UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
______________________
FORM 10-K
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| x | ANNUAL REPORT PURSUANT TO SECTIONAnnual Report Pursuant to Section 13 ORor 15(d) OF THE SECURITIES EXCHANGE ACT OFof the Securities Exchange Act of 1934 |
For the Fiscal Year Ended September 30, 2013 Commission File Number: 001-35385
________________________
STERLING BANCORP
(Exact name of Registrant as Specified in its Charter)
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| Delaware | | 80-0091851 |
(State or Other Jurisdiction of Incorporation or Organization) | | (IRS Employer Identification Number) |
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| 400 Rella Blvd., Montebello, New York | | 10901 |
| (Address of Principal Executive Office) | | (Zip Code) |
(845) 369-8040
(Registrant’s Telephone Number including Area Code)
Securities Registered Pursuant to Section 12(b) of the Act:
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| Title of Class | | Name of Each Exchange On Which Registered |
| Common Stock, par value $0.01 per share | | New York Stock Exchange |
Cumulative Trust Preferred Securities 8.375% (Liquidation Amount $10 per Preferred Security) of Sterling Bancorp Trust I and Guarantee of Sterling Bancorp with respect thereto | | New York Stock Exchange |
Securities Registered Pursuant to Section 12(g) of the Act:
None
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Indicate by check mark if the Registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act YES ¨ý NO ý¨
Indicate by check mark if the Registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act. YES ¨ NO ý
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 12 months (or for shorter period that the registrant was required to submit and post such files) YES ý NO ¨
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendments to this Form 10-K. ¨
Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer — See definition of “accelerated and large accelerated filer” in Rule 12b-2 of the Exchange Act (check one).
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| Large Accelerated Filer | ox | | | Accelerated Filer | | xo |
| Non-Accelerated Filer | o | | | Smaller Reporting Company | | o |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). YES ¨ NO ý
The aggregate market value of the voting stock held by non-affiliates of the Registrant, computed by reference to the closing price of the common stock as of March 31, 2013June 30, 2015 was $294,182,103$1,906,734,560.
As of December 5, 2013February 26, 2016 there were 83,867,873130,494,004 outstanding shares of the Registrant’s common stock.
DOCUMENT INCORPORATED BY REFERENCE
Proxy Statement for the Annual Meeting of Stockholders (Part III) to be filed within 120 days after the end of the Registrant’s fiscal year ended September 30, 2013.December 31, 2015.
STERLING BANCORP
FORM 10-K TABLE OF CONTENTS
September 30, 2013December 31, 2015
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| PART I | | |
| ITEM 1. | | |
| ITEM 1A. | | |
| ITEM 1B. | | |
| ITEM 2. | | |
| ITEM 3. | | |
| ITEM 4. | | |
| PART II | | |
| ITEM 5. | | |
| ITEM 6. | | |
| 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. | | |
| SIGNATURES | | |
PART I
The disclosures set forth in this item are qualified by Item 1A. Risk Factors and the section captioned “Forward-Looking Statements” in Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations of this report and other cautionary statements set forth elsewhere in this report.
Sterling Bancorp
Sterling Bancorp (“Sterling”( “we,” “our,” “ours,” or the “Company”“us”) is a Delaware corporation, bank holding company and financial holding company that owns all of the outstanding shares of common stock of its principal subsidiary, Sterling National Bank (the “Bank”). At September 30, 2013, the CompanyDecember 31, 2015, Sterling had, on a consolidated basis, $4.0$12.0 billion in assets, $3.0$8.6 billion in deposits, and stockholders’ equity of $482.9 million. As of September 30, 2013, the Company had 44,351,046$1.7 billion and 130,006,926 shares of common stock outstanding. Our financial condition and results of operations are discussed herein on a consolidated basis with the Bank.
Acquisition of Hudson Valley Holding Corp.
On June 30, 2015, we completed the acquisition of Hudson Valley Holding Corp., (“HVHC”) which we refer to as the “HVB Merger”. The HVB Merger was a stock-for-stock transaction valued at $566.3 million based on the closing price of our common stock on June 29, 2015. Under the terms of the HVB Merger, HVHC shareholders received 1.92 shares of our common stock for each share of HVHC common stock. The HVB Merger has furthered our strategy of expanding in the greater New York metropolitan region by providing us with a significant presence and deposit market share in Westchester County, New York, and created an opportunity to realize significant operating expense savings. See additional disclosure regarding the HVB merger in Note 2. “Acquisitions” in the notes to consolidated financial statements.
February 2015 Common Equity Capital Raise
On February 11, 2015, we issued 6,900,000 shares of our $0.01 par value common stock to institutional investors at $13.00 per share. The offering was made pursuant to a Registration Statement on Form S-3 filed with the Securities and Exchange Commission (the “SEC”) on February 4, 2015. We received proceeds net of underwriting discounts, commissions and expenses of $85.1 million. The net proceeds were used for general corporate purposes and the funding of acquisitions of specialty commercial lending businesses, such as the acquisition of Damian Services Corporation, a payroll finance services provider (the “Damian Acquisition”), which closed on February 27, 2015 and the acquisition of a factoring portfolio (the “FCC Acquisition”) from FCC, LLC, a subsidiary of First Capital Holdings, Inc. (“FCC”), which closed on May 7, 2015. See additional disclosure regarding these acquisitions in Note 2. “Acquisitions” included in the notes to consolidated financial statements.
Acquisition of Sterling Bancorp (“Provident Merger”)
On October 31, 2013, when we were formerly known as Provident New York Bancorp completed its acquisition(“Legacy Provident”) and the parent company of the Bank, then called Provident Bank, we acquired Sterling Bancorp (“Legacy Sterling”). In connection with the merger, through a merger. Legacy Provident New York Bancorp completed the following corporate actions:
Legacy Sterling merged with and into Provident New York Bancorp. Provident New York Bancorp was the accounting acquirer and the surviving entity.
Provident New York Bancorp changed its legal entity name to Sterling Bancorp and At that time, we became a bank holding company and a financial holding company as defined by the Bank Holding Company Act of 1956, as amended.
Provident Bank converted to a national bank charter.
amended, or the BHC Act. Legacy Sterling’s principal subsidiary, Sterling National Bank, merged into our principal subsidiary, the Bank, which was then called Provident Bank.
Provident The Bank changed its legal entity name to Sterling National Bank.
Provident Municipal Bank merged into Sterling National Bank.
We refer to the transactions detailed above collectively as the “Merger”“Provident Merger”.
The Provident Merger was a stock-for-stock transaction valued at $457.8 million based on the closing price of Provident New York Bancorpour common stock on October 31, 2013. Under the terms of the Provident Merger, each share of Legacy Sterling was converted into the right to receive 1.2625 shares of Provident New York Bancorpour common stock. Consistent with our strategy of expanding in the greater New York metropolitan region, we believe the Provident Merger createscreated a larger, more diversified company that will accelerateand accelerated the build-out of our differentiated strategy targeting small-to-middle market commercial clients and consumers. See additional disclosure regarding the Provident Merger with Sterling Bancorp in Note 22. Subsequent Events2. “Acquisitions” included in the notes to the consolidated financial statements.
AsChange in Fiscal Year End
On January 27, 2015, the Board of JuneDirectors (the “Board”) amended our bylaws to change our fiscal year end from September 30 2013, the date of Legacy Sterling’s last publicly availableto December 31. Accordingly, this annual report on Form 10-K includes financial statements Legacy Sterling had total assetsas of $2.7 billion, total loans including loans heldand for sale of $1.8 billion,(i) the year ended December 31, 2015; (ii) the three month period October 1, 2014 through December 31, 2014; (iii) the three month period October 1, 2013 through December 31, 2013; (iv) the fiscal year ended September 30, 2014; and total deposits of $2.2 billion.(v) the fiscal year ended September 30, 2013.
Sterling National Bank
The Bank is a growing full-service regional bank founded in 1888. Headquartered in Montebello, New York, the Bank is the principal subsidiary of the Company and accounts for substantially all of the Company’s consolidated assets and net income. As of September 30, 2013, the Bank had $4.0 billion in assets, $3.0 billion in deposits and 477 full-time equivalent employees. The Bank specializes in the delivery of services and solutions to business owners, their families and consumers in communities within the greater New York metropolitan regioncommunities we serve through 16 teams of dedicated and experienced relationship managersmanagers. The Bank offers a complete line of commercial, business, and 34 full-service financial centers.consumer banking products and services. As of December 31, 2015, the Bank had $12.0 billion in assets, $8.6 billion in deposits and 1,089 full-time equivalent employees.
Subsidiaries
The CompanyWe and the Bank maintain a number of wholly-owned subsidiaries, including twoa company that originates loans to municipalities and governmental entities and acquires securities issued by state and local governments, a real estate investment truststrust that holdholds real estate mortgage loans, several subsidiaries that hold foreclosed properties acquired by the Bank, a Vermont captive insurance company and other subsidiaries that have an immaterial impact on theour financial condition or results of operations of the Company.operations.
Senior Notes Capital Raise
In connection with the Merger, the Company completed the offering of $100 million of its senior notes due 2018 (the “Senior Notes”) on July 2, 2013. The Senior Notes, which bear interest at 5.50% annually, were issued under an indenture dated July 2, 2013 (the “Indenture”) between the Company and U.S. Bank National Association, as trustee. The Senior Notes were sold in a private placement and resold by the initial purchasers to qualified institutional buyers pursuant to Rule 144A under the Securities Act of 1933 (the “Securities Act”).
The Senior Notes are unsecured obligations of the Company and rank equally with all other unsecured unsubordinated indebtedness, and will be effectively subordinated to any secured indebtedness to the extent of the value of the collateral securing such indebtedness, and structurally subordinated to the existing and future indebtedness of the Company’s subsidiaries. Interest on the Senior Notes will be payable on January 2 and July 2 beginning on January 2, 2014. Interest will be calculated on the basis of a 360-day year of twelve 30-day months. The Senior Notes will mature on July 2, 2018.
Additional Information
Sterling’sOur website (www.sterlingbancorp.com) contains a direct link to the Company’sour filings with the Securities and Exchange Commission (“SEC”),SEC, including copies of annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to these filings, registration statements on Form S-3 and Form S-4, as well as ownership reports on Forms 3, 4 and 5 filed by the Company’sour directors and executive officers. Copies may also be obtained, without charge, by written request to Sterling Bancorp, 400 Rella Boulevard, Montebello, New York 10901, Attention: Investor Relations. Sterling’sOur website is not part of this Annual Report on Form 10-K.
Forward-Looking Statements
From time to time the Company has made and may continue to make written or oral forward-looking statements regarding our outlook or expectations for earnings, revenues, expenses, capital levels, asset quality or other future financial or business performance, strategies or expectations, or the impact of legal, regulatory or supervisory matters on our business operations or performance. This Annual Report on Form 10-K also includes forward-looking statements. With respect to all such forward-looking statements, you should review our risk Factors discussion in Item 1A. Risk Factors and our Cautionary Statement Regarding Forward-Looking Information included in Item 7.
Strategy
The Company operatesThrough the Bank, we operate as a regional bank providing a broad offering of deposit, lending and wealth management products to commercial, consumer and municipal clients in itsour market area. The Company seeks to differentiate itself by focusing on the following principles:
Prioritize client relationships over transactions.
Compete on service experience versus price superiority.
Deploy a single point of contact, holistic view of the client relationship.
Focus on defined customer segments and geographic markets.
Maximize efficiency through a technology enabled low-cost operating platform.
Maintain strong risk management systems.
Our strategic objectives include generating sustainable growth in revenues and earnings by expanding client acquisitions, improving asset quality and increasing operating efficiency. To achieve these goals we are: 1) focusing on high value client segments; 2) expanding our delivery and distribution channels; 3) creating a high productivity performance culture; 4) closely monitoring operating costs; and 5) proactively managing enterprise risk.
We focus mainly on delivering products and services to small-to-middlesmall and middle market commercial businesses and affluent consumers. We believe that this is a client segment that is undeservedunderserved by larger bank competitors in our market area.
Our primary strategic objective is to generate sustainable growth in revenues and earnings. To achieve this goal, we focus on the following initiatives:
Target on specific “high value” customer segments and geographic markets.
Deploy a single point of contact, relationship-based distribution strategy through our commercial banking teams and financial centers.
Continuously expand our delivery and distribution channels by recruiting new commercial teams.
Maximize efficiency through a technology enabled, low-cost operating platform and controlling operating costs.
Create a high productivity culture through differentiated compensation programs based on a pay-for-performance philosophy.
Maintain strong risk management systems and proactively manage enterprise risk.
The Bank targets the following geographic markets: (i) the New York Metro Market, which includes Manhattan and Long Island; and (ii) the New York Suburban Market, which consists of Rockland, Orange, Sullivan, Ulster, Putnam and Westchester counties in New York and Bergen County in New Jersey. We believe the Bank operates in an attractive footprint that presents us with significant opportunities to execute our strategy. Based on data from Oxxford Information Technology, we estimate the total number of small-to-middle market businesses in our footprint exceeds 550 thousand.
We deploy a team-based distribution strategy in which clients are served by a focused and experienced group of relationship managers that are responsible for all aspects of the client relationship and delivery of our products and services. A significant portion of the Bank’s growth in 20132015 was due to the HVB Merger; however, we also experienced significant organic growth driven by growth in balances originated by existing teams and the recruitment of new commercial teams. As of September 30, 2013,December 31, 2015, the Bank had 1629 commercial banking teams. Weteams and we expect to continue to grow deposits and loan balances through the addition of new teams.
The Bank focusesSince 2012, we have deemphasized our retail banking operations, which has included the consolidation of financial centers and other consumer businesses, such as wealth management and title insurance. For the year ended December 31, 2015, we consolidated eight financial center locations and reduced our total number of financial centers to 52. We anticipate we will continue to consolidate additional financial centers in 2016 and will reallocate a portion of the operating expense savings into the recruitment of new commercial teams and growing our specialty lending businesses.
We focus on building broad client relationships by providing superior customer service allowingthat allow us to gather low cost, core deposits and originate high quality loans. The Bank maintainsWe maintain a disciplined pricing strategy on deposits that allows us to compete for loans while maintaining an appropriate spread over funding costs. We offer diverse loan products to commercial businesses, real estate owners, real estate developers and consumers. In 2013, weWe have continued to emphasize growth in our commercial loan balances;balances and as a result, we believe that we have developed a high quality, diversified loan portfolio with a favorable mix of loan types, maturities and yields.
The Company augmentsWe augment organic growth with opportunistic acquisitions. Between fiscal 2002acquisitions of banks and August 2012,other financial services businesses. For the Companyperiods presented, we completed six acquisitions, including: National Bank of Florida in 2002; Ellenville National Bank in 2004; Warwick Community Bancorp in 2005; a branch office of HSBC Bank USA in 2005; Hudson Valley Investment Advisors in 2007; and Gotham Bank of New York in August 2012. Onthe following acquisitions: the Provident Merger on October 31, 2013,2013; the Company completedDamian Acquisition on February 27, 2015; the acquisition of Legacy Sterling.FCC Acquisition on May 7, 2015 and the HVB Merger on June 30, 2015. These acquisitions have supported theour expansion of the Company into attractive markets and have diversified businesses.our business lines. See additional disclosure of our acquisitions in Note 2. Acquisitions and Note 22. Subsequent Events“Acquisitions” in the notes to the consolidated financial statements.
Lending Activities
General. Our commercial banking teams focus on the origination of commercial real estate loans and commercial & industrial loans. We also originate residential mortgage loans and consumer loans such as home equity lines of credit, homeowner loans and personal loans in our market area. We sell many of the residential mortgage loans we originate and we enter into loan participations in some commercial loans for portfolio management purposes.
Commercial Real Estate Lending. We originate real estate loans secured predominantly by first liens on commercial real estate. The underlying collateral of our commercial real estate loans consists of multi-family properties, retail properties including shopping centers and strip centers, office buildings, nursing homes, industrial and warehouse properties, hotels, motels, restaurants, and schools. To a lesser extent we originate commercial real estate loans for medical use, non-profits, gas stations and other categories. We may, from time to time, purchase commercial real estate loan participations. At September 30, 2013, loans secured by commercial real estate totaled $1.3 billion, or 52.9% of our total loan portfolio. Substantially all of our commercial real estate loans are secured by properties located in our primary market area.
The majority of our commercial real estate loans have a term of ten years and are structured as five-year fixed rate loans with a rate adjustment for the second five-year period or as ten-year fixed-rate loans. Amortization on these loans is typically based on 20 to 25 year terms with balloon maturities generally in five or ten years. Interest rates on commercial real estate loans generally range from 200 basis points to 300 basis points above a reference index.
In the underwriting of commercial real estate loans, we generally lend up to 75% of the appraised value. Decisions to lend are based on the economic viability of the property and the creditworthiness of the borrower. In evaluating a proposed commercial real estate loan, we primarily emphasize the ratio of the projected net cash flow to the debt service requirement (generally targeting a minimum ratio of 120%), computed after deductions for a vacancy factor and property expenses we deem appropriate. In addition, a personal guarantee of the loan or a portion thereof is generally required from the principal(s) of the borrower, except for loans secured by multi-family properties. We require title insurance insuring the priority of our lien, fire and extended coverage casualty insurance, and flood insurance, if appropriate, in order to protect our security interest in the underlying property.
Commercial real estate loans typically involve significant loan balances concentrated with single borrowers or groups of related borrowers. In addition, the payment experience on loans secured by income-producing properties typically depends on the successful operation of the related real estate project and may be subject to adverse conditions in the real estate market and in the general economy. For commercial real estate loans in which the borrower is a significant tenant, repayment experience also depends on the successful operation of the borrower’s underlying business.
Commercial & Industrial Lending. We make various types of secured and unsecured commercial & industrial loans to businesses in our market area for the purpose of financing working capital, the acquisition of equipment, business expansion, and other business purposes. The terms of these loans generally range from less than one year to seven years. The loans are either structured on a fixed-rate basis or carry adjustable interest rates indexed to a lending rate that is determined internally, or a short-term market rate index. At September 30, 2013, we had commercial & industrial loans outstanding with an aggregate balance of $439.8 million, or 18.2% of our total loan portfolio.
Underwriting of a commercial & industrial loan is based on an assessment of the applicant’s willingness and ability to repay in accordance with the proposed terms as well as an overall assessment of the risks involved. This includes an evaluation of the applicant to determine character and capacity to manage. Personal guarantees of the principals are generally required, except in the case of not-for-profit corporations. In addition to an evaluation of the loan applicant’s financial statements, we analyze the adequacy of the primary and secondary sources of repayment to be relied upon in the transaction. Credit agency reports of the applicant’s credit history supplement the analysis of the applicant’s creditworthiness. Checking with other banks and trade investigations may also be conducted. Collateral supporting a secured transaction also is analyzed to determine its marketability.
Residential Mortgage Lending. We offer conforming and non-conforming, fixed-rate and adjustable-rate ( “ARM”) residential mortgage loans with maturities up to 30 years and maximum loan amounts generally up to $4.0 million that are fully amortizing with monthly or bi-weekly loan payments. Our residential mortgage loan portfolio totaled $400.0 million, or 16.6% of our total loan portfolio at September 30, 2013.
Residential mortgage loans are generally underwritten according to Fannie Mae and Freddie Mac guidelines for loans they designate as acceptable for purchase. Loans that conform to such guidelines are referred to as “conforming loans.” We generally originate fixed-rate loans in amounts up to the maximum conforming loan limits as established by Fannie Mae and Freddie Mac, which are currently $417 thousand in many locations in the continental U.S. and are $625.5 thousand in high-cost areas such as New York City and surrounding counties in which we originate the majority of our residential mortgage loans. Private mortgage insurance is generally required for loans
with loan-to-value ratios in excess of 80%. In order to manage our exposure to rising interest rates, we sell the majority of our conforming fixed rate residential mortgage loans to government sponsored entities such as Fannie Mae and Freddie Mac. We realized proceeds from the sale of residential mortgage loans totaling $94.1 million and $79.1 million for the fiscal years ended September 30, 2013 and 2012, respectively.
We also originate loans above conforming limits, referred to as “jumbo loans,” which have been underwritten to substantially the same credit standards as conforming loans. These loans are generally intended to be held in our residential mortgage loan portfolio. Our bi-weekly residential mortgage loans result in shorter repayment schedules than conventional monthly mortgage loans, and are repaid through an automatic deduction from the borrower’s savings or checking account. We retain the servicing rights on a majority of loans sold. As of September 30, 2013, loans serviced for others, excluding loan participations, totaled $249.0 million. Effective October 1, 2013, we transferred the servicing function for residential mortgage loans we own and service for others to a nationally recognized mortgage loan servicer. We anticipate the transfer will have a neutral to modestly positive impact on operating expenses and will better position the Company to grow its residential mortgage lending business.
We currently offer several ARM loan products secured by residential properties with rates that are fixed for a period ranging from six months to ten years. After the initial term, if the loan is not already refinanced, the interest rate on these loans generally resets every year based upon a contractual spread or margin above the average yield on U.S. Treasury securities, adjusted to a constant maturity of one year, as published weekly by the Federal Reserve Board and subject to certain periodic and lifetime limitations on interest rate changes. Many of the borrowers who select these loans have shorter-term credit needs than those who select long-term, fixed-rate loans. ARM loans generally pose different credit risks than fixed-rate loans primarily because the underlying debt service payments of the borrowers rise as interest rates rise, thereby increasing the potential for default.
We require title insurance on all of our residential mortgage loans, and we also require that borrowers maintain fire and extended coverage or all risk casualty insurance (and, if appropriate, flood insurance) in an amount at least equal to the lesser of the loan balance or the replacement cost of the improvements, but in any event in an amount calculated to avoid the effect of any coinsurance clause. Residential mortgage loans generally are required to have a mortgage escrow account from which disbursements are made for real estate taxes and for hazard and flood insurance.
Acquisition, Development and Construction Lending. We originate acquisition, development and construction (“ADC”) loans to builders in our market area. Since 2011, the Company has deemphasized this lending activity and we currently originate ADC loans on an exception basis. ADC loans totaled $102.5 million, or 4.2% of our total loan portfolio at September 30, 2013.
ADC loans help finance the purchase of land intended for further development, including single-family homes, multi-family housing, and commercial income properties. In some cases, we have made an acquisition loan before the borrower received approval to develop the land as planned; however, we did not originate any such loans in fiscal 2013. In general, the maximum loan-to-value ratio for a land acquisition loan is 50% of the appraised value of the property, although higher loan-to-value ratios may be allowed for certain borrowers we deem to be lower risk. We also fund development loans to builders in our market area to finance improvements to real estate, consisting mainly of single-family subdivisions, typically to finance the cost of utilities, roads, sewers and other development costs. Builders generally rely on the sale of single-family homes to repay development loans, although in some cases the improved building lots may be sold to another builder. The maximum loan amount is generally limited to the cost of the improvements plus limited approval of soft costs subject to an overall loan-to-value limitation. In general, we do not originate loans with interest reserves. Advances are made in accordance with a schedule reflecting the cost of the improvements.
We also make construction loans to finance the cost of completing homes on the improved property. Advances on construction loans are made in accordance with a schedule reflecting the cost of construction. Repayment of construction loans on residential subdivisions is normally expected from the sale of units to individual purchasers except in cases of owner occupied construction loans. In the case of income-producing property, repayment is usually expected from permanent financing upon completion of construction. We provide permanent mortgage financing on most of our construction loans on income-producing property. Collateral coverage and risk profile are maintained by restricting the number of model or speculative units in each project.
ADC lending exposes us to greater credit risk than permanent mortgage financing. The repayment of ADC loans generally depends on the sale of the property to third parties or the availability of permanent financing upon completion of all improvements. In the event we make an acquisition loan on property that is not yet approved for the planned development, there is the risk that approvals will not be granted or will be delayed. These events may adversely affect the borrower and the collateral value of the property. Development and construction loans also expose us to the risk that improvements will not be completed on time in accordance with specifications and projected costs. In addition, the ultimate sale or rental of the property may not occur as anticipated.
Consumer Lending. We originate a variety of consumer loans, including homeowner loans, home equity lines of credit, new and used automobile loans, and personal unsecured loans, including fixed-rate installment loans and variable lines of credit. As of September 30, 2013, consumer loans totaled $193.6 million or 8.1% of the total loan portfolio.
We offer fixed-rate, fixed-term second mortgage loans, referred to as homeowner loans, and we also offer adjustable-rate home equity lines of credit secured by junior liens on residential properties. As of September 30, 2013, homeowner loans totaled $29.1 million or 1.2% of our total loan portfolio. The disbursed portion of home equity lines of credit totaled $157.3 million, or 6.5% of our total loan portfolio at September 30, 2013, with $99.6 million remaining undisbursed.
Loan Portfolio Composition. The following table sets forth the composition of our loan portfolio, excluding loans held for sale, by type of loan at the periods indicated.
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| | September 30, |
| | 2013 | | 2012 | | 2011 | | 2010 | | 2009 |
| | Amount | | % | | Amount | | % | | Amount | | % | | Amount | | % | | Amount | | % |
| | (Dollars in thousands) |
| Residential mortgage | $ | 400,009 |
| | 16.6 | % | | $ | 350,022 |
| | 16.5 | % | | $ | 389,765 |
| | 22.9 | % | | $ | 434,900 |
| | 25.5 | % | | $ | 460,728 |
| | 27.0 | % |
| Commercial real estate | 1,277,037 |
| | 52.9 |
| | 1,072,504 |
| | 50.6 |
| | 703,356 |
| | 41.4 |
| | 579,232 |
| | 34.0 |
| | 546,767 |
| | 32.1 |
|
| Commercial & industrial | 439,787 |
| | 18.2 |
| | 343,307 |
| | 16.2 |
| | 209,923 |
| | 12.3 |
| | 217,927 |
| | 12.8 |
| | 242,629 |
| | 14.2 |
|
| Acquisition, development & construction | 102,494 |
| | 4.2 |
| | 144,061 |
| | 6.8 |
| | 175,931 |
| | 10.3 |
| | 231,258 |
| | 13.6 |
| | 201,611 |
| | 11.9 |
|
| Total commercial loans | 1,819,318 |
| | 75.3 |
| | 1,559,872 |
| | 73.6 |
| | 1,089,210 |
| | 64.0 |
| | 1,028,417 |
| | 60.4 |
| | 991,007 |
| | 58.2 |
|
| Consumer | 193,571 |
| | 8.1 |
| | 209,578 |
| | 9.9 |
| | 224,824 |
| | 13.1 |
| | 238,224 |
| | 14.1 |
| | 251,522 |
| | 14.8 |
|
| Total loans | 2,412,898 |
| | 100.0 | % | | 2,119,472 |
| | 100.0 | % | | 1,703,799 |
| | 100.0 | % | | 1,701,541 |
| | 100.0 | % | | 1,703,257 |
| | 100.0 | % |
| Allowance for loan losses | (28,877 | ) | | | | (28,282 | ) | | | | (27,917 | ) | | | | (30,843 | ) | | | | (30,050 | ) | | |
| Total loans, net | $ | 2,384,021 |
| | | | $ | 2,091,190 |
| | | | $ | 1,675,882 |
| | | | $ | 1,670,698 |
| | | | $ | 1,673,207 |
| | |
Loan Portfolio Maturities and Yields. The following table summarizes the scheduled repayments of our loan portfolio at September 30, 2013. Demand loans, loans having no stated repayment schedule or maturity, and overdraft loans are reported as being due in one year or less. Weighted average rates are computed based on the rate of the loan at September 30, 2013.
