Notes to Consolidated Financial Statements
1. Basis of Presentation
The consolidated financial statements are comprised of the accounts of Investors Bancorp, Inc. and its wholly owned subsidiaries, including Investors Bank (the “Bank”) and the Bank’s wholly-owned subsidiaries (collectively, the “Company”). In the opinion of management, all the adjustments (consisting of normal and recurring adjustments) necessary for the fair presentation of the consolidated financial condition and the consolidated results of operations for the unaudited periods presented have been included. The results of operations and other data presented for the
three and nine
months ended
September 30, 2017
are not necessarily indicative of the results of operations that may be expected for subsequent periods or the full year results.
Certain information and note disclosures usually included in financial statements prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”) have been condensed or omitted pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”) for the preparation of the Form 10-Q. The consolidated financial statements presented should be read in conjunction with the Company’s audited consolidated financial statements and notes to the audited consolidated financial statements included in the Company’s
December 31, 2016
Annual Report on Form 10-K. Certain reclassifications have been made in the consolidated financial statements to conform with current year classifications.
2. Stock Transactions
Stock Repurchase Programs
On March 16, 2015, the Company announced it had received approval from the Board of Governors of the Federal Reserve System to commence a
5%
buyback program prior to the one-year anniversary of the completion of its second step conversion. Accordingly, the Board of Directors authorized the repurchase of
17,911,561
shares. The first program was completed on June 30, 2015.
On June 9, 2015, the Company announced its second share repurchase program, which authorized the purchase of an additional
10%
of its publicly-held outstanding shares of common stock, or
34,779,211
shares. The second repurchase program commenced immediately upon completion of the first repurchase plan on June 30, 2015. The second program was completed on June 17, 2016.
On April 28, 2016, the Company announced its third share repurchase program, which authorized the purchase of an additional
10%
of its publicly-held outstanding shares of common stock, or
31,481,189
shares. The new repurchase program commenced immediately upon completion of the second repurchase plan on June 17, 2016.
During the
nine
months ended
September 30, 2017
, the Company purchased (including withholding of shares for payment of taxes with respect to vesting of equity transactions)
4,371,647
shares at a cost of
$57.8 million
, or approximately
$13.23
per share.
3. Earnings Per Share
The following is a summary of our earnings per share calculations and reconciliation of basic to diluted earnings per share.
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended September 30,
|
|
2017
|
|
2016
|
|
(Dollars in thousands, except per share data)
|
Earnings for basic and diluted earnings per common share
|
|
|
|
Earnings applicable to common stockholders
|
$
|
45,845
|
|
|
$
|
49,850
|
|
|
|
|
|
Shares
|
|
|
|
Weighted-average common shares outstanding - basic
|
289,715,414
|
|
|
292,000,061
|
|
Effect of dilutive common stock equivalents (1)
|
1,174,893
|
|
|
2,673,391
|
|
Weighted-average common shares outstanding - diluted
|
290,890,307
|
|
|
294,673,452
|
|
|
|
|
|
Earnings per common share
|
|
|
|
Basic
|
$
|
0.16
|
|
|
$
|
0.17
|
|
Diluted
|
$
|
0.16
|
|
|
$
|
0.17
|
|
(1) For the three months ended
September 30, 2017
and
2016
, there were
10,952,744
and
16,372,523
equity awards, respectively, that could potentially dilute basic earnings per share in the future that were not included in the computation of diluted earnings per share because to do so would have been anti-dilutive for the periods presented.
|
|
|
|
|
|
|
|
|
|
For the Nine Months Ended September 30,
|
|
2017
|
|
2016
|
|
(Dollars in thousands, except per share data)
|
Earnings for basic and diluted earnings per common share
|
|
|
|
Earnings applicable to common stockholders
|
$
|
131,498
|
|
|
$
|
139,661
|
|
|
|
|
|
Shares
|
|
|
|
Weighted-average common shares outstanding - basic
|
290,670,601
|
|
|
299,873,985
|
|
Effect of dilutive common stock equivalents (1)
|
1,819,305
|
|
|
3,423,132
|
|
Weighted-average common shares outstanding - diluted
|
292,489,906
|
|
|
303,297,117
|
|
|
|
|
|
Earnings per common share
|
|
|
|
Basic
|
$
|
0.45
|
|
|
$
|
0.47
|
|
Diluted
|
$
|
0.45
|
|
|
$
|
0.46
|
|
(1) For the
nine
months ended
September 30, 2017
and
2016
, there were
11,041,315
and
11,819,014
equity awards, respectively, that could potentially dilute basic earnings per share in the future that were not included in the computation of diluted earnings per share because to do so would have been anti-dilutive for the periods presented.
4. Securities
The following tables present the carrying value, gross unrealized gains and losses and estimated fair value for available-for-sale securities and the amortized cost, net unrealized losses, carrying value, gross unrecognized gains and losses and estimated fair value for held-to-maturity securities as of the dates indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At September 30, 2017
|
|
Carrying value
|
|
Gross
unrealized
gains
|
|
Gross
unrealized
losses
|
|
Estimated
fair value
|
|
(In thousands)
|
Available-for-sale:
|
|
|
|
|
|
|
|
Equity securities
|
$
|
4,889
|
|
|
834
|
|
|
77
|
|
|
5,646
|
|
Mortgage-backed securities:
|
|
|
|
|
|
|
|
Federal Home Loan Mortgage Corporation
|
656,728
|
|
|
1,803
|
|
|
4,537
|
|
|
653,994
|
|
Federal National Mortgage Association
|
1,258,212
|
|
|
2,600
|
|
|
11,702
|
|
|
1,249,110
|
|
Government National Mortgage Association
|
41,642
|
|
|
—
|
|
|
963
|
|
|
40,679
|
|
Total mortgage-backed securities available-for-sale
|
1,956,582
|
|
|
4,403
|
|
|
17,202
|
|
|
1,943,783
|
|
Total available-for-sale securities
|
$
|
1,961,471
|
|
|
5,237
|
|
|
17,279
|
|
|
1,949,429
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At September 30, 2017
|
|
Amortized cost
|
|
Net unrealized losses (1)
|
|
Carrying value
|
|
Gross
unrecognized
gains (2)
|
|
Gross
unrecognized
losses (2)
|
|
Estimated
fair value
|
|
(In thousands)
|
Held-to-maturity:
|
|
|
|
|
|
|
|
|
|
|
|
Debt securities:
|
|
|
|
|
|
|
|
|
|
|
|
Government-sponsored enterprises
|
$
|
43,300
|
|
|
—
|
|
|
43,300
|
|
|
2
|
|
|
739
|
|
|
42,563
|
|
Municipal bonds
|
30,907
|
|
|
—
|
|
|
30,907
|
|
|
1,415
|
|
|
—
|
|
|
32,322
|
|
Corporate and other debt securities
|
67,411
|
|
|
20,458
|
|
|
46,953
|
|
|
37,776
|
|
|
—
|
|
|
84,729
|
|
Total debt securities held-to-maturity
|
141,618
|
|
|
20,458
|
|
|
121,160
|
|
|
39,193
|
|
|
739
|
|
|
159,614
|
|
Mortgage-backed securities:
|
|
|
|
|
|
|
|
|
|
|
|
Federal Home Loan Mortgage Corporation
|
441,464
|
|
|
1,091
|
|
|
440,373
|
|
|
1,530
|
|
|
2,397
|
|
|
439,506
|
|
Federal National Mortgage Association
|
1,120,171
|
|
|
1,289
|
|
|
1,118,882
|
|
|
5,968
|
|
|
7,835
|
|
|
1,117,015
|
|
Government National Mortgage Association
|
53,336
|
|
|
—
|
|
|
53,336
|
|
|
19
|
|
|
311
|
|
|
53,044
|
|
Total mortgage-backed securities held-to-maturity
|
1,614,971
|
|
|
2,380
|
|
|
1,612,591
|
|
|
7,517
|
|
|
10,543
|
|
|
1,609,565
|
|
Total held-to-maturity securities
|
$
|
1,756,589
|
|
|
22,838
|
|
|
1,733,751
|
|
|
46,710
|
|
|
11,282
|
|
|
1,769,179
|
|
(1) Net unrealized losses of held-to-maturity corporate and other debt securities represent the other than temporary charge related to other non-credit factors and is being amortized through accumulated other comprehensive income over the remaining life of the securities. For mortgage-backed securities, it represents the net loss on previously designated available-for sale securities transferred to held-to-maturity at fair value and is being amortized through accumulated other comprehensive income over the remaining life of the securities.
(2) Unrecognized gains and losses of held-to-maturity securities are not reflected in the financial statements, as they represent fair value fluctuations from the later of: (i) the date a security is designated as held-to-maturity; or (ii) the date that an other than temporary impairment charge is recognized on a held-to-maturity security, through the date of the balance sheet.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31, 2016
|
|
Carrying value
|
|
Gross
unrealized
gains
|
|
Gross
unrealized
losses
|
|
Estimated
fair value
|
|
(In thousands)
|
Available-for-sale:
|
|
|
|
|
|
|
|
Equity securities
|
$
|
5,825
|
|
|
918
|
|
|
83
|
|
|
6,660
|
|
Mortgage-backed securities:
|
|
|
|
|
|
|
|
Federal Home Loan Mortgage Corporation
|
603,774
|
|
|
1,971
|
|
|
7,306
|
|
|
598,439
|
|
Federal National Mortgage Association
|
1,022,383
|
|
|
2,678
|
|
|
16,474
|
|
|
1,008,587
|
|
Government National Mortgage Association
|
47,538
|
|
|
—
|
|
|
791
|
|
|
46,747
|
|
Total mortgage-backed securities available-for-sale
|
1,673,695
|
|
|
4,649
|
|
|
24,571
|
|
|
1,653,773
|
|
Total available-for-sale securities
|
$
|
1,679,520
|
|
|
5,567
|
|
|
24,654
|
|
|
1,660,433
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31, 2016
|
|
Amortized cost
|
|
Net unrealized losses (1)
|
|
Carrying Value
|
|
Gross
unrecognized
gains (2)
|
|
Gross
unrecognized
losses (2)
|
|
Estimated
fair value
|
|
(In thousands)
|
Held-to-maturity:
|
|
|
|
|
|
|
|
|
|
|
|
Debt securities:
|
|
|
|
|
|
|
|
|
|
|
|
Government-sponsored enterprises
|
$
|
2,128
|
|
|
—
|
|
|
2,128
|
|
|
12
|
|
|
—
|
|
|
2,140
|
|
Municipal bonds
|
37,978
|
|
|
—
|
|
|
37,978
|
|
|
1,515
|
|
|
—
|
|
|
39,493
|
|
Corporate and other debt securities
|
65,852
|
|
|
21,760
|
|
|
44,092
|
|
|
40,153
|
|
|
—
|
|
|
84,245
|
|
Total debt securities held-to-maturity
|
105,958
|
|
|
21,760
|
|
|
84,198
|
|
|
41,680
|
|
|
—
|
|
|
125,878
|
|
Mortgage-backed securities:
|
|
|
|
|
|
|
|
|
|
|
|
Federal Home Loan Mortgage Corporation
|
411,692
|
|
|
1,559
|
|
|
410,133
|
|
|
793
|
|
|
3,502
|
|
|
407,424
|
|
Federal National Mortgage Association
|
1,246,635
|
|
|
1,802
|
|
|
1,244,833
|
|
|
3,635
|
|
|
15,389
|
|
|
1,233,079
|
|
Government National Mortgage Association
|
16,392
|
|
|
—
|
|
|
16,392
|
|
|
28
|
|
|
—
|
|
|
16,420
|
|
Total mortgage-backed securities held-to-maturity
|
1,674,719
|
|
|
3,361
|
|
|
1,671,358
|
|
|
4,456
|
|
|
18,891
|
|
|
1,656,923
|
|
Total held-to-maturity securities
|
$
|
1,780,677
|
|
|
25,121
|
|
|
1,755,556
|
|
|
46,136
|
|
|
18,891
|
|
|
1,782,801
|
|
(1) Net unrealized losses of held-to-maturity corporate and other debt securities represent the other than temporary charge related to other non-credit factors and is being amortized through accumulated other comprehensive income over the remaining life of the securities. For mortgage-backed securities, it represents the net loss on previously designated available-for sale securities transferred to held-to-maturity at fair value and is being amortized through accumulated other comprehensive income over the remaining life of the securities.
(2) Unrecognized gains and losses of held-to-maturity securities are not reflected in the financial statements, as they represent fair value fluctuations from the later of: (i) the date a security is designated as held-to-maturity; or (ii) the date that an other than temporary impairment charge is recognized on a held-to-maturity security, through the date of the balance sheet.
At
September 30, 2017
, corporate and other debt securities include a portfolio of collateralized debt obligations backed by pooled trust preferred securities (“TruPS”), principally issued by banks and to a lesser extent insurance companies, real estate investment trusts, and collateralized debt obligations. At
September 30, 2017
, the TruPS had a carrying value and estimated fair value of
$42.0 million
and
$79.6 million
, respectively. While all were investment grade at purchase, securities classified as non-investment grade at
September 30, 2017
had an amortized cost and estimated fair value of
$39.9 million
and
$73.2 million
, respectively. Fair value is derived from considering specific assumptions, including terms of the TruPS structure, events of deferrals, defaults and liquidations, the projected cashflow for principal and interest payments, and discounted cash flow modeling.
