SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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| x | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the Fiscal Year Ended September 30,
2011OR
¨ | TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
2013 Commission File Number: 0-25233
PROVIDENT NEW YORK001-35385
________________________
(Exact name of Registrant as Specified in its Charter)
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| Delaware | | 80-0091851 |
(State or Other Jurisdiction of
Incorporation onor Organization) | | (IRS Employer
Identification Number) |
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| 400 Rella Blvd., Montebello, New York | | 10901 |
| (Address of Principal Executive Office) | | (Zip Code) |
(Registrant’s Telephone Number including Area Code)
Securities Registered Pursuant to Section 12(b) of the Act:
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Title of Class | | Name of Each Exchange On Which Registered |
| Common Stock, par value $0.01 per share | | The NASDAQ Global Select MarketNew York Stock Exchange |
| Cumulative Trust Preferred Securities 8.375% (Liquidation Amount $10 per Preferred Security) of Sterling Bancorp Trust I and Guarantee of Sterling Bancorp with respect thereto | | New York Stock Exchange |
Securities Registered Pursuant to Section 12(g) of the Act:
____________________________
Indicate by check mark if the Registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act YES ¨ NO xý Indicate by check mark if the Registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act. YES ¨ NO xý Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding twelve months (or for such shorter period that the Registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days YES xý NO ¨ Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for shorter period that the registrant was required to submit and post such files) YES xý NO ¨ Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendments to this Form 10-K. x¨ Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer — See definition of “accelerated and large accelerated filer” in Rule 12b-2 of the Exchange Act (check one).
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| Large Accelerated Filer | o | ¨ | | Accelerated Filer | | x |
| Non-Accelerated Filer | o | ¨ | | Smaller Reporting Company | | ¨o |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). YES ¨ NO xý The aggregate market value of the voting stock held by non-affiliates of the Registrant, computed by reference to the closing price of the common stock as of March 31,
20112013 was
$343,678,848.$294,182,103
As of December 5, 20112013 there were 83,867,873 outstanding 37,883,008 shares of the Registrant’s common stock.
DOCUMENT INCORPORATED BY REFERENCE
Proxy Statement for the Annual Meeting of Stockholders (Part III) to be filed within 120 days after the end of the Registrant’s fiscal year ended September 30, 2011.2013.
PROVIDENT NEW YORK
FORM 10-K TABLE OF CONTENTS
PART I
Sterling Bancorp
PART IITEM 1. Business
Provident New York Bancorp
Provident New YorkSterling Bancorp (“Provident Bancorp”Sterling” or the “Company”) is a Delaware corporation that owns all of the outstanding shares of common stock of ProvidentSterling National Bank (the “Bank”). At September 30, 2011, Provident Bancorp2013, the Company had, on a consolidated basis, $4.0 billion in assets, of $3.1$3.0 billion in deposits of $2.3 billion and stockholders’ equity of $431.1 million.$482.9 million. As of September 30, 2011, Provident Bancorp2013, the Company had 37,864,00844,351,046 shares of common stock outstanding.
Provident Bank
Provident Bank, an independent, full-service bank founded in 1888, is headquartered in Montebello, New York and is the principal bank subsidiary of Provident Bancorp. With $3.1 billion in assets and 513 full-time equivalent employees, Provident Bank accounts for substantially all of Provident Bancorp’s consolidated assets and net income. We operate 37 full servicing banking offices consisting of 30 retail branches and 7 commercial banking centers which serve the Hudson Valley region. There are 13 offices located in Rockland, New York, 14 offices in Orange County, New York, 8 offices in contiguous Sullivan, Ulster, Westchester and Putnam Counties in New York, and two offices in Bergen County, New Jersey which operate under the name PBNY Bank, a division of Provident Bank, New York. Provident Bank offers a complete line of commercial, community business (small business) and retail banking products and services. Additionally, the Company announced on October 31, 2011 its intention to expand into New York City, with the employment of a market area president and intends to staff a commercial banking center with several teams of relationship bankers servicing middle market clients commercial business.
We also offer deposit services to municipalities located in the State of New York through Provident Bank’s wholly-owned subsidiary, Provident Municipal Bank.
Provest Services Corporation I is a wholly-owned subsidiary of Provident Bank, holding an investment in a limited partnership that operates an assisted-living facility. A percentage of the units in the facility are for low-income individuals. Provest Services Corp. II is a wholly-owned subsidiary of Provident Bank that has engaged a third-party provider to sell annuities, life and health insurance products to Provident Bank’s customers. The activities of these subsidiaries have had an insignificant effect on our consolidated Our financial condition and results of operations are discussed herein on a consolidated basis with the Bank.
Merger with Sterling Bancorp
On October 31, 2013, Provident New York Bancorp completed its acquisition of Sterling Bancorp (“Legacy Sterling”). In connection with the merger, Provident New York Bancorp completed the following corporate actions:
Legacy Sterling merged with and 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 date. 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.
Provident REIT, Inc. and WSB Funding are subsidiariesBank converted to a national bank charter.
Sterling National Bank merged into Provident Bank.
Provident Bank changed its legal entity name to Sterling National Bank.
Provident Municipal Bank merged into Sterling National Bank.
We refer to the transactions detailed above collectively as the “Merger”.
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. Under the terms of the Merger, each share of Legacy Sterling was converted into the right to receive 1.2625 shares of Provident New York Bancorp common stock. Consistent with our strategy of expanding in the formgreater 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 clients and consumers. See additional disclosure regarding the Merger with Sterling Bancorp in Note 22. Subsequent Events to the consolidated financial statements.
As of June 30, 2013, the date of Legacy Sterling’s last publicly available financial statements, Legacy Sterling had total assets of $2.7 billion, total loans including loans held for sale of $1.8 billion, and total deposits of $2.2 billion.
Sterling National Bank
The Bank is a growing full-service bank founded in 1888. Headquartered in Montebello, New York, the Bank is the principal subsidiary of the Company and accounts for substantially all of the Company’s consolidated assets and net income. As of September 30, 2013, the Bank had $4.0 billion in assets, $3.0 billion in deposits and 477 full-time equivalent employees. The Bank specializes in the delivery of services and solutions to business owners, their families and consumers in communities within the greater New York metropolitan region through 16 teams of dedicated relationship managers and 34 full-service financial centers.
Subsidiaries
The Company and the Bank maintain a number of wholly-owned subsidiaries, including two real estate investment trusts
andthat hold
commercial real estate
loans. Also, the Bank maintainsmortgage loans, several
corporations whichsubsidiaries that hold foreclosed properties acquired by
Provident Bank.Provident Bank’sthe Bank, a Vermont captive insurance company and other subsidiaries that have an immaterial impact on the financial condition or results of operations of the Company.
Senior Notes Capital Raise
In connection with the Merger, the Company completed the offering of $100 million of its senior notes due 2018 (the “Senior Notes”) on July 2, 2013. The Senior Notes, which bear interest at 5.50% annually, were issued under an indenture dated July 2, 2013 (the “Indenture”) between the Company and U.S. Bank National Association, as trustee. The Senior Notes were sold in a private placement and resold by the initial purchasers to qualified institutional buyers pursuant to Rule 144A under the Securities Act of 1933 (the “Securities Act”).
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. Interest on the Senior Notes will be payable on January 2 and July 2 beginning on January 2, 2014. Interest will be calculated on the basis of a 360-day year of twelve 30-day months. The Senior Notes will mature on July 2, 2018.
Additional Information
Sterling’s website
(www.providentbanking.com)(www.sterlingbancorp.com) contains a direct link to the Company’s filings with the Securities and Exchange Commission
(“SEC”), including copies of annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to these filings,
registration statements on Form S-4, as well as ownership reports on Forms 3, 4 and 5 filed by the Company’s directors and executive officers. Copies may also be obtained, without charge, by written request to
Provident New YorkSterling Bancorp,
Investor Relations, 400 Rella Boulevard, Montebello, New York 10901, Attention:
Miranda Grimm. Provident Bank’sInvestor Relations. Sterling’s website is not part of this Annual Report on Form 10-K.
Non-Bank Subsidiaries
In addition to Provident Bank, the Company owns Hardenburgh Abstract Company, Inc. (“Hardenburgh”) that was acquired in connection with the acquisition of Warwick Community Bancorp (“WSB”) and Hudson Valley Investment Advisors, LLC, an investment advisory firm that generates investment management fees. Hardenburgh had gross revenue from title insurance policies and abstracts of $1.2 million and net income of
$220,000 in 2011, Hudson Valley Investment Advisors, LLC generated $2.4 million in fee income in 2011 and net income of $276,000 and Provident Risk Management, Inc. a captive insurance company, generated $1.2 million in intercompany revenues and $980,000 in net income.
Provident Municipal Bank
Provident Municipal Bank, a wholly-owned subsidiary of Provident Bank, is a New York State-chartered commercial bank which is engaged in the business of accepting deposits from municipalities in our market area. New York State law requires municipalities located in the State of New York to deposit funds with commercial banks, effectively forbidding these municipalities from depositing funds with savings banks, including federally chartered savings associations, such as Provident Bank.
Forward-Looking Statements
From time to time the Company has made and may continue to make written or oral forward-looking statements regarding our outlook or expectations for earnings, revenues, expenses, capital levels, asset quality or other future financial or business performance, strategies or expectations, or the impact of legal, regulatory or supervisory matters on our business operations or performance. This Annual Report on Form 10-K also includes forward-looking statements. With respect to all such forward-looking statements, you should review our
Riskrisk Factors discussion in Item 1A.
Risk Factors and our Cautionary Statement Regarding Forward-Looking Information included in Item 7.
Market Area
Strategy
The Company operates as a regional bank providing a broad offering of deposit, lending and wealth management products to commercial, consumer and municipal clients in its market area. The Company seeks to differentiate itself by focusing on the following principles:
Prioritize client relationships over transactions.
Compete on service experience versus price superiority.
Deploy a single point of contact, holistic view of the client relationship.
Focus on defined customer segments and geographic markets.
Maximize efficiency through a technology enabled low-cost operating platform.
Maintain strong risk management systems.
Our strategic objectives include generating sustainable growth in revenues and earnings by expanding client acquisitions, improving asset quality and increasing operating efficiency. To achieve these goals we are: 1) focusing on high value client segments; 2) expanding our delivery and distribution channels; 3) creating a high productivity performance culture; 4) closely monitoring operating costs; and 5) proactively managing enterprise risk.
We operate 37 full servicing banking offices consisting of 30 retail branchesfocus on delivering products and 7services to small-to-middle market commercial banking centers which servebusinesses and affluent consumers. We believe that this is a client segment that is undeserved by larger bank competitors in our market area.
The Bank targets the Hudson Valley region. There are 13 offices located in Rockland,following geographic markets: the New York 14 offices in Orange County,Metro Market, which includes Manhattan and Long Island; and the New York 8 offices in contiguousSuburban Market, which consists of Rockland, Orange, Sullivan, Ulster, Putnam and Westchester and Putnam Countiescounties in New York and two offices in Bergen County in New JerseyJersey. We believe the Bank operates in an attractive footprint that presents us with significant opportunities to execute our strategy. Based on data from Oxxford Information Technology, we estimate the total number of small-to-middle market businesses in our footprint exceeds 550 thousand.
We deploy a team-based distribution strategy in which
operate underclients are served by a focused and experienced group of relationship managers that are responsible for all aspects of the
name PBNY Bank, a divisionclient relationship and delivery of
Provident Bank, New York. Provident Bank offers a complete line of commercial, community business (small business) and retail bankingour products and services.
Additionally,A significant portion of the
Company announced on October 31, 2011 its intention to expand into New York City, withBank’s growth in 2013 was driven by the
employmentrecruitment of
a market area president and intend to staff anew teams. As of September 30, 2013, the Bank had 16 commercial banking
center with several teams of relationship bankers servicing middle market client’s commercial business.Our primary lending area consists of Rocklandteams. We expect to continue to grow deposits and Orange Counties as well as contiguous counties. Rockland and Orange Counties represent a suburban area with a broad employment base. These counties also serve as bedroom communities for nearby New York City and other suburban areas including Westchester County and northern New Jersey. According to data published by the Federal Deposit Insurance Corporation (“FDIC”) as of June 30, 2011, Provident Bank holds the #2 share of deposits in Rockland County and #3 share of deposits in Orange County, and overall has the combined #2 share of deposits in Rockland and Orange Counties, New York.
Management Strategy
We operate as an independent bank that offers a broad range of customer-focused financial services as an alternative to large regional, multi-state, and international banks in our market area. Management has invested in the infrastructure and staffing to support our strategy of serving the financial needs of businesses, individuals and municipalities in our market area focusing on core deposit generation, especially transaction accounts and quality loan growth with emphasis on growing commercial loan balances which provides a favorable platform for long-term sustainable growth. We seekthrough the addition of new teams.
The Bank focuses on building broad client relationships by providing superior customer service allowing us to
maintaingather low cost, core deposits and originate high quality loans. The Bank maintains a disciplined pricing strategy on
deposit generationdeposits that
will allowallows us to compete for
high quality loans while maintaining an appropriate spread over funding costs.
Imperatives for the Company will be to grow revenue and earnings by expanding client acquisitions, continuing to improve credit metrics and to significantly improve efficiency levels. To achieve these goals we will focus on high value clientsegments, expand delivery channels and distribution to increase client acquisitions, execute effectively by creating a highly productive performance culture, reduce operating costs, and to proactively manage enterprise risk. Highlights of management’s business strategy are as follows:
Operating within a defined market.As an independent bank, we emphasize the local nature of our decision-making to respond more effectively to the needs of our customers while providing a full range of financial services to the businesses, individuals, and municipalities in our market area. We offer a broad range of financial products to meet the changing needs of the marketplace, including internet banking, cash management services and, on a selective basis, sweep accounts. In addition, we offer asset management services to meet the investing needs of individuals, corporations and not-for-profit entities. As a result, we are able to provide, at the local level, the financial services required to meet the needs of the majority of existing and potential customers in our market.
Enhancing Customer Service.We are committed to providing superior customer service as a way to differentiate us from our competition. As part of our commitment to service, we have been engaged in Sunday banking since 1995. In addition, we offer multiple access channels to our customers, including our branch and ATM network, internet banking, our Customer Care Telephone Center and our Automated Voice Response system. We reinforce in our employees a commitment to customer service through extensive training, recognition programs and measurement of service standards. Initiated in 2006, our Service Excellence Program is an active part of the culture of the bank, designed to maintain the highest level of service to our customer base.
Growing and maintaining a Diversified Loan Portfolio.We offer a broad range ofdiverse loan products to commercial businesses, real estate owners, developers and individuals. To support this activity,consumers. In 2013, we maintain commercial, consumer and residential loan departments staffed with experienced professionalscontinued to promote the continued growth and prudent management of loan assets. We have experienced consistent and significantemphasize growth in our commercial loan portfolio while continuing to provide our residential mortgage and consumer lending services. Asbalances; as a result, we believe that we have developed a high quality, diversified loan portfolio with a favorable mix of loan types, maturities and yields. We
The Company augments organic growth with opportunistic acquisitions. Between fiscal 2002 and August 2012, the Company completed six acquisitions, including: National Bank of Florida in 2002; Ellenville National Bank in 2004; Warwick Community Bancorp in 2005; a branch office of HSBC Bank USA in 2005; Hudson Valley Investment Advisors in 2007; and Gotham Bank of New York in August 2012. On October 31, 2013, the Company completed the acquisition of Legacy Sterling. These acquisitions have
currently deemphasized acquisition and development lending for residential housing development of single family homes, as this area has been the most affected by the economy of the region.Expanding our Banking Franchise.Management intends to continuesupported the expansion of the Company into attractive markets and diversified businesses. See additional disclosure of our acquisitions in Note 2. Acquisitions and Note 22. Subsequent Events to the consolidated financial statements.
Lending Activities
General. Our commercial banking franchise and to increase the number of customers served and products used by businesses and consumers in our market area. Our strategy is to deliver exceptional customer service, which depends on up-to-date technology and multiple access channels, as well as courteous personal contact from a trained and motivated workforce. This approach has resulted in a relatively high level of core deposits, which drives a lower overall cost of funds. Management intends to maintain this strategy, which will require ongoing investment in banking locations and technology to support exceptional service levels for Provident Bank’s customers. Recent expansion efforts have been focusedteams focus on the greater New York area through the additionorigination of commercial teams. We intend to concentrate on certain segments of the market, in particular focusing on business with revenues of $5 million to $100 million, small business with revenues of $500,000 to $5 million and financially savvy families.Lending Activities
General.The loans we originate in our general market are; primarily commercial real estate loans multifamily real estate,and commercial business loans, and are deemphasizing acquisition, development and construction loans (“loan portfolio”).& industrial loans. We also originate loans in our market area on a fixed-rate and adjustable-rate (“ARM”) basis residential mortgage loans collateralized by one- to four-family residential real estate, and consumer loans such as home equity lines of credit, homeowner loans and personal loans.loans in our market area. We retain mostsell many of the residential mortgage loans we originate althoughand we may sell longer-term one- to four-family residential loans andenter into loan participations in some commercial loans.loans for portfolio management purposes.
Commercial Real Estate Lending.We originate real estate loans secured predominantly by first liens on commercial real estate. The underlying collateral of our commercial real estate loans consists of multi-family properties, are predominantly non-residentialretail properties such asincluding shopping centers and strip centers, office buildings, shopping centers, retail strip centers,nursing homes, industrial and warehouse properties, hotels, motels, restaurants, and toschools. To a lesser extent more specialized properties such as assisted livingwe originate commercial real estate loans for medical use, non-profits, gas stations and nursing homes, churches, mobile home parks, restaurants and motel/hotels.other categories. We may, from time to time, purchase commercial real estate loan participations. Recently we began seeking multifamily properties to diversify the portfolio. We target commercial real estate loans with initial principal balances between $1.0 million and $15.0 million. At September 30, 2011,2013, loans secured by commercial real estate totaled $703.4 million,$1.3 billion, or 41.4%52.9% of our total loan portfolio and consisted of 982 loans outstanding, although there are a large number of loans with balances substantially greater than the average.portfolio. Substantially all of our commercial real estate loans are secured by properties located in our primary market area.
The majority of our commercial real estate loans
have a term of ten years and are
writtenstructured as five-year
adjustable-ratefixed rate loans with a rate adjustment for the second five-year period or
as ten-year fixed-rate
mortgages and typically have balloon maturities up to ten years.loans. Amortization on these loans is typically based on
25-year payout schedules. Margins20 to 25 year terms with balloon maturities generally in five or ten years. Interest rates on commercial real estate loans generally range from 200 basis points to 300 basis points above
the applicable Federal Home Loan Bank advance rate.a reference index.
In the underwriting of commercial real estate loans, we generally lend up to 75% of the
property’s appraised value. Decisions to lend are based on the economic viability of the property and the creditworthiness of the borrower. In evaluating a proposed commercial real estate loan, we primarily emphasize the ratio of the
property’s projected net cash flow to the
loan’s debt service requirement (generally targeting a minimum ratio of 120%), computed after
deductiondeductions for a vacancy factor and property expenses we deem appropriate. In addition, a personal guarantee of the loan or a portion thereof is generally required from the principal(s) of the
borrower.borrower, except for loans secured by multi-family properties. We require title insurance insuring the priority of our lien, fire and extended coverage casualty insurance, and flood insurance, if appropriate, in order to protect our security interest in the underlying property.
Commercial real estate loans generally carry higher interest rates and have shorter terms than one-to four-family residential mortgage loans.
Commercial real estate loans typically involve significant loan balances concentrated with single borrowers or groups of related borrowers. In addition, the payment experience on loans secured by income-producing properties typically depends on the successful operation of the related real estate project and
thus may be subject to adverse conditions in the real estate market and in the general economy. For commercial real estate loans in which the borrower is
the primary occupant,a significant tenant, repayment experience also depends on the successful operation of the borrower’s underlying business.
Commercial Business Loans& Industrial Lending.We make various types of secured and unsecured commercial & industrial loans to customersbusinesses in our market area for the purpose of financing equipment acquisition, expansion, working capital, the acquisition of equipment, business expansion, and other general business purposes. The terms of these loans generally range from less than one year to seven years. The loans are either negotiatedstructured on a fixed-rate basis or carry adjustable interest rates indexed to a lending rate that is determined internally, or a short-term market rate index. At September 30, 2011,2013, we had 1,871 commercial business& industrial loans outstanding with an aggregate balance of $209.9$439.8 million, or 12.3%18.2% of theour total loan portfolio. As
Underwriting of
September 30, 2011, the averagea commercial
business& industrial loan
balance was approximately $111,800, although there are a large number of loans with balances substantially greater than this average.Commercial credit decisions areis based on a creditan assessment of the loan applicant. A determination is made as to the applicant’s willingness and ability to repay in accordance with the proposed terms as well as an overall assessment of the risks involved. AnThis includes an evaluation is made of the applicant to determine character and capacity to manage. Personal guarantees of the principals are generally required, except in the case of not-for-profit corporations. In addition to an evaluation of the loan applicant’s financial statements, a determination is made ofwe analyze the probable adequacy of the primary and secondary sources of repayment to be relied upon in the transaction. Credit agency reports of the applicant’s credit history supplement the analysis of the applicant’s creditworthiness. Checking with other banks and trade investigations may also be conducted. Collateral supporting a secured transaction also is analyzed to determine its marketability. For small business loans and lines of credit, generally those not exceeding $100,000, we use a modified credit scoring system that enables us to process the loan requests more quickly and efficiently.
Commercial business loans generally bear higher interest rates than residential loans of like duration because they involve a higher risk of default since their repayment is generally dependent on the successful operation of the borrower’s business and the sufficiency of collateral, if any.
Residential Mortgage Lending.One-To Four-Family Real Estate Lending.We offer conforming and non-conforming, fixed-rate and adjustable-rate ( “ARM”) residential mortgage loans with maturities of up to 30 years and maximum loan amounts generally up to $1.1$4.0 million that are fully amortizing with monthly or bi-weekly loan payments. ThisOur residential mortgage loan portfolio totaled $389.8$400.0 million, or 22.9%16.6% of our total loan portfolio at September 30, 2011.2013One- to four-family residential.
Residential mortgage loans are generally underwritten according to Fannie Mae and Freddie Mac guidelines for loans they designate as acceptable for purchase. Loans that conform to such guidelines are referred to as “conforming loans.” We generally originate fixed-rate loans in amounts up to the maximum conforming loan limits as established by Fannie Mae and Freddie Mac, which are currently $417,000 for single-family homes or higher$417 thousand in certainmany locations in the continental U.S. and are $625.5 thousand in high-cost areas such as determined byNew York City and surrounding counties in which we originate the Federal Housing Finance Agency.majority of our residential mortgage loans. Private mortgage insurance is generally required for loans
with loan-to-value ratios in excess of 80%. In order to reducemanage our exposure to rising interest rates, we sold or securitized a portionsell the majority of our conforming fixed rate 1-4 family residential mortgage loans originated,to government sponsored entities such as Fannie Mae and Freddie Mac. We realized proceeds from the sale of residential mortgage loans totaling $52.5$94.1 million and $49.0$79.1 million in proceeds for the fiscal years ending ended September 30, 20112013 and 2010,2012, respectively.
We also originate loans above conforming limits, referred to as “jumbo loans,” which have been underwritten to substantially the same credit standards as conforming loans. These loans are generally intended to be held in our
portfolios.We actively monitor our interest rate risk position to determine the desirable level of investment in fixed-rate mortgages. Depending on market interest rates and our capital and liquidity position, we may retain all of our newly originated longer term fixed-rateresidential mortgage loan portfolio. Our bi-weekly residential mortgage loans or from time to time we may decide to sell all or a portion of such loans in the secondary mortgage market to government sponsored entities such as Fannie Mae and Freddie Mac or other purchasers. Our bi-weekly one- to four-family residential mortgage loans that are retained in our portfolio result in shorter repayment schedules than conventional monthly mortgage loans, and are repaid through an automatic deduction from the borrower’s savings or checking account. As of September 30, 2011, bi- weekly loans totaled $89.5 million, or 23% of our residential loan portfolio. We retain the servicing rights on a large majority of loans sold to generate fee income and reinforce our commitment to customer service, although we may also sell non-conforming loans to mortgage banking companies, generally on a servicing-released basis.sold. As of September 30, 2011,2013, loans serviced for others, excluding loan participations, totaled $173.8$249.0 million.
Effective October 1, 2013, we transferred the servicing function for residential mortgage loans we own and service for others to a nationally recognized mortgage loan servicer. We anticipate the transfer will have a neutral to modestly positive impact on operating expenses and will better position the Company to grow its residential mortgage lending business.
We currently offer several ARM loan products secured by residential properties with rates that are fixed for a period ranging from six months to ten years. After the initial term, if the loan is not already refinanced, the interest rate on these loans generally resets every year based upon a contractual spread or margin above the average yield on U.S. Treasury securities, adjusted to a constant maturity of one year, as published weekly by the Federal Reserve Board and subject to certain periodic and lifetime limitations on interest rate changes. Many of the borrowers who select these loans have shorter-term credit needs than those who select long-term, fixed-rate loans. ARM loans generally pose different credit risks than fixed-rate loans primarily because the underlying debt service payments of the borrowers rise as interest rates rise, thereby increasing the potential for default.
At September 30, 2011, our ARM portfolio included $2.2 million in loans that re-price every six months, $42.5 million in loans that re-price once a year, $19.1 million in loans that re-price periodically after an initial fixed-rate period of one year or more and $429,000 that re-price based upon other miscellaneous re-pricing terms. Our adjustable rate loans do not have interest-only or negative amortization features. We do not nor have we in the past originated “subprime” loans, i.e., loans to borrowers with subprime credit scores combined with either high loan-to-value or high debt-to-income ratios.
We require title insurance on all of our
one- to four-familyresidential mortgage loans, and we also require that borrowers maintain fire and extended coverage or all risk casualty insurance (and, if appropriate, flood insurance) in an
amount at least equal to the lesser of the loan balance or the replacement cost of the improvements, but in any event in an amount calculated to avoid the effect of any coinsurance clause. Nearly all residential firstResidential mortgage loans generally are required to have a mortgage escrow account from which disbursements are made for real estate taxes and for hazard and flood insurance.
Acquisition, Development and Construction Loans.Historically, we originated landLending. We originate acquisition, development and construction (“ADC”) loans to builders in our market area. InSince 2011, the past year, we haveCompany has deemphasized this lending due to the economic slow downactivity and declines in the real estate market. Effective August 2011, our policy is to consider acquisition or developmentwe currently originate ADC loans only on an exception basis. TheseADC loans totaled $175.9$102.5 million, or 10.3%4.2% of our total loan portfolio at September 30, 2011, a decline of $55.3 million as we have de-emphasized this business. Acquisition2013.
ADC loans help finance the purchase of land intended for further development, including single-family
houses,homes, multi-family housing, and commercial income
property.properties. In some cases, we
may makehave made an acquisition loan before the borrower
has received approval to develop the land as
planned.planned; however, we did not originate any such loans in fiscal 2013. In general, the maximum loan-to-value ratio for a land acquisition loan is 50% of the appraised value of the property, although
higher loan-to-value ratios may be allowed for certain borrowers we deem to be
our lowest risk, higher loan-to-value ratios may be allowed.lower risk. We also
makefund development loans to builders in our market area to finance improvements to real estate, consisting mainly of single-family subdivisions, typically to finance the cost of utilities, roads, sewers and other development costs. Builders generally rely on the sale of single-family homes to repay development loans, although in some cases the improved building lots may be sold to another builder. The maximum
loan amount
loaned is generally limited to the cost of the improvements plus limited approval of soft
costs.costs subject to an overall loan-to-value limitation. In general, we do not originate loans with interest reserves.
A portion of our ADC loans acquired through the purchase of participations do carry interest reserves. The total of these ADC participation loans with interest reserves at September 30, 2011 were $12.6 million. Advances are made in accordance with a schedule reflecting the cost of the improvements.
We also make construction loans to
area builders which are not affected by our new policy. In the case of residential subdivisions, these loans finance the cost of completing homes on the improved property. Advances on construction loans are made in accordance with a schedule reflecting the cost of construction. Repayment of construction loans on residential subdivisions is normally expected from the sale of units to individual purchasers except in cases of owner occupied construction loans.
Owner occupied commercial construction loans totaled $6.9 million at September 30, 2011. In the case of income-producing property, repayment is usually expected from permanent financing upon completion of construction. We
commit to provide
the permanent mortgage financing on most of our construction loans on income-producing property. Collateral coverage and risk profile
isare maintained by restricting the number of model or speculative units in each project.
ADC lending exposes us to greater credit risk than permanent mortgage financing. The repayment of ADC loans generally depends uponon the sale of the property to third parties or the availability of permanent financing upon completion of all improvements. In the event we make an acquisition loan on property that is not yet approved for the planned development, there is the risk that approvals will not be granted or will be delayed. These events may adversely affect the borrower and the collateral value of the property. Development and construction loans also expose us to the risk that improvements will not be completed on time in accordance with specifications and projected costs. In addition, the ultimate sale or rental of the property may not occur as anticipated. In recent years as a result
Consumer LoansLending.We originate a variety of consumer and other loans, including homeowner loans, home equity lines of credit, new and used automobile loans, and personal unsecured loans, including fixed-rate installment loans and variable lines of credit. As of September 30, 2011,2013, consumer loans totaled $224.8$193.6 million or 13.1%8.1% of the total loan portfolio.
We offer fixed-rate, fixed-term second mortgage loans, referred to as homeowner loans, and we also offer adjustable-rate home equity lines of credit secured by junior liens on residential properties. As of September 30, 2011,2013, homeowner loans totaled $41.0$29.1 million or 2.4%1.2% of our total loan portfolio. The disbursed portion of home equity lines of credit totaled $174.5$157.3 million, or 10.2%6.5% of our total loan portfolio at September 30, 2011,2013, with $129.0$99.6 million remaining undisbursed.Other consumer loans include personal loans and loans secured by new or used automobiles. As of September 30, 2011, these loans totaled $9.3 million, or less than 1% of our total loan portfolio. We originate consumer loans directly to our customers or on an indirect basis through selected dealerships. We require borrowers to maintain collision insurance on automobiles securing consumer loans, with us listed as loss payee. Personal loans also include secured and unsecured installment loans for other purposes. Unsecured installment loans, which include most personal loans, generally have shorter terms than secured consumer loans, and generally have higher interest rates than rates charged on secured installment loans with comparable terms. We also offer overdraft lines of credit on an unsecured basis; outstanding balances on these loans included above totaled $4.2 million with additional undrawn lines totaling $14.2 million.
Our procedures for underwriting consumer loans include an assessment of an applicant’s credit history and the ability to meet existing obligations and payments on the proposed loan. Although an applicant’s creditworthiness is a primary consideration, the underwriting process also includes a comparison of the value of the collateral security, if any, to the proposed loan amount. We generally lend at an 80% loan-to-value ratio for home equity loans, but will go to 90% loan-to-value with a strong loan profile and higher pricing.
Consumer loans generally entail greater risk than residential mortgage loans. Loans secured by junior liens have been more likely to be adversely affected by job loss, divorce, illness or personal bankruptcy than a single family mortgage loan.
Loan Portfolio Composition. The following table sets forth the composition of our loan portfolio, excluding loans held for sale, by type of loan at the datesperiods indicated. | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | September 30, | |
| | | 2011 | | | 2010 | | | 2009 | | | 2008 | | | 2007 | |
| | | Amount | | | Percent | | | Amount | | | Percent | | | Amount | | | Percent | | | Amount | | | Percent | | | Amount | | | Percent | |
| | | (Dollars in thousands) | |
One-to four-family residential mortgage loans | | $ | 389,765 | | | | 22.9 | % | | $ | 434,900 | | | | 25.5 | % | | $ | 460,728 | | | | 27.0 | % | | $ | 513,381 | | | | 29.6 | % | | $ | 500,825 | | | | 30.6 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Commercial real estate loans | | | 703,356 | | | | 41.4 | | | | 579,232 | | | | 34.0 | | | | 546,767 | | | | 32.6 | | | | 554,811 | | | | 32.0 | | | | 535,003 | | | | 32.8 | |
Commercial business loans | | | 209,923 | | | | 12.3 | | | | 217,927 | | | | 12.8 | | | | 242,629 | | | | 14.2 | | | | 243,642 | | | | 14.1 | | | | 207,156 | | | | 12.6 | |
Acquisition, development, construction | | | 175,931 | | | | 10.3 | | | | 231,258 | | | | 13.6 | | | | 201,611 | | | | 11.4 | | | | 170,979 | | | | 9.9 | | | | 153,074 | | | | 9.3 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Total commercial loans | | | 1,089,210 | | | | 64.0 | | | | 1,028,417 | | | | 60.4 | | | | 991,007 | | | | 58.2 | | | | 969,432 | | | | 56.0 | | | | 895,233 | | | | 54.7 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Home equity lines of credit | | | 174,521 | | | | 10.2 | | | | 176,134 | | | | 10.4 | | | | 180,205 | | | | 10.6 | | | | 166,491 | | | | 9.6 | | | | 162,669 | | | | 9.9 | |
Homeowner loans | | | 40,969 | | | | 2.4 | | | | 48,941 | | | | 2.9 | | | | 54,941 | | | | 3.2 | | | | 58,569 | | | | 3.4 | | | | 59,705 | | | | 3.6 | |
Other consumer loans | | | 9,334 | | | | 0.5 | | | | 13,149 | | | | 0.8 | | | | 16,376 | | | | 1.0 | | | | 23,680 | | | | 1.4 | | | | 19,626 | | | | 1.2 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Total consumer loans | | | 224,824 | | | | 13.1 | | | | 238,224 | | | | 14.1 | | | | 251,522 | | | | 14.8 | | | | 248,740 | | | | 14.4 | | | | 242,000 | | | | 14.7 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Total loans | | | 1,703,799 | | | | 100.0 | % | | | 1,701,541 | | | | 100.0 | % | | | 1,703,257 | | | | 100.0 | % | | | 1,731,553 | | | | 100.0 | % | | | 1,638,058 | | | | 100.0 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Allowance for loan losses | | | (27,917 | ) | | | | | | | (30,843 | ) | | | | | | | (30,050 | ) | | | | | | | (23,101 | ) | | | | | | | (20,389 | ) | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Total loans, net | | $ | 1,675,882 | | | | | | | $ | 1,670,698 | | | | | | | $ | 1,673,207 | | | | | | | $ | 1,708,452 | | | | | | | $ | 1,617,669 | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | September 30, |
| | 2013 | | 2012 | | 2011 | | 2010 | | 2009 |
| | Amount | | % | | Amount | | % | | Amount | | % | | Amount | | % | | Amount | | % |
| | (Dollars in thousands) |
| Residential mortgage | $ | 400,009 |
| | 16.6 | % | | $ | 350,022 |
| | 16.5 | % | | $ | 389,765 |
| | 22.9 | % | | $ | 434,900 |
| | 25.5 | % | | $ | 460,728 |
| | 27.0 | % |
| Commercial real estate | 1,277,037 |
| | 52.9 |
| | 1,072,504 |
| | 50.6 |
| | 703,356 |
| | 41.4 |
| | 579,232 |
| | 34.0 |
| | 546,767 |
| | 32.1 |
|
| Commercial & industrial | 439,787 |
| | 18.2 |
| | 343,307 |
| | 16.2 |
| | 209,923 |
| | 12.3 |
| | 217,927 |
| | 12.8 |
| | 242,629 |
| | 14.2 |
|
| Acquisition, development & construction | 102,494 |
| | 4.2 |
| | 144,061 |
| | 6.8 |
| | 175,931 |
| | 10.3 |
| | 231,258 |
| | 13.6 |
| | 201,611 |
| | 11.9 |
|
| Total commercial loans | 1,819,318 |
| | 75.3 |
| | 1,559,872 |
| | 73.6 |
| | 1,089,210 |
| | 64.0 |
| | 1,028,417 |
| | 60.4 |
| | 991,007 |
| | 58.2 |
|
| Consumer | 193,571 |
| | 8.1 |
| | 209,578 |
| | 9.9 |
| | 224,824 |
| | 13.1 |
| | 238,224 |
| | 14.1 |
| | 251,522 |
| | 14.8 |
|
| Total loans | 2,412,898 |
| | 100.0 | % | | 2,119,472 |
| | 100.0 | % | | 1,703,799 |
| | 100.0 | % | | 1,701,541 |
| | 100.0 | % | | 1,703,257 |
| | 100.0 | % |
| Allowance for loan losses | (28,877 | ) | | | | (28,282 | ) | | | | (27,917 | ) | | | | (30,843 | ) | | | | (30,050 | ) | | |
| Total loans, net | $ | 2,384,021 |
| | | | $ | 2,091,190 |
| | | | $ | 1,675,882 |
| | | | $ | 1,670,698 |
| | | | $ | 1,673,207 |
| | |
Loan Portfolio Maturities and Yields. The following table summarizes the scheduled repayments of our loan portfolio at September 30, 2011.2013. Demand loans, loans having no stated repayment schedule or maturity, and overdraft loans are reported as being due in one year or less. Weighted average rates are computed based on the rate of the loan at September 30, 2011.2013 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Residential Mortgage | | | Commercial Real Estate | | | Commercial Business | | | ADC | | | Consumer | | | Total | |
| | | Amount | | | Weighted
Average
Rate | | | Amount | | | Weighted
Average
Rate | | | Amount | | | Weighted
Average
Rate | | | Amount | | | Weighted
Average
Rate | | | Amount | | | Weighted
Average
Rate | | | Amount | | | Weighted
Average
Rate | |
| | | (Dollars in thousands) | |
Due During the Years
Ending September 30, | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
2012 | | $ | 7,097 | | | | 4.44 | % | | $ | 30,413 | | | | 5.20 | % | | $ | 56,728 | | | | 4.09 | % | | $ | 119,055 | | | | 4.48 | % | | $ | 1,800 | | | | 5.92 | % | | $ | 215,093 | | | | 4.49 | % |
2013 to 2016 | | | 24,016 | | | | 5.06 | | | | 255,305 | | | | 5.66 | | | | 85,200 | | | | 4.59 | | | | 50,289 | | | | 4.23 | | | | 10,838 | | | | 8.45 | | | | 425,648 | | | | 5.31 | |
2016 and beyond | | | 358,652 | | | | 5.40 | | | | 417,638 | | | | 5.61 | | | | 67,995 | | | | 4.49 | | | | 6,587 | | | | 3.20 | | | | 212,186 | | | | 4.67 | | | | 1,063,058 | | | | 5.26 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Total | | $ | 389,765 | | | | 5.56 | % | | $ | 703,356 | | | | 5.60 | % | | $ | 209,923 | | | | 4.42 | % | | $ | 175,931 | | | | 4.14 | % | | $ | 224,824 | | | | 4.87 | % | | $ | 1,703,799 | | | | 5.20 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
.
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Residential mortgage | | Commercial real estate | | Commercial & industrial | | Acquisition, development & construction | | Consumer | | Total |
| | Amount | | Rate | | Amount | | Rate | | Amount | | Rate | | Amount | | Rate | | Amount | | Rate | | Amount | | Rate |
| | (Dollars in thousands) |
| Maturing within: | | | | | | | | | | | | | | | | | |
| | |
| < 1 year | $ | 5,923 |
| | 4.63 | % | | $ | 69,858 |
| | 4.96 | % | | $ | 147,755 |
| | 4.96 | % | | $ | 40,336 |
| | 4.48 | % | | $ | 4,105 |
| | 13.48 | % | | $ | 267,977 |
| | 4.43 | % |
| 2-5 years | 21,802 |
| | 4.53 |
| | 329,997 |
| | 4.66 |
| | 110,768 |
| | 4.66 |
| | 44,158 |
| | 4.52 |
| | 6,760 |
| | 6.96 |
| | 513,485 |
| | 4.52 |
|
| > 5 years | 372,284 |
| | 4.57 |
| | 877,182 |
| | 4.48 |
| | 181,264 |
| | 4.48 |
| | 18,000 |
| | 3.09 |
| | 182,706 |
| | 4.29 |
| | 1,631,436 |
| | 4.42 |
|
| Total loans | $ | 400,009 |
| | 4.57 | % | | $ | 1,277,037 |
| | 4.55 | % | | $ | 439,787 |
| | 4.55 | % | | $ | 102,494 |
| | 4.25 | % | | $ | 193,571 |
| | 4.58 | % | | $ | 2,412,898 |
| | 4.44 | % |
The following table sets forth the scheduled repaymentscomposition of fixed-fixed-rate and adjustable-rate loans at September 30, 20112013 that are contractually due after September 30, 2012. | | | | | | | | | | | | |
| | | Fixed | | | Adjustable | | | Total | |
| | | (Dollars in thousands) | |
Residential mortgage loans | | $ | 323,446 | | | $ | 59,222 | | | $ | 382,668 | |
| | | | | | | | | | | | |
Commercial real estate loans | | | 293,956 | | | | 378,987 | | | | 672,943 | |
Commercial business loans | | | 47,962 | | | | 105,233 | | | | 153,195 | |
ADC | | | 1,838 | | | | 55,038 | | | | 56,876 | |
| | | | | | | | | | | | |
Total commercial loans | | | 343,756 | | | | 539,258 | | | | 883,014 | |
| | | | | | | | | | | | |
Consumer loans | | | 53,677 | | | | 169,347 | | | | 223,024 | |
| | | | | | | | | | | | |
Total loans | | $ | 720,879 | | | $ | 767,827 | | | $ | 1,488,706 | |
| | | | | | | | | | | | |
2014
Loan Originations, Purchases, Sales and Servicing.While we originate both fixed-rate and adjustable-rate loans, our ability to generate each type of loan depends upon borrower demand, market interest rates, borrower preference for fixed versus adjustable-rate loans, and the interest rates offered on each type of loan by other lenders in our market area. These include competing banks, savings banks, credit unions, mortgage banking companies, life insurance companies and similar financial services firms. Loan originations are derived from a number of sources, including branch office personnel, commercial banking officers, existing customers, borrowers, builders, attorneys, real estate broker referrals and walk-in customers.:Our loan origination and sales activity may be adversely affected by a rising interest rate environment or period of falling house prices, which typically result in decreased loan demand, while declining interest rates may stimulate increased loan demand. Accordingly, the volume of loan origination, the mix of fixed and adjustable-rate loans, and the profitability of this activity can vary from period to period. One- to four-family residential mortgage loans are generally underwritten to current Fannie Mae and Freddie Mac seller/servicer guidelines, and closed on standard Fannie Mae/Freddie Mac documents. If such loans are sold, the sales are conducted generally using standard Fannie Mae/Freddie Mac purchase contracts and master commitments as applicable. One- to four-family mortgage loans may be sold to Fannie Mae or Freddie Mac on a non-recourse basis whereby foreclosure losses are generally the responsibility of the purchaser and not Provident Bank. Consistent with its long-standing credit policies, Provident Bank does not originate or hold subprime mortgage loans. We also hold no subprime loans through our investment portfolio.
During fiscal year 2011, $3.0 million in loans were sold as participation certificates whereby such loans were retained as mortgage backed securities guaranteed by Freddie Mac. In addition we sold $49.5 million as whole loans to Freddie Mac. We are a qualified loan servicer for both Fannie Mae and Freddie Mac. Our policy generally has been to retain the servicing rights for all conforming loans sold. We therefore continue to collect payments on the loans, maintain tax escrows and applicable fire and flood insurance coverage, and supervise foreclosure proceedings, if necessary. We retain a portion of the interest paid by the borrower on the loans as consideration for our servicing activities.
|
| | | | | | | | | | | |
| | Fixed | | Adjustable | | Total |
| | (Dollars in thousands) |
| Residential mortgage | $ | 229,263 |
| | $ | 164,823 |
| | $ | 394,086 |
|
| Commercial real estate | 615,491 |
| | 591,688 |
| | 1,207,179 |
|
| Commercial & industrial | 140,129 |
| | 151,903 |
| | 292,032 |
|
| Acquisition, development & construction | 8,644 |
| | 53,514 |
| | 62,158 |
|
| Total commercial loans | 764,264 |
| | 797,105 |
| | 1,561,369 |
|
| Consumer | 34,757 |
| | 154,709 |
| | 189,466 |
|
| Total loans | $ | 1,028,284 |
| | $ | 1,116,637 |
| | $ | 2,144,921 |
|
Loan Approval/Authority and Underwriting.The Board of Directors has established the Credit Risk Committee (the “CRC”) to oversee the lending functions of the Bank. The CRC reviews loans approved by the Bank’s Management Credit Committee, oversees the performance of the Bank’s loan portfolio and its various components, assists in the development of strategic initiatives to enhance portfolio performance, and considers matters for approval and recommendation to the Board of Directors.
The Management Credit Committee (the “MCC”) consists of the
President and Chief Executive Officer, Chief Risk Officer, Chief Credit Officer, and other senior lending personnel. The MCC is authorized to approve loans within the existing policy limits established by the
Board.Board of Directors. For loans that
contain anyare not within policy
exceptionguidelines but are nonetheless deemed desirable, the MCC may recommend approval to the CRC, which in turn may recommend approval to the Board.
The MCC may also authorize lending authority to individual Bank officers for both single and dual initial approval authority.
The maximumOther than overdrafts, the only single initial
authoritylending authorities are for
commercial loans is $50,000 ($100,000 for credit-scoredcredit secured small business
loans);loans up to $250,000 and
for other consumer loans, primarily equity loans, $100,000. Allup to $500,000 if secured by residential
lending authority requires dual signatures.property. Two loan officers with sufficient authority acting together may approve loans up to
$1$3 million.
We have established a risk rating system for our commercial
business& industrial loans, commercial
and multi-family real estate loans and ADC
loans to builders.loans. The risk rating system assesses a variety of factors to rank the risk of default and risk of loss associated with the loan. These ratings are
performedassessed by commercial credit personnel who do not have responsibility for loan originations. We determine our maximum loan-to-one-borrower limits based
uponon the rating of the loan. The
large majority of
our loans fall into four categories. The maximum for the best-rated borrowers is $20 million, $15 million for the next group of borrowers, $12 million for the third group and $6 million for the last group. Sub-limits apply based on reliance on any single property, and for commercial business loans. On occasion, the Board of Directors may approve higher exposure limits for loans to one borrower in an amount not to exceed the legal lending limit of the Bank. The Board may also authorize the
Director of the CreditChief Risk
CommitteeOfficer, or Management
credit committeeCredit Committee to approve loans for specific borrowers up to a designated Board approved limit in excess of the policy limit, for that borrower.
In connection with our residential
mortgage and commercial real estate loans, we generally require property appraisals to be performed by independent appraisers who are approved by the Board. Appraisals are then reviewed by the appropriate loan underwriting areas. Under certain conditions, appraisals may not be required for loans under $250,000 or in other limited circumstances. We also require title insurance, hazard insurance and, if indicated, flood insurance on property securing mortgage loans. Title insurance is not required for consumer loans under $100,000, such as home equity lines of credit and homeowner loans and in connection with certain residential mortgage refinances.
Loan Origination Fees and Costs.In addition to interest earned on loans, we receivemay collect loan origination fees. Such fees vary with the volume and type of loans and commitments made, and competitive conditions in the mortgage markets,marketplace, which in turn respond to the demand and availability of money.funding. We defer loan origination fees and costs, and amortize such amounts as an adjustment to yield over the term of the loan by use ofusing the level yield method. Deferred loan origination costs (net of deferred fees) were $308,000$1.2 million at September 30, 2011.2013.
To the extent that originated residential mortgage loans are sold with servicing retained, we capitalize a mortgage servicing asset at the time of the sale. The capitalized amount is amortized thereafter (over the period of estimated net servicing income) as a reduction of servicing fee income. The unamortized amount is fully charged to income when loans are prepaid. Originated mortgage servicing rights with an amortized cost of $1.5$2.0 million are included in other assets at September 30, 2011. See also Notes 2 and 52013.
Loans to One Borrower.At September 30, 2011,2013, our five largest aggregate amounts loaned to any one borrower and certain related interests (including any unused lines of credit) consisted of secured and unsecured financing of $22.5$24.8 million, $19.5$24.0 million, $17.6$22.6 million, $16.6$21.2 million and $16.0$18.0 million. In addition, we have 52 relationships with an amount loaned of $10 million or more, with an aggregate exposure of $706.5 million. See “Regulation — Regulation of Provident Bank — Loans to One Borrower” for a discussion of applicable regulatory limitations.
Delinquent Loans, Troubled Debt
Restructure,Restructuring, Impaired Loans, Other Real Estate Owned and Classified Assets
Collection Procedures for Residential and Commercial Mortgage Loans and Consumer Loans.A computer-generated late payment notice is sent bygenerated after the 16th day afterof the loan payment due date on a loan requesting the payment due plus any late charge that was assessed. Accounts are distributed to a collector or account officer to contact borrowers, determine the reason for delinquency and seek payment, and accounts are monitored electronically for receipt of payments. If payments are not received within 30 days of the original due date, a letter demanding payment of all arrearagesLegal action, notwithstanding ongoing collection efforts, is sent and contact efforts are continued. If payment is not received within 60 days of the due date,loans are generally accelerated and payment in full is demanded. Failure to pay withininitiated after 90 days of the original due date generally results in legal action, notwithstanding ongoing collection efforts.for failure to make payment. Unsecured consumer loans are generally charged-off after 120 days. For commercial loans, procedures vary depending uponon individual circumstances.
Loans Past Due and Non-Performing Assets.Loans are reviewed on a regular basis and are placed on non-accrual status when full payment of principal or interest is in doubt, or when either principal or interest is 90 days or more past due, unless the loan is well secured and in the process of collection. In addition, loans are placed on non-accrual status when, in the opinion of management, there is sufficient reason to question the borrower’s ability to continue to meet principal or interest payment obligations. Interest accrued and unpaid at the time a loan is placed on non-accrual status is reversed fromagainst interest income related to current year income and charged to the allowance for loan losses with respect to income that was recorded in the prior fiscal year.income. Interest payments received on non-accrual loans are not recognized as income unless warrantedgenerally applied to the principal balance of the outstanding loan. However, based on an assessment of the borrower’s financial condition and payment record.history, an interest payment may be applied to interest income on a cash basis. Appraisals are performed at least annually on criticized/classifieds loans. At September 30, 2011,2013, we had non-accrual loans of $36.5$22.8 million, and $4.1we had $4.1 million of loans 90 days past due and still accruing interest which were well secured and in the process of collection. At September 30, 20102012, we had non-accrual loans of $21.4$35.4 million and $5.4$4.4 million of loans 90 days past due and still accruing interest.
Impaired Loans. A loan is impaired when it is probable that a creditorthe Bank will be unable to collect all amounts due according to the contractual terms of the loan agreement. 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 loan is collateral dependent. If the measure of an impaired loan is less than its recorded investment, the Company may write-down a portion of the loan against the allowance for loan losses or a portion of the allowance for loan losses ismay be allocated so that the loan is reported net atof its measured value.specific allowance. Impaired loans substantially consistgenerally include a portion of classified loans, non-performing loans and accruing and performing troubled debt restructured loans. At September 30, 2011,2013, we had $55.0$36.8 million in impaired loans with $3.8$1.6 million in specific allowances.
Troubled Debt Restructuring. The Company has formally modified loans to certain borrowers who experienced financial difficulty. If the terms of the modification include a concession, as defined by accounting principles generally accepted in the U.S., the loan is considered a troubled debt restructuring (“TDR”), which are also considered impaired loans. Nearly all of these loans are secured by real estate. Total TDRs were $26.1 million at September 30, 2013, of which $2.2 million were non-accrual and $23.9 million were performing according to terms and still accruing interest income. TDRs still accruing interest income are loans modified for borrowers that are experiencing one or more financial difficulties and are still performing in accordance with the terms of their loan prior to the modification. Loan modifications include actions such as extension of maturity date or the lowering of interest rates and monthly payments. Commitments to lend additional funds to borrowers with loans that have been modified were $4.1 million at September 30, 2013.
Other Real Estate Owned.Real estate acquired as a result of foreclosure or by deed in lieu of foreclosure is classified as other real estate owned (“REO”OREO”) until such time as it is sold. When real estate is acquired through foreclosure or by deed in lieu of foreclosure, it is recorded at the lower of book valueour investment in the loan or fair value less cost to sell. If the fair value of the propertyless cost to sell is less than the loan balance, the difference is charged against the allowance for loan losses. At September 30, 20112013, we had 17 foreclosed23 OREO properties with a recorded balance of $5.4 million. In addition, $9.8$6.0 million in loan balances was considered troubled debt restructures which are still accruing interest income.Troubled Debt Restructure.The Company may modify loans. After transfer to certain borrowers who are experiencing financial difficulty. IfOREO we regularly update the termsfair value of the modification include a concession,property. Subsequent declines in fair value are charged to current earnings and included in other non-interest expense as defined by US GAAP guidance, the loan as modified is considered a trouble debt restructuring (“TDR”). Nearly all these loans are secured bypart of other real estate. Total TDR’s were $17.6 million at September 30, 2011, of which $7.8 million were classified as nonaccrual and $9.1 million were performing according to terms and still accruing interest income. TDR’s still accruing interest income were modified for a troubled borrower, who was still performing in accordance with the terms of their loan. The majority of TDR’s consisted of four relationships totaling $8.0 million, $3.6 million, $1.0 million and $853,000 respectively. Included in the total of $13.5 million of these four relationships are $6.6 million of non performing loans. The loan modifications included actions such as extension of maturity date or the lowering of interest rates and monthly payments. The amount of commitments to lend borrowers with loans that have been modified is $4.2 million at September 30, 2011. The commitments to lend on the restructured debt is contingent on clear title and a third party inspection to verify completion of work and is associated with loans that are considered to be performing.estate owned expense.
Classification of Assets.Our policies, consistent with regulatory guidelines, provide for the classification of loans and other assets that are considered to be of lesser quality such as substandard, doubtful, or loss assets. An asset is considered substandard if it is inadequately protected by the current net worth and paying capacity of theobligor or of the collateral pledged, if any. Substandard assets include those characterized by the distinct possibility that the bankBank will sustain some loss if the deficiencies are not corrected. Assets classified as “doubtful” have all of the weaknesses inherent in those classified as “substandard” with the added characteristic that the weaknesses present make collection or liquidation in full, on the basis of currently existing facts, conditions, and values, highly questionable and improbable. Assets classified as “loss” are those considered uncollectible and of such little value that their continuance as assets is not warranted and are charged off.charged-off. Assets that do not expose us to risk sufficient to warrant classification in one of the aforementioned categories, but which possess potential weaknesses that deserve our close attention, are designated as “special mention”. As of September 30, 2011,2013, we had $23.0$13.5 million of assets designated as “special mention”.
Our determination as to the classification of our assets and the amount of our loss allowancesallowance are subject to review by our regulatory agencies,regulators, which can order the establishment of an additional loan loss allowances.allowance. Management regularly reviews our asset portfolio to determine
whether any assets require classification in accordance with applicable regulations. On the basis of management’s review of our assets at September 30, 2011,2013, classified assets consisted of substandard assetsloans of $94.0$61.1 million, OREO of $6.0 million, and there were not any classified as doubtful.$3.6 million of private label mortgage-backed securities.
Loan Portfolio Delinquencies. The following table sets forth certain information with respect toon our loan portfolio delinquencies at the dates indicated. | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Loans Delinquent For | | | | | | | |
| | | 30-89 Days | | | 90 Days & over still
accruing & non-
accrual | | | Total | |
| | | Number | | | Amount | | | Number | | | Amount | | | Number | | | Amount | |
| | | (Dollars in thousands) | |
At September 30, 2011 | | | | | | | | | | | | | | | | | | | | | | | | |
Real estate — residential mortgage | | | 8 | | | $ | 1,212 | | | | 40 | | | $ | 7,976 | | | | 48 | | | $ | 9,188 | |
Real estate — commercial mortgage | | | 4 | | | | 1,105 | | | | 18 | | | | 9,655 | | | | 22 | | | | 10,760 | |
Real estate — commercial mortgage (CBL) | | | — | | | | — | | | | 16 | | | | 3,559 | | | | 16 | | | | 3,559 | |
Commercial business loans | | | 2 | | | | 490 | | | | 2 | | | | 168 | | | | 4 | | | | 658 | |
Commercial business loans (CBL) | | | — | | | | — | | | | 1 | | | | 75 | | | | 1 | | | | 75 | |
Acquisition, development & construction loans | | | 4 | | | | 4,265 | | | | 24 | | | | 16,984 | | | | 28 | | | | 21,249 | |
Consumer, including home equity loans | | | 20 | | | | 794 | | | | 26 | | | | 2,150 | | | | 46 | | | | 2,944 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Total | | | 38 | | | $ | 7,866 | | | | 127 | | | $ | 40,567 | | | | 165 | | | $ | 48,433 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
At September 30, 2010 | | | | | | | | | | | | | | | | | | | | | | | | |
Real estate — residential mortgage | | | 1 | | | $ | 113 | | | | 36 | | | $ | 8,033 | | | | 37 | | | $ | 8,146 | |
Real estate — commercial mortgage | | | 4 | | | | 1,469 | | | | 26 | | | | 9,857 | | | | 30 | | | | 11,326 | |
Commercial business loans | | | 2 | | | | 3,403 | | | | 6 | | | | 1,376 | | | | 8 | | | | 4,779 | |
Acquisition, development & construction loans | | | 2 | | | | 6,681 | | | | 11 | | | | 5,730 | | | | 13 | | | | 12,411 | |
Consumer, including home equity loans | | | 27 | | | | 681 | | | | 22 | | | | 1,844 | | | | 49 | | | | 2,525 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Total | | | 36 | | | $ | 12,347 | | | | 101 | | | $ | 26,840 | | | | 137 | | | $ | 39,187 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
At September 30, 2009 | | | | | | | | | | | | | | | | | | | | | | | | |
Real estate — residential mortgage | | | 2 | | | $ | 390 | | | | 32 | | | $ | 7,357 | | | | 34 | | | $ | 7,747 | |
Real estate — commercial mortgage | | | 2 | | | | 398 | | | | 24 | | | | 6,803 | | | | 26 | | | | 7,201 | |
Commercial business loans | | | 18 | | | | 999 | | | | 8 | | | | 457 | | | | 26 | | | | 1,456 | |
Acquisition, development & construction loans | | | 1 | | | | 366 | | | | 20 | | | | 11,270 | | | | 21 | | | | 11,636 | |
Consumer, including home equity loans | | | 22 | | | | 494 | | | | 13 | | | | 582 | | | | 35 | | | | 1,076 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Total | | | 45 | | | $ | 2,647 | | | | 97 | | | $ | 26,469 | | | | 142 | | | $ | 29,116 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
At September 30, 2008 | | | | | | | | | | | | | | | | | | | | | | | | |
Real estate — residential mortgage | | | 19 | | | $ | 4,106 | | | | 19 | | | $ | 4,218 | | | | 38 | | | $ | 8,324 | |
Real estate — commercial mortgage | | | 8 | | | | 1,666 | | | | 12 | | | | 3,832 | | | | 20 | | | | 5,498 | |
Commercial business loans | | | 29 | | | | 1,318 | | | | 35 | | | | 2,811 | | | | 64 | | | | 4,129 | |
Acquisition, development & construction loans | | | — | | | | — | | | | 9 | | | | 5,596 | | | | 9 | | | | 5,596 | |
Consumer, including home equity loans | | | 43 | | | | 435 | | | | 41 | | | | 421 | | | | 84 | | | | 856 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Total | | | 99 | | | $ | 7,525 | | | | 116 | | | $ | 16,878 | | | | 215 | | | $ | 24,403 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
At September 30, 2007 | | | | | | | | | | | | | | | | | | | | | | | | |
Real estate — residential mortgage | | | 28 | | | $ | 4,829 | | | | 15 | | | $ | 1,899 | | | | 43 | | | $ | 6,728 | |
Real estate — commercial mortgage | | | 31 | | | | 3,387 | | | | 8 | | | | 2,586 | | | | 39 | | | | 5,973 | |
Commercial business loans | | | 9 | | | | 357 | | | | 19 | | | | 1,683 | | | | 28 | | | | 2,040 | |
Acquisition, development & construction loans | | | — | | | | — | | | | 2 | | | | 689 | | | | 2 | | | | 689 | |
Consumer, including home equity loans | | | 49 | | | | 835 | | | | 30 | | | | 401 | | | | 79 | | | | 1,236 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Total | | | 117 | | | $ | 9,408 | | | | 74 | | | $ | 7,258 | | | | 191 | | | $ | 16,666 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
|
| | | | | | | | | | | | | | | | | |
| | Loans delinquent for | | | | |
| | 30-89 Days | | 90 days or more still accruing & non-accrual | | Total |
| | Number | | Amount | | Number | | Amount | | Number | | Amount |
| | (Dollars in thousands) |
| At September 30, 2013: | | | | | | | | | | | |
| Residential mortgage | 6 | | $ | 621 |
| | 52 | | $ | 9,316 |
| | 58 | | $ | 9,937 |
|
| Commercial real estate | 8 | | 4,335 |
| | 26 | | 8,769 |
| | 34 | | 13,104 |
|
| Commercial & industrial | 5 | | 180 |
| | 8 | | 789 |
| | 13 | | 969 |
|
| Acquisition, development & construction | 2 | | 768 |
| | 11 | | 5,420 |
| | 13 | | 6,188 |
|
| Consumer | 14 | | 566 |
| | 28 | | 2,612 |
| | 42 | | 3,178 |
|
| Total | 35 | | $ | 6,470 |
| | 125 | | $ | 26,906 |
| | 160 | | $ | 33,376 |
|
| At September 30, 2012: | | | | | | | | | | | |
| Residential mortgage | 10 | | $ | 1,352 |
| | 56 | | $ | 11,314 |
| | 66 | | $ | 12,666 |
|
| Commercial real estate | 7 | | 1,875 |
| | 30 | | 10,453 |
| | 37 | | 12,328 |
|
| Commercial & industrial | 7 | | 237 |
| | 2 | | 344 |
| | 9 | | 581 |
|
| Acquisition, development & construction | 9 | | 7,067 |
| | 29 | | 15,404 |
| | 38 | | 22,471 |
|
| Consumer | 22 | | 1,816 |
| | 21 | | 2,299 |
| | 43 | | 4,115 |
|
| Total | 55 | | $ | 12,347 |
| | 138 | | $ | 39,814 |
| | 193 | | $ | 52,161 |
|
| At September 30, 2011: | | | | | | | | | | | |
| Residential mortgage | 8 | | $ | 1,212 |
| | 40 | | $ | 7,976 |
| | 48 | | $ | 9,188 |
|
| Commercial real estate | 4 | | 1,105 |
| | 34 | | 13,214 |
| | 38 | | 14,319 |
|
| Commercial & industrial | 2 | | 490 |
| | 3 | | 243 |
| | 5 | | 733 |
|
| Acquisition, development & construction | 4 | | 4,265 |
| | 24 | | 16,984 |
| | 28 | | 21,249 |
|
| Consumer | 20 | | 794 |
| | 26 | | 2,150 |
| | 46 | | 2,944 |
|
| Total | 38 | | $ | 7,866 |
| | 127 | | $ | 40,567 |
| | 165 | | $ | 48,433 |
|
| At September 30, 2010: | | | | | | | | | | | |
| Residential mortgage | 1 | | $ | 113 |
| | 36 | | $ | 8,033 |
| | 37 | | $ | 8,146 |
|
| Commercial real estate | 4 | | 1,469 |
| | 26 | | 9,857 |
| | 30 | | 11,326 |
|
| Commercial & industrial | 2 | | 3,403 |
| | 6 | | 1,376 |
| | 8 | | 4,779 |
|
| Acquisition, development & construction | 2 | | 6,681 |
| | 11 | | 5,730 |
| | 13 | | 12,411 |
|
| Consumer | 27 | | 681 |
| | 22 | | 1,844 |
| | 49 | | 2,525 |
|
| Total | 36 | | $ | 12,347 |
| | 101 | | $ | 26,840 |
| | 137 | | $ | 39,187 |
|
| At September 30, 2009: | | | | | | | | | | | |
| Residential mortgage | 2 | | $ | 390 |
| | 32 | | $ | 7,357 |
| | 34 | | $ | 7,747 |
|
| Commercial real estate | 2 | | 398 |
| | 24 | | 6,803 |
| | 26 | | 7,201 |
|
| Commercial & industrial | 18 | | 999 |
| | 8 | | 457 |
| | 26 | | 1,456 |
|
| Acquisition, development & construction | 1 | | 366 |
| | 20 | | 11,270 |
| | 21 | | 11,636 |
|
| Consumer | 22 | | 494 |
| | 13 | | 582 |
| | 35 | | 1,076 |
|
| Total | 45 | | $ | 2,647 |
| | 97 | | $ | 26,469 |
| | 142 | | $ | 29,116 |
|
Risk elementsElements.The table below sets forth the amounts and categories of our non-performing assets with various risk levels at the dates indicated. | | | | | | | | | | | | | | | | | | | | |
| | | September 30, | |
| | | 2011 | | | 2010 | | | 2009 | | | 2008 | | | 2007 | |
| | | Non- Accrual | | | Non-
Accrual | | | Non-
Accrual | | | Non-
Accrual | | | Non-
Accrual | |
Non-performing loans: | | | | | | | | | | | | | | | | | | | | |
Real estate — residential mortgage | | $ | 7,485 | | | $ | 6,080 | | | $ | 4,425 | | | $ | 1,731 | | | $ | — | |
Real estate — commercial mortgage | | | 8,016 | | | | 6,886 | | | | 5,826 | | | | 3,100 | | | | 1,099 | |
Real estate — commercial mortgage (CBL) | | | 3,209 | | | | — | | | | — | | | | — | | | | — | |
Commercial business loans | | | 168 | | | | 1,376 | | | | 457 | | | | 2,811 | | | | 1,637 | |
Commercial business loans CBL) | | | 75 | | | | — | | | | — | | | | — | | | | — | |
Acquisition, land and development | | | 16,538 | | | | 5,730 | | | | 10,830 | | | | 5,596 | | | | 644 | |
Consumer, including home equity loans | | | 986 | | | | 1,341 | | | | 371 | | | | 351 | | | | 129 | |
Accruing loans past due 90 days or more | | | 4,090 | | | | 5,427 | | | | 4,560 | | | | 3,289 | | | | 3,749 | |
| | | | | | | | | | | | | | | | | | | | |
Total non-performing loans | | $ | 40,567 | | | $ | 26,840 | | | $ | 26,469 | | | $ | 16,878 | | | $ | 7,258 | |
| | | | | | | | | | | | | | | | | | | | |
Foreclosed properties | | | 5,391 | | | | 3,891 | | | | 1,712 | | | | 84 | | | | 139 | |
| | | | | | | | | | | | | | | | | | | | |
Total non-performing assets | | $ | 45,958 | | | $ | 30,731 | | | $ | 28,181 | | | $ | 16,962 | | | $ | 7,397 | |
| | | | | | | | | | | | | | | | | | | | |
Troubled Debt Restructures still accruing and not included above | | $ | 8,470 | | | $ | 16,047 | | | $ | 674 | | | $ | — | | | $ | — | |
| | | | | | | | | | | | | | | | | | | | |
Ratios: | | | | | | | | | | | | | | | | | | | | |
Non-performing loans to total loans | | | 2.38 | % | | | 1.58 | % | | | 1.55 | % | | | 0.97 | % | | | 0.44 | % |
Non-performing assets to total assets | | | 1.46 | % | | | 1.02 | % | | | 0.93 | % | | | 0.57 | % | | | 0.26 | % |
|
| | | | | | | | | | | | | | | | | | | |
| | September 30, |
| | 2013 | | 2012 | | 2011 | | 2010 | | 2009 |
| | (Dollars in thousands) |
| Non-performing loans: | | | | | | | | | |
| Residential mortgage | $ | 7,484 |
| | $ | 9,051 |
| | $ | 7,485 |
| | $ | 6,080 |
| | $ | 4,425 |
|
| Commercial real estate | 7,195 |
| | 8,815 |
| | 11,225 |
| | 6,886 |
| | 5,826 |
|
| Commercial & industrial | 500 |
| | 344 |
| | 243 |
| | 1,376 |
| | 457 |
|
| Acquisition, development & construction | 5,420 |
| | 15,404 |
| | 16,538 |
| | 5,730 |
| | 10,830 |
|
| Consumer | 2,208 |
| | 1,830 |
| | 986 |
| | 1,341 |
| | 371 |
|
| Accruing loans past due 90 days or more | 4,099 |
| | 4,370 |
| | 4,090 |
| | 5,427 |
| | 4,560 |
|
| Total non-performing loans | 26,906 |
| | 39,814 |
| | 40,567 |
| | 26,840 |
| | 26,469 |
|
| OREO | 6,022 |
| | 6,403 |
| | 5,391 |
| | 3,891 |
| | 1,712 |
|
| Total non-performing assets | $ | 32,928 |
| | $ | 46,217 |
| | $ | 45,958 |
| | $ | 30,731 |
| | $ | 28,181 |
|
| TDRs accruing and not included above | $ | 23,895 |
| | $ | 14,077 |
| | $ | 8,470 |
| | $ | 16,047 |
| | $ | 674 |
|
| Ratios: | | | | | | | | | |
| Non-performing loans to total loans | 1.12 | % | | 1.87 | % | | 2.38 | % | | 1.58 | % | | 1.55 | % |
| Non-performing assets to total assets | 0.81 |
| | 1.15 |
| | 1.46 |
| | 1.02 |
| | 0.93 |
|
For the year ended September 30,
2011,2013, gross interest income that would have been recorded had the non-accrual loans at the end of the year remained on accrual status throughout the year amounted to
$1.8 million.$635 thousand. Interest income actually recognized on such loans totaled
$1.1 million.$374 thousand.
Allowance for Loan Losses.We provide for loan losses based on the allowance method. Accordingly, all loan losses are charged to the related allowance and all recoveries are credited to it. Additions tobelieve the allowance for loan losses is critical to the understanding of our financial condition and results of operations. Selection and application of this “critical accounting policy” involves judgments, estimates, and uncertainties that are provided by chargessusceptible to incomechange. In the event that different assumptions or conditions were to occur, and depending upon the severity of such changes, materially different financial condition or results of operations is a reasonable possibility. In addition, as an integral part of their examination process, our regulatory agencies periodically review the allowance for loan losses. Such agencies may require us to recognize additions to the allowance based on various factors which, in management’s judgment, deserve current recognition in estimating probable incurred losses. Management regularly reviewstheir judgments of information available to them at the loan portfolio and makes provisionstime of their examination.
