10-K 1 isbc-12312013x10k.htm 10-K ISBC - 12.31.2013 - 10K
SECURITIES AND EXCHANGE COMMISSION
450 Fifth Street, N.W.
Washington, D.C. 20549
 
Form 10-K
þ
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended December 31, 2013 or
 
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from                     to                    
Commission File No. 000-51557
 
Investors Bancorp, Inc.
(Exact name of registrant as specified in its charter)
 
 
 
Delaware
 
22-3493930
(State or other jurisdiction of
incorporation or organization)
 
(I.R.S. Employer
Identification Number)
 
 
101 JFK Parkway, Short Hills, New Jersey
 
07078
(Address of Principal Executive Offices)
 
Zip Code
(973) 924-5100
(Registrant’s telephone number)
Securities Registered Pursuant to Section 12(b) of the Act:
 
 
 
Common Stock, par value $0.01 per share
 
The NASDAQ Stock Market LLC
(Title of Class)
 
(Name of each exchange on which registered)
Securities Registered Pursuant to Section 12(g) of the Act:
None
 
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.    Yes  þ    No  ¨
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.    Yes  ¨    No  þ
Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding twelve months (or for such shorter period that the Registrant was required to file such reports) and (2) has been subject to such requirements for the past 90 days.    Yes  þ    No  ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  þ    No  ¨
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):



 
 
 
 
 
 
 
 
 
Large accelerated filer
 
þ
 
 
  
Accelerated filer
 
 
Non-accelerated filer
 
 
 
(Do not check if a smaller reporting company)
  
Smaller reporting company
 
 
Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    No  þ
As of February 21, 2014, the registrant had 144,700,693 shares of common stock, par value $0.01 per share, issued and 139,604,262 shares outstanding, of which 85,701,807 shares, or 61.39%, were held by Investors Bancorp, MHC, the registrant’s mutual holding company.
The aggregate market value of the voting and non-voting common equity held by non-affiliates of the Registrant, computed by reference to the last sale price on June 30, 2013, as reported by the NASDAQ Global Select Market, was approximately $858.2 million.
 
DOCUMENTS INCORPORATED BY REFERENCE
1. Proxy Statement for the 2014 Annual Meeting of Stockholders of the Registrant (Part III).




INVESTORS BANCORP, INC.
2013 ANNUAL REPORT ON FORM 10-K
TABLE OF CONTENTS
 
 
 
 
 
Page
Part I.
Item 1.
Item 1A.
Item 1B.
Item 2.
Item 3.
Item 4.
 
 
 
Part II.
Item 5.
Item6.
Item 7.
Item 7A.
Item 8.
Item 9.
Item 9A.
Item 9B.
 
 
 
Part III.
Item 10.
Item 11.
Item 12.
Item 13.
Item 14.
 
 
 
Part IV.
Item 15.
 
 
 
 




PRIVATE SECURITIES LITIGATION REFORM ACT SAFE HARBOR STATEMENT
This Annual Report on Form 10-K contains a number of forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, or the Securities Act, and Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act. These statements may be identified by the use of the words “anticipate,” “believe,” “could,” “estimate,” “expect,” “intend,” “may,” “outlook,” “plan,” “potential,” “predict,” “project,” “should,” “will,” “would” and similar terms and phrases, including references to assumptions.
Forward-looking statements are based on various assumptions and analyses made by us in light of our management’s experience and its perception of historical trends, current conditions and expected future developments, as well as other factors we believe are appropriate under the circumstances. These statements are not guarantees of future performance and are subject to risks, uncertainties and other factors (many of which are beyond our control) that could cause actual results to differ materially from future results expressed or implied by such forward-looking statements. These factors include, without limitation, the following:

the timing and occurrence or non-occurrence of events may be subject to circumstances beyond our control;
there may be increases in competitive pressure among financial institutions or from non-financial institutions;
changes in the interest rate environment may reduce interest margins or affect the value of our investments;
changes in deposit flows, loan demand or real estate values may adversely affect our business;
changes in accounting principles, policies or guidelines may cause our financial condition to be perceived differently;
general economic conditions, either nationally or locally in some or all areas in which we do business, or conditions in the real estate or securities markets or the banking industry may be less favorable than we currently anticipate;
legislative or regulatory changes may adversely affect our business;
technological changes may be more difficult or expensive than we anticipate;
success or consummation of new business initiatives may be more difficult or expensive than we anticipate;
litigation or other matters before regulatory agencies, whether currently existing or commencing in the future, may be determined adverse to us or may delay the occurrence or non-occurrence of events longer than we anticipate;
the risks associated with continued diversification of assets and adverse changes to credit quality;
difficulties associated with achieving expected future financial results; and
the risk of continued economic slowdown that would adversely affect credit quality and loan originations.
We have no obligation to update any forward-looking statements to reflect events or circumstances after the date of this document.
As used in this Form 10-K, “we,” “us” and “our” refer to Investors Bancorp, Inc. and its consolidated subsidiaries, principally Investors Bank.


PART I


ITEM 1.
BUSINESS
Investors Bancorp, Inc.
Investors Bancorp, Inc. (the “Company” or "Investors Bancorp") is a Delaware corporation that was organized on January 21, 1997 for the purpose of being a holding company for Investors Bank (the “Bank”), a New Jersey chartered savings bank. On October 11, 2005, the Company completed its initial public stock offering in which it sold 51,627,094 shares, or 43.74% of its outstanding common stock, to subscribers in the offering, including 4,254,072 shares purchased by the Investors Bank Employee Stock Ownership Plan (the “ESOP”). Upon completion of the initial public offering, Investors Bancorp, MHC (the “MHC”), the Company’s New Jersey chartered mutual holding company parent, held 64,844,373 shares, or 54.94% of the Company’s outstanding common stock (shares restated to include shares issued in a business combination subsequent to initial public offering). Additionally, the Company contributed $5,163,000 in cash and issued 1,548,813 shares of common stock, or 1.32% of its outstanding shares, to the Investors Bank Charitable Foundation.
On December 17, 2013, the Boards of Directors of the MHC, Investors Bancorp and the Bank each unanimously adopted the Plan of Conversion and Reorganization of the Mutual Holding Company (the “Plan”) pursuant to which the MHC will undertake a “second-step” conversion and cease to exist. The Bank will reorganize from a two-tier mutual holding company structure to a fully public stock holding company structure. Pursuant to the Plan, (i) the Bank will become a wholly owned subsidiary of a state-

1


chartered stock corporation (“New Investors Bancorp”), (ii) the shares of common stock of the Company held by persons other than the MHC will be converted into shares of common stock of New Investors Bancorp pursuant to an exchange ratio designed to preserve the percentage ownership interests of such persons, and (iii) New Investors Bancorp will offer and sell shares of common stock representing the ownership interest of the MHC in a subscription offering. The Plan is subject to regulatory approval as well as the approval of the depositors of the Bank and the Company’s stockholders. On February 12, 2014, the Company received a non-objection letter from the State of New Jersey Department of Banking and Insurance regarding the proposed acquisition of Investors Bank by New Investors Bancorp, Inc., a Delaware corporation.  On February 25, 2014, the Company received approval from the Federal Reserve Bank of New York for the  Plan of Conversion and Reorganization to become a bank holding company by acquiring 100% of the shares of Investors Bank, and the application by the MHC to convert from mutual to stock form.
The Company is subject to regulations as a bank holding company by the Federal Reserve Board. Since the formation of the Company in 1997, our primary business has been that of holding the common stock of the Bank and additionally since our stock offering, a loan to the ESOP. Investors Bancorp, Inc., as the holding company of Investors Bank, is authorized to pursue other business activities permitted by applicable laws and regulations for bank holding companies. At December 31, 2013, our assets totaled $15.62 billion and our deposits totaled $10.72 billion.
Our cash flow depends on dividends received from the Bank. Investors Bancorp neither owns nor leases any property, but instead uses the premises, equipment and furniture of the Bank. At the present time, we employ as officers only certain persons who are also officers of the Bank and we use the support staff of the Bank from time to time. These persons are not separately compensated by Investors Bancorp. Investors Bancorp may hire additional employees, as appropriate, to the extent it expands its business in the future.    
On September 28, 2012, the Company declared its first quarterly cash dividend of $0.05 per share. It was the first dividend since completing its initial public stock offering in October 2005. Since declaring this dividend, the Company has paid a dividend to stockholders in each subsequent quarter with the most recent paid in February 2014.
Acquisitions
We completed the acquisition of Gateway Community Financial Corp., the federally-chartered holding company for GCF Bank, on January 10, 2014. As of December 31, 2013, Gateway Community Financial Corp. operated four branches in Gloucester County, New Jersey, and had assets of $289.4 million, deposits of $257.6 million and a net worth of $24.9 million. Gateway Community Financial Corp. had no public stockholders, and therefore no merger consideration was paid to third parties. We issued 762,776 shares of Investors Bancorp common stock to Investors Bancorp, MHC as consideration for the transaction. As the merger had not been completed as of December 31, 2013, the transaction is not reflected in the consolidated balance sheets or consolidated statements of income at and for the periods presented.

On December 6, 2013, we completed the acquisition of Roma Financial Corporation, the federally-chartered holding company for Roma Bank and RomAsia Bank. Roma Financial Corporation operated 26 branches in Burlington, Ocean, Mercer, Camden and Middlesex Counties, New Jersey. After purchase accounting adjustments, we added $1.34 billion in deposits and $991.0 million in net loans. We issued 6,374,841 shares of Investors Bancorp common stock as merger consideration to stockholders of Roma Financial Corporation and an additional 19,542,796 shares of Investors Bancorp common stock to Investors Bancorp, MHC. In addition, we paid $1.8 million in the aggregate as merger consideration to the stockholders of RomAsia Bank. Roma Financial Corporation was merged into Investors Bank as of the acquisition date.

On October 15, 2012, we completed the acquisition of Marathon Banking Corporation, the holding company of Marathon National Bank of New York, a federally chartered bank with 13 full-service branches in the New York metropolitan area. After purchase accounting adjustments, we added $777.5 million in customer deposits and acquired $558.5 million in net loans. This transaction resulted in $38.6 million of goodwill and generated $5.0 million in core deposit premium. The purchase price of $135.0 million was paid using available cash. Marathon Banking Corporation was merged into Investors Bank as of the acquisition date.