Investment securities with a carrying value of
$1.14 billion
and an estimated fair value of
$1.13 billion
are pledged to secure borrowings. The contractual maturities of the Bank’s mortgage-backed securities are generally less than
20
years with effective lives expected to be shorter due to prepayments. Expected maturities may differ from contractual maturities due to underlying loan prepayments or early call privileges of the issuer, therefore, mortgage-backed securities are not included in the following table. The amortized cost and estimated fair value of debt securities at
September 30, 2017
, by contractual maturity, are shown below.
|
|
|
|
|
|
|
|
|
September 30, 2017
|
|
Carrying Value
|
|
Estimated
fair value
|
|
(In thousands)
|
Due in one year or less
|
$
|
28,337
|
|
|
28,339
|
|
Due after one year through five years
|
75
|
|
|
75
|
|
Due after five years through ten years
|
46,240
|
|
|
45,582
|
|
Due after ten years
|
46,508
|
|
|
85,618
|
|
Total
|
$
|
121,160
|
|
|
159,614
|
|
Gross unrealized losses on securities and the estimated fair value of the related securities, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position at
September 30, 2017
and
December 31, 2016
, was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2017
|
|
Less than 12 months
|
|
12 months or more
|
|
Total
|
|
Estimated
fair value
|
|
Unrealized
losses
|
|
Estimated
fair value
|
|
Unrealized
losses
|
|
Estimated
fair value
|
|
Unrealized
losses
|
|
(In thousands)
|
Available-for-sale:
|
|
|
|
|
|
|
|
|
|
|
|
Equity Securities
|
$
|
4,792
|
|
|
77
|
|
|
—
|
|
|
—
|
|
|
4,792
|
|
|
77
|
|
Mortgage-backed securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal Home Loan Mortgage Corporation
|
291,595
|
|
|
2,732
|
|
|
56,408
|
|
|
1,805
|
|
|
348,003
|
|
|
4,537
|
|
Federal National Mortgage Association
|
678,795
|
|
|
7,951
|
|
|
150,569
|
|
|
3,751
|
|
|
829,364
|
|
|
11,702
|
|
Government National Mortgage Association
|
40,679
|
|
|
963
|
|
|
—
|
|
|
—
|
|
|
40,679
|
|
|
963
|
|
Total mortgage-backed securities available-for-sale
|
1,011,069
|
|
|
11,646
|
|
|
206,977
|
|
|
5,556
|
|
|
1,218,046
|
|
|
17,202
|
|
Total available-for-sale securities
|
1,015,861
|
|
|
11,723
|
|
|
206,977
|
|
|
5,556
|
|
|
1,222,838
|
|
|
17,279
|
|
Held-to-maturity:
|
|
|
|
|
|
|
|
|
|
|
|
Debt securities:
|
|
|
|
|
|
|
|
|
|
|
|
Government-sponsored enterprises
|
40,517
|
|
|
739
|
|
|
—
|
|
|
—
|
|
|
40,517
|
|
|
739
|
|
Mortgage-backed securities:
|
|
|
|
|
|
|
|
|
|
|
|
Federal Home Loan Mortgage Corporation
|
243,530
|
|
|
2,333
|
|
|
2,820
|
|
|
64
|
|
|
246,350
|
|
|
2,397
|
|
Federal National Mortgage Association
|
571,368
|
|
|
6,294
|
|
|
43,891
|
|
|
1,541
|
|
|
615,259
|
|
|
7,835
|
|
Government National Mortgage Association
|
39,524
|
|
|
311
|
|
|
—
|
|
|
—
|
|
|
39,524
|
|
|
311
|
|
Total mortgage-backed securities held-to-maturity
|
854,422
|
|
|
8,938
|
|
|
46,711
|
|
|
1,605
|
|
|
901,133
|
|
|
10,543
|
|
Total held-to-maturity securities
|
894,939
|
|
|
9,677
|
|
|
46,711
|
|
|
1,605
|
|
|
941,650
|
|
|
11,282
|
|
Total
|
$
|
1,910,800
|
|
|
21,400
|
|
|
253,688
|
|
|
7,161
|
|
|
2,164,488
|
|
|
28,561
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2016
|
|
Less than 12 months
|
|
12 months or more
|
|
Total
|
|
Estimated
fair value
|
|
Unrealized
losses
|
|
Estimated
fair value
|
|
Unrealized
losses
|
|
Estimated
fair value
|
|
Unrealized
losses
|
|
(In thousands)
|
Available-for-sale:
|
|
|
|
|
|
|
|
|
|
|
|
Equity Securities
|
$
|
4,722
|
|
|
83
|
|
|
—
|
|
|
—
|
|
|
4,722
|
|
|
83
|
|
Mortgage-backed securities:
|
|
|
|
|
|
|
|
|
|
|
|
Federal Home Loan Mortgage Corporation
|
406,878
|
|
|
7,220
|
|
|
12,756
|
|
|
86
|
|
|
419,634
|
|
|
7,306
|
|
Federal National Mortgage Association
|
762,272
|
|
|
15,977
|
|
|
25,089
|
|
|
497
|
|
|
787,361
|
|
|
16,474
|
|
Government National Mortgage Association
|
46,747
|
|
|
791
|
|
|
—
|
|
|
—
|
|
|
46,747
|
|
|
791
|
|
Total mortgage-backed securities available-for-sale
|
1,215,897
|
|
|
23,988
|
|
|
37,845
|
|
|
583
|
|
|
1,253,742
|
|
|
24,571
|
|
Total available-for-sale securities
|
1,220,619
|
|
|
24,071
|
|
|
37,845
|
|
|
583
|
|
|
1,258,464
|
|
|
24,654
|
|
Held-to-maturity:
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage-backed securities:
|
|
|
|
|
|
|
|
|
|
|
|
Federal Home Loan Mortgage Corporation
|
339,666
|
|
|
3,354
|
|
|
3,623
|
|
|
148
|
|
|
343,289
|
|
|
3,502
|
|
Federal National Mortgage Association
|
970,194
|
|
|
15,389
|
|
|
—
|
|
|
—
|
|
|
970,194
|
|
|
15,389
|
|
Total held-to-maturity securities
|
1,309,860
|
|
|
18,743
|
|
|
3,623
|
|
|
148
|
|
|
1,313,483
|
|
|
18,891
|
|
Total
|
$
|
2,530,479
|
|
|
42,814
|
|
|
41,468
|
|
|
731
|
|
|
2,571,947
|
|
|
43,545
|
|
At
September 30, 2017
, the majority of gross unrealized losses primarily relate to our mortgage-backed-security portfolio which is comprised of securities issued by U.S. Government Sponsored Enterprises. The fair values of these securities have been negatively impacted by the recent increase in intermediate-term market interest rates.
Other-Than-Temporary Impairment (“OTTI”)
We conduct a quarterly review and evaluation of the securities portfolio to determine if the value of any security has declined below its cost or amortized cost, and whether such decline is other-than-temporary. If a determination is made that a debt security is other-than-temporarily impaired, the Company will estimate the amount of the unrealized loss that is attributable to credit and all other non-credit related factors. The credit related component will be recognized as an other-than-temporary impairment charge in non-interest income. The non-credit related component will be recorded as an adjustment to accumulated other comprehensive income, net of tax.
With the assistance of a valuation specialist, we evaluate the credit and performance of each issuer underlying our TruPS. Cash flows for each security are forecasted using assumptions for defaults, recoveries, pre-payments and amortization. At
September 30, 2017
and
2016
, management deemed that the present value of projected cash flows for each security was greater than the book value and did not recognize any additional OTTI charges for the three and nine months ended
September 30, 2017
and
2016
. At
September 30, 2017
, non-credit related OTTI recorded on the previously impaired TruPS was
$20.5 million
(
$12.1 million
after-tax). This amount is being accreted into income over the estimated remaining life of the securities.
The following table presents the changes in the credit loss component of the impairment loss of debt securities that the Company has written down for such loss as an other-than-temporary impairment recognized in earnings.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended September 30,
|
|
For the Nine Months Ended September 30,
|
|
2017
|
|
2016
|
|
2017
|
|
2016
|
|
(In thousands)
|
Balance of credit related OTTI, beginning of period
|
$
|
87,921
|
|
|
97,977
|
|
|
95,743
|
|
|
100,200
|
|
Additions:
|
|
|
|
|
|
|
|
Initial credit impairments
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Subsequent credit impairments
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Reductions:
|
|
|
|
|
|
|
|
Accretion of credit loss impairment due to an increase in expected cash flows
|
(1,077
|
)
|
|
(1,112
|
)
|
|
(5,088
|
)
|
|
(3,335
|
)
|
Reductions for securities sold or paid off during the period
|
—
|
|
|
—
|
|
|
(3,811
|
)
|
|
—
|
|
Balance of credit related OTTI, end of period
|
$
|
86,844
|
|
|
96,865
|
|
|
86,844
|
|
|
96,865
|
|
The credit loss component of the impairment loss represents the difference between the present value of expected future cash flows and the amortized cost basis of the securities prior to considering credit losses. The beginning balance represents the credit loss component for debt securities for which OTTI occurred prior to the period presented. If OTTI is recognized in earnings for credit impaired debt securities, they would be presented as additions based upon whether the current period is the first time a debt security was credit impaired (initial credit impairment) or is not the first time a debt security was credit impaired (subsequent credit impairments). The credit loss component is reduced if the Company sells, intends to sell or believes it will be required to sell previously credit impaired debt securities. Additionally, the credit loss component is reduced if (i) the Company receives cash flows in excess of what it expected to receive over the remaining life of the credit impaired debt security, (ii) the security matures or (iii) the security is fully written down.
Realized Gains and Losses
Gains and losses on the sale of all securities are determined using the specific identification method. For the three months ended
September 30, 2017
, there were
no
proceeds from sales of securities in the available-for-sale portfolio. For the
nine
months ended
September 30, 2017
, the Company received sale proceeds of
$102.1 million
on pools of mortgage-backed securities from the available-for-sale portfolio resulting in a gross realized gain of
$1.3 million
.
There were
no
proceeds from sales of securities in the held-to-maturity portfolio for the
three and nine
months ended
September 30, 2017
; however, for the
nine
months ended
September 30, 2017
, the Company received proceeds of
$3.1 million
from the liquidation of a TruP security. As a result,
$1.9 million
was recognized as interest income from securities in the Consolidated Statements of Income.
For the
three and nine
months ended
September 30, 2016
, the Company received proceeds of
$122,200
and
$57.9 million
, respectively, on equity securities and pools of mortgage-backed securities sold from the available-for-sale portfolio resulting in a gross realized gain of
$72,200
and
$2.3 million
, respectively. For the three months ended
September 30, 2016
, there were
no
sale proceeds from the held-to-maturity portfolio. For the
nine
months ended
September 30, 2016
, the Company received sale proceeds of
$14.3 million
on a pool of mortgage-backed securities from the held-to-maturity portfolio resulting in a gross realized gain of
$836,000
. These securities met the criteria of principal pay downs under 85% of the original investment amount and therefore did not result in a tainting of the held-to-maturity portfolio. The Company sells securities when, in management’s assessment, market pricing presents an economic benefit that outweighs holding such securities, and when securities with smaller balances become cost prohibitive to carry.
5. Loans Receivable, Net
The detail of the loan portfolio as of
September 30, 2017
and
December 31, 2016
was as follows:
|
|
|
|
|
|
|
|
|
September 30,
2017
|
|
December 31,
2016
|
|
(In thousands)
|
Multi-family loans
|
$
|
7,854,759
|
|
|
7,459,131
|
|
Commercial real estate loans
|
4,660,268
|
|
|
4,445,194
|
|
Commercial and industrial loans
|
1,501,235
|
|
|
1,275,283
|
|
Construction loans
|
397,929
|
|
|
314,843
|
|
Total commercial loans
|
14,414,191
|
|
|
13,494,451
|
|
Residential mortgage loans
|
4,871,460
|
|
|
4,710,373
|
|
Consumer and other loans
|
654,701
|
|
|
596,922
|
|
Total loans excluding PCI loans
|
19,940,352
|
|
|
18,801,746
|
|
PCI loans
|
8,577
|
|
|
8,956
|
|
Net unamortized premiums and deferred loan costs (1)
|
(11,701
|
)
|
|
(12,474
|
)
|
Allowance for loan losses
|
(230,071
|
)
|
|
(228,373
|
)
|
Net loans
|
$
|
19,707,157
|
|
|
18,569,855
|
|
(1) Included in unamortized premiums and deferred loan costs are accretable purchase accounting adjustments in connection with loans acquired.
Allowance for Loan Losses
An analysis of the allowance for loan losses is summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30,
|
|
Nine Months Ended September 30,
|
|
2017
|
|
2016
|
|
2017
|
|
2016
|
|
(Dollars in thousands)
|
|
|
|
|
Balance at beginning of the period
|
$
|
230,028
|
|
|
220,316
|
|
|
228,373
|
|
|
218,505
|
|
Loans charged off
|
(3,022
|
)
|
|
(2,972
|
)
|
|
(14,519
|
)
|
|
(13,379
|
)
|
Recoveries
|
1,315
|
|
|
1,206
|
|
|
4,467
|
|
|
3,424
|
|
Net charge-offs
|
(1,707
|
)
|
|
(1,766
|
)
|
|
(10,052
|
)
|
|
(9,955
|
)
|
Provision for loan losses
|
1,750
|
|
|
5,000
|
|
|
11,750
|
|
|
15,000
|
|
Balance at end of the period
|
$
|
230,071
|
|
|
223,550
|
|
|
230,071
|
|
|
223,550
|
|
The allowance for loan losses is the estimated amount considered necessary to cover credit losses inherent in the loan portfolio at the balance sheet date. The allowance is established through the provision for loan losses that is charged against income. In determining the allowance for loan losses, we make significant estimates and therefore, have identified the allowance as a critical accounting policy. The methodology for determining the allowance for loan losses is considered a critical accounting policy by management because of the high degree of judgment involved, the subjectivity of the assumptions used, and the potential for changes in the economic environment that could result in changes to the amount of the recorded allowance for loan losses.
The allowance for loan losses has been determined in accordance with U.S. GAAP, under which we are required to maintain an allowance for probable losses at the balance sheet date. We are responsible for the timely and periodic determination of the amount of the allowance required. We believe that our allowance for loan losses is adequate to cover specifically identifiable losses, as well as estimated losses inherent in our portfolio for which certain losses are probable but not specifically identifiable. Loans acquired are marked to fair value on the date of acquisition with no valuation allowance reflected in the allowance for loan losses. In conjunction with the quarterly evaluation of the adequacy of the allowance for loan losses, the Company performs an analysis on acquired loans to determine whether or not an allowance should be ascribed to those loans. Purchased Credit-Impaired (“PCI”) loans, are loans acquired at a discount that is due, in part, to credit quality. PCI loans are accounted for in accordance with Accounting Standards Codification (“ASC”) Subtopic 310-30 and are initially recorded at fair value as determined by the present value of expected future
cash flows with no valuation allowance reflected in the allowance for loan losses. For the
nine
months ended
September 30, 2017
, the Company recorded charge-offs of
$92,000
related to PCI loans acquired.
Management performs a quarterly evaluation of the adequacy of the allowance for loan losses. The analysis of the allowance for loan losses has two components: specific and general allocations. Specific allocations are made for loans determined to be impaired. A loan is deemed to be impaired if it is a commercial loan with an outstanding balance greater than
$1.0 million
and on non-accrual status, loans modified in a troubled debt restructuring (“TDR”), and other commercial loans greater than
$1.0 million
if management has specific information that it is probable they will not collect all amounts due under the contractual terms of the loan agreement. Impairment is measured by determining the present value of expected future cash flows or, for collateral-dependent loans, the fair value of the collateral adjusted for market conditions and selling expenses. The general allocation is determined by segregating the remaining loans by type of loan, risk rating (if applicable) and payment history. In addition, the Company’s residential portfolio is subdivided between fixed and adjustable rate loans as adjustable rate loans are deemed to be subject to more credit risk if interest rates rise. Reserves for each loan segment or the loss factors are generally determined based on the Company’s historical loss experience over a look-back period determined to provide the appropriate amount of data to accurately estimate expected losses as of period end. Additionally, management assesses the loss emergence period for the expected losses of each loan segment and adjusts each historical loss factor accordingly. The loss emergence period is the estimated time from the date of a loss event (such as a personal bankruptcy) to the actual recognition of the loss (typically via the first full or partial loan charge-off), and is determined based upon a study of the Company’s past loss experience by loan segment. The loss factors may also be adjusted to account for qualitative or environmental factors that are likely to cause estimated credit losses inherent in the portfolio to differ from historical loss experience. This evaluation is based on among other things, loan and delinquency trends, general economic conditions, credit concentrations, industry trends and lending and credit management policies and procedures, but is inherently subjective as it requires material estimates that may be susceptible to significant revisions based upon changes in economic and real estate market conditions. Actual loan losses may be different than the allowance for loan losses we have established which could have a material negative effect on our financial results.
On a quarterly basis, management reviews the current status of various loan assets in order to evaluate the adequacy of the allowance for loan losses. In this evaluation process, specific loans are analyzed to determine their potential risk of loss. Loans determined to be impaired are evaluated for potential loss exposure. Any shortfall results in a recommendation of a specific allowance or charge-off if the likelihood of loss is evaluated as probable. To determine the adequacy of collateral on a particular loan, an estimate of the fair value of the collateral is based on the most current appraised value available for real property or a discounted cash flow analysis on a business. The appraised value for real property is then reduced to reflect estimated liquidation expenses.
The allowance contains reserves identified as unallocated. These reserves reflect management’s attempt to provide for the imprecision and the uncertainty that is inherent in estimates of probable credit losses.
