0001628280-18-010890.txt : 20180809 0001628280-18-010890.hdr.sgml : 20180809 20180809124017 ACCESSION NUMBER: 0001628280-18-010890 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 76 CONFORMED PERIOD OF REPORT: 20180630 FILED AS OF DATE: 20180809 DATE AS OF CHANGE: 20180809 FILER: COMPANY DATA: COMPANY CONFORMED NAME: PROVIDENT FINANCIAL SERVICES INC CENTRAL INDEX KEY: 0001178970 STANDARD INDUSTRIAL CLASSIFICATION: SAVINGS INSTITUTION, FEDERALLY CHARTERED [6035] IRS NUMBER: 421547151 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-31566 FILM NUMBER: 181004234 BUSINESS ADDRESS: STREET 1: 830 BERGEN AVENUE CITY: JERSEY CITY STATE: NJ ZIP: 07306 BUSINESS PHONE: 2013331000 10-Q 1 pfs-6302018x10q.htm 10-Q Document


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
ý
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
 
 
For the quarterly period ended June 30, 2018
or
¨
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
 
 
For the transition period from              to
Commission File Number: 001-31566
PROVIDENT FINANCIAL SERVICES, INC.
(Exact Name of Registrant as Specified in Its Charter)  
Delaware
 
42-1547151
(State or Other Jurisdiction of Incorporation or Organization)
 
(I.R.S. Employer Identification No.)
 
 
239 Washington Street, Jersey City, New Jersey
 
07302
(Address of Principal Executive Offices)
 
(Zip Code)
(732) 590-9200
(Registrant’s Telephone Number, Including Area Code)
Indicate by check mark whether the Registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding twelve months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    YES  ý    NO  ¨
Indicate by check mark whether the Registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding twelve months (or for such shorter period that the Registrant was required to submit and post such files).    YES  ý    NO  ¨
Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act. (Check one):
Large Accelerated Filer
 
ý
  
Accelerated Filer
 
¨
 
 
 
 
Non-Accelerated Filer
 
¨
  
Smaller Reporting Company
 
¨
 
 
 
 
 
 
 
 
 
 
 
Emerging Growth Company
 
¨
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨
Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    YES  ¨    NO  ý
As of August 1, 2018 there were 83,209,293 shares issued and 67,090,176 shares outstanding of the Registrant’s Common Stock, par value $0.01 per share, including 267,261 shares held by the First Savings Bank Directors’ Deferred Fee Plan not otherwise considered outstanding under U.S. generally accepted accounting principles.




PROVIDENT FINANCIAL SERVICES, INC.
INDEX TO FORM 10-Q
 
Item Number
Page Number
 
 
 
 
1.
 
 
 
 
 
Consolidated Statements of Financial Condition as of June 30, 2018 (unaudited) and December 31, 2017
 
 
 
 
Consolidated Statements of Income for the three and six months ended June 30, 2018 and 2017 (unaudited)
 
 
 
 
Consolidated Statements of Comprehensive Income for the three and six months ended June 30, 2018 and 2017 (unaudited)
 
 
 
 
Consolidated Statements of Changes in Stockholders’ Equity for the six months ended June 30, 2018 and 2017 (unaudited)
 
 
 
 
Consolidated Statements of Cash Flows for the six months ended June 30, 2018 and 2017 (unaudited)
 
 
 
 
 
 
 
2.
 
 
 
3.
 
 
 
4.
 
 
 
 
1.
 
 
 
1A.
 
 
 
2.
 
 
 
3.
Defaults Upon Senior Securities
 
 
 
4.
 
 
 
5.
 
 
 
6.
 
 

2



PART I—FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS.
PROVIDENT FINANCIAL SERVICES, INC. AND SUBSIDIARY
Consolidated Statements of Financial Condition
June 30, 2018 (Unaudited) and December 31, 2017
(Dollars in Thousands)
 
 
 
June 30, 2018
 
December 31, 2017
ASSETS
 
 
 
 
Cash and due from banks
 
$
91,192

 
$
139,557

Short-term investments
 
50,761

 
51,277

Total cash and cash equivalents
 
141,953

 
190,834

Available for sale debt securities, at fair value
 
1,052,534

 
1,037,154

Held to maturity debt securities (fair value of $472,185 at June 30, 2018 (unaudited) and $485,039 at December 31, 2017)
 
473,825

 
477,652

Equity securities, at fair value
 
687

 
658

Federal Home Loan Bank stock
 
76,772

 
81,184

Loans
 
7,253,242

 
7,325,718

Less allowance for loan losses
 
58,819

 
60,195

Net loans
 
7,194,423

 
7,265,523

Foreclosed assets, net
 
6,537

 
6,864

Banking premises and equipment, net
 
60,348

 
63,185

Accrued interest receivable
 
29,735

 
29,646

Intangible assets
 
419,180

 
420,290

Bank-owned life insurance
 
192,082

 
189,525

Other assets
 
84,836

 
82,759

Total assets
 
$
9,732,912

 
$
9,845,274

 
 
 
 
 
LIABILITIES AND STOCKHOLDERS’ EQUITY
 
 
 
 
Deposits:
 
 
 