We maintain our allowance for loan losses
at a level that the Company believes is adequate to absorb probable losses inherent in
orderthe existing loan portfolio based on an evaluation of the collectibility of loans, underlying collateral, geographic and other concentrations, and prior loss experience. We use a risk rating system to
maintainevaluate the adequacy of the allowance for loan losses. With this system, each loan, with the exception of those included in large groups of smaller-balance homogeneous loans, is risk rated between one and ten, by credit administration, loan review or loan committee, with one being the best case and ten being a loss or the worst case. Loans with risk ratings between six and nine are monitored more closely by the credit administration team and may result in specific valuation allowances. We calculate an average loss estimate by loan type that is a twelve quarter average for commercial loans and eight quarter average for consumer loans. To the loss estimate we apply individual qualitative loss factors that result in an overall loss factor at an appropriate level for the allowance for loan losses
in accordance with accounting principles generally accepted in the United States of America. The allowance for
a particular loan
losses consists of amounts specifically allocated to non-performing loans and other criticized or classified loans (if any), as well as allowances determined for each major loan category. After we establish a provision for loans that are known to be non-performing, criticized or classified, we calculate a percentage to apply to the remaining loan portfolio to estimate the probable incurred losses inherent in that portion of the portfolio. When the loan portfolio increases, therefore, the percentage calculation results in a higher dollar amount of estimated probable incurred losses than would be the case without the increase, and when the loan portfolio decreases, the percentage calculation results in a lower dollar amount of estimated probable incurred losses than would be the case without the decrease.type. These
percentagesqualitative loss factors are determined by management, based on historical loss experience for the applicable loan category, and are adjusted to reflect our evaluation of:
levels of, and trends in, delinquencies and non-accruals;
trends in volume and terms of loans;
effects of any changes in lending policies and procedures;
experience, ability, and depth of lending management and staff;
national and local economic trends and conditions;
concentrations of credit by such factors as location, industry, inter-relationships, and borrower; and
for commercial loans, trends in risk ratings.
Land acquisition, development
The allowance for loan losses also includes an element for estimated probable but undetected losses. All loan losses are charged to the related allowance and constructionall recoveries are credited to it. The Company analyzes loans by two broad segments or classes: real estate secured loans and loans that are either unsecured or secured by other collateral. The segments or classes considered real estate secured are:
residential mortgage loans; commercial real estate loans; ADC loans; homeowner loans, and home equity lines of credit. The segments or classes considered unsecured or secured by other than real estate collateral are: commercial & industrial loans, and consumer loans. Commercial loan segments and residential mortgage loans over $500,000 are reviewed for impairment once they are past due 90 days or more, or are classified substandard or doubtful. If a loan is deemed to be impaired in one of the real estate secured segments, it is generally considered collateral dependent. If the value of the collateral securing a collateral dependent impaired loan is less than the carrying value of the loan, a charge-off is recognized equal to the difference between the appraised value and the book value of the loan. In addition, impairment reserves are recognized for estimated costs to hold and to liquidate the collateral. The ranges for the costs to hold and liquidate are 12-22% for the following segments: commercial real estate, residential and ADC loans and 7-13% for homeowner loans and home equity lines of credit. Impaired loans in the real estate secured segments are re-appraised using a summary or drive-by appraisal report every six to nine months.
For loans in the consumer segmentwe charge-off the full amount of the loan when it becomes 90 to 120 days or more past due, or earlier in the case of bankruptcy, after giving effect to any cash or marketable securities pledged as collateral for the loan. For loans in the commercial & industrial loan segment, we conduct a cash flow projection, and charge-off the difference between the net present value of the cash flows discounted at the effective note rate and the carrying value of the loan, and generally recognize a 10% impairment reserve to account for the imprecision of our estimates.
ADC lending
is considered higher risk and exposes us to greater credit risk than permanent mortgage financing. The repayment of
land acquisition, development and constructionADC loans depends
uponon the sale of the property to third parties or the availability of permanent financing upon completion of all improvements. In the event we make an acquisition loan on property that is not yet approved for the planned development, there is the risk that approvals will not be granted or will be delayed. These events may adversely affect the borrower and the collateral value of the property.
Development and constructionADC loans also expose us to the risk that improvements will not be completed on time in accordance with specifications and projected costs. In addition, the ultimate sale or rental of the property may not occur as anticipated. All of these factors are considered as part of the underwriting, structuring and pricing of the loan. We have deemphasized this type of loan.
Commercial real estate loans subject us to the risks that the property securing the loan may not generate sufficient cash flow to service the debt or the borrower may use the cash flow for other purposes. In addition, the foreclosure process, if necessary, may be slow and properties may deteriorate in the process. The market values are also subject to a wide variety of factors, including general economic conditions, industry specific factors, environmental factors, interest rates and the availability and terms of credit.
Commercial
business& industrial lending
is also
higherexposes us to risk because repayment depends on the successful operation of the business which is subject to a wide range of risks and uncertainties. In addition, the ability to successfully liquidate collateral, if any, is subject to a variety of risks because we must gain control of assets used in the borrower’s business before foreclosing which we cannot be assured of doing, and the value in a foreclosure sale or other means of liquidation
is subject to downward pressure.When we evaluate residential mortgage loans and equity loans we weigh both the credit capacity of the borrower and the collateral value of the home. As unemployment and underemployment increases, and liquidity reserves if any, diminish, the credit capacity of the borrower decreases, which increases our risk. Also, after a period of years of stable or increasing home values in our market, home prices have declined from a high in 2005 and 2006. We are exposed to risk in both our first mortgage and equity lending programs due to declines in values in recent years. We are also exposed to risk because the time to foreclose is significant and has become longer under current conditions.
The carrying value of loans is periodically evaluated and the allowance is adjusted accordingly. While management uses the best information available to make evaluations, future adjustments to the allowance may be necessary if conditions differ substantially from the information used in making the evaluations. In addition, as an integral partuncertain.
Allowance for Loan Losses by Year.Losses. The following table sets forth activity in our allowance for loan losses for the years indicated. | | | | | | | | | | | | | | | | | | | | |
| | | 2011 | | | 2010 | | | 2009 | | | 2008 | | | 2007 | |
Balance at beginning of year | | $ | 30,843 | | | $ | 30,050 | | | $ | 23,101 | | | $ | 20,389 | | | $ | 20,373 | |
| | | | | | | | | | | | | | | | | | | | |
Charge-offs: | | | | | | | | | | | | | | | | | | | | |
Real estate — residential mortgage | | | (2,140 | ) | | | (749 | ) | | | (461 | ) | | | (97 | ) | | | — | |
Real estate — Commercial mortgage | | | (819 | ) | | | (416 | ) | | | (669 | ) | | | (627 | ) | | | — | |
Real estate — Commercial mortgage (CBL) ¹ | | | (983 | ) | | | (571 | ) | | | (233 | ) | | | — | | | | — | |
Commercial business loans | | | (366 | ) | | | (1,666 | ) | | | (601 | ) | | | (3,596 | ) | | | (2,164 | ) |
Commercial business loans (CBL) ¹ | | | (5,034 | ) | | | (4,912 | ) | | | (6,670 | ) | | | — | | | | — | |
Acquisition Development & Construction loans | | | (8,939 | ) | | | (848 | ) | | | (1,515 | ) | | | — | | | | — | |
Consumer, including home equity loans | | | (1,989 | ) | | | (1,168 | ) | | | (1,140 | ) | | | (609 | ) | | | (329 | ) |
| | | | | | | | | | | | | | | | | | | | |
| | | (20,270 | ) | | | (10,330 | ) | | | (11,289 | ) | | | (4,929 | ) | | | (2,493 | ) |
Recoveries: | | | | | | | | | | | | | | | | | | | | |
Real estate — residential mortgage | | | 15 | | | | 3 | | | | 2 | | | | — | | | | — | |
Real estate — Commercial mortgage | | | 2 | | | | 8 | | | | — | | | | — | | | | — | |
Real estate — Commercial mortgage (CBL) ¹ | | | — | | | | 15 | | | | — | | | | — | | | | — | |
Commercial business loans | | | 232 | | | | 306 | | | | 80 | | | | 291 | | | | 581 | |
Commercial business loans (CBL) ¹ | | | 373 | | | | 364 | | | | 169 | | | | — | | | | — | |
Acquisition Development & Construction loans | | | 10 | | | | 261 | | | | 200 | | | | — | | | | — | |
Consumer, including home equity loans | | | 128 | | | | 166 | | | | 187 | | | | 150 | | | | 128 | |
| | | | | | | | | | | | | | | | | | | | |
| | | 760 | | | | 1,123 | | | | 638 | | | | 441 | | | | 709 | |
| | | | | |
Net charge-offs | | | (19,510 | ) | | | (9,207 | ) | | | (10,651 | ) | | | (4,488 | ) | | | (1,784 | ) |
Provision for loan losses | | | 16,584 | | | | 10,000 | | | | 17,600 | | | | 7,200 | | | | 1,800 | |
| | | | | | | | | | | | | | | | | | | | |
Balance at end of year | | $ | 27,917 | | | $ | 30,843 | | | $ | 30,050 | | | $ | 23,101 | | | $ | 20,389 | |
| | | | | | | | | | | | | | | | | | | | |
Ratios: | | | | | | | | | | | | | | | | | | | | |
Net charge-offs to average loans outstanding | | | 1.17 | % | | | 0.56 | % | | | 0.62 | % | | | 0.28 | % | | | 0.12 | % |
Allowance for loan losses to non-performing loans | | | 69 | % | | | 115 | % | | | 114 | % | | | 137 | % | | | 281 | % |
Allowance for loan losses to total loans | | | 1.64 | % | | | 1.81 | % | | | 1.76 | % | | | 1.33 | % | | | 1.24 | % |
¹ | Community Business Loan (CBL) information is not available for 2008 and 2007 |
|
| | | | | | | | | | | | | | | | | | | |
| | September 30, |
| | 2013 | | 2012 | | 2011 | | 2010 | | 2009 |
| | (Dollars in thousands) |
| Balance at beginning of period | $ | 28,282 |
| | $ | 27,917 |
| | $ | 30,843 |
| | $ | 30,050 |
| | $ | 23,101 |
|
| Charge-offs: | | | | | | | | | |
| Residential mortgage | (2,547 | ) | | (2,551 | ) | | (2,140 | ) | | (749 | ) | | (461 | ) |
| Commercial real estate | (3,725 | ) | | (2,707 | ) | | (1,802 | ) | | (987 | ) | | (902 | ) |
| Commercial & industrial | (1,354 | ) | | (1,526 | ) | | (5,400 | ) | | (6,578 | ) | | (7,271 | ) |
| Acquisition, development & construction | (3,422 | ) | | (4,124 | ) | | (8,939 | ) | | (848 | ) | | (1,515 | ) |
| Consumer | (2,009 | ) | | (1,901 | ) | | (1,989 | ) | | (1,168 | ) | | (1,140 | ) |
| Total charge-offs | (13,057 | ) | | (12,809 | ) | | (20,270 | ) | | (10,330 | ) | | (11,289 | ) |
| Recoveries: | | | | | | | | | |
| Residential mortgage | 101 |
| | 356 |
| | 15 |
| | 3 |
| | 2 |
|
| Commercial real estate | 577 |
| | 528 |
| | 2 |
| | 23 |
| | — |
|
| Commercial & industrial | 410 |
| | 1,116 |
| | 605 |
| | 670 |
| | 249 |
|
| Acquisition, development & construction | 182 |
| | 299 |
| | 10 |
| | 261 |
| | 200 |
|
| Consumer | 232 |
| | 263 |
| | 128 |
| | 166 |
| | 187 |
|
| Total recoveries | 1,502 |
| | 2,562 |
| | 760 |
| | 1,123 |
| | 638 |
|
| Net charge-offs | (11,555 | ) | | (10,247 | ) | | (19,510 | ) | | (9,207 | ) | | (10,651 | ) |
| Provision for loan losses | 12,150 |
| | 10,612 |
| | 16,584 |
| | 10,000 |
| | 17,600 |
|
| Balance at end of period | $ | 28,877 |
| | $ | 28,282 |
| | $ | 27,917 |
| | $ | 30,843 |
| | $ | 30,050 |
|
| Ratios: | | | | | | | | | |
| Net charge-offs to average loans outstanding | 0.52 | % | | 0.56 | % | | 1.17 | % | | 0.56 | % | | 0.62 | % |
| Allowance for loan losses to non-performing loans | 107 |
| | 71 |
| | 69 |
| | 115 |
| | 114 |
|
| Allowance for loan losses to total loans | 1.20 |
| | 1.48 |
| | 1.64 |
| | 1.81 |
| | 1.76 |
|
Allocation of Allowance for Loan Losses.The following tables set forth the allowance for loan losses allocated by loan category, the total loan balances by category (excluding loans held for sale), and the percent of loans in each category to total loans at the dates indicated. The allowance for loan losses allocated to each category is not necessarily indicative of future losses in any particular category and does not restrict the use of the allowance to absorb losses in other categories. | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | September 30, | |
| | | 2011 | | | 2010 | | | 2009 | |
| | | Allowance
for Loan
Losses | | | Loan
Balances by
Category | | | Percent
of Loans
in Each
Category
to Total
Loans | | | Allowance
for Loan
Losses | | | Loan
Balances by
Category | | | Percent
of Loans
in Each
Category
to Total
Loans | | | Allowance
for Loan
Losses | | | Loan
Balances by
Category | | | Percent
of Loans
in Each
Category
to Total
Loans | |
| | | (Dollars in thousands) | |
Real estate — residential mortgage | | $ | 3,498 | | | $ | 389,765 | | | | 22.88 | % | | $ | 2,641 | | | $ | 434,900 | | | | 25.55 | % | | $ | 3,106 | | | $ | 460,728 | | | | 27.04 | % |
Real estate — commercial mortgage | | | 4,533 | | | | 610,379 | | | | 35.82 | % | | | 5,060 | | | | 481,632 | | | | 28.31 | % | | | 4,824 | | | | 460,649 | | | | 27.05 | % |
Real estate — commercial mortgage (CBL) | | | 1,035 | | | | 92,977 | | | | 5.46 | % | | | 855 | | | | 97,599 | | | | 5.74 | % | | | 2,871 | | | | 86,118 | | | | 5.06 | % |
Commercial business loans | | | 1,331 | | | | 134,399 | | | | 7.89 | % | | | 3,262 | | | | 125,766 | | | | 7.39 | % | | | 3,917 | | | | 142,908 | | | | 8.39 | % |
Commercial business loans (CBL) | | | 4,614 | | | | 75,524 | | | | 4.43 | % | | | 5,708 | | | | 92,162 | | | | 5.42 | % | | | 5,011 | | | | 99,721 | | | | 5.85 | % |
Acquisition, development & construction | | | 9,895 | | | | 175,931 | | | | 10.33 | % | | | 9,752 | | | | 231,258 | | | | 13.59 | % | | | 7,680 | | | | 201,611 | | | | 11.84 | % |
Consumer, including home equity loans | | | 3,011 | | | | 224,824 | | | | 13.19 | % | | | 3,565 | | | | 238,224 | | | | 14.00 | % | | | 2,641 | | | | 251,522 | | | | 14.77 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Total | | $ | 27,917 | | | $ | 1,703,799 | | | | 100.00 | % | | $ | 30,843 | | | $ | 1,701,541 | | | | 100.00 | % | | $ | 30,050 | | | $ | 1,703,257 | | | | 100.00 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | September 30, | |
| | | 2008 | | | 2007 | |
| | | Allowance
for Loan
Losses | | | Loan
Balances by
Category | | | Percent
of Loans
in Each
Category
to Total
Loans | | | Allowance
for Loan
Losses | | | Loan
Balances by
Category | | | Percent
of Loans
in Each
Category
to Total
Loans | |
| | | (Dollars in thousands) | |
Real estate — residential mortgage | | $ | 1,494 | | | $ | 513,381 | | | | 29.60 | % | | $ | 668 | | | $ | 500,825 | | | | 30.60 | % |
Real estate — commercial mortgage | | | 5,793 | | | | 554,811 | | | | 32.00 | % | | | 8,157 | | | | 535,003 | | | | 32.70 | % |
Commercial business loans | | | 7,051 | | | | 243,642 | | | | 14.10 | % | | | 5,223 | | | | 207,156 | | | | 12.60 | % |
Acquisition, development & construction | | | 6,841 | | | | 170,979 | | | | 9.90 | % | | | 4,743 | | | | 153,074 | | | | 9.30 | % |
Consumer, including home equity loans | | | 1,922 | | | | 248,740 | | | | 14.40 | % | | | 1,598 | | | | 242,000 | | | | 14.80 | % |
| | | | | | | | | | | | | | | | | | | | | | | | |
Total | | $ | 23,101 | | | $ | 1,731,553 | | | | 100.00 | % | | $ | 20,389 | | | $ | 1,638,058 | | | | 100.00 | % |
| | | | | | | | | | | | | | | | | | | | | | | | |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | September 30, |
| | 2013 | | 2012 | | 2011 |
| | Allowance for loan losses | | Loan balance | | % of total loans | | Allowance for loan losses | | Loan balance | | % of total loans | | Allowance for loan losses | | Loan balance | | % of total loans |
| | (Dollars in thousands) |
| Residential mortgage | $ | 4,474 |
| | $ | 400,009 |
| | 16.6 | % | | $ | 4,359 |
| | $ | 350,022 |
| | 16.5 | % | | $ | 3,498 |
| | $ | 389,765 |
| | 22.9 | % |
| Commercial real estate | 9,967 |
| | 1,277,037 |
| | 52.9 |
| | 7,230 |
| | 1,072,504 |
| | 50.6 |
| | 5,568 |
| | 703,356 |
| | 41.4 |
|
| Commercial & industrial | 5,302 |
| | 439,787 |
| | 18.2 |
| | 4,603 |
| | 343,307 |
| | 16.2 |
| | 5,945 |
| | 209,923 |
| | 12.3 |
|
| Acquisition, development & construction | 5,806 |
| | 102,494 |
| | 4.2 |
| | 8,526 |
| | 144,061 |
| | 6.8 |
| | 9,895 |
| | 175,931 |
| | 10.3 |
|
| Consumer | 3,328 |
| | 193,571 |
| | 8.1 |
| | 3,564 |
| | 209,578 |
| | 9.9 |
| | 3,011 |
| | 224,824 |
| | 13.1 |
|
| Total | $ | 28,877 |
| | $ | 2,412,898 |
| | 100.0 | % | | $ | 28,282 |
| | $ | 2,119,472 |
| | 100.0 | % | | $ | 27,917 |
| | $ | 1,703,799 |
| | 100.0 | % |
|
| | | | | | | | | | | | | | | | | | | | | |
| | September 30, |
| | 2010 | | 2009 |
| | Allowance for loan losses | | Loan balance | | % of total loans | | Allowance for loan losses | | Loan balance | | % of total loans |
| | (Dollars in thousands) |
| Residential mortgage | $ | 2,641 |
| | $ | 434,900 |
| | 25.6 | % | | $ | 3,106 |
| | $ | 460,728 |
| | 27.1 | % |
| Commercial real estate | 5,915 |
| | 579,231 |
| | 34.0 |
| | 7,695 |
| | 546,767 |
| | 32.1 |
|
| Commercial & industrial | 8,970 |
| | 217,928 |
| | 12.8 |
| | 8,928 |
| | 242,629 |
| | 14.2 |
|
| Acquisition, development & construction | 9,752 |
| | 231,258 |
| | 13.6 |
| | 7,680 |
| | 201,611 |
| | 11.8 |
|
| Consumer | 3,565 |
| | 238,224 |
| | 14.0 |
| | 2,641 |
| | 251,522 |
| | 14.8 |
|
| Total | $ | 30,843 |
| | $ | 1,701,541 |
| | 100.0 | % | | $ | 30,050 |
| | $ | 1,703,257 |
| | 100.0 | % |
Investment Securities
Investments Our
investment securities
investment policy is
establishedreviewed and approved by our Board of Directors. This policy dictates that investment decisions be made based on the safety of the investment, liquidity requirements, potential returns, cash flow targets, and consistency with our interest rate risk management strategy. The Board’s
Asset/LiabilityEnterprise Risk Committee oversees our investment program and evaluates
on an ongoing basis our investment policy and objectives. Our
chief financial officer, or our chief financial officer acting with our chief executive officer, is responsible for making securities portfolio decisions in accordance with established policies. Our chief financial officer, chief executive officerChief Financial Officer, Chief Executive Officer, Treasurer and certain other
executivesenior officers have the authority to purchase and sell securities within specific guidelines established
byin the investment policy. In addition,
a summary of all transactions
areis reviewed by the
Board’s Asset/LiabilityEnterprise Risk Committee at least quarterly.
Our current investment policy generally permits
securities investments in debt securities issued by the U.S. government and U.S. agencies, municipal bonds and notes, and corporate debt obligations, as well as investments in preferred and common stock of government agencies and government sponsored enterprises such as Fannie Mae, Freddie Mac and the Federal Home Loan Bank
of New York (federal agency securities) and, to a lesser extent, other equity securities. Securities in these categories are classified as “investment securities” for financial reporting purposes. The policy also permits investments in mortgage-backed securities, including pass-through securities issued and guaranteed by Fannie Mae, Freddie Mac and Ginnie Mae as well as collateralized mortgage obligations (“CMOs”) issued or backed by securities issued by these government agencies. Also permitted are investments in securities issued or backed by the Small Business Administration, privately issued mortgage-backed securities and CMOs, and asset-backed securities collateralized by auto loans, credit card receivables, and home equity and home improvement loans. Our current investment strategy uses a risk management approach of diversified investing in fixed-rate securities with short- to intermediate-term maturities, as well as adjustable-rate securities, which may have a longer term to maturity.
The emphasis of this approachOur objective is to increase
the overall
yield on investment securities
yields while managing interest rate and credit risk.
FASB ASC Topic #320,320, Investments - Debt and Equity securitiesSecurities, requires that, at the time of purchase, we designate a security as held to maturity, available for sale, or trading, depending on our intent and ability to hold and our intent.the security. Securities designated available for sale are reported at fair value, while securities designated held to maturity are reported at amortized cost. We do not have a trading portfolio. Excluding mortgage backed securities and CMO’s management sold $325.7 million at amortized cost in investment securities and realized net gains of $5.4 million the market yields associated with the securities sold were below levels management believed justifying retaining such securities.
Government and Agency Securities.At September 30, 2011,2013, we held government and agency securities as available for sale with a fair value of $204.6$261.5 million, consisting primarily of agency obligations with maturities of more than one year through ten years. In addition, we held $30.0$77.3 million in government and agency securities as held to maturity at amortized cost. While these securities generally provide lower yields than other investments such as mortgage-backed securities, our current investment strategy is to maintain investments in such instruments to the extent appropriate for liquidity purposes and as collateral for borrowings and municipal deposits.
Corporate and Municipal Bonds and Notes.At September 30, 2011,2013, we held $17.1 million in corporate debt securities.securities as available for sale with a fair value of $118.6 million. Corporate bonds have a higher risk of default due to potential for adverse changes in the creditworthiness of the issuer. In recognition of this risk, our policy limits investments in corporate bonds to securities with maturities of ten years or less and rated “A” or better by at least one nationally recognized rating agency at time of purchase, and to a total investment size of no more than $2.0$10.0 million per issuer and aissuer. Our total corporate bond portfolio limit is the lesser of 5% of assets.total assets or 75% of tangible capital.
State and Municipal Bonds. At September 30, 2013, we held $147.7 million at carrying value in bonds issued by states and political subdivisions, $19.0 million of which were classified as held to maturity at amortized cost and are mainly unrated and $128.7 million of which were classified as available for sale at fair value. The policy also limits investments in municipal bonds to securities with maturities of 20 years or less and rated as investment grade by at least one nationally recognized rating agency at the time of purchase, and favors issues that are insured, howeverinsured. However, we also purchase securities that are issued by local government entities within our service area. Such local entity obligations generally are not rated, and are subject to internal credit reviews. In addition, the policy generally imposes an investment limitationsize limit of $5.0 million per municipal issuerand a total municipal bond portfolio limit of 10% of assets. At September 30, 2011, we held $207.3 million in bonds issued by states and political subdivisions, $18.6 million of which were classified as held to maturity at amortized cost and are mainly unrated and $188.7 million of which were classified as available for sale at fair value. At September 30, 20112013, we did not hold any obligations that were rated less than “A”“A-” as available for sale.
Equity Securities.At September 30, 2011, our equity securities available for sale had a fair value of $1.2 million. We also2013, we held $17.6$24.3 million (at cost) of Federal Home Loan Bank of New York (“FHLBNY”FHLB”) common stock, a portion of which must be held as a condition of membership in the Federal Home Loan Bank System, with the remainder held as a condition to our borrowing under the Federal Home Loan BankFHLB advance program. Dividends on FHLBNYFHLB stock recorded in the year ended September 30, 2011 amounted to $1.1 million. We held no preferred shares of Freddie Mac or Fannie Mae for the year ended September 30, 2011. We also held no “auction rate securities” or “pooled trust preferred securities” during the year ended September 30, 2011. We held approximately $837,000 in fair value of equity securities in a local bank. We recorded $278,000 in other than temporary impairment as the fair value of these securities has been less that original cost for a period of over two years2013 amounted to $864 thousand.
Mortgage-Backed Securities.We purchase mortgage-backed securities in order to: (i) generate positive interest rate spreads with minimal administrative expense; (ii) lower credit risk as a result of the guarantees provided by Freddie Mac and Fannie Mae; (iii) increase liquidity, and (iv) maintain our status as a thrift for charter and income tax purposes. We invest primarily in mortgage-backed securities issued or sponsored by Freddie Mac, and Fannie Mae or private issuers for CMOs. To a lesser extent, we also invest in securities backed by agencies of the U.S. Government, such as Ginnie Mae. At September 30, 2011, our mortgage-backed securities portfolio totaled $381.2 million, consisting of $328.3 million available for sale at fair value and $60.0 million held to maturity at amortized cost. The total mortgage-backed securities portfolio includes CMOs of $108.2 million, consisting of $82.4 million available for sale at fair value and $25.8 million held to maturity at amortized cost. Within this total, $5.4 million at amortized cost and $4.9 million fair value were issued by private issuers, including $1.9 million at amortized cost below investment grade, to which we have recorded $75,000 in other than temporary impairment.Mortgage-backed securities are created by pooling mortgages and issuing a security collateralized by the pool of mortgages with an interest rate that is less than the interest rate on the underlying mortgages. Mortgage-backed securities typically represent a participation interest in a pool of single-family or multi-family mortgages, although most of our mortgage-backed securities are collateralized by single-family mortgages. The issuers of such securities (generally U.S. Government agencies and government sponsored enterprises, including Fannie Mae, Freddie Mac and Ginnie Mae) pool and resell the participation interests in the form of securities to investors, such as us, and guarantee the payment of principal and interest to these investors. Investments in mortgage-backed securities involve a risk in addition to the guarantee of repayment of principal outstanding that actual prepayments will be greater or less than the prepayment rate estimated at the time of purchase, which may require adjustments to the amortization of any premium or accretion of any discount relating to such instruments, thereby affecting the net yield and duration of such securities. We review prepayment estimates for our mortgage-backed securities at purchase to ensure that prepayment assumptions are reasonable considering the underlying collateral for the securities at issue and current interest rates, and to determine the yield and estimated maturity of the mortgage-backed securities portfolio. Periodic reviews of current prepayment speeds are performed in order to ascertain whether prepayment estimates require modification that would cause amortization or accretion adjustments. As a result of our reviews, we anticipated an acceleration of prepayments. Management sold $204.8 million in mortgage backed securities, including CMO’s, at amortized cost and realized $4.6 million in net gains on the sales. Such proceeds were reinvested in securities with yields which were lower than the recorded yields of the securities sold and a more diversified risk profile.
A portion of our mortgage-backed securities portfolio is invested in CMOs, including Real Estate Mortgage Investment Conduits (“REMICs”), backed by Fannie Mae and Freddie Mac and certain private issuers. CMOs and REMICs are types of debt securities issued by
a special-purpose
entityentities that
aggregatesaggregate pools of mortgages and mortgage-backed securities and
createscreate different classes of securities with varying maturities and amortization schedules, as well as a residual interest, with each class possessing different risk characteristics. The
cash flows from the underlying collateral are generally divided into “tranches” or classes that have descending priorities with respect to the distribution of principal and interest cash flows, while cash flows on pass-through mortgage-backed securities are distributed pro rata to all security holders. Our practice is to limit fixed-rate CMO investments primarily to the early-to-intermediate tranches, which have the greatest cash flow stability. Floating rate CMOs are purchased with emphasis on the relative trade-offs between lifetime rate caps, prepayment risk, and interest rates.
At September 30, 2013, our mortgage-backed securities portfolio totaled $605.3 million, consisting of $449.2 million in available for sale securities at fair value and $156.1 million in held to maturity securities at amortized cost.
Available for Sale Portfolio.The following table sets forth the composition of our available for sale portfolio at the dates indicated. | | | | | | | | | | | | | | | | | | | | | | | | |
| | | September 30, | |
| | | 2011 | | | 2010 | | | 2009 | |
| | | Amortized
Cost | | | Fair Value | | | Amortized
Cost | | | Fair Value | | | Amortized
Cost | | | Fair Value | |
| | | (Dollars in thousands) | |
Investment Securities: | | | | | | | | | | | | | | | | | | | | | | | | |
U.S. Government securities | | $ | — | | | $ | — | | | $ | 71,071 | | | $ | 72,293 | | | $ | 20,893 | | | $ | 21,076 | |
Federal agency obligations | | | 199,741 | | | | 204,648 | | | | 344,154 | | | | 346,019 | | | | 186,301 | | | | 186,700 | |
Corporate Bonds | | | 16,984 | | | | 17,062 | | | | 29,406 | | | | 30,540 | | | | 25,245 | | | | 25,823 | |
State and municipal securities | | | 177,666 | | | | 188,684 | | | | 180,879 | | | | 191,657 | | | | 158,007 | | | | 167,584 | |
Equity securities | | | 1,192 | | | | 1,192 | | | | 1,146 | | | | 889 | | | | 1,145 | | | | 885 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Total investment securities available for sale | | | 395,583 | | | | 411,586 | | | | 626,656 | | | | 641,398 | | | | 391,591 | | | | 402,068 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Mortgage-Backed Securities: | | | | | | | | | | | | | | | | | | | | | | | | |
Pass-through securities: | | | | | | | | | | | | | | | | | | | | | | | | |
Fannie Mae | | | 136,699 | | | | 139,991 | | | | 149,084 | | | | 153,188 | | | | 238,723 | | | | 243,063 | |
Freddie Mac | | | 98,511 | | | | 100,675 | | | | 56,632 | | | | 58,452 | | | | 92,885 | | | | 94,506 | |
Ginnie Mae | | | 4,973 | | | | 5,180 | | | | 9,047 | | | | 9,315 | | | | 26,586 | | | | 26,929 | |
CMOs and REMICs | | | 81,170 | | | | 82,412 | | | | 38,338 | | | | 38,659 | | | | 66,784 | | | | 66,017 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Total mortgage-backed securities available for sale | | | 321,353 | | | | 328,258 | | | | 253,101 | | | | 259,614 | | | | 424,978 | | | | 430,515 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Total securities available for sale | | $ | 716,936 | | | $ | 739,844 | | | $ | 879,757 | | | $ | 901,012 | | | $ | 816,569 | | | $ | 832,583 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
At September 30, 2011, our available for sale federal agency securities portfolio, at fair value, totaled $204.6 million, or 6.5%
|
| | | | | | | | | | | | | | | | | | | | | | | |
| | September 30, |
| | 2013 | | 2012 | | 2011 |
| | Amortized cost | | Fair value | | Amortized cost | | Fair value | | Amortized cost | | Fair value |
| | (Dollars in thousands) |
| Residential mortgage-backed securities: | | | | | | | | | | | |
| Fannie Mae | $ | 214,191 |
| | $ | 211,438 |
| | $ | 155,601 |
| | $ | 161,407 |
| | $ | 136,699 |
| | $ | 139,991 |
|
| Freddie Mac | 67,272 |
| | 67,629 |
| | 81,509 |
| | 85,260 |
| | 98,511 |
| | 100,675 |
|
| Ginnie Mae | 3,374 |
| | 3,462 |
| | 4,488 |
| | 4,778 |
| | 4,973 |
| | 5,180 |
|
| CMO/other | 169,336 |
| | 166,654 |
| | 191,867 |
| | 193,064 |
| | 81,170 |
| | 82,412 |
|
| Total residential mortgage-backed securities | 454,173 |
| | 449,183 |
| | 433,465 |
| | 444,509 |
| | 321,353 |
| | 328,258 |
|
| Other securities: | | | | | | | | | | | |
| Federal agencies | 273,637 |
| | 261,547 |
| | 404,820 |
| | 408,823 |
| | 199,741 |
| | 204,648 |
|
| Corporate bonds | 118,575 |
| | 114,933 |
| | — |
| | — |
| | 16,984 |
| | 17,062 |
|
| State and municipal | 127,324 |
| | 128,730 |
| | 146,136 |
| | 156,481 |
| | 177,666 |
| | 188,684 |
|
| Equities | — |
| | — |
| | 1,087 |
| | 1,059 |
| | 1,192 |
| | 1,192 |
|
| Total other securities | 519,536 |
| | 505,210 |
| | 552,043 |
| | 566,363 |
| | 395,583 |
| | 411,586 |
|
| Total available for sale securities | $ | 973,709 |
| | $ | 954,393 |
| | $ | 985,508 |
| | $ | 1,010,872 |
| | $ | 716,936 |
| | $ | 739,844 |
|
Table of total assets. Of the federal agency portfolio, based on amortized cost, none had maturities of one year or less, and $199.7 million had maturities of between one and ten years and a weighted average yield of 1.89%. The agency securities portfolio currently includes both callable debentures and non callable debentures.At September 30, 2011, our available for sale state and municipal notes securities portfolio, at fair value totaled $188.7 million or 6.0% of total assets. Of the state and municipal note securities portfolio, based on amortized cost, had $4.4 million in securities with a final maturity of one year or less and a weighted average yield of 2.01%; $10.9 million maturing in one to five years with a weighted average yield of 3.3%; $116.5 million maturing in five to ten years with a weighted average yield of 3.54% and $45.9 million maturing in greater than ten years with a weighted average yield of 4.14%. Equity securities available for sale at September 30, 2011 had a fair value of $1.2 million.
At September 30, 2011, $328.3 million of our available for sale mortgage-backed securities, at fair value, consisted of pass-through securities, which totaled 10.5% of total assets and $82.4 million of CMO securities, at fair value. The total amortized cost of these pass- through securities was $240.2 million and consisted of $136.7 million, $98.5 million and $5.0 million of Fannie Mae, Freddie Mac and Ginnie Mae mortgage backed securities, respectively, with respective weighted averages yields of 2.76%, 2.82% and 2.89%. At the same date, the fair
value of our available for sale CMO portfolio totaled $82.4 million, or 2.6% of total assets, and consisted of CMOs issued by government sponsored agencies such as Fannie Mae, Freddie Mac and $5.4 million sold by private party issuers. The amortized cost of these CMOs result in a weighted average yield of 2.38%. We own both fixed-rate and floating-rate CMOs. The underlying mortgage collateral for our portfolio of CMOs available for sale at September 30, 2011 had contractual maturities of over five years. However, as with mortgage-backed pass-through securities, the actual maturity of a CMO may be less than its stated contractual maturity due to prepayments of the underlying mortgages and the terms of the CMO tranche owned.
Contents
Held to Maturity Portfolio.The following table sets forth the composition of our held to maturity portfolio at the dates indicated. | | | | | | | | | | | | | | | | | | | | | | | | |
| | | September 30, | |
| | | 2011 | | | 2010 | | | 2009 | |
| | | Amortized
Cost | | | Fair Value | | | Amortized
Cost | | | Fair Value | | | Amortized
Cost | | | Fair Value | |
| | | (Dollars in thousands) | |
Investment Securities: | | | | | | | | | | | | | | | | | | | | | | | | |
Federal agencies | | $ | 29,973 | | | $ | 29,857 | | | $ | — | | | $ | — | | | $ | — | | | $ | — | |
State and municipal securities | | | 18,583 | | | | 19,691 | | | | 27,879 | | | | 28,815 | | | | 37,162 | | | | 38,055 | |
Other | | | 1,500 | | | | 1,539 | | | | 1,000 | | | | 1,038 | | | | 1,000 | | | | 1,034 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Total investment securities held to maturity | | | 50,056 | | | | 51,087 | | | | 28,879 | | | | 29,853 | | | | 38,162 | | | | 39,089 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Mortgage-Backed Securities: | | | | | | | | | | | | | | | | | | | | | | | | |
Pass-through securities: | | | | | | | | | | | | | | | | | | | | | | | | |
Fannie Mae | | | 1,298 | | | | 1,361 | | | | 1,835 | | | | 1,931 | | | | 2,713 | | | | 2,823 | |
Freddie Mac | | | 32,858 | | | | 32,841 | | | | 2,389 | | | | 2,513 | | | | 2,834 | | | | 2,916 | |
Ginnie Mae | | | — | | | | — | | | | 16 | | | | 17 | | | | 45 | | | | 45 | |
CMOs and REMICs | | | 25,828 | | | | 25,983 | | | | 729 | | | | 748 | | | | 860 | | | | 866 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Total mortgage-backed securities held to maturity | | | 59,984 | | | | 60,185 | | | | 4,969 | | | | 5,209 | | | | 6,452 | | | | 6,650 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Total securities held to maturity | | $ | 110,040 | | | $ | 111,272 | | | $ | 33,848 | | | $ | 35,062 | | | $ | 44,614 | | | $ | 45,739 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
At September 30, 2011, our held to maturity federal agency securities portfolio, at amortized cost, totaled $30.0 million, or 1.0% of total assets. Of the federal agency portfolio, based on amortized cost, none had maturities of five years or less, and $30.0 million had maturities of between five and ten years and a weighted average yield of 2.019%. The agency securities portfolio currently includes only callable debentures.
State and municipal securities totaled $18.6 million at amortized cost (primarily unrated obligations) and consisted of $5.8 million, with a final maturity of one year or less and a weighted average yield of 2.51%; $6.2 million, maturing in one to five years, with a weighted average yield of 3.53%; $3.0 million maturing in five to ten years, with a weighted average yield of 4.39% and $3.6 million, maturing in greater than ten years, with a weighted average yield of 4.48%.
At September 30, 2011, our held to maturity mortgage-backed securities portfolio totaled $60.0 million at amortized cost, consisting of: none with contractual maturities of one year or less, $223,000 with a weighted average yield of 5.15% and contractual maturities within five years, and $306,000 with a weighted average yield of 5.96% and contractual maturities of five to ten years and $59.5 million with a weighted average yield of 2.39% with contractual maturities of greater than ten years; CMOs of $25.8 million are included in this portfolio. While the contractual maturity of the CMOs underlying collateral is greater than ten years, the actual period to maturity of the CMOs may be shorter due to prepayments on the underlying mortgages and the terms of the CMO tranche owned.
|
| | | | | | | | | | | | | | | | | | | | | | | |
| | September 30, |
| | 2013 | | 2012 | | 2011 |
| | Amortized cost | | Fair value | | Amortized cost | | Fair value | | Amortized cost | | Fair value |
| | (Dollars in thousands) |
| Residential mortgage-backed securities: | | | | | | | | | | | |
| Fannie Mae | $ | 70,502 |
| | $ | 70,815 |
| | $ | 28,637 |
| | $ | 29,849 |
| | $ | 1,298 |
| | $ | 1,361 |
|
| Freddie Mac | 59,869 |
| | 60,164 |
| | 42,706 |
| | 44,053 |
| | 32,858 |
| | 32,841 |
|
| CMO/other | 25,776 |
| | 25,494 |
| | 27,921 |
| | 28,119 |
| | 25,828 |
| | 25,983 |
|
| Total residential mortgage-backed securities | 156,147 |
| | 156,473 |
| | 99,264 |
| | 102,021 |
| | 59,984 |
| | 60,185 |
|
| Other securities: | | | | | | | | | | | |
| Federal agencies | 77,341 |
| | 73,883 |
| | 22,236 |
| | 22,342 |
| | 29,973 |
| | 29,857 |
|
| State and municipal | 19,011 |
| | 19,021 |
| | 19,376 |
| | 20,435 |
| | 18,583 |
| | 19,691 |
|
| Other | 1,500 |
| | 1,519 |
| | 1,500 |
| | 1,526 |
| | 1,500 |
| | 1,539 |
|
| Total other securities | 97,852 |
| | 94,423 |
| | 43,112 |
| | 44,303 |
| | 50,056 |
| | 51,087 |
|
| Total held to maturity securities | $ | 253,999 |
| | $ | 250,896 |
| | $ | 142,376 |
| | $ | 146,324 |
| | $ | 110,040 |
| | $ | 111,272 |
|
Portfolio Maturities and Yields. The following table summarizes the composition, maturities and maturitiesweighted average yield of the investment debt securities portfolio and the mortgage backed securities portfolio at September 30, 2011.2013. Maturities are based on the final contractual payment dates and do not reflect the impact of prepayments or early redemptions that may occur. State and municipal securities yields have not been adjusted to a tax-equivalent basis. ($ in thousands) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | One Year or Less | | | More than One Year
through Five Years | | | More than Five Years
through Ten Years | | | More than Ten Years | | | Total Securities | |
| | | Amortized
Cost | | | Weighted
Average
Yield | | | Amortized
Cost | | | Weighted
Average
Yield | | | Amortized
Cost | | | Weighted
Average
Yield | | | Amortized
Cost | | | Weighted
Average
Yield | | | Amortized
Cost | | | Fair
Value | | | Weighted
Average
Yield | |
| | | (Dollars in thousands) | |
Available for Sale: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Mortgage-Backed Securities | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Fannie Mae | | $ | — | | | | — | % | | $ | 6,889 | | | | 2.47 | % | | $ | 53,626 | | | | 2.49 | % | | $ | 76,184 | | | | 2.97 | % | | $ | 136,699 | | | $ | 139,991 | | | | 2.76 | % |
Freddie Mac | | | — | | | | — | | | | 1,566 | | | | 3.89 | | | | — | | | | — | | | | 96,945 | | | | 2.80 | | | | 98,511 | | | | 100,675 | | | | 2.82 | |
Ginnie Mae | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | 4,973 | | | | 2.88 | | | | 4,973 | | | | 5,180 | | | | 2.89 | |
CMOs and REMICs | | | — | | | | — | | | | — | | | | — | | | | 411 | | | | 4.43 | | | | 80,759 | | | | 2.37 | | | | 81,170 | | | | 82,412 | | | | 2.38 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Total | | | — | | | | — | | | | 8,455 | | | | 2.73 | | | | 54,037 | | | | 2.51 | | | | 258,861 | | | | 2.72 | | | | 321,353 | | | | 328,258 | | | | 2.68 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Investment Securities | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
U.S. Government and agency securities | | | — | | | | — | | | | 169,766 | | | | 1.84 | | | | 29,975 | | | | 2.15 | | | | — | | | | — | | | | 199,741 | | | | 204,648 | | | | 1.89 | |
Corporate | | | — | | | | — | | | | 16,856 | | | | 2.43 | | | | 128 | | | | 6.88 | | | | — | | | | — | | | | 16,984 | | | | 17,062 | | | | 2.46 | |
State and municipal | | | 4,410 | | | | 2.01 | | | | 10,854 | | | | 3.33 | | | | 116,531 | | | | 3.54 | | | | 45,871 | | | | 4.14 | | | | 177,666 | | | | 188,684 | | | | 3.65 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Total | | | 4,410 | | | | 2.01 | | | | 197,476 | | | | 1.97 | | | | 146,634 | | | | 3.26 | | | | 45,871 | | | | 4.14 | | | | 394,391 | | | | 410,394 | | | | 2.70 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Total debt securities available for sale | | $ | 4,410 | | | | 2.01 | % | | $ | 205,931 | | | | 2.00 | % | | $ | 200,671 | | | | 3.06 | % | | $ | 304,732 | | | | 2.93 | % | | $ | 715,744 | | | $ | 738,652 | | | | 2.69 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Held to Maturity: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | |
Mortgage-Backed Securities | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Fannie Mae | | $ | — | | | | — | % | | $ | 223 | | | | 5.15 | % | | $ | — | | | | — | % | | $ | 1,075 | | | | 2.31 | % | | $ | 1,298 | | | $ | 1,361 | | | | 2.80 | % |
Freddie Mac | | | — | | | | — | | | | — | | | | — | | | | 306 | | | | 5.96 | | | | 32,552 | | | | 2.54 | | | | 32,858 | | | | 32,841 | | | | 2.57 | |
Ginnie Mae | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | |
CMOs and REMICs | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | 25,828 | | | | 2.21 | | | | 25,828 | | | | 25,983 | | | | 2.21 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Total | | | — | | | | — | | | | 223 | | | | 5.15 | | | | 306 | | | | 5.96 | | | | 59,455 | | | | 2.39 | | | | 59,984 | | | | 60,185 | | | | 2.42 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Investment Securities | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
U.S. Government and agency securities | | | | | | | | | | | | | | | | | | | 29,973 | | | | 2.01 | | | | — | | | | — | | | | 29,973 | | | | 29,857 | | | | 2.01 | |
State and municipal | | | 5,813 | | | | 2.51 | | | | 6,196 | | | | 3.53 | | | | 2,982 | | | | 4.39 | | | | 3,592 | | | | 4.48 | | | | 18,583 | | | | 19,691 | | | | 3.53 | |
Other | | | — | | | | — | | | | 1,500 | | | | 2.36 | | | | — | | | | — | | | | — | | | | — | | | | 1,500 | | | | 1,539 | | | | 2.36 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Total | | | 5,813 | | | | 2.51 | | | | 7,696 | | | | 3.30 | | | | 32,955 | | | | 2.23 | | | | 3,592 | | | | 4.48 | | | | 50,056 | | | | 51,087 | | | | 2.59 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Total debt securities held to maturity | | $ | 5,813 | | | | 2.51 | % | | $ | 7,919 | | | | 3.35 | % | | $ | 33,261 | | | | 2.26 | % | | $ | 63,047 | | | | 2.51 | % | | $ | 110,040 | | | $ | 111,272 | | | | 2.50 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | 1 Year or Less | | 1-5 years | | 5-10 years | | 10 years or more | | Total |
| | Amortized cost | | Yield | | Amortized
cost | | Yield | | Amortized
cost | | Yield | | Amortized
cost | | Yield | | Amortized
cost | | Fair Value | | Yield |
| | (Dollars in thousands) |
| Available for sale: | | | | | | | | | | | | | | | | | | | | | |
| Residential mortgage-backed securities | $ | — |
| | — | % | | $ | 7,849 |
| | 1.69 | % | | $ | 107,980 |
| | 2.19 | % | | $ | 338,344 |
| | 2.17 | % | | $ | 454,173 |
| | $ | 449,183 |
| | 2.16 | % |
| Federal agencies | — |
| | — |
| | 22,442 |
| | 1.10 |
| | 251,195 |
| | 1.64 |
| | — |
| | — |
| | 273,637 |
| | 261,547 |
| | 1.59 |
|
| Corporate bonds | — |
| | — |
| | 28,043 |
| | 1.58 |
| | 90,532 |
| | 2.36 |
| | — |
| | — |
| | 118,575 |
| | 114,933 |
| | 2.17 |
|
| State and municipal | 2,242 |
| | 2.21 |
| | 30,572 |
| | 3.20 |
| | 75,928 |
| | 3.15 |
| | 18,582 |
| | 2.98 |
| | 127,324 |
| | 128,730 |
| | 3.12 |
|
| Total | $ | 2,242 |
| | 2.21 | % | | $ | 88,906 |
| | 2.03 | % | | $ | 525,635 |
| | 2.09 | % | | $ | 356,926 |
| | 2.21 | % | | $ | 973,709 |
| | $ | 954,393 |
| | 2.13 | % |
| | | | | | | | | | | | | | | | | | | | | | |
| Held to maturity: | | | | | | | | | | | | | | | | | | | | | |
| Residential mortgage-backed securities: | $ | — |
| | — | % | | $ | — |
| | — | % | | $ | 31,723 |
| | 2.29 | % | | $ | 124,424 |
| | 2.49 | % | | $ | 156,147 |
| | $ | 156,473 |
| | 2.45 | % |
| Federal agencies | — |
| | — |
| | 12,373 |
| | 1.10 |
| | 64,968 |
| | 1.70 |
| | — |
| | — |
| | 77,341 |
| | 73,883 |
| | 1.60 |
|
| State and municipal | 2,800 |
| | 2.49 |
| | 2,133 |
| | 3.38 |
| | 7,934 |
| | 2.45 |
| | 6,144 |
| | 3.56 |
| | 19,011 |
| | 19,021 |
| | 2.88 |
|
| Other | 1,000 |
| | 2.84 |
| | 250 |
| | 1.29 |
| | 250 |
| | 3.75 |
| | — |
| | — |
| | 1,500 |
| | 1,519 |
| | 2.73 |
|
| Total | $ | 3,800 |
| | 2.58 | % | 3,800,000 |
| $ | 14,756 |
| | 1.39 | % | | $ | 104,875 |
| | 1.92 | % | | $ | 130,568 |
| | 2.54 | % | | $ | 253,999 |
| | $ | 250,896 |
| | 2.22 | % |
Sources of Funds
GeneralGeneral.Deposits, borrowings, repayments and prepayments of loans and securities, proceeds from sales of loans and securities, proceeds from maturing securities and cash flows from operations are theour primary sources of our funds for use in lending, investing and for other general corporate purposes.
Deposits.We offer a variety of deposit accounts with a range of interest rates and terms. Our deposit accounts consist of savings accounts, NOW accounts, checking accounts, money market accounts, club accounts, certificates of deposit and IRAs and other qualified plan accounts. We also provide a variety of commercial checking accounts and other products for businesses. In addition, we provide low-cost checking account services for low-income customers.
At September 30, 2011,2013, our deposits totaled $2.3 billion.$3.0 billion. Interest-bearing demand deposits totaled $1.6 billion,$434.4 million and non-interest-bearing demand deposits totaled $651.2 million.$943.9 million. NOW, savings and money market deposits totaled $1.3$1.8 billion at September 30, 2011. Also at that date, we. We also had a total of $303.7$268.1 million in certificates of deposit, of which $250.8$239.1 million had maturities of one year or less. Although we have a significant portion of
We focus on gathering low cost, core deposits through our
deposits in shorter-term certificates of deposit, our management monitors activity on these accounts and, based on historical experiencecommercial relationship teams and our
current pricing strategy, we believe we will retain a large portion of such accounts upon maturity, although we may have to match competitive rates to retain many of these accounts.Ourfinancial centers. We also gather deposits are obtained predominantly from the areasmunicipalities in which our branch offices are located. We rely on our favorable locations, customer service and competitive pricing to attract and retain these deposits. While we accept certificates of deposit in excess of $100,000 for which we may provide preferential rates, we do not actively solicit such deposits as they are more difficult to retain than core deposits. Our limited purpose commercial bank subsidiary, Provident Municipal Bank, accepts municipal deposits. Municipal time accounts (certificates of deposit) are generally obtained through a bidding process, and tend to carry higher average interest rates than retail certificates of deposit of similar term.
Management utilizes brokered deposits on a limited basis as a diversification of wholesale funding on an unsecured basis. Management maintains limits for the use of wholesale deposit and other short term funding in general less than 10% of total assets. Most of the brokered deposit funding maintained by the bank has a maturity to coincide with the anticipated inflows of deposits through municipal tax collections.
Listed below are the Company’s brokered deposits (in thousands):
| | | | | | | | |
| | | September 30,
2011 | | | September 30,
2010 | |
Money market | | $ | 5,725 | | | $ | — | |
Reciprocal CDAR’s 1 | | | 2,746 | | | | 7,889 | |
CDAR’s one way | | | 3,366 | | | | 10,665 | |
| | | | | | | | |
Total brokered deposits | | $ | 11,837 | | | $ | 18,554 | |
| | | | | | | | |
| market area.
1
| Certificate of deposit account registry service
|
Distribution of Deposit Accounts by Type. The following table sets forth the distribution of total deposit accounts, by account type, at the dates indicated.
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | For the year ended September 30, | |
| | | 2011 | | | 2010 | | | 2009 | |
| | | Amount | | | Percent | | | Amount | | | Percent | | | Amount | | | Percent | |
| | | (Dollars in thousands) | |
Demand deposits: | | | | | | | | | | | | | | | | | | | | | | | | |
Retail | | $ | 194,299 | | | | 8.5 | % | | $ | 174,731 | | | | 8.2 | % | | $ | 169,122 | | | | 8.1 | % |
Commercial & municipal | | | 456,927 | | | | 19.8 | | | | 355,126 | | | | 16.6 | | | | 323,112 | | | | 15.5 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Total demand deposits | | | 651,226 | | | | 28.3 | | | | 529,857 | | | | 24.8 | | | | 492,234 | | | | 23.6 | |
Business & municipal NOW deposits | | | 237,865 | | | | 10.4 | | | | 276,100 | | | | 12.9 | | | | 225,046 | | | | 10.8 | |
Personal NOW deposits | | | 164,637 | | | | 7.2 | | | | 139,517 | | | | 6.5 | | | | 127,595 | | | | 6.1 | |
Savings deposits | | | 429,825 | | | | 18.7 | | | | 392,321 | | | | 18.3 | | | | 357,814 | | | | 17.2 | |
Money market deposits | | | 509,483 | | | | 22.2 | | | | 427,334 | | | | 19.9 | | | | 384,632 | | | | 18.5 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Subtotal | | | 1,993,036 | | | | 86.8 | | | | 1,765,129 | | | | 82.4 | | | | 1,587,321 | | | | 76.2 | |
Certificates of deposit | | | 303,659 | | | | 13.2 | | | | 377,573 | | | | 17.6 | | | | 494,961 | | | | 23.8 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Total deposits | | $ | 2,296,695 | | | | 100.0 | % | | $ | 2,142,702 | | | | 100.0 | % | | $ | 2,082,282 | | | | 100.0 | % |
| | | | | | | | | | | | | | | | | | | | | | | | |
|
| | | | | | | | | | | | | | | | | | | | |
| | September 30, |
| | 2013 | | 2012 | | 2011 |
| | Amount | | % | | Amount | | % | | Amount | | % |
| | (Dollars in thousands) |
| Non-interest bearing demand: | | | | | | | | | | | |
| Retail | $ | 163,986 |
| | 5.5 | % | | $ | 167,050 |
| | 5.4 | % | | $ | 194,299 |
| | 8.5 | % |
| Commercial | 457,147 |
| | 15.4 |
| | 412,630 |
| | 13.3 |
| | 296,505 |
| | 12.9 |
|
| Municipal | 322,801 |
| | 10.9 |
| | 367,624 |
| | 11.8 |
| | 160,422 |
| | 7.0 |
|
| Total non-interest bearing demand | 943,934 |
| | 31.9 |
| | 947,304 |
| | 30.4 |
| | 651,226 |
| | 28.4 |
|
| Interest bearing demand: | | | | | | | | | | | |
| Retail | 237,854 |
| | 8.0 |
| | 213,755 |
| | 6.9 |
| | 164,637 |
| | 7.2 |
|
| Commercial | 53,083 |
| | 1.8 |
| | 38,486 |
| | 1.2 |
| | 37,092 |
| | 1.6 |
|
| Municipal | 143,461 |
| | 4.8 |
| | 195,882 |
| | 6.3 |
| | 200,773 |
| | 8.7 |
|
| Total interest bearing demand | 434,398 |
| | 14.7 |
| | 448,123 |
| | 14.4 |
| | 402,502 |
| | 17.5 |
|
| Savings | 580,125 |
| | 19.6 |
| | 506,538 |
| | 16.3 |
| | 429,825 |
| | 18.7 |
|
| Money market | 735,709 |
| | 24.8 |
| | 821,704 |
| | 26.4 |
| | 509,483 |
| | 22.2 |
|
| Subtotal | 2,694,166 |
| | 90.9 |
| | 2,723,669 |
| | 87.5 |
| | 1,993,036 |
| | 86.8 |
|
| Certificates of deposit | 268,128 |
| | 9.1 |
| | 387,482 |
| | 12.5 |
| | 303,659 |
| | 13.2 |
|
| Total deposits | $ | 2,962,294 |
| | 100.0 | % | | $ | 3,111,151 |
| | 100.0 | % | | $ | 2,296,695 |
| | 100.0 | % |
As of September 30, 20112013 and September 30, 20102012 the Company had $614.8$757.1 million and $513.8$901.7 million, respectively, in municipal deposits. Of these amounts, $284.0approximately $374.3 million and $219.0$424.6 million were deposits related to school district tax deposits due on September 30, 20112013 and 2010,September 30, 2012, respectively, which we generally retain only for a short period. period of time.
The following table sets forth the distribution of average deposit accounts by account category
withand the average rates paid at the dates indicated.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | September 30, | |
| | | 2011 | | | 2010 | | | 2009 | |
| | | Average
Balance | | | Interest | | | Average
Rate
Paid | | | Average
Balance | | | Interest | | | Average
Rate
Paid | | | Average
Balance | | | Interest | | | Average
Rate
Paid | |
| | | (Dollars in thousands) | |
Non interest bearing deposits | | $ | 472,388 | | | $ | — | | | | — | | | $ | 429,655 | | | $ | — | | | | — | | | $ | 380,571 | | | $ | — | | | | — | |
NOW deposits | | | 315,623 | | | | 595 | | | | 0.19 | % | | | 280,304 | | | | 579 | | | | 0.21 | % | | | 232,164 | | | | 670 | | | | 0.29 | % |
Savings deposits (1) | | | 432,227 | | | | 444 | | | | 0.10 | % | | | 397,760 | | | | 403 | | | | 0.10 | % | | | 366,355 | | | | 758 | | | | 0.21 | % |
Money market deposits | | | 489,347 | | | | 1,595 | | | | 0.33 | % | | | 419,152 | | | | 1,456 | | | | 0.35 | % | | | 374,507 | | | | 2,707 | | | | 0.72 | % |
Certificates of deposit | | | 373,142 | | | | 3,470 | | | | 0.93 | % | | | 451,509 | | | | 6,079 | | | | 1.35 | % | | | 577,723 | | | | 14,240 | | | | 2.46 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Total interest bearing deposits | | | 1,610,339 | | | $ | 6,104 | | | | 0.38 | % | | | 1,548,725 | | | $ | 8,517 | | | | 0.55 | % | | | 1,550,749 | | | $ | 18,375 | | | | 1.18 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Total deposits | | $ | 2,082,727 | | | | | | | | | | | $ | 1,978,380 | | | | | | | | | | | $ | 1,931,320 | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | September 30, | | | 2013 | | 2012 | | 2011 | | | Average balance | | Rate | | Average balance | | Rate | | Average balance | | Rate | | | (Dollars in thousands) | | Non-interest bearing demand | $ | 646,373 |
| | — | % | | $ | 520,265 |
| | — | % | | $ | 472,388 |
| | — | % | | Interest bearing demand | 466,110 |
| | 0.08 |
| | 399,819 |
| | 0.12 |
| | 315,623 |
| | 0.19 |
| | Savings | 572,246 |
| | 0.17 |
| | 485,624 |
| | 0.08 |
| | 432,227 |
| | 0.10 |
| | Money market | 819,442 |
| | 0.30 |
| | 671,325 |
| | 0.33 |
| | 489,347 |
| | 0.33 |
| | Certificates of deposit | 352,469 |
| | 0.60 |
| | 289,230 |
| | 0.87 |
| | 373,142 |
| | 0.93 |
| | Total interest bearing deposits | 2,210,267 |
| | 0.27 |
| | 1,845,998 |
| | 0.30 |
| | 1,610,339 |
| | 0.38 |
| | Total deposits | $ | 2,856,640 |
| | 0.21 |
| | $ | 2,366,263 |
| | 0.24 |
| | $ | 2,082,727 |
| | 0.29 |
|
(1)
| Includes club accounts and mortgage escrow balances
|
Certificates of Deposit by Interest Rate Range. The following table sets forth information concerning certificates of deposit by interest rate rangesrange at the dates indicated.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | At September 30, 2011 | | | | | | | |
| | | Period to Maturity | | | Total at September 30, | |
| | | Less than
One Year | | | One to
Two Years | | | Two to
Three Years | | | More than
Three Years | | | Total | | | Percent of
Total | | | 2010 | | | 2009 | |
| | | (Dollars in thousands) | |
Interest Rate Range: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | |
1.00% and below | | $ | 233,780 | | | $ | 10,134 | | | $ | 978 | | | $ | 885 | | | $ | 245,777 | | | | 80.9 | % | | $ | 285,923 | | | $ | 150,138 | |
1.01% to 2.00% | | | 6,446 | | | | 3,383 | | | | 2,143 | | | | 3,052 | | | | 15,024 | | | | 4.9 | % | | | 35,527 | | | | 172,536 | |
2.01% to 3.00% | | | 4,783 | | | | 1,024 | | | | 4,450 | | | | 6,585 | | | | 16,842 | | | | 5.5 | % | | | 21,261 | | | | 72,483 | |
3.01% to 4.00% | | | 2,099 | | | | 2,469 | | | | 5,958 | | | | — | | | | 10,526 | | | | 3.5 | % | | | 17,092 | | | | 77,720 | |
4.01% to 5.00% | | | 3,465 | | | | 5,482 | | | | 6,055 | | | | — | | | | 15,002 | | | | 4.9 | % | | | 17,115 | | | | 21,439 | |
5.01% to 6.00% | | | 196 | | | | 292 | | | | — | | | | — | | | | 488 | | | | 0.2 | % | | | 655 | | | | 645 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Total | | $ | 250,769 | | | $ | 22,784 | | | $ | 19,584 | | | $ | 10,522 | | | $ | 303,659 | | | | 100 | % | | $ | 377,573 | | | $ | 494,961 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | As of September 30, 2013 | | | | |
| | Period to maturity | | Total at September 30, |
| | 1 year or less | | 1-2 years | | 2-3 years | | 3 years or more | | Total | | % of
total | | 2012 | | 2011 |
| | (Dollars in thousands) |
| Interest rate range: | | | | | | | | | | | | | | | |
| 1.00% and below | $ | 218,204 |
| | $ | 11,072 |
| | $ | 2,046 |
| | $ | 5,464 |
| | $ | 236,786 |
| | 88.3 | % | | $ | 239,149 |
| | $ | 245,777 |
|
| 1.01% to 2.00% | 4,922 |
| | 225 |
| | 2,606 |
| | 1,127 |
| | 8,880 |
| | 3.3 |
| | 114,836 |
| | 15,024 |
|
| 2.01% to 3.00% | 3,773 |
| | 5,951 |
| | 533 |
| | — |
| | 10,257 |
| | 3.8 |
| | 11,569 |
| | 16,842 |
|
| 3.01% to 4.00% | 5,838 |
| | — |
| | — |
| | — |
| | 5,838 |
| | 2.3 |
| | 9,101 |
| | 10,526 |
|
| 4.01% to 5.00% | 6,367 |
| | — |
| | — |
| | — |
| | 6,367 |
| | 2.4 |
| | 12,524 |
| | 15,002 |
|
| 5.01% to 6.00% | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 303 |
| | 488 |
|
| Total | $ | 239,104 |
| | $ | 17,248 |
| | $ | 5,185 |
| | $ | 6,591 |
| | $ | 268,128 |
| | 100.0 | % | | $ | 387,482 |
| | $ | 303,659 |
|
Certificates of Deposit by Time to Maturity. The following table sets forth certificates of deposit by time remaining until maturity as of September 30, 2011.2013 | | | | | | | | | | | | | | | | | | | | |
| | | Maturity | |
| | | 3 months or
Less | | | Over 3 to 6
Months | | | Over 6 to 12
Months | | | Over 12
Months | | | Total | |
| | | (Dollars in thousands) | |
Certificates of deposit less than $100,000 | | $ | 75,255 | | | $ | 61,014 | | | $ | 49,199 | | | $ | 35,847 | | | $ | 221,315 | |
Certificates of deposit of $100,000 or more(¹) | | | 30,821 | | | | 17,336 | | | | 17,144 | | | | 17,043 | | | | 82,344 | |
| | | | | | | | | | | | | | | | | | | | |
| | $ | 106,076 | | | $ | 78,350 | | | $ | 66,343 | | | $ | 52,890 | | | $ | 303,659 | |
| | | | | | | | | | | | | | | | | | | | |
|
| | | | | | | | | | | | | | | | | | | | | | |
| | Period to maturity | | | | |
| | 3 months or less | | 3-6 months | | 6-12 months | | Over 12 months | | Total | | Rate |
| | (Dollars in thousands) | | |
| Certificates of deposit less than $100,000 | $ | 69,973 |
| | $ | 34,083 |
| | $ | 39,179 |
| | $ | 20,668 |
| | $ | 163,903 |
| | 0.30 | % |
| Certificates of deposit $100,000 or more | 39,224 |
| | 24,993 |
| | 31,652 |
| | 8,356 |
| | 104,225 |
| | 0.50 |
|
| �� | $ | 109,197 |
| | $ | 59,076 |
| | $ | 70,831 |
| | $ | 29,024 |
| | $ | 268,128 |
| | 0.38 | % |
Brokered Deposits. We utilize brokered deposits on a limited basis and maintain limits for the use of wholesale deposits and other short-term funding in general to be less than 10% of total assets. Most of the brokered deposit funding maintained by the Bank has a maturity to coincide with the anticipated inflows of deposits through municipal tax collections.
Listed below are the Company’s brokered deposits:
|
| | | | | | | |
| | September 30, |
| | 2013 | | 2012 |
| | (Dollars in thousands) |
| 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)1
| The weighted interest rates for these accounts, by maturity period, are 0.46% for 3 months or less; 0.61% for 3 to 6 months; 0.79% for 6 to 12 months; and 2.85% for over 12 months. The overall weighted average interest rate for accountsCertificate of $100,000 or more was 1.06%
deposit account registry service |
Short-term Borrowings. Our short-term borrowings (less(which include borrowings with a maturity in less than one year) consistconsisted of advances and overnight borrowings and inprincipally from the Federal Home Loan Bank. At September 30, 2011, includesshort-term borrowings also included $51.5 million of debt guaranteed by the FDIC maturingwhich matured in February 2012. At September 30, 2011,2013, we had access to additional Federal Home Loan Bank advances of up to an additional $200 million or more in overnight advances on a collateralized basis. $588 million.
The following table sets forth information concerning balances and interest rates on our short-term borrowings at the dates
and for the years indicated.
| | | | | | | | | | | | |
| | | At or For the Years Ended September 30, | |
| | | 2011 | | | 2010 | | | 2009 | |
| | | (Dollars in thousands) | |
Balance at end of year | | $ | 61,500 | | | $ | 44,873 | | | $ | 62,677 | |
Average balance during year | | | 55,098 | | | | 91,442 | | | | 91,985 | |
Maximum outstanding at any month end | | | 128,200 | | | | 184,040 | | | | 293,608 | |
Weighted average interest rate at end of year | | | 2.96 | % | | | 3.82 | % | | | 4.09 | % |
Weighted average interest rate during year | | | 1.67 | % | | | 2.33 | % | | | 3.38 | % |
|
| | | | | | | | | | | |
| | At or for the year ended September 30, |
| | 2013 | | 2012 | | 2011 |
| | (Dollars in thousands) |
| Balance at end of year | $ | 158,897 |
| | $ | 10,136 |
| | $ | 61,500 |
|
| Average balance during year | 88,779 |
| | 27,286 |
| | 55,098 |
|
| Maximum amount outstanding at any month end | 295,652 |
| | 103,500 |
| | 128,200 |
|
| Weighted average interest rate at end of year | 0.95 | % | | 1.88 | % | | 2.96 | % |
| Weighted average interest rate during year | 0.57 |
| | 0.78 |
| | 1.67 |
|
Competition
We face significant competition in both originating loans and attracting deposits.
The
greater New York metropolitan
region is a highly competitive market area
haswith a
high concentration of financial institutions, many of which are significantly larger institutions with greater financial resources than us, and many of which are our competitors to varying degrees. Our competition for loans comes principally from commercial banks, savings banks, mortgage banking companies, credit unions,
insurance companies and other financial service companies. Our most direct competition for deposits has historically come from commercial banks, savings banks and credit unions. We face additional competition for deposits from non-depository competitors such as the mutual fund industry, securities and brokerage firms and insurance companies. We have emphasized personalizedrelationship banking and the advantage of local decision-making in our banking business and this strategy appears to have been well received in our market area.business. We do not rely on any individual, group, or entity for a material portion of our deposits. Although we have not done so in the past, netNet interest income could be adversely affected should competitive pressures cause us to increase ourthe interest rates paid on deposits in order to maintain our market share.
Employees
EmployeesAs of September 30, 2011,2013, we had 465477 full-time employees and 8566 part-time employees. The employees are not represented by a collective bargaining unit and we consider our relationship with our employees to be good.
Regulation
RegulationGeneral. General
AsPrior to the Merger, the Company was a savings and loan holding company Provident Bancorp is supervised and regulated by the Board of Governors of the Federal Reserve System (“Federal Reserve”). ItsBank was a federal savings bank. In connection with the Merger, the Bank converted to a national bank subsidiary, Providentcharter and the Company became a bank holding company and a financial holding company under the Bank is supervised and regulated by the OfficeHolding Company Act of the Comptroller of the Currency (“OCC”1956, as amended (the “BHC Act”). As a state-chartered, FDIC-insured bank,Prior to the Merger, Provident Municipal Bank iswas a commercial bank regulated by the New York State Department of Financial Services and the FDIC. In connection with the Merger, Provident Municipal Bank merged into Sterling National Bank and ceased its separate existence.
Significant elements of the laws and regulations applicable to the Company and the Bank are described below. The description is qualified in its entirety by reference to the full text of the statutes, regulations and policies that are described. Also, such statutes, regulations and policies are continually under review by Congress and state legislatures and federal and state regulatory agencies. A change in statutes, regulations or regulatory policies applicable to Sterling and its subsidiaries could have a material effect on the business, financial condition and results of operations of the Company. Sterling is also under the jurisdiction of the Securities and Exchange Commission (“SEC”) and is subject to the disclosure and regulatory requirements of the Securities Act of 1933, as amended, and the Securities Exchange Act of 1934, as amended, as administered by the SEC. Sterling’s common stock is listed on the New York Stock Exchange (“NYSE”) under the trading symbol “STL,” and is subject to the rules of the NYSE for listed companies.