Our lending emphasis has been the origination of multi-family loans, commercial real estate loans, commercial and industrial loans, one- to four-family residential mortgage loans secured by one- to four-family residential real estate, construction loans and consumer loans, the majority of which are home equity loans, home equity lines of credit and cash surrender value lending on life insurance contracts. These activities resulted in a concentration of loans secured by real estate property and businesses located in New Jersey and New York. Based on the composition of our loan portfolio, we believe the primary risks to our loan portfolio are increases in interest rates, a decline in the general economy, and declines in real estate market values in New Jersey, New York and surrounding states. Any one or combination of these events may adversely affect our loan portfolio resulting in increased delinquencies, loan losses and future levels of loan loss provisions. As a substantial amount of our loan portfolio is collateralized by real estate, appraisals of the underlying value of property securing loans are critical in determining the amount of the allowance required for specific loans. Assumptions for appraisal valuations are instrumental in determining the value of properties. Negative changes to appraisal assumptions could significantly impact the valuation of a property securing a loan and the related allowance determined. The assumptions supporting such appraisals are carefully reviewed to determine that the resulting values reasonably reflect amounts realizable on the related loans.
For commercial real estate, multi-family and construction loans, the Company obtains an appraisal for all collateral dependent loans upon origination. An updated appraisal is obtained annually for loans rated substandard or worse with a balance of
$500,000
or greater. An updated appraisal is obtained biennially for loans rated special mention with a balance of
$2.0 million
or greater. This is done in order to determine the specific reserve or charge off needed. As part of the allowance for loan losses process, the Company reviews each collateral dependent commercial real estate loan classified as non-accrual and/or impaired and assesses whether there has been an adverse change in the collateral value supporting the loan. The Company utilizes information from its commercial lending officers and its credit department and special assets department’s knowledge of changes in real estate conditions in our lending area to identify if possible deterioration of collateral value has occurred. Based on the severity of the changes in market conditions, management determines if an updated appraisal is warranted or if downward adjustments to the previous appraisal are warranted. If it is determined that the deterioration of the collateral value is significant enough to warrant ordering a new appraisal, an estimate of the downward adjustments to the existing appraised value is used in assessing if additional specific reserves are necessary until the updated appraisal is received.
For homogeneous residential mortgage loans, the Company’s policy is to obtain an appraisal upon the origination of the loan and an updated appraisal in the event a loan becomes
90
days delinquent. Thereafter, the appraisal is updated every
two
years if the loan remains in non-performing status and the foreclosure process has not been completed. Management adjusts the appraised value of residential loans to reflect estimated selling costs and declines in the real estate market.
Management believes the potential risk for outdated appraisals for impaired and other non-performing loans has been mitigated due to the fact that the loans are individually assessed to determine that the loan’s carrying value is not in excess of the fair value of the collateral. Loans are generally charged off after an analysis is completed which indicates that collectability of the full principal balance is in doubt.
Although we believe we have established and maintained the allowance for loan losses at adequate levels, additions may be necessary if the current economic environment deteriorates. Management uses relevant information available; however, the level of the allowance for loan losses remains an estimate that is subject to significant judgment and short-term change. In addition, the Federal Deposit Insurance Corporation and the New Jersey Department of Banking and Insurance, as an integral part of their examination process, will periodically review our allowance for loan losses. Such agencies may require us to recognize adjustments to the allowance based on their judgments about information available to them at the time of their examination.
The following tables present the balance in the allowance for loan losses and the recorded investment in loans by portfolio segment and based on impairment method as of
September 30, 2017
and
December 31, 2016
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2017
|
|
Multi-
Family Loans
|
|
Commercial
Real Estate Loans
|
|
Commercial
and Industrial
Loans
|
|
Construction
Loans
|
|
Residential
Mortgage Loans
|
|
Consumer
and Other
Loans
|
|
Unallocated
|
|
Total
|
|
(Dollars in thousands)
|
Allowance for loan losses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning balance-December 31, 2016
|
$
|
95,561
|
|
|
52,796
|
|
|
43,492
|
|
|
11,653
|
|
|
19,831
|
|
|
2,850
|
|
|
2,190
|
|
|
228,373
|
|
Charge-offs
|
(5
|
)
|
|
(6,818
|
)
|
|
(3,242
|
)
|
|
(100
|
)
|
|
(4,205
|
)
|
|
(149
|
)
|
|
—
|
|
|
(14,519
|
)
|
Recoveries
|
1,178
|
|
|
500
|
|
|
177
|
|
|
—
|
|
|
2,492
|
|
|
120
|
|
|
—
|
|
|
4,467
|
|
Provision
|
(9,795
|
)
|
|
13,205
|
|
|
6,862
|
|
|
(1,771
|
)
|
|
2,913
|
|
|
116
|
|
|
220
|
|
|
11,750
|
|
Ending balance-September 30, 2017
|
$
|
86,939
|
|
|
59,683
|
|
|
47,289
|
|
|
9,782
|
|
|
21,031
|
|
|
2,937
|
|
|
2,410
|
|
|
230,071
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Individually evaluated for impairment
|
$
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1,630
|
|
|
88
|
|
|
—
|
|
|
1,718
|
|
Collectively evaluated for impairment
|
86,939
|
|
|
59,683
|
|
|
47,289
|
|
|
9,782
|
|
|
19,401
|
|
|
2,849
|
|
|
2,410
|
|
|
228,353
|
|
Loans acquired with deteriorated credit quality
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Balance at September 30, 2017
|
$
|
86,939
|
|
|
59,683
|
|
|
47,289
|
|
|
9,782
|
|
|
21,031
|
|
|
2,937
|
|
|
2,410
|
|
|
230,071
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Individually evaluated for impairment
|
$
|
13,929
|
|
|
32,499
|
|
|
1,317
|
|
|
—
|
|
|
26,827
|
|
|
861
|
|
|
—
|
|
|
75,433
|
|
Collectively evaluated for impairment
|
7,840,830
|
|
|
4,627,769
|
|
|
1,499,918
|
|
|
397,929
|
|
|
4,844,633
|
|
|
653,840
|
|
|
—
|
|
|
19,864,919
|
|
Loans acquired with deteriorated credit quality
|
—
|
|
|
6,845
|
|
|
—
|
|
|
—
|
|
|
1,412
|
|
|
320
|
|
|
—
|
|
|
8,577
|
|
Balance at September 30, 2017
|
$
|
7,854,759
|
|
|
4,667,113
|
|
|
1,501,235
|
|
|
397,929
|
|
|
4,872,872
|
|
|
655,021
|
|
|
—
|
|
|
19,948,929
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2016
|
|
Multi-
Family Loans
|
|
Commercial
Real Estate Loans
|
|
Commercial
and Industrial
Loans
|
|
Construction
Loans
|
|
Residential
Mortgage Loans
|
|
Consumer
and Other
Loans
|
|
Unallocated
|
|
Total
|
|
(Dollars in thousands)
|
Allowance for loan losses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning balance-December 31, 2015
|
$
|
88,223
|
|
|
46,999
|
|
|
40,585
|
|
|
6,794
|
|
|
31,443
|
|
|
3,155
|
|
|
1,306
|
|
|
218,505
|
|
Charge-offs
|
(161
|
)
|
|
(455
|
)
|
|
(4,485
|
)
|
|
(52
|
)
|
|
(9,425
|
)
|
|
(419
|
)
|
|
—
|
|
|
(14,997
|
)
|
Recoveries
|
1,885
|
|
|
689
|
|
|
541
|
|
|
267
|
|
|
1,631
|
|
|
102
|
|
|
—
|
|
|
5,115
|
|
Provision
|
5,614
|
|
|
5,563
|
|
|
6,851
|
|
|
4,644
|
|
|
(3,818
|
)
|
|
12
|
|
|
884
|
|
|
19,750
|
|
Ending balance-December 31, 2016
|
$
|
95,561
|
|
|
52,796
|
|
|
43,492
|
|
|
11,653
|
|
|
19,831
|
|
|
2,850
|
|
|
2,190
|
|
|
228,373
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Individually evaluated for impairment
|
$
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1,581
|
|
|
20
|
|
|
—
|
|
|
1,601
|
|
Collectively evaluated for impairment
|
95,561
|
|
|
52,796
|
|
|
43,492
|
|
|
11,653
|
|
|
18,250
|
|
|
2,830
|
|
|
2,190
|
|
|
226,772
|
|
Loans acquired with deteriorated credit quality
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Balance at December 31, 2016
|
$
|
95,561
|
|
|
52,796
|
|
|
43,492
|
|
|
11,653
|
|
|
19,831
|
|
|
2,850
|
|
|
2,190
|
|
|
228,373
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Individually evaluated for impairment
|
$
|
248
|
|
|
5,962
|
|
|
3,370
|
|
|
—
|
|
|
24,453
|
|
|
371
|
|
|
—
|
|
|
34,404
|
|
Collectively evaluated for impairment
|
7,458,883
|
|
|
4,439,232
|
|
|
1,271,913
|
|
|
314,843
|
|
|
4,685,920
|
|
|
596,551
|
|
|
—
|
|
|
18,767,342
|
|
Loans acquired with deteriorated credit quality
|
—
|
|
|
7,106
|
|
|
—
|
|
|
—
|
|
|
1,507
|
|
|
343
|
|
|
—
|
|
|
8,956
|
|
Balance at December 31, 2016
|
$
|
7,459,131
|
|
|
4,452,300
|
|
|
1,275,283
|
|
|
314,843
|
|
|
4,711,880
|
|
|
597,265
|
|
|
—
|
|
|
18,810,702
|
|
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. For non-homogeneous loans, such as commercial and commercial real estate loans, the Company analyzes the loans individually by classifying the loans as to credit risk and assesses the probability of collection for each type of class. This analysis is performed on a quarterly basis. The Company uses the following definitions for risk ratings:
Pass -
“Pass” assets are well protected by the current net worth and paying capacity of the obligor (or guarantors, if any) or by the fair value, less cost to acquire and sell, of any underlying collateral in a timely manner.
Watch -
A “Watch” asset has all the characteristics of a Pass asset but warrants more than the normal level of supervision. These loans may require more detailed reporting to management because some aspects of underwriting may not conform to policy or adverse events may have affected or could affect the cash flow or ability to continue operating profitably, provided, however, the events do not constitute an undue credit risk. Residential loans delinquent
30
-
59
days are considered watch if not already identified as impaired.
Special Mention
- A “Special Mention” asset has potential weaknesses that deserve management’s close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the asset or in the institution’s credit position at some future date. Special Mention assets are not adversely classified and do not expose an institution to sufficient risk to
warrant adverse classification. Residential loans delinquent
60
-
89
days are considered special mention if not already identified as impaired.
Substandard
- A “Substandard” asset is inadequately protected by the current worth and paying capacity of the obligor or by the collateral pledged, if any. Assets so classified must have a well-defined weakness, or weaknesses that jeopardize the liquidation of the debt. They are characterized by the distinct possibility that the institution will sustain some loss if the deficiencies are not corrected. Residential loans delinquent
90
days or greater as well as those identified as impaired are considered substandard.
Doubtful
- An asset classified “Doubtful” has all the weaknesses inherent in one classified substandard with the added characteristic that the weaknesses make collection or liquidation in full highly questionable and improbable on the basis of currently known facts, conditions, and values.
Loss
- An asset or portion thereof, classified “Loss” is considered uncollectible and of such little value that its continuance on the institution’s books as an asset, without establishment of a specific valuation allowance or charge-off, is not warranted. This classification does not necessarily mean that an asset has no recovery or salvage value; but rather, there is much doubt about whether, how much, or when the recovery will occur. As such, it is not practical or desirable to defer the write-off.