 
Demand deposits
 
$
4,953,994

 
$
4,996,345

Savings deposits
 
1,070,397

 
1,083,012

Certificates of deposit of $100,000 or more
 
325,653

 
316,074

Other time deposits
 
323,905

 
318,735

Total deposits
 
6,673,949

 
6,714,166

Mortgage escrow deposits
 
30,106

 
25,933

Borrowed funds
 
1,641,539

 
1,742,514

Other liabilities
 
76,056

 
64,000

Total liabilities
 
8,421,650

 
8,546,613

Stockholders’ Equity:
 
 
 
 
Preferred stock, $0.01 par value, 50,000,000 shares authorized, none issued
 

 

Common stock, $0.01 par value, 200,000,000 shares authorized, 83,209,293 shares issued and 66,780,853 shares outstanding at June 30, 2018 and 66,535,017 outstanding at December 31, 2017
 
832

 
832

Additional paid-in capital
 
1,017,256

 
1,012,908

Retained earnings
 
606,423

 
586,132

Accumulated other comprehensive loss
 
(19,912
)
 
(7,465
)
Treasury stock
 
(260,908
)
 
(259,907
)
Unallocated common stock held by the Employee Stock Ownership Plan
 
(32,429
)
 
(33,839
)
Common stock acquired by the Directors’ Deferred Fee Plan
 
(4,840
)
 
(5,175
)
Deferred compensation – Directors’ Deferred Fee Plan
 
4,840

 
5,175

Total stockholders’ equity
 
1,311,262

 
1,298,661

Total liabilities and stockholders’ equity
 
$
9,732,912

 
$
9,845,274

See accompanying notes to unaudited consolidated financial statements.

3



PROVIDENT FINANCIAL SERVICES, INC. AND SUBSIDIARY
Consolidated Statements of Income
Three and six months ended June 30, 2018 and 2017 (Unaudited)
(Dollars in Thousands, except per share data)
 
 
 
Three months ended June 30,
 
Six months ended June 30,
 
 
2018
 
2017
 
2018
 
2017
Interest income:
 
 
 
 
 
 
 
 
Real estate secured loans
 
$
52,756

 
$
47,009

 
$
104,266

 
$
93,020

Commercial loans
 
19,350

 
18,100

 
38,476

 
34,920

Consumer loans
 
4,945

 
5,196

 
9,850

 
10,210

Available for sale debt securities, equity securities and Federal Home Loan Bank Stock
 
7,682

 
6,548

 
14,933

 
13,111

Held to maturity debt securities
 
3,154

 
3,292

 
6,298

 
6,540

Deposits, Federal funds sold and other short-term investments
 
428

 
298

 
823

 
555

Total interest income
 
88,315

 
80,443

 
174,646

 
158,356

Interest expense:
 
 
 
 
 
 
 
 
Deposits
 
6,996

 
4,653

 
13,231

 
9,105

Borrowed funds
 
7,039

 
6,735

 
13,858

 
13,161

Total interest expense
 
14,035

 
11,388

 
27,089

 
22,266

Net interest income
 
74,280

 
69,055

 
147,557

 
136,090

Provision for loan losses
 
15,500

 
1,700

 
20,900

 
3,200

Net interest income after provision for loan losses
 
58,780

 
67,355

 
126,657

 
132,890

Non-interest income:
 
 
 
 
 
 
 
 
Fees
 
6,612

 
7,255

 
13,251

 
13,260

Wealth management income
 
4,602

 
4,509

 
9,002

 
8,722

Bank-owned life insurance
 
1,293

 
2,549

 
2,557

 
3,938

Net gain on securities transactions
 

 
11

 
1

 
11

Other income
 
1,330

 
495

 
2,333

 
1,353

Total non-interest income
 
13,837

 
14,819

 
27,144

 
27,284

Non-interest expense:
 
 
 
 
 
 
 
 
Compensation and employee benefits
 
27,983

 
26,910

 
55,852

 
53,758

Net occupancy expense
 
6,383

 
6,195

 
13,128

 
13,150

Data processing expense
 
3,626

 
3,531

 
7,232

 
6,988

FDIC insurance
 
900

 
999

 
1,953

 
2,098

Amortization of intangibles
 
546

 
695

 
1,116

 
1,447

Advertising and promotion expense
 
847

 
945

 
1,814

 
1,802

Other operating expenses
 
8,521

 
8,065

 
14,621

 
14,221

Total non-interest expense
 
48,806

 
47,340

 
95,716

 
93,464

Income before income tax expense
 
23,811

 
34,834

 
58,085

 
66,710

Income tax expense
 
4,568

 
10,451

 
10,929

 
18,819

Net income
 
$
19,243

 
$
24,383

 
$
47,156

 
$
47,891

Basic earnings per share
 
$
0.30

 
$
0.38

 
$
0.73

 
$
0.75

Weighted average basic shares outstanding
 
64,911,919

 
64,357,684

 
64,840,843

 
64,263,065

Diluted earnings per share
 
$
0.30

 
$
0.38

 
$
0.73

 
$
0.74

Weighted average diluted shares outstanding
 
65,099,603

 
64,541,071

 
65,024,917

 
64,455,873


See accompanying notes to unaudited consolidated financial statements.