As a bank holding company, the Company is subject to extensive regulation, supervision and examination by the Board of Governors of the Federal Reserve System (the “Federal Reserve Board” or “FRB”) as its primary federal regulator. As a national bank, the Bank is principally subject to the supervision, examination and reporting requirements of the Office of the Comptroller of the Currency (the “OCC”), as its primary federal regulator, as well as the Federal Deposit Insurance Corporation (“FDIC”(the “FDIC”). Because it is an FDIC-insured institution, ProvidentInsured banks, including the Bank, also isare subject to extensive regulation of many aspects of their business. These regulations relate to, among other things: (a) the nature and amount of loans that may be made by the FDIC. Provident Bank’s relationshipBank and the rates of interest that may be charged; (b) types and amounts of other investments; (c) branching; (d) permissible activities; (e) reserve requirements; and (f) dealings with its depositorsofficers, directors and borrowersaffiliates.
Bank Holding Company Activities. In general, the BHC Act limits the business of bank holding companies to banking, managing or controlling banks and other activities that the Federal Reserve Board has determined to be so closely related to banking as to be a proper incident thereto. In addition, bank holding companies that qualify and elect to be financial holding companies such as the Company, may engage in any activity, or acquire and retain the shares of a company engaged in any activity, that is governedeither (i) financial in nature or incidental to such financial activity (as determined by the Federal Reserve Board in consultation with the Secretary of the Treasury) or (ii) complementary to a great extentfinancial activity and does not pose a substantial risk to the safety and soundness of depository institutions or the financial system generally (as solely determined by boththe Federal Reserve Board), without prior approval of the Federal Reserve Board. Activities that are financial in nature include securities underwriting and dealing, insurance underwriting and making merchant banking investments.
To maintain financial holding company status, a financial holding company and all of its depository institution subsidiaries must be “well capitalized” and “well managed.” A depository institution subsidiary is considered to be “well capitalized” if it satisfies the requirements for this status discussed in the section captioned “Prompt Corrective Action,” included elsewhere in this item. A depository institution subsidiary is considered “well managed” if it received a composite rating and management rating of at least “satisfactory” in its most recent examination. A financial holding company’s status will also depend upon it maintaining its status as “well capitalized” and “well managed’ under applicable Federal Reserve Board regulations. If a financial holding company ceases to meet these capital and management requirements, the Federal Reserve Board’s regulations provide that the financial holding company must enter into an agreement with the Federal Reserve Board to comply with all applicable capital and management requirements. Until the financial holding company returns to compliance, the Federal Reserve Board may impose limitations or conditions on the conduct of its activities, and the company may not commence any of the broader financial activities permissible for financial holding companies or acquire a company engaged in such financial activities without prior approval of the Federal Reserve Board. If the company does not return to compliance within 180 days, the Federal Reserve Board may require divestiture of the holding company’s depository institutions.
In order for a financial holding company to commence any new activity permitted by the BHC Act or to acquire a company engaged in any new activity permitted by the BHC Act, each insured depository institution subsidiary of the financial holding company must have received a rating of at least “satisfactory” in its most recent examination under the Community Reinvestment Act. See the section captioned “Community Reinvestment Act” included elsewhere in this item.
The Federal Reserve Board has the power to order any bank holding company or its subsidiaries to terminate any activity or to terminate its ownership or control of any subsidiary when the Federal Reserve Board has reasonable grounds to believe that continuation of such activity or such ownership or control constitutes a serious risk to the financial soundness, safety or stability of any bank subsidiary of the bank holding company.
The BHC Act, the Bank Merger Act, and other federal and state laws, especiallystatutes regulate acquisitions of banks and banking companies. The BHC Act requires the prior approval of the Federal Reserve Board for the direct or indirect acquisition by the Company of more than 5.0% of the voting shares or substantially all of the assets of a bank or bank holding company. Under the Bank Merger Act, the prior approval of the Federal Reserve Board or other appropriate bank regulatory authority is required for the Bank to merge with another bank or purchase the assets or assume the deposits of another bank. In reviewing applications seeking approval of merger and acquisition transactions, the bank regulatory authorities will consider, among other things, the competitive effect and public benefits of the transactions, the capital position of the combined organization, the risks to the stability of the U.S. banking or financial system, the applicant’s performance record under the Community Reinvestment Act (see the section captioned “Community Reinvestment Act” included elsewhere in matters concerning the ownership of deposit accountsthis item) and fair housing laws and the form and contenteffectiveness of Provident Bank’s loan documents. As a regulated financial services firm, our relationships and good standing with regulators arethe subject organizations in combating money laundering activities.
The Federal Reserve, OCC, FDIC, SEC, and other regulators have broad enforcement powers, and powers to approve, deny, or refuse to act upon our applications or notices to conduct new activities, acquire or divest businesses or assets, or reconfigure existing operations.Certain federal banking laws have been amended by theDodd-Frank Act.
The Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”). See “Regulation — Financial Reform Legislation” below. Among, which was enacted in July 2010, significantly restructured the more significant changes made byfinancial regulatory environment in the United States. Although the Dodd-Frank Act, effective July 21, 2011,Act’s provisions that have received the Office of Thrift Supervision (“OTS”) ceased to exist as a separate entity and was merged into the OCC. The OCC has assumed the OTS’ role as primary federal regulator and supervisor of Provident Bank. The Federal Reserve has become the primary supervisor and regulator with respect to Provident Bancorp.Some of the numerous governmental regulations to which Provident Bancorp and its subsidiaries are subject are summarized below. These summaries are not complete and you should refer to these laws and regulations for more information. Failure to comply with applicable laws and regulations could result in a range of sanctions and enforcement actions, including the imposition of civil money penalties, formal agreements and cease and desist orders. Applicable laws and regulations may change in the future and any such change could have a material adverse impact on Provident Bancorp, Provident Bank or Provident Municipal Bank.
In addition, Provident Bancorp and its subsidiaries are subject to examination by regulators, which results in examination reports and ratings (which are not publicly available) that can impact the conduct and growth of our businesses. These examinations consider not only compliance with applicable laws and regulations, but also capital levels, asset quality and risk, management ability and performance, earnings, liquidity, and various other factors. An examination downgrade by any of our federal bank regulators potentially can result in the imposition of significant limitations on our activities and growth. These regulatory agenciesmost public attention generally have broad discretionbeen those applying to, impose restrictions and limitations on the operations of a regulated entity where the agencies determine,
among other things, thator more likely to affect, larger institutions such operations are unsafe or unsound, fail to comply with applicable law or are otherwise inconsistent with laws and regulations or with the supervisory policies of these agencies. This supervisory framework could materially impact the conduct, growth and profitability of our operations.
Holding Company Regulation
Provident Bancorp is a unitary savings and loan holding company because it owns only one savings association. The Federal Reserve has supervisory and enforcement authority over Provident Bancorp and its non-bank subsidiaries. Among other things, this authority permits the Federal Reserve to restrict or prohibit activities that are determined to be a risk to Provident Bank.
Provident Bancorp must generally limit its activities to those permissible for (i) financial holding companies under section 4(k) of the Bank Holding Company Act, or (ii) multiple savings and loan holding companies under the Savings and Loan Holding Company Act. Activities in which a financial holding company may engage are those considered financial in nature or those incidentals or complementary to financial activities. These activities include lending, trust and investment advisory activities, insurance agency activities, and securities and insurance underwriting activities. Activities permitted to multiple savings and loan holding companies include certain real estate investment activities, and other activities permitted toas bank holding companies under the Bank Holding Company Act.
Federal law prohibits Provident Bancorp, directly or indirectly, or through one or more subsidiaries, from acquiring control of another savings association or a savings and loan holding company, without prior written approval of the Federal Reserve Bank. It also prohibits the acquisition or retention of, with specified exceptions, more than 5% of the voting shares of a savings association or savings and loan holding company that is not already a subsidiary, without prior written approval of the Federal Reserve Bank. In evaluating applications for acquisition, the Federal Reserve Bank must consider the financial and managerial resources and future prospects of the company and association involved the effect of the acquisition on the association, the risk to the Deposit Insurance Fund, the convenience and needs of the community to be served, and competitive factors.
As a public company with securities registered under the Securities Exchange Act of 1934, Provident Bancorp also is subject to that statute and to the Sarbanes-Oxley Act.
Dividends
Provident Bancorp is a legal entity separate and distinct from its savings association and other subsidiaries, and its principal sources of funds are cash dividends paid by these subsidiaries. OCC regulations limit the amount of capital distributions, including cash dividends, stock repurchases, and other transactions charged to the institution’s capital account, that can be made by Provident Bank. Furthermore, because Provident Bank is a subsidiary of a holding company, it must file a notice with the Federal Reserve at least 30 days before Provident Bank’s Board of Directors declares a dividend. This notice may be disapproved if the Federal Reserve finds that:
the savings association 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.
Provident Bank must file an application (rather than a notice) with the OCC if, among other things, the total amount of all capital distributions, including the proposed distribution, for the calendar year exceeds the institution’s net income for that year, plus retained net income for the preceding two years.
As of October 1, 2011, the maximum amount of dividends that could be declared by Provident Bank for fiscal year 2011, without regulatory approval, is net retained income for calendar year 2011, plus $8.5 million.
Capital Requirements
As a federal savings association, Provident Bank is subject to OCC capital requirements. The OCC regulations require savings associations to meet three minimum capital standards: at least an 8% risk-based capital ratio, a 4% leverage ratio (3% for institutions receiving the highest supervisory rating), and at least a 1.5% tangible capital ratio.
The OCC’s risk-based capital standards require a savings association to maintain a Tier 1 (core) capital to risk-weighted assets ratio of at least 4%, and a total (core plus supplementary) capital to risk-weighted assets ratio of at least 8%. To determine these ratios, the regulations define core capital as common stockholders’ equity (including retained earnings), certain non-cumulative perpetual preferred stock and related surplus, and minority interests in equity accounts of fully consolidated subsidiaries, less intangible capital, other than certain mortgage servicing rights and credit card relationships. Supplementary capital is defined as including cumulative perpetual preferred stock, mandatory convertible securities, subordinated debt, intermediate preferred stock, allowance for loan and lease losses up to a maximum of 1.25%of risk-weighted assets, and up to 45% of net unrealized gains on available-for-sale equity securities with readily determinable fair market values. The amount of supplementary capital included as part of total capital cannot exceed 100% of core capital. In determining the amount of risk-weighted assets, all assets, including certain off-balance sheet assets, are multiplied by a risk-weight factor ranging from 0% to 100%, assigned by the OCC capital regulation based on the risks inherent in the type of asset.
The OCC’s leverage ratio is defined as the ratio of core capital to adjusted total assets. The tangible capital ratio is defined as the ratio of tangible capital (the components of which are very similar to those of core capital) to adjusted total assets.
As an FDIC-insured bank, Provident Municipal Bank is subject to the risk-based capital and leverage capital requirements of the FDIC. These requirements are similar to the OCC risk-based capital and leverage capital requirements described above.
The Dodd-Frank Act contains a number of provisions that affect the capital requirements applicable to Provident Bank and to Provident Bancorp, including the requirement that thrift holding companies be subject to consolidated capital requirements. See “Regulation — Financial Reform Legislation,” below. In addition, on September 12, 2010, the Basel Committee adopted the Basel III capital rules. These rules, which will be phased in over a period of years, set new standards for common equity, Tier 1 and total capital, determined on a risk-weighted basis. The impact on Provident Bank and Provident Bancorp of the Dodd-Frank requirements and the Basel III rules cannot be determined at this time.
The OCC, the FDIC and other federal banking agencies have broad powers under current federal law to take “prompt corrective action” in connection with depository institutions that do not meet minimum capital requirements. For this purpose, the law establishes five capital categories for insured depository institution: “well-capitalized”, “adequately capitalized,” “undercapitalized,” “significantly undercapitalized” and “critically undercapitalized.” To be considered “well capitalized,” an institution must maintain a total risk-based capital ratio of 10% or greater, a Tier 1 risk-based capital ratio of 6% or greater, a leverage capital ratio of 5% or greater, and not be subject to any order or written directive to meet and maintain a specific capital level for any capital measure. An “adequately capitalized” institution must have a Tier 1 capital ratio of at least 4%, a total risk- based capital ratio of at least 8%, and a leverage capital ratio of at least 4%.
If an institution fails to meet these capital requirements, progressively more severe restrictions are placed on the institution’s operations, management and capital distributions, depending on the capital category in which an institution is placed. Any institution that is “adequately capitalized” is, absent a waiver from the FDIC, prohibited from accepting or renewing brokered deposits. Any institution that is determined to be “undercapitalized,” “significantly undercapitalized,” or “critically undercapitalized” is required to raise additional capital and may not accept or renew brokered deposits. In addition, numerous mandatory supervisory
actions become immediately applicable to the insured depository institution, including, but not limited to, restrictions on growth, investment activities, capital distributions, and affiliate transactions. The federal banking agencies also may take any one of a number of discretionary supervisory actions against undercapitalized institutions, including the replacement of senior executive officers and directors. The agencies also may appoint a receiver or conservator for a savings association that is “critically undercapitalized”.
At September 30, 2011, the capital of Provident Bank and Provident Municipal Bank exceeded all applicable capital requirements, and each met the requirements to be treated as a “well-capitalized” institution.
Deposit Insurance
The FDIC insures deposit accounts in Provident Bank and Provident Municipal Bank generally up to a maximum of $250,000 per ownership category of each separately-insured depositor. As FDIC-insured depository institutions, Provident Bank and Provident Municipal Bank are required to pay deposit insurance premiums based on the risk each institution poses to the Deposit Insurance Fund. Currently, the annual FDIC assessment rate ranges from $0.025 to $0.45 (not including the depository institution debt adjustment) per $100 of the institution’s assessment base, based on the institution’s relative risk to the Deposit Insurance Fund, as measured by the institution’s regulatory capital position and other supervisory factors. The FDIC also has the authority to raise or lower assessment rates on insured deposits, subject to limits, and to impose special additional assessments.
The Dodd-Frank Act also temporarily increases the maximum amount of federal deposit insurance coverage for non-interest bearing transaction accounts to an unlimited amount from December 31, 2010 through December 31, 2012. The Dodd-Frank Act also broadens the base for FDIC deposit insurance assessments. Assessments are now based on the average consolidated total assets less tangible equity of an insured depository institution. In addition, the Dodd-Frank Act raises the minimum designated reserve ratio, which the FDIC is required to set each year for the Deposit Insurance Fund, to 1.35% and requires that the Deposit Insurance Fund meets that minimum ratio by September 30, 2020. It eliminates the requirement that the FDIC pay dividends to depository institutions when the reserve ratio exceeds certain thresholds. The FDIC is required to offset the effect of the increased reserve ratio for depository institutions with assets of less than $10 billion. The FDIC has issued regulations to implement these provisions of the Dodd-Frank Act. It has, in addition, established a higher reserve ratio of 2% as a long-term goal beyond what is required by statute. There is no implementation deadline for the 2% ratio.
In addition, the FDIC collects funds from insured institutions sufficient to pay interest on debt obligations of the Financing Corporation (FICO). FICO is a government-sponsored entity that was formed to borrow the money necessary to carry out the closing and ultimate disposition of failed thrift institutions by the Resolution Trust Corporation. For the quarter ended September 30, 2011, the annualized FICO assessment was equal to $0.01 for each $100 of insured domestic deposits maintained at an institution.
Regulation of Provident Bank
Business Activities.As a federal savings association, Provident Bank derives its deposit, lending and investment powers from the Home Owners’ Loan Act (the “HOLA”) and the regulations of the OCC. Under these laws and regulations, Provident Bank may offer any type of deposit accounts, make or invest in mortgage loans secured by residential and commercial real estate, make and invest in commercial and consumer loans, certain types of debt securities and certain other loans and assets, subject in certain cases to certain limits. Provident Bank also may establish and operate subsidiaries that engage in activities permissible for Provident Bank, as well as service corporation subsidiaries that engage in activities not permissible for Provident Bank to engage in directly (such as real estate investment, and securities and insurance brokerage). Pursuant to this authority, Provident Bank operates certain subsidiaries, including Provest Services Corp. I, which holds an investment in a limited partnership that operates an assisted living facility; Provest Services Corp. II, a licensed insurance agency, which
contracts with LPL Financial Corp. in order to offer annuities and insurance products to customers of Provident Bank. Provident Bank also controls Provident REIT, Inc. and WSB Funding Corp. to hold residential and commercial real estate loans and the Bank maintains several corporations which hold foreclosed properties acquired by Provident Bank. Certain of Provident Bank’s subsidiaries are subject to separate regulatory requirements, such as those applicable to insurance agencies and investment advisors. Hardenburgh Abstract Company Inc., a title insurance agency; Provident Risk Management Inc., a captive insurance company insuring Provident affiliated risk; and Hudson Valley Investment Advisors, LLC, an investment advisory firm are subsidiaries of Provident Bancorp.
Qualified Thrift Lender Test.As a federal savings association, Provident Bank must meet the qualified thrift lender (“QTL”) test. Under the QTL test, Provident Bank must maintain at least 65% of its “portfolio assets” in “qualified thrift investments” in at least nine months of the most recent 12-month period. “Portfolio assets” generally means total assets of a savings association, less the sum of certain specified liquid assets, goodwill and other intangible assets, and the value of property used in the conduct of the savings association’s business. “Qualified thrift investments” are primarily mortgage loans and securities, and other investments related to housing, home equity loans, credit card loans, education loans and other consumer loans up to a certain percentage of assets. Provident Bank also may satisfy the QTL test by qualifying as a “domestic building and loan association” as defined in the Internal Revenue Code of 1986. If Provident Bank were to fail the QTL test, it would be immediately required to operate under specified restrictions.
At September 30, 2011, Provident Bank maintained approximately 72.3% of its portfolio assets in qualified thrift investments, and satisfied the QTL test.
Loans to One Borrower.Provident Bank generally may not make loans or extend credit to a single or related group of borrowers in excess of 15% of unimpaired capital and surplus. An additional amount may be loaned, up to 10% of unimpaired capital and surplus, if the loan is secured by readily marketable collateral, which generally does not include real estate. As of September 30, 2011, Provident Bank was in compliance with the loans-to-one-borrower limitations.
Transactions with Affiliates.Provident Bank is subject to restrictions on transactions with affiliates that are the same as those applicable to commercial banks under Sections 23A and 23B of the Federal Reserve Act, as well as certain additional restrictions imposed on federal savings associations by the Home Owners’ Loan Act. The term “affiliate” under these laws means any company that controls or is under common control with a savings association and includes Provident Bancorp and its non-bank subsidiaries. Transactions between Provident Bank and certain affiliates are restricted to an aggregate percentage of Provident Bank’s capital, and certain transactions must be collateralized with certain specified assets. The HOLA further prohibits a savings association from lending to any affiliate that is engaged in activities not permissible for a bank holding company and from purchasing or investing in securities issued by any affiliate other than with respect to shares of a subsidiary. Permissible transactions with affiliates must be on terms that are at least as favorable to the savings association as comparable transactions with non-affiliates.
Provident Bank also is restricted in its ability to extend credit to its directors, executive officers and 10% shareholders, as well as to entities controlled by such persons, to the same extent as such restrictions apply to commercial banks. Extensions of credit to insiders must (i) be made on terms that are substantially the same as, and follow credit underwriting procedures that are not less stringent than, those prevailing for comparable transactions with unaffiliated persons; (ii) not involve more than the normal risk of repayment or present other unfavorable features; and (iii) not exceed certain limitations on the amount of credit extended to such persons, individually and in the aggregate. In addition, extensions of credit in excess of certain limits must be approved by Provident Bank’s Board of Directors.
The Dodd-Frank Act imposes further restrictions on transactions with affiliates and extensions of credit to executive officers, director and principal shareholders, by, among other things, expanding the types of
transactions covered by the law to include securities lending, repurchase agreement and derivatives activities with affiliates. These changes will become effective on July 21, 2012. See “Regulation — Financial Reform Legislation”.
Safety and Soundness Regulations. Federal law requires each federal banking agency to prescribe certain safety and soundness standards for all insured depository institutions. These standards relate to, among other things, internal controls, information systems, and audit systems; loan documentation; credit underwriting; interest rate risk exposure; asset growth; compensation; and other operational and managerial standards as the agency deems appropriate. The federal banking agencies adopted Interagency Guidelines Establishing Standards for Safety and Soundness to implement the safety and soundness requirements of federal law. The guidelines set forth the safety and soundness standards that the federal banking agencies use to identify and address problems at insured depository institutions before capital becomes impaired. If the appropriate federal banking agency determines that an institution fails to meet any standard prescribed by the guidelines, the agency may require the institution to submit to the agency an acceptable plan to achieve compliance with the standard. If a deficiency persists, the agency must issue an order that requires the institution to correct the deficiency, in addition to taking other statutorily-mandated or discretionary actions.
Enforcement. The OCC has primary enforcement responsibility over federal savings associations such as Provident Bank, and has the authority to bring enforcement action against all “institution-affiliated parties,” including controlling stockholders and attorneys, appraisers, and accountants who knowingly or recklessly participate in wrongful action likely to have a significant adverse effect on an insured institution. Formal enforcement action may range from the issuance of a capital directive or cease and desist order, to removal of officers or directors of the institution, receivership, conservatorship, or the termination of deposit insurance. Civil money penalties may be imposed for a wide range of violations and actions. The FDIC also has the authority to recommend to the OCC that enforcement action be taken with respect to a particular savings association. If action is not taken by the OCC, the FDIC has authority to take action under specified circumstances.
Community Reinvestment Act and Fair Lending Laws. All savings associations have a responsibility under the Community Reinvestment Act (“CRA”) and related regulations of the OCC to help meet the credit needs of their communities, including low-and moderate-income neighborhoods, consistent with safe and sound operations. The OCC is required to assess the savings association’s record of compliance with the CRA, and to assign one of four possible ratings to an institution’s CRA performance, including “outstanding,” “satisfactory,” “needs to improve,” and “substantial noncompliance.” The Equal Credit Opportunity Act and the Fair Housing Act also prohibit lenders from discriminating in their lending practices on the basis of characteristics specified in those statutes. A savings association’s failure to comply with the provisions of the CRA could, at a minimum, result in regulatory restrictions on its activities. The failure to comply with the Equal Credit Opportunity Act and the Fair Housing Act could result in enforcement actions by the OCC, as well as other federal regulatory agencies and the Department of Justice. Provident Bank received an “satisfactory” Community Reinvestment Act rating in its most recent federal examination.
Federal Home Loan Bank System. Provident Bank is a member of the Federal Home Loan Bank System, which consists of 12 regional Federal Home Loan Banks. The Federal Home Loan Bank System provides a central credit facility primarily for member institutions. As a member of the Federal Home Loan Bank of New York, Provident Bank is required to acquire and hold shares of capital stock in the Federal Home Loan Bank of New York in an amount at least equal to 1% of the aggregate principal amount of its unpaid residential mortgage loans and similar obligations at the beginning of each year, or 1/20 of its borrowings from the Federal Home Loan Bank, whichever is greater. As of September 30, 2011, Provident Bank was in compliance with this requirement.
Other Regulations. Provident Bank is subject to federal consumer protection statutes and regulations promulgated under these laws, including, but not limited to, the:
Truth-In-Lending Act, governing disclosures of credit terms to consumer borrowers;
Home Mortgage Disclosure Act, requiring financial institutions to provide certain information about home mortgage and refinanced loans;
Fair Credit Reporting Act, governing the provision of consumer information to credit reporting agencies and the use of consumer information;
Fair Debt Collection Act, governing the manner in which consumer debts may be collected by collection agencies; and
Electronic Funds Transfer Act, governing automatic deposits to and withdrawals from deposit accounts and customers’ rights and liabilities arising from the use of automated teller machines and other electronic banking services.
Provident Bank also is subject to federal laws protecting the confidentiality of consumer financial records and limiting the ability of the institution to share non-public personal information with third parties.
Finally, Provident Bank is subject to extensive anti-money laundering provisions and requirements, which require the institution to have in place a comprehensive customer identification program and an anti-money laundering program and procedures. These laws and regulations also prohibit financial institutions from engaging in business with foreign shell banks; require financial institutions to have due diligence procedures and, in some cases, enhanced due diligence procedures for foreign correspondent and private banking accounts; and improve information sharing between financial institutions and the U.S. government. Provident Bank has established policies and procedures intended to comply with these provisions.
Recent Regulatory Initiatives
Capital Purchase Program. Under the Capital Purchase Program (“CPP”) announced by the U.S. Department of the Treasury on October 14, 2008, as part of the Troubled Asset Relief Program (“TARP”), Treasury committed to invest up to $250 billion in eligible institutions in the form of non-voting senior preferred stock. Treasury approved the purchase up to $58.4 million of Provident Bancorp non-voting preferred stock, but the Company decided not to participate in the program.
TLGP. Provident Bancorp and Provident Bank decided to opt-out of the TLGP effective July 1, 2010. As a result, Provident Bank’s non-interest-bearing transaction deposits accounts (such as business checking accounts), interest bearing transaction accounts, and IOLTA accounts were insured up to $250,000 from July 1, 2010 through December 30, 2010. From December 31, 2010 through December 31, 2012, non-interest bearing transaction accounts and IOLTA accounts are fully insured beyond the $250,000 limit under the Dodd-Frank Act. Beginning January 1, 2013, insurance coverage for non-interest bearing transaction accounts and IOLTA accounts will revert to the standard FDIC limit of $250,000.
In addition, the FDIC guaranteed all newly issued senior unsecured debt (e.g., promissory notes, unsubordinated unsecured notes and commercial paper) up to prescribed limits issued by participating entities between October 14, 2008 and October 31, 2009. For eligible debt issued by that date, the FDIC provides the guarantee coverage until the earlier of the maturity date of the debt or December 31, 2012. Provident Bank issued $51.5 million senior unsecured debt in a pooled security in February 2009. This debt matures in February 2012. Provident prepaid $1.00 of insurance premiums for each $100 (on a per annum basis) of debt that was guaranteed. Additionally, the FDIC previously established an emergency debt guarantee facility through April 30, 2010, through which institutions that are unable to issue non-guaranteed debt to replace maturing senior unsecured debt because of market disruptions or other circumstances beyond their control may apply on a case-by-case basis to issue FDIC-guaranteed senior unsecured debt. The FDIC guarantee of any debt issued under this emergency facility would expire the earlier of the maturity date or December 31, 2012, and the guarantee would be subject to an annualized assessment rate equal to a minimum of 300 basis points.
Financial Reform Legislation
On July 21, 2010, the President signed the Dodd-Frank Act into law. This law is significantly changing the current bank regulatory structure and affecting the lending, deposit, investment, trading and operating activities of financial institutions and their holding companies, including Provident Bancorp and Provident Bank. It requires various federal agencies to adopt a broad range of new implementing rules and regulations, and to prepare numerous studies and reports for Congress. The federal agencies are given significant discretion in drafting the implementing rules and regulations, and consequently, many of the details and much of the impact of the Act may not be known for many months or years.
One change that has been particularly significant to Provident Bancorp and Provident Bank is the abolition of the OTS, their historical federal financial institution regulator, on July 21, 2011. Supervision and regulation of Provident Bancorp has moved to the Federal Reserve and supervision and regulation of Provident Bank has moved to the OCC. The HOLA remains the main statute applicable to Provident Bancorp and Provident Bank, but it has been amended by the Dodd-Frank Act, as described below and by the implementing regulations that are being amended and interpreted by the Federal Reserve and the OCC, respectively.
The Dodd-Frank Act contains a number of provisions intended to strengthen capital. For example, the federal banking agencies are directed to establish minimum leverage and risk-based capital requirements that are at least as stringent as those currently in effect. Provident Bancorp for the first time will be subject to consolidated capital requirements and will be required to serve as a source of strength to Provident Bank.
The Dodd-Frank Act also expands the affiliate transaction rules in Sections 23A and 23B of the Federal Reserve Act to broaden the definition of affiliate and to apply to securities lending, repurchase agreement and derivatives activities that Provident Bank may have with an affiliate, as well as to strengthen collateral requirements and limit Federal Reserve exemptive authority. Also, the definition of “extension of credit” for transactions with executive officers, directors and principal shareholders is being expanded to include credit exposure arising from a derivative transaction, a repurchase or reverse repurchase agreement and a securities lending or borrowing transaction. These expansions will be effective on July 21, 2012. At this time, we do not anticipate that being subject to any of these provisions will have a material effect on Provident Bancorp or Provident Bank.
The Dodd-Frank Act also contains provisions that expand the insurance assessment base and increase the scope of deposit insurance coverage. See “Regulation—Deposit Insurance”.
The Dodd-Frank Act requires publicly traded companies to give stockholders a non-binding vote on executive compensation and so-called “golden parachute” payments, and authorizes the Securities and Exchange Commission to promulgate rules that would allow stockholders to nominate their own candidates for election as directors using a company’s proxy materials. The legislation also directs the federal financial institution regulatory agencies to promulgate rules prohibiting excessive compensation being paid to financial institution executives.
The Dodd-Frank Act also created a new Consumer Financial Protection Bureau, which took over responsibility over the principal federal consumer protection laws, such as the Truth in Lending Act, the Equal Credit Opportunity Act, the Real Estate Settlement Procedures Act and the Truth in Saving Act, among others, on July 21, 2011. Institutions that have assets of $10 billion or less, such asmore, it contains numerous other provisions that affect all bank holding companies and banks, including the Company and the Bank, will continue to be supervisedsome of which are described in this area by their primary federal regulators (in the case of Provident Bank, the OCC). The Act also gives the CFPB expanded data collecting powers for fair lending purposes for both small business and mortgage loans, as well as expanded authority to prevent unfair, deceptive and abusive practices. The Dodd-Frank Act also provides that the same standards for federal preemption of state laws apply to both national banks and federal savings banks. As a result it is likely the Bank would be subject to a wider array of State laws going forward. In addition, as required by the Dodd-Frank Act, the Federal Reserve has adopted a rule that places restrictions on interchange fees applicable to debit card transactions. Effective October 1, 2011, interchange fees on debit card transactions
are limited to a maximum of 21 cents per transaction plus 5 basis points of the transaction amount. A debit card issuer may recover an additional one cent per transaction for fraud prevention purposes if the issuer complies with certain fraud-related requirements prescribed by the Federal Reserve. Issuers that, together with their affiliates, have less than $10 billion in assets, such as Provident Bank, are exempt from the debt card interchange fee standards.
more detail below. The scope and impact of many of the Dodd-Frank Act’s provisions will be determined over time as regulations are issued and become effective. As a result, we cannot predict the ultimate impact of the Act on Provident Bancorpthe Company or ProvidentSterling Bank at this time, including the extent to which it could increase costs or limit our ability to pursue business opportunities in an efficient manner, or otherwise adversely affect our business, financial condition and results of operations. Nor can we predict the impact or substance of other future legislation or regulation. However, it is expected that they at a minimum will increase our operating and compliance costs.
Dividends.The Company depends for its cash requirements on funds maintained or generated by its subsidiaries, principally the Bank.
Various legal restrictions limit the extent to which the Bank can pay dividends or make other distributions to the Company. All national banks are limited in the payment of dividends without the approval of the OCC to an amount not to exceed the net profits (as defined by OCC regulations) for that year-to-date combined with its retained net profits for the preceding two calendar years, less any required transfers to surplus. Federal law also prohibits national banks from paying dividends that would be greater than the bank’s undivided profits after deducting statutory bad debt in excess of the bank’s allowance for loan losses. Under the foregoing restrictions, and while maintaining its “well capitalized” status, as of September 30, 2013, the Bank could pay dividends of approximately $35.8 million to the Company, without obtaining regulatory approval. This is not necessarily indicative of amounts that may be paid or are available to be paid in future periods.
Under the Federal Deposit Insurance Corporation Improvement Act of 1991 (“FDICIA”), a depository institution, such as the Bank, may not pay dividends if payment would cause it to become undercapitalized or if it is already undercapitalized. The payment of dividends by the Company and the Bank may also be affected or limited by other factors, such as the requirement to maintain adequate capital. The appropriate federal regulatory authority is authorized to determine under certain circumstances relating to the financial condition of a bank holding company or a bank that the payment of dividends would be an unsafe or unsound practice and to prohibit payment thereof. The appropriate federal regulatory authorities have indicated that paying dividends that deplete a banking organization’s capital base to an inadequate level would be an unsafe and unsound banking practice and that banking organizations should generally pay dividends only out of current operating earnings. In addition, in the current financial and economic environment, the Federal Reserve Board has indicated that bank holding companies should carefully review their dividend policy and has discouraged payment ratios that are at maximum allowable levels unless both asset quality and capital are strong.
Capital Requirements. As a bank holding company, the Company is subject to consolidated regulatory capital requirements administered by the Federal Reserve Board. The Bank is subject to similar capital requirements administered by the OCC. The federal regulatory authorities’ risk-based capital guidelines are based upon the 1988 capital accord (“Basel I”) of the Basel Committee. The Basel Committee is a committee of central banks and bank supervisors/regulators from the major industrialized countries that develops broad policy guidelines for use by each country’s supervisors in determining the supervisory policies they apply. The requirements are intended to ensure that banking organizations have adequate capital given the risk levels of assets and off-balance sheet financial instruments. Under the requirements, banking organizations are required to maintain minimum ratios for Tier 1 capital and total capital to risk-weighted assets (including certain off-balance sheet items, such as letters of credit). For purposes of calculating the ratios, a banking organization’s assets and some of its specified off-balance sheet commitments and obligations are assigned to various risk categories. A banking organization’s capital, in turn, is classified in tiers, depending on type:
Core Capital (Tier 1). Currently, Tier 1 capital includes common equity, retained earnings, qualifying noncumulative perpetual preferred stock, minority interests in equity accounts of consolidated subsidiaries, and, under existing standards, a limited amount of qualifying trust preferred securities, and qualifying cumulative perpetual preferred stock at the holding company level, less goodwill, most intangible assets and certain other assets.
Supplementary Capital (Tier 2).Currently, Tier 2 capital includes, among other things, perpetual preferred stock not meeting the Tier 1 definition, qualifying mandatory convertible debt securities, qualifying subordinated debt, and allowances for loan and lease losses, subject to limitations.
Under the existing risk-based capital rules, the Company and the Bank are currently required to maintain Tier 1 capital and total capital (the sum of Tier 1 and Tier 2 capital) equal to at least 4.0% and 8.0%, respectively, of its total risk-weighted assets (including various off-balance-sheet items, such as standby letters of credit). For a depository institution to be considered “well capitalized,” its Tier 1 and total capital ratios must be at least 6.0% and 10.0% on a risk-adjusted basis, respectively. The elements currently comprising Tier 1 capital
and Tier 2 capital and the minimum Tier 1 capital and total capital ratios may in the future be subject to change, as discussed in more detail below.
Bank holding companies and banks are also required to comply with minimum leverage ratio requirements. The leverage ratio is the ratio of a banking organization’s Tier 1 capital to its total adjusted quarterly average assets (as defined for regulatory purposes). The requirements necessitate a minimum leverage ratio of 3.0% for financial holding companies and banking organizations that have the highest supervisory rating. All other banking organizations are required to maintain a minimum leverage ratio of 4.0%, unless a different minimum is specified by an appropriate regulatory authority. For a depository institution to be considered “well capitalized,” its leverage ratio must be at least 5.0%. The bank regulatory agencies have encouraged banking organizations to operate with capital ratios substantially in excess of the stated ratios required to maintain “well capitalized” status. This has resulted from, among other things, current economic conditions, the global financial crisis and anticipated increases in formal capital requirements for banking organizations as further detailed below. In light of the foregoing, the Company and the Bank expect that they will maintain capital ratios in excess of well capitalized requirements.
Sterling Bancorp Regulatory Capital Ratios. At September 30, 2013 the Company as a savings and loan holding company was not subject to specific regulatory capital ratio requirements. At September 30, 2013, the Bank was subject to a leverage ratio requirement calculated pursuant to rules for federal savings banks, which required the Bank to calculate its leverage ratio as the ratio of the Bank’s Tier 1 capital to its period end adjusted assets (as defined for regulatory purposes).
At September 30, 2013, the capital of Sterling National Bank and Provident Municipal Bank exceeded all applicable capital requirements, and each met the requirements to be treated as a “well-capitalized” institution.
Basel III Capital Rules. Effective July 2, 2013 the Company’s primary federal regulators, the Federal Reserve Board and the OCC, approved final rules known as the “Basel III Capital Rules” that substantially revise the risk-based capital and leverage capital requirements applicable to bank holding companies and depository institutions, including the Company and the Bank. The Basel III Capital Rules address the components of capital and other issues affecting the numerator in banking institutions’ regulatory capital ratios. Basel III Capital Rules also implement the requirements of Section 939A of the Dodd-Frank Act to remove references to credit ratings from the federal banking agencies’ rules. The Basel III Capital Rules will come into effect for the Company and the Bank on January 1, 2015 (subject to a phase-in period).
The Basel III Capital Rules, among other things, (i) introduces as a new capital measure “Common Equity Tier 1” (“CET1”), (ii) specifies that Tier 1 capital consists of CET1 and “Additional Tier 1 capital” instruments meeting specified requirements, (iii) defines CET1 narrowly by requiring that most adjustments to regulatory capital measures be made to CET1 and not to the other components of capital and (iv) expands the scope of the adjustments as compared to existing regulations. CET1 capital consists of common stock instruments that meet the eligibility criteria in the final rules, retained earnings, accumulated other comprehensive income and common equity Tier 1 minority interest.
When fully phased-in on January 1, 2019, Basel III Capital Rules require banking organizations to maintain (i) a minimum ratio of CET1 to risk-weighted assets of at least 4.5%, plus a 2.5% “capital conservation buffer” (which is added to the 4.5% CET1 ratio as that buffer is phased-in, effectively resulting in a minimum ratio of CET1 to risk-weighted assets of at least 7.0% upon full implementation), (ii) a minimum ratio of Tier 1 capital to risk-weighted assets of at least 6.0%, plus the capital conservation buffer (which is added to the 6.0% Tier 1 capital ratio as that buffer is phased-in, effectively resulting in a minimum Tier 1 capital ratio of 8.5% upon full implementation), (iii) a minimum ratio of total capital (that is, Tier 1 plus Tier 2 capital) to risk-weighted assets of at least 8.0%, plus the capital conservation buffer (which is added to the 8.0% total capital ratio as that buffer is phased-in, effectively resulting in a minimum total capital ratio of 10.5% upon full implementation) and (iv) as a newly adopted international standard, a minimum leverage ratio of 4.0%, calculated as the ratio of Tier 1 capital to adjusted average consolidated assets .
The Basel III Capital Rules also provides for a “countercyclical capital buffer” that is applicable to only certain covered institutions and is not expected to have any current applicability to the Company or the Bank.
The aforementioned capital conservation buffer is designed to absorb losses during periods of economic stress. Banking institutions with a ratio of CET1 to risk-weighted assets above the minimum but below the conservation buffer will face limitations on the payment of dividends, common stock repurchases and discretionary cash payments to executive officers based on the amount of the shortfall.
The Basel III Capital Rules provides for a number of deductions from and adjustments to CET1. These include, for example, the requirement that mortgage servicing rights, deferred tax assets dependent upon future taxable income and significant investments in non-consolidated financial entities be deducted from CET1 to the extent that any one such category exceeds 10% of CET1 or all such categories in the aggregate exceed 15% of CET1. Under current capital standards, the effects of accumulated other comprehensive income items included in capital are excluded for the purposes of determining regulatory capital ratios. Under the Basel III Capital Rules, the Company and the
Bank are given a one-time election (the “Opt-out Election”) to filter certain accumulated other comprehensive income (“AOCI”) components, comparable to the treatment under the current general risk-based capital rule. The AOCI Opt-out Election must be made on the March 31, 2015 Call Report and FR Y-9C for the Bank and Sterling, respectively.
Implementation of the deductions and other adjustments to CET1 will begin on January 1, 2015 and will be phased-in over a five-year period (20% per year). The implementation of the capital conservation buffer will begin on January 1, 2016 at the 0.625% level and be phased-in over a four-year period (increasing by that amount on each subsequent January 1, until it reaches 2.5% on January 1, 2019).
With respect to the Bank, the Basel III Capital Rules also revised the “prompt corrective action” regulations pursuant to Section 38 of the Federal Deposit Insurance Act, by (i) introducing a CET1 ratio requirement at each level (other than critically undercapitalized), with the required CET1 ratio being 6.5% for well-capitalized status; (ii) increasing the minimum Tier 1 capital ratio requirement for each category, with the minimum Tier 1 risk-based capital ratio for well-capitalized status being 8.0% (as compared to the current 6.0%); and (iii) eliminating the current provision that provides that a bank with a composite supervisory rating of 1 may have a 3.0% leverage ratio and still be well-capitalized.
In addition, the Basel III Capital Rules revise the rules for calculating risk-weighted assets to enhance their risk sensitivity, which includes (1) a new framework under which mortgage-backed securities and other securitization exposures will be subject to risk-weights ranging from 20% to 1,250% and (2) adjusted risk-weights for credit exposures, including multi-family and commercial real estate exposures that are 90 days or more past due or on non-accrual, which will be subject to a 150% risk-weight, except in situations where qualifying collateral and/or guarantees are in place. The existing treatment of residential mortgage exposures will remain subject to either a 50% risk-weight (for prudently underwritten owner-occupied first liens that are current or less than 90 days past due) or a 100% risk-weight (for all other residential mortgage exposures including 90 days or more past due exposures).
Management believes that, as of September 30, 2013, Sterling and the Bank would meet all capital adequacy requirements under the Basel III Capital Rules on a fully phased-in basis if such requirements were currently effective. Requirements to maintain higher levels of capital or to maintain higher levels of liquid assets could adversely impact the Company’s net income.
Source of Strength Doctrine.Federal Reserve Board policy and federal law require bank holding companies to act as a source of financial and managerial strength to their subsidiary banks. Under this requirement, Sterling is expected to commit resources to support the Bank, including at times when Sterling may not be in a financial position to provide such resources. Any capital loans by a bank holding company to any of its subsidiary banks are subordinate in right of payment to depositors and to certain other indebtedness of such subsidiary banks. In the event of a bank holding company’s bankruptcy, any commitment by the bank holding company to a federal bank regulatory agency to maintain the capital of a subsidiary bank will be assumed by the bankruptcy trustee and entitled to priority of payment.
Deposit Insurance. Substantially all of the deposits of the Bank are insured up to applicable limits by the Deposit Insurance Fund (“DIF”) of the FDIC and the Bank is subject to deposit insurance assessments to maintain the DIF. Deposit insurance assessments are based on average consolidated total assets minus average tangible equity. Under the FDIC’s risk-based assessment system, insured institutions with less than $10 billion in assets, such as the Bank, are assigned to one of four risk categories based on supervisory evaluations, regulatory capital level, and certain other factors, with less risky institutions paying lower assessments. An institution’s assessment rate depends upon the category to which it is assigned and certain other factors.
The initial base assessment rate ranges from 5 to 35 basis points on an annualized basis. After the effect of potential base-rate adjustments, the total base assessment rate could range from 2.5 to 45 basis points on an annualized basis. As the DIF reserve ratio grows, the rate schedule will be adjusted downward. Additionally, an institution must pay an additional premium equal to 50 basis points on every dollar (above 3% of an institution’s Tier 1 capital) of long-term, unsecured debt held that was issued by another insured depository institution (excluding debt guaranteed under the Temporary Liquidity Guarantee Program). The FDIC has the authority to raise or lower assessment rates, subject to limits, and to impose special additional assessments.
In October 2010, the FDIC adopted a new DIF restoration plan to ensure that the DIF reserve ratio reaches 1.35% by September 30, 2020, as required by the Dodd-Frank Act. At least semi-annually, the FDIC will update its loss and income projections for the fund and, if needed, will increase or decrease assessment rates, following notice-and-comment rulemaking if required.
The temporary unlimited deposit insurance coverage for non-interest-bearing transaction accounts that became effective on December 31, 2010 pursuant to rules adopted in accordance with the Dodd-Frank Act terminated on December 31, 2012. These accounts are now insured under the general deposit insurance coverage rules of the FDIC.
FDIC deposit insurance expense totaled $2.4 million, $2.5 million and $2.3 million in fiscal 2013, 2012 and 2011, respectively. FDIC deposit insurance expense includes deposit insurance assessments and Financing Corporation (“FICO”) assessments related to outstanding
bonds issued by FICO in the late 1980s to recapitalize the now defunct Federal Savings & Loan Insurance Corporation. The FICO assessments will continue until the bonds mature in 2017 to 2019.
Under the Federal Deposit Insurance Act, as amended (“FDIA”), the FDIC may terminate deposit insurance upon a finding that the institution has engaged in unsafe and unsound practices, is in an unsafe or unsound condition to continue operations, or has violated any applicable law, regulation, rule, order or condition imposed by the FDIC.
Liquidity Requirements.Historically, the regulation and monitoring of bank and bank holding company liquidity has been addressed as a supervisory matter, without minimum required formulaic measures. The Basel III liquidity framework requires banks and bank holding companies to measure their liquidity against specific liquidity tests that, although similar in some respects to liquidity measures historically applied by banks and regulators for management and supervisory purposes, going forward would be required by regulation. One test, referred to as the liquidity coverage ratio (“LCR”), is designed to ensure that the banking entity maintains an adequate level of unencumbered high-quality liquid assets equal to the entity’s expected net cash outflow for a 30-day time horizon (or, if greater, 25% of its expected total cash outflow) under an acute liquidity stress scenario. The other test, referred to as the net stable funding ratio (“NSFR”), is designed to promote more medium- and long-term funding of the assets and activities of banking entities over a one-year time horizon. These requirements will incent banking entities to increase their holdings of U.S. Treasury securities and other sovereign debt as a component of assets and increase the use of long-term debt as a funding source. The Basel III liquidity framework contemplates that the LCR will be subject to an observation period continuing through mid-2013 and, subject to any revisions resulting from the analyses conducted and data collected during the observation period, implemented as a minimum standard on January 1, 2015, with a phase-in period ending January 1, 2019. Similarly, it contemplates that the NSFR will be subject to an observation period through mid-2016 and, subject to any revisions resulting from the analyses conducted and data collected during the observation period, implemented as a minimum standard by January 1, 2018. These new standards are subject to further rulemaking and their terms may well change before implementation. The federal banking agencies have not proposed rules implementing the Basel III liquidity framework and have not determined to what extent they will apply to U.S. banks that are not large, internationally active banks.
Management believes that, as of September 30, 2013, the Bank would meet the LCR requirement under the Basel III on a fully phased-in basis if such requirements were currently effective. Management's evaluation of the impact of the NSFR requirement is ongoing as of September 30, 2013. Requirements to maintain higher levels of liquid assets could adversely impact the Company’s net income.
Prompt Corrective Action. The Basel III Capital Rules incorporates new requirements into the prompt correction action framework, which was described above in “Capital Requirements.” The following is a summary of the capital rules applicable to the Company and principally the Bank at September 30, 2013 and for the fiscal year ending September 30, 2014. The FDIA requires, among other things, the federal banking agencies to take “prompt corrective action” in respect of depository institutions that do not meet minimum capital requirements. The FDIA includes the following five capital tiers: “well capitalized,” “adequately capitalized,” “undercapitalized,” “significantly undercapitalized” and “critically undercapitalized.” A depository institution’s capital tier will depend upon how its capital levels compare with various relevant capital measures and certain other factors, as established by regulation. The relevant capital measures are the total capital ratio, the Tier 1 capital ratio and the leverage ratio.
A depository institution will be (i) “well capitalized” if the institution has a total risk-based capital ratio of 10.0% or greater, a Tier 1 risk-based capital ratio of 6.0% or greater, and a leverage ratio of 5.0% or greater, and is not subject to any regulatory order agreement or written directive to meet and maintain a specific capital level for any capital measure; (ii) “adequately capitalized” if the institution has a total risk-based capital ratio of 8.0% or greater, a Tier 1 risk-based capital ratio of 4.0% or greater, and a leverage ratio of 4.0% or greater and is not “well capitalized”; (iii) “undercapitalized” if the institution has a total risk-based capital ratio that is less than 8.0%, a Tier 1 risk-based capital ratio of less than 4.0% or a leverage ratio of less than 4.0%; (iv) “significantly undercapitalized” if the institution has a total risk-based capital ratio of less than 6.0%, a Tier 1 risk-based capital ratio of less than 3.0% or a leverage ratio of less than 3.0%; and (v) “critically undercapitalized” if the institution’s tangible equity is equal to or less than 2.0% of total assets. An institution may be downgraded to, or deemed to be in, a capital category that is lower than indicated by its capital ratios if it is determined to be in an unsafe or unsound condition or if it receives an unsatisfactory examination rating with respect to certain matters. A bank’s capital category is determined solely for the purpose of applying prompt corrective action regulations, and the capital category may not constitute an accurate representation of the bank’s overall financial condition or prospects for other purposes.
The FDIA generally prohibits a depository institution from making any capital distributions (including payment of a dividend) or paying any management fee to its parent holding company if the depository institution would thereafter be “undercapitalized.” “Undercapitalized” institutions are subject to growth limitations and are required to submit a capital restoration plan. The agencies may not accept such a plan without determining, among other things, that the plan is based on realistic assumptions and is likely to succeed in restoring the depository institution’s capital. In addition, for a capital restoration plan to be acceptable, the depository institution’s parent holding company must guarantee that the institution will comply with such capital restoration plan. The bank holding company must also provide appropriate assurances of performance. The aggregate liability of the parent holding company is limited to the lesser of (i) an amount equal to 5.0% of the depository institution’s total assets at the time it became undercapitalized and (ii) the amount which is necessary (or
would have been necessary) to bring the institution into compliance with all capital standards applicable with respect to such institution as of the time it fails to comply with the plan. If a depository institution fails to submit an acceptable plan, it is treated as if it is “significantly undercapitalized.”
“Significantly undercapitalized” depository institutions may be subject to a number of requirements and restrictions, including orders to sell sufficient voting stock to become “adequately capitalized,” requirements to reduce total assets, and cessation of receipt of deposits from correspondent banks. “Critically undercapitalized” institutions are subject to the appointment of a receiver or conservator.
The appropriate federal banking agency may, under certain circumstances, reclassify a well capitalized insured depository institution as adequately capitalized. The FDIA provides that an institution may be reclassified if the appropriate federal banking agency determines (after notice and opportunity for hearing) that the institution is in an unsafe or unsound condition or deems the institution to be engaging in an unsafe or unsound practice.
The appropriate agency is also permitted to require an adequately capitalized or undercapitalized institution to comply with the supervisory provisions as if the institution were in the next lower category (but not treat a significantly undercapitalized institution as critically undercapitalized) based on supervisory information other than the capital levels of the institution.
Sterling believes that, as of September 30, 2013, its bank subsidiary, Sterling National Bank, was “well capitalized” based on the aforementioned ratios. For further information regarding the capital ratios and leverage ratio of the Company and the Bank see the discussion under the section captioned “Capital and Liquidity” included in Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations and Note14. Stockholder's Equity- Regulatory Matters in the notes to consolidated financial statements included in Item 8. Financial Statements and Supplementary Data, elsewhere in this report.
Safety and Soundness Regulations. In accordance with the FDIA, the federal banking agencies adopted guidelines establishing general standards relating to internal controls, information systems, internal audit systems, loan documentation, credit underwriting, interest rate risk exposure, asset growth, asset quality, earnings, compensation, fees and benefits. In general, the guidelines require, among other things, appropriate systems and practices to identify and manage the risks and exposures specified in the guidelines. The guidelines prohibit excessive compensation as an unsafe and unsound practice and describe compensation as excessive when the amounts paid are unreasonable or disproportionate to the services performed by an executive officer, employee, director or principal shareholder. In addition, regulations adopted by the federal banking agencies authorize the agencies to require that an institution that has been given notice that it is not satisfying any of such safety and soundness standards to submit a compliance plan. If, after being so notified, the institution fails to submit an acceptable compliance plan or fails in any material respect to implement an accepted compliance plan, the agency must issue an order directing corrective actions and may issue an order directing other actions of the types to which an undercapitalized institution is subject under the “prompt corrective action” provisions of FDIA. If the institution fails to comply with such an order, the agency may seek to enforce such order in judicial proceedings and to impose civil money penalties.
Incentive Compensation.The Dodd-Frank Act requires the federal bank regulatory agencies and the SEC to establish joint regulations or guidelines prohibiting incentive-based payment arrangements at specified regulated entities, such as the Company and the Bank, having at least $1 billion in total assets that encourage inappropriate risks by providing an executive officer, employee, director or principal shareholder with excessive compensation, fees, or benefits or that could lead to material financial loss to the entity. In addition, these regulators must establish regulations or guidelines requiring enhanced disclosure to regulators of incentive-based compensation arrangements. The agencies proposed such regulations in April 2011, but the regulations have not been finalized. If the regulations are adopted in the form initially proposed, they will impose limitations on the manner in which the Company may structure compensation for its executives.
In June 2010, the Federal Reserve Board, OCC and FDIC issued comprehensive final guidance on incentive compensation policies intended to ensure that the incentive compensation policies of banking organizations do not undermine the safety and soundness of such organizations by encouraging excessive risk-taking. The guidance, which covers all employees that have the ability to materially affect the risk profile of an organization, either individually or as part of a group, is based upon the key principles that a banking organization’s incentive compensation arrangements should (i) provide incentives that do not encourage risk-taking beyond the organization’s ability to effectively identify and manage risks, (ii) be compatible with effective internal controls and risk management, and (iii) be supported by strong corporate governance, including active and effective oversight by the organization’s board of directors. These three principles are incorporated into the proposed joint compensation regulations under the Dodd-Frank Act, discussed above.
The Federal Reserve Board will review, as part of the regular, risk-focused examination process, the incentive compensation arrangements of banking organizations, such as the Company, that are not “large, complex banking organizations.” These reviews will be tailored to each organization based on the scope and complexity of the organization’s activities and the prevalence of incentive compensation arrangements. The findings of the supervisory initiatives will be included in reports of examination. Deficiencies will be incorporated into the organization’s supervisory ratings, which can affect the organization’s ability to make acquisitions and take other actions.
Enforcement actions may be taken against a banking organization if its incentive compensation arrangements, or related risk-management control or governance processes, pose a risk to the organization’s safety and soundness and the organization is not taking prompt and effective measures to correct the deficiencies.
Loans to One Borrower. The Bank generally may not make loans or extend credit to a single or related group of borrowers in excess of 15% of unimpaired capital and surplus. An additional amount may be loaned, up to 10% of unimpaired capital and surplus, if the loan is secured by readily marketable collateral, which generally does not include real estate. As of September 30, 2013, the Bank was in compliance with the loans-to-one-borrower limitations.
Depositor Preference.The FDIA provides that, in the event of the “liquidation or other resolution” of an insured depository institution, the claims of depositors of the institution, including the claims of the FDIC as subrogee of insured depositors, and certain claims for administrative expenses of the FDIC as a receiver, will have priority over other general unsecured claims against the institution. If an insured depository institution fails, insured and uninsured depositors, along with the FDIC, will have priority in payment ahead of unsecured, non-deposit creditors, including depositors whose deposits are payable only outside of the United States and the parent bank holding company, with respect to any extensions of credit they have made to such insured depository institution.
Community Reinvestment Act.The Community Reinvestment Act of 1977 (“CRA”) requires depository institutions to assist in meeting the credit needs of their market areas consistent with safe and sound banking practice. Under the CRA, each depository institution is required to help meet the credit needs of its market areas by, among other things, providing credit to low- and moderate-income individuals and communities. Depository institutions are periodically examined for compliance with the CRA and are assigned ratings that must be publicly disclosed. In order for a financial holding company to commence any new activity permitted by the BHC Act, or to acquire any company engaged in any new activity permitted by the BHC Act, each insured depository institution subsidiary of the financial holding company must have received a rating of at least “satisfactory” in its most recent examination under the CRA. Furthermore, banking regulators take into account CRA ratings when considering approval of certain applications. The Bank received a rating of “satisfactory” in its most recent CRA exam.
Financial Privacy.The federal banking regulators adopted rules that limit the ability of banks and other financial institutions to disclose non-public information about consumers to nonaffiliated third parties. These limitations require disclosure of privacy policies to consumers and, in some circumstances, allow consumers to prevent disclosure of certain personal information to a nonaffiliated third party. These regulations affect how consumer information is transmitted through diversified financial companies and conveyed to outside vendors.
The Bank is also subject to regulatory guidelines establishing standards for safeguarding customer information. These guidelines describe the federal banking agencies’ expectations for the creation, implementation and maintenance of an information security program, which would include administrative, technical and physical safeguards appropriate to the size and complexity of the institution and the nature and scope of its activities. The standards set forth in the guidelines are intended to ensure the security and confidentiality of customer records and information, protect against any anticipated threats or hazards to the security or integrity of such records and protect against unauthorized access to or use of such records or information that could result in substantial harm or inconvenience to any customer.
Anti-Money Laundering and the USA Patriot Act.A major focus of governmental policy on financial institutions in recent years has been aimed at combating money laundering and terrorist financing. The USA PATRIOT Act of 2001 (the “USA Patriot Act”) substantially broadened the scope of United States anti-money laundering laws and regulations by imposing significant new compliance and due diligence obligations of financial institutions, creating new crimes and penalties and expanding the extra-territorial jurisdiction of the United States. Failure of a financial institution to maintain and implement adequate programs to combat money laundering and terrorist financing, or to comply with all of the relevant laws or regulations, could have serious legal and reputational consequences for the institution, including causing applicable bank regulatory authorities not to approve merger or acquisition transactions when regulatory approval is required or to prohibit such transactions even if approval is not required.
Office of Foreign Assets Control Regulation.The United States has imposed economic sanctions that affect transactions with designated foreign countries, nationals and others which are administered by the U.S. Treasury Department Office of Foreign Assets Control. Failure to comply with these sanctions could have serious legal and reputational consequences, including causing applicable bank regulatory authorities not to approve merger or acquisition transactions when regulatory approval is required or to prohibit such transactions even if approval is not required.
Transactions with Affiliates.Transactions between the Bank and its affiliates are regulated by the Federal Reserve Board under sections 23A and 23B of the Federal Reserve Act and related FRB regulations. These regulations limit the types and amounts of covered transactions engaged in by the Bank and generally require those transactions to be on an arm’s-length basis. The term “affiliate” is defined to mean any company that controls or is under common control with the Bank and includes the Company and its non-bank subsidiaries. “Covered transactions” include a loan or extension of credit, as well as a purchase of securities issued by an affiliate, a purchase of assets (unless otherwise exempted by the Federal Reserve Board) from the affiliate, certain derivative transactions that create a credit exposure to an affiliate, the acceptance of securities issued by the affiliate as collateral for a loan, and the issuance of a guarantee, acceptance or letter
of credit on behalf of an affiliate. In general, these regulations require that any such transaction by the Bank (or its subsidiaries) with an affiliate must be secured by designated amounts of specified collateral and must be limited to certain thresholds on an individual and aggregate basis.
Federal law also limits the Bank’s authority to extend credit to its directors, executive officers and 10% shareholders, as well as to entities controlled by such persons. Among other things, extensions of credit to insiders are required to be made on terms that are substantially the same as, and follow credit underwriting procedures that are not less stringent than, those prevailing for comparable transactions with unaffiliated persons. Also, the terms of such extensions of credit may not involve more than the normal risk of repayment or present other unfavorable features and may not exceed certain limitations on the amount of credit extended to such persons, individually and in the aggregate, which limits are based, in part, on the amount of the Bank’s capital.
Federal Home Loan Bank System. The Bank is a member of the Federal Home Loan Bank System, which consists of 12 regional Federal Home Loan Banks. The Federal Home Loan Bank System provides a central credit facility primarily for member institutions. As a member of the Federal Home Loan Bank of New York (“FHLBNY”), the Bank is required to acquire and hold shares of capital stock of the FHLBNY in an amount at least equal to the sum of the membership stock purchase requirement, determined on an annual basis at the end of each calendar year, and the activity-based stock purchase requirement, determined on a daily basis. For the Bank, the membership stock purchase requirement is 0.2% of the Mortgage-Related Assets, as defined by the FHLBNY, which consists principally of residential mortgage loans and mortgage-backed securities, held by the Bank. The activity-based stock purchase requirement is equal to the sum of: (1) a specified percentage ranging from 4.0% to 5.0%, which for the Bank is 4.5%, of outstanding borrowings from the FHLBNY; (2) a specified percentage ranging from 4.0% to 5.0%, which for the Bank is inapplicable, of the outstanding principal balance of Acquired Member Assets, as defined by the FHLBNY, and delivery commitments for Acquired Member Assets; (3) a specified dollar amount related to certain off-balance sheet items, which for the Bank is inapplicable; and (4) a specified percentage ranging from 0% to 5%, which for the Bank is inapplicable, of the carrying value on the FHLBNY’s balance sheet of derivative contracts between the FHLBNY and the Bank. The FHLBNY can adjust the specified percentages and dollar amount from time to time within the ranges established by the FHLBNY capital plan. As of September 30, 2013, the Bank was in compliance with the minimum stock ownership requirement.
Federal Reserve System. FRB regulations require depository institutions to maintain cash reserves against their transaction accounts (primarily NOW and demand deposit accounts). A reserve of 3% is to be maintained against aggregate transaction accounts between $12.4 million and $79.5 million (subject to adjustment by the FRB) plus a reserve of 10% (subject to adjustment by the FRB between 8% and 14%) against that portion of total transaction accounts in excess of $79.5 million. The first $12.4 million of otherwise reservable balances (subject to adjustment by the FRB) is exempt from the reserve requirements. The Bank is in compliance with the foregoing requirements.
Other Regulations. The Bank is subject to federal consumer protection statutes and regulations promulgated under those laws, including, but not limited to, the:
Truth-In-Lending Act, governing disclosures of credit terms to consumer borrowers;
Home Mortgage Disclosure Act, requiring financial institutions to provide certain information about home mortgage and refinanced loans;
Fair Credit Reporting Act, governing the provision of consumer information to credit reporting agencies and the use of consumer information;
Fair Debt Collection Act, governing the manner in which consumer debts may be collected by collection agencies; and
Electronic Funds Transfer Act, governing automatic deposits to and withdrawals from deposit accounts and customers’ rights and liabilities arising from the use of automated teller machines and other electronic banking services.
The Dodd-Frank Act created a new Consumer Financial Protection Bureau (“CFPB”), which took over responsibility for enforcing the principal federal consumer protection laws, such as the Truth in Lending Act, the Equal Credit Opportunity Act, the Real Estate Settlement Procedures Act and the Truth in Saving Act, among others, on July 21, 2011. Institutions that have assets of $10 billion or less, such as the Bank, will continue to be supervised and examined in this area by their primary federal regulators (in the case of the Bank, the OCC). The Act also gives the CFPB expanded data collecting powers for fair lending purposes for both small business and mortgage loans, as well as expanded authority to prevent unfair, deceptive and abusive practices. The Dodd-Frank Act also weakened the federal preemption of state laws that had applied to national banks. As a result it is likely the Bank will be subject to a wider array of State laws going forward.
In January 2013, the CFPB issued a series of final rules related to mortgage loan origination and mortgage loan servicing. In particular, on January 10, 2013, the CFPB issued a final rule implementing the ability-to-repay and qualified mortgage (QM) provisions of the Truth in Lending Act, as amended by the Dodd-Frank Act (the “QM Rule”). The ability-to-repay provision requires creditors to make reasonable, good faith determinations that borrowers are able to repay their mortgages before extending the credit based on a number of factors and consideration of financial information about the borrower from reasonably reliable third-party documents. Under the Dodd-Frank Act
and the QM Rule, loans meeting the definition of “qualified mortgage” are entitled to a presumption that the lender satisfied the ability-to-repay requirements. The presumption is a conclusive presumption/safe harbor for prime loans meeting the QM requirements, and a rebuttable presumption for higher-priced/subprime loans meeting the QM requirements. The definition of a “qualified mortgage” incorporates the statutory requirements, such as not allowing negative amortization or terms longer than 30 years. The QM Rule also adds an explicit maximum 43% debt-to-income ratio for borrowers if the loan is to meet the QM definition, though some mortgages that meet GSE, FHA and VA underwriting guidelines may, for a period not to exceed seven years, meet the QM definition without being subject to the 43% debt-to-income limits. The QM Rule will become effective January 10, 2014.
We are still evaluating the rules recently issued by the CFPB to determine if they will have any long-term impact on our mortgage loan origination and servicing activities. Compliance with these rules will likely increase our overall regulatory compliance costs.
Legislative and Regulatory Initiatives. From time to time, various legislative and regulatory initiatives are introduced in Congress and state legislatures, as well as by regulatory agencies. Such initiatives may include proposals to expand or contract the powers of bank holding companies and depository institutions or proposals to substantially change the financial institution regulatory system. Such legislation could change banking statutes and the operating environment of the Company in substantial and unpredictable ways. If enacted, such legislation could increase or decrease the cost of doing business, limit or expand permissible activities or affect the competitive balance among banks, savings associations, credit unions, and other financial institutions. The Company cannot predict whether any such legislation will be enacted, and, if enacted, the effect that it, or any implementing regulations, would have on the financial condition or results of operations of the Company. A change in statutes, regulations or regulatory policies applicable to Sterling or any of its subsidiaries could have a material effect on the Company’s business, financial condition and results of operations.
Combining Provident and Legacy Sterling may be more difficult, costly or time consuming than expected and the anticipated benefits and cost savings of the Merger may not be realized.
Provident New York Bancorp and Legacy Sterling operated independently until the completion of the Merger. The success of the Merger, including anticipated benefits and cost savings, will depend, in part, on the Company’s ability to successfully combine and integrate the businesses of the predecessor companies in a manner that permits growth opportunities and does not materially disrupt the existing customer relations nor result in decreased revenues due to loss of customers. It is possible that the integration process could result in the loss of key employees, the disruption of either company’s ongoing businesses or inconsistencies in standards, controls, procedures and policies that adversely affect the combined company’s ability to maintain relationships with clients, customers, depositors and employees or to achieve the anticipated benefits and cost savings of the Merger. The loss of key employees or delays or other problems in implementing planned system conversions could adversely affect the Company’s ability to successfully conduct its business, which could have an adverse effect on Sterling’s financial results and the value of its common stock. If the Company experiences difficulties with the integration process, the anticipated benefits of the Merger may not be realized fully or at all, or may take longer to realize than expected. As with any merger of financial institutions, there also may be business disruptions that cause the Company to lose customers or cause customers to remove their accounts from the Bank and move their business to competing financial institutions. Integration efforts between the two companies will also divert management attention and resources. These integration matters could have an adverse effect on the Company during this transition period and for an undetermined period after completion of the Merger on the combined company. In addition, the actual cost savings of the Merger could be less than anticipated.
Recent legislative and regulatory initiatives to support the financial services industry have been coupled with numerous restrictions and requirements that could detrimentally affect our business.
The Dodd-Frank Act is significantly changing the current bank regulatory structure and affecting the lending, deposit, investment, trading and operating activities of financial institutions and their holding companies.
One change that has been particularly significant to us
The Company is
the abolition of the OTS, our historical federal financial institution regulator, which was effective on July 21, 2011. Supervisionsupervised and
regulation of Provident Bancorp has moved to the Federal Reserve and supervision and regulation of Provident Bank has moved to the OCC. Except as described below, however, the laws and regulations applicable to us have not generally changed — the Home Owners Loan Act and the regulations issued under the Dodd-Frank Act generally still apply (although these laws and regulations are interpretedregulated by the Federal Reserve and the
OCC, respectively). However,Bank is supervised and regulated by the
OCC. The application of
the laws and regulations may vary as administered by the Federal Reserve and the OCC.
It is possible that the OCC may rate the activities of Provident Bank in ways that are more restrictive than the OTS has. This might cause us to incur increased costs or become more restrictive in certain activities than we have in the past.In addition, Provident Bancorp for the first time will beCompany is subject to consolidated capital requirements and will be required tomust serve as a source of strength to Providentthe Bank. It is possible such requirements may limit our capacity to pay dividends or repurchase shares. Provident Bank also will be subject to the same lending limits as national banks. In addition, the affiliate transaction rules in Section 23A of the Federal Reserve Act will apply to securities lending, repurchase agreement and derivatives activities that Provident Bank may have with an affiliate.
The Dodd-Frank Act also broadens the base for FDIC insurance assessments. The FDIC insures deposits at FDIC-insured financial institutions, including
Providentthe Bank. The FDIC charges insured financial institutions premiums to maintain the DIF at a specific level. The Bank’s FDIC insurance premiums increased substantially beginning in 2009, and we expect to pay
significantly higherhigh premiums in the future.
Current economicEconomic conditions
haveduring the great recession increased bank failures and
additional failures are expected, all of which decreasedecreased the DIF. In order to restore the DIF to its statutorily mandated minimum of 1.15% over a period of several years, the FDIC increased deposit insurance premium
rates at the beginning of 2009 and imposed a special assessment on June 30, 2009.rates. The Dodd-Frank Act increased the minimum target Deposit Insurance Fund ratio from 1.15% of estimated insured deposits to 1.35% of estimated insured deposits. The FDIC must seek to achieve the 1.35% ratio by September 30, 2020. Insured institutions with assets of $10 billion or more are supposed to fund the increase. The FDIC has issued regulations to implement these provisions of the
Dodd FrankDodd-Frank Act. It has, in addition, established a higher reserve ratio of 2% as a long-term goal beyond what is required by statute. There is no implementation deadline for the 2% ratio. The FDIC may increase the assessment rates or impose additional special assessments in the future to keep the DIF at the statutory target level. Any increase in our FDIC premiums could have an adverse effect on
Providentthe Bank’s profits and financial condition.
The Dodd-Frank Act
also created
a new Consumer Financial Protection Bureauthe CFPB, which
took overhas assumed responsibility for the principal federal consumer protection laws, such as the Truth in Lending Act, the Equal Credit Opportunity Act, the Real Estate Settlement Procedures Act and the Truth in Savings Act, among
others, July 21, 2011. Institutionsothers. However, institutions such as
Providentthe Bank, which have assets of $10 billion or less, will continue to be supervised in this area by their primary federal regulators (in the case of
Providentthe Bank, the OCC).
In addition, as required by the Dodd-Frank Act, the Federal Reserve has adopted a rule that places restrictions on interchange fees applicable to debit card transactions and is thus expected to lower fee income generated from this source. Effective October 1, 2011, interchange fees on debit card transactions are limited to a maximum of 21 cents per transaction plus 5 basis points of the transaction amount. A debit card issuer may recover an additional one cent per transaction for fraud prevention purposes if the issuer complies with certain fraud-related requirements prescribed by the Federal Reserve. Although technically this rule only applies to institutions with assets in excess of $10 billion, it is expected that smaller institutions, such as Provident Bank, may also be impacted.