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| | Residential mortgage | | Commercial real estate | | Commercial & industrial | | Acquisition, development & construction | | Consumer | | Total |
| | Amount | | Rate | | Amount | | Rate | | Amount | | Rate | | Amount | | Rate | | Amount | | Rate | | Amount | | Rate |
| | (Dollars in thousands) |
| Maturing within: | | | | | | | | | | | | | | | | | |
| | |
| < 1 year | $ | 5,923 |
| | 4.63 | % | | $ | 69,858 |
| | 4.96 | % | | $ | 147,755 |
| | 4.96 | % | | $ | 40,336 |
| | 4.48 | % | | $ | 4,105 |
| | 13.48 | % | | $ | 267,977 |
| | 4.43 | % |
| 2-5 years | 21,802 |
| | 4.53 |
| | 329,997 |
| | 4.66 |
| | 110,768 |
| | 4.66 |
| | 44,158 |
| | 4.52 |
| | 6,760 |
| | 6.96 |
| | 513,485 |
| | 4.52 |
|
| > 5 years | 372,284 |
| | 4.57 |
| | 877,182 |
| | 4.48 |
| | 181,264 |
| | 4.48 |
| | 18,000 |
| | 3.09 |
| | 182,706 |
| | 4.29 |
| | 1,631,436 |
| | 4.42 |
|
| Total loans | $ | 400,009 |
| | 4.57 | % | | $ | 1,277,037 |
| | 4.55 | % | | $ | 439,787 |
| | 4.55 | % | | $ | 102,494 |
| | 4.25 | % | | $ | 193,571 |
| | 4.58 | % | | $ | 2,412,898 |
| | 4.44 | % |
The following table sets forth the composition of fixed-rate and adjustable-rate loans at September 30, 2013 that are contractually due after September 30, 2014:
|
| | | | | | | | | | | |
| | Fixed | | Adjustable | | Total |
| | (Dollars in thousands) |
| Residential mortgage | $ | 229,263 |
| | $ | 164,823 |
| | $ | 394,086 |
|
| Commercial real estate | 615,491 |
| | 591,688 |
| | 1,207,179 |
|
| Commercial & industrial | 140,129 |
| | 151,903 |
| | 292,032 |
|
| Acquisition, development & construction | 8,644 |
| | 53,514 |
| | 62,158 |
|
| Total commercial loans | 764,264 |
| | 797,105 |
| | 1,561,369 |
|
| Consumer | 34,757 |
| | 154,709 |
| | 189,466 |
|
| Total loans | $ | 1,028,284 |
| | $ | 1,116,637 |
| | $ | 2,144,921 |
|
Loan Approval/Authority and Underwriting. The Board of Directors has established the Credit Risk Committee (the “CRC”) to oversee the lending functions of the Bank. The CRC oversees the performance of the Bank’s loan portfolio and its various components, assists in the development of strategic initiatives to enhance portfolio performance, and considers matters for approval and recommendation to the Board of Directors.
The Management Credit Committee (the “MCC”) consists of the Chief Executive Officer, Chief Risk Officer, Chief Credit Officer, and other senior lending personnel. The MCC is authorized to approve loans within the existing policy limits established by the Board of Directors. For loans that are not within policy guidelines but are nonetheless deemed desirable, the MCC may recommend approval to the CRC, which in turn may recommend approval to the Board.
The MCC may also authorize lending authority to individual Bank officers for both single and dual initial approval authority. Other than overdrafts, the only single initial lending authorities are for credit secured small business loans up to $250,000 and up to $500,000 if secured by residential property. Two loan officers with sufficient authority acting together may approve loans up to $3 million.
We have established a risk rating system for our commercial & industrial loans, commercial real estate loans and ADC loans. The risk rating system assesses a variety of factors to rank the risk of default and risk of loss associated with the loan. These ratings are assessed by commercial credit personnel who do not have responsibility for loan originations. We determine our maximum loan-to-one-borrower limits based on the rating of the loan. The majority of our loans fall into four categories. The maximum for the best-rated borrowers is $20 million, $15 million for the next group of borrowers, $12 million for the third group and $6 million for the last group. Sub-limits apply based on reliance on any single property, and for commercial business loans. On occasion, the Board of Directors may approve higher exposure limits for loans to one borrower in an amount not to exceed the legal lending limit of the Bank. The Board may also authorize the Chief Risk Officer, or Management Credit Committee to approve loans for specific borrowers up to a designated Board approved limit in excess of the policy limit, for that borrower.
In connection with our residential mortgage and commercial real estate loans, we generally require property appraisals to be performed by independent appraisers who are approved by the Board. Appraisals are then reviewed by the appropriate loan underwriting areas. Under certain conditions, appraisals may not be required for loans under $250,000 or in other limited circumstances. We also require title insurance, hazard insurance and, if indicated, flood insurance on property securing mortgage loans. Title insurance is not required for consumer loans under $100,000, such as home equity lines of credit and homeowner loans and in connection with certain residential mortgage refinances.
Loan Origination Fees and Costs. In addition to interest earned on loans, we may collect loan origination fees. Such fees vary with the volume and type of loans and commitments made, and competitive conditions in the marketplace, which in turn respond to the demand and availability of funding. We defer loan origination fees and costs, and amortize such amounts as an adjustment to yield over the term of the loan using the level yield method. Deferred loan origination costs (net of deferred fees) were $1.2 million at September 30, 2013.
To the extent that originated residential mortgage loans are sold with servicing retained, we capitalize a mortgage servicing asset at the time of the sale. The capitalized amount is amortized thereafter (over the period of estimated net servicing income) as a reduction of servicing fee income. The unamortized amount is fully charged to income when loans are prepaid. Originated mortgage servicing rights with an amortized cost of $2.0 million are included in other assets at September 30, 2013.
Loans to One Borrower. At September 30, 2013, our five largest aggregate amounts loaned to any one borrower and certain related interests (including any unused lines of credit) consisted of secured and unsecured financing of $24.8 million, $24.0 million, $22.6 million, $21.2 million and $18.0 million. In addition, we have 52 relationships with an amount loaned of $10 million or more, with an aggregate exposure of $706.5 million. See “Regulation — Loans to One Borrower” for a discussion of applicable regulatory limitations.
Delinquent Loans, Troubled Debt Restructuring, Impaired Loans, Other Real Estate Owned and Classified Assets
Collection Procedures for Residential and Commercial Mortgage Loans and Consumer Loans. A late payment notice is generated after the 16th day of the loan payment due date requesting the payment due plus any late charge assessed. Legal action, notwithstanding ongoing collection efforts, is generally initiated after 90 days of the original due date for failure to make payment. Unsecured consumer loans are generally charged-off after 120 days. For commercial loans, procedures vary depending on individual circumstances.
Loans Past Due and Non-Performing Assets. Loans are reviewed on a regular basis and are placed on non-accrual status when full payment of principal or interest is in doubt, or when either principal or interest is 90 days or more past due, unless the loan is well secured and in the process of collection. Interest accrued and unpaid at the time a loan is placed on non-accrual status is reversed against interest income. Interest payments received on non-accrual loans are generally applied to the principal balance of the outstanding loan. However, based on an assessment of the borrower’s financial condition and payment history, an interest payment may be applied to interest income on a cash basis. Appraisals are performed at least annually on classifieds loans. At September 30, 2013, we had non-accrual loans of $22.8 million, and we had $4.1 million of loans 90 days past due and still accruing interest which were well secured and in the process of collection. At September 30, 2012, we had non-accrual loans of $35.4 million and $4.4 million of loans 90 days past due and still accruing interest.
Impaired Loans. A loan is impaired when it is probable the Bank will be unable to collect all amounts due according to the contractual terms of the loan agreement. Impaired loans are based on one of three measures — the present value of expected future cash flows discounted at the loan’s effective interest rate, the loan’s observable market price, or the fair value of the collateral if the loan is collateral dependent. If the measure of an impaired loan is less than its recorded investment, the Company may write-down a portion of the loan against the allowance for loan losses or a portion of the allowance for loan losses may be allocated so that the loan is reported net of its specific allowance. Impaired loans generally include a portion of classified loans, non-performing loans and accruing and performing troubled debt restructured loans. At September 30, 2013, we had $36.8 million in impaired loans with $1.6 million in specific allowances.
Troubled Debt Restructuring. The Company has formally modified loans to certain borrowers who experienced financial difficulty. If the terms of the modification include a concession, as defined by accounting principles generally accepted in the U.S., the loan is considered a troubled debt restructuring (“TDR”), which are also considered impaired loans. Nearly all of these loans are secured by real estate. Total TDRs were $26.1 million at September 30, 2013, of which $2.2 million were non-accrual and $23.9 million were performing according to terms and still accruing interest income. TDRs still accruing interest income are loans modified for borrowers that are experiencing one or more financial difficulties and are still performing in accordance with the terms of their loan prior to the modification. Loan modifications include actions such as extension of maturity date or the lowering of interest rates and monthly payments. Commitments to lend additional funds to borrowers with loans that have been modified were $4.1 million at September 30, 2013.
Other Real Estate Owned. Real estate acquired as a result of foreclosure or by deed in lieu of foreclosure is classified as other real estate owned (“OREO”) until such time as it is sold. When real estate is acquired through foreclosure or by deed in lieu of foreclosure, it is recorded at the lower of our investment in the loan or fair value less cost to sell. If the fair value less cost to sell is less than the loan balance, the difference is charged against the allowance for loan losses. At September 30, 2013, we had 23 OREO properties with a recorded balance of $6.0 million. After transfer to OREO we regularly update the fair value of the property. Subsequent declines in fair value are charged to current earnings and included in other non-interest expense as part of other real estate owned expense.
Classification of Assets. Our policies, consistent with regulatory guidelines, provide for the classification of loans and other assets that are considered to be of lesser quality such as substandard, doubtful, or loss assets. An asset is considered substandard if it is inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any. Substandard assets include those characterized by the distinct possibility that the Bank will sustain some loss if the deficiencies are not corrected. Assets classified as “doubtful” have all of the weaknesses inherent in those classified as “substandard” with the added characteristic that the weaknesses present make collection or liquidation in full, on the basis of currently existing facts, conditions, and values, highly questionable and improbable. Assets classified as “loss” are those considered uncollectible and of such little value that their continuance as assets is not warranted and are charged-off. Assets that do not expose us to risk sufficient to warrant classification in one of the aforementioned categories, but which possess potential weaknesses that deserve our close attention, are designated as “special mention”. As of September 30, 2013, we had $13.5 million of assets designated as “special mention”.
Our determination as to the classification of our assets and the amount of our loss allowance are subject to review by our regulators, which can order the establishment of an additional loan loss allowance. Management regularly reviews our asset portfolio to determine
whether any assets require classification in accordance with applicable regulations. On the basis of management’s review of our assets at September 30, 2013, classified assets consisted of loans of $61.1 million, OREO of $6.0 million, and $3.6 million of private label mortgage-backed securities.
Loan Portfolio Delinquencies. The following table sets forth certain information on our loan portfolio delinquencies at the dates indicated.
|
| | | | | | | | | | | | | | | | | |
| | Loans delinquent for | | | | |
| | 30-89 Days | | 90 days or more still accruing & non-accrual | | Total |
| | Number | | Amount | | Number | | Amount | | Number | | Amount |
| | (Dollars in thousands) |
| At September 30, 2013: | | | | | | | | | | | |
| Residential mortgage | 6 | | $ | 621 |
| | 52 | | $ | 9,316 |
| | 58 | | $ | 9,937 |
|
| Commercial real estate | 8 | | 4,335 |
| | 26 | | 8,769 |
| | 34 | | 13,104 |
|
| Commercial & industrial | 5 | | 180 |
| | 8 | | 789 |
| | 13 | | 969 |
|
| Acquisition, development & construction | 2 | | 768 |
| | 11 | | 5,420 |
| | 13 | | 6,188 |
|
| Consumer | 14 | | 566 |
| | 28 | | 2,612 |
| | 42 | | 3,178 |
|
| Total | 35 | | $ | 6,470 |
| | 125 | | $ | 26,906 |
| | 160 | | $ | 33,376 |
|
| At September 30, 2012: | | | | | | | | | | | |
| Residential mortgage | 10 | | $ | 1,352 |
| | 56 | | $ | 11,314 |
| | 66 | | $ | 12,666 |
|
| Commercial real estate | 7 | | 1,875 |
| | 30 | | 10,453 |
| | 37 | | 12,328 |
|
| Commercial & industrial | 7 | | 237 |
| | 2 | | 344 |
| | 9 | | 581 |
|
| Acquisition, development & construction | 9 | | 7,067 |
| | 29 | | 15,404 |
| | 38 | | 22,471 |
|
| Consumer | 22 | | 1,816 |
| | 21 | | 2,299 |
| | 43 | | 4,115 |
|
| Total | 55 | | $ | 12,347 |
| | 138 | | $ | 39,814 |
| | 193 | | $ | 52,161 |
|
| At September 30, 2011: | | | | | | | | | | | |
| Residential mortgage | 8 | | $ | 1,212 |
| | 40 | | $ | 7,976 |
| | 48 | | $ | 9,188 |
|
| Commercial real estate | 4 | | 1,105 |
| | 34 | | 13,214 |
| | 38 | | 14,319 |
|
| Commercial & industrial | 2 | | 490 |
| | 3 | | 243 |
| | 5 | | 733 |
|
| Acquisition, development & construction | 4 | | 4,265 |
| | 24 | | 16,984 |
| | 28 | | 21,249 |
|
| Consumer | 20 | | 794 |
| | 26 | | 2,150 |
| | 46 | | 2,944 |
|
| Total | 38 | | $ | 7,866 |
| | 127 | | $ | 40,567 |
| | 165 | | $ | 48,433 |
|
| At September 30, 2010: | | | | | | | | | | | |
| Residential mortgage | 1 | | $ | 113 |
| | 36 | | $ | 8,033 |
| | 37 | | $ | 8,146 |
|
| Commercial real estate | 4 | | 1,469 |
| | 26 | | 9,857 |
| | 30 | | 11,326 |
|
| Commercial & industrial | 2 | | 3,403 |
| | 6 | | 1,376 |
| | 8 | | 4,779 |
|
| Acquisition, development & construction | 2 | | 6,681 |
| | 11 | | 5,730 |
| | 13 | | 12,411 |
|
| Consumer | 27 | | 681 |
| | 22 | | 1,844 |
| | 49 | | 2,525 |
|
| Total | 36 | | $ | 12,347 |
| | 101 | | $ | 26,840 |
| | 137 | | $ | 39,187 |
|
| At September 30, 2009: | | | | | | | | | | | |
| Residential mortgage | 2 | | $ | 390 |
| | 32 | | $ | 7,357 |
| | 34 | | $ | 7,747 |
|
| Commercial real estate | 2 | | 398 |
| | 24 | | 6,803 |
| | 26 | | 7,201 |
|
| Commercial & industrial | 18 | | 999 |
| | 8 | | 457 |
| | 26 | | 1,456 |
|
| Acquisition, development & construction | 1 | | 366 |
| | 20 | | 11,270 |
| | 21 | | 11,636 |
|
| Consumer | 22 | | 494 |
| | 13 | | 582 |
| | 35 | | 1,076 |
|
| Total | 45 | | $ | 2,647 |
| | 97 | | $ | 26,469 |
| | 142 | | $ | 29,116 |
|
Risk Elements. The table below sets forth the amounts and categories of our non-performing assets at the dates indicated.
|
| | | | | | | | | | | | | | | | | | | |
| | September 30, |
| | 2013 | | 2012 | | 2011 | | 2010 | | 2009 |
| | (Dollars in thousands) |
| Non-performing loans: | | | | | | | | | |
| Residential mortgage | $ | 7,484 |
| | $ | 9,051 |
| | $ | 7,485 |
| | $ | 6,080 |
| | $ | 4,425 |
|
| Commercial real estate | 7,195 |
| | 8,815 |
| | 11,225 |
| | 6,886 |
| | 5,826 |
|
| Commercial & industrial | 500 |
| | 344 |
| | 243 |
| | 1,376 |
| | 457 |
|
| Acquisition, development & construction | 5,420 |
| | 15,404 |
| | 16,538 |
| | 5,730 |
| | 10,830 |
|
| Consumer | 2,208 |
| | 1,830 |
| | 986 |
| | 1,341 |
| | 371 |
|
| Accruing loans past due 90 days or more | 4,099 |
| | 4,370 |
| | 4,090 |
| | 5,427 |
| | 4,560 |
|
| Total non-performing loans | 26,906 |
| | 39,814 |
| | 40,567 |
| | 26,840 |
| | 26,469 |
|
| OREO | 6,022 |
| | 6,403 |
| | 5,391 |
| | 3,891 |
| | 1,712 |
|
| Total non-performing assets | $ | 32,928 |
| | $ | 46,217 |
| | $ | 45,958 |
| | $ | 30,731 |
| | $ | 28,181 |
|
| TDRs accruing and not included above | $ | 23,895 |
| | $ | 14,077 |
| | $ | 8,470 |
| | $ | 16,047 |
| | $ | 674 |
|
| Ratios: | | | | | | | | | |
| Non-performing loans to total loans | 1.12 | % | | 1.87 | % | | 2.38 | % | | 1.58 | % | | 1.55 | % |
| Non-performing assets to total assets | 0.81 |
| | 1.15 |
| | 1.46 |
| | 1.02 |
| | 0.93 |
|
For the year ended September 30, 2013, gross interest income that would have been recorded had the non-accrual loans at the end of the year remained on accrual status throughout the year amounted to $635 thousand. Interest income actually recognized on such loans totaled $374 thousand.
Allowance for Loan Losses. We believe the allowance for loan losses is critical to the understanding of our financial condition and results of operations. Selection and application of this “critical accounting policy” involves judgments, estimates, and uncertainties that are susceptible to change. In the event that different assumptions or conditions were to occur, and depending upon the severity of such changes, materially different financial condition or results of operations is a reasonable possibility. In addition, as an integral part of their examination process, our regulatory agencies periodically review the allowance for loan losses. Such agencies may require us to recognize additions to the allowance based on their judgments of information available to them at the time of their examination.
We maintain our allowance for loan losses at a level that the Company believes is adequate to absorb probable losses inherent in the existing loan portfolio based on an evaluation of the collectibility of loans, underlying collateral, geographic and other concentrations, and prior loss experience. We use a risk rating system to evaluate the adequacy of the allowance for loan losses. With this system, each loan, with the exception of those included in large groups of smaller-balance homogeneous loans, is risk rated between one and ten, by credit administration, loan review or loan committee, with one being the best case and ten being a loss or the worst case. Loans with risk ratings between six and nine are monitored more closely by the credit administration team and may result in specific valuation allowances. We calculate an average loss estimate by loan type that is a twelve quarter average for commercial loans and eight quarter average for consumer loans. To the loss estimate we apply individual qualitative loss factors that result in an overall loss factor at an appropriate level for the allowance for loan losses for a particular loan type. These qualitative loss factors are determined by management, based on historical loss experience for the applicable loan category, and are adjusted to reflect our evaluation of:
levels of, and trends in, delinquencies and non-accruals;
trends in volume and terms of loans;
effects of any changes in lending policies and procedures;
experience, ability, and depth of lending management and staff;
national and local economic trends and conditions;
concentrations of credit by such factors as location, industry, inter-relationships, and borrower; and
for commercial loans, trends in risk ratings.
The allowance for loan losses also includes an element for estimated probable but undetected losses. All loan losses are charged to the related allowance and all recoveries are credited to it. The Company analyzes loans by two broad segments or classes: real estate secured loans and loans that are either unsecured or secured by other collateral. The segments or classes considered real estate secured are:
residential mortgage loans; commercial real estate loans; ADC loans; homeowner loans, and home equity lines of credit. The segments or classes considered unsecured or secured by other than real estate collateral are: commercial & industrial loans, and consumer loans. Commercial loan segments and residential mortgage loans over $500,000 are reviewed for impairment once they are past due 90 days or more, or are classified substandard or doubtful. If a loan is deemed to be impaired in one of the real estate secured segments, it is generally considered collateral dependent. If the value of the collateral securing a collateral dependent impaired loan is less than the carrying value of the loan, a charge-off is recognized equal to the difference between the appraised value and the book value of the loan. In addition, impairment reserves are recognized for estimated costs to hold and to liquidate the collateral. The ranges for the costs to hold and liquidate are 12-22% for the following segments: commercial real estate, residential and ADC loans and 7-13% for homeowner loans and home equity lines of credit. Impaired loans in the real estate secured segments are re-appraised using a summary or drive-by appraisal report every six to nine months.
For loans in the consumer segmentwe charge-off the full amount of the loan when it becomes 90 to 120 days or more past due, or earlier in the case of bankruptcy, after giving effect to any cash or marketable securities pledged as collateral for the loan. For loans in the commercial & industrial loan segment, we conduct a cash flow projection, and charge-off the difference between the net present value of the cash flows discounted at the effective note rate and the carrying value of the loan, and generally recognize a 10% impairment reserve to account for the imprecision of our estimates.
ADC lending exposes us to greater credit risk than permanent mortgage financing. The repayment of ADC loans depends on the sale of the property to third parties or the availability of permanent financing upon completion of all improvements. In the event we make an acquisition loan on property that is not yet approved for the planned development, there is the risk that approvals will not be granted or will be delayed. These events may adversely affect the borrower and the collateral value of the property. ADC loans also expose us to the risk that improvements will not be completed on time in accordance with specifications and projected costs. In addition, the ultimate sale or rental of the property may not occur as anticipated. All of these factors are considered as part of the underwriting, structuring and pricing of the loan. We have deemphasized this type of loan.
Commercial real estate loans subject us to the risks that the property securing the loan may not generate sufficient cash flow to service the debt or the borrower may use the cash flow for other purposes. In addition, the foreclosure process, if necessary, may be slow and properties may deteriorate in the process. The market values are also subject to a wide variety of factors, including general economic conditions, industry specific factors, environmental factors, interest rates and the availability and terms of credit.
Commercial & industrial lending also exposes us to risk because repayment depends on the successful operation of the business which is subject to a wide range of risks and uncertainties. In addition, the ability to successfully liquidate collateral, if any, is subject to a variety of risks because we must gain control of assets used in the borrower’s business before foreclosing which we cannot be assured of doing, and the value in a foreclosure sale or other means of liquidation may be uncertain.
Allowance for Loan Losses. The following table sets forth activity in our allowance for loan losses for the years indicated.
|
| | | | | | | | | | | | | | | | | | | |
| | September 30, |
| | 2013 | | 2012 | | 2011 | | 2010 | | 2009 |
| | (Dollars in thousands) |
| Balance at beginning of period | $ | 28,282 |
| | $ | 27,917 |
| | $ | 30,843 |
| | $ | 30,050 |
| | $ | 23,101 |
|
| Charge-offs: | | | | | | | | | |
| Residential mortgage | (2,547 | ) | | (2,551 | ) | | (2,140 | ) | | (749 | ) | | (461 | ) |
| Commercial real estate | (3,725 | ) | | (2,707 | ) | | (1,802 | ) | | (987 | ) | | (902 | ) |
| Commercial & industrial | (1,354 | ) | | (1,526 | ) | | (5,400 | ) | | (6,578 | ) | | (7,271 | ) |
| Acquisition, development & construction | (3,422 | ) | | (4,124 | ) | | (8,939 | ) | | (848 | ) | | (1,515 | ) |
| Consumer | (2,009 | ) | | (1,901 | ) | | (1,989 | ) | | (1,168 | ) | | (1,140 | ) |
| Total charge-offs | (13,057 | ) | | (12,809 | ) | | (20,270 | ) | | (10,330 | ) | | (11,289 | ) |
| Recoveries: | | | | | | | | | |
| Residential mortgage | 101 |
| | 356 |
| | 15 |
| | 3 |
| | 2 |
|
| Commercial real estate | 577 |
| | 528 |
| | 2 |
| | 23 |
| | — |
|
| Commercial & industrial | 410 |
| | 1,116 |
| | 605 |
| | 670 |
| | 249 |
|
| Acquisition, development & construction | 182 |
| | 299 |
| | 10 |
| | 261 |
| | 200 |
|
| Consumer | 232 |
| | 263 |
| | 128 |
| | 166 |
| | 187 |
|
| Total recoveries | 1,502 |
| | 2,562 |
| | 760 |
| | 1,123 |
| | 638 |
|
| Net charge-offs | (11,555 | ) | | (10,247 | ) | | (19,510 | ) | | (9,207 | ) | | (10,651 | ) |
| Provision for loan losses | 12,150 |
| | 10,612 |
| | 16,584 |
| | 10,000 |
| | 17,600 |
|
| Balance at end of period | $ | 28,877 |
| | $ | 28,282 |
| | $ | 27,917 |
| | $ | 30,843 |
| | $ | 30,050 |
|
| Ratios: | | | | | | | | | |
| Net charge-offs to average loans outstanding | 0.52 | % | | 0.56 | % | | 1.17 | % | | 0.56 | % | | 0.62 | % |
| Allowance for loan losses to non-performing loans | 107 |
| | 71 |
| | 69 |
| | 115 |
| | 114 |
|
| Allowance for loan losses to total loans | 1.20 |
| | 1.48 |
| | 1.64 |
| | 1.81 |
| | 1.76 |
|
Allocation of Allowance for Loan Losses. The following tables set forth the allowance for loan losses allocated by loan category, the total loan balances by category (excluding loans held for sale), and the percent of loans in each category to total loans at the dates indicated. The allowance for loan losses allocated to each category is not necessarily indicative of future losses in any particular category and does not restrict the use of the allowance to absorb losses in other categories.