4



PROVIDENT FINANCIAL SERVICES, INC. AND SUBSIDIARY
Consolidated Statements of Comprehensive Income
Three and six months ended June 30, 2018 and 2017 (Unaudited)
(Dollars in Thousands)
 
 
 
Three months ended June 30,
 
Six months ended June 30,
 
 
2018
 
2017
 
2018
 
2017
Net income
 
$
19,243

 
$
24,383

 
$
47,156

 
$
47,891

Other comprehensive (loss) income, net of tax:
 
 
 
 
 
 
 
 
Unrealized gains and losses on securities available for sale:
 
 
 
 
 
 
 
 
Net unrealized (losses) gains arising during the period
 
(3,438
)
 
1,228

 
(13,077
)
 
1,999

Reclassification adjustment for gains included in net income
 

 

 

 

Total
 
(3,438
)
 
1,228

 
(13,077
)
 
1,999

Unrealized gains (losses) on derivatives
 
148

 
(3
)
 
678

 
52

Amortization related to post-retirement obligations
 
74

 
37

 
136

 
69

Total other comprehensive (loss) income
 
(3,216
)
 
1,262

 
(12,263
)
 
2,120

Total comprehensive income
 
$
16,027

 
$
25,645

 
$
34,893

 
$
50,011

See accompanying notes to unaudited consolidated financial statements.


5



PROVIDENT FINANCIAL SERVICES, INC. AND SUBSIDIARY
Consolidated Statements of Changes in Stockholders’ Equity
Six months ended June 30, 2018 and 2017 (Unaudited)
(Dollars in Thousands)
 
 
 
COMMON
STOCK
 
ADDITIONAL
PAID-IN
CAPITAL
 
RETAINED
EARNINGS
 
ACCUMULATED
OTHER
COMPREHENSIVE
 (LOSS) INCOME
 
TREASURY
STOCK
 
UNALLOCATED
ESOP
SHARES
 
COMMON
STOCK
ACQUIRED
BY DDFP
 
DEFERRED
COMPENSATION
DDFP
 
TOTAL
STOCKHOLDERS’
EQUITY
Balance at December 31, 2016
 
$
832

 
$
1,005,777

 
$
550,768

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

 
$
1,251,781

Net income
 

 

 
47,891

 

 

 

 

 

 
47,891

Other comprehensive income, net of tax
 

 

 

 
2,120

 

 

 

 

 
2,120

Cash dividends paid
 

 

 
(25,309
)
 

 

 

 

 

 
(25,309
)
Distributions from DDFP
 

 
114

 

 

 

 

 
335

 
(335
)
 
114

Purchases of treasury stock
 

 

 

 

 
(443
)
 

 

 

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

 

 

 

 
(709
)
 

 

 

 
(709
)
Shares issued dividend reinvestment plan
 

 
284

 

 

 
626

 

 

 

 
910

Stock option exercises
 

 
(1,017
)
 

 

 
3,532

 

 

 

 
2,515

Allocation of ESOP shares
 

 
710

 

 

 

 
1,410

 

 

 
2,120

Allocation of SAP shares
 

 
2,514

 

 

 

 

 

 

 
2,514

Allocation of stock options
 

 
97

 

 

 

 

 

 

 
97

Balance at June 30, 2017
 
$
832

 
$
1,008,479

 
$
573,350

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

 
$
1,283,601

See accompanying notes to unaudited consolidated financial statements.

6





PROVIDENT FINANCIAL SERVICES, INC. AND SUBSIDIARY
Consolidated Statements of Changes in Stockholders’ Equity
Six months ended June 30, 2018 and 2017 (Unaudited) (Continued)
(Dollars in Thousands)
 
 
 
COMMON
STOCK
 
ADDITIONAL
PAID-IN
CAPITAL
 
RETAINED
EARNINGS
 
ACCUMULATED
OTHER
COMPREHENSIVE
LOSS
 
TREASURY
STOCK
 
UNALLOCATED
ESOP
SHARES
 
COMMON
STOCK
ACQUIRED
BY DDFP
 
DEFERRED
COMPENSATION
DDFP
 
TOTAL
STOCKHOLDERS’
EQUITY
Balance at December 31, 2017
 
$
832

 
$
1,012,908

 
$
586,132

 
$
(7,465
)
 
$
(259,907
)
 
$
(33,839
)
 
$
(5,175
)
 
$
5,175

 
$
1,298,661

Net income
 

 

 
47,156

 

 

 

 

 

 
47,156

Other comprehensive loss, net of tax
 

 

 

 
(12,263
)
 

 

 

 

 
(12,263
)
Cash dividends paid
 

 

 
(27,049
)
 

 

 

 

 

 
(27,049
)
Effect of adopting Accounting Standards Update ("ASU") No. 2016-01
 

 

 
184

 
(184
)
 

 

 

 

 

Distributions from DDFP
 

 
81

 

 

 

 

 
335

 
(335
)
 
81

Purchases of treasury stock
 

 

 

 

 

 

 

 

 

Purchase of employee restricted shares to fund statutory tax withholding
 

 


 

 

 
(1,847
)
 

 

 

 
(1,847
)
Shares issued dividend reinvestment plan
 

 
305

 

 

 
554

 

 

 

 
859

Stock option exercises
 

 
(85
)
 

 

 
292

 

 

 

 
207

Allocation of ESOP shares
 

 
795

 

 

 

 
1,410

 

 

 
2,205

Allocation of SAP shares
 

 
3,159

 

 

 

 

 

 

 
3,159

Allocation of stock options
 

 
93

 

 

 

 

 

 

 
93

Balance at June 30, 2018
 
$
832

 
$
1,017,256

 
$
606,423

 
$
(19,912
)
 
$
(260,908
)
 
$
(32,429
)
 
$
(4,840
)
 
$
4,840

 
$
1,311,262

See accompanying notes to unaudited consolidated financial statements.