In addition, the Dodd-Frank Act significantly rolls back the federal preemption of state consumer protection laws that
is currentlywas enjoyed by
federal savings associations and national banks by (1) requiring that a state consumer financial law prevent or significantly interfere with the exercise of a
federal savings association’s or national bank’s powers before it can be preempted, (2) mandating that any preemption decision be made on a case by case basis rather than a blanket rule, and (3) ending the applicability of preemption to subsidiaries and affiliates of national
banks and federal savings associations.banks. As a result, we may now be subject to state consumer protection laws in each state where we do business, and those laws may be interpreted and enforced differently in
differenteach states.
The scope and impact of many of the Dodd-Frank Act’sAct provisions will be determined over time as regulations are issued and become effective. As a result, we cannot predict the ultimate impact of the Dodd-Frank Act on us at this time, including the extent to which
it could increase costs or limit our ability to pursue business opportunities in an efficient manner, or otherwise adversely affect our business, financial condition and results of operations. However, it is expected that at a minimum they will increase our operating and compliance costs.
We are subject to extensive regulatory oversight.
We and our subsidiaries are subject to extensive regulation and supervision. As a result, we are limited in the manner in which we conduct our business, undertake new investments and activities and obtain financing. This regulatory structure is designed primarily for the protection of the DIF and our depositors, as well as other consumers and not to benefit our shareholders. This regulatory structure also gives the regulatory authorities extensive discretion in connection with their supervisory and enforcement activities and examination policies, including policies with respect to capital levels, the timing and amount of dividend payments, the classification of assets and the establishment of adequate loan loss reserves for regulatory purposes. Regulators have intensified their focus on bank lending criteria and controls, and on the USA PATRIOT Act’s anti-money laundering and Bank Secrecy Act compliance requirements. There is also increased scrutiny of our compliance with the rules enforced by the Office of Foreign Assets Control. In order to comply with regulations, guidelines and examination procedures in the anti-money laundering area, we have been required to adopt new policies and procedures and to install new systems. We cannot be certain that the policies, procedures and systems we have in place are flawless. Therefore, there is no assurance that in every instance we are in full compliance with these requirements. Our failure to comply with these and other regulatory requirements can lead to, among other remedies, administrative enforcement actions, and legal proceedings.
Failure to comply with applicable laws and regulations also could result in a range of sanctions and enforcement actions, including the imposition of civil money penalties, formal agreements and cease and desist orders. In addition, the OCC and the FDIC have specific authority to take “prompt corrective action,” depending on our capital level. Currently, we are considered “well-capitalized” for prompt corrective action purposes. If we were designated by the OCC as “adequately capitalized,” our ability to take brokered deposits would become limited. If we were to be designated by the OCC in one of the lower capital levels - “undercapitalized,” “significantly undercapitalized” and “critically undercapitalized” - we would be required to raise additional capital and also would be subject to progressively more severe restrictions on our operations, management and capital distributions; replacement of senior executive officers and directors; and, if we became “critically undercapitalized,” to the appointment of a conservator or receiver.
Changes in laws, government regulation and monetary policy may have a material effect on our results of operations. Financial institutions have been the subject of significant legislative and regulatory changes and may be the subject of further significant legislation or regulation in the future, none of which is within our control. Significant new laws or regulations or changes in, or repeals of, existing laws or regulations, including those with respect to federal and state taxation, may cause our results of operations to differ materially. In addition, the costs and burden of compliance have significantly increased and could adversely affect our ability to operate profitably. Further, federal monetary policy significantly affects credit conditions for the Bank, as well as for our borrowers, particularly as implemented through the Federal Reserve System, primarily through open market operations in U.S. government securities, the discount rate for bank borrowings and reserve requirements. A material change in any of these conditions could have a material impact on the Bank or our borrowers, and therefore on our results of operations.
Difficult market conditions have adversely affected our industry.
We are operating in a challenging economic environment, including generally uncertain national and local conditions. Additional concerns from some of the countries in the European Union and elsewhere have
toalso strained the financial markets both abroad and domestically.
FinancialAlthough there has been some improvement in the overall global macroeconomic conditions in 2013, financial institutions continue to be affected by
declinesconditions in the real estate market and the constrained financial markets.
DeclinesIn recent years, declines in the housing market,
over the past two years, with falling home prices and increasing foreclosure,increases in unemployment and under-employment have negatively impacted the credit performance of
mortgage loans and resulted in significant write-downs of asset values by financial
institutions, including government-sponsored entities as well as major commercial and investment banks. These write-downs, initially of mortgage-backed securities but spreading to credit default swaps and other derivative and cash securities, in turn, have caused many financial institutions to seek additional capital, to merge with larger and stronger institutions and, in some cases, to fail.institutions. Reflecting concern
about the stability of the financial markets generally and the strength of counterparties,over economic conditions, many lenders and institutional investors have reduced or ceased providing funding to
borrowers, including to other financial institutions. This tighteningborrowers. Although we have observed some increases in lending activity over the past few months, a worsening of
credit has led to an increased level of commercial and consumer delinquencies, lack of consumer confidence, increased market volatility and reduction of business activity generally. The resulting economic
pressure on consumers and lack of confidence inconditions may impact the
financial markets has adversely affected our business, financial condition andBank’s results of
operations. A worsening of these conditions would likely exacerbate the adverse effects of these market conditions on usoperations and
others in the financial
services industry.condition. In particular, we may face the following risks in connection with these events:
Loan delinquencies could increase further;
Problem assets and foreclosures could increase further;
Demand for our products and services could decline;
Collateral for loans made by us, especially real estate, could decline further in value, in turn reducing a customer’s borrowing power, and reducing the value of assets and collateral associated with our loans; and
Investments in mortgage-backed securities could decline in value as a result of performance of the underlying loans or the diminution of the value of the underlying real estate collateral pressing the government sponsored agencies to honor its guarantees to principal and interest.
An inadequate allowance for loan losses would negatively impact our results of operations.
We are exposed to the risk that our customers will be unable to repay their loans according to their terms and that any collateral securing the payment of their loans will not be sufficient to avoid losses. Credit losses are inherent
in the lending business and could have a material adverse effect on our operating results. Volatility and deterioration in the broader economy may also increase our risk of credit losses. The determination of an appropriate level of allowance for loan losses is an inherently uncertain process and is based on numerous assumptions. The amount of future losses is susceptible to changes in economic, operating and other conditions, including changes in interest rates, that may be beyond our control, and charge-offs may exceed current estimates. We evaluate the collectabilitycollectibility of our loan portfolio and provide an allowance for loan losses that we believe is adequate based upon such factors as, including, but not limited to: the risk characteristics of various classifications of loans; previous loan loss experience; specific loans that have loss potential; delinquency trends; the estimated fair market value of the collateral; current economic conditions; the views of our regulators; and geographic and industry loan concentrations. If any of our evaluations are incorrect and borrower defaults result in losses exceeding our allowance for loan losses, our results of operations could be significantly and adversely affected. We cannot assure you that our allowance will be adequate to cover probable loan losses inherent in our portfolio.
The need to account for assets at market prices may adversely affect our results of operations.
We report certain assets, including investments and securities, at fair value. Generally, for assets that are reported at fair value we use quoted market prices or valuation models that utilize market data inputs to estimate fair value. Because we carry these assets on our books at their fair value, we may incur losses even if the
assetassets in question
presentspresent minimal credit risk. We may be required to recognize other-than-temporary impairments in future periods with respect to securities in our portfolio. The amount and timing of any impairment recognized will depend on the severity and duration of the decline in fair value of the securities and our estimation of the anticipated recovery period.
Acquisition, development,
Changes in the value of goodwill and construction (ADC) loans, commercialintangible assets could reduce our earnings.
The Company accounts for goodwill and other intangible assets in accordance with GAAP, which, in general, requires that goodwill not be amortized, but rather that it be tested for impairment at least annually at the reporting unit level using the two step approach. Testing for impairment of goodwill and intangible assets is performed annually and 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. As of September 30, 2013, the fair value of Sterling Bancorp shares exceed the recorded book value. 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.
Commercial real estate,
commercial & industrial and
commercial and industrialADC loans expose us to increased
risk.risk and earnings volatility.
We consider our commercial real estate loans, commercial and& industrial loans and ADC loans to be the higher risk categories in our loan portfolio. These loans are particularly sensitive to economic conditions. At September 30, 2011,2013, our portfolio of commercial real estate loans totaled $703.4 million,$1.3 billion, or 41.4%52.9% of total loans, our portfolio of commercial and& industrial business loan portfolioloans totaled $209.9$439.8 million, or 12.3%18.2% of total loans, and our portfolio of ADC loans totaled $175.9$102.5 million, or 10.3%4.2% of total loans. We plan to continue to emphasize the origination of these types of loans, other than ADC loans, which we now make only on an exception basis.
Commercial real estate loans generally involve a higher degree of credit risk than residential loans because they typically have larger balances and are more affected by adverse conditions in the economy. Because payments on loans secured by commercial real estate often depend on the successful operation and management of the businesses which operate from within them, repayment of such loans may be affected by factors outside the borrower’s control, such as adverse conditions in the real estate market or the economy or changes in government regulation. In the case of commercial & industrial loans, although we strive to maintain high credit standards and limit exposure to any one borrower, the collateral for these loans often consists of accounts receivable, inventory and equipment. This type of collateral typically does not yield substantial recovery in the event we need to foreclose on it and may rapidly deteriorate, disappear, or be misdirected in advance of foreclosure. This adds to the potential that our charge-offs will be more volatile than we have experienced in the past, which could significantly negatively affect our earnings in any quarter.
In addition, many of our borrowers also have more than one commercial real estate, commercial business or ADC loan outstanding with us. Consequently, an adverse development with respect to one loan or one credit relationship may expose us to significantly greater risk of loss. In particular, many of our ADC loans continue to pose higher risk levels than the levels expected at origination. Many projects are stalled or are selling at prices lower than expected. While we continue to seek pay downs on loans with or without sales activity, this portfolio may cause us to incur additional bad debt expense even if losses are not realized. Additionally, the balance on over half of our ADC loans is maturing within one year, which may expose us to greater risk of
loss.Changes in the valueloss or to report increased levels of goodwill and intangible assets could reduce our earnings.
The Company accounts for goodwill and other intangible assets in accordance with GAAP, which, in general, requires that goodwill not be amortized, but rather that it be tested for impairment at least annually at the reporting unit level using the two step approach. Testing for impairmentloans considered troubled debt restructures.
Our continuing concentration of loans in our primary market area may increase our risk.
Our success depends primarily on the general economic conditions in the counties in which we conduct
business,most of our business. Most of our loans and
deposits are generated from customers primarily in the New York
City metropolitan
area in general. Unlike large banks that are more geographically diversified, we provide bankingregion and
financial services to customers primarily in Rockland and Orange Counties
in New York. We also have a
branch presence in Ulster, Sullivan, Westchester and Putnam Counties in New York and in Bergen County, New Jersey.
The localOur expansion into New York City and continued growth in Westchester County and Bergen County has helped us diversify our geographic concentration with respect to our lending activities. A deterioration in economic conditions in our market area
have a significant impact on our loans, the ability of the borrowers to repay these loans and the value of the collateral securing these loans. A significant decline in general economic conditions caused by inflation, recession, unemployment or other factors beyond our control, would
affect the local economic conditions and could adversely affect our
financial condition and results of
operations.operations and financial condition.
Changes in market interest rates could adversely affect our financial condition and results of operations.
Our financial condition and
resultresults of operations are significantly affected by changes in market interest rates. Our results of operations substantially depend on our net interest income, which is the difference between the interest income that we earn on our interest-earning assets and the interest expense that we pay on our interest-bearing liabilities. In recent years,
the structure of theour balance sheet has become more asset sensitive
in whichbecause our assets
either mature or re-price at a faster pace than
liabilities and in particular borrowings.our liabilities. If
general levels of interest rates were to continue at existing levels or decline,
further, net interest income would be adversely affected as asset yields would be expected to decline at faster rates than deposit or borrowing costs. A decline in net interest income may also occur, offsetting a portion or all gains in net interest income from assets re-pricing and increases in volume, if competitive market pressures limit our ability to maintain or lag deposit costs. Wholesale funding costs may also increase at a faster pace than asset
re-pricing and in this regardre-pricing. As of September 30, 2013, we have $220.0 million in
structured/convertiblestructured advances with the FHLB at an average cost of 4.17%. If interest rates were to approach or exceed this level,
it would be expected that the FHLB
wouldmay call
for conversion of those
fundsborrowings and offer replacement borrowings at
then current market rates which
potentially would be higher.
We also are subject to reinvestment risk associated with changes in interest rates. Changes in interest rates may affect the average life of loans and
mortgage-related securities. Decreases in interest rates often result in increased prepayments of loans and
mortgage- related securities, as borrowers refinance their loans to reduce borrowings costs. Under these circumstances, we are subject to reinvestment risk to the extent that we are unable to reinvest the cash received from such prepayments in loans or other investments that have interest rates that are comparable to the interest rates on existing loans and securities. Additionally, increases in interest rates may decrease loan demand and/or may make it more difficult for borrowers to repay adjustable rate loans.
Changes in interest rates also affect the value of our interest earning assets and in particular our securities portfolio. Generally, the value of
our securities fluctuates inversely with changes in interest rates. At September 30,
2011,2013, our
investment and mortgage-backed securities available for sale
securities portfolio totaled
$739.8$954.4 million. Unrealized
gainslosses on securities available for sale, net of tax, amounted to
$13.6$22.2 million and are reported as part of other comprehensive income
(loss), included as a separate component of stockholders’ equity. Further decreases in the fair value of securities available for sale
therefore, could have an adverse effect on stockholders’ equity.
Our ability to pay dividends is subject to regulatory limitations and other limitations which may affect our ability to pay dividends to our stockholders or to repurchase our common stock.
Provident
Sterling Bancorp is a separate legal entity from its subsidiary,
ProvidentSterling National Bank, and does not have significant operations of its own. The availability of dividends from
Providentthe Bank is limited by various statutes and regulations. It is possible, depending upon the financial condition of
Providentthe Bank and other factors, that
Providentthe Bank’s
regulatorregulators could assert that payment of dividends or other payments may result in an unsafe or unsound practice. In addition, under the Dodd-Frank Act,
ProvidentSterling Bancorp
will beis subjected to consolidated capital requirements and
will be required tomust serve as a source of strength to
Providentthe Bank. If
Providentthe Bank is
unable to pay dividends to ProvidentSterling Bancorp or ProvidentSterling Bancorp is required to retain capital or contribute capital to Providentthe Bank, we may not be able to pay dividends on our common stock or to repurchase shares of common stock.
A breach of information security could negatively affect our earnings.
Increasingly, we depend upon data processing, communication and information exchange on a variety of computing platforms and networks, and over the
internet. WeInternet. While to date we have not been subject to material cyber-attacks or other cyber incidents, we cannot be certain all our systems are entirely free from vulnerability to attack, despite safeguards we have instituted. In addition, we rely on the services of a variety of vendors to meet our data processing and communication needs. Disruptions to our vendors’ systems may arise from events that are wholly or partially beyond our vendors’ control (including, for example, computer viruses or electrical or telecommunications outages). If information security is breached, despite the controls we and our
third partythird-party vendors have instituted, information can be lost or misappropriated, resulting in financial loss or costs to us or damages to others. These costs or losses could materially exceed the amount of insurance coverage, if any, which would adversely affect our earnings.
We are subject to extensive regulatory oversight.
We and In addition, our subsidiaries are subject to extensive regulation and supervision. Regulators have intensified their focus on bank lending criteria and controls, and on the USA PATRIOT Act’s anti-money laundering and Bank Secrecy Act compliance requirements. There is also increased scrutiny of our compliance with the rules enforced by the Office of Foreign Assets Control. In order to comply with regulations, guidelines and examination procedures in the anti-money laundering area, we have been required to adopt new policies and procedures and to install new systems. We cannotreputation could be certain that the policies, procedures and systems we have in place are flawless. Therefore, there is no assurance that in every instance we are in full compliance with these requirements. Our failure to comply with these and other regulatory requirements can lead to, among other remedies, administrative enforcement actions, and legal proceedings.
Failure to comply with applicable laws and regulations alsodamaged which could result in a rangeloss of sanctions and enforcement actions, including the imposition of civil money penalties, formal agreements and cease and desist orders. In addition, the OCC and the FDIC have specific authority to take “prompt corrective action,” depending on our capital level. Currently, we are considered “well-capitalized” for prompt corrective action purposes. If we were designated by the OCC as “adequately capitalized,” our ability to take brokered deposits would become limited. If we were to be designated by the OCCcustomers, greater difficulty in one of the lower capital levels — “undercapitalized,” “significantly undercapitalized” and “critically undercapitalized” — we would be required to raise additional capital and also would be subject to progressively more severe restrictions on our operations, management and capital distributions; replacement of senior executive officers and directors; and, if we became “critically undercapitalized,” to the appointment of a conservatorattracting new customers, or receiver.
In addition, recently enacted, proposed and future legislation and regulations (including the Dodd-Frank Act, which is discussed above), have had, will continue to have or may have significant impactan adverse effect on the financial services industry. Regulatory or legislative changes could make regulatory compliance more difficult or expensive for us, could cause us to change or limit somevalue of our products and services or the way we operate our business, and could limit our ability to pursue business opportunities.
common stock.
We are subject to competition from both banks and non-banking companies.non-bank companies.
The financial services industry, including commercial banking, is highly competitive, and we encounter strong competition for deposits, loans and other financial services in our market area. Our principal competitors include commercial banks,
other savings banks and savings and loan associations, mutual funds, money market funds, finance companies, trust companies, insurers, leasing companies, credit unions, mortgage companies, real estate investment trusts (REITs), private issuers of debt obligations, venture capital firms, and suppliers of other
investment alternatives, such as securities firms. Many of our non-bank competitors are not subject to the same degree of regulation as we are and have advantages over us in providing certain services. Many of our competitors are significantly larger than we are and have greater access to capital and other resources. Also, our ability to compete effectively is dependent on our ability to adapt successfully to technological changes within the banking and financial services industry.
Various factors may make takeover attempts more difficult to achieve.
Our Board of Directors has no current intention to sell control of
ProvidentSterling Bancorp. Provisions of our certificate of incorporation and bylaws, federal regulations, Delaware law and various other factors may make it more difficult for companies or persons to acquire control of
ProvidentSterling Bancorp without the consent of our Board of Directors.
OneA shareholder may want a
take overtakeover attempt to succeed because, for example, a potential acquirer could offer a premium over the then prevailing market price of our common stock. The factors that may discourage takeover attempts or make them more difficult include:
(a) Certificate of Incorporation and statutory provisions. Provisions of the certificate of incorporation and bylaws of
ProvidentSterling Bancorp and Delaware law may make it more difficult and expensive to pursue a takeover attempt that management opposes. These provisions also would make it more difficult to remove our current Board of Directors or management, or to elect new directors. These provisions also include limitations on voting rights of beneficial owners of more than 10% of our common stock,
supermajoritysuper majority voting requirements for certain business combinations, the election of directors to staggered terms of three years and plurality voting. Our bylaws also contain provisions regarding the timing and content of stockholder proposals and nominations and qualification for service on the Board of Directors.
(b) Required change in control payments and issuance of stock options and recognition and retention plan
sharesshares.
We have entered into employment agreements with executive officers, which require payments to be made to them in the event their employment is terminated following a change in control of
ProvidentSterling Bancorp or
ProvidentSterling National Bank. We have issued stock grants and stock options in accordance with the 2004 Provident Bancorp Inc. Stock Incentive Plan. In the event of a change in control, the vesting of stock and option grants accelerate. In 2006 we adopted the Provident Bank & Affiliates Transition Benefit Plan. The plan calls for severance payments ranging from 12 weeks to one year for employees not covered by separate agreements if they are terminated in connection with a change in control of the Company.
These payments and the acceleration of grants would increase the cost of acquiring Provident Bancorp, thereby discouraging future takeover attempts.
Our ability to make opportunistic acquisitions
and participation in FDIC-assisted acquisitions or assumption of deposits from a troubled institution is subject to significant risks, including the risk that regulators will not provide the requisite approvals.
We may make opportunistic whole or partial acquisitions of other banks, branches, financial institutions, or related businesses from time to time that we expect may further
our business strategy, including through participation in FDIC-assisted acquisitions or assumption of deposits from troubled institutions. Any possible acquisition will be subject to regulatory approval, and there can be no assurance that we will be able to obtain such approval in a timely manner or at all. Even if we obtain regulatory approval, these acquisitions could involve numerous risks, including lower than expected performance or higher than expected costs, difficulties related to integration, diversion of management’s attention from other business activities, changes in relationships with customers, and the potential loss of key employees. In addition, we may not be successful in identifying acquisition candidates, integrating acquired institutions, or preventing deposit erosion or loan quality deterioration at acquired institutions. Competition for acquisitions can be highly competitive, and we may not be able to acquire other institutions on attractive terms. There can be no assurance that we will be successful in completing or will even
pursue future acquisitions, or if such transactions are completed, that we will be successful in integrating acquired businesses into operations. Ability to grow may be limited if we choose not to pursue or are unable to successfully make acquisitions in the future.
Our results of operations, financial condition or liquidity may be adversely impacted by issues arising from certain industry deficiencies in foreclosure practices, including delays and challenges in the foreclosure process.
Announcements of deficiencies in foreclosure documentation by several large seller/servicer financial institutions have raised various concerns relating to mortgage foreclosure practices in the U.S. A group of state attorneys general and state bank and mortgage regulators in all 50 states and the District of Columbia is currently reviewing foreclosure practices and a number of mortgage sellers/servicers have temporarily suspended foreclosure proceedings in some or all states in which they do business in order to evaluate their foreclosure practices and underlying documentation. These foreclosure process issues and the potential legal and regulatory responses could impact the foreclosure process and timing to completion of foreclosures for residential mortgage lenders, including the Company.
Over the past few years, foreclosure
timelinestime lines have increased due to, among other reasons, delays associated with the significant increase in the number of foreclosure cases as a result of the economic downturn,
federal and state legal and regulatory actions, including additional consumer protection initiatives related to the foreclosure process and voluntary and, in some cases, mandatory programs intended to permit or require lenders to consider loan modifications or other alternatives to foreclosure. Further increases in the foreclosure
timelinetime-line may have an adverse effect on collateral values and our ability to minimize our losses.
ITEM 1B. Unresolved Staff Comments
| |
| ITEM 1B. | Unresolved Staff Comments |
ITEM 2. PropertiesWe maintain our executive offices, commercial lending division and investment management and trust departmentback office operations departments at a leased facility located at 400 Rella Boulevard, Montebello, NY consisting of 48,97348,623 square feet. At September 30, 2011,2013, we conducted our business through 3734 full-service banking offices consisting of 30 retail branchesfinancial centers which serve the New York Metro Market and 7 commercial banking centers.the New York Suburban Market. Of our 37 branches, 14these financial centers, 11 are located in Orange County, NY, 13New York and 11 in Rockland County, NY, 2New York. We operate 9 offices in Ulster, County, NY,Sullivan, Westchester and Putnam Counties in New York, 2 offices in Sullivan County, NY,New York City, and 1 in Putnam County, NY, 3 in Westchester County and 2office in Bergen County, NJ.New Jersey. Additionally, 1817 of our branchesfinancial centers are owned and 1817 are leased.We have announced plans to consolidate two offices and have recorded a charge of $2.1 million reflecting the costs to exit the existing leases and write off the unamortized leasehold improvements.leased.
In addition to our branch network and corporate headquarters we lease
2one and own
1two additional properties which are held for general corporate purposes and
15 foreclosed23 other real estate owned properties located in Putnam, Orange, Rockland, Sullivan and Ulster counties. See Note
7 of5. Premises and Equipment, net to the
“Notes to Consolidated Financial
Statements”Statements for further detail on our premises and equipment.
ITEM 3. Legal ProceedingsProvident Bancorp
Note 16. Commitments and Contingencies - Litigation to the consolidated financial statements contained in Item 8 hereof is incorporated herein by reference. The Company does not involved in any pending legal proceedings other than routine legal proceedings occurring in the ordinary course of business which, inanticipate that the aggregate involve amounts that are believed by managementliability arising out of litigation pending against the Company and its subsidiaries will be material to be immaterial to Provident Bancorp’sits consolidated financial conditionstatements.
| |
| ITEM 4. | Mine Safety Disclosures |
Not Applicable.
PART II
| |
| ITEM 5. | Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities |
Common Stock Market Prices and
results of operations.ITEM 4. [Removed and Reserved]
PART II
ITEM 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
(A)
Dividends
The shares ofCompany’s common stock of Provident Bancorp are quotedis traded on the NASDAQ Global SelectNew York Stock Exchange (“NASDAQ”NYSE”) under the symbol “PBNY.” “STL”. The following table sets forth the high and low intra-day sales prices per share of Sterling Bancorp common stock and the cash dividends declared per share for the past two fiscal years.
|
| | | | | | | | | | | |
| Quarter ended | High | | Low | | Cash dividends declared |
| September 30, 2013 | $ | 11.31 |
| | $ | 9.66 |
| | $ | 0.12 |
|
| June 30, 2013 | 9.43 |
| | 8.71 |
| | 0.06 |
|
| March 31, 2013 | 9.54 |
| | 8.70 |
| | 0.06 |
|
| December 31, 2012 | 9.66 |
| | 8.67 |
| | 0.06 |
|
| September 30, 2012 | 9.65 |
| | 7.44 |
| | 0.06 |
|
| June 30, 2012 | 8.72 |
| | 7.24 |
| | 0.06 |
|
| March 31, 2012 | 9.21 |
| | 6.70 |
| | 0.06 |
|
| December 31, 2011 | 7.63 |
| | 5.51 |
| | 0.06 |
|
As of September 30, 2011, Provident Bancorp had 41 registered market makers, 5,445 stockholders2013, there were 44,351,046 shares of the Company’s common stock outstanding held by 5,061 holders of record (excluding the number of persons or entities holding stock in street name through various brokerage firms), and 37,864,008 shares outstanding.Market Price and Dividends.. The following table sets forth marketclosing price and dividend information for theper share of common stock foron September 30, 2013, the past twolast trading day of the Company’s fiscal years.
| | | | | | | | | | | | |
Quarter Ended | | High | | | Low | | | Cash Dividends
Declared | |
September 30, 2011 | | $ | 8.49 | | | $ | 5.82 | | | $ | 0.06 | |
June 30, 2011 | | | 10.15 | | | | 8.26 | | | | 0.06 | |
March 31, 2011 | | | 10.93 | | | | 9.11 | | | | 0.06 | |
December 31, 2010 | | | 10.64 | | | | 8.48 | | | | 0.06 | |
| | | |
September 30, 2010 | | $ | 10.03 | | | $ | 7.92 | | | $ | 0.06 | |
June 30, 2010 | | | 10.40 | | | | 8.42 | | | | 0.06 | |
March 31, 2010 | | | 9.57 | | | | 8.01 | | | | 0.06 | |
December 31, 2009 | | | 9.41 | | | | 8.00 | | | | 0.06 | |
Paymentyear, was $10.89. Giving effect to the Merger, there were 83,415,930 shares of dividends on Provident Bancorp’sthe Company’s common stock is subject to determination and declarationoutstanding held by 6,162 holders of record (excluding the number of persons or entities holding stock in street name through various brokerage firms).
The Board of Directors and depends on a number of factors, includingSterling Bancorp is currently committed to continuing to pay regular cash dividends; however, there can be no assurance as to future dividends because they are dependent upon the Company’s future earnings, capital requirements legal, and regulatory limitations on the payment of dividends, the results of operations and financial condition, tax considerationscondition. See the section captioned “Regulation” included in Item 1. Business, the section captioned “Capital and general economic conditions. No assurance can be given that dividends will be declared or, if declared, whatLiquidity” included in Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations and Note 14. Stockholders’ Equity to the amountconsolidated financial statements all of dividends will be, or whether such dividends will continue. Repurchaseswhich are included elsewhere in this report.
Performance Graph
Set forth below is a stock performance graph comparing the
yearlycumulative total
shareholder return on
our shares ofSterling Bancorp common stock
commencing with the closing price on September 30, 2006, with (a) the cumulative total return on
stocks included in the
NASDAQS&P 500 Composite Index and (b) the
cumulative total return on stocks included in the SNL Mid-Atlantic
Thrift Index.There canBank Index, measured as of the last trading day of each year shown. The graph assumes an investment of $100 on September 30, 2008 and reinvestment of dividends on the date of payment without commissions. The performance graph represents past performance and should not be no assurance that our stock performance in the future will continue with the same or similar trend depicted in the graph below. We will not make or endorse any predictions asconsidered to be an indication of future stock performance.
PROVIDENT NEW YORK BANCORP
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | Period Ending | |
Index | | 09/30/06 | | | 09/30/07 | | | 09/30/08 | | | 09/30/09 | | | 09/30/10 | | | 09/30/11 | |
Provident New York Bancorp | | | 100.00 | | | | 97.21 | | | | 99.86 | | | | 73.98 | | | | 66.73 | | | | 47.57 | |
NASDAQ Composite | | | 100.00 | | | | 120.52 | | | | 94.10 | | | | 96.49 | | | | 108.79 | | | | 112.05 | |
SNL Mid-Atlantic Thrift Index | | | 100.00 | | | | 99.90 | | | | 85.82 | | | | 63.59 | | | | 71.87 | | | | 56.41 | |
|
| | | | | | | | | | | | | | | | | |
| | For the period ended |
| Index | 9/30/2008 | | 9/30/2009 | | 9/30/2010 | | 9/30/2011 | | 9/30/2012 | | 9/30/2013 |
| Sterling Bancorp | 100.00 |
| | 74.08 |
| | 66.82 |
| | 47.63 |
| | 79.39 |
| | 94.24 |
|
| S&P 500 | 100.00 |
| | 93.09 |
| | 102.55 |
| | 103.73 |
| | 135.05 |
| | 161.18 |
|
| SNL Mid-Atlantic Bank Index | 100.00 |
| | 71.84 |
| | 64.63 |
| | 51.02 |
| | 67.92 |
| | 91.25 |
|
This stock performance graph shall not be deemed incorporated by reference by any general statement incorporating by reference this Form 10-K under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, except to the extent that
Provident New YorkSterling Bancorp specifically incorporates this information by reference, and shall not otherwise be deemed filed under such Acts.
(B)
Not Applicable
(C)
Issuer Purchases of Equity Securities
| | | | | | | | | | | | | | | | |
| | | Total Number
of Shares
(or Units)
Purchased (1) | | | Average
Price Paid
per share
(or Unit) | | | Total Number of
Shares (or Units)
Purchased as Part
of Publicly
Announced Plans
or Programs(2) | | | Maximum Number
(or Approximate
Dollar Value) of
Shares (or Units)
that may yet be
Purchased Under the
Plans or Programs (2) | |
Period (2011) | | | | | | | | | | | | | | | | |
July 1 — July 31 | | | — | | | $ | — | | | | — | | | | 959,713 | |
August 1 — August 31 | | | 183,000 | | | | 6.68 | | | | 183,000 | | | | 776,713 | |
September 1 — September 30 | | | 3,728 | | | | 5.82 | | | | — | | | | 776,713 | |
| | | | | | | | | | | | | | | | |
Total | | | 186,728 | | | $ | 6.66 | | | | 183,000 | | | | | |
| | | | | | | | | | | | | | | | |
|
| | | | | | | | | | | | |
| Total Number of shares (or units) purchased (1) | | Average price paid per share (or unit) | | Total number of shares (or units) purchased as part of publicly announced plans or programs (2) | | Maximum number (or approximate dollar value) of shares (or units) that may yet be purchased under the plans or programs (2) |
| Period (2013) | | | | | | | |
| July 1 — July 31 | — |
| | $ | — |
| | — |
| | 776,713 |
|
| August 1 — August 31 | — |
| | — |
| | — |
| | 776,713 |
|
| September 1 — September 30 | — |
| | — |
| | — |
| | 776,713 |
|
| Total | — |
| | $ | — |
| | — |
| | |
|
| |
1 | The total number of shares purchased during the periods includes shares deemed to have been received from employees who exercised stock options by submitting previously acquired shares of common stock in satisfaction of the exercise price, or shares withheld for tax purposes ($22,697,51,907, or 3,728 shares)6,041shares), as is permitted under the Company’s stock benefit plans and shares repurchased as part of a previously authorized repurchase program. |
|
| |
2 | The Company announced its fifth repurchase program on December 17, 2009 authorizing the repurchase of 2,000,000 shares of which 776,713 remain available for repurchase. |
ITEM 6. Selected Financial Data
| |
| ITEM 6. | Selected Financial Data |
The following
financial conditionsummary data
and operating data are derived fromis based in part on the
audited consolidated financial statements
of Provident Bancorp.and accompanying notes, and other schedules appearing elsewhere in this Form 10-K. Historical data is also based in part on, and should be read in conjunction with, prior filings with the SEC. Additional information is provided in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the Consolidated Financial Statements and related notes included as Item 7 and Item 8 of this
report,Report, respectively.
| | | $3,137,402 | | | | $3,137,402 | | | | $3,137,402 | | | | $3,137,402 | | | | $3,137,402 | |
| | | At September 30, | |
| | | 2011 | | | 2010 | | | 2009 | | | 2008 | | | 2007 | |
| | | (Dollars in thousands) | |
Selected Financial Condition Data: | | | | | | | | | | | | | | | | | | | | |
| | | | | |
Total assets | | $ | 3,137,402 | | | $ | 3,021,025 | | | $ | 3,021,893 | | | $ | 2,984,371 | | | $ | 2,802,099 | |
Loans, net (1) | | | 1,675,882 | | | | 1,670,698 | | | | 1,673,207 | | | | 1,708,452 | | | | 1,617,669 | |
Securities available for sale | | | 739,844 | | | | 901,012 | | | | 832,583 | | | | 791,688 | | | | 794,997 | |
Securities held to maturity | | | 110,040 | | | | 33,848 | | | | 44,614 | | | | 43,013 | | | | 37,446 | |
Deposits | | | 2,296,695 | | | | 2,142,702 | | | | 2,082,282 | | | | 1,989,197 | | | | 1,713,684 | |
Borrowings | | | 323,522 | | | | 363,751 | | | | 430,628 | | | | 566,008 | | | | 661,242 | |
Equity | | | 431,134 | | | | 430,955 | | | | 427,456 | | | | 399,158 | | | | 405,089 | |
| | | $3,137,402 | | | | $3,137,402 | | | | $3,137,402 | | | | $3,137,402 | | | | $3,137,402 | |
| | | Years Ended September 30, | |
| | | 2011 | | | 2010 | | | 2009 | | | 2008 | | | 2007 | |
| | | (Dollars in thousands) | |
Selected Operating Data: | | | | | | | | | | | | | | | | | | | | |
Interest and dividend income | | $ | 112,614 | | | $ | 119,774 | | | $ | 131,590 | | | $ | 148,982 | | | $ | 151,626 | |
Interest expense | | | 21,324 | | | | 26,440 | | | | 37,720 | | | | 53,642 | | | | 66,888 | |
| | | | | | | | | | | | | | | | | | | | |
Net interest income | | | 91,290 | | | | 93,334 | | | | 93,870 | | | | 95,340 | | | | 84,738 | |
Provision for loan losses | | | 16,584 | | | | 10,000 | | | | 17,600 | | | | 7,200 | | | | 1,800 | |
| | | | | | | | | | | | | | | | | | | | |
Net interest income after provision for loan losses | | | 74,706 | | | | 83,334 | | | | 76,270 | | | | 88,140 | | | | 82,938 | |
Non-interest income | | | 29,951 | | | | 27,201 | | | | 39,953 | | | | 21,042 | | | | 19,845 | |
Non-interest expense | | | 90,111 | | | | 83,170 | | | | 80,187 | | | | 75,500 | | | | 74,590 | |
| | | | | | | | | | | | | | | | | | | | |
Income before income tax expense | | | 14,546 | | | | 27,365 | | | | 36,036 | | | | 33,682 | | | | 28,193 | |
Income tax expense | | | 2,807 | | | | 6,873 | | | | 10,175 | | | | 9,904 | | | | 8,566 | |
| | | | | | | | | | | | | | | | | | | | |
Net income | | $ | 11,739 | | | $ | 20,492 | | | $ | 25,861 | | | $ | 23,778 | | | $ | 19,627 | |
| | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
| | | At or For the Years Ended September 30, | |
| | | 2011 | | | 2010 | | | 2009 | | | 2008 | | | 2007 | |
Selected Financial Ratios and Other Data: | | | | | | | | | | | | | | | | | | | | |
Performance Ratios: | | | | | | | | | | | | | | | | | | | | |
Return on assets (ratio of net income to average total assets) | | | 0.40 | % | | | 0.70 | % | | | 0.89 | % | | | 0.84 | % | | | 0.70 | % |
Return on equity (ratio of net income to average equity) | | | 2.75 | | | | 4.82 | | | | 6.22 | | | | 5.88 | | | | 4.82 | |
Average interest rate spread(2) | | | 3.42 | | | | 3.51 | | | | 3.46 | | | | 3.49 | | | | 2.97 | |
Net interest margin(3) | | | 3.65 | | | | 3.78 | | | | 3.81 | | | | 3.96 | | | | 3.57 | |
Efficiency ratio(4) | | | 71.00 | | | | 68.96 | | | | 65.11 | | | | 61.20 | | | | 66.40 | |
Non-interest expense to average total assets | | | 3.06 | | | | 2.85 | | | | 2.77 | | | | 2.68 | | | | 2.68 | |
Ratio of average interest-earning assets to average interest-bearing liabilities | | | 128.36 | | | | 126.66 | | | | 123.54 | | | | 122.26 | | | | 122.34 | |
| | | | | |
Per Share Related Data: | | | | | | | | | | | | | | | | | | | | |
| | | | | |
Basic earnings per share | | $ | 0.31 | | | | 0.54 | | | | 0.67 | | | $ | 0.61 | | | $ | 0.48 | |
Diluted earnings per share | | | 0.31 | | | | 0.54 | | | | 0.67 | | | | 0.61 | | | | 0.48 | |
Dividends per share | | | 0.24 | | | | 0.24 | | | | 0.24 | | | | 0.24 | | | | 0.20 | |
Book value per share(6) | | | 11.39 | | | | 11.26 | | | | 10.81 | | | | 10.03 | | | | 9.82 | |
Dividend payout ratio(5) | | | 77.42 | % | | | 44.44 | % | | | 35.82 | % | | | 39.34 | % | | | 41.67 | % |
| | | | | |
Asset Quality Ratios: | | | | | | | | | | | | | | | | | | | | |
| | | | | |
Non-performing assets to total assets(1) | | | 1.46 | % | | | 1.02 | % | | | 0.93 | % | | | 0.57 | % | | | 0.26 | % |
Non-performing loans to total loans(1) | | | 2.38 | | | | 1.58 | | | | 1.55 | | | | 0.97 | | | | 0.44 | |
Allowance for loan losses to non-performing loans | | | 69 | | | | 115 | | | | 114 | | | | 137 | | | | 281 | |
Allowance for loan losses to total loans | | | 1.64 | | | | 1.81 | | | | 1.76 | | | | 1.33 | | | | 1.24 | |
| | | | | |
Capital Ratios: | | | | | | | | | | | | | | | | | | | | |
| | | | | |
Equity to total assets at end of year | | | 13.74 | % | | | 14.27 | % | | | 14.15 | % | | | 13.37 | % | | | 14.46 | % |
Average equity to average assets | | | 14.49 | | | | 14.60 | | | | 14.36 | | | | 14.34 | | | | 14.61 | |
Tier 1 leverage ratio (bank only) | | | 8.1 | | | | 8.4 | | | | 8.6 | | | | 8.0 | | | | 8.1 | |
| | | | | |
Other Data: | | | | | | | | | | | | | | | | | | | | |
| | | | | |
Number of full service offices | | | 37 | | | | 35 | | | | 33 | | | | 33 | | | | 33 | |
|
| | | | | | | | | | | | | | | | | | | |
| | At or for the year ended September 30, |
| | 2013 | | 2012 | | 2011 | | 2010 | | 2009 |
| | (Dollars in thousands) |
| Selected financial condition data: | | | | | | | | | |
| Period end: | | | | | | | | | |
| Total assets | $ | 4,049,172 |
| | $ | 4,022,982 |
| | $ | 3,137,402 |
| | $ | 3,021,025 |
| | $ | 3,021,893 |
|
Loans, net (1) | 2,384,021 |
| | 2,091,190 |
| | 1,675,882 |
| | 1,670,698 |
| | 1,673,207 |
|
| Securities available for sale | 954,393 |
| | 1,010,872 |
| | 739,844 |
| | 901,012 |
| | 832,583 |
|
| Securities held to maturity | 253,999 |
| | 142,376 |
| | 110,040 |
| | 33,848 |
| | 44,614 |
|
| Deposits | 2,962,294 |
| | 3,111,151 |
| | 2,296,695 |
| | 2,142,702 |
| | 2,082,282 |
|
| Borrowings | 560,986 |
| | 345,176 |
| | 323,522 |
| | 363,751 |
| | 430,628 |
|
Stockholders’ equity | 482,866 |
| | 491,122 |
| | 431,134 |
| | 430,955 |
| | 427,456 |
|
| | | | | | | | | | |
| Average: | | | | | | | | | |
| Total assets | $ | 3,815,609 |
| | $ | 3,195,299 |
| | $ | 2,949,251 |
| | $ | 2,913,560 |
| | $ | 2,895,504 |
|
Loans, net (1) | 2,216,871 |
| | 1,806,136 |
| | 1,665,360 |
| | 1,656,016 |
| | 1,700,383 |
|
| Securities available for sale | 950,628 |
| | 801,792 |
| | 880,624 |
| | 836,130 |
| | 739,021 |
|
| Securities held to maturity | 172,642 |
| | 165,722 |
| | 28,787 |
| | 42,903 |
| | 47,079 |
|
| Deposits | 2,856,640 |
| | 2,366,263 |
| | 2,082,727 |
| | 1,978,380 |
| | 1,931,320 |
|
| Borrowings | 446,916 |
| | 356,296 |
| | 422,816 |
| | 488,330 |
| | 529,614 |
|
| Stockholders’ equity | 489,412 |
| | 447,065 |
| | 427,290 |
| | 425,408 |
| | 415,887 |
|
| | | | | | | | | | |
| Selected income statement data: | | | | | | | | | |
| Interest and dividend income | $ | 132,061 |
| | $ | 115,037 |
| | $ | 112,614 |
| | $ | 119,774 |
| | $ | 131,590 |
|
| Interest expense | 19,894 |
| | 18,573 |
| | 21,324 |
| | 26,440 |
| | 37,720 |
|
| Net interest income | 112,167 |
| | 96,464 |
| | 91,290 |
| | 93,334 |
| | 93,870 |
|
| Provision for loan losses | 12,150 |
| | 10,612 |
| | 16,584 |
| | 10,000 |
| | 17,600 |
|
| Net interest income after provision for loan losses | 100,017 |
| | 85,852 |
| | 74,706 |
| | 83,334 |
| | 76,270 |
|
| Non-interest income | 27,692 |
| | 32,152 |
| | 29,951 |
| | 27,201 |
| | 39,953 |
|
| Non-interest expense | 91,041 |
| | 91,957 |
| | 90,111 |
| | 83,170 |
| | 80,187 |
|
| Income before income tax expense | 36,668 |
| | 26,047 |
| | 14,546 |
| | 27,365 |
| | 36,036 |
|
| Income tax expense | 11,414 |
| | 6,159 |
| | 2,807 |
| | 6,873 |
| | 10,175 |
|
| Net income | $ | 25,254 |
| | $ | 19,888 |
| | $ | 11,739 |
| | $ | 20,492 |
| | $ | 25,861 |
|
| | | | | | | | | | |
| Per share data: |
|
| | | | | | | | |
| Basic earnings per share | $ | 0.58 |
| | $ | 0.52 |
| | $ | 0.31 |
| | $ | 0.54 |
| | $ | 0.67 |
|
| Diluted earnings per share | 0.58 |
| | 0.52 |
| | 0.31 |
| | 0.54 |
| | 0.67 |
|
| Dividends declared per share | 0.30 |
| | 0.24 |
| | 0.24 |
| | 0.24 |
| | 0.24 |
|
| Dividend payout ratio | 51.7 | % | | 45.2 | % | | 77.4 | % | | 44.4 | % | | 35.8 | % |
| Book value per share | $ | 10.89 |
| | $ | 11.12 |
| | $ | 11.39 |
| | $ | 11.26 |
| | $ | 10.81 |
|
| | | | | | | | | | |
| Commons shares outstanding: | | | | | | | | | |
| Period end: | | | | | | | | | |
| Weighted average shares basic | 43,734,425 | | 38,227,653 | | 37,452,596 | | 37,161,180 | | 38,537,881 |
| Weighted average shares diluted | 43,783,053 | | 38,248,046 | | 37,453,542 | | 38,185,122 | | 38,705,837 |
_________________________
See legend on the following page.
|
| | | | | | | | | | | | | | | | | | | |
| | At or for the year ended September 30, |
| | 2013 | | 2012 | | 2011 | | 2010 | | 2009 |
| Performance ratios: | | | | | | | | | |
| Return on assets (ratio of net income to average total assets) | 0.63 | % | | 0.62 | % | | 0.40 | % | | 0.70 | % | | 0.89 | % |
| Return on equity (ratio of net income to average equity) | 5.2 |
| | 4.5 |
| | 2.8 |
| | 4.8 |
| | 6.2 |
|
Net interest margin (2) | 3.37 |
| | 3.51 |
| | 3.65 |
| | 3.78 |
| | 3.81 |
|
| Core efficiency ratio | 62.6 |
| | 68.3 |
| | 71.3 |
| | 69.0 |
| | 65.2 |
|
| | | | | | | | | | |
| Capital ratios: | | | | | | | | | |
| Equity to total assets at end of period | 11.9 | % | | 12.2 | % | | 13.7 | % | | 14.3 | % | | 14.2 | % |
| Average equity to average assets | 12.8 |
| | 14.0 |
| | 14.5 |
| | 14.6 |
| | 14.4 |
|
| Tier 1 leverage ratio (Bank only) | 9.3 |
| | 7.5 |
| | 8.1 |
| | 8.4 |
| | 8.6 |
|
| Tier 1 capital ratio (Bank only) | 13.2 |
| | 12.1 |
| | 11.8 |
| | 12.1 |
| | 12.6 |
|
| Total capital ratio (Bank only) | 14.2 |
| | 13.3 |
| | 13.0 |
| | 13.3 |
| | 13.8 |
|
| | | | | | | | | | |
| Asset quality data and ratios: | | | | | | | | | |
| Allowance for loan loss | $ | 28,877 |
| | $ | 28,282 |
| | $ | 27,917 |
| | $ | 30,843 |
| | $ | 30,050 |
|
| Non-performing assets | 32,928 |
| | 46,217 |
| | 45,958 |
| | 30,731 |
| | 28,181 |
|
| Net charge-offs | 11,555 |
| | 10,247 |
| | 19,510 |
| | 9,207 |
| | 10,651 |
|
Non-performing assets to total assets (1) | 0.81 | % | | 1.15 | % | | 1.46 | % | | 1.02 | % | | 0.93 | % |
Non-performing loans to total loans (1) | 1.12 |
| | 1.88 |
| | 2.38 |
| | 1.58 |
| | 1.55 |
|
| Allowance for loan losses to non-performing loans | 107 |
| | 71 |
| | 69 |
| | 115 |
| | 114 |
|
| Allowance for loan losses to total loans | 1.20 |
| | 1.47 |
| | 1.64 |
| | 1.81 |
| | 1.76 |
|
| Net charge-offs to average loans | 0.52 |
| | 0.56 |
| | 1.17 |
| | 0.56 |
| | 0.62 |
|
| | | | | | | | | | |
(1) |
|
| (1) | Excludes loans held for sale. |
(2) | |
| (2) | The average interest rate spread represents the difference between the weighted-average yield on interest-earning assets and the weighted-average cost of interest-bearing liabilities for the period. |
(3) | Theperiod.The net interest margin represents net interest income as a percent of average interest-earning assets for the period. Net interest income is commonly presented on a tax-equivalent basis. This is to the extent that some component of the institution’s net interest income will be exempt from taxation (e.g. was received as a result of its holdings of state or municipal obligations), an amount equal to the tax benefit derived from that component is added back to the net interest income total. This adjustment is considered helpful in comparing one financial institution’s net interest income (pre-tax) to that of another institution, as each will have a different proportion of tax-exempt items in their portfolios. Moreover, net interest income is itself a component of a second financial measure commonly used by financial institutions, net interest margin, which is the ratio of net interest income to average earning assets. For purposes of this measure as well, tax-equivalent net interest income is generally used by financial institutions, again to provide a better basis of comparison from institution to institution. We follow these practices.
|
(4) | The efficiency ratio represents non-interest expense divided by the sum of net interest income and non-interest income. As in the case of net interest income, generally, net interest income as utilized in calculating the efficiency ratio is typically expressed on a tax-equivalent basis. Moreover, most financial institutions, in calculating the efficiency ratio, also adjust both noninterest expense and noninterest income to exclude from these items (as calculated under generally accepted accounting principles) certain component elements, such as non-recurring charges, other real estate expense and amortization of intangibles (deducted from noninterest expense) and securities transactions and other non-recurring items (excluded from noninterest income). We follow these practices.
|
(5) | The dividend payout ratio represents dividends per share divided by basic earnings per share.
|
(6) | Book value per share is based on total stockholders’ equity and 37,864,008, 38,262,288, 39,547,207, 39,815,213 and 41,230,618 outstanding common shares at September 30, 2011, 2010, 2009, 2008 and 2007, respectively. For this purpose, common shares include unallocated employee stock ownership plan shares but exclude treasury shares.
|
ITEM 7. Management’s Discussion
The following table shows the reconciliation of the full year core operating efficiency ratio which is a non-GAAP financial measure:
|
| | | | | | | | | | | | | | | | | | | |
| | For the year ended September 30, |
| | 2013 | | 2012 | | 2011 | | 2010 | | 2009 |
| Net interest income | $ | 112,167 |
| | $ | 96,464 |
| | $ | 91,290 |
| | $ | 93,334 |
| | $ | 93,870 |
|
| Non-interest income | 27,692 |
| | 32,152 |
| | 29,951 |
| | 27,201 |
| | 39,953 |
|
| Total net revenues | 139,859 |
| | 128,616 |
| | 121,241 |
| | 120,535 |
| | 133,823 |
|
| Tax equivalent adjustment on securities interest income | 3,060 |
| | 3,498 |
| | 4,007 |
| | 4,186 |
| | 4,049 |
|
| Net gain on sales of securities | (7,391 | ) | | (10,452 | ) | | (10,011 | ) | | (8,157 | ) | | (18,076 | ) |
| Other than temporary loss on securities | 32 |
| | 47 |
| | 278 |
| | — |
| | — |
|
| Other, (other gains and fair value loss on interest rate caps) | 77 |
| | (12 | ) | | 197 |
| | 1,160 |
| | (517 | ) |
| Core total revenues | 135,637 |
| | 121,697 |
| | 115,712 |
| | 117,724 |
| | 119,279 |
|
| | | | | | | | | | |
| Non-interest expense | 91,041 |
| | 91,957 |
| | 90,111 |
| | 83,170 |
| | 80,187 |
|
| Merger-related expenses | (2,772 | ) | | (5,925 | ) | | — |
| | — |
| | — |
|
| Charge for asset write-downs | (564 | ) | | — |
| | (3,201 | ) | | — |
| | — |
|
| Other real estate owned expense | (1,562 | ) | | (1,618 | ) | | (1,171 | ) | | (137 | ) | | (207 | ) |
| Amortization of intangible assets | (1,296 | ) | | (1,245 | ) | | (1,426 | ) | | (1,849 | ) | | (2,185 | ) |
| Defined benefit settlement charge / CEO change | — |
| | — |
| | (1,772 | ) | | — |
| | — |
|
| Core non-interest expense | 84,847 |
| | 83,169 |
| | 82,541 |
| | 81,184 |
| | 77,795 |
|
| | | | | | | | | | |
| Core efficiency ratio | 62.6 | % | | 68.3 | % | | 71.3 | % | | 69.0 | % | | 65.2 | % |
The core efficiency ratio reflects total revenues inclusive of the tax equivalent adjustment on municipal securities and
Analysisexcludes securities gains, other than temporary impairments and the other adjustments shown above. Core non-interest expense is adjusted to exclude the effect of
Financial Conditionmerger-related expenses, non-recurring charges, other real estate expense and
Resultsamortization of
OperationsOverview
intangible assets. The Company believes this non-GAAP information provides financial servicesuseful information to individuals and businesses in New York and New Jersey. users to assess the Company’s core operations.
| |
| ITEM 7. | Management’s Discussion and Analysis of Financial Condition and Results of Operations |
General
The
Company’s business is primarily accepting deposits from customers through its banking offices and investing those deposits, together with funds generated fromfollowing MD&A provides information we believe necessary to understand our results of operations,
and borrowings into commercial real estate loans, commercial business loans, ADC loans, residential mortgages, consumer loans, and investment securities. Additionally, the Company offers investment management services. Theour financial condition and
results of operations of Provident Bancorp are discussed herein on a consolidated basis with the Bank. Reference to Provident Bancorp or the Company may signify the Bank, depending on the context.Our results of operations depend primarily on our net interest income, which is the difference between the interest income on our earning assets, such as loanschanges therein and securities, and the interest expense paid on our deposits and borrowings. Results of operations are also affected by non-interest income and expense, the provision for loan losses and income tax expense. Results of operations are also significantly affected by general economic and competitive conditions, as well as changes in market interest rates, government policies and actions of regulatory authorities.cash flows. The Federal Reserve Board, through a series of reductions to the federal funds target rate to an unprecedented 0-25 basis points has acted to increase liquidity in the credit markets. This target rate has been in effect since December 2008. These rate reductions significantly lowered yields on the short end of the treasury yield curve more so than the long end of the curve, resulting in a steeper yield curve than existed at the prior fiscal year-end.
As described in greater detail below, the key factors that have affected our results over the last three years include:
the effects of the economic downturn on our asset quality, which has led to higher levels of provisions for loan losses than historically had been the case;
the current low interest rate environment, which has contributed to margin pressure on net interest income;
management’s decision to take advantage of the interest rate environment and realize securities gains to reduce future interest rate exposure; and
limited opportunities to make loans that meet our credit standards and pricing criteria
The last recession and slow recovery over the past two years have resulted in borrowers experiencing higher levels of stress, which resulted in our increased levels of charge-offs and provisions for loan losses. In particular, small businesses and borrowers involved in Acquisition, Development and Construction projects have been affected. During the year our net charge-offs exceeded our provisions by $2.9 million. Management of our loan portfolio continues to be a top priority. We were able to grow commercial real estate loans, which was substantially offset by declines in one-to-four family residential mortgages as we sold a substantial portion of our new production.
In addition, we continue to experience pressure on net interest income. Low rates continue to have the effect of causing many assets to prepay or to be called. In anticipation of this, we have also been selling certain investment securities based on market conditions. Reinvestment of cash is necessarily made at lower interest rates or in extended maturity. Many of our liabilities are at rates that are either fixed or already very low, so maintaining net interest margin is a function of loan growth, growth in non-interest bearing deposits, and continuation of our deposit pricing discipline. Transaction accounts grew 11.4% during the year, non-time deposits grew as well, while CDs declined. This helped support our net interest margin which was 3.65% this year compared to 3.78% last year.
On August 9, 2011, Provident Bank (the “Bank”) announced a workforce reduction to improve efficiency and reduce operating expenses to better position the Bank for enhanced revenue growth. The Bank expects the workforce reduction together with other expense reductions to yield annual savings by the end of 2012 of approximately $10.0 million, including approximately $4.2 million in personnel salary and benefits from eliminated positions. Of the $10.5 million expense reduction the company intends to redeploy approximately $5.0 million to revenue generating initiatives designed to improve efficiency and enhance customer experience. Costs associated with the restructuring are estimated to be approximately $3.3 million. The charges the Bank expects to incur in connection with the workforce reduction are subject to a number of assumptions, and actual results may differ. The Bank may also incur other charges not currently contemplated due to events that may occur as a result of, or associated with, the workforce reduction.
Operating expenses increased 8.3% primarily due to restructuring charges and charges related to CEO transitioning including defined benefit settlements. Fee income excluding securities gains, declined slightly. Deposit fees declined primarily due to changed customer behavior partially offset in other categories.
Net income for the year ended September 30, 2011 decreased 43% to $11.7 million, or $0.31 per diluted share from $20.5 million, or $0.54 per diluted share for the year ended September 30, 2010. Net interest income on a tax equivalent basis decreased $2.2 million or 2.3% for the year ended September 30, 2011 as compared to the year ended 2010. Net interest margin decreased 13 basis points to 3.65% at September 30, 2011 from 3.78% at September 30, 2010. Average loans increased $9.3 million to $1.67 billion at September 30, 2011 from $1.66 billion at September 30, 2010. The net increase in average loans is due to increases in commercial lending activities virtually offsetting the refinancing of residential loans as well as the sale of residential loans to the secondary market and decline in ADC loans due to management deemphasizing this type of lending . The provision for loan losses increased $6.6 million from September 30, 2010 to $16.6 million for the year ended September 30, 2011 primarily related to one ADC borrower.
Non-interest income increased $2.8 million to $30 million for the year ended September 30, 2011 from $27.2 million for the year ended September 30, 2010, primarily resulting from an increase of $1.9 million in net securities gains, $909,000 decrease in the fair value loss on interest rate caps, and a decrease of $417,000 in deposit fees and service charges.
Non-interest expense increased $6.9 million to $90.1 million for the year ended September 30, 2011 from $83.2 million for the year ended September 30, 2010 primarily from restructuring charges and charges relating to the CEO transition including defined benefit settlements, staffing for new offices, occupancy expense associated with the new offices and professional fees.
Total assets increased $116.4 million to $3.1 billion for the year ended September 30, 2011. Net loans remained relatively unchanged increasing by 0.3% as commercial lending increases in outstanding balances were offset by decreases in all other categories. Residential loans decreased as a result of residential originations of $49.8 million being sold in the secondary market during fiscal year 2011 and ADC loans decreased by $55.3 million. Deposits increased $154.0 million in 2011 primarily in business and retail transaction accounts, municipal NOW accounts, savings, and money market deposit accounts partially offset by declines in certificate of deposit balances as customers are less willing to maintain term deposits in this relatively low interest rate environment.
The Company had significant fourth quarter items as new strategies designed to drive growth in revenues and earnings have been implemented. There was a $2.1 million charge associated with the consolidation of two branches; this consolidation will result in an annual pre-tax savings of $900,000. In addition there was $1.1 million of severance expense associated with the workforce realignment established to improve efficiency and reduce operating expense to better position the Bank for enhanced revenue growth. This workforce realignment will result in an annual savings of $4.2 million in salaries and benefits.
Additional fourth quarter items were net gains on sales of securities totaled $4.5 million offsetting the restructuring charges mentioned above. Most of the securities sold had low current market yields and were reinvested in securities through modest extension of duration at comparable book yields thereby not causing further declines in net interest margin. Credit costs also impacted the quarter as ADC loans included a charge of $6.7 million for two relationships and a $1.2 million loss was incurred on a sale of non-performing loans
The following is an analysis of the financial condition and results of the Company’s operations. This itemMD&A should be read in conjunction with the consolidated financial statements, notes to consolidated financial statements and related notes filed herewithother information contained in Part II, Item 8, “Financial Statements and Supplementary Data” and the description of the Company’s business filed here within Part I, Item 1, “Business.”
this report.
Critical Accounting Policies
Our accounting and reporting policies are prepared in accordance with accounting principles generally accepted in the United States of America and conform to general practices within the banking industry. Accounting policies considered critical to our financial results include the allowance for loan losses, accounting for goodwill and other intangible assets, accounting for deferred income taxes and the recognition of interest income.
Allowance for Loan Losses. The methodology for determining the allowance for loan losses is considered by managementthe Company to be a critical accounting policy due to the high degree of judgment involved, the subjectivity of the assumptions utilized and the potential for changes in the economic environment that could result in changes to the amount of the allowance for loan losses considered necessary. We evaluate our loans at least quarterly, and review their risk components as a part of that evaluation. See Note 1, “Basis1. Basis of Financial Statement Presentation and Summary of Significant Accounting Policies” inPolicies to our “Notesnotes to Consolidated Financial Statements”the consolidated financial statements for a discussion of the risk components. We consistently review the risk components to identify any changes in trends. At September 30, 2011 Provident2013 Sterling has recorded $27.9$28.9 million in its allowance for loan losses. Goodwill and Other Intangible Assets. The Company accounts for goodwill and other intangible assets in accordance with GAAP, which, in general, requires that goodwill not be amortized, but rather that it be tested for impairment at least annually atannually. The Company assesses qualitative factors to determine whether it is more likely than not (i.e. a likelihood of more than 50 percent) that the fair value of a reporting unit level usingis less than its carrying amount. In evaluating whether it is more likely than not that the two step approach.fair value of a reporting unit is less than its carrying amount, the Company assesses relevant events and circumstances (e.g. macroeconomic conditions, industry and market considerations, overall financial performance and other relevant Company-specific events). If after assessing the totality of events or circumstances such as those described above the Company determines that it is not more likely than not that the fair value of a reporting unit is less than its carrying amount, then the first and second steps of the goodwill impairment test are unnecessary. Testing for impairment of goodwill and intangible assets is performed annually and 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. As of September 30, 2011 the estimated net present value of Provident Bancorp shares exceed recorded book value by 2%. 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. We also use judgment in the valuation of other intangible assets. A core deposit base intangible asset has been recorded for core deposits (defined as checking, money market and savings deposits) that were acquired in acquisitions that were accounted for as purchase business combinations. The core deposit base intangible asset has been recorded using the assumption that the acquired deposits provide a more favorable source of funding than more expensive wholesale borrowings. An intangible asset has been recorded for the present value of the difference between the expected interest to be incurred on these deposits and interest expense that would be expected if these deposits were replaced by wholesale borrowings, over the expected lives of the core deposits. If we find these deposits have a shorter life than was estimated, we will write down the asset by expensing the amount that is impaired. Other intangible assets have been recorded in connection with the acquisition of HVIA for non-competition and customer intangibles. At September 30, 20112013 the bankBank had $2.4$1.9 million in naming rights net of amortization included in other intangibles related to Provident Bank Ball Park and $1.5$2.0 million in mortgage servicing rights included in other assets. At September 30, 2011, the Company had $4.6 million recorded in core deposit and other intangibles.
Income Taxes. We use the asset and liability method of accounting for income taxes. Under this method, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. If current available information raises doubt as to the realization of the deferred tax assets, a valuation allowance is established. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. We exercise significant judgment in evaluating the amount and timing of recognition of the resulting tax liabilities and assets, including projections of future taxable income. These judgments and estimates are reviewed on a continual basis as regulatory and business factors change. At September 30, 2011, Provident2013, Sterling Bancorp hashad net deferred tax assets of $1.9$15.0 million. Interest income. Interest income on loans, securities and other interest-earning assets is accrued monthly unless managementthe Company considers the collection of interest to be doubtful. Loans are placed on non-accrual status when payments are contractually past due 90 days or more, or when management haswe have determined that the borrower is unlikely to meet contractual principal or interest obligations, unless the assets are well secured and in the process of collection. At such time, unpaid interest is reversed by charging interest income for interest in the current fiscal year or the allowance for loan losses with respect to prior year income. Interest payments received on non-accrual loans (including
impaired loans) are not recognized as income unless future collections are reasonably assured. Loans are returned to accrual status when collectability is no longer considered doubtful. At September 30, 2011, Provident has $36.52013, Sterling had $22.8 million in loans in non-accrual status.
Summary
In fiscal 2013, the Company reported net income totaling $25.3 million, which was a 27.0% increase over net income of $19.9 million in fiscal 2012. Results for fiscal 2013 were positively impacted by an increase in loan and deposit balances acquired from Gotham Bank in August 2012.
The Company’s diluted earnings per share were $0.58 in fiscal 2013, which represented 11.5% growth over diluted earnings per share of $0.52 in fiscal 2012. In August 2012, the Company issued 6.3 million common shares in connection with the acquisition of Gotham Bank which increased weighted average diluted shares outstanding from 38.2 million in fiscal 2012 to 43.8 million in fiscal 2013.
A substantial amount of the Company’s growth in fiscal 2013 was generated through our commercial banking teams. Comparing fiscal 2013 results relative to 2012, commercial real estate and commercial & industrial loans grew by $301.0 million to $1.7 billion, which represented a growth rate of 21.3%. We also experienced growth in our deposit balances. During fiscal 2013, non-interest bearing and interest bearing demand deposits grew by $80.1 million to $912 million, which represented growth of 9.6%.
The emphasis on growing our commercial banking activities and consolidation of our financial centers has allowed us to increase the variable component of our operating expense base and significantly improve our core operating efficiency. In fiscal 2013, core total revenues (which includes net interest income and non-interest income) grew at 11.5% while total core operating expenses declined 2.0%. The Company will continue to focus on generating revenue growth that outpaces the growth in expenses.
On October 31, 2013 we completed our acquisition of Legacy Sterling. This acquisition is consistent with our strategy of expanding in the greater New York metropolitan region and focusing on commercial banking. We believe this merger will create a larger, more efficient organization by combining Sterling’s differentiated team-based distribution channels with Legacy Sterling’s diverse commercial and consumer lending product capabilities. We anticipate that the Merger will allow us to accelerate loan growth, increase our ability to gather low cost core deposits and generate substantial cost savings and revenue enhancement opportunities. On a pro forma combined basis, Sterling Bancorp had total assets of $6.8 billion and total deposits of $5.2 billion as of September 30, 2013.
We believe the Merger will significantly diversify our business. Legacy Sterling was predominately a commercial & industrial lender which will complement our loan portfolio which is substantially collateralized by real estate. Further, Legacy Sterling provides us with a greater non-interest income revenue stream. On a combined basis, we anticipate approximately 20-25% of our total revenues will consist of non-interest income.
Comparison of Financial Condition at September 30, 20112013 and September 30, 20102012 Total assets as of September 30, 20112013 were $3.1$4.0 billion, an increase of $116.4$26.2 million compared to September 30, 2010. Cash2012. The increase was a result of growth in net loans of $292.8 million and growth in investment securities of $55.1 million. These increases were substantially offset by a $324.9 million decline in the balance of cash and due from banks increased $190.6 million to $281.5 million at banks.
Net loans as of September 30, 2011 due primarily to deposits received on September 30, 2011 and high levels of balances maintained at the Federal Reserve in 2011 due to municipal tax collection activity. Core deposit and other intangibles increased by $1.0 million resulting from naming rights acquired on Provident Ballpark stadium. Goodwill was unchanged. The Company had $4.2 million in loans held for sale as of September 30, 2011 and $5.9 million at September 30, 2010. Premises and equipment decreased $2.7 million primarily related to depreciation and amortization exceeding new investment in premises and equipment.2013Net loans as of September 30, 2011 were $1.7$2.4 billion, an increase of $5.2$292.8 million, or 0.3%14.0%, over net loan balancesloans of $1.7$2.1 billion at September 30, 2010. Commercial2012. In fiscal 2013 we continued to focus on growing our commercial real estate and commercial & industrial loan portfolios. During the year, we increased commercial real estate loans increased $124.1$204.5 million, or 21.4%19.1%, and commercial & industrial loans $96.5 million, or 28.1%. The growth in commercial loan balances was offset by a decline in ADC loans, which decreased $55.3$41.6 million or 23.9%28.9% to $175.9$102.5 million compared to $231.3$144.1 million as of September, 2010. Consumer loans decreased by $13.4 million, or 5.6%, during the fiscal year ended September 30, 2011, residential2012. We expect to continue to reduce the outstanding balance of ADC loans decreasedin fiscal 2014. Residential mortgage loans increased by $45.1$50.0 million, or 10.4%. Total loan originations, excluding14.3% in fiscal 2013 driven by an increase in the amount of adjustable rate mortgage loans originatedretained in the Company’s held for sale were $578.6 million forinvestment portfolio. Management believes that the fiscal year ended September 30, 2011, while repayments were $553.2 million for the fiscal year ended September 30, 2011.risk-adjusted return on these loans is more attractive than alternatives such as mortgage-backed securities and other investment securities. The allowance for loan loss decreasedlosses increased from $30.8$28.3 million to $27.9$28.9 million as a result of provisions tofor loan losses of $16.6$12.2 million and net charge offscharge-offs of $19.5 million. There were increases in the reserves for ADC, commercial business loans and home equity lines of credit, with decreases in commercial real estate and residential mortgages. The variances were driven$11.6 million.
Total securities increased by modifications in reserve factors as well as changes in loan balances.Total securities decreased by $85.0$55.1 million, to $849.9 million$1.2 billion at September 30, 2011 from $934.9 million at September 30, 2010. Security2013. Securities purchases were $716.3$659.5 million, sales of securities were $540.5$340.3 million, and maturities, calls, and repayments were $269.0 million.
$224.6 million.
Goodwill and other intangibles totaled $165.5$169.0 million at September 30, 2011 an increase2013 a decrease of $989,000.$1.4 million compared to September 30, 2012. The increase is adecrease was the result of Provident Bank entering into a naming rights contract for $2.4 million in May 2011 partially offset by amortization.amortization of core deposit intangibles.
Depositsas of September 30, 20112013 were $2.3$2.96 billion, an increasea decrease of $154.0$148.9 million, or 7.2%4.8%, from September 30, 2010.2012. Included in deposits for September 30, 20112013 were approximately $284.0$374.3 million in short-term seasonal municipal deposits compared to $212.0$424.6 million at September 30, 2012. The change in total deposits was driven by a decrease of $144.7 million in municipal deposits during the year. The balance of municipal
deposits typically reaches peak levels between the months of September and December. The Company continued to focus on decreasing the balance of higher cost certificates of deposit. In fiscal 2013, certificates of deposit decreased $119.4 million or 30.8% to $268.1 million. Excluding municipal deposits and certificates of deposits the total balance of deposits increased from $1.83 billion at September 30, 2010. As of September 30, 2011 transaction accounts were 45.9% of deposits, or $1.12012 to $1.95 billion compared to $945.5 million or 44.1% at September 30, 2010. As2013, which represented growth of 6.6%.
Borrowings increased by $215.8 million, or 62.5%, from September 30, 2011, savings deposits2012, to $561.0 million. Included in borrowings at September 30, 2013 is $100 million of Senior Notes issued in connection with the Merger. The remaining increase in borrowings of $115.8 million was driven by incremental borrowings from the Federal Home Loan Bank of New York that were $429.8used mainly to fund loan growth.