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | September 30, |
| | 2013 | | 2012 | | 2011 |
| | Allowance for loan losses | | Loan balance | | % of total loans | | Allowance for loan losses | | Loan balance | | % of total loans | | Allowance for loan losses | | Loan balance | | % of total loans |
| | (Dollars in thousands) |
| Residential mortgage | $ | 4,474 |
| | $ | 400,009 |
| | 16.6 | % | | $ | 4,359 |
| | $ | 350,022 |
| | 16.5 | % | | $ | 3,498 |
| | $ | 389,765 |
| | 22.9 | % |
| Commercial real estate | 9,967 |
| | 1,277,037 |
| | 52.9 |
| | 7,230 |
| | 1,072,504 |
| | 50.6 |
| | 5,568 |
| | 703,356 |
| | 41.4 |
|
| Commercial & industrial | 5,302 |
| | 439,787 |
| | 18.2 |
| | 4,603 |
| | 343,307 |
| | 16.2 |
| | 5,945 |
| | 209,923 |
| | 12.3 |
|
| Acquisition, development & construction | 5,806 |
| | 102,494 |
| | 4.2 |
| | 8,526 |
| | 144,061 |
| | 6.8 |
| | 9,895 |
| | 175,931 |
| | 10.3 |
|
| Consumer | 3,328 |
| | 193,571 |
| | 8.1 |
| | 3,564 |
| | 209,578 |
| | 9.9 |
| | 3,011 |
| | 224,824 |
| | 13.1 |
|
| Total | $ | 28,877 |
| | $ | 2,412,898 |
| | 100.0 | % | | $ | 28,282 |
| | $ | 2,119,472 |
| | 100.0 | % | | $ | 27,917 |
| | $ | 1,703,799 |
| | 100.0 | % |
|
| | | | | | | | | | | | | | | | | | | | | |
| | September 30, |
| | 2010 | | 2009 |
| | Allowance for loan losses | | Loan balance | | % of total loans | | Allowance for loan losses | | Loan balance | | % of total loans |
| | (Dollars in thousands) |
| Residential mortgage | $ | 2,641 |
| | $ | 434,900 |
| | 25.6 | % | | $ | 3,106 |
| | $ | 460,728 |
| | 27.1 | % |
| Commercial real estate | 5,915 |
| | 579,231 |
| | 34.0 |
| | 7,695 |
| | 546,767 |
| | 32.1 |
|
| Commercial & industrial | 8,970 |
| | 217,928 |
| | 12.8 |
| | 8,928 |
| | 242,629 |
| | 14.2 |
|
| Acquisition, development & construction | 9,752 |
| | 231,258 |
| | 13.6 |
| | 7,680 |
| | 201,611 |
| | 11.8 |
|
| Consumer | 3,565 |
| | 238,224 |
| | 14.0 |
| | 2,641 |
| | 251,522 |
| | 14.8 |
|
| Total | $ | 30,843 |
| | $ | 1,701,541 |
| | 100.0 | % | | $ | 30,050 |
| | $ | 1,703,257 |
| | 100.0 | % |
Investment Securities
Our investment securities policy is reviewed and approved by our Board of Directors. This policy dictates that investment decisions be made based on the safety of the investment, liquidity requirements, potential returns, cash flow targets, and consistency with our interest rate risk management strategy. The Board’s Enterprise Risk Committee oversees our investment program and evaluates our investment policy and objectives. Our Chief Financial Officer, Chief Executive Officer, Treasurer and certain other senior officers have the authority to purchase and sell securities within specific guidelines established in the investment policy. In addition, a summary of all transactions is reviewed by the Enterprise Risk Committee at least quarterly.
Our current investment policy generally permits investments in debt securities issued by the U.S. government and U.S. agencies, municipal bonds and notes, and corporate debt obligations, as well as investments in preferred and common stock of government agencies and government sponsored enterprises such as Fannie Mae, Freddie Mac and the Federal Home Loan Bank (federal agency securities) and, to a lesser extent, other equity securities. Securities in these categories are classified as “investment securities” for financial reporting purposes. The policy also permits investments in mortgage-backed securities, including pass-through securities issued and guaranteed by Fannie Mae, Freddie Mac and Ginnie Mae as well as collateralized mortgage obligations (“CMOs”) issued or backed by securities issued by these government agencies. Also permitted are investments in securities issued or backed by the Small Business Administration, privately issued mortgage-backed securities and CMOs, and asset-backed securities collateralized by auto loans, credit card receivables, and home equity and home improvement loans. Our current investment strategy uses a risk management approach of diversified investing in fixed-rate securities with short- to intermediate-term maturities, as well as adjustable-rate securities, which may have a longer term to maturity. Our objective is to increase the overall yield on investment securities while managing interest rate and credit risk.
FASB ASC Topic 320, Investments - Debt and Equity Securities, requires that, at the time of purchase, we designate a security as held to maturity, available for sale, or trading, depending on our intent and ability to hold the security. Securities designated available for sale are reported at fair value, while securities designated held to maturity are reported at amortized cost. We do not have a trading portfolio.
Government and Agency Securities. At September 30, 2013, we held government and agency securities as available for sale with a fair value of $261.5 million, consisting primarily of agency obligations with maturities of more than one year through ten years. In addition, we held $77.3 million in government and agency securities as held to maturity at amortized cost. While these securities generally provide lower yields than other investments such as mortgage-backed securities, our current investment strategy is to maintain investments in such instruments to the extent appropriate for liquidity purposes and as collateral for borrowings and municipal deposits.
Corporate Bonds. At September 30, 2013, we held corporate debt securities as available for sale with a fair value of $118.6 million. Corporate bonds have a higher risk of default due to potential for adverse changes in the creditworthiness of the issuer. In recognition of this risk, our policy limits investments in corporate bonds to securities with maturities of ten years or less and rated “A” or better by at least one nationally recognized rating agency at time of purchase, and to a total investment size of no more than $10.0 million per issuer. Our total corporate bond portfolio limit is the lesser of 5% of total assets or 75% of tangible capital.
State and Municipal Bonds. At September 30, 2013, we held $147.7 million at carrying value in bonds issued by states and political subdivisions, $19.0 million of which were classified as held to maturity at amortized cost and are mainly unrated and $128.7 million of which were classified as available for sale at fair value. The policy limits investments in municipal bonds to securities with maturities of 20 years or less and rated as investment grade by at least one nationally recognized rating agency at the time of purchase, and favors issues that are insured. However, we also purchase securities that are issued by local government entities within our service area. Such local entity obligations generally are not rated, and are subject to internal credit reviews. In addition, the policy generally imposes an investment size limit of $5.0 million per municipal issuer and a total municipal bond portfolio limit of 10% of assets. At September 30, 2013, we did not hold any obligations that were rated less than “A-” as available for sale.
Equity Securities. At September 30, 2013, we held $24.3 million (at cost) of Federal Home Loan Bank of New York (“FHLB”) common stock, a portion of which must be held as a condition of membership in the Federal Home Loan Bank System, with the remainder held as a condition to our borrowing under the FHLB advance program. Dividends on FHLB stock recorded during the year ended September 30, 2013 amounted to $864 thousand.
Mortgage-Backed Securities. Mortgage-backed securities are created by pooling mortgages and issuing a security collateralized by the pool of mortgages with an interest rate that is less than the interest rate on the underlying mortgages. Mortgage-backed securities typically represent a participation interest in a pool of single-family or multi-family mortgages, although most of our mortgage-backed securities are collateralized by single-family mortgages. The issuers of such securities (generally U.S. Government agencies and government sponsored enterprises, including Fannie Mae, Freddie Mac and Ginnie Mae) pool and resell the participation interests in the form of securities to investors, such as us, and guarantee the payment of principal and interest to these investors. Investments in mortgage-backed securities involve a risk in addition to the guarantee of repayment of principal outstanding that actual prepayments will be greater or less than the prepayment rate estimated at the time of purchase, which may require adjustments to the amortization of any premium or accretion of any discount relating to such instruments, thereby affecting the net yield and duration of such securities. We review prepayment estimates for our mortgage-backed securities at purchase to ensure that prepayment assumptions are reasonable considering the underlying collateral for the securities at issue and current interest rates, and to determine the yield and estimated maturity of the mortgage-backed securities portfolio. Periodic reviews of current prepayment speeds are performed in order to ascertain whether prepayment estimates require modification that would cause amortization or accretion adjustments. As a result of our reviews, we anticipated an acceleration of prepayments.
A portion of our mortgage-backed securities portfolio is invested in CMOs, including Real Estate Mortgage Investment Conduits (“REMICs”), backed by Fannie Mae and Freddie Mac and certain private issuers. CMOs and REMICs are types of debt securities issued by special-purpose entities that aggregate pools of mortgages and mortgage-backed securities and create different classes of securities with varying maturities and amortization schedules, as well as a residual interest, with each class possessing different risk characteristics. The cash flows from the underlying collateral are generally divided into “tranches” or classes that have descending priorities with respect to the distribution of principal and interest cash flows, while cash flows on pass-through mortgage-backed securities are distributed pro rata to all security holders. Our practice is to limit fixed-rate CMO investments primarily to the early-to-intermediate tranches, which have the greatest cash flow stability. Floating rate CMOs are purchased with emphasis on the relative trade-offs between lifetime rate caps, prepayment risk, and interest rates.
At September 30, 2013, our mortgage-backed securities portfolio totaled $605.3 million, consisting of $449.2 million in available for sale securities at fair value and $156.1 million in held to maturity securities at amortized cost.
Available for Sale Portfolio. The following table sets forth the composition of our available for sale portfolio at the dates indicated.
|
| | | | | | | | | | | | | | | | | | | | | | | |
| | September 30, |
| | 2013 | | 2012 | | 2011 |
| | Amortized cost | | Fair value | | Amortized cost | | Fair value | | Amortized cost | | Fair value |
| | (Dollars in thousands) |
| Residential mortgage-backed securities: | | | | | | | | | | | |
| Fannie Mae | $ | 214,191 |
| | $ | 211,438 |
| | $ | 155,601 |
| | $ | 161,407 |
| | $ | 136,699 |
| | $ | 139,991 |
|
| Freddie Mac | 67,272 |
| | 67,629 |
| | 81,509 |
| | 85,260 |
| | 98,511 |
| | 100,675 |
|
| Ginnie Mae | 3,374 |
| | 3,462 |
| | 4,488 |
| | 4,778 |
| | 4,973 |
| | 5,180 |
|
| CMO/other | 169,336 |
| | 166,654 |
| | 191,867 |
| | 193,064 |
| | 81,170 |
| | 82,412 |
|
| Total residential mortgage-backed securities | 454,173 |
| | 449,183 |
| | 433,465 |
| | 444,509 |
| | 321,353 |
| | 328,258 |
|
| Other securities: | | | | | | | | | | | |
| Federal agencies | 273,637 |
| | 261,547 |
| | 404,820 |
| | 408,823 |
| | 199,741 |
| | 204,648 |
|
| Corporate bonds | 118,575 |
| | 114,933 |
| | — |
| | — |
| | 16,984 |
| | 17,062 |
|
| State and municipal | 127,324 |
| | 128,730 |
| | 146,136 |
| | 156,481 |
| | 177,666 |
| | 188,684 |
|
| Equities | — |
| | — |
| | 1,087 |
| | 1,059 |
| | 1,192 |
| | 1,192 |
|
| Total other securities | 519,536 |
| | 505,210 |
| | 552,043 |
| | 566,363 |
| | 395,583 |
| | 411,586 |
|
| Total available for sale securities | $ | 973,709 |
| | $ | 954,393 |
| | $ | 985,508 |
| | $ | 1,010,872 |
| | $ | 716,936 |
| | $ | 739,844 |
|
Held to Maturity Portfolio. The following table sets forth the composition of our held to maturity portfolio at the dates indicated.
|
| | | | | | | | | | | | | | | | | | | | | | | |
| | September 30, |
| | 2013 | | 2012 | | 2011 |
| | Amortized cost | | Fair value | | Amortized cost | | Fair value | | Amortized cost | | Fair value |
| | (Dollars in thousands) |
| Residential mortgage-backed securities: | | | | | | | | | | | |
| Fannie Mae | $ | 70,502 |
| | $ | 70,815 |
| | $ | 28,637 |
| | $ | 29,849 |
| | $ | 1,298 |
| | $ | 1,361 |
|
| Freddie Mac | 59,869 |
| | 60,164 |
| | 42,706 |
| | 44,053 |
| | 32,858 |
| | 32,841 |
|
| CMO/other | 25,776 |
| | 25,494 |
| | 27,921 |
| | 28,119 |
| | 25,828 |
| | 25,983 |
|
| Total residential mortgage-backed securities | 156,147 |
| | 156,473 |
| | 99,264 |
| | 102,021 |
| | 59,984 |
| | 60,185 |
|
| Other securities: | | | | | | | | | | | |
| Federal agencies | 77,341 |
| | 73,883 |
| | 22,236 |
| | 22,342 |
| | 29,973 |
| | 29,857 |
|
| State and municipal | 19,011 |
| | 19,021 |
| | 19,376 |
| | 20,435 |
| | 18,583 |
| | 19,691 |
|
| Other | 1,500 |
| | 1,519 |
| | 1,500 |
| | 1,526 |
| | 1,500 |
| | 1,539 |
|
| Total other securities | 97,852 |
| | 94,423 |
| | 43,112 |
| | 44,303 |
| | 50,056 |
| | 51,087 |
|
| Total held to maturity securities | $ | 253,999 |
| | $ | 250,896 |
| | $ | 142,376 |
| | $ | 146,324 |
| | $ | 110,040 |
| | $ | 111,272 |
|
Portfolio Maturities and Yields. The following table summarizes the composition, maturities and weighted average yield of the investment securities portfolio at September 30, 2013. Maturities are based on the final contractual payment dates and do not reflect the impact of prepayments or early redemptions that may occur. State and municipal securities yields have not been adjusted to a tax-equivalent basis.
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | 1 Year or Less | | 1-5 years | | 5-10 years | | 10 years or more | | Total |
| | Amortized cost | | Yield | | Amortized
cost | | Yield | | Amortized
cost | | Yield | | Amortized
cost | | Yield | | Amortized
cost | | Fair Value | | Yield |
| | (Dollars in thousands) |
| Available for sale: | | | | | | | | | | | | | | | | | | | | | |
| Residential mortgage-backed securities | $ | — |
| | — | % | | $ | 7,849 |
| | 1.69 | % | | $ | 107,980 |
| | 2.19 | % | | $ | 338,344 |
| | 2.17 | % | | $ | 454,173 |
| | $ | 449,183 |
| | 2.16 | % |
| Federal agencies | — |
| | — |
| | 22,442 |
| | 1.10 |
| | 251,195 |
| | 1.64 |
| | — |
| | — |
| | 273,637 |
| | 261,547 |
| | 1.59 |
|
| Corporate bonds | — |
| | — |
| | 28,043 |
| | 1.58 |
| | 90,532 |
| | 2.36 |
| | — |
| | — |
| | 118,575 |
| | 114,933 |
| | 2.17 |
|
| State and municipal | 2,242 |
| | 2.21 |
| | 30,572 |
| | 3.20 |
| | 75,928 |
| | 3.15 |
| | 18,582 |
| | 2.98 |
| | 127,324 |
| | 128,730 |
| | 3.12 |
|
| Total | $ | 2,242 |
| | 2.21 | % | | $ | 88,906 |
| | 2.03 | % | | $ | 525,635 |
| | 2.09 | % | | $ | 356,926 |
| | 2.21 | % | | $ | 973,709 |
| | $ | 954,393 |
| | 2.13 | % |
| | | | | | | | | | | | | | | | | | | | | | |
| Held to maturity: | | | | | | | | | | | | | | | | | | | | | |
| Residential mortgage-backed securities: | $ | — |
| | — | % | | $ | — |
| | — | % | | $ | 31,723 |
| | 2.29 | % | | $ | 124,424 |
| | 2.49 | % | | $ | 156,147 |
| | $ | 156,473 |
| | 2.45 | % |
| Federal agencies | — |
| | — |
| | 12,373 |
| | 1.10 |
| | 64,968 |
| | 1.70 |
| | — |
| | — |
| | 77,341 |
| | 73,883 |
| | 1.60 |
|
| State and municipal | 2,800 |
| | 2.49 |
| | 2,133 |
| | 3.38 |
| | 7,934 |
| | 2.45 |
| | 6,144 |
| | 3.56 |
| | 19,011 |
| | 19,021 |
| | 2.88 |
|
| Other | 1,000 |
| | 2.84 |
| | 250 |
| | 1.29 |
| | 250 |
| | 3.75 |
| | — |
| | — |
| | 1,500 |
| | 1,519 |
| | 2.73 |
|
| Total | $ | 3,800 |
| | 2.58 | % | 3,800,000 |
| $ | 14,756 |
| | 1.39 | % | | $ | 104,875 |
| | 1.92 | % | | $ | 130,568 |
| | 2.54 | % | | $ | 253,999 |
| | $ | 250,896 |
| | 2.22 | % |
Sources of Funds
General. Deposits, borrowings, repayments and prepayments of loans and securities, proceeds from sales of loans and securities, proceeds from maturing securities and cash flows from operations are our primary sources of funds for use in lending, investing and for other general corporate purposes.
Deposits. We offer a variety of deposit accounts with a range of interest rates and terms. Our deposit accounts consist of savings accounts, NOW accounts, checking accounts, money market accounts, club accounts, certificates of deposit and IRAs and other qualified plan accounts. We also provide a variety of commercial checking accounts and other products for businesses.
At September 30, 2013, our deposits totaled $3.0 billion. Interest-bearing demand deposits totaled $434.4 million and non-interest-bearing demand deposits totaled $943.9 million. NOW, savings and money market deposits totaled $1.8 billion. We also had a total of $268.1 million in certificates of deposit, of which $239.1 million had maturities of one year or less.
We focus on gathering low cost, core deposits through our commercial relationship teams and our financial centers. We also gather deposits from municipalities in our market area.
Distribution of Deposit Accounts by Type. The following table sets forth the distribution of total deposit accounts, by account type, at the dates indicated. |
| | | | | | | | | | | | | | | | | | | | |
| | September 30, |
| | 2013 | | 2012 | | 2011 |
| | Amount | | % | | Amount | | % | | Amount | | % |
| | (Dollars in thousands) |
| Non-interest bearing demand: | | | | | | | | | | | |
| Retail | $ | 163,986 |
| | 5.5 | % | | $ | 167,050 |
| | 5.4 | % | | $ | 194,299 |
| | 8.5 | % |
| Commercial | 457,147 |
| | 15.4 |
| | 412,630 |
| | 13.3 |
| | 296,505 |
| | 12.9 |
|
| Municipal | 322,801 |
| | 10.9 |
| | 367,624 |
| | 11.8 |
| | 160,422 |
| | 7.0 |
|
| Total non-interest bearing demand | 943,934 |
| | 31.9 |
| | 947,304 |
| | 30.4 |
| | 651,226 |
| | 28.4 |
|
| Interest bearing demand: | | | | | | | | | | | |
| Retail | 237,854 |
| | 8.0 |
| | 213,755 |
| | 6.9 |
| | 164,637 |
| | 7.2 |
|
| Commercial | 53,083 |
| | 1.8 |
| | 38,486 |
| | 1.2 |
| | 37,092 |
| | 1.6 |
|
| Municipal | 143,461 |
| | 4.8 |
| | 195,882 |
| | 6.3 |
| | 200,773 |
| | 8.7 |
|
| Total interest bearing demand | 434,398 |
| | 14.7 |
| | 448,123 |
| | 14.4 |
| | 402,502 |
| | 17.5 |
|
| Savings | 580,125 |
| | 19.6 |
| | 506,538 |
| | 16.3 |
| | 429,825 |
| | 18.7 |
|
| Money market | 735,709 |
| | 24.8 |
| | 821,704 |
| | 26.4 |
| | 509,483 |
| | 22.2 |
|
| Subtotal | 2,694,166 |
| | 90.9 |
| | 2,723,669 |
| | 87.5 |
| | 1,993,036 |
| | 86.8 |
|
| Certificates of deposit | 268,128 |
| | 9.1 |
| | 387,482 |
| | 12.5 |
| | 303,659 |
| | 13.2 |
|
| Total deposits | $ | 2,962,294 |
| | 100.0 | % | | $ | 3,111,151 |
| | 100.0 | % | | $ | 2,296,695 |
| | 100.0 | % |
As of September 30, 2013 and September 30, 2012 the Company had $757.1 million and $901.7 million, respectively, in municipal deposits. Of these amounts, approximately $374.3 million and $424.6 million were deposits related to school district tax deposits due on September 30, 2013 and September 30, 2012, respectively, which we generally retain only for a short period of time.
The following table sets forth the distribution of average deposit accounts by account category and the average rates paid at the dates indicated.
|
| | | | | | | | | | | | | | | | | | | | |
| | September 30, |
| | 2013 | | 2012 | | 2011 |
| | Average balance | | Rate | | Average balance | | Rate | | Average balance | | Rate |
| | (Dollars in thousands) |
| Non-interest bearing demand | $ | 646,373 |
| | — | % | | $ | 520,265 |
| | — | % | | $ | 472,388 |
| | — | % |
| Interest bearing demand | 466,110 |
| | 0.08 |
| | 399,819 |
| | 0.12 |
| | 315,623 |
| | 0.19 |
|
| Savings | 572,246 |
| | 0.17 |
| | 485,624 |
| | 0.08 |
| | 432,227 |
| | 0.10 |
|
| Money market | 819,442 |
| | 0.30 |
| | 671,325 |
| | 0.33 |
| | 489,347 |
| | 0.33 |
|
| Certificates of deposit | 352,469 |
| | 0.60 |
| | 289,230 |
| | 0.87 |
| | 373,142 |
| | 0.93 |
|
| Total interest bearing deposits | 2,210,267 |
| | 0.27 |
| | 1,845,998 |
| | 0.30 |
| | 1,610,339 |
| | 0.38 |
|
| Total deposits | $ | 2,856,640 |
| | 0.21 |
| | $ | 2,366,263 |
| | 0.24 |
| | $ | 2,082,727 |
| | 0.29 |
|
Certificates of Deposit by Interest Rate Range. The following table sets forth information concerning certificates of deposit by interest rate range at the dates indicated.
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | As of September 30, 2013 | | | | |
| | Period to maturity | | Total at September 30, |
| | 1 year or less | | 1-2 years | | 2-3 years | | 3 years or more | | Total | | % of
total | | 2012 | | 2011 |
| | (Dollars in thousands) |
| Interest rate range: | | | | | | | | | | | | | | | |
| 1.00% and below | $ | 218,204 |
| | $ | 11,072 |
| | $ | 2,046 |
| | $ | 5,464 |
| | $ | 236,786 |
| | 88.3 | % | | $ | 239,149 |
| | $ | 245,777 |
|
| 1.01% to 2.00% | 4,922 |
| | 225 |
| | 2,606 |
| | 1,127 |
| | 8,880 |
| | 3.3 |
| | 114,836 |
| | 15,024 |
|
| 2.01% to 3.00% | 3,773 |
| | 5,951 |
| | 533 |
| | — |
| | 10,257 |
| | 3.8 |
| | 11,569 |
| | 16,842 |
|
| 3.01% to 4.00% | 5,838 |
| | — |
| | — |
| | — |
| | 5,838 |
| | 2.3 |
| | 9,101 |
| | 10,526 |
|
| 4.01% to 5.00% | 6,367 |
| | — |
| | — |
| | — |
| | 6,367 |
| | 2.4 |
| | 12,524 |
| | 15,002 |
|
| 5.01% to 6.00% | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 303 |
| | 488 |
|
| Total | $ | 239,104 |
| | $ | 17,248 |
| | $ | 5,185 |
| | $ | 6,591 |
| | $ | 268,128 |
| | 100.0 | % | | $ | 387,482 |
| | $ | 303,659 |
|
Certificates of Deposit by Time to Maturity. The following table sets forth certificates of deposit by time remaining until maturity as of September 30, 2013.
|
| | | | | | | | | | | | | | | | | | | | | | |
| | Period to maturity | | | | |
| | 3 months or less | | 3-6 months | | 6-12 months | | Over 12 months | | Total | | Rate |
| | (Dollars in thousands) | | |
| Certificates of deposit less than $100,000 | $ | 69,973 |
| | $ | 34,083 |
| | $ | 39,179 |
| | $ | 20,668 |
| | $ | 163,903 |
| | 0.30 | % |
| Certificates of deposit $100,000 or more | 39,224 |
| | 24,993 |
| | 31,652 |
| | 8,356 |
| | 104,225 |
| | 0.50 |
|
| �� | $ | 109,197 |
| | $ | 59,076 |
| | $ | 70,831 |
| | $ | 29,024 |
| | $ | 268,128 |
| | 0.38 | % |
Brokered Deposits. We utilize brokered deposits on a limited basis and maintain limits for the use of wholesale deposits and other short-term funding in general to be less than 10% of total assets. Most of the brokered deposit funding maintained by the Bank has a maturity to coincide with the anticipated inflows of deposits through municipal tax collections.
Listed below are the Company’s brokered deposits:
|
| | | | | | | |
| | September 30, |
| | 2013 | | 2012 |
| | (Dollars in thousands) |
| Savings | $ | — |
| | $ | 13,344 |
|
| Money market | 34,571 |
| | 46,566 |
|
Reciprocal CDAR’s 1 | 1,343 |
| | 1,354 |
|
| CDAR’s one way | 768 |
| | 764 |
|
| Total brokered deposits | $ | 36,682 |
| | $ | 62,028 |
|
|
| |
1
| Certificate of deposit account registry service |
Short-term Borrowings. Our short-term borrowings (which include borrowings with a maturity in less than one year) consisted of advances and overnight borrowings principally from the Federal Home Loan Bank. At September 30, 2011, short-term borrowings also included $51.5 million of debt guaranteed by the FDIC which matured in February 2012. At September 30, 2013, we had access to additional Federal Home Loan Bank advances up to an additional $588 million.
The following table sets forth information concerning balances and interest rates on our short-term borrowings at the dates indicated.
|
| | | | | | | | | | | |
| | At or for the year ended September 30, |
| | 2013 | | 2012 | | 2011 |
| | (Dollars in thousands) |
| Balance at end of year | $ | 158,897 |
| | $ | 10,136 |
| | $ | 61,500 |
|
| Average balance during year | 88,779 |
| | 27,286 |
| | 55,098 |
|
| Maximum amount outstanding at any month end | 295,652 |
| | 103,500 |
| | 128,200 |
|
| Weighted average interest rate at end of year | 0.95 | % | | 1.88 | % | | 2.96 | % |
| Weighted average interest rate during year | 0.57 |
| | 0.78 |
| | 1.67 |
|
Competition
The greater New York metropolitan region is a highly competitive market area with a concentration of financial institutions, many of which are significantly larger institutions with greater financial resources than us, and many of which are our competitors to varying degrees. Our competition for loans comes principally from commercial banks, savings banks, mortgage banking companies, credit unions, insurance companies and other financial serviceservices companies. Our most direct competition for deposits has historically come from commercial banks, savings banks and credit unions. We face additional competition for deposits from non-depository competitors such as the mutual fund industry,funds, securities and brokerage firms and insurance companies. We have emphasized relationship banking and the advantage of local decision-making in our banking business. We do not rely on any individual, group, or entity for a material portion of our deposits. Net interest income could be adversely affected should competitive pressures cause us to increase the interest rates paid on deposits in order to maintain our market share.