7



PROVIDENT FINANCIAL SERVICES, INC. AND SUBSIDIARY
Consolidated Statements of Cash Flows
Six months ended June 30, 2018 and 2017 (Unaudited)
(Dollars in Thousands)
 
 
 
Six months ended June 30,
 
 
2018
 
2017
Cash flows from operating activities:
 
 
 
 
Net income
 
$
47,156

 
$
47,891

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
 
Depreciation and amortization of intangibles
 
5,092

 
5,971

Provision for loan losses
 
20,900

 
3,200

Deferred tax expense
 
(22,111
)
 
840

Income on Bank-owned life insurance
 
(2,557
)
 
(3,938
)
Net amortization of premiums and discounts on securities
 
4,458

 
4,911

Accretion of net deferred loan fees
 
(2,404
)
 
(2,422
)
Amortization of premiums on purchased loans, net
 
405

 
516

Net increase in loans originated for sale
 
(4,545
)
 
(13,752
)
Proceeds from sales of loans originated for sale
 
5,111

 

Proceeds from sales and paydowns of foreclosed assets
 
2,063

 
3,540

ESOP expense
 
2,205

 
2,120

Allocation of stock award shares
 
3,159

 
2,514

Allocation of stock options
 
93

 
97

Net gain on sale of loans
 
(566
)
 
(348
)
Net gain on securities transactions
 
(1
)
 
(11
)
Net gain on sale of premises and equipment
 
(25
)
 

Net gain on sale of foreclosed assets
 
(559
)
 
(501
)
Decrease (increase) in accrued interest receivable
 
89

 
(8
)
Decrease (increase) in other assets
 
3,223

 
(3,723
)
Increase (decrease) in other liabilities
 
12,056

 
(6,674
)
Net cash provided by operating activities
 
73,242

 
40,223

Cash flows from investing activities:
 
 
 
 
Proceeds from maturities, calls and paydowns of held to maturity debt securities
 
24,997

 
25,638

Purchases of held to maturity debt securities
 
(22,470
)
 
(31,572
)
Proceeds from maturities, calls and paydowns of available for sale debt securities
 
101,691

 
100,502

Purchases of available for sale debt securities
 
(138,020
)
 
(99,268
)
Proceeds from redemption of Federal Home Loan Bank stock
 
75,655

 
57,658

Purchases of Federal Home Loan Bank stock
 
(71,243
)
 
(60,881
)
Purchases of loans
 
(1,344
)
 

Net decrease (increase) in loans
 
74,574

 
(13,922
)
Proceeds from sales of premises and equipment
 
25

 

Purchases of premises and equipment
 
(1,139
)
 
(1,108
)
Net cash provided by (used in) investing activities
 
42,726

 
(22,953
)
Cash flows from financing activities:
 
 
 
 
Net decrease in deposits
 
(40,217
)
 
(53,092
)
Increase in mortgage escrow deposits
 
4,173

 
4,489

Cash dividends paid to stockholders
 
(27,049
)
 
(25,309
)
Shares issued through the dividend reinvestment plan
 
859

 
910

Purchases of treasury stock
 

 
(443
)
Purchase of employee restricted shares to fund statutory tax withholding
 
(1,847
)
 
(709
)

8



 
 
Six months ended June 30,
 
 
2018
 
2017
Stock options exercised
 
207

 
2,515

Proceeds from long-term borrowings
 
525,000

 
171,980

Payments on long-term borrowings
 
(410,834
)
 
(202,019
)
Net (decrease) increase in short-term borrowings
 
(215,141
)
 
93,513

Net cash used in financing activities
 
(164,849
)
 
(8,165
)
Net (decrease) increase in cash and cash equivalents
 
(48,881
)
 
9,105

Cash and cash equivalents at beginning of period
 
190,834

 
144,297

Cash and cash equivalents at end of period
 
$
141,953

 
$
153,402

Cash paid during the period for:
 
 
 
 
Interest on deposits and borrowings
 
$
26,925

 
$
22,422

Income taxes
 
$
4,128

 
$
15,491

Non-cash investing activities:
 
 
 
 
Transfer of loans receivable to foreclosed assets
 
$
1,245

 
$
2,019

See accompanying notes to unaudited consolidated financial statements.

9



PROVIDENT FINANCIAL SERVICES, INC. AND SUBSIDIARY
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
Note 1. Summary of Significant Accounting Policies
A. Basis of Financial Statement Presentation
The accompanying unaudited consolidated financial statements include the accounts of Provident Financial Services, Inc. and its wholly owned subsidiary, Provident Bank (the “Bank,” together with Provident Financial Services, Inc., the “Company”).
In preparing the interim unaudited consolidated financial statements, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the consolidated statements of financial condition and the consolidated statements of income for the periods presented. Actual results could differ from these estimates. The allowance for loan losses, the valuation of securities available for sale and the valuation of deferred tax assets are material estimates that are particularly susceptible to near-term change.
The interim unaudited consolidated financial statements reflect all normal and recurring adjustments, which are, in the opinion of management, considered necessary for a fair presentation of the financial condition and results of operations for the periods presented. The results of operations for the three and six months ended June 30, 2018 are not necessarily indicative of the results of operations that may be expected for all of 2018.
Certain information and note disclosures normally included in financial statements prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) have been condensed or omitted pursuant to the rules and regulations of the Securities and Exchange Commission. Certain reclassifications have been made in the consolidated financial statements to conform with current year classifications.
These unaudited consolidated financial statements should be read in conjunction with the December 31, 2017 Annual Report to Stockholders on Form 10-K.
B. Earnings Per Share
The following is a reconciliation of the numerators and denominators of the basic and diluted earnings per share calculations for the three and six months ended June 30, 2018 and 2017 (dollars in thousands, except per share amounts):
 