Stockholders’ equity decreased $8.3 million from September 30, 2012 to $482.9 million at September 30, 2013. The decrease was primarily due to a $26.5 million decline, net of tax, in the fair value of available for sale securities. As interest rates increased during the year, the value of our available for sale securities declined. Offsetting this decline was an increase of $37.5$12.0 million or 9.56%. Money market accounts increased $82.1 million or 19.2% to $509.5 million at September 30, 2011. Offsetting the increases in savings and money market accounts was a decrease of $73.9 million, or 19.6% in certificates of deposits as the Company, while maintaining competitive rate structures, did not compete with the highest pricing in the market place. The Company attributes the change in mix and net increases to customers unwilling to place significant amounts of deposits in term maturities in the current rate environment as well as the success of its marketing efforts.Borrowings decreased by $40.2 million, or 9.7%, from September 2010, to $375.0 million. The decrease is related to the borrowings being paid down by maturing investment securities and deposits.
Stockholders’ equity increased $179,000 from September 30, 2010 to $431.1 million at September 30, 2011. The increase was due to $2.8 million increase in the Company’s retained earnings, which consisted of net income of $25.3 million and a $12,000 improvement in accumulated other comprehensive income, after realizing securities gains in the fiscal yeardividends declared of $10.0$13.3 million. During fiscal 2011,2013, the Company repurchased 457,454did not repurchase shares of its common stock at a cost of $3.8 million under the treasury repurchase program and issued a net 47,046 shares from its stock based compensation plans.program.
As of September 30, 20112013 the Company had authorization to purchase up to an additional 776, 713776,713 shares of common stock. BankThe Bank’s Tier I capital to assets1 leverage ratio was 8.14% at September 30, 2011. Tangible capital9.33% and consolidated tangible equity as a percentage of tangible assets at the holding company level was 8.94%8.09%.
Credit Quality
Non-performing loans (“NPLs”) decreased $12.9 million, or 32.4%, to $26.9 million at September 30, 2013 compared to $39.8 million at September 30, 2012. During the fiscal year ended September 30, 2013, we continued to focus on the resolution of non-performing ADC loans. As a result of these efforts, we reduced non-performing ADC loans by $10.0 million and reduced our non-performing residential mortgage loans by $2.0 million, mainly by foreclosing on properties. We also reduced non-performing CRE loans by $1.7 million. There were small offsetting increases in NPLs of $310 thousand in HELOC loans, $2 thousand in consumer loans and $445 thousand in C&I loans.
The Allowanceallowance for Loan Losses decreasedloan losses increased from $30.8$28.3 million to $27.9$28.9 million as the provisions exceeded net charge-offs exceeded provisions by $3.0$595 thousand. The allowance for loan losses at September 30, 2013 was $28.9 million ., which represented 107.3% of non-performing loans and 1.20% of the total loan portfolio. Net charge-offs for the year ended September 30, 20112013 were $19.4$11.6 million, or 1.17%0.52% of average loans, compared to net charge-offs of $9.2$10.2 million, or .56%0.56% of average loans for the prior year. The increasedecrease in net charge-offs came about as we recorded $8.9 milliona percentage of chargesaverage loans was mostly due to improved performance in our commercial & industrial loans and ADC portfolio, including $7.5loans.
Our classified loans, those rated substandard or worse, declined from $88.7 million in one relationship. Sales activity in a residential housing subdivision dropped sharply in the second half of the year, causing us at September 30, 2012 to re-evaluate cash flow expectations and collateral values in the related projects. We also experienced net charge-offs of $4.6$61.1 million in the C&I portion of our Community Business Loan portfolio and $2.3 million in our Residential Mortgage Loan portfolio. During at September 2011 we completed the sale of $1.2 million in NPL residential mortgages, which accounted for $1.1 million of the residential charge-off total.Non-performing Loans (“NPLs”) increased from $26.8 million30, 2013
primarily due to $40.6 million primarily driven by an increase in loans that were upgraded in risk rating or the ADC portfoliorepayment of $11.3 million. As at September 30, 2011, NPLs consisted of ADC loans of $17.0contained in this category. Also contributing to the decline were $9.6 million Commercial mortgages including CBL of $13.2 million, residential mortgages of $8.0 million, consumer of $2.2 millionin net charge-offs and $243,000 in commercial business loans. In addition,transfers to other real estate owned consistedowned. Partially offsetting these declines were new loans risk rated substandard of 17 properties totaling $5.4$23.1 million. Special mention loans decreased from $42.4 million dollars. However, we were able to reduce classified (substandard/doubtful) loans during the year from $132.1 million at September 30, 20102012 to $94.0$13.5 million at September 30, 2011. Loans carried as criticized (special mention) similarly went2013. This decline was primarily the result of $38.1 million in loans that were upgraded in risk rating or repayment of loans contained in this category. There were $300 thousand in net charge-offs from $37.9 million down to $23.0 million at September 30 2011.Impairedthis category. Partially offsetting these declines was new loans increasedrisk rated special mention and loans that were upgraded from $42.1 million at September 30, 2010 to $55.0 million at September 30, 2011. At September 30, 2011 impaired loans with no related valuation allowance totaled $35.2 million and impaired loans with a valuation allowance were $19.8 million before specific reservessubstandard of $3.8$9.5 million. Included in impaired loans are $9.3 million
Average Balances
The following table sets forth average balance sheets, average yields and costs, and certain other information for the years indicated.
Tax-exemptTax exempt securities are reported on a tax-equivalent basis, using a 35% federal tax rate. All average balances are daily average balances. Non-accrual loans were included in the computation of average balances, but have been reflected in the table as loans carrying a zero yield. The yields set forth below include the effect of deferred fees, discounts and premiums that are amortized or accreted to interest income or expense.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Years Ended September 30, | |
| | | 2011 | | | 2010 | | | 2009 | |
| | | Average
Outstanding
Balance | | | Interest | | | Yield/Rate | | | Average
Outstanding
Balance | | | Interest | | | Yield/Rate | | | Average
Outstanding
Balance | | | Interest | | | Yield/Rate | |
| | | (Dollars in thousands) | |
Interest Earning Assets: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Loans (1) | | $ | 1,665,360 | | | $ | 89,500 | | | | 5.37 | % | | $ | 1,656,016 | | | $ | 92,542 | | | | 5.59 | % | | $ | 1,700,383 | | | $ | 97,149 | | | | 5.71 | % |
Securities taxable | | | 695,961 | | | | 14,493 | | | | 2.08 | | | | 662,914 | | | | 18,208 | | | | 2.75 | | | | 592,071 | | | | 25,552 | | | | 4.32 | |
Securities-tax exempt | | | 213,450 | | | | 11,448 | | | | 5.36 | | | | 216,119 | | | | 11,959 | | | | 5.53 | | | | 194,028 | | | | 11,569 | | | | 5.96 | |
Federal Reserve Bank | | | 14,044 | | | | 32 | | | | 0.23 | | | | 20,009 | | | | 52 | | | | 0.26 | | | | 56,639 | | | | 144 | | | | 0.25 | |
Other | | | 20,933 | | | | 1,148 | | | | 5.48 | | | | 25,007 | | | | 1,198 | | | | 4.79 | | | | 27,061 | | | | 1,225 | | | | 4.53 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Total Interest-earnings assets | | | 2,609,748 | | | | 116,621 | | | | 4.47 | | | | 2,580,065 | | | | 123,959 | | | | 4.80 | | | | 2,570,182 | | | | 135,639 | | | | 5.28 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Non-interest earning assets | | | 339,503 | | | | | | | | | | | | 333,495 | | | | | | | | | | | | 325,322 | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Total assets | | $ | 2,949,251 | | | | | | | | | | | $ | 2,913,560 | | | | | | | | | | | $ | 2,895,504 | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Interest Bearing Liabilities: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
NOW deposits | | $ | 315,623 | | | | 595 | | | | 0.19 | | | $ | 280,304 | | | | 579 | | | | 0.21 | | | $ | 232,164 | | | | 670 | | | | 0.29 | |
Savings deposits (2) | | | 432,227 | | | | 444 | | | | 0.10 | | | | 397,760 | | | | 403 | | | | 0.10 | | | | 366,355 | | | | 758 | | | | 0.21 | |
Money market deposits | | | 489,347 | | | | 1,595 | | | | 0.33 | | | | 419,152 | | | | 1,456 | | | | 0.35 | | | | 374,507 | | | | 2,707 | | | | 0.72 | |
Certificates of deposit | | | 373,142 | | | | 3,470 | | | | 0.93 | | | | 451,509 | | | | 6,079 | | | | 1.35 | | | | 577,723 | | | | 14,240 | | | | 2.46 | |
Senior Debt | | | 51,498 | | | | 2,017 | | | | 3.92 | | | | 51,495 | | | | 2,029 | | | | 3.94 | | | | 32,730 | | | | 1,269 | | | | 3.88 | |
Borrowings | | | 371,318 | | | | 13,203 | | | | 3.56 | | | | 436,835 | | | | 15,894 | | | | 3.64 | | | | 496,884 | | | | 18,076 | | | | 3.64 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Total interest-bearing liabilities | | | 2,033,155 | | | | 21,324 | | | | 1.05 | | | | 2,037,055 | | | | 26,440 | | | | 1.30 | | | | 2,080,363 | | | | 37,720 | | | | 1.81 | |
Non-interest bearing deposits | | | 472,388 | | | | | | | | | | | | 429,655 | | | | | | | | | | | | 380,571 | | | | | | | | | |
Other non-interest bearing liabilities | | | 16,418 | | | | | | | | | | | | 21,442 | | | | | | | | | | | | 18,683 | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Total liabilities | | | 2,521,961 | | | | | | | | | | | | 2,488,152 | | | | | | | | | | | | 2,479,617 | | | | | | | | | |
Stockholders’ equity | | | 427,290 | | | | | | | | | | | | 425,408 | | | | | | | | | | | | 415,887 | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Total liabilities and Stockholders’ equity | | $ | 2,949,251 | | | | | | | | | | | $ | 2,913,560 | | | | | | | | | | | $ | 2,895,504 | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Net interest rate spread (3) | | | | | | | | | | | 3.42 | % | | | | | | | | | | | 3.51 | % | | | | | | | | | | | 3.46 | % |
Net Interest-earning assets (4) | | $ | 576,593 | | | | | | | | | | | $ | 543,010 | | | | | | | | | | | $ | 489,819 | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Net interest margin (5) | | | | | | | 95,297 | | | | 3.65 | % | | | | | | | 97,519 | | | | 3.78 | % | | | | | | | 97,919 | | | | 3.81 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Less tax equivalent adjustment | | | | | | | (4,007 | ) | | | | | | | | | | | (4,185 | ) | | | | | | | | | | | (4,049 | ) | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Net Interest income | | | | | | $ | 91,290 | | | | | | | | | | | $ | 93,334 | | | | | | | | | | | $ | 93,870 | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Ratio of interest-earning assets to interest bearing liabilities | | | | | | | 128.36 | % | | | | | | | | | | | 126.66 | % | | | | | | | | | | | 123.54 | % | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | For the year ended September 30, |
| | 2013 | | 2012 | | 2011 |
| | Average balance | | Interest | | Yield/Rate | | Average
balance | | Interest | | Yield/Rate | | Average
balance | | Interest | | Yield/Rate |
| | (Dollars in thousands) |
| Interest earning assets: | | | | | | | | | | | | | | | | | |
Loans (1) | $ | 2,216,871 |
| | $ | 107,810 |
| | 4.86 | % | | $ | 1,806,136 |
| | $ | 91,010 |
| | 5.04 | % | | $ | 1,665,360 |
| | $ | 89,500 |
| | 5.37 | % |
| Securities taxable | 948,884 |
| | 17,509 |
| | 1.85 |
| | 778,994 |
| | 16,537 |
| | 2.12 |
| | 695,961 |
| | 14,493 |
| | 2.08 |
|
| Securities-tax exempt | 174,386 |
| | 8,742 |
| | 5.01 |
| | 188,520 |
| | 9,996 |
| | 5.30 |
| | 213,450 |
| | 11,448 |
| | 5.36 |
|
| Federal Reserve Bank | 59,375 |
| | 193 |
| | 0.33 |
| | 51,351 |
| | 127 |
| | 0.25 |
| | 14,044 |
| | 32 |
| | 0.23 |
|
| Other | 23,905 |
| | 867 |
| | 3.63 |
| | 18,901 |
| | 865 |
| | 4.58 |
| | 20,933 |
| | 1,148 |
| | 5.48 |
|
| Total interest-earnings assets | 3,423,421 |
| | 135,121 |
| | 3.95 |
| | 2,843,902 |
| | 118,535 |
| | 4.17 |
| | 2,609,748 |
| | 116,621 |
| | 4.47 |
|
| Non-interest earning assets | 392,188 |
| | | | | | 351,397 |
| | | | | | 339,503 |
| | | | |
| Total assets | $ | 3,815,609 |
| | | | | | $ | 3,195,299 |
| | | | | | $ | 2,949,251 |
| | | | |
| Interest bearing liabilities: | | | | | | | | | | | | | | | | | |
| NOW deposits | $ | 466,110 |
| | $ | 391 |
| | 0.08 | % | | $ | 399,819 |
| | $ | 483 |
| | 0.12 | % | | $ | 315,623 |
| | $ | 595 |
| | 0.19 | % |
Savings deposits (2) | 572,246 |
| | 973 |
| | 0.17 |
| | 485,624 |
| | 393 |
| | 0.08 |
| | 432,227 |
| | 444 |
| | 0.10 |
|
| Money market deposits | 819,442 |
| | 2,436 |
| | 0.30 |
| | 671,325 |
| | 2,194 |
| | 0.33 |
| | 489,347 |
| | 1,595 |
| | 0.33 |
|
| Certificates of deposit | 352,469 |
| | 2,123 |
| | 0.60 |
| | 289,230 |
| | 2,511 |
| | 0.87 |
| | 373,142 |
| | 3,470 |
| | 0.93 |
|
| Senior notes | 24,478 |
| | 1,431 |
| | 5.85 |
| | 19,136 |
| | 753 |
| | 3.93 |
| | 51,498 |
| | 2,017 |
| | 3.92 |
|
| Borrowings | 422,438 |
| | 12,540 |
| | 2.97 |
| | 337,160 |
| | 12,239 |
| | 3.65 |
| | 371,318 |
| | 13,203 |
| | 3.56 |
|
| Total interest-bearing liabilities | 2,657,183 |
| | 19,894 |
| | 0.75 |
| | 2,202,294 |
| | 18,573 |
| | 0.84 |
| | 2,033,155 |
| | 21,324 |
| | 1.05 |
|
| Non-interest bearing deposits | 646,373 |
| | | | | | 520,265 |
| | | | | | 472,388 |
| | | | |
| Other non-interest bearing liabilities | 22,641 |
| | | | | | 25,675 |
| | | | | | 16,418 |
| | | | |
| Total liabilities | 3,326,197 |
| | | | | | 2,748,234 |
| | | | | | 2,521,961 |
| | | | |
| Stockholders’ equity | 489,412 |
| | | | | | 447,065 |
| | | | | | 427,290 |
| | | | |
| Total liabilities and Stockholders’ equity | $ | 3,815,609 |
| | | | | | $ | 3,195,299 |
| | | | | | $ | 2,949,251 |
| | | | |
Net interest rate spread (3) | | | | | 3.20 | % | | | | | | 3.33 | % | | | | | | 3.42 | % |
Net interest-earning assets (4) | $ | 766,238 |
| | | | | | $ | 641,608 |
| | | | | | $ | 576,593 |
| | | | |
Net interest margin (5) | | | 115,227 |
| | 3.37 | % | | | | 99,962 |
| | 3.51 | % | | | | 95,297 |
| | 3.65 | % |
| Less tax equivalent adjustment | | | (3,060 | ) | | | | | | (3,498 | ) | | | | | | (4,007 | ) | | |
| Net interest income | | | $ | 112,167 |
| | | | | | $ | 96,464 |
| | | | | | $ | 91,290 |
| | |
| Ratio of interest-earning assets to interest bearing liabilities | | | 128.8 | % | | | | | | 129.1 | % | |
| | | | 128.4 | % | | |
(1) | Balances include
|
| (1) | Includes the effect of net deferred loan origination fees and costs, the allowance for the loan losses, and non accrualnon-accrual loans. Includes prepayment fees and late charges. |
(2) | |
| (2) | Includes club accounts and interest-bearing mortgage escrow balances. |
(3) |
|
| (3) | Net interest rate spread represents the difference between the tax equivalent yield on average interest-earning assets and the cost of average interest-bearing liabilities. |
(4) |
|
| (4) | Net interest-earning assets represents total interest-earning assets less total interest-bearing liabilities. |
(5) |
|
| (5) | Net interest margin represents net interest income (tax equivalent) divided by average total interest-earning assets. |
Net interest income is the difference between interest income on interest-earning assets and interest expense on interest-bearing liabilities. Net interest income depends on the relative amounts of interest-earning assets and interest-bearing liabilities and the interest rates earned or paid on them, respectively.
The following table presents the dollar amount of changes in interest income (on a fully tax-equivalent basis) and interest expense for the major categories of our interest-earning assets and interest-bearing liabilities. Information is provided for each category of interest-earning assets and interest-bearing liabilities with respect to (i) changes attributable to changes in volume (i.e.(i.e., changes in average balances multiplied by the prior-period average rate) and (ii) changes attributable to rate (i.e., changes in average rate multiplied by prior-period average balances). For purposes of this table, changes attributable to both rate and volume, which cannot be segregated, have been allocated proportionately to the change due to volume and the change due to rate. | | | | | | | | | | | | | | | | | | | | | | | | |
| | | 2011 vs. 2010 | | | 2010 vs. 2009 | |
| | | Increase (Decrease)
Due to | | | Total
Increase | | | Increase (Decrease)
Due to | | | Total
Increase | |
| | | Volume | | | Rate | | | (Decrease) | | | Volume | | | Rate | | | (Decrease) | |
| | | (Dollars in thousands) | |
Interest-earning assets: | | | | | | | | | | | | | | | | | | | | | | | | |
Loans | | $ | 670 | | | $ | (3,712 | ) | | $ | (3,042 | ) | | $ | (2,546 | ) | | $ | (2,061 | ) | | $ | (4,607 | ) |
Securities taxable | | | 878 | | | | (4,593 | ) | | | (3,715 | ) | | | 2,786 | | | | (10,130 | ) | | | (7,344 | ) |
Securities tax exempt | | | (147 | ) | | | (364 | ) | | | (511 | ) | | | 1,260 | | | | (870 | ) | | | 390 | |
Federal Reserve Bank | | | (15 | ) | | | (5 | ) | | | (20 | ) | | | (98 | ) | | | 6 | | | | (92 | ) |
Other earning assets | | | (191 | ) | | | 141 | | | | (50 | ) | | | (127 | ) | | | 100 | | | | (27 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | |
Total interest-earning assets | | | 1,195 | | | | (8,533 | ) | | | (7,338 | ) | | | 1,275 | | | | (12,955 | ) | | | (11,680 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | |
Interest-bearing | | | | | | | | | | | | | | | | | | | | | | | | |
Liabilities: | | | | | | | | | | | | | | | | | | | | | | | | |
NOW deposits | | | 73 | | | | (57 | ) | | | 16 | | | | 121 | | | | (212 | ) | | | (91 | ) |
Savings deposits | | | 41 | | | | — | | | | 41 | | | | 63 | | | | (418 | ) | | | (355 | ) |
Money market deposits | | | 229 | | | | (90 | ) | | | 139 | | | | 286 | | | | (1,537 | ) | | | (1,251 | ) |
Certificates of deposit | | | (934 | ) | | | (1,675 | ) | | | (2,609 | ) | | | (2,662 | ) | | | (5,499 | ) | | | (8,161 | ) |
Senior Debt | | | — | | | | (12 | ) | | | (12 | ) | | | 740 | | | | 20 | | | | 760 | |
Borrowings | | | (2,347 | ) | | | (344 | ) | | | (2,691 | ) | | | (2,182 | ) | | | — | | | | (2,182 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | |
Total interest-bearing liabilities | | | (2,938 | ) | | | (2,178 | ) | | | (5,116 | ) | | | (3,634 | ) | | | (7,646 | ) | | | (11,280 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | |
Less tax equivalent adjustment | | | (51 | ) | | | (127 | ) | | | (178 | ) | | | 441 | | | | (305 | ) | | | 136 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Change in net interest income | | $ | 4,184 | | | $ | (6,228 | ) | | $ | (2,044 | ) | | $ | 4,468 | | | $ | (5,004 | ) | | $ | (536 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | |
|
| | | | | | | | | | | | | | | | | | | | | | | |
| | 2013 vs. 2012 | | 2012 vs. 2011 |
| | Increase (Decrease) due to | | Total increase | | Increase (Decrease)
due to | | Total increase |
| | Volume | | Rate | | (decrease) | | Volume | | Rate | | (decrease) |
| | (Dollars in thousands) |
| Interest-earning assets: | | | | | | | | | | | |
| Loans | $ | 20,489 |
| | $ | (3,689 | ) | | $ | 16,800 |
| | $ | 7,367 |
| | $ | (5,857 | ) | | $ | 1,510 |
|
| Securities taxable | 3,269 |
| | (2,297 | ) | | 972 |
| | 1,761 |
| | 283 |
| | 2,044 |
|
| Securities tax exempt | (725 | ) | | (529 | ) | | (1,254 | ) | | (1,325 | ) | | (127 | ) | | (1,452 | ) |
| Federal Reserve Bank | 22 |
| | 44 |
| | 66 |
| | 92 |
| | 3 |
| | 95 |
|
| Other earning assets | 180 |
| | (178 | ) | | 2 |
| | (90 | ) | | (193 | ) | | (283 | ) |
| Total interest-earning assets | 23,235 |
| | (6,649 | ) | | 16,586 |
| | 7,805 |
| | (5,891 | ) | | 1,914 |
|
| Interest-bearing liabilities: | | | | | | | | | | | |
| NOW deposits | 76 |
| | (168 | ) | | (92 | ) | | 139 |
| | (251 | ) | | (112 | ) |
| Savings deposits | 79 |
| | 501 |
| | 580 |
| | 46 |
| | (97 | ) | | (51 | ) |
| Money market deposits | 456 |
| | (214 | ) | | 242 |
| | 599 |
| | — |
| | 599 |
|
| Certificates of deposit | 485 |
| | (873 | ) | | (388 | ) | | (745 | ) | | (214 | ) | | (959 | ) |
| Senior notes | 247 |
| | 431 |
| | 678 |
| | (1,269 | ) | | 5 |
| | (1,264 | ) |
| Borrowings | 2,764 |
| | (2,463 | ) | | 301 |
| | (1,223 | ) | | 259 |
| | (964 | ) |
| Total interest-bearing liabilities | 4,107 |
| | (2,786 | ) | | 1,321 |
| | (2,453 | ) | | (298 | ) | | (2,751 | ) |
| Less tax equivalent adjustment | (245 | ) | | (193 | ) | | (438 | ) | | (466 | ) | | (43 | ) | | (509 | ) |
| Change in net interest income | $ | 19,373 |
| | $ | (3,670 | ) | | $ | 15,703 |
| | $ | 10,724 |
| | $ | (5,550 | ) | | $ | 5,174 |
|
AnalysisComparison of Operating Results for the Years Ended September 30, 2013 and September 30, 2012
Net income for the year ended September 30, 2013 was $25.3 million or $0.58 per diluted share. This compares to net income of $19.9 million, or $0.52 per diluted share for the year ended September 30, 2012.
Interest Income. Tax equivalent interest income for the year ended September 30, 2013 increased to $135.1 million, an increase of $16.6 million, or 14.0%, compared to the prior year. Average interest-earning assets for the year ended September 30, 2013 were $3.4 billion, an increase of $579.5 million, or 20.4%, over average interest-earning assets for the year ended September 30, 2012.
Interest income on loans increased $16.8 million in fiscal 2013 compared to the prior year. The increase was due to an increase in average loan balances of $410.7 million to $2.2 billion, which increased interest income by $20.5 million. This was partially offset by an 18 basis points decline in the yield on loans to 4.86% in fiscal 2013 as compared to 5.04% in fiscal 2012 which reduced interest income on loans by $3.7 million. The increase in loan volume was due to the success of our commercial banking teams and our successful retention of Gotham Bank interest-earning assets; the decline in loan yields reflects mainly the repayment of loans booked in prior periods that were replaced with loans at current market rates of interest.
Tax equivalent interest income on securities increased $971 thousand. A $155.6 million increase in the average balance of securities contributed $3.3 million of additional interest income. A decline in the yield on securities of 40 basis points to 2.34% reduced interest income from securities by $2.3 million.
Average other earning assets and balances at the Federal Reserve Bank increased $13.0 million, which contributed $202 thousand to interest income. This was substantially offset by lower rates earned on these average balances, which declined to 1.27% in fiscal 2013 from 1.41% in fiscal 2012.
Interest Expense for the year ended September 30, 2013 increased by $1.3 million to $19.9 million, an increase of 7.1% compared to interest expense of $18.6 million for the prior fiscal year. The increase in interest expense was due to the increase in the average balance of interest-bearing liabilities of $454.9 million, which was partially offset by a nine basis point reduction in the total cost of interest-bearing liabilities to 0.75% in fiscal 2013 from 0.84% in fiscal 2012. Interest expense on interest-bearing deposits increased $342 thousand. Average total interest-bearing deposits increased $364.3 million in fiscal 2013, which added $1.1 million to interest expense for the fiscal year. However, the rate incurred on interest-bearing deposits declined to 27 basis points from 30 basis points, which reduced interest expense by $754 thousand. Interest expense incurred on the Senior Notes in fiscal 2013 was $1.4 million. Interest expense on other borrowings increased $301 thousand in fiscal 2013 mainly due to an increase of $85.3 million in the average daily balance of other borrowings which increased interest expense by $2.8 million. As a greater portion of the borrowings were short-term, including overnight borrowings, the rate on other borrowings declined to 2.97% in fiscal 2013 from 3.63% in fiscal 2012.
Net Interest IncomeNet for the fiscal year ended September 30, 2013 was $112.2 million, compared to $96.5 million for the year ended September 30, 2012. The tax equivalent net interest income ismargin was 3.37%, which declined 14 basis points relative to fiscal 2012. The main components of this decrease were the difference between interest income on interest-earning assets and interest expense on interest-bearing liabilities. Net interest income depends on the relative amountsrepayment of interest-earning assets and interest-bearing liabilitiesoriginated in prior periods that were replaced with assets at current market rates of interest.
Provision for Loan Losses. The provision for loan losses is determined by the Company as the amount to be added to the allowance for loan losses after net charge-offs have been deducted to bring the allowance to a level that is the Company’s best estimate of probable incurred credit losses inherent in the loan portfolio. We recorded $12.2 million in loan loss provisions in fiscal 2013 compared to $10.6 million in fiscal 2012, an increase of $1.5 million. Net charge-offs in the loan portfolio were $11.6 million in fiscal 2013, compared to $10.2 million in the previous year. The amount of provision for loan losses considered the improvement in the credit quality of our loan portfolio, net charge-offs and the growth in the loan portfolio.
Non-interest income was $27.7 million for fiscal 2013, compared to $32.2 million for fiscal 2012. Non-interest income is principally comprised of deposit fees and service charges, net gain on sale of securities, bank-owned life insurance (“BOLI”) contracts, net gains on the sale of loans and title insurance and investment management fees. During fiscal 2013, non-interest income declined $4.5 million, or 13.9%, due to a $3.1 million decline in net gain on sale of securities, and a $1.4 million decline in title insurance and investment management fees. In fiscal 2012, we sold the assets of our former subsidiaries that were active in the title insurance and investment management businesses. We commenced new initiatives for title insurance and wealth management during fiscal 2013. In fiscal 2013, fees from these new initiatives were $2.8 million as compared to $4.3 million fiscal 2012.
Deposit fees and service charges decreased by $413 thousand, or 3.6%, to $11.0 million as compared to $11.4 million in fiscal 2012. This decline was caused by a change in the composition of our deposits, as deposits gathered by our relationship teams are generally higher balance deposits but typically generate lower levels of fees and service charges than retail deposits. BOLI income and net gain on sale of loans were both relatively unchanged in fiscal 2013 compared to fiscal 2012. During fiscal 2013 the Company sold $94.1million in residential mortgage loans and recorded $2.0 million in gains compared to $79.1 million in loans sold with $1.9 million in gains at fiscal 2012. The majority of net gain on sale of loans was generated in the first half of fiscal 2013 before interest rates began to increase. Other non-interest income for fiscal 2013 was $2.6 million, a $410 thousand increase compared to fiscal 2012. Other non-interest income principally includes loan servicing revenues, miscellaneous loan fees earned, letter of credit fees, and safe deposit box rentals.
Non-interest expense for fiscal 2013 decreased by $916 thousand, or paid1.0% to $91.0 million, compared to $92.0 million for the same period in 2012. Non-interest expense is principally comprised of compensation and employee benefits, occupancy and office operations, merger-related expense, FDIC insurance and regulatory assessments, professional fees and other real estate owned expenses. The decline in non-interest expense between fiscal 2013 and fiscal 2012 is mainly due to lower merger-related expenses. Merger-related expenses in fiscal 2013 of $2.8 million included due diligence costs for the Merger, which closed October 31, 2013, but did not include restructuring costs or other charges. Merger-related expenses in fiscal 2012 of $5.9 million included both due diligence, restructuring costs and other charges in connection with the acquisition of Gotham Bank. The majority of the expense for the Merger with Legacy Sterling will be recognized subsequent to September 30, 2013.
In fiscal 2013 compensation and employee benefits increased $1.8 million, or 3.9%, to $47.8 million compared to $46.0 million in the prior year. At September 30, 2013 and 2012 we had 16 relationship teams; however, several of the teams were recruited over the course of 2012. Our full-time equivalent employees were 477 at September 30, 2013 compared to 493 at September 30, 2012. The decline in personnel, was the result of efficiencies generated by the acquisition of Gotham Bank and four branch consolidations in fiscal 2013.
Professional fees declined $854 thousand to $3.4 million compared to $4.2 million in fiscal 2012 due mainly to lower costs incurred in connection with loan workouts and collections given the improvement in our asset quality.
Income Tax expense was $11.4 million for fiscal 2013, compared to $6.2 million for fiscal 2012, representing an effective tax rate of 31.1% and 23.6%, respectively. The higher effective tax rate recognized in fiscal 2013 was mainly the result of merger-related expenses incurred during the year that were fully non-tax deductible. In addition, the tax rate in fiscal 2013 relative to fiscal 2012 was impacted by a change in the proportion of municipal securities tax-exempt income and BOLI income relative to total pre-tax income.
Comparison of Financial Condition at September 30, 2012 and September 30, 2011
Total assets as of September 30, 2012 were $4.0 billion, an increase of $885.6 million compared to September 30, 2011. Significant contributors to the increase were the acquisition of Gotham Bank, whose assets totaled $431.4 million on them, respectively.the acquisition date, and seasonal funds received from municipal tax collection activity.
Net loans as of September 30, 2012 were $2.1 billion, an increase of $415.3 million, or 24.8%, over net loan balances of $1.7 billion at September 30, 2011. Approximately half of this increase was due to the loans acquired from Gotham Bank. Commercial real estate loans increased $369.1 million, or 52.5%, commercial & industrial loans increased $133.4 million, or 63.5%, and ADC loans decreased $31.9 million or 18.1% to $144.1 million compared to $175.9 million as of September 30, 2011, reflecting our decision to decrease ADC lending. Total loan originations, excluding loans originated for sale, were $735.7 million for fiscal 2012, while repayments were $509.1 million. The allowance for loan losses increased from $27.9 million to $28.3 million as a result of provisions for loan losses of $10.6 million and net charge-offs of $10.2 million.
Total securities increased by $303.4 million, to $1.2 billion at September 30, 2012 from $849.9 million at September 30, 2011. Securities purchases were $774.7 million, sales of securities were $344.4 million, and maturities, calls, and repayments were $237.5 million.
Goodwill and other intangibles totaled $170.4 million at September 30, 2012 an increase of $4.9 million. The increase is mainly related to the August 2012 acquisition of Gotham Bank offset by decreases relating to the sale of assets of Hudson Valley Investment Advisors.
Depositsas of September 30, 2012 were $3.1 billion, an increase of $814.5 million, or 35.5%, from September 30, 2011. Included in deposits for September 30, 2012 were approximately $425.0 million in short-term seasonal municipal deposits compared to $284.0 million at September 30, 2011. As of September 30, 2012, transaction accounts were 44.9% of deposits, or $1.4 billion compared to $1.1 billion or 45.9% at September 30, 2011. As of September 30, 2012, savings deposits were $506.5 million, an increase of $76.7 million or 17.8%. Money market accounts increased $312.2 million or 61.3% to $821.7 million at September 30, 2012 and certificates of deposit increased $83.8 million or 27.6% to $387.5 million.
Borrowings decreased by $29.8 million, or 8.0%, from September 30, 2011, to $345.2 million primarily due to the maturity of the Company’s FDIC guaranteed borrowing. The Company restructured $5.0 million of FHLB advances during the first quarter of fiscal 2012 which had a weighted average rate of 4.04% and duration of 1.5 years, into new borrowings with a weighted average rate of 2.37%, and duration of 1.6 years. Prepayment penalties of $278 thousand associated with the modifications are being amortized into interest expense over the modification period on a level yield basis.
Stockholders’ equity increased $60.0 million from September 30, 2011 to $491.1 million at September 30, 2012. The increase was primarily due to an increase of $46.5 million in additional paid-in capital from the issuance of 6,258,504 shares of common stock at a price of $7.35 per share in connection with the acquisition of Gotham Bank. The Company received net proceeds of approximately $46.0 million. The Company’s retained earnings increased $10.8 million and accumulated other comprehensive income increased by $1.8 million. During fiscal 2012, the Company did not repurchase shares of common stock under the treasury repurchase program.
As of September 30, 2012, the Bank’s Tier 1 leverage ratio was 7.49% and consolidated tangible equity as a percentage of tangible assets was 8.30%.
Credit Quality
NPLs decreased to $39.8 million at September 30, 2012 compared to $40.6 million at September 30, 2011. However, non-performing loans peaked at $52.0 million at March 31, 2012. The increase during the first half of the year primarily resulted from deterioration in our ADC portfolio combined with an increase in non-performing commercial real estate loans. Through a combination of loan restructurings, sales and partial charge-offs, we reduced the NPLs during the second half of fiscal 2012.
The allowance for loan losses increased from $27.9 million to $28.3 million as the provisions exceeded net charge-offs by $365,000. The allowance for loan losses at September 30, 2012 was $28.3 million, which represented 71.0% of non-performing loans and 1.48% of our loan portfolio. Net charge-offs for the year ended September 30, 2012 were $10.2 million, or 0.56% of average loans, compared to net charge-offs of $19.5 million, or 1.17% of average loans for the prior year. The decrease in net charge-offs is mostly due to decreases in net charge-offs in commercial & industrial and ADC loans. Fiscal 2011included $8.9 million in net charge-offs in the ADC portfolio of which $7.5 million related to one borrower.
Our classified loans, those rated substandard or worse, declined from $94.0 million at September 30, 2011 to $88.7 million at September 30, 2012 primarily driven by a reduction in our ADC loans commensurate with the reduction in the non-performing loans from this segment. Special mention loans, however, increased from $23.0 million at September 30, 2011 to $42.4 million at September 30 2012, driven by increases in our commercial portfolios. Increases in commercial & industrial special mention loans were primarily caused by a downgrade of a loan to a substantial borrower that was used to partially finance a residential housing development that has been paying according to terms. The increase in commercial real estate portfolio special mention loans primarily resulted from upgrades from the substandard category.
Comparison of Operating Results for the Years Ended September 30,
20112012 and September 30,
20102011
Net income for the
fiscal year ended September 30,
20112012 was
$11.7$19.9 million or
$0.31$0.52 per diluted share. This compares to net income of
$20.5$11.7 million, or
$0.54$0.31 per diluted share for the
year ended September 30, 2010. Excluding net securities gains, the fair value adjustment of interest caps, CEO transition expenses and restructuring charges adjusted net income was $9.4 million or $0.25 per diluted share for thefiscal year ended September 30, 2011.
Excluding net securities gains and the fair value adjustment of interest caps adjusted net income was $16.3 million or $0.43 per diluted share for the year ended September 30, 2010.Earnings excluding securities gains, defined benefit settlement charge / CEO transition, restructuring charges and the fair value adjustment of interest rate caps are presented below. The Company presents earnings excluding these factors so that investors can better understand the results of the Company’s core banking operations and to better align with the views of the investment community.
| | | | | | | | |
| (In thousands, except share data) | | | | | | |
| | | Twelve months ended
September 30, | |
| | | 2011 | | | 2010 | |
Net Income | | | | | | | | |
Net Income | | $ | 11,739 | | | $ | 20,492 | |
Securities gains, net of OTTI 1 | | | (5,780 | ) | | | (4,844 | ) |
Defined benefit settlement charge/CEO transition 1 | | | 1,052 | | | | — | |
Restructuring charges 1 | | | 2,243 | | | | — | |
Fair value loss on interest rate caps 1 | | | 117 | | | | 657 | |
| | | | | | | | |
Net adjusted income | | $ | 9,371 | | | $ | 16,305 | |
| | | | | | | | |
Earnings per common share | | | | | | | | |
Diluted earnings per common share | | $ | 0.31 | | | $ | 0.54 | |
Securities gains, net of OTTI 1 | | | (0.15 | ) | | | (0.13 | ) |
Defined benefit settlement charge/CEO transition 1 | | | 0.03 | | | | — | |
Restructuring charges 1 | | | 0.06 | | | | — | |
Fair value loss on interest rate caps 1 | | | — | | | | 0.02 | |
| | | | | | | | |
Diluted adjusted earnings per common share | | $ | 0.25 | | | $ | 0.43 | |
| | | | | | | | |
Non-interest income | | | | | | | | |
Total non-interest income | | $ | 29,951 | | | $ | 27,201 | |
Securities gains, net of OTTI | | | (9,733 | ) | | | (8,157 | ) |
Fair value loss, net of OTTI on interest rate caps | | | 197 | | | | 1,106 | |
| | | | | | | | |
Adjusted non interest-income | | $ | 20,415 | | | $ | 20,150 | |
| | | | | | | | |
Non-interest expense | | | | | | | | |
Total non-interest expense | | $ | 90,111 | | | $ | 83,170 | |
Restructuring charges 1 | | | (3,201 | ) | | | — | |
Defined benefit settlement charge/CEO transition 1 | | | (1,772 | ) | | | — | |
| | | | | | | | |
Adjusted non interest-expense | | $ | 85,138 | | | $ | 83,170 | |
| | | | | | | | |
1
| After marginal tax effect 40.61%
|
Interest Income. Interest income Income on a tax equivalent basis for the fiscal year ended September 30, 2011 decreased2012 increased to $116.6$100.0 million, a decreasean increase of $7.3$4.7 million, or 5.9%,4.9 %, compared to the prior year. The decrease was primarily due to declines in general market interest rates on new lending activity, impact of loans being classified as non accrual, sales of taxable securities in which gains of $9.7 million were realized and the proceeds reinvested at lower rates. Average interest-earning assets for the year ended September 30, 2011 were $2.6$2.8 billion, an increase of $29.7$234.2 million, or 1.2%9.0%, over average interest-earning assets for the year ended September 30, 2010.prior year. Average loan balances increased by $9.3$140.8 million, average balances at the Federal Reserve Bank decreased $6.0increased $37.3 million and average balances of other earning assets decreased by $4.1$2.0 million, primarily FHLB stock. On a tax-equivalent basis, average yields on interest earninginterest-earning assets decreased by 3330 basis points to 4.17%, from 4.47% for the year ended September 30, 2011, from 4.80%prior year. The primary reasons for the year ended September 30, 2010. Loandecrease in asset yields are declines in general market interest rates on new lending activity, and the sale of securities with subsequent reinvestment andat lower loan balances were the primary reasons for the decrease in asset yields.
Interest income on loans for the year ended September 30,
2011 decreased $3.02012 increased $1.5 million to
$89.5$91.0 million from
$92.5$89.5 million for the prior fiscal year. Interest income on commercial loans
for the year ended September 30, 2011 increased to
$57.4$61.2 million, as compared to commercial loan interest income of
$56.5$57.4 million for the prior fiscal year. Average balances of commercial loans grew
$63.1$173.4 million to
$1.0$1.2 billion, with a
2647 basis
pointpoints decrease in the average yield.
There was no change in the prime rate during fiscal year 2011. Commercial loans adjustable with the prime rate totaled $290.0 million at September 30, 2011. Interest income on consumer loans decreased to
$10.5$10.1 million, as compared to consumer loan interest income of
$11.1$10.5 million for the prior fiscal year. Average balances of consumer loans decreased
$13.3$11.9 million to
$233.2$221.4 million, with
no change inan increase of 5 basis
pointpoints in the average yield. Consumer loans adjustable with the prime rate totaled
$169.6$162.2 million at September 30,
2011.2012. Income earned on residential mortgage loans was
$21.6$19.7 million for the year ended September 30,
2011,2012, down
$3.3$1.9 million from the prior year as a result of refinancing activity
at lower rates and lower outstanding average balances.
Tax-equivalent interest income on securities, balances at
the Federal Reserve Bank and other earning assets
decreasedincreased to
$27.1$27.5 million for the year ended September 30,
2011,2012, compared to
$31.4$27.1 million for the prior year. This was due to
higher balances of securities offset by a tax-equivalent decrease of
5322 basis points in yields. The Company sold
$540.5$344.4 million in securities and recorded
$10.0$10.5 million in
net gains on
the sales.sale. Further during fiscal
2011,2012, proceeds totaling
$269.0$237.5 million in
securitysecurities maturities and repayments were reinvested at current market
rates with a minor increase in duration.rates.
Interest Expense. Interest expense Expense for the year ended September 30, 2011fiscal 2012 decreased by $5.1$2.8 million to $21.3$18.6 million, a decrease of 19.3%12.9% compared to interest expense of $26.4$21.3 million for the prior fiscal year. The decrease in interest expense was primarily due to the significanta decrease in thebalances on average borrowings and lower rates paid on interest-bearing deposits for the year ended September 30, 2011.interest bearing deposits. Rates paid on interest bearing liabilities decreased to 1.05%0.84% from 1.30%1.05% in fiscal 2010.2011. The average interest rate paid on certificates of deposit decreased by 42six basis points to .93%0.87% for the year ended September 30, 2011,2012, from 1.35%0.93% for the prior year. The rates paid on NOW accounts and money market accounts each decreased 2seven basis points for fiscal 20112012 as compared to fiscal 2010.2011. The average cost of borrowings decreasedincreased to 3.56%3.63% at September 30, 20112012 from 3.64%3.56% in 2010, with2011; however, average balances alsoborrowings balance decreased by $65.5$34.2 million. Further, during the year, the bankBank restructured $89.0$5.0 million in FHLB advances and paid $5.2 million$278 thousand in prepayment fees as part of the modification. This modification resulted in a decrease
Net Interest Income for the fiscal year ended September 30, 20112012 was $91.3$96.5 million, compared to $93.3$91.3 million for the year ended September 30, 2010.2011. The tax equivalent net interest margin decreased by 1314 basis points to 3.65%, while the net interest spread decreased by 9 basis points to 3.42%3.51%. The main component of this decrease relates to the fact that the Bank’s cash position throughout the year was higher than normal, and that cash was placed in lower yielding investments. Additionally, loans originated during the year were at lower yields than the historical weighted average cost of interest-bearing liabilities has decreased, although the average asset yields decreased faster due to lending activity, impact of non accrual loan increases and sales of securities during 2011. Further, the greater increase of interest earning assets compared to interest bearing liabilities partially offset the decline in net interest income.book yield.
Provision for Loan Losses.We recorded $16.6$10.6 million in loan loss provisions for the year ended September 30, 20112012 compared to $10.0$16.6 million in the prior year, an increasea decrease of $6.6$6.0 million. We increaseddecreased the provision due to increaseddecreased net charge-offs, which were $19.5$10.2 million at September 30, 2011in fiscal 2012, compared to $9.2$19.5 million in the previous year. OurThe ADC loan segment continued to experience higher levels of charge-offs in comparison to the other segments as a result of real estate market conditions. The remaining charge-offs were centeredconcentrated in ourwrite-downs of mortgage secured non-performing loans based on declining collateral values. Prior year net charge-offs were at an all-time high due to recording $8.9 million of charge-offs in the ADC portfolio, which incurred $8.9 million on average outstandings of $224.1 million Of the $8.9including $7.5 million in ADC charge-offs one relationship, accounted for $7.5 million due to a dramatic reductionas sale activity in sales activityresidential housing subdivisions dropped sharply in the second half of our fiscal year on a particular property which resulted in a reduction in collateral value. We incurred $5.6 million in net charge-offs in our CBL C&I portfolio on average outstanding of $84.3 million. The other significant component of net charge-offs was our residential mortgage portfolio, in which we recorded $2.1 million in net charge-offs as the foreclosure process has extended on average to three or more years, home prices have continued to be weak, and taxes continue to accrue. We sold a portion of these loans in foreclosure to reduce a portion of this exposure. We recorded a loss of $1.1 million included above, on the sale of $1.3 million in the book value of loans.2011.Net charge-offs exceeded our provision by $2.9 million for the year ended September 30, 2011.
During the year, our special mention loans
decreasedincreased from
$37.9 million at September 30, 2010 to $23.0 million at September 30, 2011
to $42.4 million at September 30, 2012, while our substandard and doubtful loans decreased from
$132.1$94.0 million to
$94.0 million respectively.$88.7 million. All significant loans classified substandard or special mention are reviewed for impairment. As a result of our review we
may establishestablished a specific reserve, which totaled
$3.8$3.2 million at September 30,
2011. A specific reserve is established when current information indicates that the carrying value of a loan is probably not recoverable, but there is sufficient uncertainty about the actual occurrence of a loss, or the amount thereof.2012.
Non-interest income consists primarily of income was $32.2 million for the fiscal year ended September 30, 2012 compared to $29.9 million for the fiscal year ended September 30, 2011. Income on securities sales, bankingdeposit fees and service charges, investment management fees, net increases in the cash surrender value of bank-owned life insurance (“BOLI”)BOLI contracts, title insurance fees and investment management fees. Non-interest income was $30.0 million fornet gains on the sale of loans made up the majority of non-interest income. During fiscal year ended September 30, 2011 compared to $27.2 million at September 30, 2010. During the year ended September 30, 2011,2012, the Company recorded gains on sales of investment securities totaling $10.0$10.5 million compared to $8.2$10.0 million for the prior year. Deposit fees and service charges decreasedincreased by $417,000,$566,000, or 3.71%5.24%. Title insurance fee income derived from the Hardenburgh Abstract Company, Inc. increased $67,000 due to an increase in residential mortgage originations. Investment management fees increased $10,000 which is related to increased market values on assets under management. During fiscal 20112012 the Company originated and sold $49.8$80.6 million in residential mortgage loans and recorded $1.0$1.9 million in gains compared to $52.8$49.8 million in loans sold with $867,000$1.0 million in gains at September 30, 2010.the prior year.
Non-interest expense consists primarily of salaries and employee benefits, stock-based compensation, occupancy and office expenses, advertising and promotion expense, professional fees, intangible assets amortization, data processing expenses and FDIC/other regulatory assessments. Non-interest expense for the fiscal year ended September 30, 20112012 increased by $6.9$1.8 million, or 8.3%2.0% to $90.1$92.0 million, compared to $83.2$90.1 million for the same period in 2010.2011. The largest components of non-interest expense consist of salaries and employee benefits, occupancy and office expenses, merger-related expense and professional fees. The increase was primarily attributable to $3.2 million in restructuring charge and $1.8 million from charges relating to the CEO transition, including defined benefit settlements. The $3.2 million in restructuring charge consistedmerger expense of $1.1 million in severances which are expected to result in a pretax savings in salaries and benefits of $4.2 million, and $2.1$5.9 million related to the consolidationacquisition of two branches, which will result in an annual pre-tax savingsGotham Bank and increased compensation and employee benefits of $900,000. Occupancy and office operations increased $1.1$2.4 million or 8.0%, a full year of operationsto $46.0 million compared to $43.7 million in the Yonkersprior year. These increases were off set by decreases of $1.5 million to advertising and Nyack offices during the fiscalpromotion and prior year 2011. Professional fees increased $370,000 due to increased consulting fees as well as elevated external costsrestructuring charges of collection for problem loans. Stock-based compensation decreased by $381,000 mainly due to the vesting$3.2 million and deferred benefit settlement / CEO transition charges of stock based compensation awards in addition to lower ESOP expense. FDIC insurance decreased by $765,000 or 20.8% due to declines in FDIC assessments.$1.8 million.
Income Taxes. Income taxTax expense was $2.8$6.2 million for the fiscal year ended September 30, 20112012 compared to $6.9$2.8 million for fiscal 2010,2011, representing effective tax rates of 19.3%23.7% and 25.1%19.3%, respectively. The lower tax rate in 2011 was primarily due to the highhigher proportion of tax-free income BOLI and insuranceBOLI relative to the total levels of pre-tax income and the full year of the captive insurance company.Comparison of Operating Results for the Years Ended September 30, 2010 and September 30, 2009
Net income for the year ended September 30, 2010 was $20.5 million or $0.54 per diluted share. Excluding net securities gains and the fair value adjustment of interest caps adjusted net income was $16.3 million or $0.43 per diluted share for the year ended September 30, 2010. This compares to net income of $25.9 million, or $0.67 per diluted share for the year ended September 30, 2009. Excluding net securities gains adjusted net income was $15.1 million or $0.39 earnings per diluted share for the year ended September 30, 2009.
Earnings excluding securities gains and the fair value adjustment of interest rate caps are presented below. The Company presents earnings excluding these factors so that investors can better understand the results of the Company’s core banking operations and to better align with the views of the investment community.
| | | | | | | | |
| (In thousands, except share data) | | | | | | |
| | | Twelve months ended
September 30, | |
| | | 2010 | | | 2009 | |
Net Income | | | | | | | | |
Net Income | | $ | 20,492 | | | $ | 25,861 | |
Securities gains 1 | | | (4,844 | ) | | | (10,735 | ) |
Fair value loss on interest rate caps 1 | | | 657 | | | | — | |
| | | | | | | | |
Net adjusted income | | $ | 16,305 | | | $ | 15,126 | |
| | | | | | | | |
Earnings per common share | | | | | | | | |
Diluted Earnings per common share | | $ | 0.54 | | | $ | 0.67 | |
Securities gains 1 | | | (0.13 | ) | | | (0.28 | ) |
Fair value loss on interest rate caps 1 | | | 0.02 | | | | — | |
| | | | | | | | |
Diluted adjusted earnings per common share | | $ | 0.43 | | | $ | 0.39 | |
| | | | | | | | |
Non-interest income | | | | | | | | |
Total non-interest income | | $ | 27,201 | | | $ | 39,953 | |
Securities gains | | | (8,157 | ) | | | (18,076 | ) |
Fair value loss on interest rate caps | | | 1,106 | | | | — | |
| | | | | | | | |
Adjusted non interest-income | | $ | 20,150 | | | $ | 21,877 | |
| | | | | | | | |
1 | After marginal tax effect 40.61%
|
Interest Income. Interest income on a tax equivalent basis for the year ended September 30, 2010 decreased to $124.0 million, a decrease of $11.7 million, or 8.6%, compared to the prior year. The decrease was primarily due to declines in general market interest rates on variable rate loans, lower loan balances, sales of taxable securities in which gains of $8.2 million were realized and the proceeds reinvested at lower rates. Average interest-earning assets for the year ended September 30, 2010 were $2.6 billion, an increase of $9.9 million, or 0.4%, over average interest-earning assets for the year ended September 30, 2009. Average loan balances decreased by $44.4 million, balances at the Federal Reserve Bank decreased $36.6 million and average balances of other earning assets decreased by $2.1 million, primarily FHLB stock. On a tax-equivalent basis, average yields on interest earning assets decreased by 48 basis points to 4.80% for the year ended September 30, 2010, from 5.28% for the year ended September 30, 2009. The re-pricing of floating rate assets, the sale of securities with subsequent reinvestment and lower loan balances were the primary reasons for the decrease in asset yields.
Interest income on loans for the year ended September 30, 2010 decreased $4.6 million to $92.5 million from $97.1 million for the prior fiscal year. Interest income on commercial loans for the year ended September 30, 2010 decreased to $56.5 million, as compared to commercial loan interest income of $56.6 million for the prior fiscal year. Average balances of commercial loans grew $15.7 million to $976.9 million, with a 10 basis point decrease in the average yield. There was no change in the prime rate during fiscal year 2010. Commercial loans adjustable with the prime rate totaled $363.9 million at September 30, 2010. Interest income on consumer loans decreased to $11.1 million, as compared to consumer loan interest income of $11.9 million for the prior fiscal year. Average balances of consumer loans decreased $5.8 million to $246.6 million, with a 20 basis point decrease in the average yield. Consumer loans adjustable with the prime rate totaled $171.1 million at September 30, 2010. Income earned on residential mortgage loans was $24.9 million for the year ended September 30, 2010, down $3.8 million, from the prior year as a result of refinancing activity and lower outstanding average balances.
Tax-equivalent interest income on securities, balances at Federal Reserve Bank and other earning assets decreased to $31.4 million for the year ended September 30, 2010, compared to $38.5 million for the prior year. This was due to a tax-equivalent decrease of 103 basis points in yields. The Company sold $443.4 million in securities and recorded $8.2 million in gains on the sales. Further during fiscal 2010, $362.8 million in securities matured and the proceeds were reinvested at current market rates with a shorter duration.
Interest Expense. Interest expense for the year ended September 30, 2010 decreased by $11.3 million to $26.4 million, a decrease of 29.9% compared to interest expense of $37.7 million for the prior fiscal year. The decrease in interest expense was primarily due to the significant decrease in the average rates paid on interest-bearing deposits for the year ended September 30, 2010. Rates paid on interest bearing liabilities decreased to 1.30% from 1.81% in fiscal 2009. The average interest rate paid on certificates of deposit decreased by 111 basis points to 1.35% for the year ended September 30, 2010, from 2.46% for the prior year. The average interest rate paid on savings decreased to 0.1% or 11 basis points for the year ended September 30, 2010 from 0.21% paid during fiscal 2009. The average rate paid on money market rates also declined 37 basis points to 0.35% for the year ended September 30, 2010. The rates paid on NOW accounts decreased 8 basis points for fiscal 2010 as compared to fiscal 2009. The average cost of borrowings remained flat at 3.64% at September 30, 2010 and 2009, although average balances decreased $60.1 million.
Net Interest Income for the fiscal year ended September 30, 2010 was $93.3 million, compared to $93.9 million for the year ended September 30, 2009. The tax equivalent net interest margin decreased by 3 basis points to 3.78%, while the net interest spread increased by 5 basis points to 3.51%. The Bank’s average cost of interest-bearing liabilities has decreased, although the average asset yields decreased faster due to lower volume of loans and the lower rates earned on variable rate loans and sales of securities during 2010. Further, the greater increase of interest earning assets compared to interest bearing liabilities partially offset the decline in net interest income.
Provision for Loan Losses.We recorded $10.0 million and $17.6 million in loan loss provisions for the years ended September 30, 2010 and September 30, 2009, respectively. Provision for loan losses decreased $7.6 million to $10.0 million as the allowance is now at target levels. At September 30, 2010, the allowance for loan losses totaled $30.8 million, or 1.81% of the loan portfolio, compared to $30.1 million, or 1.76% of the loan portfolio at September 30, 2009. Net charge-offs for the years ended September 30, 2010 and 2009 were $9.2 million and $10.7 million, respectively (an annual rate of 0.56% and 0.62%, respectively, of the average loan portfolio). Our credit-scored small business loan portfolio continued to account for the single largest share of our net charge-offs. During the year we recorded net charge-offs of $4.5 million in this portfolio, on average outstanding balances of $97.1 million.
At September 30, 2010, substandard loans totaled $131.8 million, up from $89.4 million at September 30, 2009. Doubtful loans increased from $0 to $300,000 at September 30, 2010 compared to September 30, 2009. The bulk of the increase came from downgrades in the ADC portfolio, as home sales remain depressed and more borrowers are feeling stress in liquidity resources. The substandard classification for many of these loans is due to delayed progress in the projects and stress on liquidity reserves or expected outside (non-project related) cash flows. These loans, however, continue to pay interest on a current basis and do not otherwise warrant a non-accrual classification. All significant loans classified substandard or special mention are reviewed for impairment, under applicable accounting and regulatory standards. Specific reserves for impairment were $2.3 million at September 30, 2009 and $2.4 million September 30, 2010. Specific reserves are established when current information indicates that the carrying value of a loan is probably not recoverable, but there is sufficient uncertainty about the actual occurrence of a loss or the amount of any loss to be incurred. Our non-performing loans increased to $26.8 million at September 30, 2010 from $26.5 million at September 30, 2009, an increase of $300,000. Loans transferred from the non-performing category into other real estate owned during fiscal 2010 totaled $3.6 million.
Non-interest income consists primarily of income on securities sales, banking fees and service charges, net increases in the cash surrender value of bank-owned life insurance (“BOLI”) contracts, title insurance fees and
investment management fees. Non-interest income was $27.2 million for the fiscal year ended September 30, 2010 compared to $40.0 million at September 30, 2009. During the year ended September 30, 2010, the Company recorded gains on sales of investment securities totaling $8.2 million compared to $18.1 million for the prior year. Periodic reviews of current prepayment speeds are performed in order to ascertain whether prepayment estimates require modification that would cause amortization or accretion adjustments. As a result of our reviews, we anticipated an acceleration of prepayments, management sold $279.4 million in mortgage backed securities and realized $6.4 million in gains on the sales. The proceeds were reinvested in securities with yields lower than the recorded yields of the securities sold. This activity also provided greater diversification in the portfolio. Deposit fees and service charges decreased by $1.2 million, or 9.4%. Income derived from the Company’s BOLI investments decreased by $711,000, or 25.8%, due to $723 thousand in death benefit proceeds received in 2009. Title insurance fee income derived from the Hardenburgh Abstract Company, Inc. increased $152,000 due to an increase in residential mortgage originations. Investment management fees increased $494,000 which is related to increased market values on assets under management. During fiscal 2010 the Company originated and sold $52.8 million in residential mortgage loans and recorded $867,000 in gains compared to $50.7 million in loans sold with $961,000 in gains at September 30, 2009.
Non-interest expense consists primarily of salaries and employee benefits, stock-based compensation, occupancy and office expenses, advertising and promotion expense, professional fees, intangible assets amortization, data processing expenses and FDIC/other regulatory assessments. Non-interest expense for the fiscal year ended September 30, 2010 increased by $3.0 million, or 3.7% to $83.2 million, compared to $80.2 million for the same period in 2009. The increase was primarily attributable to compensation and employee benefits of $4.1 million resulting from annual merit raises and increases in incentive compensation. Further, the Company opened offices in Yonkers and Nyack during the fiscal year 2010, as well as, experiencing a full year of salary expense for the White Plains office. Occupancy and office operations increased $632,000, or 4.9%, as the Company invested in new branch locations and automation in 2010. Professional fees increased $929,000 due to increased consulting fees as well as elevated external costs of collection for problem loans. Stock-based compensation decreased by $1.4 million mainly due to the vesting of stock based compensation awards in addition to lower ESOP expense. FDIC insurance decreased by $582,000 or 13.7% due to declines in FDIC assessments and ATM debit card expense decreased $514,000 or 3.2%.
Income Taxes. Income tax expense was $6.9 million for the fiscal year ended September 30, 2010 compared to $10.2 million for fiscal 2009, representing effective tax rates of 25.1% and 28.2%, respectively. The lower tax rate in 2010 was primarily due to the high proportion of tax-free income, BOLI and insurance relative to the total levels of pre-tax income and the set up of a captive insurance company.
Off-Balance Sheet Arrangements and Aggregate Contractual Obligations
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, 2011 and 2010, the Company had no interests in non-consolidated special purpose entities.
Lending Commitments.Lending commitments include loan commitments, unused credit lines, and letters of credit and unused credit lines.credit. These instruments are not recorded in the consolidated balance sheet until funds are advanced under the commitments. The Company provides these lending commitments to customers in the normal course of business.
For our non-real estate commercial customers, loan commitments generally take the form of revolving credit arrangements to finance customers’ working capital requirements, or for development and construction in the case ofrequirements. At September 30, 2013 these commitments totaled $169.0 million. For our real estatebusinesses. For retail customers, businesses, loan commitments are generally for residential construction, multi-family and commercial construction projects, which totaled $71.0 million at
September 30, 2013. Loan commitments for our retail customers are generally home equity lines of credit secured by residential property. At September 30, 2011, commercialproperty and retailtotaled $100.0 million. In addition loan commitments totaled $127.3 million. Approved closed undrawn lines of credit totaled $96.1 million, $129.0 million and $14.3 million for commercial, retail accounts, and overdraft protection lines, respectively. Letters of credit totaled $17.0overdrafts were $10.5 million. Letters of credit issued by the Company generally are standby letters of credit. Standby letters of credit are commitments issued by the Company on behalf of its customer/obligor 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 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. Standby letters of credit are conditional commitments to support performance, typically of a contract or the financial integrity of a customer to a third party,third-party, and represent an independent undertaking by the Company to the third party.Provident Bank applies essentially the samethird-party. Letters of credit policies and standards as it does in the lending process when making these commitments. of
September 30, 2013 totaled $35.1 million.
See Note
1516. Commitments and Contingencies to
“Consolidated Financial Statements” in Item 8 hereofthe consolidated financial statements for additional information regarding lending commitments.
Contractual Obligations.In the ordinary course of our operations, we enter into certain contractual obligations. Such obligations include operating leases for premises and equipment.
Payments Due by Period. The following table summarizes our significant fixed and determinable contractual obligations and other funding needs by payment date at September 30, 2011.2013. The payment amounts represent those amounts due to the recipient. | | | | | | | | | | | | | | | | | | | | |
| | | Payments Due by Period | |
Contractual Obligations | | Less than
One Year | | | One to Three
Years | | | Three to Five
Years | | | More Than
Five Years | | | Total | |
| | | (Dollars in thousands) | |
FHLB and other borrowings | | $ | 61,500 | | | $ | 5,066 | | | $ | 35,795 | | | $ | 272,660 | | | $ | 375,021 | |
Time deposits | | | 250,769 | | | | 22,784 | | | | 19,584 | | | | 10,522 | | | | 303,659 | |
Letters of credits | | | 6,786 | | | | 2,353 | | | | 387 | | | | 7,446 | | | | 16,972 | |
Undrawn lines of credit | | | 239,387 | | | | — | | | | — | | | | — | | | | 239,387 | |
Operating leases | | | 2,579 | | | | 2,411 | | | | 2,175 | | | | 18,997 | | | | 26,162 | |
| | | | | | | | | | | | | | | | | | | | |
Total | | $ | 561,021 | | | $ | 32,614 | | | $ | 57,941 | | | $ | 309,625 | | | $ | 961,201 | |
Commitments to extend credit | | $ | 100,041 | | | | 26,653 | | | | 613 | | | | — | | | $ | 127,307 | |
|
| | | | | | | | | | | | | | | | | | | |
| | Payments due by period |
| | 1 year or less | | 1-3 years | | 3-5 years | | 5 years or more | | Total |
| | (Dollars in thousands) |
| FHLB and other borrowings | $ | 158,897 |
| | $ | 78,908 |
| | $ | 320,447 |
| | $ | 2,734 |
| | $ | 560,986 |
|
| Time deposits | 239,104 |
| | 22,433 |
| | 6,591 |
| | — |
| | 268,128 |
|
| Letters of credits | 24,890 |
| | 1,561 |
| | 25 |
| | 8,576 |
| | 35,052 |
|
| Undrawn lines of credit | 207,201 |
| | — |
| | — |
| | — |
| | 207,201 |
|
| Operating leases | 3,458 |
| | 6,351 |
| | 6,270 |
| | 16,083 |
| | 32,162 |
|
| Total | $ | 633,550 |
| | $ | 109,253 |
| | $ | 333,333 |
| | $ | 27,393 |
| | $ | 1,103,529 |
|
| Commitments to extend credit | $ | 171,032 |
| | — |
| | — |
| | — |
| | $ | 171,032 |
|
Impact of Inflation and Changing Prices
The consolidated financial statements and related notes of
ProvidentSterling Bancorp have been prepared in accordance with U.S.
GAAP. U.S. GAAP,
which generally requires the measurement of financial position and operating results in terms of historical dollars without consideration for changes in the relative purchasing power of money over time due to inflation. The impact of inflation is reflected in the increased cost of our operations. Unlike industrial companies, our assets and liabilities are primarily monetary in nature. As a result, changes in market interest rates have a greater impact on performance than the effects of inflation.
Liquidity and Capital Resources
The overall objective of our liquidity management is to ensure the availability of sufficient cash funds to meet all financial commitments and to take advantage of investment opportunities. We manage liquidity in order to meet deposit withdrawals on demand or at contractual maturity, to repay borrowings as they mature, and to fund new loans and investments as opportunities arise.
Our primary sources of funds are deposits, principal and interest payments on loans and securities, wholesale borrowings, the proceeds from maturing securities and short-term investments, and the proceeds from the sales of loans and securities. The scheduled amortizations of loans and securities, as well as proceeds from borrowings, are predictable sources of funds. Other funding sources, however, such as deposit inflows, mortgage prepayments and mortgage loan sales are greatly influenced by market interest rates, economic conditions and competition.
Our cash flows are derived from operating activities, investing activities and financing activities as reported in the Consolidated Statements of Cash Flows in our consolidated financial statements. Our primary investing activities are the origination of commercial real estateloans and residential one- to four-familymortgage loans, and the purchase of investment securities and mortgage-backed securities. During the years ended September 30, 2011, 20102013, 2012 and 2009,2011, our loan originations totaled $578.6 million, $472.1$1.2 billion, $ 816.3 million and $450.6$628.4 million, respectively. Purchases of securities available for sale totaled $622.6$490.2 million, $830.6$679.6 million and $708.7$622.6 million for the years ended September 30, 2011, 20102013, 2012 and 2009,2011, respectively. Purchases of securities held to maturity totaled $93.8$169.3 million, $23.0$95.2 million and $25.1$93.8 million for the years ended September 30, 2011, 20102013, 2012 and 2009,2011, respectively. These activities were funded primarily by borrowings and by principal repayments on loans and securities. Loan origination commitments totaled $127.3$171.0 million at September 30, 2011, and consisted of $113.4 million at adjustable or variable rates and $13.9 million at fixed rates.2013. Unused lines of credit granted to customers were $239.4$207.2 million at September 30, 2011.2013. We anticipate that we will have sufficient funds available to meet current loan commitments and lines of credit.
The Company’s investments in BOLI are considered illiquid and are therefore classified as other assets. Earnings from BOLI are derived from the net increase in cash surrender value of the BOLI contracts and the proceeds from the payment on the insurance policies, if any. The recorded value of BOLI contracts totaled $57.0$60.9 million and $50.9$59.0 million at September 30, 20112013 and September 30, 2010,2012, respectively.
Deposit flows are generally affected by the level of market interest rates, the interest rates and other conditions on deposit products offered by our banking competitors, and other factors. The net increase(decrease) / (decrease)increase in total deposits was $154.0($148.9 million $60.4), $814.5 million and $93.1$154.0 million for the years ended September 30, 2011, 20102013, 2012 and 2009,2011, respectively. Certificates of deposit that are scheduled to mature in one year or less from September 30, 20112013 totaled $250.8$239.1 million. Based upon prior experience and our current pricing strategy, management believeswe believe that a significant portion of such deposits will remain with us, although we may be required to compete for many of the maturing certificates in a highly competitive environment.Credit markets continued to improve in fiscal 2011 from the extreme conditions that existed for fiscal 2009.
Credit spreads narrowed steadily during the past year and many are very near
historical levels, as many financial institutions return to lending while loan demand remains at levels below that of a vibrant economy. This lack of fundamental economic vitality is causing an increase in liquidity as businesses and individuals remain uncommitted to investment.historically low levels. Furthermore, the extremely low interest rate environment
has enhancedcaused our
deposit growthdeposits to remain at elevated levels which
hashave also strengthened our liquidity position. Many banks are experiencing a situation similar to ours resulting in the industry liquidity to be at significantly elevated levels.
However, much of this liquidity is held in the form of very short-term securities and non-maturity deposit accounts. The preference of depositors to
stay shortmaintain their funds in short-term deposit products could
portendlead to potential liquidity reductions in the future
and possibly put pressure on us to raiseif interest rates
in the future to retain these funds.change.
We generally remain fully invested and utilizeaccess additional sources of funds through Federal Home Loan Bank of New York (“FHLB”) advances and other sources of which $375.0$561.0 million was outstanding at September 30, 2011. At 2013. Cash and short-term borrowing capacity at September 30, 2011, we had the ability to borrow an additional $344.1 million under our credit facilities with the Federal Home Loan Bank. The Bank may borrow up to an additional $41.1 million by pledging securities not required to be pledged for other purposes as of September 30, 2011. Further, at September 30, 2011 we had only $11.8 million in Brokered Certificates of Deposit (including certificates of deposit accounts registry service (CDAR’s) reciprocal CD’s of $2.7 million and Money Market of $5.7 million) and have relationships with several brokers to utilize these sources of funding should conditions warrant further sources of funds. Provident2013 is summarized below:
|
| | | |
| | (Dollars in thousands) |
| Cash and due from banks | $ | 113,090 |
|
| Unpledged investment securities | 549,728 |
|
| Unpledged mortgage collateral | 443,297 |
|
| Total funding available | $ | 1,106,115 |
|
Sterling Bank is subject to regulatory capital requirements that are discussed in “Capital Requirements” under “Regulation”.Cash and short-term borrowing capacity at September 30, 2011 is summarized below:
| | | | |
Cash and Due from Banks | | $ | 281,512 | |
Unpledged investment Securities | | | 41,096 | |
Unpledged mortgage collateral | | | 344,090 | |
| | | | |
Total immediate funding | | $ | 666,698 | |
| | | | |
The Company’s tangible capital toequity as a % of tangible assetassets - consolidated ratio is a strong 8.94%was 8.09% as of
September 30, 2013. Further, the Company has a common stock repurchase program with 776,713 shares remaining under its current board authorization. The Bank’s regulatory capital ratios as of September 30, 2013were as follows: | |
| | |
Tier I1 leverage ratio | | | 8.19.33 | % |
Tier I1 risk based capital ratio | | | 11.813.18 | % |
Total risk based capital ratio | | | 13.014.24 | % |
The
levels are well above current regulatory capitalCompany has an effective shelf registration covering $14 million of debt and equity securities remaining available for use, subject to Board authorization and market conditions, to issue equity or debt securities at our discretion. While we seek to preserve flexibility with respect to cash requirements,
there can be no assurance that market conditions would permit us to
be considered well capitalized. Management is currently studying the impactsell securities on
capital resulting from the Basel III accords.acceptable terms at any given time or at all.