Employees
As of September 30, 2013,December 31, 2015, we had 4771,089 full-time employees and 66 part-timeequivalent employees. The employees are not represented by a collective bargaining unit and we consider our relationship with our employees to be good.
Supervision and Regulation
General. Prior to the Merger, the Company was a savings and loan holding companyGeneral
We and the Bank was aare subject to extensive regulation under federal savings bank. In connection withand state laws. The regulatory framework is intended primarily for the Merger, the Bank converted to a national bank charterprotection of depositors, consumers, federal deposit insurance funds and the Company becamebanking system as a bank holding companywhole and a financial holding company undernot for the Bank Holding Company Actprotection of 1956, as amended (the “BHC Act”). Prior to the Merger, Provident Municipal Bank was a commercial bank regulated by the New York State Department of Financial Servicesstockholders and the FDIC. In connection with the Merger, Provident Municipal Bank merged into Sterling National Bank and ceased its separate existence.creditors.
Significant elements of the laws and regulations applicable to the Companyus and the Bank are described below. The description is qualified in its entirety by reference to the full text of the statutes, regulations and policies that are described. Also, such statutes, regulations and policies are continually under review by Congress and state legislatures and federal and state regulatory agencies. A change in statutes, regulations or regulatory policies applicable to Sterlingus and itsour subsidiaries could have a material effect on the business, financial condition and results of operations. Since completion of the HVB Merger, the Bank's total assets now exceed $10 billion, thus subjecting it to additional supervision and regulation, including by the Consumer Financial Protection Bureau (“CFPB”), with such additional supervision and regulation discussed throughout this section.
Regulatory Reforms
The Dodd-Frank Act significantly restructures the financial regulatory regime in the United States, and will continue to affect, into the immediate future, the lending and investment activities and general operations of depository institutions and their holding companies. This is particularly the Company. Sterling is also undercase for us and the jurisdictionBank now that the Bank’s total assets exceed $10 billion as a result of the Securities and Exchange Commission (“SEC”) and is subject to the disclosure and regulatory requirementsHVB Merger.
The Dodd-Frank Act made many changes in banking regulation, including:
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| · | forming the CFPB with broad powers to adopt and enforce consumer protection regulations; |
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| · | the standard maximum amount of deposit insurance per customer was permanently increased to $250,000; |
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| · | the assessment base for determining deposit insurance premiums has been expanded from domestic deposits to average assets minus average tangible equity; and |
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| · | the Federal Reserve Board (the “FRB”) has imposed on financial institutions with assets of $10 billion or more a cap on the debit card interchange fees the financial institutions may charge. |
In addition, the Dodd-Frank Act requires that the FRB establish minimum consolidated capital requirements for bank holding companies that are as stringent as those required for insured depository institutions, and that the components of Tier 1 capital be restricted to capital instruments that are currently considered to be Tier 1 capital for insured depository institutions. In addition, the proceeds of trust preferred securities will be excluded from Tier 1 capital unless (i) such securities are issued by bank holding companies with assets of less than $500 million, or (ii) such securities were issued prior to May 19, 2010 by bank or savings and loan holding companies with assets of less than $15 billion.
Many of the provisions of the Dodd-Frank Act are not yet effective. The Dodd-Frank Act requires various federal agencies to promulgate numerous and extensive implementing regulations over the next several years. Although it is difficult to predict at this time what impact the Dodd-Frank Act and the implementing regulations will have on us and the Bank, they may have a material impact on operations through, among other things, heightened regulatory supervision and increased compliance costs. We continue to analyze the impact of rules adopted under the Dodd-Frank Act on our business. However, the full impact will not be known until the rules, and other regulatory initiatives that overlap with the rules, are finalized and their combined impacts can be understood.
Regulatory Agencies
We are a legal entity separate and distinct from the Bank and its other subsidiaries. As a bank and a financial holding company, we are regulated under the Bank Holding Company isAct of 1956, as amended (“BHC Act”), and our subsidiaries are subject to extensive regulation,inspection, examination and supervision and examination by the Board of Governors of the Federal Reserve System (the “Federal Reserve Board” or “FRB”)FRB as itsour primary federal regulator.
As a national bank, the Bank is principally subject to the supervision, examination and reporting requirements of the Office of the Comptroller of the Currency (the “OCC”), as its primary federal regulator, as well as the Federal Deposit Insurance Corporation (the “FDIC”). Further, due to the completion of the HVB Merger, the Bank’s total assets now exceed $10 billion, thus making it subject to the CFPB’s supervision. Insured banks, including the Bank, are subject to extensive regulation of many aspects of their business. These regulations that relate to, among other things: (a) the nature and amount of loans that may be made by the Bank and the rates of interest that may be charged; (b) types and amounts of other investments; (c) branching; (d) permissible activities; (e) reserve requirements; and (f) dealings with officers, directors and affiliates.
Bank Holding Company Activities. Activities
In general, the BHC Act limits the business of bank holding companies to banking, managing or controlling banks and other activities that the Federal Reserve BoardFRB has determined to be so closely related to banking as to be a proper incident thereto. In addition, bank holding companies that qualify and elect to be financial holding companies such as the Company,us, may engage in any activity, or acquire and retain the shares of a company engaged in any activity, that is either (i) financial in nature or incidental to such financial activity (as determined by the Federal Reserve BoardFRB in consultation with the Secretary of the Treasury) or (ii) complementary to a financial activity and does not pose a substantial risk to the safety and soundness of depository institutions or the financial system generally (as solely determined by the Federal Reserve Board)FRB), without prior approval of the Federal Reserve Board. Activities that are financial in nature include securities underwriting and dealing, insurance underwriting and making merchant banking investments.FRB.
To maintain financial holding company status, a financial holding company and all of its depository institution subsidiaries must be “well capitalized” and “well managed.” A depository institution subsidiary is considered to be “well capitalized” if it satisfies the requirements for this status discussed in the section captioned “Prompt Corrective Action,Action.” included elsewhere in this item. A depository institution subsidiary is considered “well managed”"well managed" if it received a composite rating and management rating of at least “satisfactory” in its most recent examination. A financial holding company’scompany's status will also depend upon it maintaining its status as “well capitalized” and “well managed’managed” under applicable Federal Reserve BoardFRB regulations. If a financial holding company ceases to meet these capital and management requirements, the Federal Reserve Board’sFRB’s regulations provide that the financial holding company must enter into an agreement with the Federal Reserve BoardFRB to comply with all applicable capital and management requirements. Until the financial holding company returns to compliance, the Federal Reserve BoardFRB may impose limitations or conditions on the conduct of its activities, and the company may not commence any of the broader financial activities permissible for financial holding companies or acquire a company engaged in such financial activities without prior approval of the Federal Reserve Board.FRB. If the company does not return to compliance within 180 days, the Federal Reserve BoardFRB may require divestiture of the holding company’scompany's depository institutions.
In order for a financial holding company to commence any new activity permitted by the BHC Act or to acquire a company engaged in any new activity permitted by the BHC Act, each insured depository institution subsidiary of the financial holding company must have received a rating of at least “satisfactory” in its most recent examination under the Community Reinvestment Act. See the section captioned “Community Reinvestment Act” included elsewhere in this item.
The Federal Reserve BoardFRB has the power to order any bank holding company or its subsidiaries to terminate any activity or to terminate its ownership or control of any subsidiary when the Federal Reserve BoardFRB has reasonable grounds to believe that continuation of such activity or such ownership or control constitutes a serious risk to the financial soundness, safety or stability of any bank subsidiary of the bank holding company.
The BHC Act, the Bank Merger Act, and other federal and state statutes regulate acquisitions of banks and banking companies. The BHC Act requires the prior approval of the Federal Reserve BoardFRB for the direct or indirect acquisition by the Companyus of more than 5.0%5% of the voting shares or substantially all of the assets of a bank or bank holding company. Under the Bank Merger Act, the prior approval of the Federal Reserve BoardFRB or other appropriate bank regulatory authority is required for the Bank to merge with another bank or purchase the assets or assume the deposits of another bank. In reviewing applications seeking approval of merger and acquisition transactions, the bank regulatory authorities will consider, among other things, the competitive effect and public benefits of the transactions, the capital position of the combined organization, the risks to the stability of the U.S. banking or financial system, the applicant’sapplicant's performance record under the Community Reinvestment Act (see the section captioned “Community Reinvestment Act” included elsewhere in this item) and fair housing laws and the effectiveness of the subject organizations in combating money laundering activities.
Capital Requirements
The Dodd-Frank Act. The Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”), which was enacted in July 2010, significantly restructured the financial regulatory environment in the United States. Although the Dodd-Frank Act’s provisions that have received the most public attention generally have been those applyingWe are required to or more likely to affect, larger institutions such as bank holding companiescomply with total consolidated assets of $10 billion or more, it contains numerous other provisions that affect all bank holding companies and banks, including the Company and the Bank, some of which are described in more detail below. The scope and impact of many of the Dodd-Frank Act’s provisions will be determined over time as regulations are issued and become effective. As a result, we cannot predict the ultimate impact of the Act on the Company or Sterling Bank at this time, including the extent to which it could increase costs or limit our ability to pursue business opportunities in an efficient manner, or otherwise adversely affect our business, financial condition and results of operations. Nor can we predict the impact or substance of other future legislation or regulation. However, it is expected that they at a minimum will increase our operating and compliance costs.
Dividends.The Company depends for its cash requirements on funds maintained or generated by its subsidiaries, principally the Bank.
Various legal restrictions limit the extent to which the Bank can pay dividends or make other distributions to the Company. All national banks are limited in the payment of dividends without the approval of the OCC to an amount not to exceed the net profits (as defined by OCC regulations) for that year-to-date combined with its retained net profits for the preceding two calendar years, less any required transfers to surplus. Federal law also prohibits national banks from paying dividends that would be greater than the bank’s undivided profits after deducting statutory bad debt in excess of the bank’s allowance for loan losses. Under the foregoing restrictions, and while maintaining its “well capitalized” status, as of September 30, 2013, the Bank could pay dividends of approximately $35.8 million to the Company, without obtaining regulatory approval. This is not necessarily indicative of amounts that may be paid or are available to be paid in future periods.
Under the Federal Deposit Insurance Corporation Improvement Act of 1991 (“FDICIA”), a depository institution, such as the Bank, may not pay dividends if payment would cause it to become undercapitalized or if it is already undercapitalized. The payment of dividendsapplicable capital adequacy standards established by the Company and the Bank may also be affected or limited by other factors, such as the requirement to maintain adequate capital. The appropriate federal regulatory authority is authorized to determine under certain circumstances relating to the financial condition of a bank holding company or a bank that the payment of dividends would be an unsafe or unsound practice and to prohibit payment thereof. The appropriate federal regulatory authorities have indicated that paying dividends that deplete a banking organization’s capital base to an inadequate level would be an unsafe and unsound banking practice and that banking organizations should generally pay dividends only out of current operating earnings. In addition, in the current financial and economic environment, the Federal Reserve Board has indicated that bank holding companies should carefully review their dividend policy and has discouraged payment ratios that are at maximum allowable levels unless both asset quality and capital are strong.
Capital Requirements. As a bank holding company, the Company is subject to consolidated regulatory capital requirements administered by the Federal Reserve Board.FRB. The Bank is subjectrequired to similarcomply with applicable capital requirements administeredadequacy standards established by the OCC. The federal regulatory authorities’current risk-based capital guidelinesstandards applicable to us and the Bank, parts of which are currently in the process of being phased-in, are based uponon the December 2010 capital standards, known as Basel III, of the Basel Committee on Banking Supervision (the “Basel Committee”).
Prior to January 1, 2015, the risk-based capital standards applicable to us and the Bank (the “general risk-based capital rules”) were based on the 1988 capital accord (“Capital Accord, known as Basel I”)I, of the Basel Committee. The Basel Committee is a committee of central banks and bank supervisors/regulators from the major industrialized countries that develops broad policy guidelines for use by each country’s supervisors in determining the supervisory policies they apply. The requirements are intended to ensure that banking organizations have adequate capital given the risk levels of assets and off-balance sheet financial instruments. Under the requirements, banking organizations are required to maintain minimum ratios for Tier 1 capital and total capital to risk-weighted assets (including certain off-balance sheet items, such as letters of credit). For purposes of calculating the ratios, a banking organization’s assets and some of its specified off-balance sheet commitments and obligations are assigned to various risk categories. A banking organization’s capital, in turn, is classified in tiers, depending on type:
Core Capital (Tier 1). Currently, Tier 1 capital includes common equity, retained earnings, qualifying noncumulative perpetual preferred stock, minority interests in equity accounts of consolidated subsidiaries, and, under existing standards, a limited amount of qualifying trust preferred securities, and qualifying cumulative perpetual preferred stock at the holding company level, less goodwill, most intangible assets and certain other assets.
Supplementary Capital (Tier 2).Currently, Tier 2 capital includes, among other things, perpetual preferred stock not meeting the Tier 1 definition, qualifying mandatory convertible debt securities, qualifying subordinated debt, and allowances for loan and lease losses, subject to limitations.
Under the existing risk-based capital rules, the Company and the Bank are currently required to maintain Tier 1 capital and total capital (the sum of Tier 1 and Tier 2 capital) equal to at least 4.0% and 8.0%, respectively, of its total risk-weighted assets (including various off-balance-sheet items, such as standby letters of credit). For a depository institution to be considered “well capitalized,” its Tier 1 and total capital ratios must be at least 6.0% and 10.0% on a risk-adjusted basis, respectively. The elements currently comprising Tier 1 capital
and Tier 2 capital and the minimum Tier 1 capital and total capital ratios may in the future be subject to change, as discussed in more detail below.
Bank holding companies and banks are also required to comply with minimum leverage ratio requirements. The leverage ratio is the ratio of a banking organization’s Tier 1 capital to its total adjusted quarterly average assets (as defined for regulatory purposes). The requirements necessitate a minimum leverage ratio of 3.0% for financial holding companies and banking organizations that have the highest supervisory rating. All other banking organizations are required to maintain a minimum leverage ratio of 4.0%, unless a different minimum is specified by an appropriate regulatory authority. For a depository institution to be considered “well capitalized,” its leverage ratio must be at least 5.0%. The bank regulatory agencies have encouraged banking organizations to operate with capital ratios substantially in excess of the stated ratios required to maintain “well capitalized” status. This has resulted from, among other things, current economic conditions, the global financial crisis and anticipated increases in formal capital requirements for banking organizations as further detailed below. In light of the foregoing, the Company and the Bank expect that they will maintain capital ratios in excess of well capitalized requirements.
Sterling Bancorp Regulatory Capital Ratios. At September 30,July 2013, the Company as a savings and loan holding company was not subject to specific regulatory capital ratio requirements. At September 30, 2013, the Bank was subject to a leverage ratio requirement calculated pursuant to rules for federal savings banks, which required the Bank to calculate its leverage ratio as the ratio of the Bank’s Tier 1 capital to its period end adjusted assets (as defined for regulatory purposes).
At September 30, 2013, the capital of Sterling National Bank and Provident Municipal Bank exceeded all applicable capital requirements, and each met the requirements to be treated as a “well-capitalized” institution.
Basel III Capital Rules. Effective July 2, 2013 the Company’s primary federalbank regulators the Federal Reserve Board and the OCC, approved final rules known as the(the “Basel III Capital Rules” that substantially revise) implementing the risk-based capital and leverage capital requirements applicable to bank holding companies and depository institutions, includingBasel III framework as well as certain provisions of the Company and the Bank.Dodd-Frank Act. The Basel III Capital Rules addresssubstantially revised the components ofrisk-based capital requirements applicable to us and other issues affecting the numerator in banking institutions’ regulatoryBank, as compared to the general risk-based capital ratios. Basel III Capital Rules also implement the requirements of Section 939A of the Dodd-Frank Act to remove references to credit ratings from the federal banking agencies’ rules. The Basel III Capital Rules will come into effectbecame effective for the Companyus and the Bank on January 1, 2015 (subject to a phase-in period)period for certain provisions).
The Basel III Capital Rules, among other things, (i) introduces asintroduce a new capital measure called “Common Equity Tier 1” (“CET1”), (ii) specifiesspecify that Tier 1 capital consists of CET1 and “Additional Tier 1 capital” instruments meeting specifiedcertain revised requirements, (iii) definesdefine CET1 narrowly by requiring that most deductions/adjustments to regulatory capital measures be made to CET1 and not to the other components of capital, and (iv) expandsexpand the scope of the deductions/adjustments to capital as compared to existing regulations. CET1 capital consists of common stock instruments that meet
Under the eligibility criteria in the final rules, retained earnings, accumulated other comprehensive income and common equity Tier 1 minority interest.
When fully phased-in on January 1, 2019, Basel III Capital Rules, require banking organizations to maintain (i) athe minimum ratiocapital ratios effective as of January 1, 2015 are:
4.5% CET1 to risk-weighted assets of at least 4.5%, plus a 2.5% “capital conservation buffer” (which is added to the 4.5% CET1 ratio as that buffer is phased-in, effectively resulting in a minimum ratio of CET1 to risk-weighted assets of at least 7.0% upon full implementation), (ii) a minimum ratio of Tier 1 capital to risk-weighted assets of at least 6.0%, plus the capital conservation buffer (which is added to the assets;
6.0% Tier 1 capital ratio as that buffer(that is phased-in, effectively resulting in a minimumCET1 plus Additional Tier 1 capital ratio of 8.5% upon full implementation), (iii) a minimum ratio of total capitalcapital) to risk-weighted assets;
8.0% Total Capital (that is, Tier 1 capital plus Tier 2 capital) to risk-weighted assets of at least 8.0%, plus the capital conservation buffer (which is added to the 8.0% total capital ratio as that buffer is phased-in, effectively resulting in a minimum total capital ratio of 10.5% upon full implementation)assets; and (iv) as a newly adopted international standard, a minimum leverage ratio of
4.0%, calculated as the ratio of Tier 1 capital to adjusted average consolidated assets as reported on consolidated financial statements (known as the “leverage ratio”).
The Basel III Capital Rules also provides forintroduced a “countercyclical capitalnew “capital conservation buffer” that is applicable to only certain covered institutions and is not expected to have any current applicability to, composed entirely of CET1, on top of these minimum risk-weighted asset ratios. The implementation of the Company or the Bank.
The aforementioned capital conservation buffer is designed to absorb losses during periods of economic stress.began on January 1, 2016 at the 0.625% level and will increase by 0.625% on each subsequent January 1, until it reaches 2.5% on January 1, 2019. Banking institutions with a ratio of CET1 to risk-weighted assets above the minimum but below the effective minimum (4.5% plus the capital conservation bufferbuffer) will face limitationsconstraints on the payment of dividends, common stockequity repurchases and discretionary cash payments to executive officerscompensation based on the amount of the shortfall.
When fully phased in on January 1, 2019, the Basel III Capital Rules will require us and the Bank to maintain an additional capital conservation buffer of 2.5% of CET1, effectively resulting in minimum ratios of (i) CET1 to risk-weighted assets of at least 7%, (ii) Tier 1 capital to risk-weighted assets of at least 8.5%, (iii) a minimum ratio of Total capital to risk-weighted assets of at least 10.5%; and (iv) a minimum leverage ratio of 4%.
The Basel III Capital Rules providesalso provide for a number of deductions from and adjustments to CET1. These include, for example, the requirement that mortgage servicing rights,certain deferred tax assets dependent upon future taxable income and significant investments in non-consolidated financial entities be deducted from CET1 to the extent that any one such category exceeds 10% of CET1 or all such categoriesitems, in the aggregate, exceed 15% of CET1. Under current
Implementation of the deductions and other adjustments to CET1 began on January 1, 2015 and will be phased-in over a 4-year period (beginning at 40% on January 1, 2015 and an additional 20% per year thereafter).
In addition, under the general risk-based capital standards,rules, the effects of accumulated other comprehensive income items included in capital arewere excluded for the purposes of determining regulatory capital ratios. Under the Basel III Capital Rules, the Companywe and the
Bank are givenwere able to make a one-time permanent election (the “Opt-out Election”) to filter certain accumulated other comprehensive income (“AOCI”) components, comparablecontinue to exclude these items and did so. Under the treatment underBasel III Capital Rules, trust preferred securities no longer included in our Tier 1 capital may nonetheless be included as a component of Tier 2 capital on a permanent basis without phase-out.
The Basel III Capital Rules prescribe a standardized approach for risk weightings that expanded the currentrisk-weighting categories from the general risk-based capital rule. The AOCI Opt-out Election must be maderules to a much larger and more risk-sensitive number of categories, depending on the March 31, 2015 Call Report and FR Y-9C for the Bank and Sterling, respectively.
Implementationnature of the deductionsassets, generally ranging from 0% for U.S. government and other adjustmentsagency securities, to CET1 will begin on January 1, 2015600% for certain equity exposures, and will be phased-in overresulting in higher risk weights for a five-year period (20% per year). The implementationvariety of the capital conservation buffer will begin on January 1, 2016 at the 0.625% level and be phased-in over a four-year period (increasing by that amount on each subsequent January 1, until it reaches 2.5% on January 1, 2019).asset categories.
With respect to the Bank, the Basel III Capital Rules also revisedrevise the “prompt corrective action” regulations pursuant to Section 38 of the Federal Deposit Insurance Act, by (i) introducing a CET1 ratio requirement at each level (other than critically undercapitalized), with the required CET1 ratio being 6.5% for well-capitalized status; (ii) increasing the minimum Tier 1 capital ratio requirement for each category, with the minimum Tier 1 risk-based capital ratio for well-capitalized status being 8.0% (as compared to the current 6.0%); and (iii) eliminating the current provision that provides that a bank with a composite supervisory rating of 1 may have a 3.0% leverage ratio and still be well-capitalized.as discussed below under “Prompt Corrective Action.”
In addition, the Basel III Capital Rules revise the rules for calculating risk-weighted assets to enhance their risk sensitivity, which includes (1) a new framework under which mortgage-backed securities and other securitization exposures will be subject to risk-weights ranging from 20% to 1,250% and (2) adjusted risk-weights for credit exposures, including multi-family and commercial real estate exposures that are 90 days or more past due or on non-accrual, which will be subject to a 150% risk-weight, except in situations where qualifying collateral and/or guarantees are in place. The existing treatment of residential mortgage exposures will remain subject to either a 50% risk-weight (for prudently underwritten owner-occupied first liens that are current or less than 90 days past due) or a 100% risk-weight (for all other residential mortgage exposures including 90 days or more past due exposures).
Management believes that, as of September 30, 2013, SterlingDecember 31, 2015, we and the Bank would meet all capital adequacy requirements under the Basel III Capital Rules on a fully phased-in basis as if such requirements were currently effective. Requirements to maintain higher levels of capital or to maintain higher levels of liquid assets could adversely impact the Company’s net income.had been in effect.
Source of Strength Doctrine.Federal Reserve Board policy and federal law require bank holding companies to act as a source of financial and managerial strength to their subsidiary banks. Under this requirement, Sterling is expected to commit resources to support the Bank, including at times when Sterling may not be in a financial position to provide such resources. Any capital loans by a bank holding company to any of its subsidiary banks are subordinate in right of payment to depositors and to certain other indebtedness of such subsidiary banks. In the event of a bank holding company’s bankruptcy, any commitment by the bank holding company to a federal bank regulatory agency to maintain the capital of a subsidiary bank will be assumed by the bankruptcy trustee and entitled to priority of payment.
Deposit Insurance. Substantially all of the deposits of the Bank are insured up to applicable limits by the Deposit Insurance Fund (“DIF”) of the FDIC and the Bank is subject to deposit insurance assessments to maintain the DIF. Deposit insurance assessments are based on average consolidated total assets minus average tangible equity. Under the FDIC’s risk-based assessment system, insured institutions with less than $10 billion in assets, such as the Bank, are assigned to one of four risk categories based on supervisory evaluations, regulatory capital level, and certain other factors, with less risky institutions paying lower assessments. An institution’s assessment rate depends upon the category to which it is assigned and certain other factors.
Prompt Corrective Action
The initial base assessment rate ranges from 5 to 35 basis points on an annualized basis. After the effect of potential base-rate adjustments, the total base assessment rate could range from 2.5 to 45 basis points on an annualized basis. As the DIF reserve ratio grows, the rate schedule will be adjusted downward. Additionally, an institution must pay an additional premium equal to 50 basis points on every dollar (above 3% of an institution’s Tier 1 capital) of long-term, unsecured debt held that was issued by another insured depository institution (excluding debt guaranteed under the Temporary Liquidity Guarantee Program). The FDIC has the authority to raise or lower assessment rates, subject to limits, and to impose special additional assessments.
In October 2010, the FDIC adopted a new DIF restoration plan to ensure that the DIF reserve ratio reaches 1.35% by September 30, 2020, as required by the Dodd-Frank Act. At least semi-annually, the FDIC will update its loss and income projections for the fund and, if needed, will increase or decrease assessment rates, following notice-and-comment rulemaking if required.
The temporary unlimited deposit insurance coverage for non-interest-bearing transaction accounts that became effective on December 31, 2010 pursuant to rules adopted in accordance with the Dodd-Frank Act terminated on December 31, 2012. These accounts are now insured under the general deposit insurance coverage rules of the FDIC.
FDIC deposit insurance expense totaled $2.4 million, $2.5 million and $2.3 million in fiscal 2013, 2012 and 2011, respectively. FDIC deposit insurance expense includes deposit insurance assessments and Financing Corporation (“FICO”) assessments related to outstanding
bonds issued by FICO in the late 1980s to recapitalize the now defunct Federal Savings & Loan Insurance Corporation. The FICO assessments will continue until the bonds mature in 2017 to 2019.
Under the Federal Deposit Insurance Act, as amended (“FDIA”), the FDIC may terminate deposit insurance upon a finding that the institution has engaged in unsafe and unsound practices, is in an unsafe or unsound condition to continue operations, or has violated any applicable law, regulation, rule, order or condition imposed by the FDIC.
Liquidity Requirements.Historically, the regulation and monitoring of bank and bank holding company liquidity has been addressed as a supervisory matter, without minimum required formulaic measures. The Basel III liquidity framework requires banks and bank holding companies to measure their liquidity against specific liquidity tests that, although similar in some respects to liquidity measures historically applied by banks and regulators for management and supervisory purposes, going forward would be required by regulation. One test, referred to as the liquidity coverage ratio (“LCR”), is designed to ensure that the banking entity maintains an adequate level of unencumbered high-quality liquid assets equal to the entity’s expected net cash outflow for a 30-day time horizon (or, if greater, 25% of its expected total cash outflow) under an acute liquidity stress scenario. The other test, referred to as the net stable funding ratio (“NSFR”), is designed to promote more medium- and long-term funding of the assets and activities of banking entities over a one-year time horizon. These requirements will incent banking entities to increase their holdings of U.S. Treasury securities and other sovereign debt as a component of assets and increase the use of long-term debt as a funding source. The Basel III liquidity framework contemplates that the LCR will be subject to an observation period continuing through mid-2013 and, subject to any revisions resulting from the analyses conducted and data collected during the observation period, implemented as a minimum standard on January 1, 2015, with a phase-in period ending January 1, 2019. Similarly, it contemplates that the NSFR will be subject to an observation period through mid-2016 and, subject to any revisions resulting from the analyses conducted and data collected during the observation period, implemented as a minimum standard by January 1, 2018. These new standards are subject to further rulemaking and their terms may well change before implementation. The federal banking agencies have not proposed rules implementing the Basel III liquidity framework and have not determined to what extent they will apply to U.S. banks that are not large, internationally active banks.