 
Three months ended June 30,
 
 
 
2018
 
2017
 
 
 
Net
Income
 
Weighted
Average
Common
Shares
Outstanding
 
Per
Share
Amount
 
Net
Income
 
Weighted
Average
Common
Shares
Outstanding
 
Per
Share
Amount
 
Net income
 
$
19,243

 
 
 
 
 
$
24,383

 
 
 
 
 
Basic earnings per share:
 
 
 
 
 
 
 
 
 
 
 
 
 
Income available to common stockholders
 
$
19,243

 
64,911,919

 
$
0.30

 
$
24,383

 
64,357,684

 
$
0.38

 
Dilutive shares
 
 
 
187,684

 
 
 
 
 
183,387

 
 
 
Diluted earnings per share:
 
 
 
 
 
 
 
 
 
 
 
 
 
Income available to common stockholders
 
$
19,243

 
65,099,603

 
$
0.30

 
$
24,383

 
64,541,071

 
$
0.38

 

10



 
 
Six months ended June 30,
 
 
 
2018
 
2017
 
 
 
Net
Income
 
Weighted
Average
Common
Shares
Outstanding
 
Per
Share
Amount
 
Net
Income
 
Weighted
Average
Common
Shares
Outstanding
 
Per
Share
Amount
 
Net income
 
$
47,156

 
 
 
 
 
$
47,891

 
 
 
 
 
Basic earnings per share:
 
 
 
 
 
 
 
 
 
 
 
 
 
Income available to common stockholders
 
$
47,156

 
64,840,843

 
$
0.73

 
$
47,891

 
64,263,065

 
$
0.75

 
Dilutive shares
 
 
 
184,074

 
 
 
 
 
192,808

 
 
 
Diluted earnings per share:
 
 
 
 
 
 
 
 
 
 
 
 
 
Income available to common stockholders
 
$
47,156

 
65,024,917

 
$
0.73

 
$
47,891

 
64,455,873

 
$
0.74

 
Antidilutive stock options and awards at June 30, 2018 and 2017, totaling 420,544 shares and 437,904 shares, respectively, were excluded from the earnings per share calculations.

11



Note 2. Investment Securities
At June 30, 2018, the Company had $1.05 billion and $473.8 million in available for sale debt securities and held to maturity debt securities, respectively. Many factors, including lack of liquidity in the secondary market for certain securities, variations in pricing information, regulatory actions, changes in the business environment or any changes in the competitive marketplace could have an adverse effect on the Company’s investment portfolio which could result in other-than-temporary impairment ("OTTI") in future periods. The total number of available for sale and held to maturity debt securities in an unrealized loss position as of June 30, 2018, totaled 595, compared with 306 at December 31, 2017. All securities with unrealized losses at June 30, 2018 were analyzed for OTTI. Based upon this analysis, the Company believes that as of June 30, 2018, such securities with unrealized losses do not represent impairments that are other-than-temporary.
Available for Sale Debt Securities
The following tables present the amortized cost, gross unrealized gains, gross unrealized losses and the fair value for available for sale debt securities at June 30, 2018 and December 31, 2017 (in thousands):
 

June 30, 2018
 

Amortized
cost

Gross
unrealized
gains

Gross
unrealized
losses
 
Fair
value
Agency obligations

5,003




(4
)
 
4,999

Mortgage-backed securities

1,041,736


1,932


(24,542
)
 
1,019,126

State and municipal obligations

3,237


81



 
3,318

Corporate obligations
 
25,043

 
200

 
(152
)
 
25,091

 

$
1,075,019


2,213


(24,698
)
 
1,052,534

 
 
December 31, 2017
 
 
Amortized
cost
 
Gross
unrealized
gains
 
Gross
unrealized
losses
 
Fair
value
Agency obligations
 
19,014

 

 
(9
)
 
19,005

Mortgage-backed securities
 
993,548

 
4,914

 
(10,095
)
 
988,367

State and municipal obligations
 
3,259

 
129

 

 
3,388

Corporate obligations
 
26,047

 
359

 
(12
)
 
26,394

 
 
$
1,041,868

 
5,402

 
(10,116
)
 
1,037,154

The amortized cost and fair value of available for sale debt securities at June 30, 2018, by contractual maturity, are shown below (in thousands). Expected maturities may differ from contractual maturities due to prepayment or early call privileges of the issuer.
 
 
June 30, 2018
 
 
Amortized
cost
 
Fair
value
Due in one year or less
 
$

 

Due after one year through five years
 
8,400

 
8,338

Due after five years through ten years
 
24,883

 
25,070

Due after ten years
 

 

 
 
$
33,283

 
33,408

Mortgage-backed securities totaling $1.04 billion at amortized cost and $1.02 billion at fair value are excluded from the table above as their expected lives are likely to be shorter than the contractual maturity date due to principal prepayments.
For the three and six months ended June 30, 2018, no securities were sold or called from the available for sale debt securities portfolio. For the three and six months ended June 30, 2017, no securities were sold or called from the available for sale debt securities portfolio.

