2008 (File No. 0-25233)).* |
10.610.18 | Executive Officer Incentive Program8*
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10.7 | 1996 Long-Term Incentive Plan for Officers and Directors, as amended9*
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10.8 | Provident Bank 2000 Stock Option Plan10* (incorporated by reference to Appendix A to the Company’s Proxy Statement filed on January 18, 2000 (File No. 0-25233)).* |
10.910.19 | Provident Bank 2000 Recognition and Retention Plan11*
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10.10 | Employment Agreement with Paul A. Maisch12*
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10.11 | Provident Bancorp, Inc. 2004 Stock Incentive Plan13*(incorporated by reference to Appendix A to the Company’s Proxy Statement filed on January 19, 2005 (File No. 0-25233)).* |
10.1210.20 | Form of Stock Option Agreement, dated as of July 6, 2011, between the Company and Jack L. Kopnisky (incorporated by reference to Exhibit 10.3 of the Company’s Quarterly Report on Form 10-Q filed on August 9, 2011).* |
10.21 | Form of Restricted Stock Award Notice, dated as of July 6, 2011, between the Company and Jack L. Kopnisky (incorporated by reference to Exhibit 10.4 of the Company’s Quarterly Report on Form 10-Q filed on August 9, 2011)).* |
10.22 | Form of Performance-Based Restricted Stock Award Notice, dated as of July 6, 2011, between the Company and Jack L. Kopnisky (incorporated by reference to Exhibit 10.5 of the Company’s Quarterly Report on Form 10-Q filed on August 9, 2011).* |
10.23 | Provident Short-Term Incentive Plan (incorporated by reference to Exhibit 10.1 of the Company’s Current Report on Form 8-K filed on November 1, 2011).* |
10.24 | Provident Bank Executive OfficerNew York Bancorp 2012 Stock Incentive Plan14*(incorporated by reference to Appendix A to the Company’s Proxy Statement for the 2012 Annual Meeting of Stockholders, filed on January 6, 2012).* |
10.1310.25 | Employment Agreement with Stephen DormerAmendment to the Provident New York Bancorp 2012 Stock Incentive Plan 15*(incorporated by reference to Annex H to the Company’s Joint Proxy Statement / Prospectus filed on August 14, 2013).*
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10.1410.26 | Employment Agreement with Richard Jones16* Sterling Bancorp Stock Incentive Plan (incorporated by reference to Exhibit 10 to Legacy Sterling’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2004 (File No. 1-05273)).* |
10.27 | Form of Sterling Bancorp 2013 Employment Inducement Award Agreement (incorporated by reference to Exhibit 10.1 of the Company’s Post Effective Amendment on Form S-8 to Form S-4 filed on November 1, 2013.* |
10.28 | Form of Restricted Stock Unit Award Agreement (incorporated by reference to Exhibit 10.3 to the Company’s Current Report on Form 8-K filed on November 1, 2013).* |
21 | Subsidiaries of Registrant (filed(filed herewith) |
| Consent of Crowe Horwath LLP (filed(filed herewith) |
| Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed(filed herewith) |
| Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed(filed herewith) |
| Certification Pursuant to 18 U.S.C. Section 1350, as amended by Section 906 of the Sarbanes-Oxley Act of 2002 (filed herewith) |
101.INS | XBRL Instance Document (filed herewith) |
101.SCH | XBRL Taxonomy Extension Schema Document (filed herewith) |
101.CAL | XBRL Taxonomy Extension Calculation Linkbase Document (filed herewith) |
101.LAB | XBRL Taxonomy Extension Label Linkbase Document (filed herewith) |
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101.PRE | XBRL Taxonomy Extension Presentation Linkbase Document (filed herewith) |
101.DEF | XBRL Taxonomy Extension Definition Linkbase Document (filed herewith) |
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* | Indicates management contract or compensatory plan or arrangement. |
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1 | Incorporated by reference to Exhibit 3.1 of the Registration Statement on Form S-1 (File No. 333-108795), originally filed with the Commission on September 15, 2003.