Management believes that, as of September 30, 2013, the Bank would meet the LCR requirement under the Basel III on a fully phased-in basis if such requirements were currently effective. Management's evaluation of the impact of the NSFR requirement is ongoing as of September 30, 2013. Requirements to maintain higher levels of liquid assets could adversely impact the Company’s net income.
Prompt Corrective Action. The Basel III Capital Rules incorporates new requirements into the prompt correction action framework, which was described above in “Capital Requirements.” The following is a summary of the capital rules applicable to the Company and principally the Bank at September 30, 2013 and for the fiscal year ending September 30, 2014. The FDIA requires among other things, the federal banking agencies to take “prompt corrective action” in respect of depository institutions that do not meet minimum capital requirements. The FDIA includes the following five capital tiers: “well capitalized,” “adequately capitalized,” “undercapitalized,” “significantly undercapitalized” and “critically undercapitalized.” A depository institution’s capital tier will depend upon how its capital levels compare with various relevant capital measures and certain other factors, as established by regulation. The relevant capital measures, which reflect changes under the Basel III Capital Rules that became effective on January 1, 2015, are the total capital ratio, the CET1 capital ratio, the Tier 1 capital ratio and the leverage ratio.
A depository institutionbank will be (i) “well capitalized” if the institution has a total risk-based capital ratio of 10.0% or greater, a CET1 capital ratio of 6.5% or greater, a Tier 1 risk-based capital ratio of 6.0%8.0% or greater, and a leverage ratio of 5.0% or greater, and is not subject to any regulatory order agreement or written directive by any such regulatory authority to meet and maintain a specific capital level for any capital measure; (ii) “adequately capitalized” if the institution has a total risk-based capital ratio of 8.0% or greater, a CET1 capital ratio of 4.5% or greater, a Tier 1 risk-based capital ratio of 4.0%6.0% or greater, and a leverage ratio of 4.0% or greater and is not “well capitalized”; (iii) “undercapitalized” if the institution has a total risk-based capital ratio that is less than 8.0%, a CET1 capital ratio less than 4.5%, a Tier 1 risk-based capital ratio of less than 4.0%6.0% or a leverage ratio of less than 4.0%; (iv) “significantly undercapitalized” if the institution has a total risk-based capital ratio of less than 6.0%, a CET1 capital ratio less than 3.0%, a Tier 1 risk-based capital ratio of less than 3.0%4.0% or a leverage ratio of less than 3.0%; and (v) “critically undercapitalized” if the institution’s tangible equity is equal to or less than 2.0% of totalaverage quarterly tangible assets. An institution may be downgraded to, or deemed to be in, a capital category that is lower than indicated by its capital ratios if it is determined to be in an unsafe or unsound condition or if it receives an unsatisfactory examination rating with respect to certain matters. A bank’s capital category is determined solely for the purpose of applying prompt corrective action regulations, and the capital category may not constitute an accurate representation of the bank’s overall financial condition or prospects for other purposes.
The FDIA generally prohibits a depository institution from making any capital distributions (including payment of a dividend) or paying any management fee to its parent holding company if the depository institution would thereafter be “undercapitalized.” “Undercapitalized” institutions are subject to growth limitations and are required to submit a capital restoration plan. The agencies may not accept such a plan without determining, among other things, that the plan is based on realistic assumptions and is likely to succeed in restoring the depository institution’s capital. In addition, for a capital restoration plan to be acceptable, the depository institution’s parent holding company must guarantee that the institution will comply with such capital restoration plan. The bank holding company must also provide appropriate assurances of performance. The aggregate liability of the parent holding company is limited to the lesser of (i) an amount equal to 5.0% of the depository institution’s total assets at the time it became undercapitalized and (ii) the amount which is necessary (or
would have been necessary) to bring the institution into compliance with all capital standards applicable with respect to such institution as of the time it fails to comply with the plan. If a depository institution fails to submit an acceptable plan, it is treated as if it is “significantly undercapitalized.”
“Significantly undercapitalized” depository institutions may be subject to a number of requirements and restrictions, including orders to sell sufficient voting stock to become “adequately capitalized,” requirements to reduce total assets, and cessation of receipt of deposits from correspondent banks. “Critically undercapitalized” institutions are subject to the appointment of a receiver or conservator.
The appropriate federal banking agency may, under certain circumstances, reclassify a well capitalizedwell-capitalized insured depository institution as adequately capitalized. The FDIA provides that an institution may be reclassified if the appropriate federal banking agency determines (after notice and opportunity for hearing) that the institution is in an unsafe or unsound condition or deems the institution to be engaging in an unsafe or unsound practice.
The appropriate agency is also permitted to require an adequately capitalized or undercapitalized institution to comply with the supervisory provisions as if the institution were in the next lower category (but not treat a significantly undercapitalized institution as critically undercapitalized) based on supervisory information other than the capital levels of the institution.
Sterling believes
We believe that as of September 30, 2013, its bank subsidiary, Sterling NationalDecember 31, 2015, the Bank, was “well capitalized” based on the aforementioned ratios. For further information regarding the capital ratios and leverage ratio of the Companyus and the Bank see the discussion under the section captioned “Capital“Liquidity and Liquidity”Capital Resources” included in Item 7. Management’s“Management’s Discussion and Analysis of Financial Condition and Results of OperationsOperations” and Note14. Stockholder's Equity-Note 16. “Stockholders’ Equity - Regulatory MattersCapital Requirements” in the notes to consolidated financial statements included in Item 8. Financial Statements and Supplementary Data, elsewhere in this report.statements.
Dividend Restrictions
We depend on funds maintained or generated by our subsidiaries, principally the Bank, for our cash requirements. Various legal restrictions limit the extent to which the Bank can pay dividends or make other distributions to us. All national banks are limited in the payment of dividends without the approval of the OCC to an amount not to exceed the net profits (as defined by OCC regulations) for that year-to-date combined with its retained net profits for the preceding two calendar years, less any required transfers to surplus. Federal law also prohibits national banks from paying dividends that would be greater than the bank's undivided profits after deducting statutory bad debt in excess of the bank's allowance for loan losses. Under the foregoing restrictions, and while maintaining its “well capitalized” status, as of December 31, 2015, the Bank could pay dividends of approximately $68.4 million to us, without obtaining regulatory approval. This is not necessarily indicative of amounts that may be paid or are available to be paid in future periods.
Under the Federal Deposit Insurance Corporation Improvement Act of 1991 (“FDICIA”), a depository institution, such as the Bank, may not pay dividends if payment would cause it to become undercapitalized or if it is already undercapitalized. The payment of dividends by us and the Bank may also be affected or limited by other factors, such as the requirement to maintain adequate capital. The appropriate federal regulatory authority is authorized to determine under certain circumstances relating to the financial condition of a bank holding company or a bank that the payment of dividends would be an unsafe or unsound practice and to prohibit such payment. The appropriate federal regulatory authorities have indicated that paying dividends that deplete a banking organization's capital base to an inadequate level would be an unsafe and unsound banking practice and that banking organizations should generally pay dividends only out of current operating earnings.
Source of Strength Doctrine
FRB policy and federal law require bank holding companies to act as a source of financial and managerial strength to their subsidiary banks. Under this requirement, we are expected to commit resources to support the Bank, including at times when we may not be in a financial position to provide such resources. Any capital loans by a bank holding company to any of its subsidiary banks are subordinate in right of payment to depositors and to certain other indebtedness of such subsidiary banks.
Deposit Insurance
Substantially all of the deposits of the Bank are insured up to applicable limits by the Deposit Insurance Fund (“DIF”) of the FDIC and the Bank is subject to deposit insurance assessments to maintain the DIF. Due to the decline in economic conditions, the deposit insurance provided by the FDIC per account owner was raised to $250,000 for all types of accounts. That change, initially intended to be temporary, was made permanent by the Dodd-Frank Act.
As insurer, the FDIC is authorized to conduct examinations of, and to require reporting by, DIF-insured institutions. It also may prohibit any DIF-insured institution from engaging in any activity the FDIC determines by regulation or order to pose a serious threat to the DIF. The FDIC also has the authority to take enforcement actions against insured institutions. Under the Federal Deposit Insurance Act, as amended (“FDIA”), the FDIC may terminate deposit insurance upon a finding that the institution has engaged in
unsafe and unsound practices, is in an unsafe or unsound condition to continue operations, or has violated any applicable law, regulation, rule, order or condition imposed by the FDIC.
Under the FDIC’s risk-based assessment system, insured institutions are assigned to one of four risk categories based upon supervisory evaluations, regulatory capital level, and certain other factors, with less risky institutions paying lower assessments. An institution's assessment rate depends upon the category to which it is assigned and certain other factors. Historically, assessment rates ranged from seven to 77.5 basis points of each institution's deposit assessment base. On February 7, 2011, as required by the Dodd-Frank Act, the FDIC published a final rule to revise the deposit insurance assessment system. The rule, which took effect April 1, 2011, changed the assessment base used for calculating deposit insurance assessments from deposits to total assets less tangible (Tier 1) capital. Since the new base is larger than the previous base, the FDIC also lowered assessment rates so that the rule would not significantly alter the total amount of revenue collected from the industry. The range of adjusted assessment rates is now 2.5 to 45 basis points of the new assessment base.
As the DIF reserve ratio grows, the rate schedule will be adjusted downward. Additionally, an institution must pay an additional premium equal to 50 basis points on every dollar (above 3% of an institution's Tier 1 capital) of long-term, unsecured debt held that was issued by another insured depository institution (excluding debt guaranteed under the Temporary Liquidity Guarantee Program). The FDIC has the authority to raise or lower assessment rates, subject to limits, and to impose special additional assessments.
The Dodd-Frank Act increased the minimum target DIF ratio from 1.15% of estimated insured deposits to 1.35% of estimated insured deposits. The FDIC must seek to achieve the 1.35% ratio by September 30, 2020. Insured institutions with assets of $10 billion or more, which includes the Bank since the completion of the HVB Merger, are required to fund the increase. The Dodd-Frank Act eliminated the 1.5% maximum fund ratio, leaving it, instead, to the discretion of the FDIC. The FDIC has recently exercised that discretion by establishing a long-range fund ratio of 2%, which could result in our paying higher deposit insurance premiums in the future.
FDIC deposit insurance expense totaled $5.9 million for the year ended December 31, 2015, $1.2 million and $940 thousand for the three months ended December 31, 2014 and 2013 and $5.0 million and $2.4 million for the fiscal years ended September 30, 2014 and 2013 respectively. FDIC deposit insurance expense includes deposit insurance assessments and Financing Corporation (“FICO”) assessments related to outstanding bonds issued by FICO in the late 1980s to recapitalize the now defunct Federal Savings & Loan Insurance Corporation. The FICO assessments will continue until the bonds mature in 2017 to 2019.
Safety and Soundness Regulations.Regulations
In accordance with the FDIA, the federal banking agencies adopted guidelines establishing general standards relating to internal controls, information systems, internal audit systems, loan documentation, credit underwriting, interest rate risk exposure, asset growth, asset quality, earnings, compensation, fees and benefits. In general, the guidelines require, among other things, appropriate systems and practices to identify and manage the risks and exposures specified in the guidelines. The guidelines prohibit excessive compensation as an unsafe and unsound practice and describe compensation as excessive when the amounts paid are unreasonable or disproportionate to the services performed by an executive officer, employee, director or principal shareholder. In addition, regulations adopted by the federal banking agencies authorize the agencies to require that an institution that has been given notice that it is not satisfying any of such safety and soundness standards to submit a compliance plan. If, after being so notified, the institution fails to submit an acceptable compliance plan or fails in any material respect to implement an accepted compliance plan, the agency must issue an order directing corrective actions and may issue an order directing other actions of the types to which an undercapitalized institution is subject under the “prompt corrective action” provisions of FDIA. If the institution fails to comply with such an order, the agency may seek to enforce such order in judicial proceedings and to impose civil money penalties.
Incentive Compensation
Incentive Compensation.The Dodd-Frank Act requires the federal bank regulatory agencies and the SEC to establish joint regulations or guidelines prohibiting incentive-based payment arrangements at specified regulated entities, such as the Companyus and the Bank, having at least $1 billion in total assets that encourage inappropriate risks by providing an executive officer, employee, director or principal shareholder with excessive compensation, fees, or benefits or that could lead to material financial loss to the entity. In addition, these regulators mustwere required to establish regulations or guidelines requiring enhanced disclosure to regulators of incentive-based compensation arrangements. The agencies proposed such regulations in April 2011, but the regulations have not been finalized. If the regulations are adopted in the form initially proposed, they will impose limitations on the manner in which the Companywe may structure compensation for itsour executives.
In June 2010, the Federal Reserve Board,FRB, OCC and FDIC issued comprehensive final guidance on incentive compensation policies intended to ensure that the incentive compensation policies of banking organizations do not undermine the safety and soundness of such organizations by
encouraging excessive risk-taking. The guidance, which covers all employees that have the ability to materially affect the risk profile of an organization, either individually or as part of a group, is based upon the key principles that a banking organization’sorganization's incentive compensation arrangements should (i) provide incentives that do not encourage risk-taking beyond the organization’sorganization's ability to effectively identify and manage risks, (ii) be compatible with effective internal controls and risk management, and (iii) be supported by strong corporate governance, including active and effective oversight by the organization’sorganization's board of directors. These three principles are incorporated into the proposed joint compensation regulations under the Dodd-Frank Act, discussed above.
The Federal Reserve BoardFRB will review, as part of the regular, risk-focused examination process, the incentive compensation arrangements of banking organizations, such as the Company,ours, that are not “large, complex banking organizations.” These reviews will be tailored to each organization based on the scope and complexity of the organization’sorganization's activities and the prevalence of incentive compensation arrangements. The findings of the supervisory initiatives will be included in reports of examination. Deficiencies will be incorporated into the organization’sorganization's supervisory ratings, which can affect the organization’sorganization's ability to make acquisitions and take other actions.
Enforcement actions may be taken against a banking organization if its incentive compensation arrangements, or related risk-management control or governance processes, pose a risk to the organization’sorganization's safety and soundness and the organization is not taking prompt and effective measures to correct the deficiencies.
Loans to One Borrower.
The Bank generally may not make loans or extend credit to a single or related group of borrowers in excess of 15% of unimpaired capital and surplus. An additional amount may be loaned, up to 10% of unimpaired capital and surplus, if the loan is secured by readily marketable collateral, which generally does not include real estate. As of September 30, 2013,December 31, 2015, the Bank was in compliance with the loans-to-one-borrower limitations.
Depositor Preference.The FDIA provides that, in the event of the “liquidation or other resolution” of an insured depository institution, the claims of depositors of the institution, including the claims of the FDIC as subrogee of insured depositors, and certain claims for administrative expenses of the FDIC as a receiver, will have priority over other general unsecured claims against the institution. If an insured depository institution fails, insured and uninsured depositors, along with the FDIC, will have priority in payment ahead of unsecured, non-deposit creditors, including depositors whose deposits are payable only outside of the United States and the parent bank holding company, with respect to any extensions of credit they have made to such insured depository institution.
Community Reinvestment Act.Act
The Community Reinvestment Act of 1977 (“CRA”) requires depository institutions to assist in meeting the credit needs of their market areas consistent with safe and sound banking practice. Under the CRA, each depository institution is required to help meet the credit needs of its market areas by, among other things, providing credit to low- and moderate-income individuals and communities. Depository institutions are periodically examined for compliance with the CRA and are assigned ratings that must be publicly disclosed. In order for a financial holding company to commence any new activity permitted by the BHC Act, or to acquire any company engaged in any new activity permitted by the BHC Act, each insured depository institution subsidiary of the financial holding company must have received a rating of at least “satisfactory” in its most recent examination under the CRA. Furthermore, banking regulators take into account CRA ratings when considering approval of certain applications. The Bank received a rating of “satisfactory” in its most recent CRA exam.
Financial Privacy.Privacy
The federal banking regulators adopted rules that limit the ability of banks and other financial institutions to disclose non-public information about consumers to nonaffiliated third parties. These limitations require disclosure of privacy policies to consumers and, in some circumstances, allow consumers to prevent disclosure of certain personal information to a nonaffiliated third party. These regulations affect how consumer information is transmitted through diversified financial companies and conveyed to outside vendors.
The Bank is also subject to regulatory guidelines establishing standards for safeguarding customer information. These guidelines describe the federal banking agencies’agencies' expectations for the creation, implementation and maintenance of an information security program, which would include administrative, technical and physical safeguards appropriate to the size and complexity of the institution and the nature and scope of its activities. The standards set forth in the guidelines are intended to ensure the security and confidentiality of customer records and information, protect against any anticipated threats or hazards to the security or integrity of such records and protect against unauthorized access to or use of such records or information that could result in substantial harm or inconvenience to any customer.
Anti-Money Laundering and the USA Patriot Act.Act
A major focus of governmental policy on financial institutions in recent years has been aimed at combating money laundering and terrorist financing. The USA PATRIOT Act of 2001 (the “USA Patriot Act”) substantially broadened the scope of United States anti-money laundering laws and regulations by imposing significant new compliance and due diligence obligations of financial institutions, creating new crimes and penalties and expanding the extra-territorial jurisdiction of the United States. Failure of a financial institution to maintain and implement adequate programs to combat money laundering and terrorist financing, or to comply with all of the relevant laws or regulations, could have serious legal and reputational consequences for the institution, including causing applicable bank regulatory authorities not to approve merger or acquisition transactions when regulatory approval is required or to prohibit such transactions even if approval is not required.
Stress Testing
On October 9, 2012, the FDIC and the FRB issued final rules requiring certain large insured depository institutions and bank holding companies to conduct annual capital-adequacy stress tests. Recognizing that banks and their parent holding companies may have different primary federal regulators, the FDIC and FRB have attempted to ensure that the standards of Foreign Assets Control Regulation.the final rules are consistent and comparable in the areas of scope of application, scenarios, data collection, reporting, and disclosure. To implement section 165(i) of the Dodd-Frank Act, the rules would apply to FDIC-insured state non-member banks and bank holding companies with total consolidated assets of more than $10 billion (“covered institutions”), with stress testing results for $10 billion to $50 billion covered institutions first implemented with the 2014 stress test for disclosure by June 30, 2015. Since completion of the HVB Merger, the Bank’s total assets now exceed $10 billion, and upon the filing of the December 31, 2015 Call Report, the Bank’s average assets for the prior four quarters were in excess of $10 billion subjecting the Bank and us to stress testing effective January 1, 2017. The United States has imposedfinal rules define a stress test as a process to assess the potential impact of economic sanctionsand financial scenarios on the consolidated earnings, losses and capital of the covered institution over a set planning horizon, taking into account the current condition of the covered institution and its risks, exposures, strategies and activities.
Under the rules, each covered institution with between $10 billion and $50 billion in assets is required to conduct annual stress tests using the bank’s and the bank holding company’s financial data as of December 31 of that affect transactionsyear to assess the potential impact of different scenarios on the consolidated earnings and capital of that bank and its holding company and certain related items over a nine-quarter forward-looking planning horizon, taking into account all relevant exposures and activities. As a result, the Bank and Company’s first required annual stress test will occur for 2017, using its financial data as of December 31, 2016. On or before July 31 of the following year, each covered institution, including the Bank and us, are required to report to the FDIC and the FRB, respectively, in the manner and form prescribed in the rules, the results of the stress tests conducted by the covered institution during the immediately preceding year. Based on the information provided by a covered institution in the required reports to the FDIC and the FRB, as well as other relevant information, the FDIC and FRB conduct an analysis of the quality of the covered institution's stress test processes and related results. Consistent with designated foreign countries, nationalsthe requirements of the Dodd-Frank Act, the rule requires each covered institution to publish a summary of the results of its annual stress tests within 90 days of the required date for submitting its stress test report to the FDIC and othersthe FRB.
Volcker Rule
The Dodd-Frank Act amended the BHC Act to require the federal bank regulatory agencies to adopt rules that prohibit banks and their affiliates from engaging in proprietary trading and investing in and sponsoring certain unregistered investment companies (defined as hedge funds and private equity funds), commonly referred to as the “Volcker Rule.” The Volcker Rule also requires covered banking entities, including us and the Bank, to implement certain compliance programs, and the complexity and rigor of such programs is determined based on the asset size and complexity of the business of the covered company. Due to the completion of the HVB Merger, we are subject to heightened compliance requirements as a covered banking entity with over $10 billion in assets. We continue to evaluate the impact of the Volcker Rule and our related policies, procedures and compliance with it, and whether it will require the Bank to divest any securities in its portfolio as a result of the Volcker Rule. The Bank may incur costs to adopt additional policies and systems to ensure compliance with the Volcker Rule.
Durbin Amendment
The Dodd-Frank Act included provisions which restrict interchange fees to those which are administered by“reasonable and proportionate” for certain debit card issuers and limits the U.S. Treasury Department Officeability of Foreign Assets Control. Failurenetworks and issuers to restrict debit card transaction routing. This statutory provision is known as the “Durbin Amendment.” The Federal Reserve issued final rules implementing the Durbin Amendment on June 29, 2011. In the final rules, interchange fees for debit card transactions were capped at $0.21 plus five basis points in order to be eligible for a safe harbor such that the fee is conclusively determined to be reasonable and proportionate. The interchange fee restrictions contained in the Durbin Amendment, and the rules promulgated thereunder, only apply to debit card issuers with $10 billion or more in total consolidated assets, which includes the Bank since the completion of the HVB Merger. Accordingly, under the Durbin Amendment, since the Bank held more than $10 billion in assets as of December 31, 2015, the Bank must begin to comply with these sanctions could have serious legal and reputational consequences, including causing applicable bank regulatory authorities not to approve merger or acquisition transactions when regulatory approval is required or to prohibit such transactions even if approval is not required.interchange fee restrictions no later than July 1, 2016.
Transactions with Affiliates.Affiliates
Transactions between the Bank and its affiliates are regulated by the Federal Reserve BoardFRB under sections 23A and 23B of the Federal Reserve Act and related FRB regulations. These regulations limit the types and amounts of covered transactions engaged in by the Bank and generally require those transactions to be on an arm’s-lengtharm's-length basis. The term “affiliate” is defined to mean any company that controls or is under common control with the Bank and includes the Companyus and itsour non-bank subsidiaries. “Covered transactions” include a loan or extension of credit, as well as a purchase of securities issued by an affiliate, a purchase of assets (unless otherwise exempted by the Federal Reserve Board)FRB) from the affiliate, certain derivative transactions that create a credit exposure to an affiliate, the acceptance of securities issued by the affiliate as
collateral for a loan, and the issuance of a guarantee, acceptance or letter
of credit on behalf of an affiliate. In general, these regulations require that any such transaction by the Bank (or its subsidiaries) with an affiliate must be secured by designated amounts of specified collateral and must be limited to certain thresholds on an individual and aggregate basis.
Federal law also limits the Bank’s authority to extend credit to its directors, executive officers and 10% shareholders, as well as to entities controlled by such persons. Among other things, extensions of credit to insiders are required to be made on terms that are substantially the same as, and follow credit underwriting procedures that are not less stringent than, those prevailing for comparable transactions with unaffiliated persons. Also, the terms of such extensions of credit may not involve more than the normal risk of repayment or present other unfavorable features and may not exceed certain limitations on the amount of credit extended to such persons, individually and in the aggregate, which limits are based, in part, on the amount of the Bank’s capital.
Federal Home Loan Bank System.System
The Bank is a member of the Federal Home Loan Bank System, which consists of 12 regional Federal Home Loan Banks. The Federal Home Loan Bank System provides a central credit facility primarily for member institutions. As a member of the Federal Home Loan Bank of New York (“FHLBNY”), the Bank is required to acquire and hold shares of capital stock of the FHLBNY in an amount at least equal to the sum of the membership stock purchase requirement, determined on an annual basis at the end of each calendar year, and the activity-based stock purchase requirement, determined on a daily basis. For the Bank, the membership stock purchase requirement is 0.2% 0.15%of the Mortgage-Related Assets,mortgage-related assets, as defined by the FHLBNY, which consists principally of residential mortgage loans and mortgage-backed securities, held by the Bank. The activity-based stock purchase requirement is equal to the sum of: (1) a specified percentage ranging from 4.0% to 5.0%, which for the Bank isat December 31, 2015 was 4.5%, of outstanding borrowings from the FHLBNY; (2) a specified percentage ranging from 4.0% to 5.0%, which for the Bank is inapplicable, of the outstanding principal balance of Acquired Member Assets, as defined by the FHLBNY, and delivery commitments for Acquired Member Assets; (3) a specified dollar amount related to certain off-balance sheet items, which for the Bank is inapplicable; and (4) a specified percentage ranging from 0% to 5%, which for the Bank is inapplicable, of the carrying value on the FHLBNY’s balance sheet of derivative contracts between the FHLBNY and the Bank. The FHLBNY can adjust the specified percentages and dollar amount from time to time within the ranges established by the FHLBNY capital plan. As of September 30, 2013,December 31, 2015, the Bank was in compliance with the minimum stock ownership requirement.
Federal Reserve System.System
FRB regulations require depository institutions to maintain cash reserves against their transaction accounts (primarily NOWinterest bearing demand deposit accounts and demand deposit accounts). A reserve of 3% is to be maintained against aggregate transaction accounts between $12.4$13.3 million and $79.5$89.0 million (subject to adjustment by the FRB) plus a reserve of 10% (subject to adjustment by the FRB between 8% and 14%) against that portion of total transaction accounts in excess of $79.5$89.0 million. The first $12.4$13.3 million of otherwise reservable balances (subject to adjustment by the FRB) is exempt from the reserve requirements. The Bank is in compliance with the foregoing requirements.
Consumer Protection Regulations
Other Regulations.The Bank is subject to federal consumer protection statutes and regulations promulgated under those laws, including, but not limited to the:the following:
Truth-In-Lending Act and Regulation Z, governing disclosures of credit terms to consumer borrowers;
Home Mortgage Disclosure Act and Regulation C, requiring financial institutions to provide certain information about home mortgage and refinanced loans;
Equal Credit Opportunity Act and Regulation B, prohibiting discrimination on the basis of race, creed, or other prohibited factors in extending credit;
Fair Credit Reporting Act and Regulation V, governing the provision of consumer information to credit reporting agencies and the use of consumer information; and
Fair Debt Collection Act, governing the manner in which consumer debts may be collected by collection agencies;agencies.