12



The following tables present the fair value and gross unrealized losses for available for sale debt securities with temporary impairment at June 30, 2018 and December 31, 2017 (in thousands):
 

June 30, 2018 Unrealized Losses
 

Less than 12 months
 
12 months or longer
 
Total
 

Fair 
value
 
Gross
unrealized
losses
 
Fair
value
 
Gross
unrealized
losses
 
Fair
value
 
Gross
unrealized
losses
Agency obligations

4,999

 
(4
)
 

 

 
4,999

 
(4
)
Mortgage-backed securities

684,255

 
(14,301
)
 
221,953

 
(10,241
)
 
906,208

 
(24,542
)
Corporate obligations
 
7,855

 
(152
)
 

 

 
7,855

 
(152
)


$
697,109

 
(14,457
)
 
221,953

 
(10,241
)
 
919,062

 
(24,698
)
 

December 31, 2017 Unrealized Losses
 

Less than 12 months
 
12 months or longer
 
Total
 

Fair
value
 
Gross
unrealized
losses
 
Fair
value
 
Gross
unrealized
losses
 
Fair
value
 
Gross
unrealized
losses
Agency obligations
 
$
12,006

 
(8
)
 
6,999

 
(1
)
 
19,005

 
(9
)
Mortgage-backed securities
 
420,746

 
(3,936
)
 
235,056

 
(6,159
)
 
655,802

 
(10,095
)
Corporate obligations
 

 

 
989

 
(12
)
 
989

 
(12
)


$
432,752

 
(3,944
)
 
243,044

 
(6,172
)
 
675,796

 
(10,116
)
The number of available for sale debt securities in an unrealized loss position at June 30, 2018 totaled 192, compared with 122 at December 31, 2017. The increase in the number of securities in an unrealized loss position at June 30, 2018, was due to higher current market interest rates compared to rates at December 31, 2017. All temporarily impaired securities were investment grade at June 30, 2018. At June 30, 2018, there were two private label mortgage-backed securities in an unrealized loss position, with an amortized cost of $39,000 and an unrealized loss of $1,000. These private label mortgage-backed securities were investment grade at June 30, 2018.
The Company estimates the loss projections for each non-agency mortgage-backed security by stressing the individual loans collateralizing the security and applying a range of expected default rates, loss severities, and prepayment speeds in conjunction with the underlying credit enhancement for each security. Based on specific assumptions about collateral and vintage, a range of possible cash flows was identified to determine whether other-than-temporary impairment existed during the six months ended June 30, 2018. Based on its detailed review of the available for sale debt securities portfolio, the Company believes that as of June 30, 2018, securities with unrealized loss positions shown above do not represent impairments that are other-than-temporary. The Company does not have the intent to sell securities in a temporary loss position at June 30, 2018, nor is it more likely than not that the Company will be required to sell the securities before the anticipated recovery.
Held to Maturity Debt Securities
The following tables present the amortized cost, gross unrealized gains, gross unrealized losses and the estimated fair value for held to maturity debt securities at June 30, 2018 and December 31, 2017 (in thousands):
 
 
June 30, 2018
 
 
Amortized
cost
 
Gross
unrealized
gains
 
Gross
unrealized
losses
 
Fair
value
Agency obligations

$
4,987

 

 
(143
)
 
4,844

Mortgage-backed securities

248

 
8

 

 
256

State and municipal obligations

458,624

 
4,074

 
(5,373
)
 
457,325

Corporate obligations

9,966

 
1

 
(207
)
 
9,760

 

$
473,825

 
4,083

 
(5,723
)
 
472,185

 
 
 
 
 
 
 
 
 

13



 
 
December 31, 2017
 
 
Amortized
cost
 
Gross
unrealized
gains
 
Gross
unrealized
losses
 
Fair
value
Agency obligations
 
$
4,308

 

 
(87
)
 
4,221

Mortgage-backed securities
 
382

 
14

 

 
396

State and municipal obligations
 
462,942

 
9,280

 
(1,738
)
 
470,484

Corporate obligations
 
10,020

 
1

 
(83
)
 
9,938

 
 
$
477,652

 
9,295

 
(1,908
)
 
485,039

The Company generally purchases securities for long-term investment purposes, and differences between amortized cost and fair values may fluctuate during the investment period. There were no sales of securities from the held to maturity debt securities portfolio for the three and six months ended June 30, 2018 and 2017. For the three and six months ended June 30, 2018, proceeds from calls on securities in the held to maturity debt securities portfolio totaled $195,000 and $20.5 million, respectively. There were no gross gains on calls for the three months ended June 30, 2018 and $1,000 for the six months ended June 30, 2018, and no gross losses in both the three and six month periods. For the three and six months ended June 30, 2017, proceeds from calls of securities in the held to maturity debt securities portfolio totaled $7.9 million and $20.7 million, respectively, with gross gains of $11,000 and no gross losses recognized in both the three and six month periods.
The amortized cost and fair value of investment securities in the held to maturity debt securities portfolio at June 30, 2018 by contractual maturity are shown below (in thousands). Expected maturities may differ from contractual maturities due to prepayment or early call privileges of the issuer.
 