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2 | Incorporated by reference to Exhibit 3.2 of the Current Report on Form 8-K (File No. 0-25233), filed with the Commission on November 3, 2010. |
3 | Incorporated by reference to Exhibit 10.2 of the 2008 10-K (File No, 0-25233), files with the Commission on December 15, 2008. |
4 | Incorporated by reference to Exhibit 10.3 of the 2008 10-K (File No. 0-25233), filed with the Commission on December 15, 2008. |
5 | Incorporated by reference to Exhibit 10.4 of the Registration Statement on Form S-1 of Provident Bancorp, Inc. (File No 333-63593) filed with the Commission on September 17, 1998. |
6 | Incorporated by reference to Exhibit 10.1 of the Quarterly Report on Form 10-Q (File No. 0-25233), filed with the Commission on August 11, 2008 |
7 | Incorporated by reference to Exhibit 10.2 of the Quarterly Report on Form 10-Q (File No. 0-25233), filed with the Commission on August 11, 2008 |
8 | Incorporated by reference to Exhibit 10.6 of the 2007 10-K (File No. 0-25233), filed with the Commission on December 13, 2007. |
9 | Incorporated by reference to Exhibit 10.7 of Amendment No. 1 to the Registration Statement on Form S-1 of Provident Bancorp, Inc. (File No. 333-63593), filed with the Commission on September 17, 1998. |
10 | Incorporated by reference to Appendix A of the Proxy Statement for the 2000 Annual Meeting of Stockholders of Provident Bancorp Inc., (File No. 0-25233), filed with the Commission on January 18, 2000. |
11 | Incorporated by reference to Appendix B of the Proxy Statement for the 2000 Annual Meeting of Stockholders of Provident Bancorp Inc., (File No. 0-25233), filed with the Commission on January 18, 2000. |
12 | Incorporated by reference to Exhibit 10.10 of the 2008 10-K (File No. 0-25233), filed with the Commission on December 15, 2008. |
13 | Incorporated by reference to Appendix A to the Proxy Statement for the 2005 Annual Meeting of Stockholders of Provident Bancorp Inc., (File No. 0-25233), filed with the Commission on January 19, 2005. |
14 | Incorporated by reference to Exhibit 10 to the Current Report on Form 8-K (File No. 0-25233), filed with the Commission on December 5, 2005. |
15 | Incorporated by reference to Exhibit 10.13 of the 2008 10-K (File No. 0-25233), filed with the Commission on December 15, 2008. |
16 | Incorporated by reference to Exhibit 10.1 of the Quarterly Report on Form 10-Q (File No. 0-25233), filed with the Commission on February 6, 2009. |
* Indicates management contract or compensatory plan or arrangement.
SIGNATURES
Pursuant to the requirements of Section 13 of the Securities Exchange Act of 1934, Provident New YorkSterling Bancorp has duly caused this report to be signed on its behalf by the undersigned, there unto duly authorized.
Provident New YorkSterling Bancorp
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Date: | December13, 2010December 9, 2013 | By: | | /s/ George StraytonJack L. Kopnisky |
| | | George Strayton | Jack L. Kopnisky |
| | | | President, Chief Executive Officer and Director |
| | | (Principal (Principal Executive Officer) |
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
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By: | /s/ George StraytonJack L. Kopnisky | | By: | /s/ Paul A. MaischLuis Massiani |
| George StraytonJack L. Kopnisky | | | Paul A. MaischLuis Massiani |
| President, Chief Executive Officer and | | | Executive Vice President |
| Director | | | Chief Financial Officer |
| Principal Executive Officer | | | Principal AccountingFinancial Officer |
Date: | December 13, 20109, 2013 | | | Principal FinancialAccounting Officer |
| | | Date: | December 13, 20109, 2013 |
| | | | |
By: | /s/ William F. Helmer | | By: | /s/ Dennis L. Coyle |
| William F. HelmerLouis J. Cappelli | | | Dennis L. Coyle |
| Louis J. Cappelli | | | |
| Chairman of the Board of Directors | | | Vice Chairman |
Date: | December 13, 2010 | | Date: | December 13, 2010 |
By: | /s/ Navy Djonovic | | By: | /s/ Judith Hershaft | | By: | /s/ Thomas F. Jauntig, Jr.
|
| Navy Djonovic9, 2013 | | | Judith Hershaft |
|
| | | Thomas F. Jauntig, Jr. | | | | | | |
| Director | | | Director | | | Director |
Date: | December 13, 2010 | | Date: | December 13, 2010 | | Date: | December 13, 2010 |
| | | | | | | |
By: | /s/ Thomas G. KahnRobert Abrams | | By: | | /s/ R. Michael KennedyJames F. Deutsch | | By: | | /s/ Victoria KossoverNavy E. Djonovic |
| Thomas G. KahnRobert Abrams | | | R. Michael Kennedy | James F. Deutsch | | | Victoria Kossover | Navy E. Djonovic |
| Director | | | | Director | | | | Director |
Date: | December 13, 20109, 2013 | | Date: | | December 13, 20109, 2013 | | Date: | | December 13, 20109, 2013 |
| | | | | | | | | |
By: | /s/ Donald T. McNelisFernando Ferrer | | By: | | /s/ Carl RosenstockWilliam F. Helmer | | By: | | /s/ William Sichol Jr.Thomas G. Kahn |
| Donald T. McNelisFernando Ferrer | | | Carl Rosenstock | | | William Sichol Jr.F. Helmer | | | | Thomas G. Kahn |
| Director | | | | Director | | | | Director |
Date: | December 13, 20109, 2013 | | Date: | | December 13, 20109, 2013 | | Date: | | December 13, 20109, 2013 |
| | | | | | | | | |
By: | /s/ Burt SteinbergJames B. Klein | | By: | | /s/ Robert W. Lazar | | By: | | /s/ John C. Millman |
| James B. Klein | | | | Robert W. Lazar | | | | John C. Millman |
| Director | | | | Director | | | | Director |
Date: | December 9, 2013 | | Date: | | December 9, 2013 | | Date: | | December 9, 2013 |
| | | | | | | | | |
By: | /s/ Richard O’Toole | | By: | | /s/ Burt Steinberg | | | | |
| Richard O’Toole | | | | Burt Steinberg | | | | |
| Director | | | | Director | | | | |
DateDate: | December 13, 20109, 2013 | | Date: | | December 9, 2013 | | | | |
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