Deposit operations are also subject to:
The Truth in Savings Act and Regulation DD, which requires disclosure of deposit terms to consumers;
Regulation CC, which relates to the availability of deposit funds to consumers;
The Right to Financial Privacy Act, which imposes a duty to maintain the confidentiality of consumer financial records and prescribes procedures for complying with administrative subpoenas of financial records; and
Electronic Funds Transfer Act and Regulation E, governing automatic deposits to, and withdrawals from, deposit accounts and customers’ rights and liabilities arising from the use of automated teller machines and other electronic banking services.
In addition, the Bank may be subject to certain state laws and regulations designed to protect consumers.
TheMany of the foregoing laws and regulations are subject to change resulting from the provisions in the Dodd-Frank Act, created awhich in many cases calls for revisions to implementing regulations. In addition, oversight responsibilities of these and other consumer protection laws and regulations will, in large measure, transfer from the Bank’s primary regulators to the CFPB, which will have supervisory authority over the Bank as the Bank’s assets exceed $10 billion after the completion of the HVB Merger. We cannot predict the effect that being regulated by the CFPB, or any new or revised regulations that may result from its establishment, will have on our businesses.
Consumer Financial Protection Bureau (“CFPB”), which took over responsibility for enforcing the principal federal consumer protection laws, such as the Truth in Lending Act, the Equal Credit Opportunity Act, the Real Estate Settlement Procedures Act and the Truth in Saving Act, among others, on July 21, 2011. Institutions that have assets of $10 billion or less, such as the Bank, will continue to be supervised and examined in this area by their primary federal regulators (in the case of the Bank, the OCC). The Act also gives the CFPB expanded data collecting powers for fair lending purposes for both small business and mortgage loans, as well as expanded authority to prevent unfair, deceptive and abusive practices. The Dodd-Frank Act also weakened the federal preemption of state laws that had applied to national banks. As a result it is likely the Bank will be subject to a wider array of State laws going forward.
In January 2013, the CFPB issued a series of final rules related to mortgage loan origination and mortgage loan servicing. In particular, on January 10, 2013, the CFPB issued a final rule implementing the ability-to-repay and qualified mortgage (QM) provisions of the Truth in Lending Act, as amended byCreated under the Dodd-Frank Act, (the “QM Rule”). The ability-to-repay provision requires creditorsand given extensive implementation and enforcement powers over all banks with over $10 billion in assets, which the Bank has reached with the HVB Merger, the CFPB has broad rulemaking authority for a wide range of consumer financial laws that apply to makeall banks including, among other things, the authority to prohibit “unfair, deceptive, or abusive” acts and practices. Abusive acts or practices are defined as those that (1) materially interfere with a consumer’s ability to understand a term or condition of a consumer financial product or service, or (2) take unreasonable advantage of a consumer’s (a) lack of financial savvy, (b) inability to protect himself in the selection or use of consumer financial products or services, or (c) reasonable good faith determinations that borrowers are able to repay their mortgages before extending the credit basedreliance on a numbercovered entity to act in the consumer’s interests. The CFPB has the authority to investigate possible violations of factorsfederal consumer financial law, hold hearings and considerationcommence civil litigation. The CFPB can issue cease-and-desist orders against banks and other entities that violate consumer financial laws. The CFPB may also institute a civil action against an entity in violation of federal consumer financial information about the borrower from reasonably reliable third-party documents. Under the Dodd-Frank Act
and the QM Rule, loans meeting the definition of “qualified mortgage” are entitledlaw in order to impose a presumption that the lender satisfied the ability-to-repay requirements. The presumption is a conclusive presumption/safe harbor for prime loans meeting the QM requirements, and a rebuttable presumption for higher-priced/subprime loans meeting the QM requirements. The definition of a “qualified mortgage” incorporates the statutory requirements, such as not allowing negative amortizationcivil penalty or terms longer than 30 years. The QM Rule also adds an explicit maximum 43% debt-to-income ratio for borrowers if the loan is to meet the QM definition, though some mortgages that meet GSE, FHA and VA underwriting guidelines may, for a period not to exceed seven years, meet the QM definition without being subject to the 43% debt-to-income limits. The QM Rule will become effective January 10, 2014.injunction.
We are still evaluating the rules recently issued by the CFPB to determine if they will have any long-term impact on our mortgage loan origination and servicing activities. Compliance with these rules will likely increase our overall regulatory compliance costs.
Legislative and Regulatory Initiatives. From time to time, various legislative and regulatory initiatives are introduced in Congress and state legislatures, as well as by regulatory agencies. Such initiatives may include proposals to expand or contract the powers of bank holding companies and depository institutions or proposals to substantially change the financial institution regulatory system. Such legislation could change banking statutes and the operating environment of the Company in substantial and unpredictable ways. If enacted, such legislation could increase or decrease the cost of doing business, limit or expand permissible activities or affect the competitive balance among banks, savings associations, credit unions, and other financial institutions. The Company cannot predict whether any such legislation will be enacted, and, if enacted, the effect that it, or any implementing regulations, would have on the financial condition or results of operations of the Company. A change in statutes, regulations or regulatory policies applicable to Sterling or any of its subsidiaries could have a material effect on the Company’s business, financial condition and results of operations.
ITEM 1A. Risk Factors
Combining Provident and Legacy Sterling may be more difficult, costly or time consuming than expected and the anticipated benefits and cost savings of the Merger may not be realized.
Provident New York Bancorp and Legacy Sterling operated independently until the completion of the Merger. The success of the Merger, including anticipated benefits and cost savings, will depend, in part, on the Company’s ability to successfully combine and integrate the businesses of the predecessor companies in a manner that permits growth opportunities and does not materially disrupt the existing customer relations nor result in decreased revenues due to loss of customers. It is possible that the integration process could result in the loss of key employees, the disruption of either company’s ongoing businesses or inconsistencies in standards, controls, procedures and policies that adversely affect the combined company’s ability to maintain relationships with clients, customers, depositors and employees or to achieve the anticipated benefits and cost savings of the Merger. The loss of key employees or delays or other problems in implementing planned system conversions could adversely affect the Company’s ability to successfully conduct its business, which could have an adverse effect on Sterling’s financial results and the value of its common stock. If the Company experiences difficulties with the integration process, the anticipated benefits of the Merger may not be realized fully or at all, or may take longer to realize than expected. As with any merger of financial institutions, there also may be business disruptions that cause the Company to lose customers or cause customers to remove their accounts from the Bank and move their business to competing financial institutions. Integration efforts between the two companies will also divert management attention and resources. These integration matters could have an adverse effect on the Company during this transition period and for an undetermined period after completion of the Merger on the combined company. In addition, the actual cost savings of the Merger could be less than anticipated.
Recent legislative and regulatory initiatives to support the financial services industry have been coupled with numerous restrictions and requirements that could detrimentally affect our business.
The Dodd-Frank Act is significantly changing the current bank regulatory structure and affecting the lending, deposit, investment, trading and operating activities of financial institutions and their holding companies.
The Company is supervised and regulated by the Federal Reserve and the Bank is supervised and regulated by the OCC. The application of laws and regulations may vary as administered by the Federal Reserve and the OCC. In addition, the Company is subject to consolidated capital requirements and must serve as a source of strength to the Bank. It is possible such requirements may limit our capacity to pay dividends or repurchase shares.
The Dodd-Frank Act also broadens the base for FDIC insurance assessments. The FDIC insures deposits at FDIC-insured financial institutions, including the Bank. The FDIC charges insured financial institutions premiums to maintain the DIF at a specific level. The Bank’s FDIC insurance premiums increased substantially beginning in 2009, and we expect to pay high premiums in the future. Economic conditions during the great recession increased bank failures and decreased the DIF. In order to restore the DIF to its statutorily mandated minimum of 1.15% over a period of several years, the FDIC increased deposit insurance premium rates. The Dodd-Frank Act increased the minimum target Deposit Insurance Fund ratio from 1.15% of estimated insured deposits to 1.35% of estimated insured deposits. The FDIC must seek to achieve the 1.35% ratio by September 30, 2020. Insured institutions with assets of $10 billion or more are supposed to fund the increase. The FDIC has issued regulations to implement these provisions of the Dodd-Frank Act. It has, in addition, established a higher reserve ratio of 2% as a long-term goal beyond what is required by statute. There is no implementation deadline for the 2% ratio. The FDIC may increase the assessment rates or impose additional special assessments in the future to keep the DIF at the statutory target level. Any increase in our FDIC premiums could have an adverse effect on the Bank’s profits and financial condition.
The Dodd-Frank Act also created the CFPB, which has assumed responsibility for the principal federal consumer protection laws, such as the Truth in Lending Act, the Equal Credit Opportunity Act, the Real Estate Settlement Procedures Act and the Truth in Savings Act, among others. However, institutions such as the Bank, which have assets of $10 billion or less, will continue to be supervised in this area by their primary federal regulators (in the case of the Bank, the OCC).
In addition, the Dodd-Frank Act significantly rolls back the federal preemption of state consumer protection laws that was enjoyed by national banks by (1) requiring that a state consumer financial law prevent or significantly interfere with the exercise of a national bank’s powers before it can be preempted, (2) mandating that any preemption decision be made on a case by case basis rather than a blanket rule, and (3) ending the applicability of preemption to subsidiaries and affiliates of national banks. As a result, we may now be subject to state consumer protection laws in each state where we do business, and those laws may be interpreted and enforced differently in each states.
The scope and impact of many of the Dodd-Frank Act provisions will be determined over time as regulations are issued and become effective. As a result, we cannot predict the ultimate impact of the Dodd-Frank Act on us at this time, including the extent to which
it could increase costs or limit our ability to pursue business opportunities in an efficient manner, or otherwise adversely affect our business, financial condition and results of operations. However, it is expected that at a minimum they will increase our operating and compliance costs.
We are subject to extensive regulatory oversight.
We and our subsidiaries are subject to extensive regulation and supervision. As a result, we are limited in the manner in which we conduct our business, undertake new investments and activities and obtain financing. This regulatory structure is designed primarily for the protection of the DIF and our depositors, as well as other consumers and not to benefit our shareholders. This regulatory structure also gives the regulatory authorities extensive discretion in connection with their supervisory and enforcement activities and examination policies, including policies with respect to capital levels, the timing and amount of dividend payments, the classification of assets and the establishment of adequate loan loss reserves for regulatory purposes. Regulators have intensified their focus on bank lending criteria and controls, and on the USA PATRIOT Act’s anti-money laundering and Bank Secrecy Act compliance requirements. There is also increased scrutiny of our compliance with the rules enforced by the Office of Foreign Assets Control. In order to comply with regulations, guidelines and examination procedures in the anti-money laundering area, we have been required to adopt new policies and procedures and to install new systems. We cannot be certain that the policies, procedures and systems we have in place are flawless. Therefore, there is no assurance that in every instance we are in full compliance with these requirements. Our failure to comply with these and other regulatory requirements can lead to, among other remedies, administrative enforcement actions, and legal proceedings.
Failure to comply with applicable laws and regulations also could result in a range of sanctions and enforcement actions, including the imposition of civil money penalties, formal agreements and cease and desist orders. In addition, the OCC and the FDIC have specific authority to take “prompt corrective action,” depending on our capital level. Currently, we are considered “well-capitalized” for prompt corrective action purposes. If we were designated by the OCC as “adequately capitalized,” our ability to take brokered deposits would become limited. If we were to be designated by the OCC in one of the lower capital levels - “undercapitalized,” “significantly undercapitalized” and “critically undercapitalized” - we would be required to raise additional capital and also would be subject to progressively more severe restrictions on our operations, management and capital distributions; replacement of senior executive officers and directors; and, if we became “critically undercapitalized,” to the appointment of a conservator or receiver.
Changes in laws, government regulation and monetary policy may have a material effect on our results of operations.
Financial institutions have beenare the subject of significant legislative and regulatory changeslaws, rules and regulations and may be the subject ofto further significantadditional legislation, rulemaking or regulation in the future, none of which is within our control. Significant new laws, rules or regulations or changes in, or repeals of, existing laws, rules or regulations, including, but not limited to, those with respect to federal and state taxation, may cause our results of operations to differ materially. In addition, the costs and burden of compliance have significantly increased and could adversely affect our ability to operate profitably. Further, federal monetary policy significantly affects credit conditions for the Bank, as well as for our borrowers, particularly as implemented through the Federal Reserve System, primarily through open market operations in U.S. government securities, the discount rate for bank borrowings and reserve requirements. A material change in any of these conditions could have a material impact on the Bank or our borrowers, and therefore on our results of operations.
Difficult market conditionsRecent legislative and regulatory initiatives to support the financial services industry have adversely affectedbeen coupled with numerous restrictions and requirements that could detrimentally affect our industry.business.
We areThe Dodd-Frank Act and the rules and regulations promulgated thereunder have and continue to significantly impact the United States bank regulatory structure and affect the lending, deposit, investment, trading and operating inactivities of financial institutions and their holding companies.
The Dodd-Frank Act broadens the base for FDIC insurance assessments. The FDIC insures deposits at FDIC-insured financial institutions, including the Bank. The FDIC charges insured financial institutions premiums to maintain the DIF at a challenging economic environment, including generally uncertain nationalspecific level. In addition, the Dodd-Frank Act increased the minimum target DIF ratio from 1.15% of estimated insured deposits to 1.35% of estimated insured deposits and local conditions. Additional concerns from somethe FDIC must seek to achieve the 1.35% ratio by September 30, 2020. The FDIC has issued regulations to implement these provisions of the countriesDodd-Frank Act. It has, in addition, established a higher reserve ratio of 2% as a long-term goal beyond what is required by statute, although there is no implementation deadline for the 2% ratio. The FDIC may increase the assessment rates or impose additional special assessments in the European Unionfuture to keep the DIF at the statutory target level. The Bank's FDIC insurance premiums increased substantially beginning in 2009, and elsewhere have also strained the financial markets both abroad and domestically. Although there has been some improvementwe continue to expect to pay high premiums in the overall global macroeconomic conditionsfuture. Any
increase in 2013,our FDIC premiums could have a materially adverse effect on the Bank's financial institutions continue to be affected by conditions in the real estate market and the constrained financial markets. In recent years, declines in the housing market, increases in unemployment and under-employment have negatively impacted the credit performance of loans and resulted in significant write-downs of asset values by financial institutions. Reflecting concern over economic conditions, many lenders and institutional investors have reduced or ceased providing funding to borrowers. Although we have observed some increases in lending activity over the past few months, a worsening of economic conditions may impact the Bank’scondition, results of operations and its ability to pay dividends.
Additionally, on December 10, 2013, five financial condition. In particular,regulatory agencies, including the Bank's primary federal regulator, the OCC, adopted final rules implementing a provision of the Dodd-Frank Act, commonly referred to as the Volcker Rule. The Volcker Rule prohibits banking entities from, among other things, engaging in short-term proprietary trading of securities, derivatives, commodity futures and options on these instruments for their own account; or owning, sponsoring, or having certain relationships with "covered funds," including hedge funds or private equity funds. The Volcker Rule also requires covered banking entities, including us and the Bank, to implement certain compliance programs, policies and procedures. The complexity and rigor of such programs is determined based on the asset size and complexity of the business of the covered company. We continue to evaluate the Volcker Rule and our related policies, procedures and compliance with it. If we are required to divest any securities in our portfolio, hire additional compliance or other personnel, design and implement additional internal controls or incur other significant expenses as a result of the Volcker Rule, it could result in impairments that could materially adversely affect on our business, financial condition, results of operations and our ability to pay dividends or repurchase shares.
The Dodd-Frank Act also significantly impacts the various consumer protection laws, rules and regulations applicable to financial institutions. First, it rolls back the federal preemption of state consumer protection laws that was enjoyed by national banks by (1) requiring that a state consumer financial law prevent or significantly interfere with the exercise of a national bank's powers before it can be preempted, (2) mandating that any preemption decision be made on a case by case basis rather than a blanket rule, and (3) ending the applicability of preemption to subsidiaries and affiliates of national banks. As a result, we may facenow be subject to state consumer protection laws in each state where we do business, and those laws may be interpreted and enforced differently in each state. In addition, the following risksDodd-Frank Act created the CFPB, which has assumed responsibility for supervising financial institutions which have assets of $10 billion or more for their compliance with the principal federal consumer protection laws, such as the Truth in Lending Act, the Equal Credit Opportunity Act, the Real Estate Settlement Procedures Act and the Truth in Savings Act, among others (institutions which have assets of $10 billion or less will continue to be supervised in this area by their primary federal regulators). Due to the completion of the HVB Merger, the Bank’s total assets now exceed $10 billion, thus making it subject to the CFPB’s supervision. Therefore, in addition to a variety of new consumer protection laws, rules and regulations that we may be subject to, the Bank is also be subject to a new agency with evolving regulations and practices.
The scope and impact of many of the Dodd-Frank Act provisions, including the authority provided to the CFPB, will continue to be determined over time as rules and regulations are issued and become effective. As a result, we cannot predict the ultimate impact of the Dodd-Frank Act on us at this time, including the extent to which it could increase costs or limit our ability to pursue business opportunities in an efficient manner, or otherwise adversely affect our business, financial condition, results of operations and our ability to pay dividends or repurchase shares. However, it is expected that at a minimum they will increase our operating and compliance costs. Compliance with these requirements may necessitate that we hire additional compliance or other personnel, design and implement additional internal controls, or incur other significant expenses, any of which could have a material adverse effect on our business, financial condition or results of operations and our ability to pay dividends or repurchase shares.
We are subject to extensive regulatory oversight.
We and our subsidiaries are subject to extensive supervision and regulation. We are supervised and regulated by the Federal Reserve and the Bank is supervised and regulated by the OCC. The application of laws, rules and regulations may vary as administered by the Federal Reserve and the OCC. In addition, we are subject to consolidated capital requirements and must serve as a source of strength to the Bank.
As a result, we are limited in the manner in which we conduct our business, undertake new investments and activities and obtain financing. This regulatory structure is designed primarily for the protection of the DIF and our depositors, as well as other consumers and not to benefit our shareholders. This regulatory structure also gives the regulatory authorities extensive discretion in connection with their supervisory and enforcement activities and examination policies, including policies with respect to capital levels, the timing and amount of dividend payments, the classification of assets and the establishment of adequate loan loss reserves for regulatory purposes, all of which can have a material adverse effect on our financial condition, results of operations and our ability to pay dividends or repurchase shares. Our regulators have also intensified their focus on bank lending criteria and controls, and on the USA PATRIOT Act’s anti-money laundering and Bank Secrecy Act compliance requirements. There is also increased scrutiny of our compliance with the rules enforced by the Office of Foreign Assets Control. In order to comply with laws, rules, regulations, guidelines and examination procedures in the anti-money laundering area, we have been required to adopt new policies and procedures and to install new systems. We cannot be certain that the policies, procedures and systems we have in place to ensure compliance are without error and there is no assurance that in every instance we are in full compliance with these events:requirements.
Our failure to comply with applicable laws, rules and regulations could increase further;result in a range of sanctions, legal proceedings and enforcement actions, including the imposition of civil monetary penalties, formal agreements and cease and desist orders. In addition, the OCC and the FDIC have specific authority to take “prompt corrective action”, depending on our capital levels. For example, currently, we are considered “well-capitalized” for prompt corrective action purposes. If we are designated by the OCC as “adequately capitalized”, we would become subject to additional restrictions and limitations, such as the Bank’s ability to take brokered deposits becoming limited. If we were to be designated by the OCC in one of the lower capital levels (such as “undercapitalized”, “significantly undercapitalized” or “critically undercapitalized”) we would be required to raise additional capital and also would be subject to progressively more severe restrictions on our operations, management and capital distributions; replacement of senior executive officers and directors; and, if we became “critically undercapitalized”, to the appointment of a conservator or receiver.
ProblemIn addition, and as mentioned above in “Risk Factors - Recent legislative and regulatory initiatives to support the financial services industry have been coupled with numerous restrictions and requirements that could detrimentally affect our business”, the Dodd-Frank Act and its implementing regulations impose various additional requirements on bank holding companies with $10 billion or more in total assets, including compliance with portions of the Federal Reserve's enhanced prudential oversight requirements and annual stress testing requirements. Compliance with the annual stress testing requirements, part of which must be publicly disclosed, may also be misinterpreted by the market generally or our customers and, as a result, may adversely affect our stock price or our ability to retain our customers or effectively compete for new business opportunities. Further, we may incur compliance-related costs and our regulators may also consider our level of compliance with these regulatory requirements when examining our operations generally or considering any request for regulatory approval we may make, even requests for approvals on unrelated matters.
New capital rules that were recently issued generally require insured depository institutions and their holding companies to hold more capital. The impact of the new rules on our financial condition and operations is uncertain but could be materially adverse.
In 2013, the Federal Reserve, the FDIC and the OCC adopted final rules for the Basel III capital framework. These rules substantially amend the regulatory risk-based capital rules applicable to us. The rules phase in over time, having begun in 2015 and becoming fully effective in 2019. The rules apply to us as well as to the Bank. Beginning in 2015, our minimum capital requirements became (i) a common Tier 1 equity ratio of 4.5%, (ii) a Tier 1 capital (common Tier 1 capital plus Additional Tier 1 capital) of 6% and (iii) a total capital ratio of 8% (the current requirement). Beginning in 2016, a capital conservation buffer will phase in over three years, ultimately resulting in a requirement of 2.5% on top of the common Tier 1, Tier 1 and total capital requirements, resulting in a required common Tier 1 equity ratio of 7%, a Tier 1 ratio of 8.5%, and a total capital ratio of 10.5%. Failure to satisfy any of these three capital requirements will result in limits on paying dividends, engaging in share repurchases and paying discretionary bonuses. These limitations will establish a maximum percentage of eligible retained income that could be utilized for such actions.
General economic conditions in our market area could adversely affect us.
We are affected by the general economic conditions in the local markets in which we operate. When the recession began in 2008, the market experienced a significant downturn in which we saw falling home prices, rising foreclosures and an increased level of commercial and consumer delinquencies. Although economic conditions have improved, many businesses and individuals are still experiencing difficulty as a result of the economic downturn and protracted recovery. If economic conditions do not continue to improve, we could increase further;
Demandexperience further adverse consequences, including a decline in demand for our products and services and an increase in problem assets, foreclosures and loan losses. Future economic conditions in our market will depend on factors outside of our control such as political and market conditions, broad trends in industry and finance, legislative and regulatory changes, changes in government, monetary and fiscal policies and inflation, any of which could decline;
Collateral for loans made by us, especially real estate, could decline further in value, in turn reducing a customer’s borrowing power,negatively affect our performance and reducing the value of assets and collateral associated with our loans; andfinancial condition.
Investments in mortgage-backed securities could decline in value as a result of performance of the underlying loans or the diminution of the value of the underlying real estate collateral pressing the government sponsored agencies to honor its guarantees to principal and interest.
An inadequate allowance for loan losses would negatively impact our results of operations.
We are exposed to the risk that our customers will be unable to repay their loans according to their terms and that any collateral securing the payment of their loans will not be sufficient to avoid losses. Credit losses are inherent in the lending business and could have a material adverse effect on our operating results. Volatility and deterioration in the broader economy may also increase our risk of credit losses. The determination of an appropriate level of allowance for loan losses is an inherently uncertain process and is based on numerous assumptions. The amount of future losses is susceptible to changes in economic, operating and other conditions, including changes in interest rates, that may be beyond our control, and charge-offs may exceed current estimates. We evaluate the collectibilitycollectability of our loan portfolio and provide an allowance for loan losses that we believe is adequate based upon such factors as, including, but not limited to: the risk characteristics of various classifications of loans; previous loan loss experience; specific loans that have loss potential; delinquency trends; the estimated fair market value of the collateral; current economic conditions; the views
of our regulators; and geographic and industry loan concentrations. If any of our evaluations are incorrect andand/or borrower defaults result in losses exceeding our allowance for loan losses, our results of operations could be significantly and adversely affected. We cannot assure you that our allowance will be adequate to cover probable loan losses inherent in our portfolio.
The need to account for assets at market prices may adversely affect our results of operations.
We report certain assets, including investments and securities, at fair value. Generally, for assets that are reported at fair value we use quoted market prices or valuation models that utilize market data inputs to estimate fair value. Because we carry these assets on our books at their fair value, we may incur losses even if the assets in question present minimal credit risk. We may be required to recognize other-than-temporary impairments in future periods with respect to securities in our portfolio. The amount and timing of any impairment recognized will depend on the severity and duration of the decline in fair value of the securities and our estimation of the anticipated recovery period.
Changes in the value of goodwill and intangible assets could reduce our earnings.
The Company accounts for goodwill and other intangible assets in accordance with GAAP (as defined below), which, in general, requires that goodwill not be amortized, but rather that it be tested for impairment at least annually at the reporting unit level using the two step approach. Testing for impairment of goodwill and intangible assets is performed annually and involves the identification of reporting units and the estimation of fair values. The estimation of fair values involves a high degree of judgment and subjectivity in the assumptions used. As of September 30, 2013,December 31, 2015, the fair value of Sterling Bancorp shares exceedexceeds the recorded book value. Changes in the local and national economy, the federal and state legislative and regulatory environments for financial institutions, the stock market, interest rates and other external factors (such as natural disasters or significant world events) may occur from time to time, often with great unpredictability, and may materially impact the fair value of publicly traded financial institutions and could result in an impairment charge at a future date.
Commercial real estate, commercial & industrial and ADC loans expose us to increased risk and earnings volatility.
We consider our commercial real estate loans, commercial & industrial loans and ADC loans to be the higher risk categories in our loan portfolio. These loans are particularly sensitive to economic conditions. At September 30, 2013,December 31, 2015, our portfolio of commercial real estate loans, including multi-family loans, totaled $1.3$3.5 billion, or 52.9%44.9% of total loans, our portfolio of commercial & industrial loans (including payroll finance, warehouse lending, factored receivables and equipment finance) totaled $439.8 million,$3.1 billion, or 18.2%39.8% of total loans, and our portfolio of ADC loans totaled $102.5$186.4 million, or 4.2%2.4% of total loans. We plan to continue to emphasize the origination of these types of loans, other than ADC loans. We originate ADC loans whichto selected builders in our market area. Since 2011, we now make only on an exception basis.
deemphasized this lending activity and we currently originate construction loans to well qualified borrowers.