On January 6, 2012, we completed the acquisition of Brooklyn Federal Bancorp, Inc., the holding company of Brooklyn Federal Savings Bank, a federally chartered savings bank with five full-service branches in Brooklyn and Long Island. After the purchase accounting adjustments, we added $385.9 million in customer deposits and acquired $177.5 million in net loans. This transaction resulted in $16.7 million of goodwill and generated $218,000 in core deposit premium. The purchase price of $10.3 million was paid through a combination of Investors Bancorp common stock (551,862 shares), issued to Investors Bancorp, MHC, and cash of $2.9 million. Brooklyn Federal Savings Bank was merged into Investors Bank as of the acquisition date. In a separate transaction, we sold most of Brooklyn Federal Savings Bank’s commercial real estate loan portfolio to a real estate investment fund on January 10, 2012.

2


Investors Bank
General
Investors Bank is a New Jersey-chartered savings bank headquartered in Short Hills, New Jersey. Originally founded in 1926 as a New Jersey-chartered mutual savings and loan association, we have grown through acquisitions and internal growth, including de novo branching. In 1992, we converted our charter to a mutual savings bank, and in 1997 we converted our charter to a New Jersey-chartered stock savings bank.
We are in the business of attracting deposits from the public through our branch network and borrowing funds in the wholesale markets to originate loans and to invest in securities. We originate 1-4 family residential mortgage loans secured by one- to four-family residential real estate loans, multi-family loans, commercial real estate loans, construction loans, commercial and industrial ("C&I") loans and consumer loans, the majority of which are home equity loans and home equity lines of credit. Securities, primarily U.S. Government and Federal Agency obligations, mortgage-backed and other securities represented 10.4% of our assets at December 31, 2013. We offer a variety of deposit accounts and emphasize quality customer service. Investors Bank is subject to comprehensive regulation and examination by both the New Jersey Department of Banking and Insurance ("NJDBI"), the Federal Deposit Insurance Corporation ("FDIC") and the Consumer Financial Protection Bureau ("CFPB").
Our results of operations are dependent primarily on our net interest income, which is the difference between the interest earned on our assets, primarily our loan and securities portfolios, and the interest paid on our deposits and borrowings. Our net income is also affected by our provision for loan losses, non-interest income, non-interest expense and income tax expense. Non-interest income includes fees and service charges; income from bank owned life insurance, or BOLI; net gain on loan transactions; net gain on investment securities; impairment losses on investment securities; gain (loss) on sale of other real estate owned and other income. Non-interest expense consists of compensation and fringe benefits expense; advertising and promotional expense; office occupancy and equipment expense; federal deposit insurance premiums; stationary, printing, supplies and telephone expense; professional fees; data processing fees and other operating expenses. Our earnings are significantly affected by general economic and competitive conditions, particularly changes in market interest rates and U.S. Treasury yield curves, government policies and actions of regulatory authorities.
We conduct business from our main office located at 101 JFK Parkway, Short Hills, New Jersey and over 129 branch offices located throughout northern and central New Jersey and New York. In addition, the Company has a commercial real estate loan production office in New York, New York and an operation center in Iselin, New Jersey. The telephone number at our main office is (973) 924-5100.

Market Area

Our primary deposit gathering area had been concentrated in the communities surrounding our headquarters and our branch offices located in the New Jersey communities of Bergen, Burlington, Camden, Essex, Hudson, Hunterdon, Mercer, Middlesex, Monmouth, Morris, Ocean, Passaic, Somerset, Union and Warren Counties.  Within the last two years, we have expanded our branch locations to include the New York communities of Nassau, Queens, Kings, Richmond, Suffolk and New York counties. Our corporate headquarters are located in Short Hills, New Jersey with an operation center located in Iselin, New Jersey as well as commercial and business lending offices in New York City, Short Hills, Spring Lake, Newark, Astoria and Brooklyn.

With the completion of the Roma acquisitions, we have acquired an additional 26 New Jersey branches in the Burlington, Camden, Mercer, Middlesex and Monmouth counties. As a result of our recent acquisitions, we now have a desirable branch footprint that ranges from the Philadelphia suburbs in southern New Jersey, spans the central and northern geographies of New Jersey and extends out to Long Island. At the end of 2013, we have 24 branch offices located in New York.  Our primary lending area is broader than our deposit-gathering area and includes 15 counties in New Jersey and 6 counties in New York. It is largely urban and suburban with a broad economic base as is typical for counties in and surrounding the New York metropolitan area. The market we operate in is considered one of the most attractive banking markets in the United States.
Many of the counties we serve are projected to experience strong to moderate population and household income growth through 2018. Though slower population growth is projected for some of the counties we serve, it is important to note that these counties represent some of the most densely populated counties. All of the counties we serve have a strong mature market with median household incomes greater than $42,000. The household incomes in the counties we serve are all expected to increase in a range from 8.14% to 26.86% through 2018. The December 2013 unemployment rates for New Jersey and New York were 7.2% and 7.0%, respectively, while the national rate was 6.7%.

3


Competition
We face intense competition within our market area both in making loans and attracting deposits. Our market area has a high concentration of financial institutions, including large money centers and regional banks and community banks and credit unions. Some of our competitors offer products and services that we currently do not offer, such as trust services and private banking. As of June 30, 2013, the latest date for which statistics are available, our market share of deposits was 2.7% of total deposits in the State of New Jersey, however the percentage does not include the acquisitions of both Roma Financial and Gateway Community Financial Corp as these acquisitions occurred subsequent to that date.
Our competition for loans and deposits comes principally from commercial banks, savings institutions, mortgage banking firms and credit unions. We face additional competition for deposits from short-term money market funds, brokerage firms, mutual funds and insurance companies. Our primary focus is to build and develop profitable customer relationships across all lines of business while maintaining our role as a community bank.
Lending Activities
Our loan portfolio is comprised primarily of residential real estate loans, multi-family loans, commercial real estate loans, construction loans, commercial and industrial loans and consumer and other loans. In 2013, we have continue to grow our commercial and industrial ("C&I") loan portfolio. Residential mortgage loans represented $5.70 billion, or 43.6% of our total loans at December 31, 2013. At December 31, 2013, multi-family loans totaled $3.99 billion, or 30.5% of our total loan portfolio, commercial real estate loans totaled $2.51 billion, or 19.2% of our total loan portfolio, construction loans totaled $202.3 million, or 1.6% of our total loan portfolio, and commercial and industrial loans totaled $268.4 million or 2.0% of our total loan portfolio. We also offer consumer loans, which consist primarily of home equity loans and home equity lines of credit. At December 31, 2013, consumer and other loans totaled $404.0 million or 3.1% of our total loan portfolio.

4


Loan Portfolio Composition. The following table sets forth the composition of our loan portfolio by type of loan, including Purchased Credit-Impaired ("PCI") loans at the dates indicated.

 
December 31,
 
2013
 
2012
 
2011
 
2010
 
2009
 
Amount
%
 
Amount
%
 
Amount
%
 
Amount
%
 
Amount
%
 
(Dollars in thousands )
Residential mortgage loans
$
5,698,351

43.62
%
 
$
4,838,315

46.35
%
 
5,034,161

56.59
%
 
4,939,244

61.78
%
 
4,773,556

71.76
%
Multi-family loans
3,986,208

30.51

 
2,995,471

28.70

 
1,816,118

20.42

 
1,161,874

14.53

 
612,743

9.21

Commercial real estate loans
2,505,327

19.18

 
1,971,689

18.89

 
1,418,636

15.95

 
1,225,256

15.33

 
730,012

10.97

Construction loans
202,261

1.55

 
224,816

2.15

 
277,625

3.12

 
347,825

4.35

 
334,480

5.03

Commercial and industrial loans
268,422

2.05

 
169,258

1.62

 
106,299

1.20

 
60,903

0.76

 
23,159

0.35

Consumer and other loans:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Home equity loans
245,653

1.88

 
101,163

0.97

 
121,134

1.36

 
147,540

1.84

 
104,864

1.58

Home equity credit lines
150,796

1.15

 
131,808

1.26

 
117,445

1.32

 
108,356

1.36

 
70,341

1.06

Other
7,600

0.06

 
5,951

0.06

 
3,648

0.04

 
3,861

0.05

 
2,972

0.04

Total consumer and other loans
404,049

3.09

 
238,922

2.29

 
242,227

2.72

 
259,757

3.25

 
178,177

2.68

Total loans
$
13,064,618

100.00
%
 
$
10,438,471

100.00
%
 
$
8,895,066

100.00
%
 
$
7,994,859

100.00
%
 
$
6,652,127

100.00
%
Premiums on purchased loans, net
$
52,014

 
 
$
43,023

 
 
29,927

 
 
22,021

 
 
22,958

 
Deferred loan fees, net
(60,160
)
 
 
(32,536
)
 
 
(13,540
)
 
 
(8,244
)
 
 
(4,574
)
 
Allowance for loan losses
(173,928
)
 
 
(142,172
)
 
 
(117,242
)
 
 
(90,931
)
 
 
(55,052
)
 
Net loans
$
12,882,544

 
 
$
10,306,786

 
 
$
8,794,211

 
 
$
7,917,705

 
 
$
6,615,459

 



5


    Portfolio Maturities. The following table summarizes the scheduled repayments of our loan portfolio, including PCI loans at December 31, 2013. Overdraft loans are reported as being due in one year or less.
 