 
June 30, 2018
 
 
Amortized
cost
 
Fair
value
Due in one year or less

$
5,143

 
5,165

Due after one year through five years

75,121

 
75,177

Due after five years through ten years

261,417

 
260,745

Due after ten years

131,896

 
130,842



$
473,577

 
471,929

Mortgage-backed securities totaling $248,000 at amortized cost and $256,000 at fair value are excluded from the table above as their expected lives are likely to be shorter than the contractual maturity date due to principal prepayments.
The following tables present the fair value and gross unrealized losses for held to maturity debt securities with temporary impairment at June 30, 2018 and December 31, 2017 (in thousands):
 
 
June 30, 2018 Unrealized Losses
 
 
Less than 12 months
 
12 months or longer
 
Total
 
 
Fair
value
 
Gross
unrealized
losses
 
Fair
value
 
Gross
unrealized
losses
 
Fair
value
 
Gross
unrealized
losses
Agency obligations

$
4,475

 
(143
)
 

 

 
4,475

 
(143
)
State and municipal obligations

168,467

 
(2,667
)
 
48,054

 
(2,706
)
 
216,521

 
(5,373
)
Corporate obligations

8,984

 
(207
)
 

 

 
8,984

 
(207
)
 

$
181,926

 
(3,017
)
 
48,054

 
(2,706
)
 
229,980

 
(5,723
)
 
 
December 31, 2017 Unrealized Losses
 
 
Less than 12 months
 
12 months or longer
 
Total
 
 
Fair
value
 
Gross
unrealized
losses
 
Fair
value
 
Gross
unrealized
losses
 
Fair
value
 
Gross
unrealized
losses
Agency obligations
 
$
3,821

 
(87
)
 

 

 
3,821

 
(87
)
State and municipal obligations
 
37,317

 
(295
)
 
49,488

 
(1,443
)
 
86,805

 
(1,738
)
Corporate obligations
 
9,662

 
(83
)
 

 

 
9,662

 
(83
)
 
 
$
50,800

 
(465
)
 
49,488

 
(1,443
)
 
100,288

 
(1,908
)

14



The Company estimates the loss projections for each non-agency mortgage-backed security by stressing the individual loans collateralizing the security and applying a range of expected default rates, loss severities, and prepayment speeds in conjunction with the underlying credit enhancement for each security. Based on specific assumptions about collateral and vintage, a range of possible cash flows was identified to determine whether other-than-temporary impairment existed during the three months ended June 30, 2018. Based on its detailed review of the held to maturity debt securities portfolio, the Company believes that as of June 30, 2018, securities with unrealized loss positions shown above do not represent impairments that are other-than-temporary. The Company does not have the intent to sell securities in a temporary loss position at June 30, 2018, nor is it more likely than not that the Company will be required to sell the securities before the anticipated recovery.
The number of held to maturity debt securities in an unrealized loss position at June 30, 2018 totaled 403, compared with 184 at December 31, 2017. The increase in the number of securities in an unrealized loss position at June 30, 2018, was due to higher current market interest rates compared to rates at December 31, 2017. All temporarily impaired investment securities were investment grade at June 30, 2018.

15



Note 3. Loans Receivable and Allowance for Loan Losses
Loans receivable at June 30, 2018 and December 31, 2017 are summarized as follows (in thousands):
 
 
June 30, 2018
 
December 31, 2017
Mortgage loans:
 
 
 
 
Residential
 
$
1,118,140

 
1,142,347

Commercial
 
2,185,339

 
2,171,056

Multi-family
 
1,405,805

 
1,403,885

Construction
 
406,893

 
392,580

Total mortgage loans
 
5,116,177

 
5,109,868

Commercial loans
 
1,688,477

 
1,745,138

Consumer loans
 
451,920

 
473,957

Total gross loans
 
7,256,574

 
7,328,963

Purchased credit-impaired ("PCI") loans
 
928

 
969

Premiums on purchased loans
 
3,668

 
4,029

Unearned discounts
 
(35
)
 
(36
)
Net deferred fees
 
(7,893
)
 
(8,207
)
Total loans
 
$
7,253,242

 
7,325,718

The following tables summarize the aging of loans receivable by portfolio segment and class of loans, excluding PCI loans (in thousands):
 
 
June 30, 2018
 
 
30-59
Days
 
60-89
Days
 
Non-accrual
 
Recorded
Investment
> 90 days
accruing
 
Total Past
Due
 
Current
 
Total Loans
Receivable
Mortgage loans:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Residential
 
$
4,696

 
2,924

 
8,984

 

 
16,604

 
1,101,536

 
1,118,140

Commercial
 
1,116

 
59

 
4,149

 

 
5,324

 
2,180,015

 
2,185,339

Multi-family
 

 
400

 

 

 
400

 
1,405,405

 
1,405,805

Construction
 

 

 

 

 

 
406,893

 
406,893

Total mortgage loans
 
5,812

 
3,383

 
13,133

 

 
22,328

 
5,093,849

 
5,116,177

Commercial loans
 
2,589

 
28

 
17,517

 

 
20,134

 
1,668,343

 
1,688,477

Consumer loans
 
2,113

 
368

 
1,960

 

 
4,441

 
447,479

 
451,920

Total gross loans
 
$
10,514

 
3,779

 
32,610

 

 
46,903

 
7,209,671

 
7,256,574

 
 
December 31, 2017
 
 
30-59
Days
 
60-89
Days
 
Non-accrual
 
Recorded
Investment
> 90 days
accruing
 
Total Past
Due
 
Current
 
Total Loans
Receivable
Mortgage loans:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Residential
 