The following tables present the risk category of loans as of
September 30, 2017
and
December 31, 2016
by class of loans, excluding PCI loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2017
|
|
Pass
|
|
Watch
|
|
Special
Mention
|
|
Substandard
|
|
Doubtful
|
|
Loss
|
|
Total
|
|
(In thousands)
|
Commercial loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Multi-family
|
$
|
6,884,230
|
|
|
678,668
|
|
|
158,101
|
|
|
133,760
|
|
|
—
|
|
|
—
|
|
|
7,854,759
|
|
Commercial real estate
|
3,828,406
|
|
|
528,965
|
|
|
135,840
|
|
|
167,057
|
|
|
—
|
|
|
—
|
|
|
4,660,268
|
|
Commercial and industrial
|
1,026,038
|
|
|
395,166
|
|
|
64,815
|
|
|
15,216
|
|
|
—
|
|
|
—
|
|
|
1,501,235
|
|
Construction
|
284,554
|
|
|
106,798
|
|
|
6,577
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
397,929
|
|
Total commercial loans
|
12,023,228
|
|
|
1,709,597
|
|
|
365,333
|
|
|
316,033
|
|
|
—
|
|
|
—
|
|
|
14,414,191
|
|
Residential mortgage
|
4,772,466
|
|
|
15,174
|
|
|
7,615
|
|
|
76,205
|
|
|
—
|
|
|
—
|
|
|
4,871,460
|
|
Consumer and other
|
640,416
|
|
|
7,048
|
|
|
353
|
|
|
6,884
|
|
|
—
|
|
|
—
|
|
|
654,701
|
|
Total
|
$
|
17,436,110
|
|
|
1,731,819
|
|
|
373,301
|
|
|
399,122
|
|
|
—
|
|
|
—
|
|
|
19,940,352
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2016
|
|
Pass
|
|
Watch
|
|
Special
Mention
|
|
Substandard
|
|
Doubtful
|
|
Loss
|
|
Total
|
|
(In thousands)
|
Commercial loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Multi-family
|
$
|
6,961,809
|
|
|
276,858
|
|
|
165,948
|
|
|
54,516
|
|
|
—
|
|
|
—
|
|
|
7,459,131
|
|
Commercial real estate
|
3,900,988
|
|
|
373,319
|
|
|
134,154
|
|
|
36,733
|
|
|
—
|
|
|
—
|
|
|
4,445,194
|
|
Commercial and industrial
|
900,190
|
|
|
344,628
|
|
|
23,588
|
|
|
6,877
|
|
|
—
|
|
|
—
|
|
|
1,275,283
|
|
Construction
|
230,630
|
|
|
76,773
|
|
|
3,200
|
|
|
4,240
|
|
|
—
|
|
|
—
|
|
|
314,843
|
|
Total commercial loans
|
11,993,617
|
|
|
1,071,578
|
|
|
326,890
|
|
|
102,366
|
|
|
—
|
|
|
—
|
|
|
13,494,451
|
|
Residential mortgage
|
4,600,611
|
|
|
21,873
|
|
|
10,239
|
|
|
77,650
|
|
|
—
|
|
|
—
|
|
|
4,710,373
|
|
Consumer and other
|
583,140
|
|
|
5,627
|
|
|
719
|
|
|
7,436
|
|
|
—
|
|
|
—
|
|
|
596,922
|
|
Total
|
$
|
17,177,368
|
|
|
1,099,078
|
|
|
337,848
|
|
|
187,452
|
|
|
—
|
|
|
—
|
|
|
18,801,746
|
|
The following tables present the payment status of the recorded investment in past due loans as of
September 30, 2017
and
December 31, 2016
by class of loans, excluding PCI loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2017
|
|
30-59 Days
|
|
60-89 Days
|
|
Greater
than 90
Days
|
|
Total Past
Due
|
|
Current
|
|
Total
Loans
Receivable
|
|
(In thousands)
|
Commercial loans:
|
|
|
|
|
|
|
|
|
|
|
|
Multi-family
|
$
|
15,785
|
|
|
—
|
|
|
207
|
|
|
15,992
|
|
|
7,838,767
|
|
|
7,854,759
|
|
Commercial real estate
|
32,663
|
|
|
979
|
|
|
14,546
|
|
|
48,188
|
|
|
4,612,080
|
|
|
4,660,268
|
|
Commercial and industrial
|
611
|
|
|
1,384
|
|
|
336
|
|
|
2,331
|
|
|
1,498,904
|
|
|
1,501,235
|
|
Construction
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
397,929
|
|
|
397,929
|
|
Total commercial loans
|
49,059
|
|
|
2,363
|
|
|
15,089
|
|
|
66,511
|
|
|
14,347,680
|
|
|
14,414,191
|
|
Residential mortgage
|
16,851
|
|
|
8,386
|
|
|
54,101
|
|
|
79,338
|
|
|
4,792,122
|
|
|
4,871,460
|
|
Consumer and other
|
7,048
|
|
|
353
|
|
|
6,025
|
|
|
13,426
|
|
|
641,275
|
|
|
654,701
|
|
Total
|
$
|
72,958
|
|
|
11,102
|
|
|
75,215
|
|
|
159,275
|
|
|
19,781,077
|
|
|
19,940,352
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2016
|
|
30-59 Days
|
|
60-89 Days
|
|
Greater
than 90
Days
|
|
Total Past
Due
|
|
Current
|
|
Total
Loans
Receivable
|
|
(In thousands)
|
Commercial loans:
|
|
|
|
|
|
|
|
|
|
|
|
Multi-family
|
$
|
5,272
|
|
|
1,099
|
|
|
234
|
|
|
6,605
|
|
|
7,452,526
|
|
|
7,459,131
|
|
Commercial real estate
|
6,568
|
|
|
31,964
|
|
|
6,445
|
|
|
44,977
|
|
|
4,400,217
|
|
|
4,445,194
|
|
Commercial and industrial
|
864
|
|
|
885
|
|
|
2,971
|
|
|
4,720
|
|
|
1,270,563
|
|
|
1,275,283
|
|
Construction
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
314,843
|
|
|
314,843
|
|
Total commercial loans
|
12,704
|
|
|
33,948
|
|
|
9,650
|
|
|
56,302
|
|
|
13,438,149
|
|
|
13,494,451
|
|
Residential mortgage
|
24,052
|
|
|
10,930
|
|
|
58,119
|
|
|
93,101
|
|
|
4,617,272
|
|
|
4,710,373
|
|
Consumer and other
|
5,627
|
|
|
719
|
|
|
7,065
|
|
|
13,411
|
|
|
583,511
|
|
|
596,922
|
|
Total
|
$
|
42,383
|
|
|
45,597
|
|
|
74,834
|
|
|
162,814
|
|
|
18,638,932
|
|
|
18,801,746
|
|
The following table presents non-accrual loans, excluding PCI loans, at the dates indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2017
|
|
December 31, 2016
|
|
# of loans
|
|
Amount
|
|
# of loans
|
|
Amount
|
|
(Dollars in thousands)
|
Non-accrual:
|
|
Multi-family
|
4
|
|
|
$
|
14,137
|
|
|
2
|
|
|
$
|
482
|
|
Commercial real estate
|
31
|
|
|
35,329
|
|
|
24
|
|
|
9,205
|
|
Commercial and industrial
|
6
|
|
|
1,926
|
|
|
8
|
|
|
4,659
|
|
Total commercial loans
|
41
|
|
|
51,392
|
|
|
34
|
|
|
14,346
|
|
Residential mortgage and consumer
|
417
|
|
|
74,270
|
|
|
478
|
|
|
79,928
|
|
Total non-accrual loans
|
458
|
|
|
$
|
125,662
|
|
|
512
|
|
|
$
|
94,274
|
|
Included in the non-accrual table above are TDR loans whose payment status is current but the Company has classified as non-accrual as the loans have not maintained their current payment status for
six
consecutive months under the restructured terms and therefore do not meet the criteria for accrual status. As of
September 30, 2017
and
December 31, 2016
, these loans are comprised of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2017
|
|
December 31, 2016
|
|
# of loans
|
|
Amount
|
|
# of loans
|
|
Amount
|
|
(Dollars in thousands)
|
Current TDR classified as non-accrual:
|
|
|
|
|
|
|
|
Multi-family
|
—
|
|
|
$
|
—
|
|
|
1
|
|
|
$
|
248
|
|
Commercial real estate
|
1
|
|
|
396
|
|
|
1
|
|
|
63
|
|
Commercial and industrial
|
—
|
|
|
—
|
|
|
1
|
|
|
286
|
|
Total commercial loans
|
1
|
|
|
396
|
|
|
3
|
|
|
597
|
|
Residential mortgage and consumer
|
24
|
|
|
4,815
|
|
|
23
|
|
|
5,721
|
|
Total current TDR classified as non-accrual
|
25
|
|
|
$
|
5,211
|
|
|
26
|
|
|
$
|
6,318
|
|
The following table presents TDR loans which were also 30-89 days delinquent and classified as non-accrual at the dates indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2017
|
|
December 31, 2016
|
|
# of loans
|
|
Amount
|
|
# of loans
|
|
Amount
|
|
(Dollars in thousands)
|
TDR 30-89 days delinquent classified as non-accrual:
|
|
|
|
|
|
|
|
Commercial real estate
|
1
|
|
|
$
|
56
|
|
|
2
|
|
|
$
|
169
|
|
Residential mortgage and consumer
|
12
|
|
|
2,447
|
|
|
14
|
|
|
2,869
|
|
Total TDR 30-89 days delinquent classified as non-accrual
|
13
|
|
|
$
|
2,503
|
|
|
16
|
|
|
$
|
3,038
|
|
The Company has
no
loans past due
90
days or more delinquent that are still accruing interest.
PCI loans are excluded from non-accrual loans, as they are recorded at fair value based on the present value of expected future cash flows. As of
September 30, 2017
, PCI loans with a carrying value of
$8.6 million
included
$7.4 million
of which were current,
$75,000
of which were
30
-
89
days delinquent and
$1.1 million
of which were
90
days or more delinquent. As of
December 31, 2016
, PCI loans with a carrying value of
$9.0 million
included
$7.7 million
of which were current,
none
of which were
30
-
89
days delinquent and
$1.3 million
of which were
90
days or more delinquent.
At
September 30, 2017
and
December 31, 2016
, loans meeting the Company’s definition of an impaired loan were primarily collateral dependent loans which totaled
$75.4 million
and
$34.4 million
, respectively, with allocations of the allowance for loan losses of
$1.7 million
and
$1.6 million
for the periods ending
September 30, 2017
and
December 31, 2016
, respectively. During the
nine
months ended
September 30, 2017
and
2016
, interest income received and recognized on these loans totaled
$1.2 million
and
$1.0 million
, respectively.
The following tables present loans individually evaluated for impairment by portfolio segment as of
September 30, 2017
and
December 31, 2016
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2017
|
|
Recorded
Investment
|
|
Unpaid Principal
Balance
|
|
Related
Allowance
|
|
Average
Recorded
Investment
|
|
Interest
Income
Recognized
|
|
(In thousands)
|
With no related allowance:
|
|
|
|
|
|
|
|
|
|
Multi-family
|
$
|
13,929
|
|
|
13,977
|
|
|
—
|
|
|
14,318
|
|
|
121
|
|
Commercial real estate
|
32,499
|
|
|
42,362
|
|
|
—
|
|
|
32,910
|
|
|
284
|
|
Commercial and industrial
|
1,317
|
|
|
1,896
|
|
|
—
|
|
|
1,343
|
|
|
28
|
|
Construction
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Total commercial loans
|
47,745
|
|
|
58,235
|
|
|
—
|
|
|
48,571
|
|
|
433
|
|
Residential mortgage and consumer
|
12,877
|
|
|
16,830
|
|
|
—
|
|
|
11,785
|
|
|
398
|
|
With an allowance recorded:
|
|
|
|
|
|
|
|
|
|
Multi-family
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Commercial real estate
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Commercial and industrial
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Construction
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Total commercial loans
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Residential mortgage and consumer
|
14,811
|
|
|
15,422
|
|
|
1,718
|
|
|
14,338
|
|
|
332
|
|
Total:
|
|
|
|
|
|
|
|
|
|
Multi-family
|
13,929
|
|
|
13,977
|
|
|
—
|
|
|
14,318
|
|
|
121
|
|
Commercial real estate
|
32,499
|
|
|
42,362
|
|
|
—
|
|
|
32,910
|
|
|
284
|
|
Commercial and industrial
|
1,317
|
|
|
1,896
|
|
|
—
|
|
|
1,343
|
|
|
28
|
|
Construction
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Total commercial loans
|
47,745
|
|
|
58,235
|
|
|
—
|
|
|
48,571
|
|
|
433
|
|
Residential mortgage and consumer
|
27,688
|
|
|
32,252
|
|
|
1,718
|
|
|
26,123
|
|
|
730
|
|
Total impaired loans
|
$
|
75,433
|
|
|
90,487
|
|
|
1,718
|
|
|
74,694
|
|
|
1,163
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2016
|
|
Recorded
Investment
|
|
Unpaid Principal
Balance
|
|
Related
Allowance
|
|
Average
Recorded
Investment
|
|
Interest
Income
Recognized
|
|
(In thousands)
|
With no related allowance:
|
|
|
|
|
|
|
|
|
|
Multi-family
|
$
|
248
|
|
|
248
|
|
|
—
|
|
|
252
|
|
|
20
|
|
Commercial real estate
|
5,962
|
|
|
9,265
|
|
|
—
|
|
|
5,790
|
|
|
301
|
|
Commercial and industrial
|
3,370
|
|
|
3,972
|
|
|
—
|
|
|
3,953
|
|
|
169
|
|
Construction
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Total commercial loans
|
9,580
|
|
|
13,485
|
|
|
—
|
|
|
9,995
|
|
|
490
|
|
Residential mortgage and consumer
|
11,030
|
|
|
14,565
|
|
|
—
|
|
|
9,899
|
|
|
483
|
|
With an allowance recorded:
|
|
|
|
|
|
|
|
|
|
Multi-family
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Commercial real estate
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Commercial and industrial
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Construction
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Total commercial loans
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Residential mortgage and consumer
|
13,794
|
|
|
14,382
|
|
|
1,601
|
|
|
13,689
|
|
|
479
|
|
Total:
|
|
|
|
|
|
|
|
|
|
Multi-family
|
248
|
|
|
248
|
|
|
—
|
|
|
252
|
|
|
20
|
|
Commercial real estate
|
5,962
|
|
|
9,265
|
|
|
—
|
|
|
5,790
|
|
|
301
|
|
Commercial and industrial
|
3,370
|
|
|
3,972
|
|
|
—
|
|
|
3,953
|
|
|
169
|
|
Construction
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Total commercial loans
|
9,580
|
|
|
13,485
|
|
|
—
|
|
|
9,995
|
|
|
490
|
|
Residential mortgage and consumer
|
24,824
|
|
|
28,947
|
|
|
1,601
|
|
|
23,588
|
|
|
962
|
|
Total impaired loans
|
$
|
34,404
|
|
|
42,432
|
|
|
1,601
|
|
|
33,583
|
|
|
1,452
|
|
The average recorded investment is the annual average calculated based upon the ending quarterly balances. The interest income recognized is the year to date interest income recognized on a cash basis.
Troubled Debt Restructurings
On a case-by-case basis, the Company may agree to modify the contractual terms of a borrower’s loan to remain competitive and assist customers who may be experiencing financial difficulty, as well as preserve the Company’s position in the loan. If the borrower is experiencing financial difficulties and a concession has been made at the time of such modification, the loan is classified as a TDR.
Substantially all of our TDR loan modifications involve lowering the monthly payments on such loans through either a reduction in interest rate below a market rate, an extension of the term of the loan, or a combination of these two methods. These modifications rarely result in the forgiveness of principal or accrued interest. In addition, we frequently obtain additional collateral or guarantor support when modifying commercial loans. Restructured loans remain on non-accrual status until there has been a sustained period of repayment performance (generally six consecutive months of payments) and both principal and interest are deemed collectible.
The following tables present the total TDR loans at
September 30, 2017
and
December 31, 2016
. There were
four
residential PCI loans that were classified as TDRs for the period ended
September 30, 2017
. There were
three
residential PCI loans that were classified as TDRs for the period ended
December 31, 2016
.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2017
|
|
Accrual
|
|
Non-accrual
|
|
Total
|
|
# of loans
|
|
Amount
|
|
# of loans
|
|
Amount
|
|
# of loans
|
|
Amount
|
|
(Dollars in thousands)
|
Commercial loans:
|
|
|
|
|
|
|
|
|
|
|
|
Commercial real estate
|
2
|
|
|
$
|
171
|
|
|
4
|
|
|
$
|
17,930
|
|
|
6
|
|
|
$
|
18,101
|
|
Commercial and industrial
|
—
|
|
|
—
|
|
|
1
|
|
|
1,316
|
|
|
1
|
|
|
1,316
|
|
Total commercial loans
|
2
|
|
|
171
|
|
|
5
|
|
|
19,246
|
|
|
7
|
|
|
19,417
|
|
Residential mortgage and consumer
|
56
|
|
|
13,187
|
|
|
64
|
|
|
14,502
|
|
|
120
|
|
|
27,689
|
|
Total
|
58
|
|
|
$
|
13,358
|
|
|
69
|
|
|
$
|
33,748
|
|
|
127
|
|
|
$
|
47,106
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2016
|
|
Accrual
|
|
Non-accrual
|
|
Total
|
|
# of loans
|
|
Amount
|
|
# of loans
|
|
Amount
|
|
# of loans
|
|
Amount
|
|
(Dollars in thousands)
|
Commercial loans:
|
|
|
|
|
|
|
|
|
|
|
|
Multi-family
|
—
|
|
|
$
|
—
|
|
|
1
|
|
|
$
|
248
|
|
|
1
|
|
|
$
|
248
|
|
Commercial real estate
|
2
|
|
|
352
|
|
|
4
|
|
|
3,240
|
|
|
6
|
|
|
3,592
|
|
Commercial and industrial
|
—
|
|
|
—
|
|
|
2
|
|
|
1,688
|
|
|
2
|
|
|
1,688
|
|
Total commercial loans
|
2
|
|
|
352
|
|
|
7
|
|
|
5,176
|
|
|
9
|
|
|
5,528
|
|
Residential mortgage and consumer
|
40
|
|
|
9,093
|
|
|
61
|
|
|
15,731
|
|
|
101
|
|
|
24,824
|
|
Total
|
42
|
|
|
$
|
9,445
|
|
|
68
|
|
|
$
|
20,907
|
|
|
110
|
|
|
$
|
30,352
|
|
The following tables present information about TDRs that occurred during the
three and nine
months ended
September 30, 2017
and
2016
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30,
|
|
2017
|
|
2016
|
|
Number of
Loans
|
|
Pre-modification
Recorded
Investment
|
|
Post-
modification
Recorded
Investment
|
|
Number of
Loans
|
|
Pre-modification
Recorded
Investment
|
|
Post-
modification
Recorded
Investment
|
|
(Dollars in thousands)
|
Troubled Debt Restructurings:
|
|
|
|
|
|
|
|
|
|
|
|
Commercial real estate
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
2
|
|
|
$
|
468
|
|
|
$
|
468
|
|
Residential mortgage and consumer
|
6
|
|
|
1,673
|
|
|
1,673
|
|
|
6
|
|
|
1,051
|
|
|
1,051
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30,
|
|
2017
|
|
2016
|
|
Number of
Loans
|
|
Pre-modification
Recorded
Investment
|
|
Post-
modification
Recorded
Investment
|
|
Number of
Loans
|
|
Pre-modification
Recorded
Investment
|
|
Post-
modification
Recorded
Investment
|
|
(Dollars in thousands)
|
Troubled Debt Restructurings:
|
|
|
|
|
|
|
|
|
|
|
|
Commercial real estate
|
3
|
|
|
$
|
20,225
|
|
|
$
|
15,787
|
|
|
5
|
|
|
$
|
1,039
|
|
|
$
|
1,039
|
|
Residential mortgage and consumer
|
23
|
|
|
4,924
|
|
|
4,824
|
|
|
20
|
|
|
2,600
|
|
|
2,600
|
|
Post-modification recorded investment represents the net book balance immediately following modification.