 
At December 31, 2013
 
Residential
Mortgage Loans
 
Multi-Family Loans
 
Commercial
Real Estate Loans
 
Construction
Loans
 
Commercial and
Industrial Loans
 
Consumer and
Other Loans
 
Total
 
(In thousands)
Amounts Due:
 
 
 
 
 
 
 
 
 
 
 
 
 
One year or less
$
19,925

 
78,180

 
216,205

 
110,471

 
95,660

 
87,998

 
608,439

After one year:
 
 
 
 
 
 
 
 
 
 
 
 
 
One to three years
3,317

 
465,968

 
416,141

 
78,883

 
35,562

 
14,101

 
1,013,972

Three to five years
32,854

 
1,086,898

 
836,112

 
11,800

 
56,732

 
28,838

 
2,053,234

Five to ten years
200,936

 
2,120,562

 
880,451

 
831

 
57,976

 
90,102

 
3,350,858

Ten to twenty years
1,326,569

 
231,394

 
155,153

 
276

 
22,492

 
119,105

 
1,854,989

Over twenty years
4,114,750

 
3,206

 
1,265

 

 

 
63,905

 
4,183,126

Total due after one year
5,678,426

 
3,908,028

 
2,289,122

 
91,790

 
172,762

 
316,051

 
12,456,179

Total loans
$
5,698,351

 
3,986,208

 
2,505,327

 
202,261

 
268,422

 
404,049

 
13,064,618

Premiums on purchased loans, net
 
 
 
 
 
 
 
 
 
 
 
 
52,014

Deferred loan fees, net
 
 
 
 
 
 
 
 
 
 
 
 
(60,160
)
Allowance for loan losses
 
 
 
 
 
 
 
 
 
 
 
 
(173,928
)
Net loans
 
 
 
 
 
 
 
 
 
 
 
 
$
12,882,544


The following table sets forth fixed- and adjustable-rate loans at December 31, 2013 that are contractually due after December 31, 2014.
 
 
Due After December 31, 2014
 
Fixed
 
Adjustable
 
Total
 
(In thousands)
Residential mortgage loans
$
3,640,004

 
2,038,422

 
5,678,426

Multi-family loans
1,842,436

 
2,065,592

 
3,908,028

Commercial real estate loans
1,241,476

 
1,047,646

 
2,289,122

Construction loans
31,296

 
60,494

 
91,790

Commercial and industrial loans
139,408

 
33,354

 
172,762

Consumer and other loans:
 
 
 
 
 
Home equity loans
242,335

 

 
242,335

Home equity credit lines

 
71,516

 
71,516

Other
2,200

 

 
2,200

Total consumer and other loans
244,535

 
71,516

 
316,051

Total loans
$
7,139,155

 
5,317,024

 
12,456,179

Residential Mortgage Loans. One of our primary lending activities has been originating and purchasing residential mortgage loans, most of which are secured by properties located in our primary market area and most of which we hold in portfolio. At December 31, 2013, $5.70 billion, or 43.6%, of our loan portfolio consisted of residential mortgage loans. Residential mortgage loans are originated by our mortgage subsidiary, Investors Home Mortgage, for our loan portfolio and for sale to third parties. We also purchase mortgage loans from correspondent entities including other banks and mortgage bankers. Our agreements call for these correspondent entities to originate loans that adhere to our underwriting standards. In most cases we acquire the loans with servicing rights, but we have some arrangements in which the correspondent entity will sell us the loan without servicing rights. In addition, occasionally we purchase pools of mortgage loans in the secondary market on a “bulk purchase” basis from several well-established financial institutions. While some of these financial institutions retain the servicing rights for loans they sell to us, when presented with the opportunity to purchase the servicing rights as part of the loan, we may decide to purchase the servicing rights. This decision is generally based on the price and other relevant factors.

6


Generally, residential mortgage loans are originated in amounts up to 80% of the lesser of the appraised value or purchase price of the property to a maximum loan amount of $1,250,000. Loans over $1,250,000 require a lower loan to value ratio. Loans in excess of 80% of value require private mortgage insurance and cannot exceed $500,000. We will not make loans with a loan-to-value ratio in excess of 95% or 97% for programs to low or moderate-income borrowers. Fixed-rate mortgage loans are originated for terms of up to 30 years. Generally, all fixed-rate residential mortgage loans are underwritten according to Fannie Mae guidelines, policies and procedures. At December 31, 2013, we held $3.64 billion in fixed-rate residential mortgage loans which represented 64.1% of our residential mortgage loan portfolio.
We also offer adjustable-rate residential mortgage loans, which adjust annually after three, five, seven or ten year initial fixed-rate periods. Our adjustable rate loans usually adjust to an index plus a margin, based on the weekly average yield on U.S. Treasuries adjusted to a constant maturity of one year. Annual caps of 2% per adjustment apply, with a lifetime maximum adjustment of 5% on most loans. Our adjustable-rate mortgage loans amortize over terms of up to 30 years. In addition, we hold in loan portfolio interest-only one-to four-family mortgage loans in which the borrower makes only interest payments for the first five, seven or ten years of the mortgage loan term. This feature will result in future increases in the borrower’s contractually required payments due to the required amortization of the principal amount after the interest-only period. Borrowers were qualified using the loan rate at the date of origination and the fully amortized payment amount.

Adjustable-rate mortgage loans decrease the Bank’s risk associated with changes in market interest rates by periodically re-pricing, but involve other risks because, as interest rates increase, the underlying payments by the borrower increase, which increases the potential for default by the borrower. At the same time, the marketability of the underlying collateral may be adversely affected by higher interest rates or a decline in housing values. The maximum periodic and lifetime interest rate adjustments may limit the effectiveness of adjustable-rate mortgages during periods of rapidly rising interest rates. At December 31, 2013, we held $2.04 billion of adjustable-rate residential mortgage loans, of which $341.7 million were interest-only one- to four-family mortgages. Adjustable-rate residential mortgage loans represented 35.9% of our residential mortgage loan portfolio.
To provide financing for low-and moderate-income home buyers, we also offer various loan programs some of which include down payment assistance for home purchases. Through these programs, qualified individuals receive a reduced rate of interest on most of our loan programs and have their application fee refunded at closing, as well as other incentives if certain conditions are met.
All residential mortgage loans we originate include a “due-on-sale” clause, which gives us the right to declare a loan immediately due and payable if the borrower sells or otherwise disposes of the real property subject to the mortgage and the loan is not repaid. All borrowers are required to obtain title insurance, fire and casualty insurance and, if warranted, flood insurance on properties securing real estate loans.
Multi-family and Commercial Real Estate Loans. As part of our strategy to add to and diversify our loan portfolio, we offer mortgages on multi-family and commercial real estate properties. At December 31, 2013, $3.99 billion, or 30.5% of our total loan portfolio was multi-family and $2.51 billion or 19.2%, of our total loan portfolio was commercial real estate loans. Our policy generally has been to originate multi-family and commercial real estate loans in New Jersey, New York and surrounding states. Commercial real estate loans are secured by office buildings, mixed-use properties and other commercial properties. The multi-family and commercial real estate loans in our portfolio consist of both fixed-rate and adjustable-rate loans which were originated at prevailing market rates. Multi-family and commercial real estate loans are generally five to fifteen year term balloon loans amortized over fifteen to thirty years. The maximum loan-to-value ratio is 70% for our commercial real estate loans and 75% for multi-family loans. At December 31, 2013, our largest commercial real estate loan was $36.4 million and is on an office building in New Jersey and is performing in accordance with its contractual terms. Our largest multi-family loan was $38.6 million and is on nine apartment buildings in New Jersey and is performing accordance with its contractual terms.
We consider a number of factors when we originate multi-family and commercial real estate loans. During the underwriting process we evaluate the business qualifications and financial condition of the borrower, including credit history, profitability of the property being financed, as well as the value and condition of the mortgaged property securing the loan. When evaluating the business qualifications of the borrower, we consider the financial resources of the borrower, the borrower’s experience in owning or managing similar property and the borrower’s payment history with us and other financial institutions. In evaluating the property securing the loan, we consider the net operating income of the mortgaged property before debt service and depreciation, the ratio of the loan amount to the appraised value of the mortgaged property and the debt service coverage ratio (the ratio of net operating income to debt service) to ensure it is at least 120% of the monthly debt service for apartment buildings and 130% for commercial income-producing properties. All multi family and commercial real estate loans are appraised by outside independent appraisers who have been approved by our Board of Directors. Personal guarantees are obtained from multi family and commercial real estate borrowers although we will consider waiving this requirement based upon the loan-to-value ratio of the proposed loan and other factors. All borrowers are required to obtain title, fire and casualty insurance and, if warranted, flood insurance.

7


Multi-family loans are generally lower credit risk than other types of commercial real estate lending due to the diversification of cash flows to service the debt over multiple tenants. Loans secured by multi-family and commercial real estate generally are larger than residential mortgage loans and can involve greater credit risk. Commercial real estate loans often involve large loan balances to single borrowers or groups of related borrowers. Repayment of these loans depends to a large degree on the results of operations and management of the properties securing the loans or the businesses conducted on such property, and may be affected to a greater extent by adverse conditions in the real estate market or the economy in general. Accordingly, management annually evaluates the performance of all commercial loans in excess of $1.0 million.