Item 7. CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION
We make statements in this Report, and we may from time to time make other statements, regarding our outlook or expectations for earnings, revenues, expenses and/or other financial, business or strategic matters regarding or affecting
ProvidentSterling Bancorp that are forward-looking statements within the meaning of the Private Securities Litigation Reform Act. Forward-looking statements are typically identified by words such as “believe,” “expect,” “anticipate,” “intend,” “outlook,”
“target,” “estimate,” “forecast,” “project”
and other similar words and expressions orby future
or conditional verbs such as “will,” “should,”
“would” and “could.“would,”
“could” or “may”, or by variations of such words or by similar expressions. These statements are not historical facts, but instead represent our current expectations, plans or forecasts and are based on the beliefs and assumptions of the management and the information available to management at the time that these disclosures were prepared.
Forward-looking statements are subject to numerous assumptions, risks and uncertainties, which change over time. Forward-looking statements speak only as of the date they are made. We do not assume any duty and do not undertake to update our forward-looking statements. Because forward-looking statements are subject to assumptions and uncertainties, actual results or future events could differ, possibly materially, from those that we anticipated in our forward-looking statements and future results could differ materially from our historical performance.
The following factors, among others, could cause our future results to differ materially from the plans, objectives, goals, expectations, anticipations, estimates and intentions expressed in the forward-looking statements:
our Company’s ability to successfully implement growth, expense reduction and other strategic initiatives and to integrate and fully realize costs savings and other benefits we estimated in connection with the Merger;
continued implementation of our team based business strategy, including customer acceptance of our products and services and the perceived overall value, pricing and quality of them, compared to our competitors;
business disruption following the Merger;
legislative and regulatory changes such as the Dodd-Frank Act and its implementing regulations that adversely affect our business including changes in regulatory policies and principles or the interpretation of regulatory capital or other rules;
adverse publicity, regulatory actions or litigation with respect to us or other well-known companies and the financial services industry in general and a further deterioration in failure to satisfy regulatory standards;
general economic conditions, either nationally, internationally, or in our market areas, including extended declinesfluctuations in the real estate marketvalues and constrained financial markets;
the effects of and changes in monetary and fiscal policies of the Board of Governors of the Federal Reserve System and the U.S. Government;
our ability to make accurate assumptions and judgments about an appropriate level of allowance for loan losses and the collectability of our loan portfolio, including changes in the level and trend of loan delinquencies and write-offs that may lead to increased losses and non-performing assets in our loan portfolio, result in our allowance for loan losses not being adequate to cover actual losses, and require us to materially increase our reserves;
our use of estimates in determining fair value of certain of our assets, which estimates may prove to be incorrect and result in significant declines in valuation;
changes in the levels of general interest rates, and the relative differences between short and long term interest rates, deposit interest rates, our net interest margin and funding sources;
computer systems on which we depend could fail or experience a security breach, implementation of new technologies may not be successful; and our ability to anticipate and respond to technological changes can affect our ability to meet customer needs;
changes in other economic, competitive, governmental, regulatory, and technological factors affecting our markets, operations, pricing, products, services and fees;
our Company’s ability to successfully implement growth, expense reduction and other strategic initiatives and to complete merger and acquisition activities and realize expected strategic and operating efficiencies associated with suchmatters;
our success at managing the risks involved in the foregoing and managing our business; and
the timing and occurrence or non-occurrence of events that may be subject to circumstances beyond our control.
Additional factors that may affect our results are discussed in this annual report on Form 10-K under “Item 1A, Risk Factors” and elsewhere in this Report or in other filings with the SEC. These risks and uncertainties should be considered in evaluating forward-looking statements and undue reliance should not be placed on such statements.
ITEM 7A. Quantitative and Qualitative Disclosures about Market Risk
| |
| ITEM 7A. | Quantitative and Qualitative Disclosures about Market Risk |
Management believes that our most significant form of market risk is interest rate risk. The general objective of our interest rate risk management is to determine the appropriate level of risk given our business strategy, and then manage that risk in a manner that is consistent with our policy to limit the exposure of our net interest income to changes in market interest rates.
ProvidentSterling National Bank’s Asset/Liability Management Committee (“ALCO”), which consists of certain members of senior management, evaluates the interest rate risk inherent in certain assets and liabilities, our operating environment, and capital and liquidity requirements, and modifies our lending, investing and deposit gathering strategies accordingly. A committee of the Board of Directors reviews
the ALCO’s activities and strategies, the effect of those strategies on our net interest margin, and the effect that changes in market interest rates would have on the economic value of our loan and securities portfolios as well as the intrinsic value of our deposits and borrowings.
We actively evaluate interest rate risk in connection with our lending, investing, and deposit activities. We emphasize the origination of commercial
mortgagereal estate loans, commercial
business loans, ADC& industrial loans, and residential fixed-rate mortgage loans that are repaid monthly and bi-weekly,
fixed-rate commercial mortgage loans, adjustable-rate residential and consumer loans. Depending on market interest rates and our capital and liquidity position, we may retain all of the fixed-rate, fixed-term residential mortgage loans that we originate or we may sell or securitize all, or a portion of such longer-term loans, generally on a servicing-retained basis. We also invest in shorter-term securities, which generally have lower yields compared to longer-term investments. Shortening the average maturity of our interest-earning assets by increasing our investments in shorter-term loans and securities may help us to better match the maturities and interest rates of our assets and liabilities, thereby reducing the exposure of our net interest income to changes in market interest rates. These strategies may adversely affect net interest income due to lower initial yields on these investments in comparison to longer-term, fixed-rate loans and investments.
Management monitors interest rate sensitivity primarily through the use of a model that simulates net interest income (“NII”) under varying interest rate assumptions. Management also evaluates this sensitivity using a model that estimates the change in the
CompanyCompany’s and the Bank’s
net portfolioeconomic value
of equity (“
NPV”EVE”) over a range of interest rate scenarios.
NPVEVE is the present value of expected cash flows from assets, liabilities and off-balance sheet contracts. The model assumes estimated loan prepayment rates, reinvestment rates and deposit decay rates that seem reasonable, based on historical experience during prior interest rate changes.
Estimated Changes in NPVEVE and NII.The table below sets forth, as of September 30, 2011,2013, the estimated changes in our (1) NPVEVE that would result from the designated instantaneous changes in the forward rates curve,rate curves, and (2) NII that would result from the designated instantaneous changes in the U.S. Treasury yield curve. Computations of prospective effects of hypothetical interest rate changes are based on numerous assumptions including relative levels of market interest rates, loan prepayments and deposit decay, and should not be relied uponon as indicative of actual results. | | | | | | | | | | | | | | | | | | | | | | | | |
Interest Rates
(basis points) | | Estimated NPV | | | in NPV | | | Estimated
NII | | | Estimated NII | |
| | | Amount | | | Percent | | | | Amount | | | Percent | |
| (Dollars in thousands) | |
+300 | | $ | 297,054 | | | $ | (45,133 | ) | | | -13.2 | % | | $ | 95,736 | | | $ | 8,359 | | | | 9.6 | % |
+200 | | | 314,826 | | | | (27,361 | ) | | | -8.0 | % | | | 93,619 | | | | 6,242 | | | | 7.1 | % |
+100 | | | 330,866 | | | | (11,321 | ) | | | -3.3 | % | | | 90,752 | | | | 3,375 | | | | 3.9 | % |
0 | | | 342,187 | | | | 0 | | | | 0.0 | % | | | 87,377 | | | | 0 | | | | 0.0 | % |
-100 | | | 338,189 | | | | (3,998 | ) | | | -1.2 | % | | | 80,831 | | | | (6,546 | ) | | | -7.5 | % |
|
| | | | | | | | | | | | | | | | | | | | | | |
| Interest rates | | Estimated | | Estimated change in EVE | | Estimated | | Estimated change in NII |
| (basis points) | | EVE | | Amount | | Percent | | NII | | Amount | | Percent |
| | | (Dollars in thousands) |
| +300 | | $ | 565,776 |
| | $ | (48,679 | ) | | (7.9 | )% | | $ | 119,056 |
| | $ | 6,961 |
| | 6.2 | % |
| +200 | | 587,069 |
| | (26,386 | ) | | (4.3 | ) | | 117,349 |
| | 5,254 |
| | 4.7 |
|
| +100 | | 606,751 |
| | (6,704 | ) | | (1.1 | ) | | 114,296 |
| | 2,201 |
| | 2.0 |
|
| 0 | | 613,455 |
| | — |
| | — |
| | 112,095 |
| | — |
| | — |
|
| -100 | | 611,771 |
| | 1,684 |
| | 0.3 |
| | 104,600 |
| | (7,495 | ) | | (6.7 | ) |
The table
set forth above indicates that at September 30,
2011,2013, in the event of an immediate 200 basis point increase in interest rates, we would
be expectedexpect to experience
an 8.0%a 4.3% decrease in
NPVEVE and a
7.1%4.7% increase in NII. Due to the current level of interest rates, management is unable to reasonably model the impact of decreases in interest rates on
NPVEVE and NII beyond -100 basis points.
Certain shortcomings are inherent in the methodology used in the above interest rate risk measurements. Modeling changes in NPVEVE and NII requires making certain assumptions that may or may not reflect the manner in which actual yields and costs respond to changes in market interest rates. The NPVEVE and NII table presented above assumes that the composition of our interest-rate sensitive assets and liabilities existing at the beginning of a period remains constant over the period being measured and, accordingly, the data does not reflect any actions management may undertake in response to changes in interest rates. The table also assumes that a particular change in interest rates is reflected uniformly across the yield curve regardless of the duration to maturity or the re-pricing characteristics of specific assets and liabilities. Accordingly, although the NPVEVE and NII table provides an indication of our sensitivity to interest rate changes at a particular point in time, such measurements are not intended to and do not provide a
precise forecast of the effect of changes in market interest rates
may have on our net interest
income andincome. Actual results will
differ from actual results.Since December 2008,likely differ.
During the fiscal year 2013, the federal funds target rate remained in a range of 0.00
–- 0.25% as the Federal Open Market Committee (“FOMC”) did not change the target overnight lending rate. U.S. Treasury yields in the two year maturities
decreased by 17increased 10 basis points from
0.42%0.23% to
0.25% during0.33% in fiscal
year 20112013 while the yield on U.S. Treasury
10 year10-year notes
decreased 61increased 99 basis points from
2.53%1.65% to
1.92%2.64% over the same
timetwelve month period. The
disproportional greater
rate of decreaseincrease in rates on longer term maturities
has resulted in
thea steeper 2-10 year treasury yield curve
being flatter at the end of
fiscal 2013 relative to the
pastbeginning of the fiscal
year than it was when the year began. The overall lower yield curve caused a significant reduction in rates paid on deposits and short-term borrowings as well as rates charged on loans and other assets. To fight the economic downturn the FOMC declared a willingness to keep the federal funds target low for an “extended period”. Furthermore, duringyear. During the fourth quarter,
of the current fiscal year the FOMC
statedreaffirmed its willingness to maintain an accommodative stance on monetary policy stating that it
anticipates that economic conditions are likelyintends to
warrant exceptionally low levels fordo so until the
federal fundsunemployment rate
at least through mid-2013.and inflation expectations reach certain thresholds. However, should economic conditions improve, the FOMC could reverse direction and increase the federal funds target rate. This could cause the shorter end of the yield curve to rise
disproportionably more thandisproportionately relative to the longer end, thereby resulting in
a short-term margin
compression.compression environment. We hold
a notional amount of $50 million in
notional principal of interest rate caps to help mitigate this risk.
Should rates not increase sufficiently to collect on such derivatives; the fair value of this derivative would decline and eventually mature. The derivative value at risk is $65,000.
ITEM 8. Financial Statements and Supplementary Data | |
| ITEM 8. | Financial Statements and Supplementary Data |
The following are included in this item:
(A) | Report of Management on Internal Control Over Financial Reporting |
(B)(A) | Report of Independent Registered Public Accounting Firm on Internal Control Over Financial Reporting |
(C) | Report of Independent Registered Public Accounting Firm on Financial Statements |
(D)(B) | Consolidated Statements of Financial ConditionBalance Sheets as of September 30, 20112013 and 20102012 |
(E) | |
| (C) | Consolidated Statements of Income for the years ended September 30, 2011, 20102013, 2012 and 20092011 |
(F) | |
| (D) | Consolidated Statements of Changes in Stockholders’ Equity for the years ended September 30, 2011, 20102013, 2012 and 20092011 |
(G) | |
| (E) | Consolidated Statements of Cash Flows for the years ended September 30, 2011, 20102013, 2012 and 20092011 |
(H) | |
| (F) | Notes to Consolidated Financial Statements |
The supplementary data required by this item (selected quarterly financial data) is provided in Note
2121. Quarterly Results of
Operations (Unaudited) to the
Notes to Consolidated Financial Statements.consolidated financial statements.
Report of
Management on Internal Control Over Financial ReportingIndependent Registered Public Accounting Firm
Board of Directors and Stockholders
Provident New York Bancorp:
The management
Sterling Bancorp
We have audited the accompanying consolidated balance sheets of Provident New YorkSterling Bancorp (“as of September 30, 2013 and 2012, and the Company”) is responsible for establishing and maintaining effective internal control over financial reporting. The Company’s systemrelated consolidated statements 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 ofincome, comprehensive income, changes in conditions, or thatstockholders’ equity and cash flows for each of the degree of compliance withyears in the policies or procedures may deteriorate.
Management assessed the Company’sthree year period ended September 30, 2013. We also have audited Sterling Bancorp’s internal control over financial reporting as of September 30, 2011. This assessment was2013, based on criteria for effective internal control over financial reporting established inInternal 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, 2011, the Company’s internal control over financial reporting is effective.
The Company’s independent registered public accounting firm has issued an audit report on the effective operation of the Company’s internal control over financial reporting as of September 30, 2011. This report appears on the following page.
| | |
By:
| | /s/ Jack Kopnisky
|
| | Jack Kopnisky |
| | President and Chief Executive Officer |
| | (Principal Executive Officer) |
| | December 13, 2011 |
| | |
By:
| | /s/ Paul Maisch
|
| | Paul Maisch |
| | Executive Vice President and Chief Financial Officer |
| | (Principal Financial and Accounting Officer) |
| | December 13, 2011 |
Report of Independent Registered Public Accounting Firm on Internal Control Over Financial Reporting
Board of Directors and Stockholders
Provident New York Bancorp
We have audited Provident New York Bancorp’s (“the Company”) internal control over financial reporting as of September 30, 2011, based on criteria established inInternal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Provident New YorkSterling Bancorp’s management is responsible for these financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Report of Management on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on these consolidated financial statements and an opinion on the Company’scompany's internal control over financial reporting based on our audit.audits.
We conducted our
auditaudits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the
auditaudits to obtain reasonable assurance about
whether the consolidated financial statements are free of material misstatement and whether effective internal control over financial reporting was maintained in all material respects. Our
audits of the consolidated financial statements included examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our audit
of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed
risk, andrisk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our
audit providesaudits provide a reasonable basis for our
opinion.opinions.
A
company’scompany's internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of
consolidated financial statements for external purposes in accordance with generally accepted accounting principles. A
company’scompany's internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the
company’scompany's assets that could have a material effect on the
consolidated financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. 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.
In our opinion, Provident New York Bancorp maintained, in all material respects, effective internal control over financial reporting as of September 30, 2011, based on criteria established inInternal Control — Integrated Frameworkissued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated statements of financial condition of Provident New York Bancorp and subsidiaries as of September 30, 2011 and 2010 and the related consolidated statements of income, changes in stockholders’ equity and cash flows for each of the three years ended September 30, 2011 and our report dated December 13, 2011 expressed an unqualified opinion on those consolidated financial statements.
/s/ Crowe Horwath LLP
Livingston, New Jersey
December 13, 2011
Report of Independent Registered Public Accounting Firm on Financial Statements
Board of Directors and Stockholders
Provident New York Bancorp
We have audited the accompanying consolidated statements of financial condition of Provident New York Bancorp and subsidiaries (“the Company”) as of September 30, 2011 and 2010 and the related consolidated statements of income, changes in stockholders’ equity, and cash flows for each of the three years in the period ended September 30, 2011. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Provident New YorkSterling Bancorp and subsidiaries as of September 30, 20112013 and 20102012, and the results of its operations and its cash flows for each of the three years in the three-year period ended September 30, 20112013 in conformity with accounting principles generally accepted in the United States of America.
We also have audited, Also in accordance with the standards of the Public Company Accounting Oversight Board (United States), the effectiveness of Provident New York Bancorp’sour opinion, Sterling Bancorp maintained, in all material respects, effective internal control over financial reporting as of September 30, 2011,2013, based on criteria established inInternal Control —- Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated December 13, 2011 expressed an unqualified opinion thereon.(COSO).
/s/ Crowe Horwath LLP
Livingston,
STERLING BANCORP AND SUBSIDIARIES Consolidated Balance Sheets (Dollars in thousands, except per share data) |
| | | | | | | |
| | September 30, |
| | 2013 | | 2012 |
| ASSETS: | | | |
| Cash and due from banks | $ | 113,090 |
| | $ | 437,982 |
|
| Securities: | | | |
| Available for sale, at fair value | 954,393 |
| | 1,010,872 |
|
| Held to maturity, at amortized cost (fair value of $250,896 and $146,324 in 2013 and 2012, respectively) | 253,999 |
| | 142,376 |
|
| Total securities | 1,208,392 |
| | 1,153,248 |
|
| Assets held for sale | — |
| | 4,550 |
|
| Loans held for sale | 1,011 |
| | 7,505 |
|
| Gross loans | 2,412,898 |
| | 2,119,472 |
|
| Allowance for loan losses | (28,877 | ) | | (28,282 | ) |
| Total loans, net | 2,384,021 |
| | 2,091,190 |
|
| Federal Home Loan Bank (“FHLB”) stock, at cost | 24,312 |
| | 19,249 |
|
| Premises and equipment, net | 36,520 |
| | 38,483 |
|
| Goodwill | 163,117 |
| | 163,247 |
|
| Core deposit and other intangible assets | 5,891 |
| | 7,164 |
|
| Bank owned life insurance | 60,914 |
| | 59,017 |
|
| Other real estate owned | 6,022 |
| | 6,403 |
|
| Other assets | 45,882 |
| | 34,944 |
|
| Total assets | $ | 4,049,172 |
| | $ | 4,022,982 |
|
| LIABILITIES AND STOCKHOLDERS’ EQUITY | | | |
| LIABILITIES: | | | |
| Deposits | $ | 2,962,294 |
| | $ | 3,111,151 |
|
| FHLB and other borrowings | 462,953 |
| | 345,176 |
|
| Senior notes | 98,033 |
| | — |
|
| Mortgage escrow funds | 12,646 |
| | 11,919 |
|
| Other liabilities | 30,380 |
| | 63,614 |
|
| Total liabilities | 3,566,306 |
| | 3,531,860 |
|
| Commitments and Contingent liabilities (See Note 16.) |
|
| |
|
|
| STOCKHOLDERS’ EQUITY: | | | |
| Preferred stock, (par value $0.01 per share; 10,000,000 shares authorized; none issued or outstanding) | — |
| | — |
|
| Common stock (par value $0.01 per share; 75,000,000 shares authorized; 52,188,056 and 45,929,552 issued for 2013 and 2012, respectively; 44,351,046 and 44,173,470 shares outstanding in 2013 and 2012 respectively) | 522 |
| | 522 |
|
| Additional paid-in capital | 403,816 |
| | 403,541 |
|
| Unallocated common stock held by employee stock ownership plan (“ESOP”); 549,262 and 599,194 unallocated shares outstanding in 2013 and 2012, respectively | (5,493 | ) | | (5,638 | ) |
| Treasury stock, at cost (7,837,010 shares in 2013 and 8,014,586 shares in 2012) | (88,538 | ) | | (90,173 | ) |
| Retained earnings | 187,889 |
| | 175,971 |
|
| Accumulated other comprehensive (loss) income, net of tax (benefit) expense of ($10,482) in 2013 and $4,688 in 2012 | (15,330 | ) | | 6,899 |
|
| Total stockholders’ equity | 482,866 |
| | 491,122 |
|
| Total liabilities and stockholders’ equity | $ | 4,049,172 |
| | $ | 4,022,982 |
|
See accompanying notes to consolidated financial statements.
STERLING BANCORP AND SUBSIDIARIES Consolidated Statements of Income For the year ended September 30, (Dollars in thousands, except per share data) |
| | | | | | | | | | | |
| | 2013 | | 2012 | | 2011 |
| Interest and dividend income: | | | | | |
| Loans, including fees | $ | 107,810 |
| | $ | 91,010 |
| | $ | 89,500 |
|
| Taxable securities | 17,509 |
| | 16,538 |
| | 14,493 |
|
| Non-taxable securities | 5,682 |
| | 6,497 |
| | 7,441 |
|
| Other earning assets | 1,060 |
| | 992 |
| | 1,180 |
|
| Total interest and dividend income | 132,061 |
| | 115,037 |
| | 112,614 |
|
| Interest expense: | | | | | |
| Deposits | 5,923 |
| | 5,581 |
| | 6,104 |
|
| Borrowings | 13,971 |
| | 12,992 |
| | 15,220 |
|
| Total interest expense | 19,894 |
| | 18,573 |
| | 21,324 |
|
| Net interest income | 112,167 |
| | 96,464 |
| | 91,290 |
|
| Provision for loan losses | 12,150 |
| | 10,612 |
| | 16,584 |
|
| Net interest income after provision for loan losses | 100,017 |
| | 85,852 |
| | 74,706 |
|
| Non-interest income: | | | | | |
| Deposit fees and service charges | 10,964 |
| | 11,377 |
| | 10,811 |
|
| Net gain on sale of securities | 7,391 |
| | 10,452 |
| | 10,011 |
|
| Other than temporary impairment on securities: | | | | | |
| Total impairment loss | (73 | ) | | (90 | ) | | (787 | ) |
| Loss recognized in other comprehensive income | 41 |
| | 43 |
| | 509 |
|
| Net impairment loss recognized in earnings | (32 | ) | | (47 | ) | | (278 | ) |
| Title insurance fees | 395 |
| | 1,106 |
| | 1,224 |
|
| Bank owned life insurance | 1,998 |
| | 2,050 |
| | 2,049 |
|
| Net gain on sale of loans | 1,979 |
| | 1,897 |
| | 1,027 |
|
| Investment management fees | 2,413 |
| | 3,143 |
| | 3,080 |
|
| Other | 2,584 |
| | 2,174 |
| | 2,027 |
|
| Total non-interest income | 27,692 |
| | 32,152 |
| | 29,951 |
|
| Non-interest expense: | | | | | |
| Compensation and employee benefits | 47,833 |
| | 46,038 |
| | 43,662 |
|
| Stock-based compensation plans | 2,239 |
| | 1,187 |
| | 1,162 |
|
| Merger-related expense | 2,772 |
| | 5,925 |
| | 255 |
|
| Occupancy and office operations | 14,953 |
| | 14,457 |
| | 14,508 |
|
| Amortization of intangible assets | 1,296 |
| | 1,245 |
| | 1,426 |
|
| Other real estate owned expense | 1,562 |
| | 1,618 |
| | 1,171 |
|
| FDIC insurance and regulatory assessments | 3,010 |
| | 3,096 |
| | 2,910 |
|
| Other | 17,376 |
| | 18,391 |
| | 25,017 |
|
| Total non-interest expense | 91,041 |
| | 91,957 |
| | 90,111 |
|
| Income before income tax expense | 36,668 |
| | 26,047 |
| | 14,546 |
|
| Income tax expense | 11,414 |
| | 6,159 |
| | 2,807 |
|
| Net income | $ | 25,254 |
| | $ | 19,888 |
| | $ | 11,739 |
|
| Weighted average common shares: | | | | | |
| Basic | 43,734,425 |
| | 38,227,653 |
| | 37,452,596 |
|
| Diluted | 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 |
|
PROVIDENT NEW YORKSee accompanying notes to consolidated financial statements.
STERLING BANCORP AND SUBSIDIARIES
Consolidated Statements of
Financial ConditionComprehensive Income
For the year ended September 30,
(Dollars in thousands, except share data)
|
| | | | | | | | | | | |
| | 2013 | | 2012 | | 2011 |
| Net income | $ | 25,254 |
| | $ | 19,888 |
| | $ | 11,739 |
|
| Other comprehensive (loss) income: | | | | | |
| Securities available for sale: | | | | | |
| Net unrealized holding (losses) gains on securities available for sale net of related tax (benefit) expense of ($15,154), $5,220 and $4,624 | (22,167 | ) | | 7,641 |
| | 6,762 |
|
| Less: | | | | | |
| Reclassification adjustment for net realized gains included in net income, net of related income tax expense of $3,001, $4,246 and $4,065 | 4,390 |
| | 6,206 |
| | 5,946 |
|
| Reclassification adjustment for other than temporary losses included in net income, net of related income tax benefit of ($13), ($19) and ($113) | (19 | ) | | (28 | ) | | (165 | ) |
| Total securities available for sale | (26,538 | ) | | 1,463 |
| | 981 |
|
| Change in funded status of defined benefit plans, net of related income tax expense (benefit) of $2,929, $205 and ($665) | 4,309 |
| | 300 |
| | (969 | ) |
| Other comprehensive (loss) income | (22,229 | ) | | 1,763 |
| | 12 |
|
| Total comprehensive income | $ | 3,025 |
| | $ | 21,651 |
| | $ | 11,751 |
|
See accompanying notes to consolidated financial statements.
STERLING BANCORP AND SUBSIDIARIES
Consolidated Statements of Changes in Stockholders’ Equity
For the year ended September 30,
(Dollars in thousands, except per share data) | | | | | | | | |
| | | September 30, | |
| | | 2011 | | | 2010 | |
| ASSETS | | | | | | | | |
Cash and due from banks | | $ | 281,512 | | | $ | 90,872 | |
Securities (including $644,910 and $719,172 pledged as collateral for borrowings and deposits in 2011 and 2010, respectively): | | | | | | | | |
Available for sale, at fair value (note 3) | | | 739,844 | | | | 901,012 | |
Held to maturity, at amortized cost (fair value of $111,272 and $35,062 in 2011 and 2010, respectively) (note 4) | | | 110,040 | | | | 33,848 | |
| | | | | | | | |
Total securities | | | 849,884 | | | | 934,860 | |
| | | | | | | | |
Loans held for sale | | | 4,176 | | | | 5,890 | |
Gross loans (note 5) | | | 1,703,799 | | | | 1,701,541 | |
Allowance for loan losses | | | (27,917 | ) | | | (30,843 | ) |
| | | | | | | | |
Total loans, net | | | 1,675,882 | | | | 1,670,698 | |
| | | | | | | | |
Federal Home Loan Bank (“FHLB”) stock, at cost | | | 17,584 | | | | 19,572 | |
Accrued interest receivable (note 6) | | | 9,904 | | | | 11,069 | |
Premises and equipment, net (note 7) | | | 40,886 | | | | 43,598 | |
Goodwill (note 2) | | | 160,861 | | | | 160,861 | |
Core deposit and other intangible assets (note 2) | | | 4,629 | | | | 3,640 | |
Bank owned life insurance | | | 56,967 | | | | 50,938 | |
Foreclosed properties (note 5) | | | 5,391 | | | | 3,891 | |
Other assets (notes 11 and 12) | | | 29,726 | | | | 25,136 | |
| | | | | | | | |
Total assets | | $ | 3,137,402 | | | $ | 3,021,025 | |
| | | | | | | | |
| LIABILITIES AND STOCKHOLDERS’ EQUITY | | | | | | | | |
LIABILITIES | | | | | | | | |
Deposits (note 8) | | $ | 2,296,695 | | | $ | 2,142,702 | |
FHLB and other borrowings (including repurchase agreements of $211,694 and $222,500 in 2011 and 2010, respectively) (note 9) | | | 323,522 | | | | 363,751 | |
Borrowing senior unsecured note (FDIC insured) (note 9) | | | 51,499 | | | | 51,496 | |
Mortgage escrow funds (note 5) | | | 9,701 | | | | 8,198 | |
Other (note 11) | | | 24,851 | | | | 23,923 | |
| | | | | | | | |
Total liabilities | | | 2,706,268 | | | | 2,590,070 | |
| | | | | | | | |
Commitments and Contingent liabilities (note 16) | | | — | | | | — | |
STOCKHOLDERS’ EQUITY (note 14): | | | | | | | | |
Preferred stock, (par value $0.01 per share; 10,000,000 shares authorized; none issued or outstanding) | | | — | | | | — | |
Common stock (par value $0.01 per share; 75,000,000 shares authorized; 45,929,552 issued; 37,864,008 and 38,262,288 shares outstanding in 2011 and 2010 respectively) | | | 459 | | | | 459 | |
Additional paid-in capital | | | 357,063 | | | | 356,912 | |
Unallocated common stock held by employee stock ownership plan (“ESOP”) (note 12) | | | (6,138 | ) | | | (6,637 | ) |
Treasury stock, at cost (8,065,544 shares in 2011 and 7,667,264 shares in 2010) | | | (90,585 | ) | | | (87,336 | ) |
Retained earnings | | | 165,199 | | | | 162,433 | |
Accumulated other comprehensive income, net of taxes of $3,522 in 2011 and $3,577 in 2010 (note 11) | | | 5,136 | | | | 5,124 | |
| | | | | | | | |
Total stockholders’ equity | | | 431,134 | | | | 430,955 | |
| | | | | | | | |
Total liabilities and stockholders’ equity | | $ | 3,137,402 | | | $ | 3,021,025 | |
| | | | | | | | |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Number of shares | | Common stock | | Additional paid-in capital | | Unallocated ESOP shares | | Treasury stock | | Retained earnings | | Accumulated other comprehensive income (loss) | | Total stockholders’ equity |
| Balance at October 1, 2010 | 38,262,288 |
| | $ | 459 |
| | $ | 356,912 |
| | $ | (6,637 | ) | | $ | (87,336 | ) | | $ | 162,433 |
| | $ | 5,124 |
| | $ | 430,955 |
|
| Net income | | | | | | | | | | | 11,739 |
| | | | 11,739 |
|
| Other comprehensive income | | | | | | | | | | | | | 12 |
| | 12 |
|
| Deferred compensation transactions | — |
| | — |
| | 45 |
| | — |
| | — |
| | — |
| | — |
| | 45 |
|
| Stock option transactions, net | — |
| | — |
| | 558 |
| | — |
| |
|
| | — |
| | — |
| | 558 |
|
| ESOP shares allocated or committed to be released for allocation (49,932 shares) | — |
| | — |
| | (59 | ) | | 499 |
| | — |
| | — |
| | — |
| | 440 |
|
| Restricted stock awards, net | 59,174 |
| | — |
| | (393 | ) | | — |
| | 531 |
| | — |
| | — |
| | 138 |
|
| Purchase of treasury stock | (457,454 | ) | | — |
| | — |
| | — |
| | (3,780 | ) | | — |
| | — |
| | (3,780 | ) |
| Cash dividends paid ($0.24 per common share) | — |
| | — |
| | — |
| | — |
| | — |
| | (8,973 | ) | | — |
| | (8,973 | ) |
| Balance at September 30, 2011 | 37,864,008 |
| | 459 |
| | 357,063 |
| | (6,138 | ) | | (90,585 | ) | | 165,199 |
| | 5,136 |
| | 431,134 |
|
| Net income | | | | | | | | | | | 19,888 |
| | | | 19,888 |
|
| Other comprehensive income | | | | | | | | | | | | | 1,763 |
| | 1,763 |
|
| Deferred compensation transactions | — |
| | — |
| | 164 |
| | — |
| | — |
| | — |
| | — |
| | 164 |
|
| Stock option transactions, net | — |
| | — |
| | 521 |
| | — |
| | — |
| | — |
| | — |
| | 521 |
|
| ESOP shares allocated or committed to be released for allocation (49,932 shares) | — |
| | — |
| | 43 |
| | 500 |
| | — |
| | — |
| | — |
| | 543 |
|
| Restricted stock awards, net | 50,958 |
| | — |
| | (187 | ) | | — |
| | 412 |
| | — |
| | — |
| | 225 |
|
| Capital raise | 6,258,504 |
| | 63 |
| | 45,937 |
| | — |
| | — |
| | — |
| | — |
| | 46,000 |
|
| Cash dividends paid ($0.24 per common share) | — |
| | — |
| | — |
| | — |
| | — |
| | (9,100 | ) | | — |
| | (9,100 | ) |
| Other | — |
| | — |
| | — |
| | — |
| | — |
| | (16 | ) | | — |
| | (16 | ) |
| Balance at September 30, 2012 | 44,173,470 |
| | 522 |
| | 403,541 |
| | (5,638 | ) | | (90,173 | ) | | 175,971 |
| | 6,899 |
| | 491,122 |
|
| Net income | — |
| |
| |
| |
| |
| | 25,254 |
| | — |
| | 25,254 |
|
| Other comprehensive income | — |
| |
| |
| |
| |
| |
| | (22,229 | ) | | (22,229 | ) |
| Deferred compensation transactions | — |
| | — |
| | 35 |
| | — |
| | — |
| | — |
| | — |
| | 35 |
|
| Stock option transactions, net | 8,250 |
| | — |
| | 695 |
| | — |
| | 95 |
| | (33 | ) | | — |
| | 757 |
|
| ESOP shares allocated or committed to be released for allocation (49,932 shares) | — |
| | — |
| | 119 |
| | 145 |
| | — |
| | — |
| | — |
| | 264 |
|
| Restricted stock awards, net | 169,326 |
| | — |
| | (574 | ) | | — |
| | 1,540 |
| | — |
| | — |
| | 966 |
|
| Cash dividends declared ($0.30 per common share) | — |
| | — |
| | — |
| | — |
| | — |
| | (13,303 | ) | | — |
| | (13,303 | ) |
| Balance at September 30, 2013 | 44,351,046 |
| | $ | 522 |
| | $ | 403,816 |
| | $ | (5,493 | ) | | $ | (88,538 | ) | | $ | 187,889 |
| | $ | (15,330 | ) | | $ | 482,866 |
|
See accompanying notes to consolidated financial statements.
PROVIDENT NEW YORK
STERLING BANCORP AND SUBSIDIARIES Consolidated Statements of Cash Flows For the Year Ended September 30, (Dollars in thousands)
|
| | | | | | | | | | | |
| | 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: | | | | | |
| Provisions for loan losses | 12,150 |
| | 10,612 |
| | 16,584 |
|
| Loss and write downs on other real estate owned | 1,285 |
| | 694 |
| | 869 |
|
| Depreciation of premises and equipment | 4,243 |
| | 4,746 |
| | 6,177 |
|
| Amortization of intangibles | 1,296 |
| | 1,245 |
| | 1,426 |
|
| Net gain on sale of securities | (7,391 | ) | | (10,452 | ) | | (10,011 | ) |
| Net gains on loans held for sale | (1,979 | ) | | (1,897 | ) | | (1,027 | ) |
| Loss (gain) on sale of premises and equipment | 75 |
| | (75 | ) | | — |
|
| Net amortization of premium and discount on securities | 2,068 |
| | (1,006 | ) | | 3,181 |
|
| Change in unamortized acquisition costs and premiums | 1,050 |
| | — |
| | — |
|
| Accrued restructuring expense | — |
| | — |
| | 3,201 |
|
| Accretion of premium on borrowings (includes calls on borrowings), net | 87 |
| | (67 | ) | | (30 | ) |
| Amortization of pre-payment fees on restructured borrowings | 1,466 |
| | 1,459 |
| | 1,033 |
|
| ESOP and restricted stock expense | 1,544 |
| | 667 |
| | 607 |
|
| Stock option compensation expense | 695 |
| | 521 |
| | 558 |
|
| Originations of loans held for sale | (85,657 | ) | | (80,579 | ) | | (49,807 | ) |
| Proceeds from sales of loans held for sale | 94,130 |
| | 79,147 |
| | 52,548 |
|
| Increase in cash surrender value of bank owned life insurance | (1,998 | ) | | (2,050 | ) | | (2,049 | ) |
| Deferred income tax expense (benefit) | 719 |
| | (64 | ) | | 118 |
|
| Other adjustments (principally net changes in other assets and other liabilities) | (26,413 | ) | | 2,237 |
| | (8,639 | ) |
| Net cash provided by operating activities | 22,624 |
| | 25,026 |
| | 26,478 |
|
| Cash flows from investing activities: | | | | | |
| Purchases of securities: | | | | | |
| Available for sale | (490,160 | ) | | (679,553 | ) | | (622,551 | ) |
| Held to maturity | (169,320 | ) | | (95,157 | ) | | (93,764 | ) |
| Proceeds from maturities, calls and other principal payments on securities: | | | | | |
| Available for sale | 168,771 |
| | 174,497 |
| | 251,774 |
|
| Held to maturity | 55,866 |
| | 63,037 |
| | 17,220 |
|
| Proceeds from sales of securities available for sale | 339,123 |
| | 344,431 |
| | 540,145 |
|
| Proceeds from sales of securities held to maturity | 1,187 |
| | — |
| | 357 |
|
| Loan originations | (1,124,310 | ) | | (735,676 | ) | | (578,631 | ) |
| Loan principal payments | 813,695 |
| | 509,060 |
| | 553,235 |
|
| (Purchases) proceeds from sale of FHLB stock, net | (5,063 | ) | | (620 | ) | | 1,988 |
|
| Proceeds from sales of other real estate owned | 4,730 |
| | 3,468 |
| | 301 |
|
| Purchases of premises and equipment | (2,355 | ) | | (1,853 | ) | | (3,465 | ) |
| Proceeds from sale of Hudson Valley Investment Advisors | 4,738 |
| | — |
| | — |
|
| Proceeds from sale of fixed assets | — |
| | 75 |
| | — |
|
| Purchases of bank owned life insurance | — |
| | — |
| | (3,980 | ) |
STERLING BANCORP AND SUBSIDIARIES Consolidated Statements of Cash Flows Continued For the year ended September 30, (Dollars in thousands) |
| | | | | | | | | | | |
| | | | | | |
| | 2013 | | 2012 | | 2011 |
| Cash received from Gotham acquisition | — |
| | 126,818 |
| | — |
|
| Net cash (used in) provided by investing activities | (403,098 | ) | | (291,473 | ) | | 62,629 |
|
| Cash flows from financing activities: | | | | | |
| Net (decrease) increase in transaction, savings and money market deposits | (29,503 | ) | | 499,340 |
| | 227,907 |
|
| Net (decrease) in time deposits | (119,354 | ) | | (53,786 | ) | | (73,914 | ) |
| Net increase (decrease) in short-term FHLB borrowings | 91,528 |
| | (5,000 | ) | | (34,840 | ) |
| Increase in long-term FHLB borrowings | 25,000 |
| | — |
| | — |
|
| Gross repayments of long-term FHLB borrowings | (217 | ) | | (5,244 | ) | | (1,238 | ) |
| Payments of pre-payment fees on FHLB borrowings | — |
| | (278 | ) | | (5,151 | ) |
| Repayment of senior unsecured note | — |
| | (51,499 | ) | | — |
|
| Net proceeds from Senior Notes | 97,946 |
| | — |
| | — |
|
| Net increase in mortgage escrow funds | 727 |
| | 2,218 |
| | 1,503 |
|
| Treasury shares purchased | — |
| | — |
| | (3,810 | ) |
| Stock option transactions | 62 |
| | 102 |
| | 4 |
|
| Other stock-based compensation transactions | 35 |
| | 164 |
| | 45 |
|
| Equity capital raise | — |
| | 46,000 |
| | — |
|
| Cash dividends paid | (10,642 | ) | | (9,100 | ) | | (8,973 | ) |
| Net cash provided by financing activities | 55,582 |
| | 422,917 |
| | 101,533 |
|
| Net (decrease) increase in cash and cash equivalents | (324,892 | ) | | 156,470 |
| | 190,640 |
|
| Cash and cash equivalents at beginning of year | 437,982 |
| | 281,512 |
| | 90,872 |
|
| Cash and cash equivalents at end of year | $ | 113,090 |
| | $ | 437,982 |
| | $ | 281,512 |
|
| Supplemental cash flow information: | | | | | |
| Interest payments | $ | 18,831 |
| | $ | 18,447 |
| | $ | 21,815 |
|
| Income tax payments | 4,475 |
| | 1,873 |
| | 9,070 |
|
| Real estate acquired in settlement of loans | 5,634 |
| | 6,148 |
| | 1,932 |
|
| Unsettled securities transactions | — |
| | 41,758 |
| | — |
|
| Dividends declared, not yet paid | 2,661 |
| | — |
| | — |
|
| | | | | | |
| Acquisitions: | | | | | |
| Non-cash assets acquired: | | | | | |
| Securities available for sale | — |
| | $ | 54,994 |
| | — |
|
| Total loans, net | — |
| | 205,453 |
| | — |
|
| FHLB stock | — |
| | 1,045 |
| | — |
|
| Accrued interest receivable | — |
| | 417 |
| | — |
|
| Goodwill | — |
| | 5,665 |
| | — |
|
| Core deposit intangibles | — |
| | 4,818 |
| | — |
|
| Premises and equipment, net | — |
| | 490 |
| | — |
|
| Other assets | — |
| | 1,663 |
| | — |
|
| Total non-cash assets acquired | — |
| | 274,545 |
| | — |
|
| | | | | | |
| | | | | | |
STERLING BANCORP AND SUBSIDIARIES Consolidated Statements of Cash Flows Continued For the year ended September 30, (Dollars in thousands) |
| | | | | | | | | | | |
| | 2013 | | 2012 | | 2011 |
| Liabilities assumed: | | | | | |
| Deposits | — |
| | $ | 368,902 |
| | — |
|
| FHLB and other borrowings | — |
| | 30,784 |
| | — |
|
| Other liabilities | — |
| | 1,677 |
| | — |
|
| Total liabilities assumed | — |
| | 401,363 |
| | — |
|
| | | | | | |
| Net non-cash (liabilities) acquired | — |
| | $ | (126,818 | ) | | — |
|
| Cash and cash equivalents acquired in acquisitions | — |
| | 126,818 |
| | — |
|
See accompanying notes to consolidated financial statements.
STERLING BANCORP AND SUBSIDIARIES
Notes to Consolidated
Financial Statements
of IncomeFor the years ended September 30,
(Dollars in thousands, except per share data)
| | | | | | | | | | | | |
| | | 2011 | | | 2010 | | | 2009 | |
Interest and dividend income: | | | | | | | | | | | | |
Loans, including fees | | $ | 89,500 | | | $ | 92,542 | | | $ | 97,149 | |
Taxable securities | | | 14,493 | | | | 18,208 | | | | 25,552 | |
Non-taxable securities | | | 7,441 | | | | 7,774 | | | | 7,520 | |
Other earning assets | | | 1,180 | | | | 1,250 | | | | 1,369 | |
| | | | | | | | | | | | |
Total interest and dividend income | | | 112,614 | | | | 119,774 | | | | 131,590 | |
| | | | | | | | | | | | |
Interest expense: | | | | | | | | | | | | |
Deposits | | | 6,104 | | | | 8,517 | | | | 18,375 | |
Borrowings | | | 15,220 | | | | 17,923 | | | | 19,345 | |
| | | | | | | | | | | | |
Total interest expense | | | 21,324 | | | | 26,440 | | | | 37,720 | |
| | | | | | | | | | | | |
Net interest income | | | 91,290 | | | | 93,334 | | | | 93,870 | |
Provision for loan losses | | | 16,584 | | | | 10,000 | | | | 17,600 | |
| | | | | | | | | | | | |
Net interest income after provision for loan losses | | | 74,706 | | | | 83,334 | | | | 76,270 | |
| | | | | | | | | | | | |
Non-interest income: | | | | | | | | | | | | |
Deposit fees and service charges | | | 10,811 | | | | 11,228 | | | | 12,393 | |
Net gain on sale of securities | | | 10,011 | | | | 8,157 | | | | 18,076 | |
Other than temporary impairment on securities | | | (278 | ) | | | — | | | | — | |
Title insurance fees | | | 1,224 | | | | 1,157 | | | | 1,005 | |
Bank owned life insurance | | | 2,049 | | | | 2,044 | | | | 2,755 | |
Gain (loss) on sale of premises and equipment | | | — | | | | (54 | ) | | | 517 | |
Net gain on sales of loans | | | 1,027 | | | | 867 | | | | 961 | |
Investment management fees | | | 3,080 | | | | 3,070 | | | | 2,576 | |
Fair value loss on interest rate caps | | | (197 | ) | | | (1,106 | ) | | | — | |
Other | | | 2,224 | | | | 1,838 | | | | 1,670 | |
| | | | | | | | | | | | |
Total non-interest income | | | 29,951 | | | | 27,201 | | | | 39,953 | |
| | | | | | | | | | | | |
Non-interest expense: | | | | | | | | | | | | |
Compensation and employee benefits | | | 43,662 | | | | 43,589 | | | | 39,520 | |
Defined benefit settlement charge / CEO transition | | | 1,772 | | | | — | | | | — | |
Restructuring charge (severance / branch relocation) | | | 3,201 | | | | — | | | | — | |
Stock-based compensation plans | | | 1,162 | | | | 1,543 | | | | 2,942 | |
Occupancy and office operations | | | 14,508 | | | | 13,434 | | | | 12,802 | |
Advertising and promotion | | | 3,328 | | | | 3,252 | | | | 3,093 | |
Professional fees | | | 4,389 | | | | 4,019 | | | | 3,090 | |
Data and check processing | | | 2,763 | | | | 2,285 | | | | 2,284 | |
Amortization of intangible assets | | | 1,426 | | | | 1,849 | | | | 2,185 | |
ATM/debit card expense | | | 1,584 | | | | 1,601 | | | | 2,115 | |
Foreclosed property expense | | | 1,171 | | | | 137 | | | | 207 | |
FDIC insurance and regulatory assessments | | | 2,910 | | | | 3,675 | | | | 4,257 | |
Other | | | 8,235 | | | | 7,786 | | | | 7,692 | |
| | | | | | | | | | | | |
Total non-interest expense | | | 90,111 | | | | 83,170 | | | | 80,187 | |
| | | | | | | | | | | | |
Income before income tax expense | | | 14,546 | | | | 27,365 | | | | 36,036 | |
Income tax expense | | | 2,807 | | | | 6,873 | | | | 10,175 | |
| | | | | | | | | | | | |
Net income | | $ | 11,739 | | | $ | 20,492 | | | $ | 25,861 | |
| | | | | | | | | | | | |
Weighted average common shares: | | | | | | | | | | | | |
Basic | | | 37,452,596 | | | | 38,161,180 | | | | 38,537,881 | |
Diluted | | | 37,453,542 | | | | 38,185,122 | | | | 38,705,837 | |
Earnings per common share (note 13) | | | | | | | | | | | | |
Basic | | $ | 0.31 | | | $ | 0.54 | | | $ | 0.67 | |
Diluted | | $ | 0.31 | | | $ | 0.54 | | | $ | 0.67 | |
See accompanying notes to consolidated financial statements.
PROVIDENT NEW YORK BANCORP AND SUBSIDIARIES
Consolidated Statements of Changes in Stockholders’ Equity
Years Ended September 30, 2011, 2010 and 2009
(Dollars in thousands, except per share data)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Number of
Shares | | | Common
Stock | | | Additional
Paid-in
Capital | | | Unallocated
ESOP
Shares | | | Treasury
Stock | | | Retained
Earnings | | | Accumulated
Other
Comprehensive
Income (loss) | | | Total
Stockholders’
Equity | |
Balance at October 1, 2008 | | | 39,815,213 | | | $ | 459 | | | $ | 352,882 | | | $ | (7,635 | ) | | $ | (75,687 | ) | | $ | 138,720 | | | $ | (9,581 | ) | | $ | 399,158 | |
Net income | | | | | | | | | | | | | | | | | | | | | | | 25,861 | | | | | | | | 25,861 | |
Other comprehensive income | | | | | | | | | | | | | | | | | | | | | | | | | | | 12,058 | | | | 12,058 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Total comprehensive income | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 37,919 | |
Deferred compensation transactions | | | — | | | | — | | | | 128 | | | | — | | | | — | | | | — | | | | — | | | | 128 | |
Stock option transactions, net | | | 181,969 | | | | — | | | | 1,066 | | | | — | | | | 2,182 | | | | (2,009 | ) | | | — | | | | 1,239 | |
ESOP shares allocated or committed to be released for allocation (49,932 shares) | | | — | | | | — | | | | (11 | ) | | | 499 | | | | — | | | | — | | | | — | | | | 488 | |
Vesting of RRP shares | | | — | | | | — | | | | 1,688 | | | | — | | | | — | | | | — | | | | — | | | | 1,688 | |
Other RRP transactions | | | (34,164 | ) | | | — | | | | — | | | | — | | | | (326 | ) | | | — | | | | — | | | | (326 | ) |
Purchase of treasury stock | | | (415,811 | ) | | | — | | | | — | | | | — | | | | (3,459 | ) | | | — | | | | — | | | | (3,459 | ) |
Cash dividends paid ($0.24 per common share) | | | — | | | | — | | | | — | | | | — | | | | — | | | | (9,379 | ) | | | — | | | | (9,379 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Balance at September 30, 2009 | | | 39,547,207 | | | | 459 | | | | 355,753 | | | | (7,136 | ) | | | (77,290 | ) | | | 153,193 | | | | 2,477 | | | | 427,456 | |
Net income | | | | | | | | | | | | | | | | | | | | | | | 20,492 | | | | | | | | 20,492 | |
Other comprehensive income | | | | | | | | | | | | | | | | | | | | | | | | | | | 2,647 | | | | 2,647 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Total comprehensive income | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 23,139 | |
Deferred compensation transactions | | | — | | | | — | | | | 87 | | | | — | | | | — | | | | — | | | | — | | | | 87 | |
Stock option transactions, net | | | 249,953 | | | | — | | | | 247 | | | | — | | | | 3,016 | | | | (2,036 | ) | | | — | | | | 1,227 | |
ESOP shares allocated or committed to be released for allocation (49,932 shares) | | | — | | | | — | | | | (58 | ) | | | 499 | | | | — | | | | — | | | | — | | | | 441 | |
Vesting of RRP shares | | | — | | | | — | | | | 883 | | | | — | | | | | | | | — | | | | — | | | | 883 | |
Other RRP transactions | | | (18,949 | ) | | | — | | | | — | | | | — | | | | (177 | ) | | | — | | | | — | | | | (177 | ) |
Purchase of treasury stock | | | (1,515,923 | ) | | | — | | | | — | | | | — | | | | (12,885 | ) | | | — | | | | — | | | | (12,885 | ) |
Cash dividends paid ($0.24 per common share) | | | — | | | | — | | | | — | | | | — | | | | — | | | | (9,216 | ) | | | — | | | | (9,216 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Balance at September 30, 2010 | | | 38,262,288 | | | | 459 | | | | 356,912 | | | | (6,637 | ) | | | (87,336 | ) | | | 162,433 | | | | 5,124 | | | | 430,955 | |
Net income | | | | | | | | | | | | | | | | | | | | | | | 11,739 | | | | | | | | 11,739 | |
Other comprehensive income | | | | | | | | | | | | | | | | | | | | | | | | | | | 12 | | | | 12 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Total comprehensive income | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 11,751 | |
Deferred compensation transactions | | | — | | | | — | | | | 45 | | | | — | | | | — | | | | — | | | | — | | | | 45 | |
Stock option transactions, net | | | — | | | | — | | | | 558 | | | | — | | | | — | | | | — | | | | — | | | | 558 | |
ESOP shares allocated or committed to be released for allocation (49,932 shares) | | | — | | | | — | | | | (59 | ) | | | 499 | | | | — | | | | — | | | | — | | | | 440 | |
RRP awards | | | 63,870 | | | | — | | | | (561 | ) | | | — | | | | 561 | | | | — | | | | — | | | | — | |
Vesting of RRP shares | | | — | | | | — | | | | 168 | | | | — | | | | — | | | | — | | | | — | | | | 168 | |
Other RRP transactions | | | (4,696 | ) | | | — | | | | — | | | | — | | | | (30 | ) | | | — | | | | — | | | | (30 | ) |
Purchase of treasury stock | | | (457,454 | ) | | | — | | | | — | | | | — | | | | (3,780 | ) | | | — | | | | — | | | | (3,780 | ) |
Cash dividends paid ($0.24 per common share) | | | — | | | | — | | | | — | | | | — | | | | — | | | | (8,973 | ) | | | — | | | | (8,973 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Balance at September 30, 2011 | | | 37,864,008 | | | $ | 459 | | | $ | 357,063 | | | $ | (6,138 | ) | | $ | (90,585 | ) | | $ | 165,199 | | | $ | 5,136 | | | $ | 431,134 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
See accompanying notes to consolidated financial statements.
PROVIDENT NEW YORK BANCORP AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Years Ended September 30, 2011, 2010 and 2009
(Dollars in thousands)
| | | | | | | | | | | | |
| | | 2011 | | | 2010 | | | 2009 | |
Cash flows from operating activities: | | | | | | | | | | | | |
Net income | | $ | 11,739 | | | $ | 20,492 | | | $ | 25,861 | |
Adjustments to reconcile net income to net cash provided by operating activities | | | | | | | | | | | | |
Provisions for loan losses | | | 16,584 | | | | 10,000 | | | | 17,600 | |
(Gain) loss on other real estate owned | | | 869 | | | | (18 | ) | | | 186 | |
Depreciation of premises and equipment | | | 6,177 | | | | 5,144 | | | | 4,675 | |
Amortization of intangibles | | | 1,426 | | | | 1,849 | | | | 2,185 | |
Net gain on sale of securities | | | (10,011 | ) | | | (8,157 | ) | | | (18,076 | ) |
Other than temporary impairment (credit loss) | | | 278 | | | | — | | | | — | |
Fair value loss on interest rate cap | | | 197 | | | | 1,106 | | | | — | |
Net gains on loans held for sale | | | (1,027 | ) | | | (867 | ) | | | (961 | ) |
(Gain) loss on sale of premises and equipment | | | — | | | | 54 | | | | (517 | ) |
Net amortization of premium and discounts on securities | | | 3,181 | | | | 3,209 | | | | 1,715 | |
Accrued restructuring expense | | | 3,201 | | | | — | | | | — | |
Accretion of premiums on borrowings (includes calls on borrowings) | | | (30 | ) | | | (223 | ) | | | (440 | ) |
Amortization of payment fees on restructured borrowings | | | 1,033 | | | | — | | | | — | |
ESOP and RRP expense | | | 607 | | | | 1,325 | | | | 2,178 | |
ESOP forfeitures | | | (3 | ) | | | (29 | ) | | | (4 | ) |
Stock option compensation expense | | | 558 | | | | 247 | | | | 768 | |
Originations of loans held for sale | | | (49,807 | ) | | | (52,839 | ) | | | (50,677 | ) |
Proceeds from sales of loans held for sale | | | 52,548 | | | | 49,029 | | | | 49,653 | |
Increase in cash surrender value of bank owned life insurance | | | (2,049 | ) | | | (1,327 | ) | | | (1,961 | ) |
Deferred income tax (benefit) expense | | | 118 | | | | 26 | | | | (1,640 | ) |
Net changes in accrued interest receivable and payable | | | 674 | | | | (1,536 | ) | | | (585 | ) |
Other adjustments (principally net changes in other assets and other liabilities) | | | (9,785 | ) | | | (5,624 | ) | | | (9,273 | ) |
| | | | | | | | | | | | |
Net cash provided by operating activities | | | 26,478 | | | | 21,861 | | | | 20,687 | |
| | | | | | | | | | | | |
Cash flows from investing activities: | | | | | | | | | | | | |
Purchases of securities: | | | | | | | | | | | | |
Available for sale | | | (622,551 | ) | | | (830,613 | ) | | | (708,727 | ) |
Held to maturity | | | (93,764 | ) | | | (23,023 | ) | | | (25,095 | ) |
Proceeds from maturities, calls and other principal payments on securities | | | | | | | | | | | | |
Available for sale | | | 251,774 | | | | 328,993 | | | | 153,585 | |
Held to maturity | | | 17,220 | | | | 33,780 | | | | 22,548 | |
Proceeds from sales of securities available for sale | | | 540,145 | | | | 443,389 | | | | 556,796 | |
Proceeds from sales of securities held to maturity | | | 357 | | | | — | | | | 625 | |
Loan originations | | | (578,631 | ) | | | (472,066 | ) | | | (450,551 | ) |
Loan principal payments | | | 553,235 | | | | 461,632 | | | | 469,157 | |
Purchase of interest rate cap derivatives | | | — | | | | (1,368 | ) | | | — | |
Proceeds from sale of FHLB stock, net | | | 1,988 | | | | 3,605 | | | | 5,498 | |
Proceeds from sales of other real estate owned | | | 301 | | | | | | | | | |
Purchases of premises and equipment | | | (3,465 | ) | | | (8,152 | ) | | | (8,852 | ) |
Proceeds from the sale of fixed assets | | | — | | | | 48 | | | | 718 | |
Purchases of bank owned life insurance | | | (3,980 | ) | | | — | | | | — | |
| | | | | | | | | | | | |
Net cash provided by (used in) investing activities | | | 62,629 | | | | (63,775 | ) | | | 15,702 | |
| | | | | | | | | | | | |
PROVIDENT NEW YORK BANCORP AND SUBSIDIARIES
Consolidated Statements of Cash Flows Continued
Years Ended September 30, 2011, 2010 and 2009
(Dollars in thousands)
| | | | | | | | | | | | |
| | | 2011 | | | 2010 | | | 2009 | |
Cash flows from financing activities | | | | | | | | | | | | |
Net increase in transaction, savings and money market deposits | | | 227,907 | | | | 177,808 | | | | 124,037 | |
Net decrease in time deposits | | | (73,914 | ) | | | (117,388 | ) | | | (30,952 | ) |
Net decrease in short-term borrowings | | | (34,840 | ) | | | (62,500 | ) | | | (153,791 | ) |
Gross repayments of long-term borrowings | | | (1,238 | ) | | | (4,152 | ) | | | (3,995 | ) |
Gross proceeds from long-term borrowings | | | — | | | | — | | | | 22,840 | |
Net increase in borrowings senior unsecured note | | | — | | | | — | | | | 51,500 | |
Payments of pre-payment fees on FHLBNY advances | | | (5,151 | ) | | | — | | | | — | |
Net (decrease) increase in mortgage escrow funds | | | 1,503 | | | | (207 | ) | | | 1,133 | |
Treasury shares purchased | | | (3,810 | ) | | | (13,062 | ) | | | (3,785 | ) |
Stock option transactions | | | 4 | | | | 1,008 | | | | 473 | |
Other stock-based compensation transactions | | | 45 | | | | 87 | | | | 128 | |
Cash dividends paid | | | (8,973 | ) | | | (9,216 | ) | | | (9,379 | ) |
| | | | | | | | | | | | |
Net cash provided by (used in) financing activities | | | 101,533 | | | | (27,622 | ) | | | (1,791 | ) |
| | | | | | | | | | | | |
Net increase (decrease) in cash and cash equivalents | | | 190,640 | | | | (69,536 | ) | | | 34,598 | |
Cash and cash equivalents at beginning of year | | | 90,872 | | | | 160,408 | | | | 125,810 | |
| | | | | | | | | | | | |
Cash and cash equivalents at end of year | | $ | 281,512 | | | $ | 90,872 | | | $ | 160,408 | |
| | | | | | | | | | | | |
Supplemental cash flow information: | | | | | | | | | | | | |
Interest payments | | $ | 21,815 | | | $ | 27,379 | | | $ | 38,714 | |
Income tax payments | | | 9,070 | | | | 7,993 | | | | 11,739 | |
Loans transferred to real estate owned | | | 1,932 | | | | 2,943 | | | | 1,815 | |
Net change in unrealized gains recorded on securities available for sale | | | 1,653 | | | | 5,241 | | | | 25,900 | |
Change in deferred taxes on unrealized gains on securities available for sale | | | (671 | ) | | | (2,122 | ) | | | (10,506 | ) |
Issuance of RRP shares | | | 561 | | | | — | | | | — | |
See accompanying notes to consolidated financial statements.
PROVIDENT NEW YORK BANCORP AND SUBSIDIARIES
Consolidated Statements of Comprehensive Income
For the years ended September 30, 2011, 2010, and 2009
(in thousands, except share data)
| | | | | | | | | | | | |
| | | 2011 | | | 2010 | | | 2009 | |
Net income: | | $ | 11,739 | | | $ | 20,492 | | | $ | 25,861 | |
Other comprehensive income: | | | | | | | | | | | | |
Net unrealized holding gains on securities available for sale net of related tax expense of $4,624, $5,435, and $17,834 | | | 6,762 | | | | 7,963 | | | | 26,142 | |
Less: | | | | | | | | | | | | |
Reclassification adjustment for net unrealized gains included in net income, net of related income tax expense of $4,065, $3,313 and $7,328 | | | 5,946 | | | | 4,844 | | | | 10,748 | |
Reclassification adjustment for other than temporary losses included in net income, net of related income tax benefit of $113, $0, and $0 | | | (165 | ) | | | — | | | | — | |
| | | | | | | | | | | | |
| | | 981 | | | | 3,119 | | | | 15,394 | |
Change in funded status of defined benefit plans, net of related income tax expense of $665, $327, and $2,280 | | | (969 | ) | | | (472 | ) | | | (3,336 | ) |
| | | | | | | | | | | | |
| | | 12 | | | | 2,647 | | | | 12,058 | |
| | | | | | | | | | | | |
Total comprehensive income | | $ | 11,751 | | | $ | 23,139 | | | $ | 37,919 | |
| | | | | | | | | | | | |
See accompanying notes to consolidated financial statements.
PROVIDENT NEW YORK BANCORP AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollars in thousands, except per share data)
(1) Basis of Financial Statement Presentation and Summary of Significant Accounting Policies
Merger with Sterling Bancorp
On October 31, 2013, Provident New York Bancorp completed its acquisition of Sterling Bancorp (“Legacy Sterling”). In connection with the merger, Provident New York Bancorp completed the following corporate actions:
Legacy Sterling merged with and 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.
Provident Bank converted to a national bank charter.
Sterling National Bank merged into Provident Bank.
Provident Bank changed its legal entity name to Sterling National Bank.
Provident Municipal Bank merged into Sterling National Bank.
We refer to the transactions detailed above collectively as the “Merger”.
The consolidated financial statements include the accounts of
Provident New YorkSterling Bancorp (“
Provident Bancorp”Sterling” or
“the Company”the “Company”),
Hardenburgh AbstractPBNY Holdings, Inc. which has an investment in PB Madison Title
Company, whichAgency L.P., a company that provides title searches and
title insurance for residential and commercial real estate,
Hudson Valley Investment Advisors,LandSave Development, LLC
(“HVIA”) a registered investment advisor,an inactive subsidiary, Provident Risk Management (a captive insurance company),
ProvidentSterling National Bank
(“the Bank”(the “Bank”) and the Bank’s wholly owned subsidiaries. These subsidiaries
areincluded at September 30, 2013 (i) Provident Municipal Bank (“PMB”) which
iswas a limited-purpose, New York State-chartered commercial bank formed to accept deposits from municipalities in the Company’s market area
and was merged into the Bank at the time of the Merger, (ii) Provident REIT, Inc. and WSB Funding, Inc. which are real estate investment trusts that hold a portion of the Company’s real estate loans, (iii) Provest Services Corp. I, which has invested in a low-income housing partnership, and (iv) Provest Services Corp. II, which has engaged a third-party provider to sell mutual funds and annuities to the Bank’s customers and (v) Limited Liability Companies, which hold
foreclosed properties acquiredother real estate owned held by the
bank.Bank. Intercompany transactions and balances are eliminated in consolidation.
The consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America. Certain amounts from prior years have been reclassified to conform to the current fiscal year presentation. Reclassifications had no affect on prior year net income or
shareholders’stockholders’ equity.
(a)Nature of BusinessProvident New York
Since October 31, 2013, Sterling Bancorp (“
Provident Bancorp”Sterling” or the “Company”)
, is a
unitary savingsbank holding company and
loanfinancial holding company
under the Bank Holding Company Act of 1956. Sterling is a Delaware corporation that owns all of the outstanding shares of
ProvidentSterling National Bank (the “Bank”)
. Provident Bancorp and 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 Sterling is listed on the New York Bancorp in order to differentiate itself from the numerous bank holding companies with similar names. It began trading on the NASDAQStock Exchange (NYSE) 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.”
TheSTL.
Sterling National Bank, an independent, full-service bank founded in 1888, is a community bank offering financial services to individuals and businesses primarilyheadquartered in Rockland and Orange Counties,Montebello, New York and is the contiguousprincipal bank subsidiary of Sterling. The Bank accounts for substantially all of Sterling’s consolidated assets and net income. We operate through commercial banking teams and financial centers which serve the greater New York metropolitan region. The Bank targets specific geographic markets - the New York Metro Market, which includes Manhattan and Long Island; and our New York Suburban Market, which consists of Rockland, Orange, Sullivan, Ulster, Putnam and Westchester and Putnam Counties,counties in New York and Bergen County in New Jersey. In October 2011, the Company announced its plans to expand into the New York City market.
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. TheIn connection with the Merger, the Bank isbecame a federally-chartered savings associationnational bank and its deposits are insured up to applicable limits by the Deposit Insurance Fund of the Federal Deposit Insurance Corporation (FDIC). The Office of the Comptroller of the Currency (“OCC”) and the Federal Reserve Bank isBoard are the primary regulatorregulators for Provident Bancorp. Of the Bank’s loans 87% are collateralized or dependentBank and the Company, respectively.
At September 30, 2012, the Company had $4.5 million of assets held for sale that represented the assets of Hudson Valley Investment Advisors (“HVIA”). The Company entered into an agreement to sell HVIA subsequent to September 30, 2012. The transaction settled on real estate.November 16, 2012.
STERLING BANCORP AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollars in thousands, except per share data)
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,
managementthe Company 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.
PROVIDENT NEW YORK BANCORP AND SUBSIDIARIES(c)Notes to Consolidated Financial Statements
(Dollars in thousands, except per share data)
(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.
(d) Restrictions on Cash
A portion of the Company's cash on hand and on deposit with the Federal Reserve Bank was required to meet regulatory reserve and clearing requirements.
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)(f)Fair Values of Financial InstrumentsFair 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. (See
note 18)Note 17.)
(f)(g)Adoption of New Accounting StandardsAccounting Standards Update (ASU) 2009-16,Transfers2013-02, Comprehensive Income (Topic 220): Reporting Amounts Reclassified out of Accumulated Other Comprehensive Income. The amendments in this Update supersede and Servicing (Topic 860)-Accountingreplace the presentation requirements for Transfersreclassifications out of Financial Assetshas been issued. ASU 2009-16 willaccumulated other comprehensive income in ASUs 2011-05 (issued in June 2011) and 2011-12 (issued in December 2011) for all public and private organizations. The amendments require morean entity to provide additional information about transfersreclassifications out of financial assets, including securitization transactions, and whereaccumulated other comprehensive income. For public entities, have continuing exposure to the risks related to transferred financial assets. This standard wasamendments were effective for the Company October 1, 2010 and did not 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 Entitieshas 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 was effectiveperiods beginning after December 15, 2012. See Note 19. Accumulated Other Comprehensive (Loss) Income for the Company October 1, 2010 did not 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. The effectimpact of adopting this new guidance was immaterial.standard.
ASU 2010-20,Receivables (Topic 310)-Disclosures abut the Credit Quality of Financing Receivables and the Allowance for Credit Lossesrequires 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. The effect of adopting this new guidance was immaterial.(h)Accounting Standards Update (ASU) 2011-02,Receivables (Topic 310)-A Creditor’s Determination of Whether a Restructuring is a Troubled Debt Restructuringhas been issued. The ASU clarifies which loan modifications constitute troubled debt restructurings and assists creditors in determining whether a modification of the terms of a receivable meets the criteria to be considered a troubled debt restructuring, both for purposes of recording an impairment loss and for disclosure of troubled debt restructurings. This standard was effective for the Company July 1, 2011 and did not have a material effect on the Company’s consolidated financial statements.Securities
PROVIDENT NEW YORK BANCORP AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollars in thousands, except per share data)
(g)Securities
Securities include U.S. Treasury, U.S. Government Agency and Government Sponsored Agencies, municipal and corporate bonds,
mortgage backedmortgage-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 determinesWe determine the appropriate classification of the Company’s securities at the time of purchase.
Held-to-maturity
Held to maturity securities are limited to debt securities for which
management haswe have 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-saleAvailable for sale securities include securities that management intendswe intend to hold for an indefinite period of time, such as securities to be used as part of the Company’s
STERLING BANCORP AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollars in thousands, except per share data)
asset/liability management strategy or securities that may be sold
to fund loan growth, in response to changes in interest rates, changes in prepayment risks, the need to increase capital, or similar factors.
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 backedmortgage-backed securities are based on the estimated cash flows of the
mortgage backedmortgage-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.
The Company uses a discounted cash flow (“DCF”) analysis to provide an estimate of an other than temporary impairment (“OTTI”) loss. Inputs to the discount model included known defaults and interest deferrals, projected additional default rates, projected additional deferrals of interest, over collateralization tests, interest coverage tests and other factors. Expected default and deferral rates are weighted toward the near future to reflect the current adverse economic environment affecting the banking industry. The discount rate is based upon the yield expected from the related securities. 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
for impairment at least quarterly, and more frequently when economic and market conditions warrant such an evaluation. For securities in an unrealized loss position,
management considerswe consider the extent and duration of the unrealized loss, and the financial condition of the issuer.
ManagementThe Company also assesses whether it intends 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 it is not more likely than not that 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
PROVIDENT NEW YORK BANCORP AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollars in thousands, except per share data)
below cost are considered to be other than temporary. As of September 30, 20112013 the Company does not intend to sell nor is it more likely than not that it would be required to sell any of its debt securities with unrealized losses prior to recovery of its amortized cost basis less any current-periodcurrent period credit loss.
(h)(i)Loans Held For SaleMortgage 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. In the absence of commitments from investors, fair value is based on current investor yield requirements. Net unrealized losses, if any, are recorded as a valuation allowance and charged to earnings.
Mortgage loans held for sale are generally sold with servicing rights retained. The carrying value of mortgage loans sold is reduced by the amount allocated to the
value of the servicing
right.right which is 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.