All TDRs are impaired loans, which are individually evaluated for impairment, as discussed above. Collateral dependent impaired loans classified as TDRs were written down to the estimated fair value of the collateral. There were
no
charge-offs for collateral dependent TDRs during the
three
months ended
September 30, 2017
and
2016
. There were charge-offs of
$4.5 million
for collateral dependent TDRs during the
nine
months ended
September 30, 2017
. There were
no
charge-offs for collateral dependent TDRs during the
nine
months ended
September 30, 2016
. The allowance for loan losses associated with the TDRs presented in the above tables totaled
$1.7 million
and
$1.6 million
at
September 30, 2017
and
December 31, 2016
, respectively.
Residential mortgage loan modifications generally involve the reduction in loan interest rate and extension of loan maturity dates and also may include step up interest rates in their modified terms which will impact their weighted average yield in the future. All residential loans deemed to be TDRs were modified to reflect a reduction in interest rates to current market rates. The commercial loan modifications which qualified as TDRs had their maturity extended.
The following tables present information about pre and post modification interest yield for troubled debt restructurings which occurred during the
three and nine
months ended
September 30, 2017
and
2016
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30,
|
|
2017
|
|
2016
|
|
Number of
Loans
|
|
Pre-modification
Interest Yield
|
|
Post-
modification
Interest Yield
|
|
Number of
Loans
|
|
Pre-modification
Interest Yield
|
|
Post-
modification
Interest Yield
|
Troubled Debt Restructurings:
|
|
|
|
|
|
|
|
|
|
|
|
Commercial real estate
|
—
|
|
|
—
|
%
|
|
—
|
%
|
|
2
|
|
|
4.93
|
%
|
|
4.89
|
%
|
Residential mortgage and consumer
|
6
|
|
|
3.75
|
%
|
|
2.98
|
%
|
|
6
|
|
|
6.30
|
%
|
|
2.86
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30,
|
|
2017
|
|
2016
|
|
Number of
Loans
|
|
Pre-modification
Interest Yield
|
|
Post-
modification
Interest Yield
|
|
Number of
Loans
|
|
Pre-modification
Interest Yield
|
|
Post-
modification
Interest Yield
|
Troubled Debt Restructurings:
|
|
|
|
|
|
|
|
|
|
|
|
Commercial real estate
|
3
|
|
|
4.67
|
%
|
|
4.67
|
%
|
|
5
|
|
|
4.38
|
%
|
|
4.50
|
%
|
Residential mortgage and consumer
|
23
|
|
|
4.15
|
%
|
|
3.39
|
%
|
|
20
|
|
|
6.31
|
%
|
|
3.42
|
%
|
Payment defaults for loans modified as a TDR in the previous 12 months to
September 30, 2017
consisted of
8
residential loans and
1
commercial real estate loan with a recorded investment of
$1.0 million
and
$160,000
, respectively, at
September 30, 2017
. Payment defaults for loans modified as a TDR in the previous 12 months to
September 30, 2016
consisted of
6
residential loans,
4
commercial real estate loans and
1
construction loan with a recorded investment of
$1.0 million
,
$588,000
and
$132,000
, respectively, at
September 30, 2016
.
Non Performing Loan Sales
For the nine months ended September 30, 2017, the Company sold
$48.1 million
of non-performing commercial real estate and multi-family loans, resulting in no charge-off recorded through the allowance. There were
no
sales of non-performing loans during the nine months ended September 30, 2016.
6. Deposits
Deposits are summarized as follows:
|
|
|
|
|
|
|
|
|
September 30, 2017
|
|
December 31, 2016
|
|
(In thousands)
|
Non-interest bearing:
|
|
|
|
Checking accounts
|
$
|
2,263,198
|
|
|
2,173,493
|
|
Interest bearing:
|
|
|
|
Checking accounts
|
4,633,096
|
|
|
3,916,208
|
|
Money market deposits
|
4,298,171
|
|
|
4,150,583
|
|
Savings
|
2,049,509
|
|
|
2,092,989
|
|
Certificates of deposit
|
3,632,495
|
|
|
2,947,560
|
|
Total deposits
|
$
|
16,876,469
|
|
|
15,280,833
|
|
7. Goodwill and Other Intangible Assets
The following table summarizes net intangible assets and goodwill at
September 30, 2017
and
December 31, 2016
:
|
|
|
|
|
|
|
|
|
|
|
September 30, 2017
|
|
December 31, 2016
|
|
|
(In thousands)
|
Mortgage servicing rights
|
|
$
|
14,536
|
|
|
14,889
|
|
Core deposit premiums
|
|
6,597
|
|
|
8,451
|
|
Other
|
|
863
|
|
|
928
|
|
Total other intangible assets
|
|
21,996
|
|
|
24,268
|
|
Goodwill
|
|
77,571
|
|
|
77,571
|
|
Goodwill and intangible assets
|
|
$
|
99,567
|
|
|
101,839
|
|
The following table summarizes other intangible assets as of
September 30, 2017
and
December 31, 2016
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Intangible Asset
|
|
Accumulated Amortization
|
|
Valuation Allowance
|
|
Net Intangible Assets
|
|
|
(In thousands)
|
September 30, 2017
|
|
|
|
|
|
|
|
|
Mortgage servicing rights
|
|
$
|
23,237
|
|
|
(8,579
|
)
|
|
(122
|
)
|
|
14,536
|
|
Core deposit premiums
|
|
25,058
|
|
|
(18,461
|
)
|
|
—
|
|
|
6,597
|
|
Other
|
|
1,150
|
|
|
(287
|
)
|
|
—
|
|
|
863
|
|
Total other intangible assets
|
|
$
|
49,445
|
|
|
(27,327
|
)
|
|
(122
|
)
|
|
21,996
|
|
|
|
|
|
|
|
|
|
|
December 31, 2016
|
|
|
|
|
|
|
|
|
Mortgage servicing rights
|
|
$
|
24,340
|
|
|
(9,286
|
)
|
|
(165
|
)
|
|
14,889
|
|
Core deposit premiums
|
|
25,058
|
|
|
(16,607
|
)
|
|
—
|
|
|
8,451
|
|
Other
|
|
1,150
|
|
|
(222
|
)
|
|
—
|
|
|
928
|
|
Total other intangible assets
|
|
$
|
50,548
|
|
|
(26,115
|
)
|
|
(165
|
)
|
|
24,268
|
|
Mortgage servicing rights are accounted for using the amortization method. Under this method, the Company amortizes the loan servicing asset in proportion to, and over the period of, estimated net servicing revenues. The Company sells loans on a servicing-retained basis. Loans that were sold on this basis had an unpaid principal balance of
$1.91 billion
and
$1.98 billion
at
September 30, 2017
and
December 31, 2016
, respectively, all of which relate to residential mortgage loans. At
September 30, 2017
and
December 31, 2016
, the servicing asset, included in intangible assets, had an estimated fair value of
$15.6 million
and
$16.2 million
, respectively. At
September 30, 2017
, fair value was based on expected future cash flows considering a weighted
average discount rate of
14.24%
, a weighted average constant prepayment rate on mortgages of
9.78%
and a weighted average life of
6.8 years
, see Note 12 for additional details.
Core deposit premiums are amortized using an accelerated method and having a weighted average amortization period of
10 years
.
8. Equity Incentive Plan
At the annual meeting held on June 9, 2015, stockholders of the Company approved the Investors Bancorp, Inc. 2015 Equity Incentive Plan (“2015 Plan”) which provides for the issuance or delivery of up to
30,881,296
shares (
13,234,841
restricted stock awards and
17,646,455
stock options) of Investors Bancorp, Inc. common stock.
Restricted shares granted under the 2015 Plan vest in equal installments, over the service period generally ranging from
5
to
7
years beginning
one
year from the date of grant. Additionally, certain restricted shares awarded are performance vesting awards, which may or may not vest depending upon the attainment of certain corporate financial targets. The vesting of restricted stock may accelerate in accordance with the terms of the 2015 Plan. The product of the number of shares granted and the grant date closing market price of the Company’s common stock determine the fair value of restricted shares under the 2015 Plan. Management recognizes compensation expense for the fair value of restricted shares on a straight-line basis over the requisite service period. For the
nine
months ended
September 30, 2017
and
September 30, 2016
, the Company granted
430,000
and
271,890
shares of restricted stock awards under the 2015 Plan, respectively.
Stock options granted under the 2015 Plan vest in equal installments, over the service period generally ranging from
5
to
7
years beginning one year from the date of grant. The vesting of stock options may accelerate in accordance with the terms of the 2015 Plan. Stock options were granted at an exercise price equal to the fair value of the Company’s common stock on the grant date based on the closing market price and have an expiration period of
10
years. Upon exercise of vested options, management expects to draw on treasury stock as the source for shares. For the
nine
months ended
September 30, 2017
and
September 30, 2016
, the Company granted
83,800
and
201,440
stock options under the 2015 Plan, respectively.
The fair value of stock options granted as part of the 2015 Plan was estimated utilizing the Black-Scholes option pricing model using the following assumptions for the periods presented below:
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30,
|
|
2017
|
|
2016
|
Weighted average expected life (in years)
|
6.50
|
|
|
7.00
|
|
Weighted average risk-free rate of return
|
2.04
|
%
|
|
1.67
|
%
|
Weighted average volatility
|
24.73
|
%
|
|
24.05
|
%
|
Dividend yield
|
2.44
|
%
|
|
1.93
|
%
|
Weighted average fair value of options granted
|
$
|
3.00
|
|
|
$
|
2.80
|
|
Total stock options granted
|
83,800
|
|
|
201,440
|
|
The Company recognizes the cost of employee services received in exchange for awards of equity instruments based on the grant-date fair value of those awards in accordance with ASC 718, “
Compensation-Stock Compensation
”. The Company estimates the per share fair value of option grants on the date of grant using the Black-Scholes option pricing model using assumptions for the expected dividend yield, expected stock price volatility, risk-free interest rate and expected option term. These assumptions are subjective in nature, involve uncertainties and, therefore, cannot be determined with precision.
Accounting Standards Update (“ASU”) 2016-09, Compensation - Stock Compensation (Topic 718), requires excess tax benefits and tax deficiencies to be recorded in the income statement when the awards vest or are settled. In addition, cash flows related to excess tax benefits are classified as an operating activity. In accordance with SEC Staff Accounting Bulletin No. 107, the Company classifies share-based compensation for employees and outside directors within “compensation and fringe benefits” in the consolidated statements of income to correspond with the same line item as the cash compensation paid.
The following table presents the share based compensation expense for the
three and nine
months ended
September 30, 2017
and
2016
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30,
|
|
Nine Months Ended September 30,
|
|
2017
|
|
2016
|
|
2017
|
|
2016
|
|
(Dollars in thousands)
|
|
|
|
|
Stock option expense
|
$
|
1,469
|
|
|
1,508
|
|
|
4,373
|
|
|
4,498
|
|
Restricted stock expense
|
3,471
|
|
|
3,954
|
|
|
10,594
|
|
|
10,658
|
|
Total share based compensation expense
|
$
|
4,940
|
|
|
5,462
|
|
|
14,967
|
|
|
15,156
|
|
The following is a summary of the Company’s stock option activity and related information for the
nine
months ended
September 30, 2017
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of
Stock
Options
|
|
Weighted Average
Exercise Price
|
|
Weighted Average
Remaining
Contractual
Life (in years)
|
|
Aggregate
Intrinsic Value
|
Outstanding at December 31, 2016
|
|
13,165,333
|
|
|
|
$11.74
|
|
|
8.2
|
|
|
$29,101
|
|
Granted
|
|
83,800
|
|
|
13.12
|
|
|
9.8
|
|
|
Exercised
|
|
(936,881
|
)
|
|
8.24
|
|
|
3.8
|
|
|
Forfeited
|
|
(495,248
|
)
|
|
12.53
|
|
|
|
|
|
Expired
|
|
(1,429
|
)
|
|
12.54
|
|
|
|
|
|
Outstanding at September 30, 2017
|
|
11,815,575
|
|
|
|
$11.99
|
|
|
7.7
|
|
|
$19,453
|
|
Exercisable at September 30, 2017
|
|
4,603,154
|
|
|
|
$11.16
|
|
|
6.9
|
|
|
$11,426
|
|
Expected future expense relating to the non-vested options outstanding as of
September 30, 2017
is
$22.3 million
over a weighted average period of
4.0
years.
The following is a summary of the status of the Company’s restricted shares as of
September 30, 2017
and changes therein during the
nine
months ended:
|
|
|
|
|
|
|
|
|
|
|
Number of Shares Awarded
|
|
Weighted Average Grant Date Fair Value
|
Outstanding at December 31, 2016
|
|
5,876,491
|
|
|
$
|
12.51
|
|
Granted
|
|
430,000
|
|
|
14.39
|
|
Vested
|
|
(960,564
|
)
|
|
12.51
|
|
Forfeited
|
|
(268,163
|
)
|
|
12.50
|
|
Outstanding and non vested at September 30, 2017
|
|
5,077,764
|
|
|
$
|
12.67
|
|
Expected future expense relating to the non-vested restricted shares outstanding as of
September 30, 2017
is
$56.6 million
over a weighted average period of
4.1
years.
9. Net Periodic Benefit Plan Expense
The Company has an Executive Supplemental Retirement Wage Replacement Plan (“Wage Replacement Plan”) and the Supplemental Retirement Plan (“SERP I”) (collectively, the “SERPs”). The Wage Replacement Plan is a nonqualified, defined benefit plan which provides benefits to certain executives as designated by the Compensation Committee of the Board of Directors. More specifically, the Wage Replacement Plan was designed to provide participants with a normal retirement benefit equal to an annual benefit of
60%
of the participant’s highest annual base salary and cash incentive (over a consecutive
36
-month period within the participant’s credited service period) reduced by the sum of the benefits provided under the Pentegra Defined Benefit Plan for Financial Institutions (“Pentegra DB Plan”) and SERP I.
Effective as of the close of business of December 31, 2016, the Wage Replacement Plan was amended to freeze future benefit accruals, and for certain participants, structure the benefits payable attributable solely to the participants’ 2016 year of service to vest over a
two
-year period such that the participants would have a right to
50%
of their accrued benefits attributable to their 2016 year of service as of December 31, 2016, which will become
100%
vested provided the participants remained continuously employed through and including December 31, 2017.
The Supplemental ESOP compensates certain executives (as designated by the Compensation Committee of the Board of Directors) participating in the ESOP whose contributions are limited by the Internal Revenue Code. The Company also maintains the Amended and Restated Director Retirement Plan (“Directors’ Plan”) for certain directors, which is a nonqualified, defined benefit plan. The Directors’ Plan was frozen on November 21, 2006 such that no new benefits accrued under, and no new directors were eligible to participate in the plan. The Wage Replacement Plan, Supplemental ESOP and the Directors’ Plan are unfunded and the costs of the plans are recognized over the period that services are provided.