Construction Loans. We offer loans directly to builders and developers on income-producing properties and residential for-sale housing units. At December 31, 2013, we held $202.3 million in construction loans representing 1.6%, of our total loan portfolio. Construction loans are originated through our commercial lending department. Generally, construction loans will be structured to be repaid over a three-year period and generally will be made in amounts of up to 70% of the appraised value of the completed property, or the actual cost of the improvements. Funds are disbursed based on inspections in accordance with a schedule reflecting the completion of portions of the project. Construction financing for sold units requires an executed sales contract.
Construction loans generally involve a greater degree of credit risk than either residential mortgage loans or other commercial mortgage loans. The risk of loss on a construction loan depends on the accuracy of the initial estimate of the property’s value when the construction is completed compared to the estimated cost of construction. For all loans, we use outside independent appraisers approved by our Board of Directors. We require all borrowers to obtain title insurance, fire and casualty insurance and, if warranted, flood insurance. A detailed plan and cost review by an outside engineering firm is required on loans in excess of $2.5 million.
At December 31, 2013, the Bank’s largest construction loan was a $34.0 million note with an outstanding balance of $27.2 million on an apartment-rental project in New Jersey. At December 31, 2013, the loan was performing in accordance with contractual terms.
Commercial and Industrial Loans. We offer commercial and industrial loans which are comprised of term loans and lines of credit. These loans are generally secured by real estate or business assets and include personal guarantees. The loan to value limit is 75% and businesses will typically have at least a two year history. The Company's recent acquisitions and de novo branch expansion has provided a larger market area to leverage new products. We have expanded and increased our New York market lending presence by hiring experienced consumer and industrial team members as well as expanding our business lending into the healthcare industry and asset based lending to focus on this segment of the market. At December 31, 2013, consumer and industrial loans totaled $268.4 million, or 2.0%, of our loan portfolio. Included in commercial real estate loans are owner occupied commercial mortgage loans which total $416.1 million at December 31, 2013.
Consumer Loans. We offer consumer loans, most of which consist of home equity loans and home equity lines of credit. Home equity loans and home equity lines of credit are secured by residences primarily located in New Jersey and New York. At December 31, 2013, consumer loans totaled $404.0 million or 3.1%, of our total loan portfolio. The underwriting standards we use for home equity loans and home equity lines of credit include a determination of the applicant’s credit history, an assessment of the applicant’s ability to meet existing credit obligations, the payment on the proposed loan and the value of the collateral securing the loan. The combined (first and second mortgage liens) loan-to-value ratio for home equity loans and home equity lines of credit is generally limited to a maximum of 80%. Home equity loans are offered with fixed rates of interest, terms up to 30 years and to a maximum of $500,000. Home equity lines of credit have adjustable rates of interest, indexed to the prime rate, as reported in The Wall Street Journal.

8


Loan Originations and Purchases. The following table shows our loan originations, loan purchases and repayment activities with respect to our portfolio of loans receivable for the periods indicated. Origination, sale and repayment activities with respect to our loans-held-for-sale are excluded from the table.
 
 
Year Ended December 31,
 
2013
 
2012
 
2011
 
(In thousands)
Loan originations and purchases
 
 
 
 
 
Loan originations:
 
 
 
 
 
Residential mortgage loans
$
1,069,518

 
$
693,996

 
767,241

Multi-family loans
1,592,509

 
1,285,775

 
846,685

Commercial real estate loans
454,152

 
458,847

 
308,245

Construction loans
57,524

 
32,219

 
120,773

Commercial and industrial loans
250,981

 
139,833

 
104,120

Consumer and other loans:
 
 
 
 
 
Home equity loans
19,197

 
13,674

 
14,399

Home equity credit lines
58,936

 
55,295

 
64,630

Other
1,440

 
838

 
15,314

Total consumer and other loans
79,573

 
69,807

 
94,343

Total loan originations
3,504,257

 
2,680,477

 
2,241,407

Loan purchases:
 
 
 
 
 
Residential mortgage loans
1,054,395

 
638,788

 
710,880

Commercial real estate

 

 

Multi-family

 

 

Construction loans

 

 

Commercial and industrial

 

 

Consumer and other loans:
 
 
 
 
 
Home equity loans

 

 

Home equity credit lines

 

 

Other

 

 

Total consumer and other loans

 

 

Total loan purchases
1,054,395

 
638,788

 
710,880

Loans sold and principal repayments
(2,931,593
)
 
(2,508,908
)
 
(2,042,462
)
Other items, net(1)
(42,271
)
 
(33,784
)
 
(33,319
)
Net loans acquired in acquisition
990,970

 
736,003

 

Net increase in loan portfolio
$
2,575,758

 
$
1,512,576

 
876,506

 
(1)
Other items include charge-offs, loan loss provisions, loans transferred to other real estate owned, and amortization and accretion of deferred fees and costs, discounts and premiums, and purchase accounting adjustments.
Loan Approval Procedures and Authority. Our lending activities follow written, non-discriminatory underwriting standards and loan origination procedures established by our Board of Directors. In the approval process for residential loans, we assess the borrower’s ability to repay the loan and the value of the property securing the loan. To assess the borrower’s ability to repay, we review the borrower’s income and expenses and employment and credit history. In the case of commercial real estate loans we also review projected income, expenses and the viability of the project being financed. We generally require appraisals of all real property securing loans, except for home equity loans and home equity lines of credit, in which case we may use the tax-assessed value of the property securing such loan or a lesser form of valuation, such as a home value estimator or by a drive-by value estimated performed by an approved appraisal company. Appraisals are performed by independent licensed appraisers who are approved by our Board of Directors. We require borrowers, except for home equity loans and home equity lines of credit, to obtain title insurance. All real estate secured loans require fire and casualty insurance and, if warranted, flood insurance in amounts at least equals to the principal amount of the loan or the maximum amount available.

9


Our loan approval policies and limits are also established by our Board of Directors. All residential mortgage loans including home equity loans and home equity lines of credit up to $500,000 requires approval by loan underwriters, provided the loan meets all of our underwriting guidelines. Residential mortgage loans up to $750,000 requires approval by an Underwriting Supervisor, provided the loan meets all of our underwriting guidelines. If the loans up to $750,000 does not meet all of our underwriting guidelines, but can be considered for approval because of other compensating factors, the loan must be approved by an authorized member of management. Residential mortgage loans in excess of $750,001 and up to $1,500,000 requires approval of an authorized member of management Residential mortgage loans in excess of $1,500,001 and up to $2,000,000 must be approved by three authorized members of management. Residential mortgage loans in excess of $2,000,001 and up to $3,000,000 must be approved by three authorized members of management, one of whom must be an Executive Officer. Investors Home Mortgage shall have designated underwriting and loan approval for loans up to $1,000,000 that meet policy. In the absence of any of the above Officers, the CEO or COO may approve all loans up to $3,000,000 if necessary.
All commercial real estate, multi-family and construction loan requests up to $1,000,000 without policy exceptions or total credit relationships in an amount up to $5,000,000 requires approval by the Vice President/Team Leader. All commercial real estate, multi-family and construction loan requests up to $2,000,000 without policy exceptions or total credit relationships in an amount up to $5,000,000 requires approval by the Vice President/ Team Leader and either; Senior Vice President -CRE, Chief Lending Officer, Chief Operating Officer or Chief Executive Officer . All commercial real estate loan requests up to $5,000,000 without policy exceptions or total credit relationships up to $10,000,000 requires approval by the Vice President/ Team Leader or Senior Vice President-CRE and either Chief Lending Officer, Chief Operating Officer or Chief Executive Officer. All commercial real estate, multi-family and construction loan requests up to $7,500,000 or total credit relationships in excess of $10,000,000 or any loan with or without a policy exception requires approval by the Vice President/Team Leader or Senior Vice President - CRE and Chief Operating Officer. All commercial real estate, multi-family and construction requests in excess of $7,500,000 or total credit relationships in excess of $10,000,000 or any loan with a policy exception not approved as stated above requires approval of the Commercial Loan Committee. consisting of the Chief Executive Officer, Chief Operating Officer, Chief Lending Officer, Chief Financial Officer, Chief Retail Banking Officer, Senior Vice President -CRE (cannot approve CRE loans), and the Senior Vice President- Business Lending (cannot approve Business loans).
All business loans up to $1,500,000 with real estate as collateral without policy exceptions or total credit relationships in an amount up to $3,000,000 requires approval by the Senior Vice President-Business Lending, Chief Lending Officer, Chief Operating Officer or Chief Executive Officer. All loan requests up to $3,000,000 with real estate as collateral without policy exceptions or total credit relationships up to $5,000,000 requires approval by the Senior Vice President, Business Lending and either the Chief Lending Officer, Chief Operating Officer or Chief Executive Officer. All loan requests in excess of $3,000,000 or total credit relationships in excess of $5,000,000 or any loan with a policy exception requires approval of the Commercial Loan Committee., consisting of the Chief Executive Officer, Chief Operating Officer, Chief Lending Officer, Chief Financial Officer, Chief Retail Banking Officer, Senior Vice President of CRE (cannot approve CRE Loans) and the Senior Vice President- Business Lending (cannot approve Business loans). All business loans up to $500,000 without real estate as collateral or total credit relationships in an amount up to $3,000,000 without policy exception require approval by the Senior Vice President-Business Lending, Chief Lending Officer, Chief Operating Officer or Chief Executive Officer. All loan requests up to $1,000,000 without real estate as collateral or total credit relationships up to $5,000,000 without policy exception requires approval by the Senior Vice President-Business Lending and either Chief Lending Officer, Chief Operating Officer or Chief Executive Officer. All loan requests in excess of $1,000,000 without real estate as collateral or total credit relationships in excess of $5,000,000 without policy exception shall require the approval of the Commercial Loan Committee. A business loan request that does not exceed more than 10% of an overall relationship may be approved as a separate loan request and not aggregated as part of a total loan relationship and shall not be greater than $250,000 nor contain a policy exception.
Loans to One Borrower. The Bank’s regulatory limit on total loans to any borrower or attributed to any one borrower is 15% of unimpaired capital and surplus. As of December 31, 2013, the regulatory lending limit was $186.6 million. The Bank’s internal policy limit is $70.0 million, with the option to exceed that limit with the Board of Directors’ ratification, on total loans to a borrower or related borrowers. The Bank reviews these group exposures on a monthly basis. The Bank also sets additional limits on size of loans by loan type. At December 31, 2013, the Bank’s largest relationship with an individual borrower and its related entities was $105.6 million, consisting of seven multi-family loans, a construction loan and a commercial loan. The relationship was ratified by the Board of Directors and was performing in accordance with contractual terms as of December 31, 2013.
Asset Quality
One of the Bank’s key operating objectives has been, and continues to be, maintaining a high level of asset quality. The Bank maintains sound credit standards for new loan originations and purchases. We do not originate or purchase sub-prime loans, negative amortization loans or option ARM loans. In addition, the Bank uses proactive collection and workout processes in dealing with delinquent and problem loans.