Commercial real estate loans generally involve a higher degree of credit risk than residential loans because they typically have larger balances and are more affected by adverse conditions in the economy. Because payments on loans secured by commercial real estate often depend on the successful operation and management of the businesses which operate from within them,hold the loans, repayment of such loans may be affected by factors outside the borrower’sborrower's control, such as adverse conditions in the real estate market or the economy or changes in government regulation. In the case of commercial & industrial loans, although we strive to maintain high credit standards and limit exposure to any one borrower, the collateral for these loans often consists of accounts receivable, inventory and equipment. This type of collateral typically does not yield substantial recovery in the event we need to foreclose on it and may rapidly deteriorate, disappear, or be misdirected in advance of foreclosure. This adds to the potential that our charge-offs will be more volatile than we have experienced in the past, which could significantly negatively affect our earnings in any quarter. In addition, some of our ADC loans pose higher risk levels than the levels expected at origination, as projects may stall or sell at prices lower than expected. We continue to seek pay downs on loans with or without sales activity. While this portfolio may cause us to incur additional bad debt expense even if losses are not realized, such ADC loans only comprise 2.4% of our loan portfolio.
In addition, many of our borrowers also have more than one commercial real estate, commercial business or ADC loan outstanding with us. Consequently, an adverse development with respect to one loan or one credit relationship may expose us to significantly greater risk of loss. In particular, many of our ADC loans continue to pose higher risk levels than the levels expected at origination. Many projects are stalled or are selling at prices lower than expected. While we continue to seek pay downs on loans with or without sales activity, this portfolio may cause us to incur additional bad debt expense even if losses are not realized. Additionally, the balance on over half of our ADC loans is maturing within one year, which may expose us to greater risk of loss or to report increased levels of loans considered troubled debt restructures.
Our continuing concentration of loans in our primary market area may increase our risk.
Our success depends primarily on the general economic conditions in the counties in which we conduct most of our business. Most of our loans and deposits are generated from customers primarily in the New York City metropolitan region, which includes Manhattan, the boroughs and Long Island, and in Rockland, Westchester and Orange Counties in New York. We also have a presence in Ulster, Sullivan Westchester and Putnam Counties in New York and in Bergen County, New Jersey, as well as other counties in northern New Jersey. Our expansion into New York City and continued growth in Westchester County and Bergen County has helped us diversify our
geographic concentration with respect to our lending activities. A deteriorationDeterioration in economic conditions in our market area would adversely affect our results of operations and financial condition.
Changes in market interest rates could adversely affect our financial condition and results of operations.
Our financial condition and results of operations are significantly affected by changes in market interest rates. Our results of operations substantially depend on our net interest income, which is the difference between the interest income that we earn on our interest-earning assets and the interest expense that we pay on our interest-bearing liabilities. In recent years, our balance sheet has become more asset sensitive because our assets mature or re-price at a faster pace than our liabilities. IfDespite that the Federal Reserve recently raised its benchmark rate 25 basis points, if interest rates were to continue at existing levels or decline, net interest income would be adversely affected as asset yields would be expected to decline at faster rates than deposit or borrowing costs. A decline in net interest income may also occur, offsetting a portion or all gains in net interest income from assets re-pricing and increases in volume, if competitive market pressures limit our ability to maintain or lag deposit costs. Wholesale funding costs may also increase at a faster pace than asset re-pricing. As of September 30, 2013, December 31, 2015,we have $220.0$200.0 million in structured advances with the FHLB at an average cost of 4.17%4.23%. If interest rates were to approach or exceed this level, the FHLB may call those borrowings and offer replacement borrowings at current market rates which would be higher.
We also are subject to reinvestment risk associated with changes in interest rates. Changes in interest rates may affect the average life of loans and securities. Decreases in interest rates often result in increased prepayments of loans and securities, as borrowers refinance their loans to reduce borrowings costs. Under these circumstances, we are subject to reinvestment risk to the extent that we are unable to reinvest the cash received from such prepayments in loans or other investments that have interest rates that are comparable to the interest rates on existing loans and securities. Additionally, increases in interest rates may decrease loan demand and/or may make it more difficult for borrowers to repay adjustable rate loans.
Changes in interest rates also affect the value of our interest earning assets and in particular our securities portfolio. Generally, the value of our securities fluctuates inversely with changes in interest rates. At September 30, 2013,December 31, 2015, our available for sale securities portfolio totaled $954.4 million. Unrealized losses on securities available for sale, net of tax, amounted to $22.2 million and are reported as part of other comprehensive income (loss), included as a separate component of stockholders’ equity. Further decreases$1.9 billion. Decreases in the fair value of securities available for sale could have an adverse effect on stockholders’ equity.
Our ability to pay dividends is subject to regulatory limitations and other limitations which may affect our ability to pay dividends to our stockholders or to repurchase our common stock.
Sterling Bancorp isWe are a separate legal entity from itsour subsidiary, Sterling Nationalthe Bank, and doeswe do not have significant operations of itsour own. The availability of dividends from the Bank is limited by various statutes and regulations. It is possible, depending upon the financial condition of the Bank and other factors, that the Bank’sBank's regulators could assert that payment of dividends or other payments may result in an unsafe or unsound practice. In addition, under the Dodd-Frank Act, Sterling Bancorp iswe are subjected to consolidated capital requirements and must serve as a source of strength to the Bank. If the Bank is unable to pay dividends to Sterling Bancorpus or Sterling Bancorp iswe are required to retain capital or contribute capital to the Bank, we may not be able to pay dividends on our common stock or to repurchase shares of common stock.
A breach of information security could negatively affect our earnings.
Increasingly, we depend upon data processing, communication and information exchange on a variety of computing platforms and networks, and over the Internet.Internet from both internal sources and external, third-party vendors. While to date we have not been subject to material cyber-attacks or other cyber incidents, we cannot be certainguarantee all our systems are entirely free from vulnerability to attack, despite safeguards we and our vendors have instituted. In addition, we rely on the services of a variety of vendors to meet our data processing and communication needs. Disruptionsdisruptions to our vendors’vendors' systems may arise from events that are wholly or partially beyond our vendors’and our vendors' control (including, for example, computer viruses or electrical or telecommunications outages). If information security is breached, despite the controls we and our third-party vendors have instituted, information can be lost or misappropriated, resulting in financial losslosses or costs to us or damages to others. These costs or losses could materially exceed the amount of insurance coverage, if any, which would adversely affect our earnings. In addition, our reputation could be damaged which could result in loss of customers, greater difficulty in attracting new customers, or an adverse effect on the value of our common stock.
We are subject to competition from both banks and non-bank companies.companies.
The financial services industry, including commercial banking, is highly competitive, and we encounter strong competition for deposits, loans and other financial services in our market area. Our principal competitors include commercial banks, savings banks and savings and loan associations, mutual funds, money market funds, finance companies, trust companies, insurers, leasing
companies, credit unions, mortgage companies, real estate investment trusts (REITs), private issuers of debt obligations, venture capital firms, and suppliers of other investment alternatives, such as securities firms. Many of our non-bank competitors are not subject to the same degree of regulation as we are and have advantages over us in providing certain services. Many of our competitors are significantly larger than we are and have greater access to capital and other resources. Also, our ability to compete effectively is dependent on our ability to adapt successfully to technological changes within the banking and financial services industry.
Various factors may make takeover attempts more difficult to achieve.
OurThe Board of Directors has no current intention to sell control of Sterling Bancorp. Provisions of our certificate of incorporation and bylaws, federal regulations, Delaware law and various other factors may make it more difficult for companies or persons to acquire control of Sterling Bancorpus without the consent of our Board of Directors.Board. A shareholder may want a takeover attempt to succeed because, for example, a potential acquirer could offer a premium over the then prevailing market price of our common stock. The factors that may discourage takeover attempts or make them more difficult include:
(a)Certificate of Incorporation and statutory provisions.provisions.
Provisions of the certificate of incorporation and bylaws of Sterling Bancorp and Delaware law may make it more difficult and expensive to pursue a takeover attempt that managementour Board opposes. These provisions also would make it more difficult to remove our current Board, of Directors or management, or to elect new directors. These provisions also include limitations on voting rights of beneficial owners of more than 10% of our common stock, super majority voting requirements for certain business combinations, the election of directors to staggered terms of three years and plurality voting. Our bylaws also contain provisions regarding the timing and content of stockholder proposals and nominations and qualification for service on the Board of Directors.Board.
(b)Required change in control payments and issuance of stock options and recognition and retention plan shares.
We have entered into employment agreements with executive officers, which require payments to be made to them in the event their employment is terminated following a change in control of Sterling Bancorpus or Sterling Nationalthe Bank. We have issued stock grants and stock options in accordance with the 2004 Provident Bancorp Inc. Stock Incentive Plan, the Sterling Bancorp 2014 Stock Incentive Plan and the Sterling Bancorp 2015 Omnibus Equity and Incentive Plan. In the event of a change in control, the vesting of stock and option grants would accelerate. In 2006, we adopted the Provident Bank & Affiliates Transition Benefit Plan. The plan calls for severance payments ranging from 12 weeks to one year for employees not covered by separate agreements if they are terminated in connection with a change in control of the Company.us.
Our ability to make opportunistic acquisitions is subject to significant risks, including the risk that regulators will not provide the requisite approvals.
We may make opportunistic whole or partial acquisitions of other banks, branches, financial institutions, or related businesses from time to time that we expect may further our business strategy, including through participation in FDIC-assisted acquisitions or assumption of deposits from troubled institutions. Any possible acquisition will be subject to regulatory approval, and there can be no assurance that we will be able to obtain such approval in a timely manner or at all. Even if we obtain regulatory approval, these acquisitions could involve numerous risks, including lower than expected performance or higher than expected costs, difficulties related to integration, difficulties and costs associated with consolidation and streamlining inefficiencies, diversion of management’smanagement's attention from other business activities, changes in relationships with customers, and the potential loss of key employees. In addition, we may not be successful in identifying acquisition candidates, integrating acquired institutions, or preventing deposit erosion or loan quality deterioration at acquired institutions. Competition for acquisitions can be highly competitive, and we may not be able to acquire other institutions on attractive terms. There can be no assurance that we will be successful in completing or will even pursue future acquisitions, or if such transactions are completed, that we will be successful in integrating acquired businesses into operations. AbilityOur ability to grow may be limited if we choose not to pursue or are unable to successfully make acquisitions in the future.
Moreover, although we have successfully integrated business acquisitions in recent years, difficulty or failure in successfully integrating, subsequent to the completion of, any future acquisitions could delay or prevent the anticipated benefits of such acquisitions from being realized fully or at all. In addition, acquisitions typically involve the payment of a premium over book and trading value and thus may result in the dilution of our book value per share.
Our results of operations, financial condition or liquidity may be adversely impacted by issues arising from certain industry deficiencies in foreclosure practices, including delays and challenges in the foreclosure process.
Over the past few years, foreclosure time lines have increased due to, among other reasons, delays associated with the significant increase in the number of foreclosure cases as a result of the economic downturn, federal and state legal and regulatory actions,
including additional consumer protection initiatives related to the foreclosure process and voluntary and, in some cases, mandatory programs intended to permit or require lenders to consider loan modifications or other alternatives to foreclosure. Residential mortgages in particular may present us with foreclosure process issues. Residential mortgages, for example, are 9.1% of our total loan portfolio at December 31, 2015, but constitute 29.9% of our non-accrual loans on the same date. Collateral for many of our residential loans is located within the States of New York and New Jersey, where there may continue to be foreclosure process and timeline issues. Further increases in the foreclosure time-line may have an adverse effect on collateral values and our ability to minimize our losses.
We depend on its executive officers and key personnel to continue the implementation of our long-term business strategy and could be harmed by the loss of their services.
We believe that our continued growth and future success will depend in large part on the skills of our management team and our ability to motivate and retain these individuals and other key personnel. In particular, we rely on the leadership of our Chief Executive Officer, Jack Kopnisky. The loss of service of Mr. Kopnisky or one or more of our other executive officers or key personnel could reduce our ability to successfully implement our long-term business strategy, our business could suffer and the value of our common stock could be materially adversely affected. Leadership changes will occur from time to time and we cannot predict whether significant resignations will occur or whether we will be able to recruit additional qualified personnel. We believe our management team possesses valuable knowledge about the banking industry and our markets and that their knowledge and relationships would be very difficult to replicate. Although the Chief Executive Officer, Chief Financial Officer and other executive officers have entered into employment agreements with us, it is possible that they may not complete the term of their employment agreements or renew them upon expiration. Our success also depends on the experience of our financial center managers and lending officers and on their relationships with the customers and communities they serve. The loss of these key personnel could negatively impact our banking operations. The loss of key personnel, or the inability to recruit and retain qualified personnel in the future, could have an adverse effect on our business, financial condition or operating results.
| |
| ITEM 1B. | Unresolved Staff Comments |
Not Applicable.
Item 2. Properties
We maintain our executive offices, commercial lendingbanking division and investmentwealth management and back office operations departments at a leased facility located at 400 Rella Boulevard, Montebello, NYNew York consisting of 48,62367,156 square feet. At September 30, 2013,December 31, 2015, we conducted our business through 3452 full-service retail and commercial financial centers which serve the New York Metro Market and the New York Suburban Market. Of these financial centers, 1116 are located in Westchester County, New York, 12 in New York City, New York, 11 in Rockland County, New York, seven in Orange County, New York and 11two in Rockland County,Long Island, New York. We also operate 9 officesone office in each of Ulster, Sullivan, Westchester and Putnam Counties in New York 2 offices in New York City, and 1one office in Bergen County, New Jersey. Additionally, 1718 of our financial centers are owned and 1734 are leased.
In addition to our branchfinancial center network and corporate headquarters, we lease one and own twofive additional properties which are heldused for general corporate purposes and 23 other real estate owned propertiesare located in Putnam, Orange, Rockland, Sullivan and Ulster counties. See Note 5. Premises6. “Premises and Equipment, netNet” in the notes to the Consolidated Financial Statementsconsolidated financial statements for further detail on our premises and equipment.
Item 3. Legal Proceedings
Note 16. Commitments18. “Commitments and Contingencies - LitigationLitigation” in the notes to the consolidated financial statements contained in Item 8 hereof8. “Financial Statements and Supplementary Data” is incorporated herein by reference. The Company doesWe do not anticipate that the aggregate liability arising out of litigation pending against the Companyus and itsour subsidiaries will be material to itsour consolidated financial statements.
| |
| ITEM 4. | Mine Safety Disclosures |
Not Applicable.
PART II
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
PART II
| |
ITEM 5. | Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities |
Common Stock Market Prices and Dividends
The Company’s common stock is traded on the New York Stock Exchange (“NYSE”) under the symbol “STL”. The following table sets forth the high and low intra-day sales prices per share of Sterling Bancorpour common stock and the cash dividends declared per share for the past two fiscalcalendar years. For a discussion of when the dividends were paid, see “Liquidity and Capital Resources - Capital” and “Liquidity and Capital Resources - Dividends” in Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”
|
| | | | | | | | | | | |
| Quarter ended | High | | Low | | Cash dividends declared |
| September 30, 2013 | $ | 11.31 |
| | $ | 9.66 |
| | $ | 0.12 |
|
| June 30, 2013 | 9.43 |
| | 8.71 |
| | 0.06 |
|
| March 31, 2013 | 9.54 |
| | 8.70 |
| | 0.06 |
|
| December 31, 2012 | 9.66 |
| | 8.67 |
| | 0.06 |
|
| September 30, 2012 | 9.65 |
| | 7.44 |
| | 0.06 |
|
| June 30, 2012 | 8.72 |
| | 7.24 |
| | 0.06 |
|
| March 31, 2012 | 9.21 |
| | 6.70 |
| | 0.06 |
|
| December 31, 2011 | 7.63 |
| | 5.51 |
| | 0.06 |
|
|
| | | | | | | | | | | | |
| Quarter ended | | High | | Low | | Cash dividends declared |
| December 31, 2015 | | $ | 17.75 |
| | $ | 14.24 |
| | $ | 0.07 |
|
| September 30, 2015 | | 15.26 |
| | 13.20 |
| | 0.07 |
|
| June 30, 2015 | | 15.04 |
| | 12.82 |
| | 0.07 |
|
| March 31, 2015 | | 14.40 |
| | 13.00 |
| | 0.07 |
|
| December 31, 2014 | | 14.62 |
| | 12.46 |
| | 0.07 |
|
| September 30, 2014 | | 13.34 |
| | 11.60 |
| | 0.07 |
|
| June 30, 2014 | | 13.00 |
| | 10.84 |
| | 0.07 |
|
| March 31, 2014 | | 13.34 |
| | 11.73 |
| | 0.07 |
|
As of September 30, 2013,December 31, 2015, there were 44,351,046130,006,926 shares of the Company’sour common stock outstanding held by 5,0615,659 holders of record (excluding the number of persons or entities holding stock in street name through various brokerage firms). The closing price per share of common stock on September 30, 2013,December 31, 2015, the last trading day of the Company’sour fiscal year, was $10.89. Giving effect to the Merger, there were 83,415,930 shares of the Company’s common stock outstanding held by 6,162 holders of record (excluding the number of persons or entities holding stock in street name through various brokerage firms).$16.22.
The Board of Directors of Sterling Bancorp is currently committed to continuing to pay regular cash dividends; however, there can be no assurance as to future dividends because they are dependent upon the Company’sour future earnings, capital requirements and financial condition.
See the section captioned “Regulation”“Supervision and Regulation” included in Item 1. Business,“Business”, the section captioned “Capital“Liquidity and Liquidity”Capital Resources” included in Item 7. Management’s“Management’s Discussion and Analysis of Financial Condition and Results of OperationsOperations” and Note 14. Stockholders’ Equity16. “Stockholders’ Equity” in the notes to the consolidated financial statements all of which are included elsewhere in this report.report, for additional information regarding our common stock and our ability to pay dividends.
Performance Graph
Set forth below is a stock performance graph comparing the cumulative total shareholder return on Sterling Bancorp common stock with (a) the cumulative total return on the S&P 500 Composite IndexIndex; and (b) the SNL Mid-Atlantic Bank Index, measured as of the last trading day of each year shown. The graph assumes an investment of $100 on September 30, 20082010 and reinvestment of dividends on the date of payment without commissions. The performance graph represents past performance and should not be considered to be an indication of future stock performance.
| | | | For the period ended | |
| Performance at | | | September 30, | | December 31, |
| Index | 9/30/2008 | | 9/30/2009 | | 9/30/2010 | | 9/30/2011 | | 9/30/2012 | | 9/30/2013 | | 2010 | | 2011 | | 2012 | | 2013 | | 2014 | | 2014 | | 2015 |
| Sterling Bancorp | 100.00 |
| | 74.08 |
| | 66.82 |
| | 47.63 |
| | 79.39 |
| | 94.24 |
| | 100.00 |
| | 71.29 |
| | 118.82 |
| | 141.03 |
| | 169.55 |
| | 191.59 |
| | 220.37 |
|
| S&P 500 | 100.00 |
| | 93.09 |
| | 102.55 |
| | 103.73 |
| | 135.05 |
| | 161.18 |
| |
| S&P 500 Index | | | 100.00 |
| | 101.14 |
| | 131.69 |
| | 157.16 |
| | 188.18 |
| | 197.46 |
| | 200.19 |
|
| SNL Mid-Atlantic Bank Index | 100.00 |
| | 71.84 |
| | 64.63 |
| | 51.02 |
| | 67.92 |
| | 91.25 |
| | 100.00 |
| | 78.94 |
| | 105.08 |
| | 141.19 |
| | 161.89 |
| | 170.57 |
| | 176.97 |
|
This stock performance graph shall not be deemed incorporated by reference by any general statement incorporating by reference this annual report on Form 10-K under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, except to the extent that Sterling Bancorp specifically incorporates this information by reference, and shall not otherwise be deemed filed under such Acts.
Issuer Purchases of Equity Securities
The following table reports information regarding purchases of our common stock during the fourth quarter of 2015 and the stock repurchase plan approved by the Board:
|
| | | | | | | | | | | | |
| | Total Number of shares (or units) purchased (1) | | Average price paid per share (or unit) | | Total number of shares (or units) purchased as part of publicly announced plans or programs (2)(1) | | Maximum number (or approximate dollar value) of shares (or units) that may yet be purchased under the plans or programs (2)(1) |
Period (2013)(2015) | | | | | | | |
JulyOctober 1 — JulyOctober 31 | — |
| | $ | — |
| | — |
| | 776,713 |
|
AugustNovember 1 — August 31November 30 | — |
| | — |
| | — |
| | 776,713 |
|
SeptemberDecember 1 — September 30December 31 | — |
| | — |
| | — |
| | 776,713 |
|
| Total | — |
| | $ | — |
| | — |
| | |
|
| |
1 | The total number of shares purchased during the periods includes shares deemed to have been received from employees who exercised stock options by submitting previously acquired shares of common stock in satisfaction of the exercise price, or shares withheld for tax purposes ($51,907, or 6,041shares), as is permitted under the Company’s stock benefit plans and shares repurchased as part of a previously authorized repurchase program. |
|
| |
2
| The Company announced its fifth repurchase program on December 17, 2009 authorizing the repurchase of 2,000,000 shares of which 776,713 remain available for repurchase. |
| |
| ITEM 6. | Selected Financial Data |
The following summary data is based in part on the consolidated financial statements and accompanying notes, and other schedules appearing elsewhere in this annual report on Form 10-K. Historical dataThe information at for: (i) the calendar year ended December 31, 2015; (ii) three months ended December 31, 2014; (iii) the three months ended December 31, 2013; (iv) the fiscal year ended September 30, 2014; and the fiscal year ended September 30, 2013 is also basedderived in part on,from, and should be read in conjunction with, prior filingstogether with, the SEC.audited consolidated financial statements and notes thereto of Sterling Bancorp that appear in this annual report on Form 10-K. The information at September 30, 2014, 2013, 2012 and 2011 and the fiscal years then ended is derived in part from audited financial statements that do not appear in this annual report on Form 10-K. The accompanying selected financial data as of December 31, 2013 and for the three months then ended is unaudited. The unaudited information, in the opinion of management, includes all adjustments, consisting of normal recurring accruals, necessary for a fair presentation of our financial position and results of its operations.
For additional information regarding the significant changes in the financial data presented below, see the discussion of the Provident Merger and the HVB Merger in Item 1. “Business”, in Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and in Note 2. “Acquisitions” in the notes to consolidated financial statements. Additional information is provided in Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the Consolidated Financial Statementsconsolidated financial statements and related notes included as Item 7notes.
Dollar amounts in tables are stated in thousands, except for share and Item 8per share amounts.