When mortgage loans are sold with servicing retained, servicing rights are initially recorded at fair value with the income statement effect recorded in gains 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.
All classes of servicing assets are subsequently measured using the amortization method which requires servicing rights to be amortized into non-interest income in proportion to, and over the period of, the estimated future net servicing income of the underlying loans.
Under the
fair valueamortization measurement method, the Company
subsequently measures servicing rights at fair value at each reporting date and
reports changesrecords any impairment in
fair value of servicing assets in earnings in the period in which the
changes occur, and are included with other income on the income statement.impairment occurs. The fair values of servicing rights are subject to significant fluctuations as a result of changes in estimated and actual prepayment speeds and default rates and losses.
Servicing fee income, which is reported on the income statement as other income, is recorded for fees earned for servicing loans. The fees are based on a contractual percentage of the outstanding principal; or a fixed amount per loan and are recorded as income when earned. Servicing fees totaled $623, $507$778, $695 and $13$623 for the years ended September 30, 2011, 20102013, 2012 and 2009,2011, respectively. Late fees and ancillary fees related to loan servicing are not material. Note effective October 1, 2013 the Bank transferred servicing of residential mortgage loans to a nationally recognized mortgage loan servicing company.
Loans where
management haswe have 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. Interest income on loans is accrued on the
level yield method.unpaid principal balance.
STERLING BANCORP AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollars in thousands, except per share data)
A loan is placed on non-accrual status when management haswe have 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 while interest recorded in the prior year is charged to the allowance for loan losses.income. 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. Furthermore, negative tax escrow will be included in the unpaid principal for loans individually evaluated for impairment, as this is part of the customer’s legal obligation to the Company.
The Company defers nonrefundable loan origination and commitment fees, and certain direct loan origination costs, and amortizes the net amount 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(l)Allowance for Loan Losses
The allowance for loan losses is a reserve established through a provision for loan losses charged to expense, which represents management’s best estimate of probable incurred credit losses inherent in the loan portfolio. The allowance for loan losses, is a critical accounting estimate and requires substantial judgment of management. The allowance for loan losses includes allowance allocations calculated in accordance with ASC Subtopic 450-20, “Loss Contingencies” and ASC Subtopic 310-35-2, “Loan Impairment.” The level of the allowance reflects management’s continuing evaluation of loan loss experience, specific credit risks, current loan portfolio quality, industry and loan type concentrations, economic and regulatory conditions and unidentified losses inherent in the loan portfolios, as well as trends in the foregoing. The Company analyzes loans by two broad segments or classes: real estate secured loans and loans that are either unsecured or secured by other collateral.
The segments or classes considered real estate secured are: residential mortgage loans; commercial real estate (“CRE”) loans; business banking CRE; acquisition, development and construction (“ADC”) loans; homeowner loans, and home equity lines of credit. The segments or classes considered unsecured or secured by other than real estate collateral are: commercial & industrial (“C&I”) loans, business banking C&I loans and consumer loans. In all segments or classes, significant loans are reviewed for impairment once they are past due 90 days or more, or are classified substandard or doubtful. Generally the Company considers a homogeneous residential mortgage or home equity line of credit to be significant if the Company’s investment in the loan is greater than $500. If a loan is deemed to be impaired in one of the real estate secured segments, it is generally considered collateral dependent. If the value of the collateral securing a collateral dependent impaired loan is less than the loan’s carrying value, a charge-off is recognized equal to the difference between the appraised value and the book value of the loan. Additionally impairment reserves are recognized for estimated costs to hold and to liquidate and a 10% discount of the appraisal value. The ranges for the costs to hold and liquidate are 12-22% for the following segments: CRE, business banking CRE and ADC loans and 7-13% for homeowner loans, home equity lines of credit, and residential mortgage loans. Impaired loans in the real estate secured segments are re-appraised using a summary or drive-by appraisal report every six to nine months.
For loans in the business banking C&I segmentwe charge off the full amount of the loan when it becomes 90 days or more past due, or earlier in the case of bankruptcy, after giving effect to any cash or marketable securities pledged as collateral for the loan. For loans in the C&I loan segment, we conduct a cash flow projection, and charge off the difference between the net present value of the cash flows discounted at the effective note rate and the carrying value of the loan, and generally recognize a 10% impairment reserve to account for the imprecision of our estimates. However, for most of these cases receipt of future cash flows is too unreliable to be considered probable, resulting in the charge off of the entire balance of the loan. For unsecured consumer loans, charge offs are recognized once the loan is 90 to 120 days or more past due or the borrower files for bankruptcy protection.
Subsequent recoveries, if any, are credited to the allowance for loan losses. The allowance for loan losses consists of amounts specifically allocated to non-performing loans and other criticized or classified loans (if any), as well as allowances determined for the pass rated loans in each major loan category. After we establish an allowance for loan losses that are known to be non-performing, criticized or classified, we calculate a percentage to apply to the remaining loan portfolio to estimate the probable incurred losses inherent in that portion of the portfolio. These percentages are determined by management, based on historical loss experience for the applicable loan category, and are adjusted to reflect our evaluation of:
•levels of, and trends in, delinquencies and non-accruals;
STERLING BANCORP AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollars in thousands, except per share data)
(k)Allowance•trends in volume and terms of loans;
•effects of any changes in lending policies and procedures;
•experience, ability, and depth of lending management and staff;
•national and local economic trends and conditions;
concentrations of credit by such factors as location, industry, inter-relationships, and borrower; and for
Loan Lossescommercial loans, trends in risk ratings.
Land acquisition, development and construction lending is considered higher risk and exposes us to greater credit risk than permanent mortgage financing. The repayment of land acquisition, development and construction loans depends upon the sale of the property to third parties or the availability of permanent financing upon completion of all improvements. In the event we make an acquisition loan on property that is not yet approved for the planned development, there is the risk that approvals will not be granted or will be delayed. These events may adversely affect the borrower and the collateral value of the property. Development and construction loans also expose us to the risk that improvements will not be completed on time in accordance with specifications and projected costs. In addition, the ultimate sale or rental of the property may not occur as anticipated. All of these factors are considered as part of the underwriting, structuring and pricing of the loan. We have deemphasized this type of loan.
Commercial real estate loans subject us to the risks that the property securing the loan may not generate sufficient cash flow to service the debt or the borrower may use the cash flow for other purposes. In addition, the foreclosure process, if necessary may be slow and properties may deteriorate in the process. The market values are also subject to a wide variety of factors, including general economic conditions, industry specific factors, environmental factors, interest rates and the availability and terms of credit.
Commercial business lending is also higher risk because repayment depends on the successful operation of the business which is subject to a wide range of risks and uncertainties. In addition, the ability to successfully liquidate collateral, if any, is subject to a variety of risks because we must gain control of assets used in the borrower’s business before foreclosing which we cannot be assured of doing, and the value in a foreclosure sale or other means of liquidation is subject to downward pressure.
When we evaluate residential mortgage loans and equity loans we weigh both the credit capacity of the borrower and the collateral value of the home. As unemployment and underemployment increases, and liquidity reserves if any, diminish, the credit capacity of the borrower decreases, which increases our risk. Also, after a period of years of stable or increasing home values in our market, home prices have declined from a high in 2005 and 2006. We are exposed to risk in both our first mortgage and equity lending programs due to declines in values in recent years. We are also exposed to risk because the time to foreclose is significant and has become longer under current conditions.
The carrying value of loans is periodically evaluated and the allowance
for loan losses is
established through provisions for losses chargedadjusted accordingly. While management uses the best information available to
earnings. Losses on loans (including impaired loans) are chargedmake evaluations, future adjustments to
the allowance may be necessary if conditions differ substantially from the information used in making the evaluations. In addition, as an integral part of their examination process, our regulatory agencies periodically review the allowance for loan
losses when management believes that the collection of principal is unlikely. Recoveries of loans previously charged-off are creditedlosses. Such agencies may require us to recognize additions to the allowance
when realized.The allowancebased on their judgments of information available to them at the time of their examination.
(m) Troubled Debt Restructuring
Troubled debt restructuring (“TDR”) is a formally renegotiated loan in which the Bank, for loan losses is an amount that management believes is necessaryeconomic or legal reasons related to absorb probable incurred losses on existing loans that may become uncollectible. Management’s evaluations, which are subject to periodic review by the Company’s primary regulator, 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 adjustmentsa borrower’s financial difficulties, grants a concession 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 factors. The process of assessing the adequacy of the allowance for loan loss is subjective, particularly in times of economic downturns. It is reasonably possibleborrower 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 willwould 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 loan is collateral dependent. If the measure of an impaired loan is less than its recorded investment, a portion of the allowance for loan losses is allocated so that the loan is reported, net, at its measured value.
(l) Troubled Debt Restructuring
Troubled debt restructurings are renegotiated loans for which concessions have been granted to the borrower otherwise. Not all loans that are restructured as a TDR are classified as non accrual before the Company would not have otherwise granted and the borrower is experiencing financial difficulty.restructuring occurs. Restructured loans are recorded incan convert from non accrual to 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.
(m) (n) Federal Home Loan Bank StockAs a member of the Federal Home Loan Bank (FHLB) of New York, the Bank is required to hold a certain amount of FHLB
common stock. This stock is a non-marketable equity security and, accordingly, is reported at cost.
(n)(o) Premises and EquipmentLand 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 ofPROVIDENT NEW YORK BANCORP AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollars in thousands, except per share data)
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
STERLING BANCORP AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollars in thousands, except per share data)
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.
(o) (p) Goodwill and Other Intangible AssetsGoodwill 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 businesses 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.
The Company accounts for goodwill and other intangible assets in accordance with GAAP, which, in general, requires that goodwill not be amortized, but rather that it be tested for impairment at least annually at the reporting unit level.
There are two stepsThe Company has the option to
first perform a qualitative assessment to test goodwill for impairment on a reporting-unit-by-reporting-unit basis. If after performing the
process:qualitative assessment, the Company concludes that it is more likely than not that the fair value of a reporting unit is less than its carrying amount, the Company will perform the two-step process described below:
| |
| 1. | Identify potential impairments by comparing the fair value of a reporting unit to its carrying amount, including goodwill. Goodwill is not considered impaired as long as the fair value of the reporting unit is greater than its carrying value. The second step is only required if a potential impairment to goodwill is identified in step one. |
| |
| 2. | Compare the implied fair value of goodwill to its carrying amount, where the implied fair value of goodwill is computed on a residual basis, that is, by subtracting the sum of the fair values of the individual asset categories (tangible and intangible) from the indicated fair value of the reporting unit as determined under step one. If the carrying amount of goodwill exceeds its implied fair value, an impairment loss is recognized. That loss is equal to the carrying amount of goodwill that is in excess of its implied fair value, and it must be presented as a separate line item on financial statements. |
The Company estimated the fair value of the its primary reporting unit, Provident Bank, utilizing four valuation methodologies including, (1) the Comparable Transactions approach based on pricing ratios recently paid in the sale or merger of comparable banking franchises; (2) the Control Premium approach based on the Company’s trading price followed by the application of an industry based control premium; (3) the Public Market Peers approach based on the trading prices of similar publicly-traded companies as measured by standard valuation ratios followed by application of an industry based control premium; and, (4) the Discounted Cash Flow approach where value is estimated based on the present value of projected dividends and a terminal value. These approaches were weighted to determine if impairment existed and
At September 30, 2013 the Company
determined as of September 30, 2011assessed goodwill for impairment using qualitative factors and concluded the
aggregate fair value of the reporting unit exceeded the carrying value and therefore no impairmenttwo-step process was
recorded and the step two analysis for determining the impairment was not necessary.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.
The core
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 10years
PROVIDENT NEW YORK BANCORP AND SUBSIDIARIESNotes to Consolidated Financial Statements
(Dollars in thousands, except per share data)
years on a straight-line basis.. 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.
(p)(q) Other Real Estate OwnedReal 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. Foreclosed propertiesOther real estate owned totaled $5.4$6.0 million and $3.9$6.4 million at September 30, 20112013 and 2010,2012, respectively.
(q)(r) Securities Repurchase AgreementsIn 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
statements of financial conditionbalance 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)
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 determineswe 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 meetPROVIDENT NEW YORK BANCORP AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollars in thousands, except per share data)
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, 2011.2013. See note 11 of the “Notes to Consolidated Financial Statements”Note 10 “Income Taxes”.
(r) (Bank(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).
(s)(u) Stock-Based Compensation PlansCompensation 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
Compensation cost is recognized for its stock option plan. 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 2011, 2010the fiscal years ended September 30, 2013, 2012 and 2009,2011 the Company issued 119,526, 321,976360,500, 515,000 and 88,861119,526 new stock-basedstock option awards and recognized total non-cash stock-based compensation cost of $558, $247$634, $521 and $768.$558, respectively. As of September 30, 2011,2013, the total remaining unrecognized compensation cost related to non-vested stock options was $413.$1,360. Options granted in 20112013 have a four3 year vesting period.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 during were issued in 2011 and none during 2010 and 2009.. The recognized total restricted stock compensation cost recognized during 2011, 20102013, 2012 and 20092011 was $168, $883,$1,108, $276, and $1,687,$168, respectively. As of September 30, 2011,2013, the total remaining unrecognized compensation cost related to restricted stock was $478. Options granted in 2011 have a two through four year vesting periods.$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 issued subsequent to adoption of FASB ASC Topic 718 (October 1, 2005), 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 optionstock based compensation agreement, depending upon the age of the grantee. As of September 30, 2011, 1,0002013, 11,533 restricted shares and 34,30048,121 stock options were potentially subject to accelerated vesting, and have been fully expensed. The Company did not recognizerecognized expense associated with the acceleration of restricted shares of $5 for fiscal 2013,and no expense in 2011, 2010fiscal 2012 and 2009.2011. The Company recognized expense associated with the acceleration of 0, 27,0002,000 shares in 2013, and 0no stock option shares in 2011, 20102012 and 2009,2011, respectively.
(t)(v) Earnings Per ShareBasic earnings per share
(EPS)(“EPS”) is computed by dividing net income applicable to common stock by the weighted average number of common shares outstanding during the period.
PROVIDENT NEW YORK BANCORP AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollars in thousands, except per share data)
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
RRPrestricted stock shares became vested during the periods. For purposes of computing both basic and diluted EPS, outstanding shares
exclude unallocatedinclude earned ESOP shares.
(u)(w) Segment InformationPublic companies are required to report certain financial information about significant
revenue- producingrevenue-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, substantiallySubstantially 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
the communityits banking operation, which constitutes the Company’s only operating segment for financial reporting purposes.
(2) Acquisitions(x)Summary Loss Contingencies
Loss contingencies, including claims and legal actions arising in the ordinary course of Acquisition Transactions. Belowbusiness, 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 summaryfinancial 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 acquisition transactions for Warwick Community Bancorp (2005) “WSB”, Ellenville National Bank (2004) “ENB”, National Bank of Florida (2002) “NBF”, one purchase in 2005fair value of a branch officerecognized asset or liability or of HSBC Bank USA, National Association (“HSBC”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 Hudson Valley Investment Advisors (“HVIA”).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. | | | | | | | | | | | | | | | | | | | | | | | | |
| | | 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, 2011 | | | | | | | | | | | | | | | | | | | | | | | | |
Goodwill | | $ | 3,279 | | | $ | — | | | $ | 92,145 | | | $ | 52,101 | | | $ | 13,336 | | | $ | 160,861 | |
Accumulated core deposit/other amortization | | | 1,509 | | | | 1,651 | | | | 9,479 | | | | 6,624 | | | | 1,787 | | | | 21,050 | |
Net core deposit/other intangible | | | 1,321 | | | | 39 | | | | 916 | | | | — | | | | — | | | | 2,276 | |
The changes to goodwill, reflected above, are due to tax relatedCompany formally documents the relationship between derivatives and hedged items, in connection with acquisitionsas well as the risk-management objective and the $750 settlementstrategy for undertaking hedge transactions at the inception of the earn out provisionhedging 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
HVIAchanges in
2007.PROVIDENT NEW YORKfair 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.
(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 $2.3 million$1,870 at September 30, 2011:2013 | | | | | | | | |
Amoritization Schedule | | September 30,
2011 | | | September 30,
2010 | |
Less than one year | | $ | 1,183 | | | $ | 1,364 | |
One to two years | | | 821 | | | | 941 | |
Two to three years | | | 524 | | | | 580 | |
Three to four years | | | 524 | | | | 283 | |
Four to five years | | | 430 | | | | 283 | |
Beyond five years | | | 1,147 | | | | 189 | |
| | | | | | | | |
Total | | $ | 4,629 | | | $ | 3,640 | |
| | | | | | | | |
* | In addition to the above, the Company also carries $1,456 in mortgage servicing rights included in other assets at September 30, 2011 |
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:
|
| | | | | | | |
| | 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
Available for SaleThe following is a
A summary of
amortized cost and estimated fair value of our securities
available for sale: | | | | | | | | | | | | | | | | |
| | | Amortized
Cost | | | Gross
Unrealized
Gains | | | Gross
Unrealized
Losses | | | Fair
Value | |
September 30, 2011 | | | | | | | | | | | | | | | | |
Mortgage-backed securities-residential | | | | | | | | | | | | | | | | |
Fannie Mae | | $ | 136,699 | | | $ | 3,292 | | | $ | — | | | $ | 139,991 | |
Freddie Mac | | | 98,511 | | | | 2,205 | | | | (41 | ) | | | 100,675 | |
Ginnie Mae | | | 4,973 | | | | 207 | | | | — | | | | 5,180 | |
CMO/Other MBS | | | 81,170 | | | | 1,764 | | | | (522 | ) | | | 82,412 | |
| | | | | | | | | | | | | | | | |
| | | 321,353 | | | | 7,468 | | | | (563 | ) | | | 328,258 | |
| | | | | | | | | | | | | | | | |
Investment securities | | | | | | | | | | | | | | | | |
Federal agencies | | | 199,741 | | | | 4,986 | | | | (79 | ) | | | 204,648 | |
Corporate bonds | | | 16,984 | | | | 257 | | | | (179 | ) | | | 17,062 | |
State and municipal securities | | | 177,666 | | | | 11,018 | | | | — | | | | 188,684 | |
Equities | | | 1,192 | | | | — | | | | — | | | | 1,192 | |
| | | | | | | | | | | | | | | | |
| | | 395,583 | | | | 16,261 | | | | (258 | ) | | | 411,586 | |
| | | | | | | | | | | | | | | | |
Total available for sale | | $ | 716,936 | | | $ | 23,729 | | | $ | (821 | ) | | $ | 739,844 | |
| | | | | | | | | | | | | | | | |
| | | | |
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 | |
| | | | | | | | | | | | | | | | |
PROVIDENT NEW YORKis 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 following is a summary of the amortized cost and estimated fair value of investment securities available for sale (other than equity securities),at September 30, 2013 are presented below by remaining period to contractual maturity. Actual maturities may differ from contractual maturities because certain issuers may have the right to call or prepay their obligations. | | | | | | | | |
| | | September 30, 2011 | |
| | | Amortized | | | Fair | |
| | | Cost | | | Value | |
Remaining period to contractual maturity | | | | | | | | |
Less than one year | | $ | 4,410 | | | $ | 4,442 | |
One to five years | | | 197,476 | | | | 203,113 | |
Five to ten years | | | 146,634 | | | | 154,212 | |
Greater than ten years | | | 45,871 | | | | 48,627 | |
| | | | | | | | |
Total investment securities | | | 394,391 | | | | 410,394 | |
| | | | | | | | |
Mortgage backed securities-residential | | | 321,353 | | | | 328,258 | |
| | | | | | | | |
Total available for sale securities | | $ | 715,744 | | | $ | 738,652 | |
| | | | | | | | |
Proceeds from sales 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 available for sale duringwere 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 yearsfiscal year ended September 30, 2013 and 2011 2010 and 2009 totaled $540,145, $443,389 and $556,796 respectively. These sales resulted in gross realized gains of $10,000, $8,518, and $18,043 for the years ended September 30, 2011, 2010, and 2009 respectively, and gross realized losses of $7, $361 and $0, in fiscal years 2011, 2010, and 2009 respectively. The Company’s accumulated other income included in stockholders equity at September 30, 2011 and 2010 consist of net unrealized gain, on available for sale securities of $13,603 and $12,621, respectively, net of tax liabilities of $9,302 and $8,630 respectively.Securities, includingCompany sold held to maturity securities with carrying amountsafter the Company had already collected at least 85% of $206,829 and $228,442 were pledged as collateral for borrowingsthe principal balance outstanding at September 30, 2011 and 2010, respectively. Securities with carrying amountsacquisition.
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 | |
As of September 30, 2011 | | Fair
Value | | | Unrealized
Losses | | | Fair
Value | | | Unrealized
Losses | | | Fair
Value | | | Unrealized
Losses | |
Freddie Mac | | $ | 10,262 | | | $ | (41 | ) | | $ | — | | | $ | — | | | $ | 10,262 | | | $ | (41 | ) |
CMO/Other MBS | | | 3,037 | | | | (257 | ) | | | 1,813 | | | | (265 | ) | | | 4,850 | | | | (522 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | |
Total mortgage backed securities — residential | | | 13,299 | | | | (298 | ) | | | 1,813 | | | | (265 | ) | | | 15,112 | | | | (563 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | |
U.S. Government and agency securities | | | 9,914 | | | | (79 | ) | | | — | | | | — | | | | 9,914 | | | | (79 | ) |
Corporate bonds | | | 1,886 | | | | (179 | ) | | | — | | | | — | | | | 1,886 | | | | (179 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | |
Total | | $ | 25,099 | | | $ | (556 | ) | | $ | 1,813 | | | $ | (265 | ) | | $ | 26,912 | | | $ | (821 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | |
|
| | | | | | | | | | | | | | | | | | | | | | | |
| | 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 | ) |
PROVIDENT NEW YORK BANCORP AND SUBSIDIARIESNotes to Consolidated Financial Statements
(Dollars in thousands, except per share data)
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | 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 | |
Fannie Mae | | $ | 124 | | | $ | (1 | ) | | $ | — | | | $ | — | | | $ | 124 | | | $ | (1 | ) |
CMO’s | | | 486 | | | | (7 | ) | | | 5,511 | | | | (352 | ) | | | 5,997 | | | | (359 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | |
Total 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 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | |
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, 2011, the Company concluded that it expects to recover the amortized cost basis of its investments on all but one private label CMO security and one equity security for which incurred impairment charges of $75 and $203, respectively, were recognized. As of September 30, 2011, 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 applicable credit losses.
The losses related to privately issued residential CMOs were recognized in light of deterioration of housing values in the residential real estate market and a rise in delinquencies and charge-offs of underlying mortgage loans collateralizing those securities. The Company uses a DCF analysis to provide an estimate of an OTTI loss. Inputs to the discount model included known defaults and interest deferrals, projected additional default rates, projected additional deferrals of interest, over collateralization tests, interest coverage tests and other factors. Expected default and deferral rates were weighted toward the near future to reflect the current adverse economic environment affecting the banking industry. The discount rate was based upon the yield expected from the related securities. The loss related to the equity securities were recognized as a result of the length of time and the extent to which the market value has been less than cost. The decline in value on these securities is thought to be affected by general market conditions which reflect prospects for the economy as a whole.
Substantially all of the unrealized losses at September 30, 20112013 relate to investment grade debt 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 At September 30, 2011. A2013, a total of 11323 available for sale securities were in a continuous unrealized loss position for less than 12 months and 4two 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 collateralized mortgage-backed securities (CMO’s)CMO category of the available for sale portfolio there are four individual private label CMO’sCMOs that havehad an amortized cost of $5,372$3,636 and a fair value (carrying value) of $4,851$3,613 as of September 30, 2011. One2013. Two of the four securities isare considered to be impaired as noted aboveOTTI and isare below investment grade. The impaired private label CMO hasCMOs had an amortized cost of $1,940$3,288 and a fair value of $1,683$3,263 at September 30, 2011.2013. 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 threetwo securities are rated at or above B. The remaining three securities in this category areinvestment grade and were performing as of September 30, 20112013 and are expected to continue to perform based on current information.PROVIDENT NEW YORK BANCORP AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollars in thousands, except per share data)
In determining whether thereOTTI existed other than temporary impairment 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 arewere expected. The Company will continue to evaluate its investment securities portfolio in this mannerfor OTTI on at least a quarterly basis.
(4) 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 Held to Maturitypledged for borrowings at FHLB and other institutions, and securities pledged for municipal deposits and other purposes were as follows:The following is a summary
|
| | | | | | | |
| | 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 |
|
Table of securities held to maturity: | | | | | | | | | | | | | | | | |
| | | Amortized
Cost | | | Gross
Unrealized
Gains | | | Gross
Unrealized
Losses | | | Fair
Value | |
September 30, 2011 | | | | | | | | | | | | | | | | |
Mortgage-backed securities-residential | | | | | | | | | | | | | | | | |
Fannie Mae | | $ | 1,298 | | | $ | 63 | | | $ | — | | | $ | 1,361 | |
Freddie Mac | | | 32,858 | | | | 103 | | | | (120 | ) | | | 32,841 | |
CMO/Other MBS | | | 25,828 | | | | 155 | | | | — | | | | 25,983 | |
| | | | | | | | | | | | | | | | |
| | | 59,984 | | | | 321 | | | | (120 | ) | | | 60,185 | |
| | | | | | | | | | | | | | | | |
Investment securities | | | | | | | | | | | | | | | | |
Federal agencies | | | 29,973 | | | | 25 | | | | (141 | ) | | | 29,857 | |
State and municipal securities | | | 18,583 | | | | 1,108 | | | | — | | | | 19,691 | |
Other | | | 1,500 | | | | 39 | | | | — | | | | 1,539 | |
| | | | | | | | | | | | | | | | |
| | | 50,056 | | | | 1,172 | | | | (141 | ) | | | 51,087 | |
| | | | | | | | | | | | | | | | |
Total held to maturity | | $ | 110,040 | | | $ | 1,493 | | | $ | (261 | ) | | $ | 111,272 | |
| | | | | | | | | | | | | | | | |
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 | |
| | | | | | | | | | | | | | | | |
PROVIDENT NEW YORKContents
STERLING 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 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, 2011 | |
| | | Amortized
Cost | | | Fair
Value | |
Remaining period to contractual maturity | | | | | | | | |
Less than one year | | $ | 5,813 | | | $ | 5,840 | |
One to five years | | | 7,696 | | | | 8,022 | |
Five to ten years | | | 32,955 | | | | 33,226 | |
Greater than ten years | | | 3,592 | | | | 3,999 | |
| | | | | | | | |
Total investment securities | | | 50,056 | | | | 51,087 | |
| | | | | | | | |
Mortgage backed securities-residential | | | 59,984 | | | | 60,185 | |
| | | | | | | | |
Total held to maturity securities | | $ | 110,040 | | | $ | 111,272 | |
| | | | | | | | |
Proceeds from sales of securities held to maturity during the years ended September 30, 2011, 2010 and 2009 totaled $357, $0, and $625 respectively. These sales resulted in gross realized gains of $18, $0, and $33 for the years ended September 30, 2011, 2010, and 2009 respectively, and no gross realized losses in fiscal years 2011, 2010, and 2009. 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% 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, 2011 | | Fair
Value | | | Unrealized
Losses | | | Fair
Value | | | Unrealized
Losses | | | Fair
Value | | | Unrealized
Losses | |
Freddie Mac MBS-residential | | $ | 25,770 | | | $ | (120 | ) | | $ | — | | | $ | — | | | $ | 25,770 | | | $ | (120 | ) |
Federal Agencies | | | 24,831 | | | | (141 | ) | | | — | | | | — | | | | 24,831 | | | | (141 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | |
Total | | $ | 50,601 | | | $ | (261 | ) | | $ | — | | | $ | — | | | $ | 50,601 | | | $ | (261 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | 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 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | |
All of the unrealized losses on held to maturity securities at September 30, 2011 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, 2011. There were 8 held-to-maturity securities in a continuous unrealized loss position for less than 12 months, and 0 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
PROVIDENT NEW YORK BANCORP AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollars in thousands, except per share data)
investment. Because the Company has the ability and intent to hold securities with unrealized losses until maturity, the Company did not consider these investments to be other-than-temporarily impaired at September 30, 2011.
(5)
The components of the loan portfolio, excluding loans held for sale, were as follows:
| | | | | | | | |
| | | September 30, | |
| | | 2011 | | | 2010 | |
One- to four-family residential mortgage loans: | | | | | | | | |
Fixed rate | | $ | 325,837 | | | $ | 374,251 | |
Adjustable rate | | | 63,928 | | | | 60,649 | |
| | | | | | | | |
| | | 389,765 | | | | 434,900 | |
| | | | | | | | |
Commercial real estate loans | | | 703,356 | | | | 579,232 | |
Commercial business loans | | | 209,923 | | | | 217,927 | |
Acquisition, development & construction loans | | | 175,931 | | | | 231,258 | |
| | | | | | | | |
| | | 1,089,210 | | | | 1,028,417 | |
| | | | | | | | |
Consumer loans: | | | | | | | | |
Home equity lines of credit | | | 174,521 | | | | 176,134 | |
Homeowner loans | | | 40,969 | | | | 48,941 | |
Other consumer loans, including overdrafts | | | 9,334 | | | | 13,149 | |
| | | | | | | | |
| | | 224,824 | | | | 238,224 | |
| | | | | | | | |
Total loans | | | 1,703,799 | | | | 1,701,541 | |
Allowance for loan losses | | | (27,917 | ) | | | (30,843 | ) |
| | | | | | | | |
Total loans, net | | $ | 1,675,882 | | | $ | 1,670,698 | |
| | | | | | | | |
|
| | | | | | | |
| | 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 $308$1,201 and $720$(310) at September 30, 20112013 and September 30, 2010,2012, respectively.A substantial portion of
Included in the Company’s loan portfolio is secured by residentialare loans acquired from Gotham Bank. These loans were recorded at fair value at acquisition and commercial real estate located in Rocklandcarried a balance of $133,493 and Orange Counties of New York$205,764 at September 30, 2013 and contiguous areas such as Ulster, Sullivan, PutnamSeptember 30, 2012, respectively. The discount associated with these loans which includes adjustments associated with market interest rates and Westchester Counties of New Yorkexpected credit losses, was $1,879 and Bergen County, New Jersey. The ability$3,924 at September 30, 2013 and September 30, 2012, respectively. We evaluate these loans for impairment collectively. None of the Company’s borrowers to make principal and interest payments is dependent upon, among other things,Gotham Bank acquired loans were identified as purchase credit impaired at acquisition.
At September 30, 2013, 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 constructionCompany has pledged loans are considered by management to be of somewhat greater credit risk than loans to fund the purchase of a primary residence duetotaling $784.4 million to the generally larger loan amounts and dependency on income production or saleFHLB 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)
Activity in the allowance for loan losses and the recorded investments in loans by portfolio segment based on impairment method for September 30, 2011 are summarized below:
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | For the year ended September 30, 2011 | |
| | | Beginning
Allowance for
loan losses | | | Charge-offs | | | Recoveries | | | Net
Charge-offs | | | Provision
for
losses | | | Ending
Allowance for
Loan Losses | |
Loans by segment: | | | | | | | | | | | | | | | | | | | | | | | | |
Real estate — residential mortgage | | $ | 2,641 | | | $ | (2,140 | ) | | $ | 15 | | | $ | (2,125 | ) | | $ | 2,982 | | | $ | 3,498 | |
Real estate — commercial mortgage | | | 5,060 | | | | (819 | ) | | | 2 | | | | (817 | ) | | | 290 | | | | 4,533 | |
Real estate — commercial mortgage (CBL) | | | 855 | | | | (983 | ) | | | — | | | | (983 | ) | | | 1,163 | | | | 1,035 | |
Commercial business loans | | | 3,262 | | | | (366 | ) | | | 232 | | | | (134 | ) | | | (1,797 | ) | | | 1,331 | |
Commercial business loans (CBL) | | | 5,708 | | | | (5,034 | ) | | | 373 | | | | (4,661 | ) | | | 3,567 | | | | 4,614 | |
Acquisition Development & Construction | | | 9,752 | | | | (8,939 | ) | | | 10 | | | | (8,929 | ) | | | 9,072 | | | | 9,895 | |
Consumer, including home equity | | | 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 | % |
| | | | | | | | | | | | |
| | | September 30, 2011 | |
| | | Individually
evaluated for
impairment | | | Collectivey
evaluated for
impairment | | | Total ending
loans balance | |
Loans by segment: | | | | | | | | | | | | |
Real estate — residential mortgage | | $ | 8,573 | | | $ | 381,192 | | | $ | 389,765 | |
Real estate — commercial mortgage | | | 10,653 | | | | 599,726 | | | | 610,379 | |
Real estate — commercial mortgage (CBL) | | | 4,477 | | | | 88,500 | | | | 92,977 | |
Commercial business loans | | | 531 | | | | 133,868 | | | | 134,399 | |
Commercial business loans (CBL) | | | — | | | | 75,524 | | | | 75,524 | |
Acquisition Development & Construction | | | 28,233 | | | | 147,708 | | | | 175,931 | |
Consumer, including home equity | | | 2,504 | | | | 222,320 | | | | 224,824 | |
| | | | | | | | | | | | |
Total Loans | | $ | 54,961 | | | $ | 1,648,838 | | | $ | 1,703,799 | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | September 30, 2011 | |
| | | Individually
evaluated for
impairment | | | Collectivey
evaluated for
impairment | | | Total
allowance
balance | |
Ending allowance by segment: | | | | | | | | | | | | |
Real estate — residential mortgage | | $ | 1,069 | | | $ | 2,429 | | | $ | 3,498 | |
Real estate — commercial mortgage | | | 474 | | | | 4,059 | | | | 4,533 | |
Real estate — commercial mortgage (CBL) | | | 594 | | | | 441 | | | | 1,035 | |
Commercial business loans | | | — | | | | 1,331 | | | | 1,331 | |
Commercial business loans (CBL) | | | — | | | | 4,614 | | | | 4,614 | |
Acquisition Development & Construction | | | 1,409 | | | | 8,486 | | | | 9,895 | |
Consumer, including home equity | | | 260 | | | | 2,751 | | | | 3,011 | |
| | | | | | | | | | | | |
Total allowance | | $ | 3,806 | | | $ | 24,111 | | | $ | 27,917 | |
| | | | | | | | | | | | |
PROVIDENT NEW YORK BANCORP AND SUBSIDIARIESNotes to Consolidated Financial Statements
(Dollars in thousands, except per share data)
Activity in the allowance for loan losses and the recorded investments in loans by portfolio segment based on impairment method for September 30, 2010 are summarized below:
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | Twelve months ended September 30, 2010 | |
| | | Beginning
Allowance for
loan losses | | | Charge-offs | | | Recoveries | | | Net
Charge-offs | | | Provision
for
losses | | | Ending
Allowance for
Loan Losses | |
Loans by segment: | | | | | | | | | | | | | | | | | | | | | | | | |
Real estate — residential mortgage | | $ | 3,106 | | | $ | (749 | ) | | $ | 3 | | | $ | (746 | ) | | $ | 281 | | | $ | 2,641 | |
Real estate — commercial mortgage | | | 4,824 | | | | (416 | ) | | | 8 | | | | (408 | ) | | | 644 | | | | 5,060 | |
Real estate — commercial mortgage (CBL) | | | 2,871 | | | | (571 | ) | | | 15 | | | | (556 | ) | | | (1,460 | ) | | | 855 | |
Commercial business loans | | | 3,917 | | | | (1,666 | ) | | | 306 | | | | (1,360 | ) | | | 705 | | | | 3,262 | |
Commercial business loans (CBL) | | | 5,011 | | | | (4,912 | ) | | | 364 | | | | (4,548 | ) | | | 5,245 | | | | 5,708 | |
Acquisition Development & Construction | | | 7,680 | | | | (848 | ) | | | 261 | | | | (587 | ) | | | 2,659 | | | | 9,752 | |
Consumer, including home equity | | | 2,641 | | | | (1,168 | ) | | | 166 | | | | (1,002 | ) | | | 1,926 | | | | 3,565 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Total Loans | | $ | 30,050 | | | $ | (10,330 | ) | | $ | 1,123 | | | $ | (9,207 | ) | | $ | 10,000 | | | $ | 30,843 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Net charge-offs to average loans outstanding | | | | | | | | | | | | | | | | | | | | | | | 0.56 | % |
| | | | |
Loans as of September 30, 2010: | | | | |
Individually evaluated for impairment | | $ | 42,082 | |
Collectively evaluated for impairment | | | 1,659,459 | |
| | | | |
Total ending loans balance | | $ | 1,701,541 | |
| | | | |
A loan is impaired when it is probable that a creditor will be unable to collect all amounts due according to the contractual terms of the loan agreement. Impaired loans substantially consist of non-performing loans and accruing and performing troubled debt restructured loans. The recorded investment of an impaired loan includes the unpaid principal balance, negative escrow and any tax in arrears.
PROVIDENT NEW YORK 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 of loans as of September 30, 2011:
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | Unpaid
Principal
Balance | | | Recorded
Investment | | | Allowance
for Loan
Losses
Allocated | | | YTD
Average
Impaired
Loans | | | Interest
Income
Recognized | | | Cash-basis
Interest
Income
Recognized | |
With no related allowance recorded: | | | | | | | | | | | | | | | | | | | | | | | | |
Real estate — residential mortgage | | $ | 2,437 | | | $ | 2,577 | | | $ | — | | | $ | 2,702 | | | $ | 92 | | | $ | 51 | |
Real estate — commercial mortgage | | | 6,753 | | | | 6,823 | | | | — | | | | 6,769 | | | | 332 | | | | 146 | |
Real estate — commercial mortgage (CBL) | | | 2,012 | | | | 2,050 | | | | — | | | | 2,148 | | | | 165 | | | | 102 | |
Acquisition, development and construction | | | 20,914 | | | | 21,316 | | | | — | | | | 26,111 | | | | 1,892 | | | | 1,454 | |
Commercial business loans | | | 531 | | | | 531 | | | | — | | | | 862 | | | | 42 | | | | 42 | |
Commercial business loans (CBL) | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | |
Consumer loans, including home equity | | | 1,879 | | | | 1,885 | | | | — | | | | 1,860 | | | | 61 | | | | 13 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Subtotal | | | 34,526 | | | | 35,182 | | | | — | | | | 40,452 | | | | 2,584 | | | | 1,808 | |
With an allowance recorded: | | | | | | | | | | | | | | | | | | | | | | | | |
Real estate — residential mortgage | | | 5,836 | | | | 5,996 | | | | 1,069 | | | | 6,319 | | | | 159 | | | | 159 | |
Real estate — commercial mortgage | | | 3,741 | | | | 3,830 | | | | 474 | | | | 3,843 | | | | 108 | | | | 108 | |
Real estate — commercial mortgage (CBL) | | | 2,283 | | | | 2,427 | | | | 594 | | | | 2,662 | | | | 91 | | | | 36 | |
Acquisition, development and construction | | | 6,900 | | | | 6,907 | | | | 1,409 | | | | 6,963 | | | | 114 | | | | 96 | |
Commercial business loans | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | |
Commercial business loans (CBL) | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | |
Consumer loans, including home equity | | | 619 | | | | 619 | | | | 260 | | | | 642 | | | | 33 | | | | 22 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Subtotal | | | 19,379 | | | | 19,779 | | | | 3,806 | | | | 20,429 | | | | 505 | | | | 421 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Total | | $ | 53,905 | | | $ | 54,961 | | | $ | 3,806 | | | $ | 60,881 | | | $ | 3,089 | | | $ | 2,229 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
The following table presents loans individually evaluated for impairment by segment of loans as of September 30, 2010:
| | | | | | | | | | | | |
| | | Unpaid
Principal
Balance | | | Recorded
Investment | | | Allowance
for Loan
Losses
Allocated | |
With no related allowance recorded: | | | | | | | | | | | | |
Real estate — residential mortgage | | $ | 2,896 | | | $ | 2,930 | | | $ | — | |
Real estate — commercial mortgage | | | 1,658 | | | | 1,793 | | | | — | |
Acquisition, development and construction | | | 4,732 | | | | 4,760 | | | | — | |
Commercial business loans | | | 458 | | | | 458 | | | | — | |
Consumer loans, including home equity | | | 378 | | | | 378 | | | | — | |
| | | | | | | | | | | | |
Subtotal | | | 10,122 | | | | 10,319 | | | | — | |
With an allowance recorded: | | | | | | | | | | | | |
Real estate — residential mortgage | | | 5,682 | | | | 5,879 | | | | 800 | |
Real estate — commercial mortgage | | | 6,974 | | | | 7,203 | | | | 399 | |
Acquisition, development and construction | | | 15,613 | | | | 15,652 | | | | 766 | |
Commercial business loans | | | 1,365 | | | | 1,365 | | | | 511 | |
Consumer loans, including home equity | | | 1,663 | | | | 1,664 | | | | 570 | |
| | | | | | | | | | | | |
Subtotal | | | 31,297 | | | | 31,763 | | | | 3,046 | |
| | | | | | | | | | | | |
Total | | $ | 41,419 | | | $ | 42,082 | | | $ | 3,046 | |
| | | | | | | | | | | | |
PROVIDENT NEW YORK BANCORP AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollars in thousands, except per share data)
Average impaired loans for the twelve months ending September 30, 2011 were $60,881. Listed below are the interest income recognized during impairment and cash received for interest during impairment for the twelve months ending September 30, 2011 and September 30, 2010, respectively.
| | | | | | | | |
| | | September 30,
2011 | | | September 30,
2010 | |
Interest income recognized during impairment | | $ | 3,089 | | | $ | 1,975 | |
Cash-basis interest income recognized | | | 2,229 | | | | 1,157 | |
The following tables set forth the amounts and status of the Company’s loans and troubled debt restructurings and other real estate owned(“TDRs”) at September 30, 20112013 and September 30, 2010.
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | September 30, 2011 | |
| | | Current
Loans | | | 30-59
Days
Past Due | | | 60-89
Days
Past Due | | | 90+
Days
Past Due | | | Non-
Accrual | | | Total
Loans | |
Non-performing loans: | | | | | | | | | | | | | | | | | | | | | | | | |
Real estate — residential mortgage | | $ | 380,577 | | | $ | 868 | | | $ | 344 | | | $ | 491 | | | $ | 7,485 | | | $ | 389,765 | |
Real estate — commercial mortgage | | | 599,619 | | | | 768 | | | | 337 | | | | 1,639 | | | | 8,016 | | | | 610,379 | |
Real estate — commercial mortgage (CBL) | | | 89,418 | | | | — | | | | — | | | | 350 | | | | 3,209 | | | | 92,977 | |
Commercial business loans | | | 133,741 | | | | 490 | | | | — | | | | — | | | | 168 | | | | 134,399 | |
Commercial business loans (CBL) | | | 75,449 | | | | — | | | | — | | | | — | | | | 75 | | | | 75,524 | |
Acquisition, development and construction loans | | | 154,682 | | | | 3,859 | | | | 406 | | | | 446 | | | | 16,538 | | | | 175,931 | |
Consumer, including home equity loans | | | 221,880 | | | | 494 | | | | 300 | | | | 1,164 | | | | 986 | | | | 224,824 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Total | | $ | 1,655,366 | | | $ | 6,479 | | | $ | 1,387 | | | $ | 4,090 | | | $ | 36,477 | | | $ | 1,703,799 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Total troubled debt restructurings included above | | $ | 9,060 | | | $ | 266 | | | $ | — | | | $ | 446 | | | $ | 7,792 | | | $ | 17,564 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Non Performing Assets: | | | | | | | | | | | | | | | | | | | | | | | | |
Loans 90+ and still accruing | | | | | | | | | | | | | | | | | | $ | 4,090 | | | | | |
Nonaccrual loans | | | | | | | | | | | | | | | | | | | 36,477 | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Total non performing loans | | | | | | | | | | | | | | | | | | | 40,567 | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Other real estate owned: | | | | | | | | | | | | | | | | | | | | | | | | |
Land | | | | | | | | | | | | | | | | | | | 1,926 | | | | | |
Commercial real estate | | | | | | | | | | | | | | | | | | | 2,163 | | | | | |
Acquisition, development & construction loans | | | | | | | | | | | | | | | | | | | 745 | | | | | |
One- to four-family | | | | | | | | | | | | | | | | | | | 557 | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Total other real estate owned | | | | | | | | | | | | | | | | | | | 5,391 | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Total non-performing assets | | | | | | | | | | | | | | | | | | $ | 45,958 | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Ratios: | | | | | | | | | | | | | | | | | | | | | | | | |
Non-performing loans to total loans | | | | | | | | | | | | | | | | | | | 2.38 | % | | | | |
Non-performing assets to total assets | | | | | | | | | | | | | | | | | | | 1.46 | % | | | | |
Allowance for loan losses to total non-performing loans | | | | | | | | | | | | | | | | | | | 69 | % | | | | |
Allowance for loan losses to average loans | | | | | | | | | | | | | | | | | | | 1.68 | % | | | | |
2012PROVIDENT NEW YORK:
|
| | | | | | | | | | | | | | | | | | | | | | | |
| | 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)
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | September 30, 2010 | |
| | | Current
Loans | | | 30-59
Days
Past Due | | | 60-89
Days
Past Due | | | 90+
Days
Past Due | | | Non-
Accrual | | | Total
Loans | |
Non-performing loans: | | | | | | | | | | | | | | | | | | | | | | | | |
Real estate — residential mortgage | | $ | 426,754 | | | $ | 113 | | | $ | — | | | $ | 1,953 | | | $ | 6,080 | | | $ | 434,900 | |
Real estate — commercial mortgage | | | 475,532 | | | | 616 | | | | 853 | | | | 1,866 | | | | 5,061 | | | | 483,928 | |
Real estate — commercial mortgage (CBL) | | | 92,374 | | | | — | | | | — | | | | 1,105 | | | | 1,825 | | | | 95,304 | |
Commercial business loans | | | 121,301 | | | | 3,403 | | | | — | | | | — | | | | 1,061 | | | | 125,765 | |
Commercial business loans (CBL) | | | 91,847 | | | | — | | | | — | | | | — | | | | 315 | | | | 92,162 | |
Acquisition, development and construction loans | | | 218,847 | | | | 3,982 | | | | 2,699 | | | | — | | | | 5,730 | | | | 231,258 | |
Consumer, including home equity loans | | | 235,700 | | | | 375 | | | | 305 | | | | 503 | | | | 1,341 | | | | 238,224 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Total | | $ | 1,662,355 | | | $ | 8,489 | | | $ | 3,857 | | | $ | 5,427 | | | $ | 21,413 | | | $ | 1,701,541 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Total troubled debt restructurings included above | | $ | 16,047 | | | $ | — | | | $ | — | | | $ | — | | | $ | 5,457 | | | $ | 21,504 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Non Performing Assets: | | | | | | | | | | | | | | | | | | | | | | | | |
Loans 90+ and still accruing | | | | | | | | | | | | | | | | | | $ | 5,427 | | | | | |
Nonaccrual loans | | | | | | | | | | | | | | | | | | | 21,413 | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Total non performing loans | | | | | | | | | | | | | | | | | | | 26,840 | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Other real estate owned: | | | | | | | | | | | | | | | | | | | | | | | | |
Land | | | | | | | | | | | | | | | | | | | 2,029 | | | | | |
Commercial real estate | | | | | | | | | | | | | | | | | | | 1,507 | | | | | |
One- to four-family | | | | | | | | | | | | | | | | | | | 355 | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Total other real estate owned | | | | | | | | | | | | | | | | | | | 3,891 | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Total non-performing assets | | | | | | | | | | | | | | | | | | $ | 30,731 | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Ratios: | | | | | | | | | | | | | | | | | | | | | | | | |
Non-performing loans to total loans | | | | | | | | | | | | | | | | | | | 1.58 | % | | | | |
Non-performing assets to total assets | | | | | | | | | | | | | | | | | | | 1.02 | % | | | | |
Allowance for loan losses to total non-performing loans | | | | | | | | | | | | | | | | | | | 115 | % | | | | |
Allowance for loan losses to average loans | | | | | | | | | | | | | | | | | | | 1.82 | % | | | | |
|
| | | | | | | | | | | | | | | | | | | | | | | |
| | 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:Troubled debt restructurings areRestructurings
A TDR is a formally renegotiated loansloan in which the Bank, for which concessionseconomic 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 thatotherwise. The restructuring of a loan may include, but is not limited to: (1) the Company would not have otherwise granted andtransfer from the borrower is experiencing financial difficulty. 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 company’sBank’s internal underwriting policy. The modification of the terms of such loans include one or a combination of the following: a reduction of the stated interest rate of the loan; an extension of the maturity date at a stated rate of interest lower than the current market rate for new debt with similar risk; or a permanent reduction of the recorded investment in the loan. Modifications involvinghave involved a reduction of the stated interest rate of the loan were for period ranging from 3three months to 30 years.years. Modifications involving an extension of the maturity date were for periods ranging from 3monthsthree 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 items. Total troubled debt restructuringscharacteristics.
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 $17,564 and $21,504on 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, 20112013 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, 2010,2013
PROVIDENT NEW YORK and September 30, 2012, respectively.
STERLING BANCORP AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollars in thousands, except per share data)
respectively. There were $8,238 and $5,457 in troubled debt restructurings included in non-performing loans at September 30, 2011 and September 30, 2010, respectively. Troubled debt restructurings still accruing and considered to be performing were $9,326 and $16,047 at September 30, 2011 and September 30, 2010, respectively. The Company has allocated $409 and $673 of specific reserves to customers whose loan terms have been modified in troubled debt restructurings as of September 30, 2011 and September 30, 2010 respectively. Troubled debt restructurings resulted in $7.5 million charge offs for the fiscal year ending September 30, 2011.
The Company has committed to lend additional amountg1s totaling up to $4,225 and $3,957 as of September 30, 2011 and September 30, 2010 to customers with outstanding loans that are classified as troubled debt restructurings. The commitments to lend on the restructured debt is contingent on clear title and a third party inspection to verify completion of work and is associated with loans that are considered to be performing.
The following table presents loans by segment modified as troubled debt restructuringsTDRs 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 occurredwas modified as TDRs during the last twelve months that had subsequently defaulted during the twelve months ended September 30, 2011. | | | | | | | | | | | | |
| | | Number | | | Recorded Investment | |
| | | | Pre-
Modification | | | Post-
Modification | |
Restructured Loans: | | | | | | | | | | | | |
Real estate — residential mortgage | | | 6 | | | $ | 1,892 | | | $ | 1,892 | |
Real estate — commercial mortgage | | | 2 | | | | 1,439 | | | | 1,439 | |
Acquisition, development and construction loans | | | 26 | | | | 26,180 | | | | 26,180 | |
Consumer, including home equity loans | | | 1 | | | | 169 | | | | 169 | |
| | | | | | | | | | | | |
Total restructured loans | | | 35 | | | $ | 29,680 | | | $ | 29,680 | |
| | | | | | | | | | | | |
A2013
. Credit Quality Indicators
As part of the on-going monitoring of the credit quality of the Company’s loan
is consideredportfolio, management tracks certain credit quality indicators including trends related to
be in default once it is 90 days contractually past due under(i) the
modified terms. There were 5 troubled debt restructurings that subsequently defaulted totaling $6.6 millionweighted-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
ADC loan segment. Charge offs related to these loans totaled $2.3 million.Credit Quality Indicators:
greater New York metropolitan region. The Company categorizes loans into risk categories based on relevant information about the ability of borrowers to service their debt such as: current financial information, historical payment experience, credit documentation, public information and current economic trends, among other factors. The CompanyBank analyzes loans individually by classifying the loans as to credit risk. This analysis includes all loans. This analysis is performed on at least a monthlyquarterly basis on all criticized/classified loans. The CompanyBank 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 classified aswith special mention ratings have a potential weakness that deserves management’s close attention. If left uncorrected these potential weaknesses which may, result inif not reviewed or corrected, weaken the deterioration ofasset or inadequately protect the repayment prospects for the loan or the institution’sbank’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. Loans classified as substandard (OCC definition) - These loans are inadequately protected by the current netsound worth and paying capacity of the obligor or of the collateral pledged, if any. LoansAssets so classified must have a well-defined weakness or weaknesses that jeopardizejeopardizes 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
institutionBank will sustain some loss if the deficiencies are not corrected.
Doubtful. Loans Loss potential, while existing in the aggregate amount of substandard assets, does not have to exist in individual assets classified as doubtfulsubstandard.
9 - Doubtful (OCC definition)- These loans have all the weaknessesweakness inherent in thoseone classified as substandard with the added characteristiccharacteristics that the weaknesses makeweakness 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.
PROVIDENT NEW YORK10 - 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)
Loans not meeting
During the criteria above that are analyzed individually as partfiscal 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 above described process are consideredanalysis 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 be pass rated loans. Based onProvident bank ball park stadium which is located in Rockland County, New York. The Company has determined that in connection with the most recent analysis performed asMerger 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, 20112013 and September 30, 2010, the risk category of loans by segment of gross loans is as follows: | | | | | | | | | | | | |
| | | September 30, 2011 | |
| | | Special
Mention | | | Substandard | | | Doubtful | |
Real estate — residential mortgage | | $ | 3,701 | | | $ | 8,525 | | | $ | — | |
Real estate — commercial mortgage | | | 10,175 | | | | 25,952 | | | | — | |
Real estate — commercial mortgage (CBL) | | | 897 | | | | 4,044 | | | | — | |
Acquisition, development and construction | | | 5,170 | | | | 49,294 | | | | — | |
Commercial business loans | | | 1,915 | | | | 3,501 | | | | — | |
Commercial business loans (CBL) | | | 557 | | | | 150 | | | | — | |
Consumer loans, including home equity loans | | | 611 | | | | 2,523 | | | | — | |
| | | | | | | | | | | | |
Total | | $ | 23,026 | | | $ | 93,989 | | | $ | — | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | September 30, 2010 | |
| | | Special
Mention | | | Substandard | | | Doubtful | |
Real estate — residential mortgage | | $ | 243 | | | $ | 8,557 | | | $ | — | |
Real estate — commercial mortgage | | | 6,278 | | | | 21,648 | | | | — | |
Real estate — commercial mortgage (CBL) | | | — | | | | 3,171 | | | | — | |
Acquisition, development and construction | | | 27,985 | | | | 74,957 | | | | — | |
Commercial business loans | | | 3,044 | | | | 21,097 | | | | — | |
Commercial business loans (CBL) | | | 103 | | | | 498 | | | | 300 | |
Consumer loans, including home equity loans | | | 248 | | | | 1,825 | | | | — | |
| | | | | | | | | | | | |
Total | | $ | 37,901 | | | $ | 131,753 | | | $ | 300 | |
| | | | | | | | | | | | |
(6) Accrued Interest Receivable2012The components of accrued interest receivable were as follows:
| | | | | | | | |
| | | September 30, | |
| | | 2011 | | | 2010 | |
Loans | | $ | 5,458 | | | $ | 5,728 | |
Securities | | | 4,446 | | | | 5,341 | |
| | | | | | | | |
Total accrued interest receivable | | $ | 9,904 | | | $ | 11,069 | |
| | | | | | | | |
PROVIDENT NEW YORK BANCORP AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollars in thousands, except per share data)
(7) Premises and Equipment, Net
Premises and equipment are summarized as follows:
| | | | | | | | |
| | | September 30, | |
| | | 2011 | | | 2010 | |
Land and land improvements | | $ | 7,331 | | | $ | 7,505 | |
Buildings | | | 31,511 | | | | 31,480 | |
Leasehold improvements | | | 7,858 | | | | 8,965 | |
Furniture, fixtures and equipment | | | 36,869 | | | | 34,857 | |
| | | | | | | | |
| | | 83,569 | | | | 82,807 | |
Accumulated depreciation and amortization | | | (42,683 | ) | | | (39,209 | ) |
| | | | | | | | |
Total premises and equipment, net | | $ | 40,886 | | | $ | 43,598 | |
| | | | | | | | |
(8) Deposits
Deposit balances and weighted average interest rates at September 30, 2011 and 2010 are summarized as follows:
| | | | | | | | | | | | | | | | |
| | | September 30, | |
| | | 2011 | | | 2010 | |
| | | Amount | | | Rate | | | Amount | | | Rate | |
Demand Deposits | | | | | | | | | | | | | | | | |
Retail | | $ | 194,299 | | | | — | % | | $ | 174,731 | | | | — | % |
Commercial | | | 296,505 | | | | — | | | | 277,217 | | | | — | |
Municipal | | | 160,422 | | | | — | | | | 77,909 | | | | — | |
| | | | | | | | | | | | | | | | |
Total Non-interest bearing deposits | | | 651,226 | | | | | | | | 529,857 | | | | | |
NOW Deposits | | | | | | | | | | | | | | | | |
Retail | | | 164,637 | | | | 0.05 | | | | 139,517 | | | | 0.05 | |
Commercial | | | 37,092 | | | | 0.23 | | | | 34,105 | | | | 0.31 | |
Municipal | | | 200,773 | | | | 0.19 | | | | 241,995 | | | | 0.23 | |
| | | | | | | | | | | | | | | | |
Total Transaction deposits | | | 1,053,728 | | | | | | | | 945,474 | | | | | |
Savings deposits | | | 429,825 | | | | 0.07 | | | | 392,321 | | | | 0.11 | |
Money market deposits | | | 509,483 | | | | 0.30 | | | | 427,334 | | | | 0.29 | |
Certificates of deposit | | | 303,659 | | | | 0.94 | | | | 377,573 | | | | 1.12 | |
| | | | | | | | | | | | | | | | |
Total deposits | | $ | 2,296,695 | | | | 0.23 | % | | $ | 2,142,702 | | | | 0.31 | % |
| | | | | | | | | | | | | | | | |
|
| | | | | | | |
| | 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 held by PMB totaled$614,834757,066 and $513,760$901,739 at September 30, 20112013 and September 30, 2010,2012, respectively. See Note 3, “Securities Available for Sale,”3. Securities for the amount of securities that arewere pledged as collateral for municipal deposits and other purposes. Municipal deposits received for tax receipts were approximately $284,000$374,348 and $219,000$424,610 at September 30, 20112013 and 2010,2012, respectively. PROVIDENT NEW YORK BANCORP AND SUBSIDIARIESNotes to Consolidated Financial Statements
(Dollars in thousands, except per share data)
Certificates of deposit had remaining periods to contractual maturity as follows:
| | | | | | | | |
| | | September 30, | |
| | | 2011 | | | 2010 | |
Remaining period to contractual maturity: | | | | | | | | |
Less than one year | | $ | 250,769 | | | $ | 316,096 | |
One to two years | | | 22,784 | | | | 24,844 | |
Two to three years | | | 19,584 | | | | 13,273 | |
Three to four years | | | 7,203 | | | | 16,623 | |
Four to five years | | | 3,319 | | | | 6,737 | |
| | | | | | | | |
Total certificates of deposit | | $ | 303,659 | | | $ | 377,573 | |
| | | | | | | | |
Certificate
|
| | | | | | | |
| | 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$100 or more totaled $82,345$104,225 and $105,717$203,516 at September 30, 20112013 and 2010,2012, respectively. Listed below are the Company’s brokered deposits: | | | | | | | | |
| | | September 30,
2011 | | | September 30,
2010 | |
Money market | | $ | 5,725 | | | $ | — | |
Reciprocal CDAR’s 1 | | | 2,746 | | | | 7,889 | |
CDAR’s one way | | | 3,366 | | | | 10,665 | |
| | | | | | | | |
Total brokered deposits | | $ | 11,837 | | | $ | 18,554 | |
| | | | | | | | |
| | | | | | | | | | | 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
1
| Certificate of deposit account registry service
|
Interest expense on deposits is summarized as follows:
| | | | | | | | | | | | |
| | | Years ended September 30, | |
| | | 2011 | | | 2010 | | | 2009 | |
Savings deposits | | $ | 444 | | | $ | 403 | | | $ | 758 | |
Money market and NOW deposits | | | 2,190 | | | | 2,035 | | | | 3,377 | |
Certificates of deposit | | | 3,470 | | | | 6,079 | | | | 14,240 | |
| | | | | | | | | | | | |
Total interest expense | | $ | 6,104 | | | $ | 8,517 | | | $ | 18,375 | |
| | | | | | | | | | | | |
PROVIDENT NEW YORK BANCORP AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollars in thousands, except per share data)
(9) FHLB and Other Borrowings
The Company’s FHLB and other borrowings and weighted average interest rates are summarized as follows:
| | | | | | | | | | | | | | | | |
| | | September 30, | |
| | | 2011 | | | 2010 | |
| | | Amount | | | Rate | | | Amount | | | Rate | |
By type of borrowing: | | | | | | | | | | | | | | | | |
Advances | | $ | 111,828 | | | | 3.83 | % | | $ | 141,251 | | | | 4.16 | % |
Repurchase agreements | | | 211,694 | | | | 3.61 | % | | | 222,500 | | | | 3.98 | % |
Senior unsecured debt (FDIC insured) | | | 51,499 | | | | 2.75 | % | | | 51,496 | | | | 2.75 | % |
| | | | | | | | | | | | | | | | |
Total borrowings | | $ | 375,021 | | | | 3.56 | % | | $ | 415,247 | | | | 3.88 | % |
| | | | | | | | | | | | | | | | |
By remaining period to maturity: | | | | | | | | | | | | | | | | |
Less than one year | | $ | 61,500 | | | | 2.96 | % | | $ | 44,873 | | | | 3.82 | % |
One to two years | | | 5,066 | | | | 4.04 | % | | | 73,996 | | | | 3.14 | % |
Two to three years | | | 35,795 | | | | 2.37 | % | | | 27,708 | | | | 4.00 | % |
Three to four years | | | 49,312 | | | | 2.28 | % | | | 25,125 | | | | 4.14 | % |
Four to five years | | | 211 | | | | 5.32 | % | | | 20,000 | | | | 2.96 | % |
Greater than five years | | | 223,137 | | | | 4.18 | % | | | 223,545 | | | | 4.19 | % |
| | | | | | | | | | | | | | | | |
Total borrowings | | $ | 375,021 | | | | 3.56 | % | | $ | 415,247 | | | | 3.88 | % |
| | | | | | | | | | | | | | | | |
|
| | | | | | | | | | | | | |
| | 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 in the form of term and overnight borrowings up to the amount of eligible residential mortgage loansmortgages and securities that have been pledged as collateral under a blanket security agreement. As of September 30, 20112013 and 2010,2012, the Bank had pledged residential mortgage and commercial real estate loans totaling $464,900$784,422 and $313,587,$613,554, respectively. The Bank had also pledged securities with carrying amountsto secure borrowings, which are disclosed in Note 3. Securities. As of $206,829 and $228,442 as of September 30, 2011 and September 30, 2010, respectively, to secure repurchase agreements. As of September 30, 2011,2013, the Bank may increase its borrowing capacity by pledging securities and mortgagesmortgage loans not required to be pledged for other purposes with a marketcollateral value of $344,090. FHLB advances are subject to prepayment penalties if repaid prior to maturity.Securities repurchase agreements had weighted average remaining terms to maturity of approximately 4.77 years and 5.38 years at September 30, 2011 and 2010, respectively. Average borrowings under securities repurchase agreements were $216,875 and $224,375 during the years ended September 30, 2011 and 2010, respectively, and the maximum outstanding month-end balance was $222,500 and $230,000, respectively.
$531,209.
FHLB borrowings (includes advance and repurchase agreements) of $200,000 and $227,500 at September 30, 2011 and 2010 respectivelywhich are putable quarterly at the discretion of the FHLB.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 5.56 year3.56 years and 6.164.56 years and weighted average interest rates of 4.23%4.23% at September 30, 2013 and 4.24%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,
2011 and 2010, respectively. An additional $20 million are putable on a one time basis after initial lockout period in February 2013
with a weighted average interest rate of 3.57% and a weighted average remaining termthe unamortized discount was $1,967, which will be accreted to
contractual maturity of 6.42 years.During 2011 the Company restructured $89,135 of its FHLBNY advances which had a weighted average rate of 3.69% and duration of 2.2 years, into new borrowings with a weighted average rate of 2.63%, duration of 1.43 years and an annualized interest expense savings of approximately $945 net of prepayment fees. Prepayment fees of $5,151 associated with the modifications are being amortized over the new durationlife of 1.43 years on a level yield basis.
PROVIDENT NEW YORKthe 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
(10) DerivativesThe Company purchased two interest rate caps in the first quarter of fiscal 2010 to assist in offsettingoffset a portion of interest rate exposure should short termshort-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%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 the amount for fiscal year 2011 is a loss of $197were $2 and a loss of $1,106$63 in fiscal 2010.2013 and 2012, respectively. The fair value of the interest rate caps at September 30, 2011,2013, 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 interest rate swap counterpartyintermediary 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 certainan 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 manages this risk by entering into correspondingDerivatives Association agreement and offsetting interest rate risk agreements with third parties. The swaps are considered aloan documents where, in default situations, the Company is allowed to access collateral supporting the loan relationship to recover any losses suffered on the 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 2011. Interest rate swaps are recorded on our consolidated statements of financial condition as an other asset or other liability at estimated fair value.At September 30, 2011, summaryliability. 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:
| | | | | | | | | | | | | | | | | | | | |
| | | September 30, 2011 | |
| | | Notional
Amount | | | Average
Maturity | | | Weighted
Average
Rate Fixed | | | Weighted
Average
Variable Rate | | | Fair
Value | |
Interest Rate Caps | | $ | 50,000 | | | | 3.18 | | | | 3.75 | % | | | NA | % | | $ | 65 | |
3rd party interest rate swap | | | 12,009 | | | | 10.23 | | | | 5.28 | | | | 1 m Libor + 2.15 | % | | | 1,114 | |
Customer interest rate swap | | | (12,009 | ) | | | 10.23 | | | | 5.28 | | | | 1 m Libor + 2.15 | % | | | (1,114 | ) |
At September 30, 2010, summary information regarding these derivatives is presented below:
| | | | | | | | | | | | | | | | | | | | |
| | | September 30, 2010 | |
| | | Notional
Amount | | | Average
Maturity | | | Weighted
Average
Rate Fixed | | | 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 | ) |
|
| | | | | | | | | | | | | | |
| | 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 and, therefore are carried at estimatedinstruments; however, the fair value
on the consolidated balance sheets. The fair values of these commitments
areis not
considered material.
PROVIDENT NEW YORK
STERLING BANCORP AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollars in thousands, except per share data)
(11)
Income tax expense consists of the following: | | | | | | | | | | | | |
| | | Years ended September 30, | |
| | | 2011 | | | 2010 | | | 2009 | |
Current tax expense: | | | | | | | | | | | | |
Federal | | $ | 1,912 | | | $ | 5,410 | | | $ | 10,369 | |
State | | | 777 | | | | 1,437 | | | | 1,446 | |
| | | | | | | | | | | | |
| | | 2,689 | | | | 6,847 | | | | 11,815 | |
| | | | | | | | | | | | |
Deferred tax expense (benefit): | | | | | | | | | | | | |
Federal | | | 282 | | | | 375 | | | | (1,567 | ) |
State | | | (164 | ) | | | (349 | ) | | | (73 | ) |
| | | | | | | | | | | | |
| | | 118 | | | | 26 | | | | (1,640 | ) |
| | | | | | | | | | | | |
Total income tax expense | | $ | 2,807 | | | $ | 6,873 | | | $ | 10,175 | |
| | | | | | | | | | | | |
|
| | | | | | | | | | | |
| | 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:
| | | | | | | | | | | | |
| | | Years ended September 30, | |
| | | 2011 | | | 2010 | | | 2009 | |
Tax at Federal statutory rate of 35% | | $ | 5,090 | | | $ | 9,578 | | | $ | 12,612 | |
| | | |
State income taxes, net of Federal tax benefit | | | 430 | | | | 652 | | | | 892 | |
Tax-exempt interest | | | (2,551 | ) | | | (2,645 | ) | | | (2,536 | ) |
BOLI income | | | (714 | ) | | | (715 | ) | | | (964 | ) |
Non deductible compensation expense | | | 594 | | | | — | | | | — | |
Other, net | | | (42 | ) | | | 3 | | | | 171 | |
| | | | | | | | | | | | |
Actual income tax expense | | $ | 2,807 | | | $ | 6,873 | | | $ | 10,175 | |
| | | | | | | | | | | | |
Effective income tax rate | | | 19.3 | % | | | 25.1 | % | | | 28.2 | % |
| | | | | | | | | | | | |
PROVIDENT NEW YORK
|
| | | | | | | | | | | |
| | 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)
| | | | | | | | |
| | | September 30, | |
| | | 2011 | | | 2010 | |
Deferred tax assets: | | | | | | | | |
Allowance for loan losses | | $ | 11,362 | | | $ | 12,525 | |
Deferred compensation | | | 3,011 | | | | 3,370 | |
Purchase accounting adjustments | | | — | | | | 13 | |
Accrued post retirement expense | | | 1,343 | | | | 1,121 | |
Core deposit intangibles | | | 198 | | | | (32 | ) |
Other comprehensive income (defined benefits) | | | 5,780 | | | | 5,053 | |
Goodwill | | | 117 | | | | (53 | ) |
Other | | | 1,497 | | | | 190 | |
| | | | | | | | |
Total deferred tax assets | | | 23,308 | | | | 22,187 | |
| | | | | | | | |
Deferred tax liabilities: | | | | | | | | |
Undistributed earnings of subsidiary not consolidated for tax return purposes (REIT Income) | | | 5,801 | | | | 6,138 | |
Prepaid pension costs | | | 4,846 | | | | 3,592 | |
Purchase accounting fair value adjustments | | | 193 | | | | 165 | |
Depreciation of premises and equipment | | | 486 | | | | 743 | |
Other comprehensive income (securities) | | | 9,302 | | | | 8,630 | |
Other | | | 810 | | | | 876 | |
| | | | | | | | |
Total deferred tax liabilities | | | 21,438 | | | | 20,144 | |
| | | | | | | | |
Net deferred tax asset | | $ | 1,870 | | | $ | 2,043 | |
| | | | | | | | |
The
tax effects of temporary differences that give rise tofollowing table presents the Company’s deferred tax
assetsposition at September 30, 2013 and
liabilities are summarized below. The net amount is reported in other assets or other liabilities in the consolidated statements of financial condition.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 management’sthe 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, 20112013 and 2010.The Bank is subject to special provisions in
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 Federal and New York State tax laws regarding its allowable tax bad debt deductions and related taxreserve at December 31, 1987, which is the end of the Bank’s base year for purposes of calculating the bad debt reserves. Tax bad debt reserves consist of a defined “base-year” amount, plus additional amounts accumulated after the base year. Deferreddeduction for tax liabilities are recognized with respect to reserves accumulated after the base year, as well as anypurposes. If this portion of the base-year amount thatretained earnings is expected to become taxable (or recaptured)used in the foreseeable future.future for any purposes other than to absorb bad debts, the amount used will be added to future taxable income. The Bank’s base-yearunrecorded deferred tax bad debt reserves for Federal tax purposes were $9,313 and for NY State purposes were $44,340liability on the above amount at September 30, 2010. Associated deferred2013 and 2012 was approximately $3,260.