10



The underlying credit quality of our loan portfolio is dependent primarily on each borrower’s ability to continue to make required loan payments and, in the event a borrower is unable to continue to do so, the value of the collateral securing the loan, if any. A borrower’s ability to pay typically is dependent; in the case of one-to-four family mortgage loans and consumer loans, primarily on employment and other sources of income; in the case of multi-family and commercial real estate loans, on the cash flow generated by the property; in the case of C&I loans, on the cash flows generated by the business, which in turn is impacted by general economic conditions. Other factors, such as unanticipated expenditures or changes in the financial markets, may also impact a borrower’s ability to pay. Collateral values, particularly real estate values, are also impacted by a variety of factors including general economic conditions, demographics, maintenance and collection or foreclosure delays.
Purchased Credit-Impaired Loans. Purchased Credit-Impaired ("PCI") loans are loans acquired through acquisition or purchased at a discount that is due, in part, to credit quality. PCI loans are accounted for in accordance with 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 (i.e., the allowance for loan losses). The difference between the undiscounted cash flows expected at acquisition and the initial carrying amount (fair value) of the covered loans, or the “accretable yield,” is recognized as interest income utilizing the level-yield method over the life of the loans. Contractually required payments for interest and principal that exceed the undiscounted cash flows expected at acquisition, or the “non-accretable difference,” are not recognized as a yield adjustment, as a loss accrual or a valuation allowance. Reclassifications of the non-accretable difference to the accretable yield may occur subsequent to the loan acquisition dates due to increases in expected cash flows of the loans and results in an increase in yield on a prospective basis.
Collection Procedures. We send system-generated reminder notices to start collection efforts when a loan becomes fifteen days past due. Subsequent late charge and delinquency notices are sent and the account is monitored on a regular basis thereafter. Direct contact with the borrower is attempted early in the collection process as a courtesy reminder and later to determine the reason for the delinquency and to safeguard our collateral. We provide the Board of Directors with a summary report of loans 30 days or more past due on a monthly basis. When a loan is more than 90 days past due, the credit file is reviewed and, if deemed necessary, information is updated or confirmed and collateral re-evaluated. We make every effort to contact the borrower and develop a plan of repayment to cure the delinquency. Loans are placed on non-accrual status when they are 90 days delinquent, but may be placed on non-accrual status earlier if the timely collection of principal and/or income is doubtful. When loans are placed on non-accrual status, unpaid accrued interest is fully reserved, and additional income is recognized in the period collected unless the ultimate collection of principal is considered doubtful. If our effort to cure the delinquency fails and a repayment plan is not in place, the file is referred to counsel for commencement of foreclosure or other collection efforts. We also own loans serviced by other entities and we monitor delinquencies on such loans using reports the servicers send to us. When we receive these past due reports, we review the data and contact the servicer to discuss the specific loans and the status of the collection process. We add the information from the servicer’s delinquent loan reports to our own delinquent reports and provide a full summary report monthly to our Board of Directors.
Our collection procedure for non mortgage related consumer and other loans includes sending periodic late notices to a borrower once a loan is past due. We attempt to make direct contact with the borrower once a loan becomes 30 days past due. The Collection Manager reviews loans 60 days or more delinquent on a regular basis. If collection activity is unsuccessful after 90 days, we may refer the matter to our legal counsel for further collection efforts or we may charge-off the loan. Non real estate related consumer loans that are considered uncollectible are proposed for charge-off by the Collection Manager on a quarterly basis.


11


Delinquent Loans. The following table sets forth our loan delinquencies by type and by amount at the dates indicated, excluding loans classified as PCI.
 
 
Loans Delinquent For
 
 
 
 
 
60-89 Days
 
90 Days and Over
 
Total
 
Number
 
Amount
 
Number
 
Amount
 
Number
 
Amount
 
(Dollars in thousands)
At December 31, 2013
 
 
 
 
 
 
 
 
 
 
 
Residential mortgage loans
34

 
$
7,358

 
253

 
$
66,079

 
287

 
$
73,437

Multi-family
2

 
218

 
4

 
3,588

 
6

 
3,806

Commercial real estate
4

 
10,247

 
11

 
2,091

 
15

 
12,338

Construction loans
1

 
527

 
18

 
16,181

 
19

 
16,708

Commercial and industrial
2

 
287

 
3

 
775

 
5

 
1,062

Consumer and other loans
8

 
168

 
32

 
1,973

 
40

 
2,141

Total
51

 
$
18,805

 
321

 
$
90,687

 
372

 
$
109,492

 
 
 
 
 
 
 
 
 
 
 
 
At December 31, 2012
 
 
 
 
 
 
 
 
 
 
 
Residential mortgage loans
37

 
$
11,715

 
310

 
$
76,088

 
347

 
$
87,803

Multi-family
3

 
3,950

 
5

 
11,143

 
8

 
15,093

Commercial real estate
4

 
3,016

 
4

 
753

 
8

 
3,769

Construction loans
0

 

 
6

 
18,876

 
6

 
18,876

Commercial and industrial
2

 
2,639

 
2

 
375

 
4

 
3,014

Consumer and other loans
8

 
196

 
23

 
1,238

 
31

 
1,434

Total
54

 
$
21,516

 
350

 
$
108,473

 
404

 
$
129,989

 
 
 
 
 
 
 
 
 
 
 
 
At December 31, 2011
 
 
 
 
 
 
 
 
 
 
 
Residential mortgage loans
28

 
$
9,847

 
288

 
$
80,703

 
316

 
$
90,550

Multi-family
4

 
6,180

 

 

 
4

 
6,180

Commercial real estate

 

 
1

 
73

 
1

 
73

Construction loans
1

 
8,068

 
12

 
40,362

 
13

 
48,430

Commercial and industrial

 

 

 

 

 

Consumer and other loans
5

 
173

 
25

 
1,009

 
30

 
1,182

Total
38

 
$
24,268

 
326

 
$
122,147

 
364

 
$
146,415

Non-Performing Assets. Non-performing assets include non-accrual loans, loans delinquent 90 days or more and still accruing interest, performing troubled debt restructurings and real estate owned, or REO, and excludes PCI loans. We did not have any loans delinquent 90 days or more and still accruing interest at December 31, 2013. At December 31, 2013, we had REO of $8.5 million consisting of fifty properties of which thirty four properties totaling $5.3 million was acquired through the Roma Financial acquisition in December 2013. Non-accrual loans decreased by $20.2 million to $100.4 million at December 31, 2013 from $120.6 million at December 31, 2012. During 2013, the Company elected to sell 46 residential non-accrual loans on a bulk basis for $9.0 million. In connection with the Brooklyn Federal acquisition, the Company sold approximately $106.2 million of the commercial real estate loan portfolio to a real estate investment fund on January 10, 2012. During 2011, the Company elected to sell 23 non-accrual commercial real estate loans on a bulk basis for $10.0 million. Although we have resolved a number of non-performing loans, the overall weakness in the economy continues to impact our non-accrual loans.
As a geographically concentrated lender, we have been affected by negative consequences arising from the ongoing economic recession and, in particular, the decline in the housing industry, as well as economic and housing industry weaknesses in the New Jersey/New York metropolitan area. We are particularly vulnerable to the impact of a severe job loss recession. We continue to closely monitor the local and regional real estate markets and other factors related to risks inherent in our loan portfolio. The ratio of non-accrual loans to total loans decreased to 0.77% at December 31, 2013 from 1.16% at December 31, 2012. Our ratio of non-performing assets to total assets decreased to 0.95% at December 31, 2013 from 1.14% at December 31, 2012. The allowance for loan losses as a percentage of total non-accrual loans increased to 173.30% at December 31, 2013 from 117.92% at December 31, 2012. For further discussion of our non-performing assets and non-performing loans and the allowance for loan losses, see Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” The table below sets forth the amounts and categories of our non-performing assets excluding PCI loans at the dates indicated.
 

12


 
 
 
December 31,
 
2013 (1)
 
2012 (2)
 
2011(3)
 
2010
 
2009(4)
 
 
 
(Dollars in thousands)
Non-accrual loans:
 
 
 
 
 
 
 
 
 
Residential mortgage loans
$
72,309

 
81,295

 
84,056

 
73,650

 
50,089

Total residential mortgage loans
 
 
 
 
 
 
 
 
 
Multi-family and Commercial loans
8,616

 
11,896

 
73

 
6,647

 
3,970

Construction loans
16,181

 
25,764

 
57,070

 
82,735

 
64,968

Commercial and industrial loans
1,281

 
375

 

 
1,829

 

Consumer and other loans
1,973

 
1,238

 
1,009

 
1,033

 
1,166

Total non-accrual loans
100,360

 
120,568

 
142,208

 
165,894

 
120,193

Real estate owned
8,516

 
8,093

 
3,081

 
976

 

Performing troubled debt restructurings
39,570

 
15,756

 
10,465

 
4,822

 

Total non-performing assets
$
148,446

 
144,417

 
155,754

 
171,692

 
120,193

Total non-accrual loans to total loans
0.77
%
 
1.16
%
 
1.60
%
 
2.08
%
 
1.81
%
Total non-performing assets to total assets
0.95
%
 
1.14
%
 
1.48
%
 
1.74
%
 
1.44
%
 
(1)
Non accrual loans include troubled debt restructurings which are current but classified as non-accrual. Included are the following TDR loans; one multi-family loan for $2.3 million, one commercial loan for $620,000, one C&I loan for $506,000 and 14 residential loans totaling $4.6 million. There were five TDR residential loans totaling $1.6 million which were 30-89 days delinquent classified as non accrual.
(2)
There were three construction troubled debt restructuring loans totaling $6.9 million and 21 residential and consumer loans totaling $5.1 million which were current but classified as non-accrual as of December 31, 2012.
(3)
An $8.1 million construction loan that was 60-89 days delinquent at December 31, 2011 was classified as non-performing. There were also 6 residential troubled debt restructurings totaling $3.0 million and 2 construction troubled debt restructurings totaling $8.6 million that were current as of December 31, 2011 but classified as non-accrual.
(4)
An $11.5 million construction loan that was 60-89 days delinquent at December 31, 2009 was classified as non-accrual.