The components of net periodic benefit cost for the Directors’ Plan and the Wage Replacement Plan are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30,
|
|
Nine Months Ended September 30,
|
|
2017
|
|
2016
|
|
2017
|
|
2016
|
|
(In thousands)
|
Service cost
|
$
|
371
|
|
|
894
|
|
|
1,114
|
|
|
2,681
|
|
Interest cost
|
379
|
|
|
474
|
|
|
1,135
|
|
|
1,422
|
|
Amortization of:
|
|
|
|
|
|
|
|
Prior service cost
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Net loss
|
115
|
|
|
514
|
|
|
344
|
|
|
1,542
|
|
Total net periodic benefit cost
|
$
|
865
|
|
|
1,882
|
|
|
2,593
|
|
|
5,645
|
|
Due to the unfunded nature of the SERPs and the Directors’ Plan, no contributions have been made or were expected to be made during the
nine
months ended
September 30, 2017
.
The Company also maintains the Pentegra DB Plan. Since it is a multiemployer plan, costs of the pension plan are based on contributions required to be made to the pension plan. As of December 31, 2016, the annual benefit provided under the Pentegra DB plan has been amended to freeze the plan. Freezing the plan eliminates all future benefit accruals and each participants frozen accrued benefit will be determined as of December 31, 2016 and no further benefits will accrue beyond such date. There was
no
contribution required during the
nine
months ended
September 30, 2017
. We anticipate contributing funds to the plan to meet any minimum funding requirements for the remainder of
2017
.
10. Derivatives and Hedging Activities
The Company uses various financial instruments, including derivatives, to manage its exposure to interest rate risk. Certain derivatives are designated as hedging instruments in a qualifying hedge accounting relationship (fair value or cash flow hedge). As of
September 30, 2017
and
December 31, 2016
, the Company has cash flow hedges with aggregate notional amounts of
$900.0 million
and
$400.0 million
, respectively.
Cash Flow Hedges of Interest Rate Risk
The Company’s objectives in using interest rate derivatives are primarily to reduce cost and add stability to interest expense in an effort to manage its exposure to interest rate movements. Interest rate swaps designated as cash flow hedges involve the receipt of amounts subject to variability caused by changes in interest rates from a counterparty in exchange for the Company making fixed-rate payments over the life of the agreements without exchange of the underlying notional amount. The effective portion of changes in the fair value of derivatives designated and that qualify as cash flow hedges is initially recorded in other comprehensive income and is subsequently reclassified into earnings in the period that the hedged forecasted transaction affects earnings. The Company did not have any derivatives outstanding prior to the third quarter of 2016.
During the
three and nine
months ended
September 30, 2017
and the
three
months ended
September 30, 2016
, such derivatives were used to hedge the variability in cash flows associated with certain short term wholesale funding transactions. During the
three and nine
months ended
September 30, 2017
and the
three
months ended
September 30, 2016
, the Company did not record any hedge ineffectiveness. The ineffective portion of the change in fair value of the derivatives would be recognized directly in earnings.
Amounts reported in accumulated other comprehensive income related to derivatives will be reclassified to interest expense as interest payments are made on the Company’s variable-rate borrowings. During the next twelve months, the Company estimates that an additional
$2.0 million
will be reclassified as an increase to interest expense.
Fair Values of Derivative Instruments on the Balance Sheet
The following table presents the fair value of the Company’s derivative financial instruments as well as their classification on the Consolidated Balance Sheets as of
September 30, 2017
and
December 31, 2016
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset Derivatives
|
|
Liability Derivatives
|
|
September 30, 2017
(1)
|
|
December 31, 2016
|
|
September 30, 2017
(1)
|
|
December 31, 2016
|
|
Balance
Sheet
Location
|
Fair Value
|
|
Balance
Sheet
Location
|
Fair Value
|
|
Balance
Sheet
Location
|
Fair Value
|
|
Balance
Sheet
Location
|
Fair Value
|
|
(In thousands)
|
Derivatives designated as hedging instruments:
|
|
|
|
|
|
|
|
|
|
|
|
Interest Rate Swaps
|
Other assets
|
$
|
—
|
|
|
Other assets
|
$
|
12,550
|
|
|
Other liabilities
|
$
|
467
|
|
|
Other liabilities
|
$
|
—
|
|
Total derivatives designated as hedging instruments
|
|
$
|
—
|
|
|
|
$
|
12,550
|
|
|
|
$
|
467
|
|
|
|
$
|
—
|
|
(1) In accordance with the Chicago Mercantile Exchange (“CME”) rulebook changes effective January 3, 2017, the fair value is inclusive of accrued interest and variation margin posted by the CME.
The CME amended their rules to legally characterize the variation margin posted between counterparties to be classified as settlements of the outstanding derivative contracts instead of cash collateral. The Company adopted the new rule on a prospective basis to include the accrued interest and variation margin posted by the CME in the fair value.
Effect of Derivative Instruments on the Income Statement
The following table presents the effect of the Company’s derivative financial instruments on the Consolidated Statement of Income as of
September 30, 2017
and
2016
.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30,
|
|
Nine Months Ended September 30,
|
|
2017
|
|
2016
|
|
2017
|
|
2016
|
Cash Flow Hedges - Interest rate swaps
|
(In thousands)
|
Amount of gain (loss) recognized in other comprehensive income
|
$
|
(201
|
)
|
|
(1,109
|
)
|
|
(5,472
|
)
|
|
(1,109
|
)
|
Amount of gain (loss) reclassified from accumulated other comprehensive loss to interest expense
|
(1,147
|
)
|
|
(42
|
)
|
|
(3,233
|
)
|
|
(42
|
)
|
Amount of gain (loss) recognized in other non-interest income (ineffective portion)
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Offsetting Derivatives
The following table presents a gross presentation, the effects of offsetting, and a net presentation of the Company’s derivatives in the Consolidated Balance Sheets as of
September 30, 2017
and
December 31, 2016
. The net amounts of derivative liabilities can be reconciled to the tabular disclosure of fair value. The tabular disclosure of fair value provides the location that derivative assets and liabilities are presented on the Company’s Consolidated Balance Sheets.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Amounts Not Offset
|
|
|
|
Gross Amounts Recognized
|
|
Gross Amounts Offset
|
|
Net Amounts Presented
|
|
Financial Instruments
|
|
Cash Collateral Posted
|
|
Net Amount
|
|
(In thousands)
|
September 30, 2017
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
Interest Rate Swaps
(1)
|
$
|
467
|
|
|
—
|
|
|
467
|
|
|
—
|
|
|
—
|
|
|
467
|
|
Total
|
$
|
467
|
|
|
—
|
|
|
467
|
|
|
—
|
|
|
—
|
|
|
467
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2016
|
|
|
|
|
|
|
|
|
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
Interest Rate Swaps
|
$
|
12,550
|
|
|
—
|
|
|
12,550
|
|
|
—
|
|
|
12,550
|
|
|
—
|
|
Total
|
$
|
12,550
|
|
|
—
|
|
|
12,550
|
|
|
—
|
|
|
12,550
|
|
|
—
|
|
(1) In accordance with the CME rulebook changes effective January 3, 2017, the gross amounts recognized are inclusive of accrued interest and variation margin posted by the CME.
Credit-risk-related Contingent Features
The Company has agreements with each of its derivative counterparties that contain a provision where if the Company defaults on any of its indebtedness, then the Company could also be declared in default on its derivative obligations and could be required to terminate its derivative positions with the counterparty. The Company has agreements with certain of its derivative counterparties that contain a provision where if the Company fails to maintain its status as a well capitalized institution, then the Company could be required to terminate its derivative positions with the counterparty.
The Company has minimum collateral posting thresholds with certain of its derivative counterparties and posts collateral on a daily basis as required by the clearing house against the Company’s obligations, as required by these agreements.
11. Comprehensive Income
The components of comprehensive income, both gross and net of tax, are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30,
|
|
2017
|
|
2016
|
|
Gross
|
|
Tax
|
|
Net
|
|
Gross
|
|
Tax
|
|
Net
|
|
(Dollars in thousands)
|
Net income
|
$
|
74,282
|
|
|
(28,437
|
)
|
|
45,845
|
|
|
71,728
|
|
|
(21,878
|
)
|
|
49,850
|
|
Other comprehensive income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
Change in funded status of retirement obligations
|
140
|
|
|
(58
|
)
|
|
82
|
|
|
537
|
|
|
(219
|
)
|
|
318
|
|
Unrealized gains (losses) on securities available-for-sale
|
869
|
|
|
(344
|
)
|
|
525
|
|
|
(2,708
|
)
|
|
1,053
|
|
|
(1,655
|
)
|
Accretion of loss on securities reclassified to held to maturity from available for sale
|
305
|
|
|
(125
|
)
|
|
180
|
|
|
472
|
|
|
(193
|
)
|
|
279
|
|
Reclassification adjustment for security gains included in net income
|
—
|
|
|
—
|
|
|
—
|
|
|
(72
|
)
|
|
29
|
|
|
(43
|
)
|
Other-than-temporary impairment accretion on debt securities
|
315
|
|
|
(129
|
)
|
|
186
|
|
|
533
|
|
|
(218
|
)
|
|
315
|
|
Net gains (losses) on derivatives arising during the period
|
946
|
|
|
(386
|
)
|
|
560
|
|
|
(1,067
|
)
|
|
436
|
|
|
(631
|
)
|
Total other comprehensive income (loss)
|
2,575
|
|
|
(1,042
|
)
|
|
1,533
|
|
|
(2,305
|
)
|
|
888
|
|
|
(1,417
|
)
|
Total comprehensive income
|
$
|
76,857
|
|
|
(29,479
|
)
|
|
47,378
|
|
|
69,423
|
|
|
(20,990
|
)
|
|
48,433
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30,
|
|
2017
|
|
2016
|
|
Gross
|
|
Tax
|
|
Net
|
|
Gross
|
|
Tax
|
|
Net
|
|
(Dollars in thousands)
|
Net income
|
$
|
211,654
|
|
|
(80,156
|
)
|
|
131,498
|
|
|
215,619
|
|
|
(75,958
|
)
|
|
139,661
|
|
Other comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
Change in funded status of retirement obligations
|
422
|
|
|
(173
|
)
|
|
249
|
|
|
1,610
|
|
|
(658
|
)
|
|
952
|
|
Unrealized gains on securities available-for-sale
|
8,320
|
|
|
(3,115
|
)
|
|
5,205
|
|
|
19,652
|
|
|
(7,686
|
)
|
|
11,966
|
|
Accretion of loss on securities reclassified to held to maturity from available for sale
|
981
|
|
|
(401
|
)
|
|
580
|
|
|
1,433
|
|
|
(586
|
)
|
|
847
|
|
Reclassification adjustment for security gains included in net income
|
(1,275
|
)
|
|
510
|
|
|
(765
|
)
|
|
(2,264
|
)
|
|
906
|
|
|
(1,358
|
)
|
Other-than-temporary impairment accretion on debt securities
|
1,302
|
|
|
(532
|
)
|
|
770
|
|
|
1,179
|
|
|
(481
|
)
|
|
698
|
|
Net losses on derivatives arising during the period
|
(2,239
|
)
|
|
915
|
|
|
(1,324
|
)
|
|
(1,067
|
)
|
|
436
|
|
|
(631
|
)
|
Total other comprehensive income
|
7,511
|
|
|
(2,796
|
)
|
|
4,715
|
|
|
20,543
|
|
|
(8,069
|
)
|
|
12,474
|
|
Total comprehensive income
|
$
|
219,165
|
|
|
(82,952
|
)
|
|
136,213
|
|
|
236,162
|
|
|
(84,027
|
)
|
|
152,135
|
|
The following table presents the after-tax changes in the balances of each component of accumulated other comprehensive loss for the
nine
months ended
September 30, 2017
and
2016
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in
funded status of
retirement
obligations
|
|
Accretion of loss on securities reclassified to held to maturity
|
|
Unrealized (losses) gains
on securities
available-for-sale and gains included in net income
|
|
Other-than-
temporary
impairment
accretion on debt
securities
|
|
Unrealized gains (losses) on derivatives
|
|
Total
accumulated
other
comprehensive
loss
|
|
(Dollars in thousands)
|
Balance - December 31, 2016
|
$
|
(4,895
|
)
|
|
(1,988
|
)
|
|
(12,271
|
)
|
|
(12,870
|
)
|
|
7,424
|
|
|
(24,600
|
)
|
Net change
|
249
|
|
|
580
|
|
|
4,440
|
|
|
770
|
|
|
(1,324
|
)
|
|
4,715
|
|
Balance - September 30, 2017
|
$
|
(4,646
|
)
|
|
(1,408
|
)
|
|
(7,831
|
)
|
|
(12,100
|
)
|
|
6,100
|
|
|
(19,885
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance - December 31, 2015
|
$
|
(12,366
|
)
|
|
(3,080
|
)
|
|
1,371
|
|
|
(13,750
|
)
|
|
—
|
|
|
(27,825
|
)
|
Net change
|
952
|
|
|
847
|
|
|
10,608
|
|
|
698
|
|
|
(631
|
)
|
|
12,474
|
|
Balance - September 30, 2016
|
$
|
(11,414
|
)
|
|
(2,233
|
)
|
|
11,979
|
|
|
(13,052
|
)
|
|
(631
|
)
|
|
(15,351
|
)
|
The following table presents information about amounts reclassified from accumulated other comprehensive loss to the consolidated statement of income and the affected line item in the statement where net income is presented.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30,
|
|
Nine Months Ended September 30,
|
|
2017
|
|
2016
|
|
2017
|
|
2016
|
|
(In thousands)
|
Reclassification adjustment for gains included in net income
|
|
|
|
|
|
|
|
Gain on security transactions, net
|
$
|
—
|
|
|
(72
|
)
|
|
(1,275
|
)
|
|
(2,264
|
)
|
Change in funded status of retirement obligations
|
|
|
|
|
|
|
|
Amortization of net loss
|
120
|
|
|
537
|
|
|
359
|
|
|
1,610
|
|
Interest Expense
|
|
|
|
|
|
|
|
Reclassification adjustment for unrealized losses on derivatives
|
1,147
|
|
|
42
|
|
|
3,233
|
|
|
42
|
|
Total before tax
|
1,267
|
|
|
507
|
|
|
2,317
|
|
|
(612
|
)
|
Income tax (expense) benefit
|
(497
|
)
|
|
(190
|
)
|
|
(887
|
)
|
|
248
|
|
Net of tax
|
$
|
770
|
|
|
317
|
|
|
1,430
|
|
|
(364
|
)
|
12. Fair Value Measurements
We use fair value measurements to record fair value adjustments to certain assets and liabilities and to determine fair value disclosures. Our securities available-for-sale and derivatives are recorded at fair value on a recurring basis. Additionally, from time to time, we may be required to record at fair value other assets or liabilities on a non-recurring basis, such as held-to-maturity securities, mortgage servicing rights (“MSR”), loans receivable and other real estate owned. These non-recurring fair value adjustments involve the application of lower-of-cost-or-market accounting or write-downs of individual assets. Additionally, in connection with our mortgage banking activities we have commitments to fund loans held-for-sale and commitments to sell loans, which are considered free-standing derivative instruments, the fair values of which are not material to our financial condition or results of operations.
In accordance with Financial Accounting Standards Board (“FASB”) ASC 820, “
Fair Value Measurements and Disclosures
”, we group our assets and liabilities at fair value in three levels, based on the markets in which the assets are traded and the reliability of the assumptions used to determine fair value. These levels are:
|
|
•
|
Level 1 – Valuation is based upon quoted prices for identical instruments traded in active markets.
|
|
|
•
|
Level 2 – Valuation is based upon quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active and model-based valuation techniques for which all significant assumptions are observable in the market.
|
|
|
•
|
Level 3 – Valuation is generated from model-based techniques that use significant assumptions not observable in the market. These unobservable assumptions reflect our own estimates of assumptions that market participants would use in pricing the asset or liability. Valuation techniques include the use of option pricing models, discounted cash flow models and similar techniques. The results cannot be determined with precision and may not be realized in an actual sale or immediate settlement of the asset or liability.
|
We base our fair values on the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. ASC 820 requires us to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value.