$
7,809

 
4,325

 
8,105

 

 
20,239

 
1,122,108

 
1,142,347

Commercial
 
1,486

 

 
7,090

 

 
8,576

 
2,162,480

 
2,171,056

Multi-family
 

 

 

 

 

 
1,403,885

 
1,403,885

Construction
 

 

 

 

 

 
392,580

 
392,580

Total mortgage loans
 
9,295

 
4,325

 
15,195

 

 
28,815

 
5,081,053

 
5,109,868

Commercial loans
 
551

 
406

 
17,243

 

 
18,200

 
1,726,938

 
1,745,138

Consumer loans
 
2,465

 
487

 
2,491

 

 
5,443

 
468,514

 
473,957

Total gross loans
 
$
12,311

 
5,218

 
34,929

 

 
52,458

 
7,276,505

 
7,328,963


16



Included in loans receivable are loans for which the accrual of interest income has been discontinued due to deterioration in the financial condition of the borrowers. The principal amounts of these non-accrual loans were $32.6 million and $34.9 million at June 30, 2018 and December 31, 2017, respectively. Included in non-accrual loans were $8.7 million and $11.5 million of loans which were less than 90 days past due at June 30, 2018 and December 31, 2017, respectively. There were no loans 90 days or greater past due and still accruing interest at June 30, 2018 or December 31, 2017.
The Company defines an impaired loan as a non-homogeneous loan greater than $1.0 million for which it is probable, based on current information, all amounts due under the contractual terms of the loan agreement will not be collected. Impaired loans also include all loans modified as troubled debt restructurings (“TDRs”). A loan is deemed to be a TDR when a loan modification resulting in a concession is made in an effort to mitigate potential loss arising from a borrower’s financial difficulty. Smaller balance homogeneous loans, including residential mortgages and other consumer loans, are evaluated collectively for impairment and are excluded from the definition of impaired loans, unless modified as TDRs. The Company separately calculates the reserve for loan losses on impaired loans. The Company may recognize impairment of a loan based upon: (1) the present value of expected cash flows discounted at the effective interest rate; (2) if a loan is collateral dependent, the fair value of collateral; or (3) the fair value of the loan. Additionally, if impaired loans have risk characteristics in common, those loans may be aggregated and historical statistics may be used as a means of measuring those impaired loans.
The Company uses third-party appraisals to determine the fair value of the underlying collateral in its analysis of collateral dependent impaired loans. A third-party appraisal is generally ordered as soon as a loan is designated as a collateral dependent impaired loan and is generally updated annually or more frequently, if required.
A specific allocation of the allowance for loan losses is established for each collateral dependent impaired loan with a carrying balance greater than the collateral’s fair value, less estimated costs to sell. Charge-offs are generally taken for the amount of the specific allocation when operations associated with the respective property cease and it is determined that collection of amounts due will be derived primarily from the disposition of the collateral. At each quarter end, if a loan is designated as a collateral dependent impaired loan and the third-party appraisal has not yet been received, an evaluation of all available collateral is made using the best information available at the time, including rent rolls, borrower financial statements and tax returns, prior appraisals, management’s knowledge of the market and collateral, and internally prepared collateral valuations based upon market assumptions regarding vacancy and capitalization rates, each as and where applicable. Once the appraisal is received and reviewed, the specific reserves are adjusted to reflect the appraised value. The Company believes there have been no significant time lapses in the recognition of changes in collateral values as a result of this process.
At June 30, 2018, there were 152 impaired loans totaling $55.5 million. Included in this total were 128 TDRs related to 124 borrowers totaling $38.0 million that were performing in accordance with their restructured terms and which continued to accrue interest at June 30, 2018. At December 31, 2017, there were 149 impaired loans totaling $52.0 million. Included in this total were 125 TDRs to 121 borrowers totaling $31.7 million that were performing in accordance with their restructured terms and which continued to accrue interest at December 31, 2017.
The following table summarizes loans receivable by portfolio segment and impairment method, excluding PCI loans (in thousands):
 

June 30, 2018
 

Mortgage
loans

Commercial
loans

Consumer
loans

Total Portfolio
Segments
Individually evaluated for impairment

$
24,737

 
28,509

 
2,263

 
55,509

Collectively evaluated for impairment

5,091,440

 
1,659,968

 
449,657

 
7,201,065

Total gross loans

$
5,116,177

 
1,688,477

 
451,920

 
7,256,574

 

December 31, 2017
 

Mortgage
loans

Commercial
loans

Consumer
loans

Total Portfolio
Segments
Individually evaluated for impairment

$
28,459

 
21,223

 
2,359

 
52,041

Collectively evaluated for impairment

5,081,409

 
1,723,915

 
471,598

 
7,276,922

Total gross loans

$
5,109,868

 
1,745,138

 
473,957

 
7,328,963


17



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

June 30, 2018
 

Mortgage
loans

Commercial
loans

Consumer
loans

Total
Individually evaluated for impairment

$
1,200

 
874

 
66

 
2,140

Collectively evaluated for impairment

25,961

 
28,620

 
2,098

 
56,679

Total gross loans

$
27,161

 
29,494

 
2,164

 
58,819

 

December 31, 2017
 

Mortgage
loans

Commercial
loans

Consumer
loans

Total
Individually evaluated for impairment

$
1,486

 
1,134

 
70

 
2,690