At December 31, 2013, there were $51.0 million of loans deemed trouble debt restructurings, of which $39.6 million were accruing and $11.4 million were on non-accrual. For the year ended December 31, 2013, interest income that would have been recorded had our non-accruing loans been current in accordance with their original terms amounted to $6.2 million. We recognized interest income of $2.1 million on such loans for the year ended December 31, 2013.
Real Estate Owned. Real estate we acquire as a result of foreclosure or by deed in lieu of foreclosure is classified as real estate owned, ("REO") until sold. When property is acquired it is recorded at fair value at the date of foreclosure less estimated costs to sell the property. Holding costs and declines in fair value result in charges to expense after acquisition. At December 31, 2013, we had REO of $8.5 million consisting of fifty properties of which thirty four properties totaling $5.3 million was acquired through the Roma Financial acquisition.
Classified Assets. Federal regulations provide that loans and other assets of lesser quality should be classified as “substandard,” “doubtful” or “loss” assets. An asset is considered “substandard” if it is inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any. “Substandard” assets include those characterized by the “distinct possibility” we will sustain “some loss” if the deficiencies are not corrected. Assets classified as “doubtful” have all of the weaknesses inherent in those classified “substandard,” with the added characteristic the weaknesses present make “collection or liquidation in full,” on the basis of currently existing facts, conditions, and values, “highly questionable and improbable.” Assets classified as “loss” are those considered “uncollectible” and of such little value their continuance as assets without the establishment of a specific loss reserve is not warranted. We classify an asset as “special mention” if the asset has a potential weakness that warrants management’s close attention. While such assets are not impaired, management has concluded that if the potential weakness in the asset is not addressed, the value of the asset may deteriorate, adversely affecting the repayment of the asset.
We are required to establish an allowance for loan losses in an amount that management considers prudent for loans classified substandard or doubtful, as well as for other problem loans. General allowances represent loss allowances which have been established to recognize the inherent losses associated with lending activities, but which, unlike specific allowances, have not been allocated to particular problem assets. When we classify problem assets as “loss,” we are required either to establish a specific allowance for losses equal to 100% of the amount of the asset so classified or to charge off such amount. Our determination as to the classification of our assets and the amount of our valuation allowances is subject to review by the New Jersey Department of

13


Banking and Insurance and the Federal Deposit Insurance Corporation, which can require that we establish additional general or specific loss allowances.
We review the loan portfolio on a quarterly basis to determine whether any loans require classification in accordance with applicable regulations. Not all classified assets constitute non-performing assets.
Impaired Loans. The Company defines an impaired loan as a loan for which it is probable, based on current information, that the lender will not collect all amounts due under the contractual terms of the loan agreement. The Company considers the population of loans in its impairment analysis to include commercial loans 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 with an outstanding balance 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. Impaired loans are individually assessed to determine that the loan’s carrying value is not in excess of the fair value of the collateral or the present value of the expected future cash flows. Smaller balance homogeneous loans are evaluated for impairment collectively unless they are modified in a troubled debt restructure. Such loans include residential mortgage loans, installment loans, and loans not meeting the Company’s definition of impaired, and are specifically excluded from impaired loans. At December 31, 2013, loans meeting the Company’s definition of an impaired loan totaled $66.7 million. The allowance for loan losses related to loans classified as impaired at December 31, 2013, amounted to $2.1 million. Interest income received during the year ended December 31, 2013 on loans classified as impaired totaled $2.4 million. For further detail on our impaired loans, see Note 1 and Note 5 of Notes to Consolidated Financial Statements in Item 8, “Financial Statements and Supplementary Data.”
Allowance for Loan Losses
Our allowance for loan losses is maintained at a level necessary to absorb loan losses that are both probable and reasonably estimable. In determining the allowance for loan losses, management considers the losses inherent in our loan portfolio and changes in the nature and volume of loan activities, along with the general economic and real estate market conditions. A description of our methodology in establishing our allowance for loan losses is set forth in the section “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Critical Accounting Policies — Allowance for Loan Losses.” The allowance for loan losses as of December 31, 2013 is maintained at a level that represents management’s best estimate of losses inherent in the loan portfolio. However, this analysis process is subjective, as it requires us to make estimates that are susceptible to revisions as more information becomes available. Although we believe we have established the allowance at levels to absorb probable and estimable losses, future additions may be necessary if economic or other conditions in the future differ from the current environment.
As an integral part of their examination processes, the New Jersey Department of Banking and Insurance and the Federal Deposit Insurance Corporation will periodically review our allowance for loan losses. Such agencies may require us to recognize additions to the allowance based on their judgments of information available to them at the time of their examination.

14


Allowance for Loan Losses. The following table sets forth activity in our allowance for loan losses for the periods indicated.
 
 
Year Ended
December 31,
 
2013
 
2012
 
2011
 
2010
 
2009
 
(Dollars in thousands)
Allowance balance (beginning of period)
$
142,172

 
117,242

 
90,931

 
55,052

 
26,548

Provision for loan losses
50,500

 
65,000

 
75,500

 
66,500

 
39,450

Charge-offs:
 
 
 
 
 
 
 
 
 
Residential mortgage loans
15,508

 
20,180

 
9,304

 
6,432

 
590

Multi-family loans
1,266

 
9,058

 
363

 
829

 

Commercial loans
1,101

 
479

 
7,637

 
98

 

Construction loans
3,424

 
13,227

 
30,548

 
23,160

 
14,421

Commercial & industrial loans
516

 
99

 
1,621

 
269

 

Consumer and other loans
795

 
1,107

 
714

 
41

 
22

Total charge-offs
22,610

 
44,150

 
50,187

 
30,829

 
15,033

Recoveries:
 
 
 
 
 
 
 
 
 
Residential mortgage loans
2,528

 
593

 
388

 
124

 
44

Multi-family loans
219

 

 
19

 

 

Commercial loans
65

 
43

 

 

 

Construction loans
315

 
3,387

 
576

 
83

 

Commercial & industrial loans
604

 
23

 
13

 

 

Consumer and other loans
135

 
34

 
2

 
1

 

Total recoveries
3,866

 
4,080

 
998

 
208

 
44

Net charge-offs
(18,744
)
 
(40,070
)
 
(49,189
)
 
(30,621
)
 
(14,989
)
Allowance acquired in acquisition

 

 

 

 
4,043

Allowance balance (end of period)
$
173,928

 
$
142,172

 
$
117,242

 
$
90,931

 
$
55,052

Total loans outstanding
$
13,064,618

 
10,438,471

 
8,895,066

 
7,994,859

 
6,652,127

Average loans outstanding
$
11,065,190

 
9,271,550

 
8,461,031

 
7,197,608

 
6,010,870

Allowance for loan losses as a percent of total loans outstanding
1.33
%
 
1.36
%
 
1.32
%
 
1.14
%
 
0.83
%
Net loans charged off as a percent of average loans outstanding
0.17
%
 
0.43
%
 
0.58
%
 
0.43
%
 
0.25
%
Allowance for loan losses to non-performing loans
124.30
%
 
104.29
%
 
76.79
%
 
53.26
%
 
45.80
%

15


Allocation of Allowance for Loan Losses. The following table sets forth the allowance for loan losses allocated by loan category and the percent of loans in each category to total loans at the dates indicated. The allowance for loan losses allocated to each category is not necessarily indicative of future losses in any particular category and does not restrict the use of the allowance to absorb losses in other categories.
 
 
December 31,
 
2013
2012
2011
2010
2009
 
Allowance
for Loan
Losses
Percent of
Loans in
Each
Category to
Total  Loans
Allowance
for Loan
Losses
Percent of
Loans in
Each
Category to
Total  Loans
Allowance
for Loan
Losses
Percent of
Loans in
Each
Category to
Total Loans
Allowance
for Loan
Losses
Percent of
Loans in
Each
Category to
Total Loans
Allowance
for Loan
Losses
Percent of
Loans in
Each
Category to
Total  Loans
 
(Dollars in thousands)
End of period allocated to:
 
 
 
 
 
 
 
 
 
 
Residential mortgage loans
$
51,760

43.62
%
$
45,369

46.35
%
$
32,447

56.59
%
$
20,489

61.78
%
$
13,741

71.76
%
Multi-family loans
42,103

30.51
%
29,853

28.70
%
13,863

20.42
%
10,454

14.53
%
3,227

9.21
%
Commercial real estate loans
46,657

19.18
%
33,347

18.89
%
30,947

15.95
%
16,432

15.33
%
10,208

10.97
%
Construction loans
8,947

1.55
%
16,062

2.15
%
22,839

3.12
%
34,669

4.35
%
25,194

5.03
%
Commercial and industrial loans
9,273

2.05
%
4,094

1.62
%
3,677

1.20
%
2,189

0.76
%
558

0.35
%
Consumer and other loans
2,161

3.09
%
2,086

2.29
%
1,335

2.72
%
866

3.25
%
510

2.68
%
Unallocated
13,027

 
11,361

 
12,134

 
5,832

 
1,614

 
Total allowance
$
173,928

100.00
%
$
142,172

100.00
%
$
117,242

100.00
%
$
90,931

100.00
%
$
55,052

100.00
%
 
Security Investments
The Board of Directors has adopted our Investment Policy. This policy determines the types of securities in which we may invest. The Investment Policy is reviewed annually by management and changes to the policy are recommended to and subject to approval by the Board of Directors. The Board of Directors delegates operational responsibility for the implementation of the Investment Policy to the Asset Liability Committee, which is primarily comprised of senior officers. While general investment strategies are developed by the Asset Liability Committee, the execution of specific actions rests primarily with our Chief Financial Officer. He is responsible for ensuring the guidelines and requirements included in the Investment Policy are followed and all securities are considered prudent for investment. He or his designee is authorized to execute transactions that fall within the scope of the established Investment Policy. Investment transactions are reviewed and ratified by the Board of Directors at their regularly scheduled meetings.
Our Investment Policy requires that investment transactions conform to Federal and New Jersey State investment regulations. Our investments may include, but are not limited to, U.S. Treasury obligations, securities issued by various Federal Agencies, State and Municipal subdivisions, mortgage-backed securities, certain certificates of deposit of insured financial institutions, overnight and short-term loans to other banks, investment grade corporate debt instruments, and mutual funds. In addition, Investors Bancorp may invest in equity securities subject to certain limitations.
The Investment Policy requires that securities transactions be conducted in a safe and sound manner. Purchase and sale decisions are based upon a thorough pre-purchase analysis of each security to determine it conforms to our overall asset/liability management objectives. The analysis must consider its effect on our risk-based capital measurement, prospects for yield and/or appreciation and other risk factors.