Assets Measured at Fair Value on a Recurring Basis
Securities available-for-sale
Our available-for-sale portfolio is carried at estimated fair value on a recurring basis, with any unrealized gains and losses, net of taxes, reported as accumulated other comprehensive income (loss) in stockholders’ equity. The fair values of available-for-sale securities are based on quoted market prices (Level 1), where available. The Company obtains one price for each security primarily from a third-party pricing service (pricing service), which generally uses quoted or other observable inputs for the determination of fair value. The pricing service normally derives the security prices through recently reported trades for identical or similar securities, making adjustments through the reporting date based upon available observable market information. For securities not actively traded (Level 2), the pricing service may use quoted market prices of comparable instruments or discounted cash flow analyses, incorporating inputs that are currently observable in the markets for similar securities. Inputs that are often used in the valuation methodologies include, but are not limited to, benchmark yields, credit spreads, default rates, prepayment speeds and non-binding broker quotes. As the Company is responsible for the determination of fair value, it performs quarterly analyses on the prices received from the pricing service to determine whether the prices are reasonable estimates of fair value. Specifically, the Company compares the prices received from the pricing service to a secondary pricing source. Additionally, the Company compares changes in the reported market values and returns to relevant market indices to test the reasonableness of the reported prices. The Company’s internal price verification procedures and review of fair value methodology documentation provided by independent pricing services has not historically resulted in adjustment in the prices obtained from the pricing service.
Derivatives
Derivatives are reported at fair value utilizing Level 2 inputs. The fair values of interest rate swap agreements are based on a valuation model that uses primarily observable inputs, such as benchmark yield curves and interest rate spreads.
The following tables provide the level of valuation assumptions used to determine the carrying value of our assets and liabilities measured at fair value on a recurring basis at
September 30, 2017
and
December 31, 2016
.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Carrying Value at September 30, 2017
|
|
Total
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
(In thousands)
|
Assets:
|
|
|
|
|
|
|
|
Securities available for sale:
|
|
|
|
|
|
|
|
Equity securities
|
$
|
5,646
|
|
|
5,646
|
|
|
—
|
|
|
—
|
|
Mortgage-backed securities:
|
|
|
|
|
|
|
|
Federal Home Loan Mortgage Corporation
|
653,994
|
|
|
—
|
|
|
653,994
|
|
|
—
|
|
Federal National Mortgage Association
|
1,249,110
|
|
|
—
|
|
|
1,249,110
|
|
|
—
|
|
Government National Mortgage Association
|
40,679
|
|
|
—
|
|
|
40,679
|
|
|
—
|
|
Total mortgage-backed securities available-for-sale
|
1,943,783
|
|
|
—
|
|
|
1,943,783
|
|
|
—
|
|
Total securities available-for-sale
|
$
|
1,949,429
|
|
|
5,646
|
|
|
1,943,783
|
|
|
—
|
|
Liabilities:
|
|
|
|
|
|
|
|
Derivative financial instruments (1)
|
$
|
467
|
|
|
—
|
|
|
467
|
|
|
—
|
|
(1) In accordance with the CME rulebook changes effective January 3, 2017, the gross amounts recognized are inclusive of accrued interest and variation margin posted by the CME.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Carrying Value at December 31, 2016
|
|
Total
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
(In thousands)
|
Assets:
|
|
|
|
|
|
|
|
Securities available for sale:
|
|
|
|
|
|
|
|
Equity securities
|
$
|
6,660
|
|
|
6,660
|
|
|
—
|
|
|
—
|
|
Mortgage-backed securities:
|
|
|
|
|
|
|
|
Federal Home Loan Mortgage Corporation
|
598,439
|
|
|
—
|
|
|
598,439
|
|
|
—
|
|
Federal National Mortgage Association
|
1,008,587
|
|
|
—
|
|
|
1,008,587
|
|
|
—
|
|
Government National Mortgage Association
|
46,747
|
|
|
—
|
|
|
46,747
|
|
|
—
|
|
Total mortgage-backed securities available-for-sale
|
1,653,773
|
|
|
—
|
|
|
1,653,773
|
|
|
—
|
|
Total securities available-for-sale
|
$
|
1,660,433
|
|
|
6,660
|
|
|
1,653,773
|
|
|
—
|
|
Derivative financial instruments
|
$
|
12,550
|
|
|
—
|
|
|
12,550
|
|
|
—
|
|
There have been no changes in the methodologies used at
September 30, 2017
from
December 31, 2016
, and there were no transfers between Level 1 and Level 2 during the
nine
months ended
September 30, 2017
.
There were no Level 3 assets measured at fair value on a recurring basis for the
nine
months ended
September 30, 2017
.
Assets Measured at Fair Value on a Non-Recurring Basis
Mortgage Servicing Rights, Net
Mortgage servicing rights are carried at the lower of cost or estimated fair value. The estimated fair value of MSR is obtained through independent third party valuations through an analysis of future cash flows, incorporating assumptions market participants would use in determining fair value including market discount rates, prepayment speeds, servicing income, servicing costs, default rates and other market driven data, including the market’s perception of future interest rate movements. The prepayment speed and the discount rate are considered two of the most significant inputs in the model. At
September 30, 2017
, the fair value model used prepayment speeds ranging from
1.74%
to
26.28%
and a discount rate of
14.24%
for the valuation of the mortgage servicing rights. At
December 31, 2016
, the fair value model used prepayment speeds ranging from
3.15%
to
24.18%
and a discount rate of
14.27%
for the valuation of the mortgage servicing rights. A significant degree of judgment is involved in valuing the mortgage servicing rights using Level 3 inputs. The use of different assumptions could have a significant positive or negative effect on the fair value estimate.
Impaired Loans Receivable
Loans which meet certain criteria are evaluated individually for impairment. A loan is deemed to be impaired if it is a commercial loan with an outstanding balance greater than
$1.0 million
and on non-accrual status, loans modified in a troubled debt restructuring, and other commercial loans with
$1.0 million
in outstanding principal if management has specific information that it is probable they will not collect all amounts due under the contractual terms of the loan agreement. Our impaired loans are generally collateral dependent and, as such, are carried at the estimated fair value of the collateral less estimated selling costs. Estimated fair value is calculated using the fair value of collateral based on independent third-party appraisals for collateral-dependent loans. In the event the most recent appraisal does not reflect the current market conditions due to the passage of time and other factors, management will obtain an updated appraisal or make downward adjustments to the existing appraised value based on their knowledge of the property, local real estate market conditions, recent real estate transactions, and for estimated selling costs, if applicable. At
September 30, 2017
, appraisals were discounted in a range of
0%
-
25%
for estimated costs to sell. For non collateral-dependent loans, management estimates the fair value using discounted cash flows based on inputs that are largely unobservable and instead reflect management’s own estimates of the assumptions as a market participant would in pricing such loans.
Other Real Estate Owned
Other Real Estate Owned is recorded at estimated fair value, less estimated selling costs when acquired, thus establishing a new cost basis. Fair value is generally based on independent appraisals. These appraisals include adjustments to comparable assets based on the appraisers’ market knowledge and experience, and are discounted an additional
0%
-
25%
for estimated costs to sell. When an asset is acquired, the excess of the loan balance over fair value, less estimated selling costs, is charged to the allowance for loan losses. If the estimated fair value of the asset declines, a writedown is recorded through expense. The valuation
of foreclosed assets is subjective in nature and may be adjusted in the future because of changes in economic conditions. Operating costs after acquisition are generally expensed.
Loans Held For Sale
Residential mortgage loans held for sale are recorded at the lower of cost or fair value and are therefore measured at fair value on a non-recurring basis. When available, the Company uses observable secondary market data, including pricing on recent closed market transactions for loans with similar characteristics.
The following tables provide the level of valuation assumptions used to determine the carrying value of our assets measured at fair value on a non-recurring basis at
September 30, 2017
and
December 31, 2016
. For the three months ended
September 30, 2017
there was no change to the carrying value of other real estate owned and loans held for sale measured at fair value on a non-recurring basis. For the year ended
December 31, 2016
, there was no change to carrying value of other real estate owned measured at fair value on a non-recurring basis.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Carrying Value at September 30, 2017
|
Security Type
|
Valuation Technique
|
Unobservable Input
|
Range
|
Weighted Average
|
Total
|
Level 1
|
Level 2
|
Level 3
|
|
|
|
|
|
(In thousands)
|
MSR, net
|
Estimated cash flow
|
Prepayment speeds
|
1.74% - 26.28%
|
9.78%
|
$
|
12,372
|
|
—
|
|
—
|
|
12,372
|
|
Impaired loans
|
Market comparable
|
Lack of marketability
|
1.0% - 45.0%
|
31.72%
|
4,496
|
|
—
|
|
—
|
|
4,496
|
|
|
|
|
|
|
$
|
16,868
|
|
—
|
|
—
|
|
16,868
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Carrying Value at December 31, 2016
|
Security Type
|
Valuation Technique
|
Unobservable Input
|
Range
|
Weighted Average
|
Total
|
Level 1
|
Level 2
|
Level 3
|
|
|
|
|
|
(In thousands)
|
MSR, net
|
Estimated cash flow
|
Prepayment speeds
|
3.15% - 24.18%
|
9.84%
|
$
|
12,877
|
|
—
|
|
—
|
|
12,877
|
|
Impaired loans
|
Estimated cash flow
|
Lack of marketability and probability of default
|
22.0% - 29.0%
|
26.00%
|
1,403
|
|
—
|
|
—
|
|
1,403
|
|
Loans held for sale
|
Market comparable
|
Lack of marketability
|
2.5% - 4.5%
|
3.45%
|
313
|
|
—
|
|
—
|
|
313
|
|
|
|
|
|
|
$
|
14,593
|
|
—
|
|
—
|
|
14,593
|
|
Other Fair Value Disclosures
Fair value estimates, methods and assumptions for the Company’s financial instruments not recorded at fair value on a recurring or non-recurring basis are set forth below.
Cash and Cash Equivalents
For cash and due from banks, the carrying amount approximates fair value.
Securities Held-to-Maturity
Our held-to-maturity portfolio, consisting primarily of mortgage-backed securities and other debt securities for which we have a positive intent and ability to hold to maturity, is carried at amortized cost. Management utilizes various inputs to determine the fair value of the portfolio. The Company obtains one price for each security primarily from a third-party pricing service, which generally uses quoted or other observable inputs for the determination of fair value. The pricing service normally derives the security prices through recently reported trades for identical or similar securities, making adjustments through the reporting date based upon available observable market information. For securities not actively traded, the pricing service may use quoted market prices of comparable instruments or discounted cash flow analyses, incorporating inputs that are currently observable in the markets for similar securities. Inputs that are often used in the valuation methodologies include, but are not limited to, benchmark yields, credit spreads, default rates, prepayment speeds and non-binding broker quotes. In the absence of quoted prices and in an illiquid market, valuation techniques, which require inputs that are both significant to the fair value measurement and
unobservable, are used to determine fair value of the investment. Valuation techniques are based on various assumptions, including, but not limited to forecasted cash flows, discount rates, rate of return, adjustments for nonperformance and liquidity, and liquidation values. As the Company is responsible for the determination of fair value, it performs quarterly analyses on the prices received from the pricing service to determine whether the prices are reasonable estimates of fair value. Specifically, the Company compares the prices received from the pricing service to a secondary pricing source. Additionally, the Company compares changes in the reported market values and returns to relevant market indices to test the reasonableness of the reported prices. The Company’s internal price verification procedures and review of fair value methodology documentation provided by independent pricing services has not historically resulted in adjustment in the prices obtained from the pricing service.
FHLB Stock
The fair value of the Federal Home Loan Bank of New York (“FHLB”) stock is its carrying value, since this is the amount for which it could be redeemed. There is no active market for this stock and the Bank is required to hold a minimum investment based upon the balance of mortgage related assets held by the member.
Loans
Fair values are estimated for portfolios of loans with similar financial characteristics. Loans are segregated by type such as residential mortgage and consumer. Each loan category is further segmented into fixed and adjustable rate interest terms and by performing and non-performing categories.
The fair value of performing loans is calculated by discounting forecasted cash flows through the estimated maturity date using estimated market discount rates that reflect the credit and interest rate risk inherent in the loan. Fair value for significant non-performing loans is based on recent external appraisals of collateral securing such loans, adjusted for the timing of anticipated cash flows. Fair values estimated in this manner do not fully incorporate an exit price approach to fair value, but instead are based on a comparison to current market rates for comparable loans.
Deposit Liabilities
The fair value of deposits with no stated maturity, such as savings, checking accounts and money market accounts, is equal to the amount payable on demand. The fair value of certificates of deposit is based on the discounted value of contractual cash flows. The discount rate is estimated using the rates which approximate currently offered for deposits of similar remaining maturities.
Borrowings
The fair value of borrowings are based on securities dealers’ estimated fair values, when available, or estimated using discounted contractual cash flows using rates which approximate the rates offered for borrowings of similar remaining maturities.
Commitments to Extend Credit
The fair value of commitments to extend credit is estimated using the fees currently charged to enter into similar agreements, taking into account the remaining terms of the agreements and the present creditworthiness of the counterparties. For commitments to originate fixed rate loans, fair value also considers the difference between current levels of interest rates and the committed rates. Due to the short-term nature of our outstanding commitments, the fair values of these commitments are immaterial to our financial condition.
The carrying values and estimated fair values of the Company’s financial instruments are presented in the following table.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2017
|
|
Carrying
|
|
Estimated Fair Value
|
|
value
|
|
Total
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
(In thousands)
|
Financial assets:
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
$
|
413,322
|
|
|
413,322
|
|
|
413,322
|
|
|
—
|
|
|
—
|
|
Securities available-for-sale
|
1,949,429
|
|
|
1,949,429
|
|
|
5,646
|
|
|
1,943,783
|
|
|
—
|
|
Securities held-to-maturity
|
1,733,751
|
|
|
1,769,179
|
|
|
—
|
|
|
1,689,531
|
|
|
79,648
|
|
Stock in FHLB
|
232,814
|
|
|
232,814
|
|
|
232,814
|
|
|
—
|
|
|
—
|
|
Loans held for sale
|
6,975
|
|
|
6,975
|
|
|
—
|
|
|
6,975
|
|
|
—
|
|
Net loans
|
19,707,157
|
|
|
19,776,775
|
|
|
—
|
|
|
—
|
|
|
19,776,775
|
|
Financial liabilities:
|
|
|
|
|
|
|
|
|
|
Deposits, other than time deposits
|
$
|
13,243,974
|
|
|
13,243,974
|
|
|
13,243,974
|
|
|
—
|
|
|
—
|
|
Time deposits
|
3,632,495
|
|
|
3,619,747
|
|
|
—
|
|
|
3,619,747
|
|
|
—
|
|
Borrowed funds
|
4,484,869
|
|
|
4,488,058
|
|
|
—
|
|
|
4,488,058
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2016
|
|
Carrying
|
|
Estimated Fair Value
|
|
value
|
|
Total
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
(In thousands)
|
Financial assets:
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
$
|
164,178
|
|
|
164,178
|
|
|
164,178
|
|
|
—
|
|
|
—
|
|
Securities available-for-sale
|
1,660,433
|
|
|
1,660,433
|
|
|
6,660
|
|
|
1,653,773
|
|
|
—
|
|
Securities held-to-maturity
|
1,755,556
|
|
|
1,782,801
|
|
|
—
|
|
|
1,703,559
|
|
|
79,242
|
|
Stock in FHLB
|
237,878
|
|
|
237,878
|
|
|
237,878
|
|
|
—
|
|
|
—
|
|
Loans held for sale
|
38,298
|
|
|
38,298
|
|
|
—
|
|
|
38,298
|
|
|
—
|
|
Net loans
|
18,569,855
|
|
|
18,391,018
|
|
|
—
|
|
|
—
|
|
|
18,391,018
|
|
Financial liabilities:
|
|
|
|
|
|
|
|
|
|
Deposits, other than time deposits
|
$
|
12,333,273
|
|
|
12,333,273
|
|
|
12,333,273
|
|
|
—
|
|
|
—
|
|
Time deposits
|
2,947,560
|
|
|
2,938,137
|
|
|
—
|
|
|
2,938,137
|
|
|
—
|
|
Borrowed funds
|
4,546,251
|
|
|
4,545,745
|
|
|
—
|
|
|
4,545,745
|
|
|
—
|
|
Limitations
Fair value estimates are made at a specific point in time, based on relevant market information and information about the financial instrument. These estimates do not reflect any premium or discount that could result from offering for sale at one time the Company’s entire holdings of a particular financial instrument. Because no market exists for a portion of the Company’s financial instruments, fair value estimates are based on judgments regarding future expected loss experience, current economic conditions, risk characteristics of various financial instruments, and other factors. These estimates are subjective in nature and involve uncertainties and matters of significant judgment and therefore cannot be determined with precision. Changes in assumptions could significantly affect the estimates.