As of September 30, 2013 and 2012, the Company had no unrecognized tax liabilities of $5,755 have not been recognized at those dates since thebenefits or accrued interest and penalties recorded. The Company does not expect that the Federal base-year reserves $(3,260) and New York State bad debt reserves $(3,839) nettotal amount of federal benefit at September 30, 2010, 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.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, there is no longer 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.
PROVIDENT NEW YORK BANCORP AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollars in thousands, except per share data)
Unrecognized Tax Benefits
The Company does not have unrecognized tax benefits as of September 2011 or September 2010.
to significantly increase within the next twelve months. The total amount ofCompany records interest and penalties recorded in the consolidated statementas a component of income in income tax expense (benefit) for the years ended September 30, 2011, 2010, and 2009 were $0, $0 and ($89) respective, respectively.
The Companyexpense.
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
state income taxes.states. The
Company is no longer subject to examination by Federal and New York taxing authorities for tax years
that are currently open for audit are 2007 and later for federal and 2009 and later for New York State income tax.(12)prior to 2010.
(11) Employee Benefit Plans and Stock-Based Compensation Plans
The Company has a noncontributory defined benefit pension plan covering employees that were eligible as of September 30, 2006.2006. In July, 2006, the Board of Directors of the Company approved a curtailment to the Provident Bank Defined Benefit Pension Plan (“the Plan”(the “Plan”) as of effective September 30, 2006.2006. At that time, all benefit accruals for future service ceased and no new participants maywere 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 30th measurement date for its pension plans. | | | | | | | | |
| | | September 30, | |
| | | 2011 | | | 2010 | |
Changes in projected benefit obligation: | | | | | | | | |
Beginning of year | | $ | 31,109 | | | $ | 27,963 | |
Service cost | | | — | | | | — | |
Interest cost | | | 1,498 | | | | 1,555 | |
Actuarial loss | | | 647 | | | | 3,296 | |
Benefits and distributions paid | | | (2,642 | ) | | | (1,705 | ) |
| | | | | | | | |
End of year | | | 30,612 | | | | 31,109 | |
| | | | | | | | |
Changes in fair value of plan assets: | | | | | | | | |
Beginning of year | | | 26,796 | | | | 25,503 | |
Actual gain (loss) on plan assets | | | (242 | ) | | | 2,498 | |
Employer contributions | | | 4,400 | | | | 500 | |
Benefits and distributions paid | | | (2,642 | ) | | | (1,705 | ) |
| | | | | | | | |
End of year | | | 28,312 | | | | 26,796 | |
| | | | | | | | |
Funded status at end of year | | $ | (2,300 | ) | | $ | (4,313 | ) |
| | | | | | | | |
|
| | | | | | | |
| | 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 | ) |
PROVIDENT NEW YORK BANCORP AND SUBSIDIARIESNotes to Consolidated Financial Statements
(Dollars in thousands, except per share data)
Included in the $2,642 benefit and distributions paid was $490 in settlement charges related the retirement of prior CEO of the Company.
Amounts recognized in accumulated other comprehensive income (loss) at September 30, 20112013 and 20102012 consisted of:
| | | | | | | | |
| | | 2011 | | | 2010 | |
Unrecognized actuarial loss | | $ | (14,234 | ) | | $ | (13,159 | ) |
Deferred tax asset | | | 5,780 | | | | 5,344 | |
| | | | | | | | |
Net amount recognized in accumulated other comprehensive income (loss) | | $ | (8,454 | ) | | $ | (7,815 | ) |
| | | | | | | | |
Discount
|
| | | | | | | |
| | 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 of 5.00%, 5.00% and 5.75% were used in determiningto 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, 2011, 20102013, 2012 and 2009,2011, respectively. No compensation increases were used as the planPlan is frozen. The expected weighted average long-term rate of return on plan assets was 7.75 %7.8% for the fiscal years ended 20112013 and 2010. The accumulated2012.
Estimated future benefit
obligation was $30,612 and $31,109 at year end September 30, 2011 and 2010 respectively. The discount rate used inpayments are the
determination of net periodic pension expense were 5.00%, 5.75% and 7.00%,following for the years ending September
30, 2011, 2010 and 2009, respectively.The following benefit payments, which reflect expected future service, as appropriate, are expected30:
|
| | | |
| 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
be paid: | | | | |
2012 | | $ | 1,400 | |
2013 | | | 1,465 | |
2014 | | | 1,536 | |
2015 | | | 1,998 | |
2016 | | | 1,791 | |
2017 - 2019 | | | 9,593 | |
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, | |
| | | 2011 | | | 2010 | | | 2009 | |
Service cost | | $ | — | | | $ | — | | | $ | — | |
Interest cost | | | 1,498 | | | | 1,555 | | | | 1,593 | |
Expected return on plan assets | | | (2,343 | ) | | | (1,890 | ) | | | (1,778 | ) |
Amortization of unrecognized loss | | | 1,667 | | | | 1,509 | | | | 826 | |
Settlement Charge | | | 490 | | | | — | | | | — | |
| | | | | | | | | | | | |
Net periodic pension expense | | $ | 1,312 | | | $ | 1,174 | | | $ | 641 | |
| | | | | | | | | | | | |
Unrecognized
|
| | | | | | | | | | | |
| | 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 totaling $2.3 millionthat is expected to be amortized to pension expense during the next fiscal year ending September 30, 2012.Equity, Debt, Invest Funds2014 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 Other Securities: 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 for investment securitiesof 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 determined by quoted market prices, if available (Level 1). For securities wherenot 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 readily available,publicly quoted and are therefore classified as Level 2. The fair values are calculated based on market pricesvalue of similar securities (Level 2). For securities where quoted prices or market pricesPlan assets by asset category as of similar securities are not available, fair values are calculated using discounted cash flows or other market indicators (Level 3).PROVIDENT NEW YORKSeptember 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)
The fair value of the plan assets consisting of various mutual funds and pooled investment funds at September 30, 2011, by asset category, is as follows:
| | | | | | | | | | | | | | | | |
| | | Fair Value
Measurements
at
September 30,
2011 | | | Level 1 | | | Level 2 | | | Level 3 | |
Asset Category | | | | | | | | | | | | | | | | |
Large U.S. equity | | $ | 13,549 | | | $ | — | | | $ | 13,549 | | | $ | — | |
Small Mid U.S. equity | | | 3,238 | | | | — | | | | 3,238 | | | | — | |
International Equity | | | 2,607 | | | | — | | | | 2,607 | | | | — | |
| | | | | | | | | | | | | | | | |
Total Equity | | | 19,394 | | | | — | | | | 19,394 | | | | — | |
| | | | |
High yield bond | | | 914 | | | | — | | | | 914 | | | | — | |
Intermediate term bond | | | 6,447 | | | | — | | | | 6,447 | | | | — | |
Inflation protected bond | | | 1,557 | | | | — | | | | 1,557 | | | | — | |
| | | | | | | | | | | | | | | | |
Total Fixed Income | | | 8,918 | | | | — | | | | 8,918 | | | | — | |
| | | | |
Cash | | | — | | | | — | | | | — | | | | — | |
| | | | | | | | | | | | | | | | |
Total Assets | | $ | 28,312 | | | $ | — | | | $ | 28,312 | | | $ | — | |
| | | | | | | | | | | | | | | | |
The fair value of the plan assets consisting of various mutual funds and pooled investment funds 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 | | | $ | — | |
| | | | | | | | | | | | | | | | |
|
| | | | | | | | | | | | | | | |
| | 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 pension planPlan assets in a prudent manner for the purpose of providing benefit payments to participants and mitigatingoffseting 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
does allowallows 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
PROVIDENT NEW YORK BANCORP AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollars in thousands, except per share data)
plan asset allocations based on the fair value of such assets at September 30, 2011,2013, and September 30, 20102012 and target allocations for 2012,2013, by asset category, are as follows:
| | | | | | | | | | | | | | | | |
| | | September 30,
2010 | | | September 30,
2011 | | | Target Allocation
Range 2012 | | | Weighted
Average Expected
Rate of Return | |
Large U.S. equity securities | | | 54 | % | | | 48 | % | | | | | | | 7.00 | % |
Small mid U.S. equity securities | | | 11 | % | | | 11 | % | | | | | | | 15.00 | % |
International equity securities | | | 10 | % | | | 9 | % | | | | | | | 12.00 | % |
Total equity securities | | | 75 | % | | | 68 | % | | | 40 | % - 85% | | | 8.84 | % |
| | | | |
High yield bond | | | 4 | % | | | 3 | % | | | | | | | 8.00 | % |
Intermediate term bond | | | 17 | % | | | 23 | % | | | | | | | 6.00 | % |
Inflation protected bond | | | 4 | % | | | 6 | % | | | | | | | 3.00 | % |
Total fixed income | | | 25 | % | | | 32 | % | | | 20 | % - 40% | | | 5.85 | % |
| | | | |
Cash | | | 0 | % | | | 0 | % | | | 0 | % - 20% | | | 0 | % |
|
| | | | | | | | | | |
| | 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
managementus in evaluating such returns.
There were no pension plan assets consisting of ProvidentSterling Bancorp equity securities (common stock) at September 30, 20112013 or at September 30, 2010.2012
.
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
2012fiscal 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 $44, $87$49, $41 and $94$44 for the years ended September 30, 2011, 20102013, 2012 and 2009,2011, respectively. Additionally, a settlement charge of $278$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 CEO benefit obligation.employee. The actuarial present value of the projected benefit obligation and the vested benefit obligation was $912$1,194 and $1,763$1,016 at September 30, 20112013 and 2010,2012, respectively, and the vested benefit obligation was $912$1,180 and $1,763$1,016 for the same periods, respectively, all of which is unfunded. Discount rates of 4.75%3.0% and 4.50%3.8% were used in determining the actuarial projected benefit at September 30, 20112013 and 5.00%2.5% and 3.25% for September 30, 2010.2012
. (b) Other
PostretirementPost retirement Benefit Plans
The Company’s postretirementother 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 thePROVIDENT NEW YORK BANCORP AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollars in thousands, except per share data)
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
20 year period. Data relating to the
postretirementpost retirement benefit plan
follows: | | | | | | | | |
| | | September 30, | |
| | | 2011 | | | 2010 | |
Change in accumulated postretirement benefit obligation: | | | | | | | | |
Beginning of year | | $ | 2,261 | | | $ | 2,041 | |
Service cost | | | 38 | | | | 28 | |
Interest cost | | | 107 | | | | 107 | |
Actuarial loss | | | 209 | | | | 183 | |
Plan participants’ contributions | | | — | | | | — | |
Amendments | | | — | | | | — | |
Benefits paid | | | (106 | ) | | | (98 | ) |
| | | | | | | | |
End of year | | $ | 2,509 | | | $ | 2,261 | |
| | | | | | | | |
Changes in fair value of plan assets: | | | | | | | | |
Beginning of year | | $ | — | | | $ | — | |
Employer contributions | | | 106 | | | | 98 | |
Plan participants’ contributions | | | — | | | | — | |
Benefits paid | | | (106 | ) | | | (98 | ) |
| | | | | | | | |
End of year | | $ | — | | | $ | — | |
| | | | | | | | |
Funded status | | $ | (2,509 | ) | | $ | (2,261 | ) |
| | | | | | | | |
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 (benefit): | | | | | | | | | | | | |
| | | For years ended September 30, | |
| | | 2011 | | | 2010 | | | 2009 | |
Service Cost | | $ | 38 | | | $ | 28 | | | $ | 22 | |
Interest Cost | | | 107 | | | | 107 | | | | 118 | |
Amortization of transition obligation | | | 24 | | | | 24 | | | | 24 | |
Amortization of prior service cost | | | 48 | | | | 49 | | | | 49 | |
Amortization of net actuarial gain | | | (60 | ) | | | (95 | ) | | | (119 | ) |
| | | | | | | | | | | | |
Total | | $ | 157 | | | $ | 113 | | | $ | 94 | |
| | | | | | | | | | | | |
There is $22expense:
|
| | | | | | | | | | | |
| | 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 out offrom accumulated other comprehensive income in 2012.Estimated Future Benefit Payments
The following benefit payments are expected to be paid in future years:
| | | | |
2012 | | | 138 | |
2013 | | | 143 | |
2014 | | | 145 | |
2015 | | | 149 | |
2016 | | | 151 | |
2017 - 2019 | | | 838 | |
fiscal year 2014 is
PROVIDENT NEW YORK$20.
STERLING BANCORP AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollars in thousands, except per share data)
| | | | | | | | |
Assumptions used for plan | | 2011 | | | 2010 | |
Medical trend rate next year | | | 4.50 | % | | | 4.50 | % |
Ultimate trend rate | | | 4.50 | % | | | 4.50 | % |
Discount rate | | | 4.25 | % | | | 4.50 | % |
Discount rate used to value periodic cost | | | 4.50 | % | | | 5.50 | % |
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 income (loss) at September 30, 20112013 and 20102012 consisted of: | | | | | | | | |
| | | 2011 | | | 2010 | |
Post retirement plan unrecognized gain | | $ | 771 | | | $ | 1,047 | |
Post retirement plan unrecognized service cost | | | (364 | ) | | | (412 | ) |
Post retirement unrecognized transition obligation | | | (41 | ) | | | (51 | ) |
Post retirement SERP | | | (244 | ) | | | (306 | ) |
Post employment BOLI | | | (144 | ) | | | (152 | ) |
| | | | | | | | |
Subtotal | | | (22 | ) | | | 126 | |
Deferred tax asset (liability) | | | 9 | | | | (51 | ) |
| | | | | | | | |
Net amount recognized in accumulated other comprehensive income (loss) | | $ | (13 | ) | | $ | 75 | |
| | | | | | | | |
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%50.0% of their compensation to the plan. The Company currently makes matching contributions equal to 50%50.0% of a participant’s contributions up to a maximum matching contribution of 3%3.0% of eligible compensation. Effective after September 30, 2006, the Bank amended theThe plan to includealso provides for a discretionary profit sharing component, which was 3% of eligible compensation, in addition to the matching contributions for 2011.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 $1,875, $1,751$935, $1,029 and $1,594$1,875 for the years ended September 30, 2011, 20102013, 2012 and 2009,2011, respectively.
(d) Employee Stock Ownership Plan (“ESOP”)
In connection with the reorganizationSecond-Step Stock Conversion and initial common stock offeringOffering in 1999,January 2004, the Company established an ESOP for substantially all eligible employees who meet certain age and service requirements. The ESOP borrowed $3,760$9,987 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 ProvidentSterling Bancorp and used the funds to purchase
998,650 shares of common stock in the offering. The term of the secondthis ESOP loan is twenty years.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 relativePROVIDENT NEW YORK BANCORP AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollars in thousands, except per share data)
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 allocatedyears.
STERLING BANCORP AND SUBSIDIARIES
Notes to other participantsConsolidated Financial Statements
(Dollars in the same proportion as contributions through 2006thousands, except per share data)
ESOP expense was $497, $390, and beginning in 2007 are used by the plan to reduce debt service. A total of $4, $29 and $4 related to plan forfeitures were reversed against expense$436 for the years ended September 30, 2011, 2010,2013, 2012 and 20092011, respectively. Of the 998,650 shares of common stock acquired by the ESOP expense (net of forfeitures) was $436, $413, and $484 for the years ended through
September 30, 2011, 20102013 and 2009, respectively. Through September 30, 2011 and 2010,2012, a cumulative total of 1,755,010439,388 and 1,705,078389,456 common shares, respectively, have been allocated to participants or committed to be released for allocation, respectively.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; 613,758this was 549,262 shares with a cost of $6,138$5,493 and a fair value of approximately $3,572$5,981 at September 30, 20112013 and 663,690599,194 shares with a cost of $6,637$5,992 and a fair value of approximately $5,568$5,638 at September 30, 2010, respectively.A2012
.
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 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 $340, $146,$79, $0, and $212,$340, for the years ended September 30, 2011, 20102013, 2012 and 2009,2011, respectively. Amounts accrued and recorded in other liabilities at September 30, 20112013 and 2010,2012, including the defined benefit component were $1.6$1.2 million and $3.1 million respectively..
(e)
Recognition and Retention PlanIn February 2000,Stock Compensation Plans
The Company has two active stock compensation plans, 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. 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 “2004 Plan”) and the terms of which2012 Stock Incentive Plan (the “2012 Plan”). Both the 2004 Plan and the 2012 Plan were established to help the Company ispromote 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 to issuethe issuance of up to 798,920 shares of common stock as restricted stock awards. Employees who retire under circumstancesawards, 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 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.control. As of September 30, 2011, 1,0002013, 11,533 restricted shares were potentially subject to accelerated vesting.Undervesting as the 2004employees were eligible for retirement. A total of 191,724 options and
7,120 restricted stock plan, 27,120 shares of authorized but un-issued sharesawards remain available for future grant at September 30, 2011. Forfeited2013.
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
also can fund thegenerally funds restricted stock
planawards with treasury stock.
The fair market value of theOn grant date, restricted shares awarded under the
restricted stock plan is being amortized to expense on a straight-line basis over2004 Plan and the
vesting period of the underlying shares. In addition, 41,370 shares of restricted stock were issued as inducement shares, which have three and four year vesting periods. Compensation expense related to the restricted stock plan was $168, $883, and $1.7 million for the years ended September 30, 2011, 2010 and 2009, respectively. The remaining unearned compensation cost of $478 as of September 30, 2011 is recorded as a reduction of additional paid in capital and will be expensed over 4 years. On grant date, shares awarded under the restricted stock plan2012 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.
PROVIDENT NEW YORK BANCORP AND SUBSIDIARIESNotesThe fair market value of the restricted shares awarded under the plans is being amortized to Consolidated Financial Statements
(Dollars in thousands, except per share data)
A summaryexpense on a straight-line basis over the vesting period of the underlying shares. Compensation expense related to restricted stock award activity under the planawards was $1,108, $276, and $168 for the yearyears ended September 30, 2013, 2012 and 2011, respectively. The remaining unearned compensation cost of $1,239 as of September 30, 2013 is presented below:
| | | | | | | | |
| | | Number
of Shares | | | Weighted
Average
Grant-Date
Fair Value | |
Nonvested shares at September 30, 2010 | | | 6,250 | | | $ | 13.51 | |
| | | | | | | | |
Granted | | | 63,870 | | | | 8.79 | |
Vested | | | (12,600 | ) | | | 11.19 | |
Forfeited | | | — | | | | — | |
| | | | | | | | |
Nonvested shares at September 30, 2011 | | | 57,520 | | | $ | 8.77 | |
| | | | | | | | |
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 yearyears ended September 30, 2011, 20102013, 2012 and 20092011 was $73, $575,$716, $157, and $1.3 million,$73, respectively.
(f) Stock Option Plan
The Company’s stockholders approved the Provident Bank 2000 Stock Option Plan (the Stock Option Plan)
STERLING BANCORP AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollars 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 this plan 207,607 shares of authorized but unissued remain available for future grant at September 30, 2011. 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. thousands, except per share data)
Under both plans, options vest over periods ranging from two to five years and have a ten-yearten-year contractual term and may be either non-qualified stock options or incentive stock options. Reload options may be granted underThe Company uses shares held as treasury stock to satisfy share option exercises. Currently, the termsCompany has a sufficient number of the 2000 Stock Option Plan and provide for the automatic grant of a newtreasury shares to satisfy expected share 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 un-granted and 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.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 accelerate theaccelerated vesting of individual awards. In addition, 107,526 shares of stock options were issued as inducement shares, which have a four year vesting period.
As of September 30, 2011, 34,3002013, 48,121 shares were potentially subject to accelerated vesting. Substantially all stock options outstanding are expected to vest. Compensation expense related to stock option plansawards was $558, $247$634, $521 and $768$558 for the years ended September 30, 2011, 20102013, 2012 and 2009,2011, respectively.
The following
is a summary oftable summarizes the activity in the
Stock Option Plan: | | | | | | | | |
| | | Shares subject
to option | | | Weighted
Average
exercise price | |
Outstanding at September 30, 2010 | | | 1,922,844 | | | $ | 12.47 | |
| | | | | | | | |
Granted | | | 119,526 | | | | 8.30 | |
Exercised | | | — | | | | — | |
Forfeited | | | (136,350 | ) | | | 12.55 | |
| | | | | | | | |
Outstanding shares at September 30, 2011 | | | 1,906,020 | | | $ | 12.20 | |
| | | | | | | | |
Company’s active stock-based compensation plans for
PROVIDENT NEW YORK BANCORP AND SUBSIDIARIESSeptember 30, 2013Notes to Consolidated Financial Statements
(Dollars in thousands, except per:
|
| | | | | | | | | | | | | | | | |
| | | | 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
data)granted.
The total intrinsic value of stock options vested (exercisable) for the fiscal years ended September 30, 2011, 20102013, 2012 and 20092011 was $0, $0$651, $33 and $4.1 million,$0 respectively. The unrecognized compensation costexpense associated with stock options was $413$1,360 as of September 30, 20112013 and is expected to be recognized in expense over a period of 43 years.At September 30, 2011 and 2010, respectively, there were 207,607 and 93,257 shares available for future grant.
The aggregate intrinsic value of options outstanding as of September 30, 20112013 was $0.$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 dateday of the year ended September 30, 20112013 and the exercise price, multiplied by the number of in the moneyin-the-money options). The cash received from option exercises was $0$62 and $984$0 for fiscal 20112013 and 2010,2012, respectively. There was no tax benefit recorded in the results of operations to the Company from the exercise of options for either fiscal 20112013 or fiscal 2010.2012.
A summary of stock options at September 30, 20112013 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 | | | | | | | | | | | | | | | | | | | | | | | | |
$6.86 to $11.85 | | | 465,590 | | | $ | 9.99 | | | | 7.6 | | | | 228,314 | | | $ | 10.86 | | | | 7.6 | |
$11.85 to $12.84 | | | 1,222,600 | | | | 12.84 | | | | 3.3 | | | | 1,218,600 | | | | 12.84 | | | | 3.3 | |
$13.18 to $15.66 | | | 217,830 | | | | 13.35 | | | | 5.7 | | | | 160,430 | | | | 13.38 | | | | 5.7 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | 1,906,020 | | | $ | 12.20 | | | | 4.6 | | | | 1,607,344 | | | $ | 12.61 | | | | 4.6 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
The aggregate intrinsic value
|
| | | | | | | | | | | | | | | | | |
| | 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
vest.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 $2.27$2.74 in 2011, $2.692013, $2.31 in 2010,2012, and $1.97$2.27 in 2009. 2011.
The fair value of options granted was determined using the following weighted-average assumptions as of the grant date:
| | | | | | | | | | | | |
| | | 2011 | | | 2010 | | | 2009 | |
Risk-free interest rate(1) | | | 2.2 | % | | | 2.2 | % | | | 1.9 | % |
Expected stock price volatility | | | 34.5 | % | | | 33.2 | % | | | 61.5 | % |
Dividend yield(2) | | | 2.8 | % | | | 1.9 | % | | | 3.3 | % |
Expected term in years | | | 5.9 | | | | 7.7 | | | | .91 | |
(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 | | | | | | | | | | | | 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
|
PROVIDENT NEW YORK BANCORP AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollarsa share of common stock at or near the grant date.
(12) Other Non-interest Expense
Other non-interest expense items are presented in
thousands, except per share data)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)(“EPS”):
| | | | | | | | | | | | |
| | | Years ended September 30, | |
| | | 2011 | | | 2010 | | | 2009 | |
Net income | | $ | 11,739 | | | $ | 20,492 | | | $ | 25,861 | |
| | | | | | | | | | | | |
Weighted average common shares outstanding for computation of basic EPS(1) | | | 37,453 | | | | 38,161 | | | | 38,538 | |
Common-equivalent shares due to the dilutive effect of stock options(2) | | | 1 | | | | 24 | | | | 168 | |
| | | | | | | | | | | | |
Weighted average common shares for computation of diluted EPS | | | 37,454 | | | | 38,185 | | | | 38,706 | |
| | | | | | | | | | | | |
Earnings per common share: | | | | | | | | | | | | |
Basic | | $ | 0.31 | | | $ | 0.54 | | | $ | 0.67 | |
| | | | | | | | | | | | |
Diluted | | $ | 0.31 | | | $ | 0.54 | | | $ | 0.67 | |
| | | | | | | | | | | | |
|
| | | | | | | | | | | |
| | 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) | Excludes unallocated
|
| (1) | Includes earned ESOP shares. |
STERLING BANCORP AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollars in thousands, except per share data)
(2) |
|
| (2) | Represents incremental shares computed using the treasury stock method. |
As of September 30, 2011, 20102013, 2012 and 20092011 there were 1,871,299, 1,826,5191,786,608, 1,771,132 and 1,934,6371,871,299 stock options, respectively, that were considered anti-dilutive for these periods and were not included in common-equivalent shares. (14) Stockholders’ Equity
OCC 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;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
ProvidentSterling Bancorp.
PROVIDENT NEW YORK BANCORP AND SUBSIDIARIESNotes to Consolidated Financial Statements
(Dollars in thousands, except per share data)
Management believesWe believe that, as of September 30, 20112013 and 20102012 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 management believeswe 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, 20112013 and 2010,2012, compared to the OCC requirements for minimum capital adequacy and for classification as a well-capitalized institution. PMB is also subject
STERLING BANCORP AND SUBSIDIARIES
Notes to
certain regulatory capital requirements, which it satisfied as of September 30, 2011 and 2010. | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | OCC requirements | |
| | | Bank actual | | | Minimum capital
adequacy | | | Classification as well
capitalized | |
| | | |
| | | Amount | | | Ratio | | | Amount | | | Ratio | | | Amount | | | Ratio | |
September 30, 2011: | | | | | | | | | | | | | | | | | | | | | | | | |
Tangible capital | | $ | 241,196 | | | | 8.1 | % | | $ | 44,460 | | | | 1.5 | % | | $ | — | | | | — | |
Tier 1 (core) capital | | | 241,196 | | | | 8.1 | | | | 118,559 | | | | 4.0 | | | | 148,199 | | | | 5.0 | % |
Risk-based capital: | | | | | | | | | | | | | | | | | | | | | | | | |
Tier 1 | | | 241,196 | | | | 11.8 | | | | — | | | | — | | | | 122,126 | | | | 6.0 | |
Total | | | 265,307 | | | | 13.0 | | | | 162,835 | | | | 8.0 | | | | 203,544 | | | | 10.0 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
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 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
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 1.25%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, | |
| | | 2011 | | | 2010 | |
Total GAAP stockholder’s equity (Provident Bank) | | $ | 405,638 | | | $ | 403,630 | |
Goodwill and certain intangible assets | | | (159,306 | ) | | | (158,127 | ) |
Unrealized gains on securities available for sale included in other accumulated comprehensive income | | | (13,604 | ) | | | (12,770 | ) |
Other Comprehensive loss | | | 8,468 | | | | 7,497 | |
| | | | | | | | |
Tangible, tier 1 core and | | | | | | | | |
Tier 1 risk-based capital | | | 241,196 | | | | 240,230 | |
Allowance for loan losses | | | 24,111 | | | | 24,918 | |
| | | | | | | | |
Total risk-based capital | | $ | 265,307 | | | $ | 265,148 | |
| | | | | | | | |
PROVIDENT NEW YORK BANCORP AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollars in thousands, except per share data)
|
| | | | | | | |
| | 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 |
|
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 savings associationBank 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, 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 OCC approval. After September 30, 20112013 the amount that can be paid to ProvidentSterling Bancorp by ProvidentSterling National Bank is $8.5$35.8 million plus earnings for the remainder of calendar year 2011.2013. The Bank paid $10.0 million indid not pay dividends to ProvidentSterling 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 ($29.4 million during the year ended 2010 and $10.5 million during the year ended September 30, 2009).Unlike the Bank, Provident Bancorp is not subject
STERLING BANCORP AND SUBSIDIARIES
Notes to
OCC regulatory limitations on the payment of dividends to its stockholders.Consolidated Financial Statements
(Dollars in thousands, except per share data)
(c) Stock Repurchase ProgramsThe Company announced its fifth stock repurchase program on December 17, 2009, authorizing the repurchase of 2,000,000 shares, of whichhas 776,713 shares remainthat are available to be purchased at under an announced stock repurchase program. There were no shares repurchased under the repurchase programs during the fiscal year ended September 30, 2011.
2013 and 2012 . The total number of shares repurchased under repurchase programs during the fiscal year ended September 30, 2011 2010, and 2009, was 457,454 1,515,923 and 415,811, respectively at a total cost of $3.8$3.8 million $12.9 million, and $3.5 million, respectively.
(d).
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 Provident Federalthe 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, 20112013 the liquidation account had a balance of $16.0 million.$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.PROVIDENT NEW YORK BANCORP AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollars in thousands, except per share data)
(15) Off-Balance-Sheet Financial Instruments
In the normal course of business, the Company is a partyenters 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 off-balance-sheet financial instruments thatmeet 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 addition toexcess of the amounts recognized in the consolidated financial statements. 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-sheetoff-balance sheet financial instruments, are summarized as follows: | | | | | | | | |
| | | September 30, | |
| | | 2011 | | | 2010 | |
Lending-related instruments: | | | | | | | | |
Loan origination commitments | | $ | 127,307 | | | $ | 114,822 | |
Unused lines of credit | | | 239,387 | | | | 282,428 | |
Letters of credit | | | 16,972 | | | | 23,104 | |
As
|
| | | | | | | |
| | 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 |
|
Table of September 30, 2011 and 2010, 88%, and 86%, 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, 2011 provide for interest rates ranging principally from 2.06% to 8.00%.
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, 2011, the Company had $16,972 in outstanding letters of credit, of which $10,528 were secured by collateral.
PROVIDENT NEW YORKContents
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, 20112013 were as follows (for fiscal years ending September 30follows:
|
| | | |
| 2014 | $ | 3,458 |
|
| 2015 | 3,220 |
|
| 2016 | 3,131 |
|
| 2017 | 3,152 |
|
| 2018 | 3,118 |
|
| 2019 and thereafter | 16,083 |
|
| | $ | 32,162 |
|
th): | | | | |
2012 | | $ | 2,579 | |
2013 | | | 2,411 | |
2014 | | | 2,175 | |
2015 | | | 2,095 | |
2016 | | | 2,027 | |
2017 and thereafter | | | 14,875 | |
| | | | |
| | $ | 26,162 | |
| | | | |
Occupancy and office operations expense includeincludes net rent expense of $2,845, $2,802$3,340, $2,952 and $2,726$2,845 for the years ended September 30, 2011, 20102013, 2012 and 2009,2011, respectively.
Litigation
The
consolidation of two leased branches resultedCompany and the Bank are involved in a
restructuring chargenumber of
$2.1 million at September 30, 2011.The Company is a defendant in certain claims andjudicial proceedings concerning matters arising from conducting their business activities. These include routine legal actionsproceedings arising in the ordinary course of business. Management, after consultationThese 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 counsel, does not anticipate lossesproceeding; 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
anybehalf of
these claims ora 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
that would have a material adverse effect onwere 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
financial statements.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
Level 1
— Valuation is based onInputs – Unadjusted quoted prices in active markets for identical assets and
liabilities.LEVELliabilities that the reporting entity has the ability to access at the measurement date.
Level 2
— Valuation is determined fromInputs – 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
instrumentsassets or liabilities in markets that are not active,
or by model-based techniques in which all significant inputs
other than quoted prices that are observable
infor the
market.LEVELasset 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 — Valuation is derived from model-based techniques in which at least one significant input is unobservable and based onInputs – Unobservable inputs for determining the Company’sfair values of assets or liabilities that reflect an entity’s own estimatesassumptions about the assumptions that the market participants would use toin pricing the assets or liabilities.
In general, fair value
the asset or liability.When available, the Company attempts to useis based on quoted market prices, in active markets to determine fair value and classifies such items as Level 1 or Level 2.when available. If quoted market prices in active markets are not available, fair value is often determined using model-based techniques incorporating variousbased 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 including interest rates, prepayment speedsto 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 credit losses. Assets and liabilities valued using model-based techniques are classified as either Level 2 or Level 3, depending ontherefore, estimates of fair value after the lowest level classification of an input that is considered significant tobalance sheet date may differ significantly from the overall valuation.
PROVIDENT NEW YORK BANCORP AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollars in thousands, except per share data)
The following is aamounts presented herein. A more detailed description of the valuation methodologies used for the Company’s 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 are measured on a recurring basis at estimated fair value.
caused the transfer, which generally coincides with the Company’s monthly and/or quarterly valuation process.
Investment
securities availableSecurities Available for
saleSale
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 been valueda 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 referencethe independent pricing service by comparison to prices for similar securitiesobtained from third-party sources or through model-based techniques in which all significant inputs are observable and, therefore, such valuations have been classified as Level 2. U.S. Treasuries are actively traded and therefore have been classified as Level 1 valuations. As of October 1, 2010 the company determined that government sponsored agencies totaling $346,019 previously reported as Level 1 securities were not classified based on the lowest level withinderived using internal models.
The Company reports the fair value hierarchy and deemed it appropriate to transfer the securities to Level 2.The Company utilizes an outside vendor to obtain valuations for its traded securities as well as information receivedof private label collateralized mortgage obligations or “CMOs” with a rating from a third partynational recognized bond rating agency of below 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 financial market data and compares them to dealer indicative bids from the Company’s external investment advisor. The Company does not make adjustments to these prices unless it is determined there is limited trading activity. 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 asgrade using Level 3 as of April 1, 2009 with a fair value of $9,534.inputs. As of
September 30, 2011,2013, these securities have an amortized cost of $5,372$3,636 and a fair value of $4,851.$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 discountedto discount expected cash flows at athe interest 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, 2011. These securities have a weighted average coupon rate of 2.92%3.12%, a weighted average life of 5.043.49 years a weighted average 1 month prepayment history of 10.98 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 3.78 CDR. It4.30%. There was determined that one$14 of OTTI recognized on these securities during the year ended September 30, 2013.
The credit ratings of these securities
with a carrying amount of $1,683 and an amortized cost of $1,940 had an other than temporary loss which resulted in a $75 other than temporary impairment charge.The investment grades of these securities arewere as follows:
| | | | | | | | |
| | | Amortized
Cost | | | Fair
Value | |
Investment Rating: | | | | | | | | |
A1 | | $ | 352 | | | $ | 348 | |
Ba1 | | | 138 | | | | 130 | |
B | | | 4,882 | | | | 4,373 | |
| | | | | | | | |
Total private label CMOs | | $ | 5,372 | | | $ | 4,851 | |
| | | | | | | | |
PROVIDENT NEW YORK BANCORP AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollars in thousands, except per share data)
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 |
|
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 partycounter-party as of the measurement date (Level 2). The Company’s derivatives consist of two interest rate caps and
threetwelve interest rate
swaps (see footnote 10).swaps. See Note 9. Derivatives.
Commitments to
sell real estate loansSell Real Estate Loans
The Company enters into various commitments to sell real estate loans
intoin 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
valuesvalue of these commitments
areis not
considered material.
A summary of assets and liabilities at September 30, 20112013 measured at estimated fair value on a recurring basis wereis as follows: | | | | | | | | | | | | | | | | |
| | | Fair Value
Measurements
at
September 30,
2011 | | | Level 1 | | | Level 2 | | | Level 3 | |
Investment securities available for sale: | | | | | | | | | | | | | | | | |
Mortgage-backed securities-residential | | | | | | | | | | | | | | | | |
Fannie Mae | | $ | 139,991 | | | $ | — | | | $ | 139,991 | | | $ | — | |
Freddie Mac | | | 100,675 | | | | — | | | | 100,675 | | | | — | |
Ginnie Mae | | | 5,180 | | | | — | | | | 5,180 | | | | — | |
CMO/Other MBS | | | 77,561 | | | | — | | | | 77,561 | | | | — | |
Privately issued collateralized mortgage obligations | | | 4,851 | | | | — | | | | — | | | | 4,851 | |
| | | | | | | | | | | | | | | | |
| | | 328,258 | | | | — | | | | 323,407 | | | | 4,851 | |
Investment securities | | | | | | | | | | | | | | | | |
Federal agencies | | | 204,648 | | | | — | | | | 204,648 | | | | — | |
Corporate debt securities | | | 17,062 | | | | — | | | | 17,062 | | | | — | |
Obligations of states and political subdivisions | | | 188,684 | | | | — | | | | 188,684 | | | | — | |
Equities | | | 1,192 | | | | — | | | | 1,192 | | | | — | |
| | | | | | | | | | | | | | | | |
Total investment securities available for sale | | | 411,586 | | | | — | | | | 411,586 | | | | — | |
| | | | | | | | | | | | | | | | |
Total available for sale securities | | | 739,844 | | | | — | | | | 734,993 | | | | 4,851 | |
| | | | | | | | | | | | | | | | |
Interest rate caps and swaps | | | 1,180 | | | | — | | | | 1,180 | | | | — | |
| | | | | | | | | | | | | | | | |
Total assets | | $ | 741,024 | | | $ | — | | | $ | 736,173 | | | $ | 4,851 | |
| | | | | | | | | | | | | | | | |
Swaps | | $ | 1,114 | | | $ | — | | | $ | 1,114 | | | $ | — | |
| | | | | | | | | | | | | | | | |
Total Liabilities | | $ | 1,114 | | | $ | — | | | $ | 1,114 | | | $ | — | |
| | | | | | | | | | | | | | | | |
PROVIDENT NEW YORK
|
| | | | | | | | | | | | | | | |
| | 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, 20102012 measured at estimated fair value on a recurring basis were asis the follows: | | | | | | | | | | | | | | | | |
| | | Fair Value
Measurements
at
September 30,
2010 | | | Level 1 | | | Level 2 | | | Level 3 | |
Investment securities available for sale: | | | | | | | | | | | | | | | | |
Mortgage-backed securities-residential | | | | | | | | | | | | | | | | |
Fannie Mae | | $ | 153,188 | | | $ | — | | | $ | 153,188 | | | $ | — | |
Freddie Mac | | | 58,452 | | | | — | | | | 58,452 | | | | — | |
Ginnie Mae | | | 9,315 | | | | — | | | | 9,315 | | | | — | |
CMO/Other MBS | | | 32,663 | | | | — | | | | 32,663 | | | | — | |
Privately issued collateralized mortgage obligation | | | 5,996 | | | | — | | | | — | | | | 5,996 | |
| | | | | | | | | | | | | | | | |
| | | 259,614 | | | | — | | | | 253,618 | | | | 5,996 | |
Investment securities | | | | | | | | | | | | | | | | |
U.S. Government securities | | | 72,293 | | | | 72,293 | | | | — | | | | — | |
Federal agencies | | | 346,019 | | | | 346,019 | | | | — | | | | — | |
Corporate debt securities | | | 30,540 | | | | — | | | | 30,540 | | | | — | |
Obligations of states and political subdivisions | | | 191,657 | | | | — | | | | 191,657 | | | | — | |
Equities | | | 889 | | | | — | | | | 889 | | | | — | |
| | | | | | | | | | | | | | | | |
Total investment securities available for sale | | | 641,398 | | | | 418,312 | | | | 223,086 | | | | — | |
| | | | | | | | | | | | | | | | |
Total available for sale securities | | | 901,012 | | | | 418,312 | | | | 476,704 | | | | 5,996 | |
| | | | | | | | | | | | | | | | |
Interest rate caps and swaps | | | 435 | | | | — | | | | 435 | | | | — | |
| | | | | | | | | | | | | | | | |
Total assets | | $ | 901,447 | | | $ | 418,312 | | | $ | 477,139 | | | $ | 5,996 | |
| | | | | | | | | | | | | | | | |
Swaps | | $ | 173 | | | $ | — | | | $ | 173 | | | $ | — | |
| | | | | | | | | | | | | | | | |
Total Liabilities | | $ | 173 | | | $ | — | | | $ | 173 | | | $ | — | |
| | | | | | | | | | | | | | | | |
|
| | | | | | | | | | | | | | | |
| | 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
followspart of net unrealized holding gains (losses) on securities available for
sale net of related tax expense on the
period ending September 30, 2011: | | | | |
| | | Privately
issued
CMOS | |
Balance at September 30, 2009 | | $ | 10,411 | |
Pay downs | | | (1,946 | ) |
(Amortization) and accretion, net | | | 49 | |
Change in fair value | | | 380 | |
Loss recognized on sale | | | (186 | ) |
Sale | | | (2,712 | ) |
| | | | |
Balance at September 30, 2010 | | | 5,996 | |
Pay downs | | | (908 | ) |
(Amortization) and accretion, net | | | 1 | |
Credit loss write down (OTTI) | | | (75 | ) |
Change in fair value | | | (163 | ) |
| | | | |
Balance at September 30, 2011 | | $ | 4,851 | |
| | | | |
PROVIDENT NEW YORKConsolidated 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
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
recorded atsold with servicing rights retained, the
lowercarrying value of
cost ormortgage 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
in accordance with GAAP.of the related loan sold.
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. NonrecurringThese adjustments also include certain impairment amounts for collateral dependantdependent loans calculated in accordance with FASB ASC Topic 310 —– Receivables, when establishing the allowance for creditloan losses. SuchImpairment 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 valuationimpairment 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 uponon recent comparable sales of similar properties or assumptions generally observable by market participants. AnyHowever, due to the substantial judgment applied and limited volume of activity as compared to other assets, fair value adjustments for loans categorized here are classified asis based on Level 3.3 inputs. 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 classifiedare 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 Level 3.needed. Loans subject to nonrecurringnon-recurring fair value measurements were $51,155$35,230 and $28,717$50,078 which equals the carrying value less the allowance for loan losses allocated to these loans at September 30, 20112013 and 2010,2012, respectively. Loans subject to nonrecurring fair value measurements have been transferred from Level 2 to Level 3 as of September 30, 2010. Changes in fair value recognized onin provisions on loans held by the Company were $9,492$2,726 and $467$5,088 for the twelve months ended September 30, 20112013 and 2010,2012, 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, 20112013 measured at estimated fair value on a nonrecurringnon-recurring basis were as follows: | | | | | | | | | | | | | | | | |
| | | Fair Value
Measurements
at
September 30,
2011 | | | Level 1 | | | Level 2 | | | Level 3 | |
Real estate — residential mortgage | | $ | 6,469 | | | $ | — | | | $ | — | | | $ | 6,469 | |
Real estate — commercial mortgage | | | 3,741 | | | | — | | | | — | | | | 3,741 | |
Commercial business loans (CBL) | | | 2,119 | | | | — | | | | — | | | | 2,119 | |
Acquisition, development and construction | | | 2,126 | | | | — | | | | — | | | | 2,126 | |
Consumer loans | | | 569 | | | | — | | | | — | | | | 569 | |
| | | | | | | | | | | | | | | | |
Total impaired loans with specific allowance allocations | | $ | 15,024 | | | $ | — | | | $ | — | | | $ | 15,024 | |
| | | | | | | | | | | | | | | | |
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 asset.rights. In accordance with FASB ASC Topic 860-860 - Transfers and Servicing, the Company must record impairment charges on a nonrecurringnon-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 vendor,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 is considered arelies upon Level 3 valuation. Changes ininputs. The fairPROVIDENT NEW YORK BANCORP AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollars in thousands, except per share data)
value of mortgage servicing rights recognized for the twelve months ended at September 30, 2011 was $53. There was no valuation allowance recorded at September 30, 2011. A valuation allowance2013 and 2012 were $1,978 and $1,624, respectively.
Assets Taken in Foreclosure of
$54 was recorded at September 30, 2010, reflecting fair market value.Defaulted Loans
Assets taken in foreclosure of defaulted loansAssets 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 uponon 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,place. Adjustments are routinely made in the appraisal process by the independent appraisers to adjust for differences between comparable sales and the related nonrecurringincome data available. The fair value measurements adjustments have generally been classified asis derived using Level 2.3 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 nonrecurringnon-recurring fair value measurement were $5,391$6,022 and $3,891$6,403 at September 30, 20112013 and 2010, respectively.2012. There were $869write-downs of $1,083 and $19$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, 20112013 and 2010,2012, respectively.
(18) Fair Values
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 is a summarytable 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 carrying amounts and estimated fair valuesvalue of financial assets and financial liabilities, (none of which were heldincluding 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 trading purposes): | | | | | | | | | | | | | | | | |
| | | September 30, 2011 | | | September 30, 2010 | |
| | | Carrying
amount | | | Estimated
fair value | | | Carrying
amount | | | Estimated
fair value | |
Financial assets: | | | | | | | | | | | | | | | | |
Cash and due from banks | | $ | 281,512 | | | $ | 281,512 | | | $ | 90,872 | | | $ | 90,872 | |
Securities available for sale | | | 739,844 | | | | 739,844 | | | | 901,012 | | | | 901,012 | |
Securities held to maturity | | | 110,040 | | | | 111,272 | | | | 33,848 | | | | 35,062 | |
Loans | | | 1,675,882 | | | | 1,718,372 | | | | 1,670,698 | | | | 1,680,939 | |
Loans held for sale | | | 4,176 | | | | 4,176 | | | | 5,890 | | | | 5,934 | |
Accrued interest receivable | | | 9,904 | | | | 9,904 | | | | 11,069 | | | | 11,069 | |
FHLB of New York stock | | | 17,584 | | | | 17,584 | | | | 19,572 | | | | 19,572 | |
Financial liabilities: | | | | | | | | | | | | | | | | |
Non-maturity deposits | | | (1,993,036 | ) | | | (1,993,036 | ) | | | (1,765,129 | ) | | | (1,765,129 | ) |
Certificates of Deposit | | | (303,659 | ) | | | (305,940 | ) | | | (377,573 | ) | | | (380,744 | ) |
FHLB and other borrowings | | | (375,021 | ) | | | (417,879 | ) | | | (415,247 | ) | | | (473,785 | ) |
Mortgage escrow funds | | | (9,701 | ) | | | (9,701 | ) | | | (8,198 | ) | | | (8,198 | ) |
Accrued interest payable | | | (1,816 | ) | | | (1,816 | ) | | | (2,307 | ) | | | (2,307 | ) |
cash and cash equivalents and accrued interest receivable.
The following paragraphs summarize the principal methods and assumptions used by
managementthe Company to estimate the fair value of the Company’s financial instruments.
(a) Securities
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
measurements consider observable data that may include dealer quotes, market spreads,of fixed-rate loans and variable-rate loans which reprice on an infrequent basis is estimated by discounting future cash flows
live trading levels, market consensus prepayment speeds, credit information andusing the
bond’s terms and conditions among other items. For certain securities, forcurrent interest rates at 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.(b) Loans
Fair values were estimated for portfolios ofsimilar loans with similar financial characteristics. Forterms would be made to borrowers of similar credit quality. An overall 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 aadjustment is made for specific credit risk adjustment based on loan categories. Based on the current composition of the Company’s loan portfolio,risks as well as past experience and current
PROVIDENT NEW YORK BANCORP AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollars in thousands, except per share data)
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) general portfolio credit risk.
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)
wereare assigned fair values equal to the carrying amounts payable on demand. Certificates of deposit and mortgage escrow funds
wereare segregated by account type and original term, and fair values
wereare estimated by discounting the contractual cash flows. The discount rate for each account grouping
wasis 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 believesdeposits. 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.
(e) Borrowings
Fair values
STERLING BANCORP AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollars in thousands, except per share data)
Borrowings and otherSenior notes
The estimated fair value approximates carrying value for short-term borrowings. The fair value of long-term fixed-rate borrowings
wereis estimated
using quoted market prices, if available, or by discounting
the contractualfuture cash
flows. A discount rate was utilizedflows using current interest rates for
each outstanding borrowing equivalent to the then-current rate offered on borrowings of similar
type and maturity.(f) financial instruments.
Other Financial Instruments
The other
Other financial assets and liabilities listed in the
preceding 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 (“15. Off Balance Sheet Financial Instruments”)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, 20112013 and September 30, 2010,2012, the estimated fair valuesvalue of these instruments approximated the related carrying amounts, which were insignificant.not material.
(19)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) 2011-03,Transfers(“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 Servicing (Topic 860) — Reconsideration of Effective Controlthe entity does not intend to use, the deferred tax asset for Repurchase Agreementshas been issued, which is to improvesuch purpose, then the accounting for repurchase agreements and other agreements that both entitle and obligateunrecognized tax benefit should be presented as a transferor to repurchase or redeem financial assets before their maturity.liability. This standard is effective for the Company JanuaryOctober 1, 20122014 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 Standards Update (ASU) 2011-04,Fair Value MeasurementPurposes 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 820)405) -Amendments to Achieve Common Fair Value Measurement Obligations Resulting from Joint and Disclosure Requirements in U.S. GAAP and IFRShas been issued, which will conformSeveral Liability Arrangements for Which the meaningTotal Amount of the Obligation is Fixed at the Reporting Date was issued. This standard provides guidance for the recognition, measurement, and disclosure requirements of fair value measurement between U.S. GAAPobligations resulting from joint and in IFRS.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 JanuaryOctober 1, 20122014 and is not expected to have a material effect on the Company’s consolidated financial statements.PROVIDENT NEW YORK
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)
Accounting Standards Update (ASU) 2011-05-Presentation of
(19) Accumulated Other Comprehensive (Loss) Income (Topic 220) has been issued. This standard was issued to conform U.S. GAAP and IFRS as well as to increase the prominence of items reported
Activity in accumulated other comprehensive income. This standard is effective(loss) income (“AOCI”), net of tax, for the Company January 1,periods ended September 30, 2013, 2012 and is not expected to have a material effect2011, 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 Company’s consolidated financial statements.income statement for the period ended SeeSeptember 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 1 for a discussion11. 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
statementsbalance sheets of
financial condition of ProvidentSterling Bancorp and the related condensed statements of income and cash flows:
| | | | | | | | |
| Condensed Statements of Financial Condition | | September 30, | |
| | | 2011 | | | 2010 | |
Assets: | | | | | | | | |
Cash | | $ | 6,692 | | | $ | 10,020 | |
Loan receivable from ESOP | | | 7,338 | | | | 7,762 | |
Securities available for sale at fair value | | | 837 | | | | 790 | |
Investment in Provident Bank | | | 406,838 | | | | 404,755 | |
Non-bank subsidiaries | | | 9,082 | | | | 8,104 | |
Other assets | | | 1,680 | | | | 963 | |
| | | | | | | | |
Total assets | | $ | 432,467 | | | $ | 432,394 | |
| | | | | | | | |
Liabilities | | $ | 1,333 | | | $ | 1,439 | |
Stockholders’ equity | | | 431,134 | | | | 430,955 | |
| | | | | | | | |
Total liabilities & stockholders’ equity | | $ | 432,467 | | | $ | 432,394 | |
| | | | | | | | |
| | | | | | | | | | | | |
| | | Year ended September 30, | |
| | | 2011 | | | 2010 | | | 2009 | |
Condensed Statements of Income | | | | | | | | | | | | |
Interest income | | $ | 304 | | | $ | 326 | | | $ | 358 | |
Dividend income on equity securities | | | 31 | | | | 28 | | | | 28 | |
Dividends from Provident Bank | | | 10,000 | | | | 29,400 | | | | 10,500 | |
Dividends from non-bank subsidiaries | | | 500 | | | | 400 | | | | 607 | |
Bank owned life insurance income | | | 91 | | | | — | | | | — | |
Non-interest expense | | | (1,819 | ) | | | (2,262 | ) | | | (3,372 | ) |
Income tax benefit | | | 157 | | | | 321 | | | | 797 | |
| | | | | | | | | | | | |
Income before equity in undistributed earnings of subsidiaries | | | 9,264 | | | | 28,213 | | | | 8,918 | |
Equity in undistributed (excess distributed) earnings of: | | | | | | | | | | | | |
Provident Bank | | | 1,498 | | | | (8,257 | ) | | | 17,076 | |
Non-bank subsidiaries | | | 977 | | | | 536 | | | | (133 | ) |
| | | | | | | | | | | | |
Net income | | $ | 11,739 | | | $ | 20,492 | | | $ | 25,861 | |
| | | | | | | | | | | | |
PROVIDENT NEW YORK
|
| | | | | | | |
| | 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)
| | | | | | | | | | | | |
| | | Year ended September 30, | |
| | | 2011 | | | 2010 | | | 2009 | |
Condensed Statements of Cash Flows | | | | | | | | | | | | |
Cash flows from operating activities: | | | | | | | | | | | | |
Net income | | $ | 11,739 | | | $ | 20,492 | | | $ | 25,861 | |
Adjustments to reconcile net income to net cash provided by operating activities: | | | | | | | | | | | | |
Equity in (undistributed) excess distributed earnings of | | | | | | | | | | | | |
Provident Bank | | | (1,498 | ) | | | 8,257 | | | | (17,076 | ) |
Non-bank subsidiaries | | | (977 | ) | | | (536 | ) | | | 133 | |
Other adjustments, net | | | (1,444 | ) | | | (1,077 | ) | | | (475 | ) |
| | | | | | | | | | | | |
Net cash provided by operating activities | | | 7,820 | | | | 27,136 | | | | 8,443 | |
| | | | | | | | | | | | |
Cash flows from investing activities: | | | | | | | | | | | | |
ESOP loan principal repayments | | | 424 | | | | 408 | | | | 392 | |
| | | | | | | | | | | | |
Net cash provided by investing activities | | | 424 | | | | 408 | | | | 392 | |
| | | | | | | | | | | | |
Cash flows from financing activities: | | | | | | | | | | | | |
Capital contribution to subsidiaries | | | — | | | | (350 | ) | | | — | |
Treasury shares purchased | | | (3,810 | ) | | | (13,062 | ) | | | (3,785 | ) |
Cash dividends paid | | | (8,973 | ) | | | (9,216 | ) | | | (9,379 | ) |
Stock option transactions including RRP | | | 770 | | | | 2,196 | | | | 3,055 | |
Other equity transactions | | | 441 | | | | 442 | | | | 488 | |
| | | | | | | | | | | | |
Net cash used in financing activities | | | (11,572 | ) | | | (19,990 | ) | | | (9,621 | ) |
| | | | | | | | | | | | |
Net increase (decrease) in cash | | | (3,328 | ) | | | 7,554 | | | | (786 | ) |
Cash at beginning of year | | | 10,020 | | | | 2,466 | | | | 3,252 | |
| | | | | | | | | | | | |
Cash at end of year | | $ | 6,692 | | | $ | 10,020 | | | $ | 2,466 | |
| | | | | | | | | | | | |
PROVIDENT NEW YORK
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, 20112013 and 2010: | | | | | | | | | | | | | | | | |
| | | First
quarter | | | Second
quarter | | | Third
quarter | | | Fourth
quarter | |
Year ended September 30, 2011 | | | | | | | | | | | | | | | | |
Interest and dividend income | | $ | 29,060 | | | $ | 27,803 | | | $ | 27,934 | | | $ | 27,817 | |
Interest expense | | | 5,876 | | | | 5,292 | | | | 5,130 | | | | 5,026 | |
| | | | | | | | | | | | | | | | |
Net interest income | | | 23,184 | | | | 22,511 | | | | 22,804 | | | | 22,791 | |
Provision for loan losses | | | 2,100 | | | | 2,100 | | | | 3,600 | | | | 8,784 | |
Non-interest income | | | 9,883 | | | | 5,795 | | | | 5,217 | | | | 9,056 | |
Non-interest expense | | | 21,269 | | | | 21,791 | | | | 22,669 | | | | 24,382 | |
| | | | | | | | | | | | | | | | |
Income before income tax expense | | | 9,698 | | | | 4,415 | | | | 1,752 | | | | (1,319 | ) |
Income tax expense | | | 2,978 | | | | 842 | | | | (187 | ) | | | (826 | ) |
| | | | | | | | | | | | | | | | |
Net income | | $ | 6,720 | | | $ | 3,573 | | | $ | 1,939 | | | $ | (493 | ) |
| | | | | | | | | | | | | | | | |
Earnings per common share: | | | | | | | | | | | | | | | | |
Basic | | $ | 0.18 | | | $ | 0.10 | | | $ | 0.05 | | | $ | (0.01 | ) |
Diluted | | $ | 0.18 | | | $ | 0.10 | | | $ | 0.05 | | | $ | (0.01 | ) |
| | | | | | | | | | | | | | | | |
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 | |
| | | | | | | | | | | | | | | | |
|
| | | | | | | | | | | | | | | |
| | 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 |
|
ITEM 9. Changes(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 Disagreementsconsumer 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
Accountants on Accounting and Financial Disclosurethe Merger.
| |
| ITEM 9. | Changes in and Disagreements with Accountants on Accounting and Financial Disclosure |
ITEM 9A. Controls and Procedures. | |
| ITEM 9A. | Controls and Procedures |
(a) Evaluation of Disclosure Controls and Procedures
As of September 30, 2011,2013, under the supervision and with the participation of ProvidentSterling 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 thethat 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 includedrecorded, processed, summarized and reported in ProvidentSterling Bancorp’s periodic SEC reports. There
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
controlscontrol over financial reporting during the
fourth fiscal quarter of 2011year ended September 30, 2013 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
Management’s
(b) Management's Annual Report on Internal Control over Financial Reporting (see “Report of Management on Internal Control Over Financial Reporting”Reporting
The management of Sterling Bancorp (the “Company”)
Provident Bancorp’s management is responsible for establishing and maintaining adequateeffective internal control over financial reporting, as such termreporting. The Company’s system of internal controls is defineddesigned to provide reasonable assurance to the Company’s management and board of directors regarding the preparation and fair presentation of published financial statements in Exchange Act Rules 13a-15(f)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 15d-15(f). Underpresentation. Also, projections of any evaluation of effectiveness to future periods are subject to the supervision andrisk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the participation of the management of Provident Bancorp’s, including Provident Bancorp’s CEO and CFO, Provident Bancorp conducted an evaluation of the effectiveness ofpolicies or procedures may deteriorate.
Management assessed the Company’s internal control over financial reporting as of September 30, 20112013. This assessment was based on the frameworkcriteria for effective internal control over financial reporting established in Internal Control —- Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission which is also referred to as COSO.(COSO). Based on that evaluation, management of Provident Bancorpthis assessment, we have concluded that, as of September 30, 2013, the Company’s internal control over financial reporting was effective as of September 30, 2011. 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.effective.
The effectiveness of the Company’s internal control over financial reporting as of September 30,
20112013 has been audited by Crowe Horwath LLP, as stated in their report which is included elsewhere herein.
ITEM 9B. Other Information
| |
| ITEM 9B. | Other Information |
ITEM 10. Directors, Executive Officers, and Corporate Governance | |
| ITEM 10. | Directors, Executive Officers, and Corporate Governance |
“Proposal I — Election of Directors” and “Section 169(a)16(a) Beneficial Ownership Reporting Compliance” sections of ProvidentSterling Bancorp’s Proxy Statement for the Annual Meeting of Stockholders to be held in February 20122014 (the “Proxy Statement”) is incorporated herein by reference.
ITEM 11. Executive Compensation | |
| ITEM 11. | Executive Compensation |
“Proposal I — Election of Directors” section of the Proxy Statement is incorporated herein by reference.
ITEM 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder MattersProvident
| |
| ITEM 12. | Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters |
Sterling 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, 2011,2013, regarding equity compensation that has been approved by stockholders. | | | | | | | | | | | | |
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 | | | 1,906,020 | | | $ | 12.20 | | | | 207,607 | |
Recognition and Retention Plan(1) | | | 57,520 | | | | N/A | | | | 27,120 | |
Total(2) | | | 1,963,540 | | | | 12.20 | | | | 234,727 | |
|
| | | | | | | | | |
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 |
|
(1) | Represents shares that have been granted but have not yet vested.
|
(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 | |
| 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.
ITEM 14. Principal Accountant Fees and ServicesThe
| |
| ITEM 14. | Principal Accountant Fees and Services |
Proposal III - Ratification of appointment of “Independent Registered Public Accounting Firm” section of the proxy statement is incorporated herein by reference.
ITEM 15. Exhibits and Financial Statement Schedules | |
| ITEM 15. | Exhibits and Financial Statement Schedules |
The financial statements filed in Item 8 of this Form 10-K are as follows:
| |
| (A) | Report of Independent Registered Public Accounting Firm on Financial Statements |
| |
| (B) | Consolidated Statements of Financial ConditionBalance Sheets as of September 30, 20112013 and 20102012 |
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| (C) | Consolidated Statements of Income for the years ended September 30, 2011, 20102013, 2012 and 20092011 |
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| (D) | Consolidated Statements of Changes in Stockholders’ Equity for the years ended September 30, 2011, 20102013, 2012 and 20092011 |
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| (E) | Consolidated Statements of Cash Flows for the years ended September 30, 2011, 20102013, 2012 and 20092011 |
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| (F) | Notes to Consolidated Financial Statements |
(2) | |
| (G) | Financial Statement Schedules |
(2) All financial statement schedules have been omitted as the required information is inapplicable or has been included in the Notes to Consolidated Financial Statements.
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| 3.1 | | Certificate of Incorporation of Provident 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 the Company, as amended (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 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 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 | Employment Agreement, dated as 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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3.210.12 | | Bylaws of Provident Bancorp, as amended 2 |
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10.2 | | Employment Agreement, with George Strayton 3* |
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10.3 | | Employment Agreementdated as of July 1, 2012, with Daniel Rothstein 4* (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).* |
10.410.14 | | Deferred CompensationEmployment Agreement, dated as amended and restated 5*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).* |
10.510.16 | | Provident Bank Amended and Restated 1995 Supplemental Executive Retirement Plan 6* (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)).* |
| 10.17 | |
10.5.1 | | Provident Bank 2005 Supplemental Executive Retirement Plan 7* (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)).* |
| 10.18 | |
10.6 | | Executive Officer Incentive Program 8* |
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10.7 | | 1996 Long-Term Incentive Plan for Officers and Directors, as amended 9* |
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10.8 | | Provident Bank 2000 Stock Option Plan 10* (incorporated by reference to Appendix A to the Company’s Proxy Statement filed on January 18, 2000 (File No. 0-25233)).* |
| 10.19 | |
10.9 | | Provident Bank 2000 Recognition and Retention Plan 11* |
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10.10 | | Employment Agreement with Paul A. Maisch 12* |
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10.11 | | Provident Bancorp, Inc. 2004 Stock Incentive Plan 13*(incorporated by reference to Appendix A to the Company’s Proxy Statement filed on January 19, 2005 (File No. 0-25233)).* |
| 10.20 | |
10.12 | | Provident Bank Executive Officer Incentive Plan 14* |
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10.13 | | Employment Agreement with Stephen Dormer 15* |
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10.14 | | Employment Agreement with Richard Jones 16* |
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10.15 | | Employment Agreement with Jack L. Kopnisky 17* |
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10.16 | | Letter Agreement with George L. Strayton 18* |
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10.17 | | Form of Stock Option Agreement, dated as of July 6, 2011, between Provident New York Bancorpthe Company and Jack L. Kopnisky (grant date July 6,2011) 19*(incorporated by reference to Exhibit 10.3 of the Company’s Quarterly Report on Form 10-Q filed on August 9, 2011).* |
| 10.21 | |
10.18 | | 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 New York Bancorp and Jack L. Kopnisky (grant date July 6,2011)2012 Stock Incentive Plan 20*(incorporated by reference to Appendix A to the Company’s Proxy Statement for the 2012 Annual Meeting of Stockholders, filed on January 6, 2012).* |
| 10.25 | |
10.19 | | Form of Performance-based Restricted Stock Award Notice betweenAmendment to the Provident New York Bancorp and Jack L. Kopnisky (grant date July 6,2011)2012 Stock Incentive Plan 21*(incorporated by reference to Annex H to the Company’s Joint Proxy Statement / Prospectus filed on August 14, 2013).*
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| 10.26 | 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)).* |
10.2010.27 | | SeparationForm of Sterling Bancorp 2013 Employment Inducement Award Agreement with Stephen G. Dormer 22*(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 | |
10.21 | | Provident Short-term Incentive Plan 23* |
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10.22 | | Form of Non-Renewal Notice(Restricted Stock Unit Award Agreement (incorporated by reference to Exhibit 10.3 to the Company’s Current Report on Form 8-K filed herewith) |
| on November 1, 2013).* |
| 21 | | Subsidiaries of Registrant(filed (filed herewith) |
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| 23 | | Consent of Crowe Horwath LLP(filed (filed herewith) |
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| 31.1 | | Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002(filed (filed herewith) |
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| 31.2 | | Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002(filed (filed herewith) |
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| 32 | | Certification Pursuant to 18 U.S.C. Section 1350, as amended by Section 906 of the Sarbanes-Oxley Act of 2002 (filed herewith) |
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| 101.INS | | XBRL Instance Document24 (filed herewith) |
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| 101.SCH | | XBRL Taxonomy Extension Schema document24Document (filed herewith) |
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| 101.CAL | | XBRL Taxonomy Extension Calculation Linkbase Document24 (filed herewith) |
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| 101.LAB | | XBRL Taxonomy Extension Label Linkbase Document24 (filed herewith) |
|
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| 101.PRE | | XBRL Taxonomy Extension Presentation Linkbase Document24 (filed herewith) |
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| 101.DEF | | XBRL Taxonomy Extension Definition Linkbase Document24 (filed herewith) |
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.
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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.
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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.
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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.
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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
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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
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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.
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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.
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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.
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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.
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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.
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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.
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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.
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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.
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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.
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17 | Incorporated by reference to Exhibit 10.1 of the Current Report on Form 8-K (File No. 0-25233), filed with the Commission on June 21, 2011.
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18 | Incorporated by reference to Exhibit 10.2 of the Current Report on Form 8-K (File No. 0-25233), filed with the Commission on June 21, 2011.
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19 | Incorporated by reference to Exhibit 10.3 of the Quarterly Report on Form 10-Q (File No. 0-25233), filed with the Commission on August 9, 2011.
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20 | Incorporated by reference to Exhibit 10.4 of the Quarterly Report on Form 10-Q (File No. 0-25233), filed with the Commission on August 9, 2011.
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21 | Incorporated by reference to Exhibit 10.5 of the Quarterly Report on Form 10-Q (File No. 0-25233), filed with the Commission on August 9, 2011.
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22 | Incorporated by reference to Exhibit 10.1 of the Current Report on Form 8-K (File No. 0-25233), filed with the Commission on October 13, 2011.
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23 | Incorporated by reference to Exhibit 10.1 of the Current Report on Form 8-K (File No. 0-25233), filed with the Commission on November 1, 2011.
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24 | In accordance with Rule 406T of Regulation S-T, these interactive data files are deemed “not filed” for purposes of section 18 of the exchange Act, and otherwise are not subject to liability under that section.
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| * | Indicates management contract or compensatory plan or arrangement. |
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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 York
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| | | | |
Date: | December 13, 2011 | | | 9, 2013 | By: | | /s/ Jack L. Kopnisky |
| | | | | | Jack L. Kopnisky |
| | | | | | President, Chief Executive Officer and Director (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.
| | | |
| | | | |
By: | | /s/ Jack L. Kopnisky | | | | By: | | /s/ Paul A. Maisch Luis Massiani |
| | Jack L. Kopnisky | | | | | | Paul A. MaischLuis Massiani |
| | President, Chief Executive Officer and | | | | | | Executive Vice President |
| | Director | | | | | | Chief Financial Officer |
| | Principal Executive Officer | | | Principal Financial Officer |
| Date: | December 9, 2013 | | | | Principal Accounting Officer |
Date:
| | December 13, 2011 | | | | | | Principal Financial Officer |
| | | | | | Date: | | December 13, 20119, 2013 |
| | | | |
By:
| | /s/ William F. Helmer
| | |
| By: | /s/ Louis J. Cappelli | | By: | |
| Louis J. Cappelli | | /s/ Dennis L. Coyle
|
| | William F. Helmer | | | | | | Dennis L. Coyle |
| | Chairman of the Board of Directors | | | |
| Date: | December 9, 2013 | | | | Vice Chairman |
Date:
| | December 13, 2011 | | | | Date: | | December 13, 2011 |
| | | | |
| | | | | | | | | |
By:
| | /s/ Navy Djonovic
| | | | | | | |
| By: | /s/ Robert Abrams | | By: | | /s/ Judith Hershaft | | James F. Deutsch | | By: | | /s/ Thomas F. Jauntig, Jr. Navy E. Djonovic |
| Robert Abrams | | | | James F. Deutsch | | | | Navy E. Djonovic |
| Director | | | | | | Judith Hershaft | | | | | | Thomas F. Jauntig, Jr. |
| | Director | | | | | | Director | | | | | | Director |
Date: | | December 13, 2011 | | 9, 2013 | | Date: | | December 13, 2011 | | 9, 2013 | | Date: | | December 13, 20119, 2013 |
| | | | | | | |
By:
| | /s/ Thomas G. Kahn
| | | | | | | |
| By: | /s/ Fernando Ferrer | | By: | | /s/ R. Michael Kennedy | | William F. Helmer | | By: | | /s/ Victoria Kossover Thomas G. Kahn |
| Fernando Ferrer | | | | William F. Helmer | | | | Thomas G. Kahn |
| | Director | | | | R. Michael Kennedy | | | | | | Victoria Kossover |
| | Director | | | | | | Director | | | | | | Director |
Date: | | December 13, 2011 | | 9, 2013 | | Date: | | December 13, 2011 | | 9, 2013 | | Date: | | December 13, 20119, 2013 |
| | | | | | | |
By:
| | /s/ Donald T. McNelis
| | | | | | | |
| By: | /s/ James B. Klein | | By: | | /s/ Carl Rosenstock | | Robert W. Lazar | | By: | | /s/ George Strayton John C. Millman |
| James B. Klein | | Donald T. McNelis | | Robert W. Lazar | | | | Carl RosenstockJohn C. Millman |
| Director | | | | | | George Strayton |
| | Director | | | | | | Director | | | | | | Director |
Date: | | December 13, 2011 | | 9, 2013 | | Date: | | December 13, 2011 | | 9, 2013 | | Date: | | December 13, 20119, 2013 |
| | | | | | | |
By:
| |
| | | | | | | |
| By: | /s/ Richard O’Toole | | By: | | /s/ Burt Steinberg | | | | |
| Richard O’Toole | | | | | | | | |
| | Burt Steinberg | | | | |
| Director | | | | | | | | |
| | Director | | | | |
| Date: | December 9, 2013 | | | | | | | | |
Date
Date: | | December 13, 20119, 2013 | | | | | | | | | | | | |
133