16


At December 31, 2013, our securities portfolio totaled $1.62 billion representing 10.4% of our total assets. Securities are classified as held-to-maturity or available-for-sale when purchased. At December 31, 2013, $831.8 million of our securities were classified as held-to-maturity and reported at amortized cost and $785.0 million were classified as available-for-sale and reported at fair value.
Mortgage-Backed Securities. We purchase mortgage-backed pass through and collateralized mortgage obligation (“CMO”) securities insured or guaranteed by Fannie Mae, Freddie Mac (government-sponsored enterprises) and Ginnie Mae (government agency), and to a lesser extent, a variety of federal and state housing authorities (collectively referred to below as “agency-issued mortgage-backed securities”). At December 31, 2013, agency-issued mortgage-backed securities including CMOs, totaled $1.56 billion, or 96.2%, of our total securities portfolio.
During year ended December 31, 2013 we transferred $524.0 million of mortgage-backed securities previously-designated as available-for-sale to a held-to-maturity. In accordance with ASC 320, Investments - Debt and Equity Securities, the Company is required at each balance sheet date to reassess the classification of each security held. The reclassification is permitted as the Company has appropriately determined the ability and intent to hold these securities as an investment until maturity or call. The securities transferred had a net loss of $12.2 million that is reflected in accumulated other comprehensive loss on the consolidated balance sheet, net of subsequent amortization, which is being recognized over the life of the securities.
Mortgage-backed pass through securities are created by pooling mortgages and issuing a security with an interest rate less than the interest rate on the underlying mortgages. Mortgage-backed pass through securities represent a participation interest in a pool of single-family or multi-family mortgages. As loan payments are made by the borrowers, the principal and interest portion of the payment is passed through to the investor as received. CMOs are also backed by mortgages; however, they differ from mortgage-backed pass through securities because the principal and interest payments of the underlying mortgages are financially engineered to be paid to the security holders of pre-determined classes or tranches of these securities at a faster or slower pace. The receipt of these principal and interest payments which depends on the proposed average life for each class is contingent on a prepayment speed assumption assigned to the underlying mortgages. Variances between the assumed payment speed and actual payments can significantly alter the average lives of such securities. To quantify and mitigate this risk, we undertake a payment analysis before purchasing these securities. We primarily invest in CMO classes or tranches in which the payments on the underlying mortgages are passed along at a pace fast enough to provide an average life of three to five years with no change in market interest rates. The issuers of such securities, as noted above, pool and sell participation interests in security form to investors such as Investors Bank and guarantee the payment of principal and interest. Mortgage-backed securities and CMOs generally yield less than the loans that underlie such securities because of the cost of payment guarantees and credit enhancements. However, mortgage-backed securities are usually more liquid than individual mortgage loans and may be used to collateralize borrowings and other liabilities.
Mortgage-backed securities present a risk that actual prepayments may differ from estimated prepayments over the life of the security, which may require adjustments to the amortization of any premium or accretion of any discount relating to such instruments that can change the net yield on such securities. There is also reinvestment risk associated with the cash flows from such securities or if such securities are redeemed by the issuer. In addition, the fair value of such securities may be adversely affected by changes in interest rates.
Our mortgage-backed securities portfolio had a weighted average yield of 1.89% for the year ended December 31, 2013. The estimated fair value of our mortgage-backed securities at December 31, 2013 was $1.54 billion, which is $11.2 million less than the carrying value of $1.56 billion. The decreases to the fair value are attributed to an increase to interest rates in the second half of 2013, and not credit related.
We also may invest in securities issued by non-agency or private mortgage originators, provided those securities are rated AAA by nationally recognized rating agencies and satisfactorily pass an internal credit review at the time of purchase. During the year ended December 31, 2012, the Company sold all its non-agency or privately originated mortgage backed securities. The Company currently has no non-agency mortgage-backed securities in its portfolio.
Corporate and Other Debt Securities. Our corporate and other debt securities portfolio consists of collateralized debt obligations (CDOs) 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 obligation. The interest rates on these securities reset quarterly in relation to 3 month Libor rate. These securities have been classified in the held to maturity portfolio since their purchase. In December 2013, regulatory agencies adopted a rule on the treatment of certain collateralized debt obligations backed by trust preferred securities to implement sections of the Dodd-Frank Wall Street Reform and Consumer Protection Act, known as the Volcker Rule. Upon evaluation of the impact of the Volcker Rule on our portfolio, one security backed by trust preferred securities issued by insurance companies, was deemed to be a "covered fund" under the Volker Rule. The Company reclassified the trust preferred security with a fair value of $670,000 from held-to-maturity to available-for-sale at December 31, 2013 as the new

17


regulations will require the Company to sell the security in the near future. Other than this security, the Company has no intent to sell the remaining securities, nor would it be required to sell these securities until maturity.
At December 31, 2013, the trust preferred securities portfolio consisted of 35 securities with an amortized cost of $30.4 million and a fair value of $49.2 million and all but three are rated below investment grade securities. The three investment grade securities have a book value of $3.2 million with fair value of $7.4 million. For December 31, 2013, we engaged an independent valuation firm to value our TruPS portfolio and prepare our other-than temporary impairment, or OTTI, analysis. At December 31, 2013, the discounted cash flow projected for one of the Company's pooled trust preferred securities fell below its adjusted book value. Based on the review of underlying collateral, the credit of this security has continued to deteriorate and therefore the Company recorded net other-than-temporary impairment ("OTTI") charge of $977,000 for the year ended December 31, 2013. At December 31, 2013 the security had a fair value of $46,000. Other than the trust preferred security which new regulations will force us to sell in the near future, the Company has no intent to sell, nor is it more likely than not that the Company will be required to sell, the debt securities before the recovery of their amortized cost basis or maturity.
At December 31, 2008, we recorded a pre-tax $156.7 million OTTI charge to reduce the carrying amount of our investment in pooled trust preferred securities to the securities’ fair values totaling $20.7 million. The decision to recognize the OTTI charge was based on the severity of the decline in the fair values of these securities at that time and the unlikelihood of any near-term market value recovery. The significant decline in the fair value occurred primarily as a result of deteriorating national economic conditions, rapidly increasing amounts of non-accrual and delinquent loans at some of the underlying issuing banks, and credit rating downgrades by Moody’s.
Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 320-10, “Recognition and Presentation of Other-Than-Temporary Impairments,” which was incorporated into ASC 320, “Investments — Debt and Equity Securities,” on April 1, 2009. Under this guidance, the difference between the present value of the cash flows expected to be collected and the amortized cost basis is deemed to be the credit loss. The present value of the expected cash flows is calculated based on the contractual terms of each security, and is discounted at a rate equal to the effective interest rate implicit in the security at the date of acquisition. The guidance also required management to determine the amount of any previously recorded OTTI charges on the TruPS that were related to credit and all other non-credit factors. At that time, in accordance with ASC 320, management considered the deteriorating financial condition of the U.S. banking sector, the credit rating downgrades, the accelerating pace of banks deferring or defaulting on their trust preferred debt, and the increasing amounts of non-accrual and delinquent loans at the underlying issuing banks. The aforementioned analysis was incorporated into the present value of the cash flows expected to be collected for each of these securities and management determined that $35.6 million of the previously recorded pre-tax OTTI charge was due to other non-credit factors and, in accordance with ASC 320, the Company recognized a cumulative effect of initially applying ASC 320 as a $21.1 million after-tax adjustment to retained earnings with a corresponding adjustment to AOCI. At June 30, 2009, we recorded an additional $1.3 million pre-tax credit related OTTI charge on these securities. At December 31, 2013, the Company had $15.6 million after tax accumulated other comprehensive income balance related to the non-credit factors in the previous OTTI charge that will be amortized to the investment balance over the remaining lives of the TruPS.
We continue to closely monitor the performance of the securities we own as well as the events surrounding this segment of the market. We will continue to evaluate for other-than-temporary impairment, which could result in a future non-cash charge to earnings.

Government Sponsored Enterprises. At December 31, 2013, bonds issued by Government Sponsored Enterprises held in our security portfolio totaled $7.5 million representing less than 0.5% of our total securities portfolio. While these securities may generally provide lower yields than other securities in our securities portfolio; they are held for liquidity purposes, as collateral for certain borrowings, to achieve positive interest rate spreads with minimal administrative expense, and to lower our credit risk as a result of the guarantees provided by these issuers.
Marketable Equity Securities. At December 31, 2013, we had $8.4 million in equity securities representing less than 0.3% of our total securities portfolio. Equity securities are not insured or guaranteed investments and are affected by market interest rates and stock market fluctuations. Such investments (when held) are carried at their fair value and fluctuations in the fair value of such investments, including temporary declines in value, directly affect our net capital position.
Municipal Bonds At December 31, 2013, we had $15.0 million of municipal bonds which represent 0.9% of our total securities portfolio. These bonds are comprised of $5.2 million in short-term Bond Anticipation or Tax Anticipation notes and $9.8 million of longer term New Jersey Revenue Bonds. These purchases were made to diversify the securities portfolio and are designated as held to maturity.