Fair value estimates are based on existing on- and off-balance-sheet financial instruments without attempting to estimate the value of anticipated future business and the value of assets and liabilities that are not considered financial instruments. Significant assets that are not considered financial assets include deferred tax assets, premises and equipment and bank owned life insurance.
Liabilities for pension and other postretirement benefits are not considered financial liabilities. In addition, the tax ramifications related to the realization of the unrealized gains and losses can have a significant effect on fair value estimates and have not been considered in the estimates.
13. Recent Accounting Pronouncements
In August 2017, the FASB issued ASU 2017-12, “Derivatives and Hedging (Topic 718): Targeted Improvements to Accounting for Hedging Activities”. The purpose of this guidance is to better align a company’s financial reporting for hedging relationships with the company’s risk management activities by expanding strategies that qualify for hedge accounting, modifying the presentation of certain hedging relationships in the financial statements and simplifying the application of hedge accounting in certain situations. ASU 2017-12 is effective for fiscal years beginning after December 15, 2018, with early adoption permitted in any interim or annual period before the effective date. ASU 2017-12 will be applied using a modified retrospective approach through a cumulative-effect adjustment related to the elimination of the separate measurement of ineffectiveness to the balance of accumulated other comprehensive income with a corresponding adjustment to retained earnings as of the beginning of the fiscal year in which the amendments in this update are adopted. The amended presentation and disclosure guidance is required only prospectively. The Company is currently assessing the impact that the new guidance will have on the Company’s Consolidated Financial Statements.
In May 2017, the FASB issued ASU 2017-09, “Compensation-Stock Compensation (Topic 718): Scope of Modification Accounting”. This update provides guidance about changes to terms or conditions of a share-based payment award which would require modification accounting. In particular, an entity is required to account for the effects of a modification if the fair value, vesting condition or the equity/liability classification of the modified award is not the same immediately before and after a change to the terms and conditions of the award. ASU No. 2017-09 is effective on a prospective basis for fiscal years beginning after December 15, 2017, with early adoption permitted. Due to prospective application, the new guidance is not expected to have an impact on the Company’s Consolidated Financial Statements upon adoption.
In March 2017, the FASB issued ASU 2017-08, “Receivables-Nonrefundable Fees and Other Costs (Subtopic 310-20): Premium Amortization on Purchased Callable Debt Securities”. The amendments in this update require the premium on callable debt securities to be amortized to the earliest call date rather than the maturity date; however, securities held at a discount continue to be amortized to maturity. The amendments apply only to debt securities purchased at a premium that are callable at fixed prices and on preset dates. The amendments more closely align interest income recorded on debt securities held at a premium or discount with the economics of the underlying instrument. ASU No. 2017-08 is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. The Company is currently evaluating the provisions of ASU No. 2017-08 to determine the potential impact the new standard will have on the Company’s Consolidated Financial Statements.
In March 2017, the FASB issued ASU 2017-07, “Compensation - Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost”, which requires that companies disaggregate the service cost component from other components of net benefit cost. This update calls for companies that offer postretirement benefits to present the service cost, which is the amount an employer has to set aside each quarter or fiscal year to cover the benefits, in the same line item with other current employee compensation costs. Other components of net benefit cost will be presented in the income statement separately from the service cost component and outside the subtotal of income from operations, if one is presented. ASU No. 2017-07 is effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. The Company is currently evaluating the provisions of ASU No. 2017-07 to determine the potential impact the new standard will have on the Company’s Consolidated Financial Statements.
In January 2017, the FASB issued ASU 2017-04, “Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment.” This ASU simplifies subsequent measurement of goodwill by eliminating Step 2 of the impairment test while retaining the option to perform the qualitative assessment for a reporting unit to determine whether the quantitative impairment test is necessary. The ASU also eliminates the requirements for any reporting unit with a zero or negative carrying amount to perform a qualitative assessment and, if it fails that qualitative test, to perform Step 2 of the goodwill impairment test. Therefore, the same impairment assessment applies to all reporting units. ASU 2017-04 is effective for fiscal years beginning after December 15, 2019 with early adoption permitted for interim or annual goodwill impairment testing dates beginning after January 1, 2017. The Company is currently evaluating the provisions of ASU No. 2017-04 to determine the potential impact the new standard will have on the Company’s Consolidated Financial Statements.
In January 2017, the FASB issued ASU 2017-03, “Accounting Changes and Error Corrections (Topic 250) and Investments-Equity Method and Joint Ventures (Topic 323): Amendments to SEC Paragraphs Pursuant to Staff Announcements at the September 22, 2016 and November 17, 2016 EITF Meetings (SEC Update)”, which amends certain paragraphs in the ASC to give effect to announcements made by the SEC observer at two recent Emerging Issues Task Force meetings. SEC registrants are required to reasonably estimate the impact that adoption of the standards on revenue recognition, leases, and measurement of credit losses on financial instruments is expected to have on financial statements. If such estimate is indeterminate, registrants
should consider providing additional qualitative disclosures to assess the effect on financial statements as a result of adopting of these new standards. There is no effective date or transition requirements for this standard.
In January 2017, the FASB issued ASU 2017-01, “Business Combinations (Topic 805): Clarifying the Definition of a Business.” The amendments in this ASU provide a practical way to determine when a set of assets and activities is not a business. The screen provided in this ASU requires that when all or substantially all of the fair value of the gross assets acquired is concentrated in a single identifiable asset or group of similar identifiable assets, the set is not a business. The amendments also provide other considerations to determine whether a set is a business if the screen is not met. ASU 2017-01 is effective for fiscal years beginning after December 15, 2017, including interim periods within those periods. The Company is currently evaluating the provisions of ASU No. 2017-01 to determine the potential impact the new standard will have on the Company’s Consolidated Financial Statements.
In October 2016, the FASB issued ASU 2016-16, “Income Taxes (Topic 740): Intra-Entity Transfers of Assets Other Than Inventory.” This ASU addresses the recognition of current and deferred taxes for an intra-entity asset transfer and amends current U.S. GAAP by eliminating the exception for intra-entity transfers of assets other than inventory to defer such recognition until sale to an outside party. ASU No. 2016-16 is effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. Early adoption is permitted as of the beginning of an annual period for which financial statements (interim or annual) have not been made available for issuance. The Company is currently evaluating the provisions of ASU No. 2016-16 to determine the potential impact the new standard will have on the Company’s Consolidated Financial Statements.
In August 2016, the FASB issued ASU 2016-15, “Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments”, a new standard which addresses diversity in practice related to eight specific cash flow issues: debt prepayment or extinguishment costs, settlement of zero-coupon debt instruments or other debt instruments with coupon interest rates that are insignificant in relation to the effective interest rate of the borrowing, contingent consideration payments made after a business combination, proceeds from the settlement of insurance claims, proceeds from the settlement of corporate-owned life insurance policies (including bank-owned life insurance policies), distributions received from equity method investees, beneficial interests in securitization transactions; and separately identifiable cash flows and application of the predominance principle. ASU No. 2016-15 is effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. Entities will apply the standard’s provisions using a retrospective transition method to each period presented. If it is impracticable to apply the amendments retrospectively for some of the issues, the amendments for those issues would be applied prospectively as of the earliest date practicable. The Company is currently evaluating the provisions of ASU No. 2016-15 to determine the potential impact the new standard will have on the Company’s Consolidated Financial Statements.
In June 2016, the FASB issued ASU 2016-13, “Measurement of Credit Losses on Financial Instruments.” This ASU significantly changes how entities will measure credit losses for most financial assets and certain other instruments that aren’t measured at fair value through net income. In issuing the standard, the FASB is responding to criticism that today’s guidance delays recognition of credit losses. The standard will replace today’s “incurred loss” approach with an “expected loss” model. The new model, referred to as the current expected credit loss (“CECL”) model, will apply to: (1) financial assets subject to credit losses and measured at amortized cost, and (2) certain off-balance sheet credit exposures. This includes, but is not limited to, loans, leases, held-to-maturity securities, loan commitments, and financial guarantees. The CECL model does not apply to available-for-sale (“AFS”) debt securities. For AFS debt securities with unrealized losses, entities will measure credit losses in a manner similar to what they do today, except that the losses will be recognized as allowances rather than reductions in the amortized cost of the securities. As a result, entities will recognize improvements to estimated credit losses immediately in earnings rather than as interest income over time, as they do today. The ASU also simplifies the accounting model for purchased credit-impaired debt securities and loans. ASU 2016-13 also expands the disclosure requirements regarding an entity’s assumptions, models, and methods for estimating the allowance for loan and lease losses. In addition, entities will need to disclose the amortized cost balance for each class of financial asset by credit quality indicator, disaggregated by the year of origination. ASU No. 2016-13 is effective for interim and annual reporting periods beginning after December 15, 2019; early adoption is permitted for interim and annual reporting periods beginning after December 15, 2018. Entities will apply the standard’s provisions as a cumulative-effect adjustment to retained earnings as of the beginning of the first reporting period in which the guidance is effective (i.e., modified retrospective approach). While early adoption is permitted, the Company does not expect to elect that option. The Company has begun its evaluation of the amended guidance including the potential impact on its Consolidated Financial Statements. The extent of the change is indeterminable at this time as it will be dependent upon portfolio composition and credit quality at the adoption date, as well as economic conditions and forecasts at that time. Upon adoption, any impact to the allowance for credit losses - currently allowance for loan and lease losses - will have an offsetting impact on retained earnings.
In February 2016, the FASB issued ASU 2016-02, “Leases (Topic 842)”, which requires all lessees to recognize a lease liability and a right-of-use asset, measured at the present value of the future minimum lease payments, at the lease commencement date for leases classified as operating leases as well as finance leases. The update also requires new quantitative disclosures related to leases in the Consolidated Financial Statements. There are practical expedients in this update that relate to leases that commenced
before the effective date, initial direct costs and the use of hindsight to extend or terminate a lease or purchase the leased asset. Lessor accounting remains largely unchanged under the new guidance. The guidance is effective for fiscal years beginning after December 15, 2018, including interim reporting periods within that reporting period, with early adoption permitted. A modified retrospective approach must be applied for leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements. The Company continues to evaluate the impact of the guidance, including determining whether other contracts exist that are deemed to be in scope. As such, no conclusions have yet been reached regarding the potential impact on adoption on the Company’s Consolidated Financial Statements and regulatory capital and risk-weighted assets; however, the Company does not expect the amendment to have a material impact on its results of operations.
In January 2016, the FASB issued ASU 2016-01, “Financial Instruments- Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities.” This amendment supersedes the guidance to classify equity securities with readily determinable fair values into different categories, requires equity securities to be measured at fair value with changes in the fair value recognized through net income, and simplifies the impairment assessment of equity investments without readily determinable fair values. The amendment requires public business entities that are required to disclose the fair value of financial instruments measured at amortized cost on the balance sheet to measure that fair value using the exit price notion. The amendment requires an entity to present separately in other comprehensive income the portion of the total change in the fair value of a liability resulting from a change in the instrument-specific credit risk when the entity has elected to measure the liability at fair value in accordance with the fair value option. The amendment requires separate presentation of financial assets and financial liabilities by measurement category and form of financial asset on the balance sheet or in the accompanying notes to the financial statements. The amendment reduces diversity in current practice by clarifying that an entity should evaluate the need for a valuation allowance on a deferred tax asset related to available for sale securities in combination with the entity’s other deferred tax assets. This amendment is effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. Entities should apply the amendment by means of a cumulative effect adjustment as of the beginning of the fiscal year of adoption, with the exception of the amendment related to equity securities without readily determinable fair values, which should be applied prospectively to equity investments that exist as of the date of adoption. The Company intends to adopt the accounting standard during the first quarter of 2018, as required, and is currently evaluating the impact on its results of operations, financial position, and liquidity. Due to the Company’s proportionately small portfolio of equity securities, the update is not expected to have a material impact on the Company’s results of operations.
In May 2014, the FASB issued ASU 2014-09, “Revenue from Contracts with Customers.” The objective of this amendment is to clarify the principles for recognizing revenue and to develop a common revenue standard for U.S. GAAP and IFRS. This update affects any entity that either enters into contracts with customers to transfer goods or services or enters into contracts for the transfer of nonfinancial assets unless those contracts are in the scope of other standards. The ASU is effective for public business entities for financial statements issued for fiscal years beginning after December 15, 2017, and early adoption is permitted. Subsequently, the FASB issued the following standards related to ASU 2014-09: ASU 2016-08, “Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations” ; ASU 2016-10, “Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing”; ASU 2016-11, “Revenue Recognition (Topic 605) and Derivatives and Hedging (Topic 815): Rescission of SEC Guidance Because of Accounting Standards Updates 2014-09 and 2014-16 Pursuant to Staff Announcements at the March 3, 2016 EITF Meeting”; ASU 2016-12, “Revenue from Contracts with Customers (Topic 606): Narrow-Scope Improvements and Practical Expedients”; and ASU 2017-05, “Other Income-Gains and Losses from the Derecognition of Nonfinancial Assets (Subtopic 610-20): Clarifying the Scope of Asset Derecognition Guidance and Accounting for Partial Sales of Nonfinancial Assets.” These amendments are intended to improve and clarify the implementation guidance of ASU 2014-09 and have the same effective date as the original standard. The Company will adopt the guidance in the first quarter of 2018. As the guidance does not apply to revenue associated with financial instruments, including loans, leases, securities and derivatives that are accounted for under other U.S. GAAP, the new revenue recognition standard does not have a material impact on the Company’s Consolidated Financial Statements. The Company’s implementation efforts have included the identification of revenue within the scope of the guidance, as well as the evaluation of revenue contracts. While we have not identified any material changes related to the timing or amount of revenue recognition, the Company will continue to evaluate the need for additional disclosures.
14. Subsequent Events
As defined in FASB ASC 855, “
Subsequent Events
”, subsequent events are events or transactions that occur after the balance sheet date but before financial statements are issued or available to be issued. Financial statements are considered issued when they are widely distributed to stockholders and other financial statement users for general use and reliance in a form and format that complies with U.S. GAAP.
On October 26, 2017, the Company declared a cash dividend of
$0.09
per share. The
$0.09
dividend per share will be paid to stockholders on November 24, 2017, with a record date of November 10, 2017.