18


Securities Portfolios. The following table sets forth the composition of our investment securities portfolios at the dates indicated
 
 
At December 31,
 
 
2013
 
2012
 
2011
 
 
 
Carrying Value
 
Estimated
Fair Value
 
Carrying Value
 
Estimated
Fair Value
 
Carrying Value
 
Estimated
Fair Value
 
 
 
(In thousands)
Available-for-sale:
 
 
 
 
 
 
 
 
 
 
 
 
 
Equity securities
 
$
7,148

 
8,444

 
3,306

 
4,161

 
1,941

 
1,965

 
Government sponsored enterprises
 
3,004

 
3,004

 
3,038

 
3,035

 

 

 
Corporate and other debt securities
 
670

 
670

 

 

 

 

 
Mortgage-backed securities:
 
 
 
 
 
 
 
 
 
 
 
 
 
Federal Home Loan Mortgage Corporation
 
362,876

 
363,088

 
660,095

 
667,517

 
389,295

 
395,482

 
Federal National Mortgage Association
 
408,794

 
409,559

 
689,587

 
706,128

 
557,746

 
567,918

 
Government National Mortgage Association
 
267

 
267

 
4,414

 
4,487

 
7,212

 
7,313

 
Non-agency securities
 

 

 

 

 
10,782

 
11,037

 
Total mortgage-backed securities available for sale
 
771,937

 
772,914

 
1,354,096

 
1,378,132

 
965,035

 
981,750

 
Total securities available-for-sale
 
$
782,759

 
785,032

 
1,360,440

 
1,385,328

 
966,976

 
983,715

 
Held-to-maturity:
 
 
 
 
 
 
 
 
 
 
 
 
 
Debt securities:
 
 
 
 
 
 
 
 
 
 
 
 
 
Government sponsored enterprises
 
$
4,542

 
4,524

 
147

 
149

 
174

 
175

 
Municipal bonds
 
14,992

 
15,479

 
21,156

 
22,294

 
18,001

 
18,847

 
Corporate and other debt securities
 
29,681

 
48,604

 
29,503

 
39,295

 
25,511

 
36,706

 
 
 
49,215

 
68,607

 
50,806

 
61,738

 
43,686

 
55,728

 
Mortgage-backed securities:
 
 
 
 
 
 
 
 
 
 
 
 
 
Federal Home Loan Mortgage Corporation
 
303,617

 
297,872

 
63,033

 
66,223

 
112,540

 
117,397

 
Government National Mortgage Association
 

 

 

 

 
1,382

 
1,585

 
Federal National Mortgage Association
 
478,616

 
472,214

 
64,278

 
69,121

 
103,823

 
110,587

 
Federal housing authorities
 
371

 
371

 
1,805

 
1,811

 
2,077

 
2,137

 
Non-agency securities
 

 

 

 

 
24,163

 
24,426

 
Total mortgage-backed securities held-to-maturity
 
782,604

 
770,457

 
129,116

 
137,155

 
243,985

 
256,132

 
Total securities held-to-maturity
 
$
831,819

 
839,064

 
179,922

 
198,893

 
287,671

 
311,860

 
Total securities
 
$
1,614,578

 
1,624,096

 
1,540,362

 
1,584,221

 
1,254,647

 
1,295,575

 

At December 31, 2013, except for our investments in Fannie Mae and Freddie Mac securities, we had no investment in the securities of any issuer that had an aggregate book value in excess of 10% of our equity.

19


Portfolio Maturities and Yields. The composition and maturities of the securities portfolio at December 31, 2013 are summarized in the following table. Maturities are based on the final contractual payment dates, and do not reflect the impact of prepayments or early redemptions that may occur. State and municipal securities yields have not been adjusted to a tax-equivalent basis.

20


 
 
One Year or Less
 
More than One Year
through Five Years
 
More than Five Years
through Ten Years
 
More than Ten Years
 
Total Securities
 
 
Carrying Value
 
Weighted
Average
Yield
 
Carrying Value
 
Weighted
Average
Yield
 
Carrying Value
 
Weighted
Average
Yield
 
Carrying Value
 
Weighted
Average
Yield
 
Carrying Value
 
Fair
Value
 
Weighted
Average
Yield
 
 
(Dollars in thousands)
Available-for-Sale:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Equity securities
 
$

 

 
$

 

 
$

 

 
$
7,148

 

 
$
7,148

 
$
8,444

 

Debt Securities:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Government sponsored enterprises
 
3,004

 
0.11
%
 

 

 

 

 

 

 
3,004

 
3,004

 
0.11
%
Corporate and other debt securities
 

 

 

 

 

 

 
670

 
%
 
670

 
670

 
%
 
 
3,004

 
0.11
%
 

 

 

 

 
670

 

 
3,674

 
3,674

 
0.11
%
Mortgage-backed securities:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Federal Home Loan Mortgage Corporation
 

 

 
6,623

 
3.73
%
 
22,710

 
2.76
%
 
333,543

 
2.26
%
 
362,876

 
363,088

 
2.32
%
Federal National Mortgage Association
 

 

 
2,763

 
4.94
%
 
115,515

 
2.70
%
 
290,516

 
2.29
%
 
408,794

 
409,559

 
2.42
%
Government National Mortgage Association
 

 

 

 

 
43

 
0.49
%
 
224

 
2.34
%
 
267

 
267

 
2.04
%
Total mortgage-backed securities
 

 

 
9,386

 
4.09
%
 
138,268

 
2.71
%
 
624,283

 
2.27
%
 
771,937

 
772,914

 
2.37
%
Total securities available-for- sale
 
$
3,004

 
0.11
%
 
$
9,386

 
4.09
%
 
$
138,268

 
2.71
%
 
$
632,101

 
2.27
%
 
$
782,759

 
$
785,032

 
2.34
%
Held-to-Maturity:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Debt securities:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Government sponsored enterprises
 
$

 

 
$
4,542

 
1.04
%
 
$

 

 
$

 

 
$
4,542

 
$
4,524

 
1.04
%
Municipal bonds
 
9,707

 
1.59
%
 
280

 
3.63
%
 

 

 
5,005

 
9.13
%
 
14,992

 
15,479

 
4.14
%
Corporate and other debt securities
 

 

 

 

 

 

 
29,681

 
1.28
%
 
29,681

 
48,604

 
1.28
%
 
 
9,707

 
1.59
%
 
4,822

 
1.19
%
 

 

 
34,686

 
2.42
%
 
49,215

 
68,607

 
2.13
%
Mortgage-backed securities:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Federal Home Loan Mortgage Corporation
 

 

 
12,267

 
4.18
%
 
5,349

 
4.50
%
 
286,001

 
2.28
%
 
303,617

 
297,872

 
2.40
%
Federal National Mortgage Association
 

 

 
17,178

 
4.30
%
 
13,075

 
2.63
%
 
448,363

 
2.65
%
 
478,616

 
472,214

 
2.71
%
Federal housing authorities
 

 

 
371

 
8.90
%
 

 

 

 

 
371

 
371

 
8.90
%
Total mortgage-backed securities
 

 

 
29,816

 
4.31
%
 
18,424

 
3.31
%
 
734,364

 
2.51
%
 
782,604

 
770,457

 
2.59
%
Total securities held-to-maturity
 
$
9,707

 
1.59
%
 
$
34,638

 
3.87
%
 
$
18,424

 
3.31
%
 
$
769,050

 
2.50
%
 
$
831,819

 
$
839,064

 
2.56
%

21


Sources of Funds
General. Deposits are the primary source of funds used for our lending and investment activities. Our strategy is to increase core deposit growth to fund these activities. In addition, we use a significant amount of borrowings, primarily advances from the Federal Home Loan Bank of New York (“FHLB”); to supplement cash flow needs, to lengthen the maturities of liabilities for interest rate risk management and to manage our cost of funds. Additional sources of funds include principal and interest payments from loans and securities, loan and security prepayments and maturities, repurchase agreements, brokered deposits, income on other earning assets and retained earnings. While cash flows from loans and securities payments can be relatively stable sources of funds, deposit inflows and outflows can vary widely and are influenced by prevailing interest rates, market conditions and levels of competition.
Deposits. At December 31, 2013, we held $10.72 billion in total deposits, representing 75.0% of our total liabilities. In recent years, we have focused on changing the mix of our deposits from one focused on attracting certificates of deposit to one focused on core deposits (savings, checking and money market accounts). The impact of these efforts has been a continuing shift in deposit mix to lower cost core products. We remain committed to our plan of attracting more core deposits because core deposits represent a more stable source of low cost funds and are less sensitive to changes in market interest rates. At December 31, 2013, we held $7.33 billion in core deposits, representing 68.4% of total deposits. This is an increase of $1.53 billion, or 26.4%, when compared to December 31, 2012, when our core deposits were $5.80 billion. At December 31, 2013, $3.38 billion, or 31.6%, of our total deposit balances were certificates of deposit, which included $290.7 million of brokered deposits. We intend to continue to invest in branch staff training and to aggressively market and advertise our core deposit products and will attempt to generate our deposits from a diverse client group within our primary market area. We remain focused on attracting deposits from municipalities and C&I businesses which operate in our marketplace.
We have a suite of commercial deposit products, designed to appeal to small business owners and non-profit organizations. The interest rates we pay, our maturity terms, service fees and withdrawal penalties are all reviewed on a periodic basis. Deposit rates and terms are based primarily on our current operating strategies, market rates, liquidity requirements, rates paid by competitors and growth goals. We also rely on personalized customer service, long-standing relationships with customers and an active marketing program to attract and retain deposits.
The flow of deposits is influenced significantly by general economic conditions, changes in money market and other prevailing interest rates and competition. The variety of deposit accounts we offer allows us to respond to changes in consumer demands and to be competitive in obtaining deposit funds. Our ability to attract and maintain deposits and the rates we pay on deposits will continue to be significantly affected by market conditions.
The following table sets forth the distribution of total deposit accounts, by account type, at the dates indicated.
 
 
At December 31,
 
2013
 
2012
 
2011
 
Balance
Percent
of Total
Deposits
Weighted
Average
Rate
 
Balance
Percent
of Total
Deposits
Weighted
Average
Rate
 
Balance
Percent
of Total
Deposits
Weighted
Average
Rate
 
(Dollars in thousands)
Savings
$
2,212,034

20.64
%
0.28
%
 
$
1,718,199

19.59
%
0.37
%
 
$
1,270,197

17.25
%
0.64
%
Checking accounts
3,163,250

29.50

0.17

 
2,498,829

28.50

0.21

 
1,633,703

22.19

0.32

Money market deposits
1,958,982

18.28

0.34

 
1,585,865

18.09

0.37

 
1,116,205

15.16

0.67

Total core deposits
7,334,266

68.42

0.25

 
5,802,893

66.18

0.30

 
4,020,105

54.60

0.52

Certificates of deposit
3,384,545

31.58

0.83

 
2,965,964

33.82

1.19

 
3,341,898

45.40