| | | | At or for the year ended September 30, | | | | | | | | | | | | | | | |
| | 2013 | | 2012 | | 2011 | | 2010 | | 2009 | At or for the year ended December 31, | | At or for the three months ended December 31, | | At or for the fiscal year ended September 30, |
| | (Dollars in thousands) | 2015 | | 2014 |
| 2013 | | 2014 | | 2013 | | 2012 | | 2011 |
| Selected financial condition data: | | | | | | | | | | Selected financial condition data: | | | | | | | | | | |
| Period end: | | | | | | | | | | | | | | | | | | | | | | |
| Total assets | $ | 4,049,172 |
| | $ | 4,022,982 |
| | $ | 3,137,402 |
| | $ | 3,021,025 |
| | $ | 3,021,893 |
| $ | 11,955,952 |
| | $ | 7,424,822 |
| | $ | 6,667,437 |
| | $ | 7,337,387 |
| | $ | 4,049,172 |
| | $ | 4,022,982 |
| | $ | 3,137,402 |
|
Loans, net (1) | 2,384,021 |
| | 2,091,190 |
| | 1,675,882 |
| | 1,670,698 |
| | 1,673,207 |
| |
| Securities available for sale | 954,393 |
| | 1,010,872 |
| | 739,844 |
| | 901,012 |
| | 832,583 |
| |
| Securities held to maturity | 253,999 |
| | 142,376 |
| | 110,040 |
| | 33,848 |
| | 44,614 |
| |
| Deposits | 2,962,294 |
| | 3,111,151 |
| | 2,296,695 |
| | 2,142,702 |
| | 2,082,282 |
| |
| Borrowings | 560,986 |
| | 345,176 |
| | 323,522 |
| | 363,751 |
| | 430,628 |
| |
Stockholders’ equity | 482,866 |
| | 491,122 |
| | 431,134 |
| | 430,955 |
| | 427,456 |
| |
| | | | | | | | | | | |
| Average: | | | | | | | | | | |
| Total assets | $ | 3,815,609 |
| | $ | 3,195,299 |
| | $ | 2,949,251 |
| | $ | 2,913,560 |
| | $ | 2,895,504 |
| |
Loans, net (1) | 2,216,871 |
| | 1,806,136 |
| | 1,665,360 |
| | 1,656,016 |
| | 1,700,383 |
| |
Portfolio loans, net (4) | | 7,809,215 |
| | 4,773,267 |
| | 4,096,529 |
| | 4,719,826 |
| | 2,384,021 |
| | 2,091,190 |
| | 1,675,882 |
|
| Securities available for sale | 950,628 |
| | 801,792 |
| | 880,624 |
| | 836,130 |
| | 739,021 |
| 1,921,032 |
| | 1,140,846 |
| | 1,153,313 |
| | 1,110,813 |
| | 954,393 |
| | 1,010,872 |
| | 739,844 |
|
| Securities held to maturity | 172,642 |
| | 165,722 |
| | 28,787 |
| | 42,903 |
| | 47,079 |
| 722,791 |
| | 572,337 |
| | 486,902 |
| | 579,075 |
| | 253,999 |
| | 142,376 |
| | 110,040 |
|
| Deposits | 2,856,640 |
| | 2,366,263 |
| | 2,082,727 |
| | 1,978,380 |
| | 1,931,320 |
| 8,580,007 |
| | 5,212,325 |
| | 4,920,564 |
| | 5,298,654 |
| | 2,962,294 |
| | 3,111,151 |
| | 2,296,695 |
|
| Borrowings | 446,916 |
| | 356,296 |
| | 422,816 |
| | 488,330 |
| | 529,614 |
| 1,525,344 |
| | 1,111,553 |
| | 696,270 |
| | 939,069 |
| | 560,986 |
| | 345,176 |
| | 323,522 |
|
| Stockholders’ equity | 489,412 |
| | 447,065 |
| | 427,290 |
| | 425,408 |
| | 415,887 |
| 1,665,073 |
| | 975,200 |
| | 925,109 |
| | 961,138 |
| | 482,866 |
| | 491,122 |
| | 431,134 |
|
| | | | | | | | | | | |
| Selected income statement data: | | | | | | | | | | |
| Interest and dividend income | $ | 132,061 |
| | $ | 115,037 |
| | $ | 112,614 |
| | $ | 119,774 |
| | $ | 131,590 |
| |
| Interest expense | 19,894 |
| | 18,573 |
| | 21,324 |
| | 26,440 |
| | 37,720 |
| |
| Average: | | | | | | | | | | | | | | |
| Total assets | | $ | 9,604,256 |
| | $ | 7,340,332 |
| | $ | 6,013,816 |
| | $ | 6,757,094 |
| | $ | 3,815,609 |
| | $ | 3,195,299 |
| | $ | 2,949,251 |
|
| Loans, net | | 6,261,470 |
| | 4,756,015 |
| | 3,516,129 |
| | 4,120,749 |
| | 2,216,871 |
| | 1,806,136 |
| | 1,665,360 |
|
| Securities available for sale | | 1,542,008 |
| | 1,144,077 |
| | 1,138,504 |
| | 1,175,618 |
| | 950,628 |
| | 801,792 |
| | 880,624 |
|
| Securities held to maturity | | 614,048 |
| | 577,044 |
| | 456,260 |
| | 517,270 |
| | 172,642 |
| | 165,722 |
| | 28,787 |
|
| Deposits | | 7,139,336 |
| | 5,342,787 |
| | 4,352,218 |
| | 4,921,930 |
| | 2,856,640 |
| | 2,366,263 |
| | 2,082,727 |
|
| Borrowings | | 987,522 |
| | 902,299 |
| | 709,126 |
| | 814,409 |
| | 446,916 |
| | 356,296 |
| | 422,816 |
|
| Stockholders’ equity | | 1,360,859 |
| | 973,089 |
| | 780,241 |
| | 906,134 |
| | 489,412 |
| | 447,065 |
| | 427,290 |
|
| Selected operating data: | | Selected operating data: | | | | | | | | | | |
| Total interest income | | $ | 348,141 |
| | $ | 68,087 |
| | $ | 52,711 |
| | $ | 246,906 |
| | $ | 132,061 |
| | $ | 115,037 |
| | $ | 112,614 |
|
| Total interest expense | | 36,925 |
| | 7,850 |
| | 6,835 |
| | 28,918 |
| | 19,894 |
| | 18,573 |
| | 21,324 |
|
| Net interest income | 112,167 |
| | 96,464 |
| | 91,290 |
| | 93,334 |
| | 93,870 |
| 311,216 |
| | 60,237 |
| | 45,876 |
| | 217,988 |
| | 112,167 |
| | 96,464 |
| | 91,290 |
|
| Provision for loan losses | 12,150 |
| | 10,612 |
| | 16,584 |
| | 10,000 |
| | 17,600 |
| 15,700 |
| | 3,000 |
| | 3,000 |
| | 19,100 |
| | 12,150 |
| | 10,612 |
| | 16,584 |
|
| Net interest income after provision for loan losses | 100,017 |
| | 85,852 |
| | 74,706 |
| | 83,334 |
| | 76,270 |
| 295,516 |
| | 57,237 |
| | 42,876 |
| | 198,888 |
| | 100,017 |
| | 85,852 |
| | 74,706 |
|
| Non-interest income | 27,692 |
| | 32,152 |
| | 29,951 |
| | 27,201 |
| | 39,953 |
| |
| Non-interest expense | 91,041 |
| | 91,957 |
| | 90,111 |
| | 83,170 |
| | 80,187 |
| |
| Income before income tax expense | 36,668 |
| | 26,047 |
| | 14,546 |
| | 27,365 |
| | 36,036 |
| |
| Income tax expense | 11,414 |
| | 6,159 |
| | 2,807 |
| | 6,873 |
| | 10,175 |
| |
| Net income | $ | 25,254 |
| | $ | 19,888 |
| | $ | 11,739 |
| | $ | 20,492 |
| | $ | 25,861 |
| |
| | | | | | | | | | | |
| Total non-interest income | | 62,751 |
| | 13,957 |
| | 9,148 |
| | 47,370 |
| | 27,692 |
| | 32,152 |
| | 29,951 |
|
| Total non-interest expense | | 260,318 |
| | 45,814 |
| | 72,974 |
| | 208,428 |
| | 91,041 |
| | 91,957 |
| | 90,111 |
|
| Income (loss) before income tax expense (benefit) | | 97,949 |
| | 25,380 |
| | (20,950 | ) | | 37,830 |
| | 36,668 |
| | 26,047 |
| | 14,546 |
|
| Income tax expense (benefit) | | 31,835 |
| | 8,376 |
| | (6,948 | ) | | 10,152 |
| | 11,414 |
| | 6,159 |
| | 2,807 |
|
| Net income (loss) | | $ | 66,114 |
| | $ | 17,004 |
| | $ | (14,002 | ) | | $ | 27,678 |
| | $ | 25,254 |
| | $ | 19,888 |
| | $ | 11,739 |
|
| Per share data: |
|
| | | | | | | | | | |
|
| | | |
|
| |
|
| | | | |
| Basic earnings per share | $ | 0.58 |
| | $ | 0.52 |
| | $ | 0.31 |
| | $ | 0.54 |
| | $ | 0.67 |
| |
| Diluted earnings per share | 0.58 |
| | 0.52 |
| | 0.31 |
| | 0.54 |
| | 0.67 |
| |
| Basic earnings (loss) per share | | $ | 0.60 |
| | $ | 0.20 |
| | $ | (0.20 | ) | | $ | 0.34 |
| | $ | 0.58 |
| | $ | 0.52 |
| | $ | 0.31 |
|
| Diluted earnings (loss) per share | | 0.60 |
| | 0.20 |
| | (0.20 | ) | | 0.34 |
| | 0.58 |
| | 0.52 |
| | 0.31 |
|
| Dividends declared per share | 0.30 |
| | 0.24 |
| | 0.24 |
| | 0.24 |
| | 0.24 |
| 0.28 |
| | 0.07 |
| | — |
| | 0.21 |
| | 0.30 |
| | 0.24 |
| | 0.24 |
|
| Dividend payout ratio | 51.7 | % | | 45.2 | % | | 77.4 | % | | 44.4 | % | | 35.8 | % | 46.7 | % | | 35.0 | % | | NA |
| | 61.8 | % | | 51.7 | % | | 45.2 | % | | 77.4 | % |
| Book value per share | $ | 10.89 |
| | $ | 11.12 |
| | $ | 11.39 |
| | $ | 11.26 |
| | $ | 10.81 |
| $ | 12.81 |
| | $ | 11.62 |
| | $ | 11.02 |
| | $ | 11.49 |
| | $ | 10.89 |
| | $ | 11.12 |
| | $ | 11.39 |
|
| | | | | | | | | | | |
| Commons shares outstanding: | | | | | | | | | | |
| Period end: | | | | | | | | | | |
| Common shares outstanding: | | | | | | | | | | | | | | |
| Weighted average shares basic | 43,734,425 | | 38,227,653 | | 37,452,596 | | 37,161,180 | | 38,537,881 | 109,907,645 |
| | 83,831,380 | | 70,493,305 | | 80,268,970 | | 43,734,425 | | 38,227,653 |
| | 37,452,596 |
| Weighted average shares diluted | 43,783,053 | | 38,248,046 | | 37,453,542 | | 38,185,122 | | 38,705,837 | 110,329,353 |
| | 84,194,916 | | 70,493,305 | | 80,534,043 | | 43,783,053 | | 38,248,046 |
| | 37,453,542 |
_________________________
See legend on the following page.
|
| | | | | | | | | | | | | | | | | | | |
| | At or for the year ended September 30, |
| | 2013 | | 2012 | | 2011 | | 2010 | | 2009 |
| Performance ratios: | | | | | | | | | |
| Return on assets (ratio of net income to average total assets) | 0.63 | % | | 0.62 | % | | 0.40 | % | | 0.70 | % | | 0.89 | % |
| Return on equity (ratio of net income to average equity) | 5.2 |
| | 4.5 |
| | 2.8 |
| | 4.8 |
| | 6.2 |
|
Net interest margin (2) | 3.37 |
| | 3.51 |
| | 3.65 |
| | 3.78 |
| | 3.81 |
|
| Core efficiency ratio | 62.6 |
| | 68.3 |
| | 71.3 |
| | 69.0 |
| | 65.2 |
|
| | | | | | | | | | |
| Capital ratios: | | | | | | | | | |
| Equity to total assets at end of period | 11.9 | % | | 12.2 | % | | 13.7 | % | | 14.3 | % | | 14.2 | % |
| Average equity to average assets | 12.8 |
| | 14.0 |
| | 14.5 |
| | 14.6 |
| | 14.4 |
|
| Tier 1 leverage ratio (Bank only) | 9.3 |
| | 7.5 |
| | 8.1 |
| | 8.4 |
| | 8.6 |
|
| Tier 1 capital ratio (Bank only) | 13.2 |
| | 12.1 |
| | 11.8 |
| | 12.1 |
| | 12.6 |
|
| Total capital ratio (Bank only) | 14.2 |
| | 13.3 |
| | 13.0 |
| | 13.3 |
| | 13.8 |
|
| | | | | | | | | | |
| Asset quality data and ratios: | | | | | | | | | |
| Allowance for loan loss | $ | 28,877 |
| | $ | 28,282 |
| | $ | 27,917 |
| | $ | 30,843 |
| | $ | 30,050 |
|
| Non-performing assets | 32,928 |
| | 46,217 |
| | 45,958 |
| | 30,731 |
| | 28,181 |
|
| Net charge-offs | 11,555 |
| | 10,247 |
| | 19,510 |
| | 9,207 |
| | 10,651 |
|
Non-performing assets to total assets (1) | 0.81 | % | | 1.15 | % | | 1.46 | % | | 1.02 | % | | 0.93 | % |
Non-performing loans to total loans (1) | 1.12 |
| | 1.88 |
| | 2.38 |
| | 1.58 |
| | 1.55 |
|
| Allowance for loan losses to non-performing loans | 107 |
| | 71 |
| | 69 |
| | 115 |
| | 114 |
|
| Allowance for loan losses to total loans | 1.20 |
| | 1.47 |
| | 1.64 |
| | 1.81 |
| | 1.76 |
|
| Net charge-offs to average loans | 0.52 |
| | 0.56 |
| | 1.17 |
| | 0.56 |
| | 0.62 |
|
| | | | | | | | | | |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | At or for the year ended December 31, | | At or for the three months ended December 31, | | At or for the fiscal year ended September 30, |
| | 2015 | | 2014 | | 2013 | | 2014 | | 2013 | | 2012 | | 2011 |
| Performance ratios: | | | | | | | | | | | | | |
| Return on average assets | 0.69 | % | | 0.92 | % | | (0.92 | )% | | 0.41 | % | | 0.63 | % | | 0.62 | % | | 0.40 | % |
| Return on average equity | 4.9 |
| | 6.9 |
| | (7.1 | ) | | 3.1 |
| | 5.2 |
| | 4.5 |
| | 2.8 |
|
Net interest margin (1) | 3.67 |
| | 3.70 |
| | 3.58 |
| | 3.74 |
| | 3.37 |
| | 3.51 |
| | 3.65 |
|
Core operating efficiency ratio(2) | 50.8 |
| | 54.0 |
| | 65.4 |
| | 59.4 |
| | 63.7 |
| | 69.7 |
| | 72.1 |
|
Capital ratios (Company):(3) | | | | | | | | | | | | | |
| Equity to total assets at end of period | 13.93 | % | | 13.13 | % | | 13.85 | % | | 13.10 | % | | 11.90 | % | | 12.21 | % | | 13.74 | % |
| Average equity to average assets | 14.17 |
| | 13.26 |
| | 13.00 |
| | 13.41 |
| | 12.82 |
| | 13.99 |
| | 14.49 |
|
| Tier 1 leverage ratio | 9.03 |
| | 8.21 |
| | 9.44 |
| | 8.12 |
| | — |
| | — |
| | — |
|
| Tier 1 risk-based capital ratio | 10.74 |
| | 10.43 |
| | 11.01 |
| | 10.33 |
| | — |
| | — |
| | — |
|
| Total risk-based capital ratio | 11.29 |
| | 11.22 |
| | 11.66 |
| | 11.10 |
| | — |
| | — |
| | — |
|
| Regulatory capital ratios (Bank): | | | | | | | | | | | | | |
| Tier 1 leverage ratio | 9.65 | % | | 9.39 | % | | 10.58 | % | | 9.34 | % | | 9.33 | % | | 7.56 | % | | 8.14 | % |
| Tier 1 risk-based capital ratio | 11.45 |
| | 12.00 |
| | 12.48 |
| | 11.94 |
| | 13.18 |
| | 12.16 |
| | 11.85 |
|
| Total risk-based capital ratio | 12.00 |
| | 12.79 |
| | 13.13 |
| | 12.71 |
| | 14.24 |
| | 13.36 |
| | 13.03 |
|
| Asset quality data and ratios: | | | | | | | | | | | | | |
| Allowance for loan losses | $ | 50,145 |
| | $ | 42,374 |
| | $ | 30,612 |
| | $ | 40,612 |
| | $ | 28,877 |
| | $ | 28,282 |
| | $ | 27,917 |
|
| Non-performing loans (“NPLs”) | 66,411 |
| | 46,642 |
| | 38,442 |
| | 50,963 |
| | 26,906 |
| | 39,814 |
| | 40,567 |
|
| Non-performing assets (“NPAs”) | 81,025 |
| | 52,509 |
| | 50,193 |
| | 58,543 |
| | 32,928 |
| | 46,217 |
| | 45,958 |
|
| Net charge-offs | 7,929 |
| | 1,238 |
| | 1,265 |
| | 7,365 |
| | 11,555 |
| | 10,247 |
| | 19,510 |
|
| NPAs to total assets | 0.68 | % | | 0.71 | % | | 0.75 | % | | 0.80 | % | | 0.81 | % | | 1.15 | % | | 1.46 | % |
NPLs to total loans (4) | 0.84 |
| | 0.97 |
| | 0.93 |
| | 1.07 |
| | 1.12 |
| | 1.88 |
| | 2.38 |
|
| Allowance for loan losses to non-performing loans | 76 |
| | 91 |
| | 80 |
| | 80 |
| | 107 |
| | 71 |
| | 69 |
|
Allowance for loan losses to total loans (4) | 0.64 |
| | 0.88 |
| | 0.74 |
| | 0.85 |
| | 1.20 |
| | 1.47 |
| | 1.64 |
|
| Net charge-offs to average loans | 0.13 |
| | 0.10 |
| | 0.14 |
| | 0.24 |
| | 0.52 |
| | 0.56 |
| | 1.17 |
|
| |
| (1) | Excludes loans held for sale. |
| |
(2) | The average interest rate spread represents the difference between the weighted-average yield on interest-earning assets and the weighted-average cost of interest-bearing liabilities for the period.The net interest margin represents net interest income as a percent of average interest-earning assets for the period. Net interest income is commonly presented on a tax-equivalent basis. This is to the extent that some component of the institution’s net interest income will be exempt from taxation (e.g., was received as a result of its holdings of state or municipal obligations), an amount equal to the tax benefit derived from that component is added back to the net interest income total. This adjustment is considered helpful in comparing one financial institution’s net interest income (pre-tax) to that of another institution, as each will have a different proportion of tax-exempt items in their portfolios. Moreover, net interest income |
| |
| (2) | The core operating efficiency ratio is itself a component ofnon-GAAP measure and is reconciled on page 26. |
| |
| (3) | Prior to the Provident Merger, we were a second financial measure commonly used by financial institutions, net interest margin, which isunitary savings and loan holding company and as a result was not required to maintain or report regulatory capital ratios. We became a bank holding company in connection with the ratio of net interest income to average earning assets. For purposes of this measure as well, tax-equivalent net interest income is generally used by financial institutions, again to provide a better basis of comparison from institution to institution. We follow these practices.Provident Merger and have maintained and reported regulatory capital ratios since December 31, 2013. |
| |
| (4) | Excludes loans held for sale. |
We incurred a net loss in the three month period ended December 31, 2013 due mainly to charges and asset write-downs associated with the Provident Merger. We incurred charges of $22.2 million for asset write-downs, retention and severance compensation, a write-off of the naming rights to remaining book value of the Provident Bank Ballpark, all of which were included in other non-interest income on the statement of operations. The charge for asset write-downs was based mainly on our intent to consolidate several office locations and financial centers. We recognized $9.1 million of merger-related expenses, which included professional advisory fees, legal fees, a portion of change-in-control payments to Legacy Sterling executive officers, costs associated with
changing signage at various office and financial center locations and other Merger-related items. In addition, we incurred a $2.7 million charge for the settlement of a portion of the Legacy Provident pension plan in December 2013.
Non-GAAP Financial Measures
The following tables present non-GAAP financial measures. These measures are used by management and the Board on a regular basis in addition to our GAAP results to facilitate the assessment of our financial performance and to assess our performance compared to our budgets and strategic plans. These non-GAAP financial measures complement our GAAP reporting and are presented below to provide investors and others information that we use to manage the business each period. Because not all companies use identical calculations, the presentation of the non-GAAP financial measures may not be comparable to other similarly titled measures used by other companies. However, we believe the non-GAAP information shown below provides useful information to investors to assess our core operating performance. The following non-GAAP financial measures reconcile core net income and core earnings per share to our GAAP results and the core operating efficiency ratio to the unadjusted operating efficiency ratio (non-interest expense divided by total net revenue). |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Year ended December 31, | | Three months ended December 31, | | Fiscal year ended September 30, |
| | 2015 | | 2014 | | 2013 | | 2014 | | 2013 | | 2012 | | 2011 |
| Net interest income | $ | 311,216 |
| | $ | 60,237 |
| | $ | 45,876 |
| | $ | 217,988 |
| | $ | 112,167 |
| | $ | 96,464 |
| | $ | 91,290 |
|
| Non-interest income | 62,751 |
| | 13,957 |
| | 9,148 |
| | 47,370 |
| | 27,692 |
| | 32,152 |
| | 29,951 |
|
| Total net revenue | 373,967 |
| | 74,194 |
| | 55,024 |
| | 265,358 |
| | 139,859 |
| | 128,616 |
| | 121,241 |
|
| Tax equivalent adjustment on securities interest income | 6,503 |
| | 1,546 |
| | 1,164 |
| | 5,628 |
| | 3,060 |
| | 3,498 |
| | 4,007 |
|
| Net (gain) loss on sale of securities | (4,837 | ) | | 43 |
| | 645 |
| | (641 | ) | | (7,391 | ) | | (10,452 | ) | | (10,011 | ) |
| Other than temporary loss on securities | — |
| | — |
| | — |
| | — |
| | 32 |
| | 47 |
| | 278 |
|
| Other (other gains and fair value loss on interest rate caps) | — |
| | — |
| | (93 | ) | | (93 | ) | | 77 |
| | (12 | ) | | 197 |
|
| Core total revenue | 375,633 |
| | 75,783 |
| | 56,740 |
| | 270,252 |
| | 135,637 |
| | 121,697 |
| | 115,712 |
|
| Non-interest expense | 260,318 |
| | 45,814 |
| | 72,974 |
| | 208,428 |
| | 91,041 |
| | 91,957 |
| | 90,111 |
|
| Merger-related expense | (17,079 | ) | | (502 | ) | | (9,068 | ) | | (9,455 | ) | | (2,772 | ) | | (5,925 | ) | | (255 | ) |
| Charge for asset write-downs, banking systems conversion, retention and severance | (29,046 | ) | | (2,493 | ) | | (22,167 | ) | | (26,591 | ) | | (564 | ) | | — |
| | (3,201 | ) |
| Gain on sale of financial center and redemption of TRUPs | — |
| | — |
| | — |
| | 1,637 |
| | — |
| | — |
| | — |
|
| Charge on benefit plan settlement | (13,384 | ) | | — |
| | (2,743 | ) | | (4,095 | ) | | — |
| | — |
| | (1,772 | ) |
| Amortization of intangible assets | (10,043 | ) | | (1,873 | ) | | (1,875 | ) | | (9,408 | ) | | (1,296 | ) | | (1,245 | ) | | (1,426 | ) |
| Core non-interest expense | $ | 190,766 |
| | $ | 40,946 |
| | $ | 37,121 |
| | $ | 160,517 |
| | $ | 86,409 |
| | $ | 84,787 |
| | $ | 83,457 |
|
| Core operating efficiency ratio | 50.8 | % | | 54.0 | % | | 65.4 | % | | 59.4 | % | | 63.7 | % | | 69.7 | % | | 72.1 | % |
| Unadjusted operating efficiency ratio | 69.6 | % | | 61.7 | % | | 132.6 | % | | 78.5 | % | | 65.1 | % | | 71.5 | % | | 74.3 | % |
The unadjusted operating efficiency ratio is the ratio of non-interest expense to total net revenue. The core operating efficiency ratio is the ratio of core non-interest expense to core total revenue.
The following table shows the reconciliation of the full year core operating efficiency ratio which is a non-GAAP financial measure:
|
| | | | | | | | | | | | | | | | | | | |
| | For the year ended September 30, |
| | 2013 | | 2012 | | 2011 | | 2010 | | 2009 |
| Net interest income | $ | 112,167 |
| | $ | 96,464 |
| | $ | 91,290 |
| | $ | 93,334 |
| | $ | 93,870 |
|
| Non-interest income | 27,692 |
| | 32,152 |
| | 29,951 |
| | 27,201 |
| | 39,953 |
|
| Total net revenues | 139,859 |
| | 128,616 |
| | 121,241 |
| | 120,535 |
| | 133,823 |
|
| Tax equivalent adjustment on securities interest income | 3,060 |
| | 3,498 |
| | 4,007 |
| | 4,186 |
| | 4,049 |
|
| Net gain on sales of securities | (7,391 | ) | | (10,452 | ) | | (10,011 | ) | | (8,157 | ) | | (18,076 | ) |
| Other than temporary loss on securities | 32 |
| | 47 |
| | 278 |
| | — |
| | — |
|
| Other, (other gains and fair value loss on interest rate caps) | 77 |
| | (12 | ) | | 197 |
| | 1,160 |
| | (517 | ) |
| Core total revenues | 135,637 |
| | 121,697 |
| | 115,712 |
| | 117,724 |
| | 119,279 |
|
| | | | | | | | | | |
| Non-interest expense | 91,041 |
| | 91,957 |
| | 90,111 |
| | 83,170 |
| | 80,187 |
|
| Merger-related expenses | (2,772 | ) | | (5,925 | ) | | — |
| | — |
| | — |
|
| Charge for asset write-downs | (564 | ) | | — |
| | (3,201 | ) | | — |
| | — |
|
| Other real estate owned expense | (1,562 | ) | | (1,618 | ) | | (1,171 | ) | | (137 | ) | | (207 | ) |
| Amortization of intangible assets | (1,296 | ) | | (1,245 | ) | | (1,426 | ) | | (1,849 | ) | | (2,185 | ) |
| Defined benefit settlement charge / CEO change | — |
| | — |
| | (1,772 | ) | | — |
| | — |
|
| Core non-interest expense | 84,847 |
| | 83,169 |
| | 82,541 |
| | 81,184 |
| | 77,795 |
|
| | | | | | | | | | |
| Core efficiency ratio | 62.6 | % | | 68.3 | % | | 71.3 | % | | 69.0 | % | | 65.2 | % |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Year ended December 31, | | Three months ended December 31, | | Fiscal year ended September 30, |
| | 2015 | | 2014 | | 2013 | | 2014 | | 2013 | | 2012 | | 2011 |
| Income (loss) before income tax expense | $ | 97,949 |
| | $ | 25,380 |
| | $ | (20,950 | ) | | $ | 37,830 |
| | $ | 36,668 |
| | $ | 26,047 |
| | $ | 14,546 |
|
| Income tax expense (benefit) | 31,835 |
| | 8,376 |
| | (6,948 | ) | | 10,152 |
| | 11,414 |
| | 6,159 |
| | 2,807 |
|
| Net income (loss) | 66,114 |
| | 17,004 |
| | (14,002 | ) | | 27,678 |
| | 25,254 |
| | 19,888 |
| | 11,739 |
|
| Net (gain) loss on sale of securities | (4,837 | ) | | 43 |
| | 645 |
| | (641 | ) | | (7,391 | ) | | (10,452 | ) | | (10,011 | ) |
| Gain on sale of financial center and redemption of TRUPs | — |
| | — |
| | — |
| | (1,637 | ) | | — |
| | — |
| | — |
|
| Merger-related expense | 17,079 |
| | 502 |
| | 9,068 |
| | 9,455 |
| | 2,772 |
| | 5,925 |
| | 255 |
|
| Charge for asset write-downs, banking systems conversion, retention and severance | 29,046 |
| | 2,493 |
| | 22,167 |
| | 26,591 |
| | 564 |
| | — |
| | 3,201 |
|
| Charge on benefit plan settlement | 13,384 |
| | — |
| | 2,743 |
| | 4,095 |
| | — |
| | — |
| | 1,772 |
|
| Amortization of non-compete agreements | 3,526 |
| | 859 |
| | 998 |
| | 5,489 |
| | — |
| | — |
| | — |
|
| Total charges (gains) | 58,198 |
| | 3,897 |
| | 35,621 |
| | 43,352 |
| | (4,055 | ) | | (4,527 | ) | | (4,783 | ) |
| Income tax (benefit) expense | (18,914 | ) | | (1,286 | ) | | (11,814 | ) | | (13,188 | ) | | 1,245 |
| | 1,070 |
| | 923 |
|
| Total non-core charges (gains) net of taxes | 39,284 |
| | 2,611 |
| | 23,807 |
| | 30,164 |
| | (2,810 | ) |
| (3,457 | ) | | (3,860 | ) |
| Core net income | $ | 105,398 |
| | $ | 19,615 |
| | $ | 9,805 |
| | $ | 57,842 |
| | $ | 22,444 |
|
| $ | 16,431 |
| | $ | 7,879 |
|
| Weighted average diluted shares | 110,329,353 |
| | 84,194,916 |
| | 70,493,305 |
| | 80,534,043 |
| | 43,783,053 |
|
| 38,248,046 |
| | 37,453,542 |
|
| Core diluted EPS (excluding total charges) | 0.96 |
| | 0.23 |
| | 0.14 |
| | 0.72 |
| | 0.51 |
|
| 0.43 |
| | 0.21 |
|
| Diluted EPS as reported | $ | 0.60 |
| | $ | 0.20 |
| | $ | (0.20 | ) | | $ | 0.34 |
| | $ | 0.58 |
|
| $ | 0.52 |
| | $ | 0.31 |
|
The core efficiency ratio reflects total revenues inclusive of the tax equivalent adjustment on municipal securities and excludes securities gains, other than temporary impairments and the other adjustments shown above. Core non-interest expense is adjusted to exclude the effect of merger-related expenses, non-recurring charges, other real estate expense and amortization of intangible assets. The Company believes this non-GAAP information provides useful information to users to assess the Company’s core operations.
| |
| ITEM 7. | Management’s Discussion and Analysis of Financial Condition and Results of Operations |
GeneralForward-Looking Statements
We make statements in this Report, and we may from time to time make other statements, regarding our outlook or expectations for earnings, revenues, expenses and/or other financial, business or strategic matters regarding or affecting Sterling Bancorp that are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, as amended. Forward-looking statements are typically identified by words such as “believe,” “expect,” “anticipate,” “intend,” “outlook,” “target,” “estimate,” “forecast,” “project” by future conditional verbs such as “will,” “should,” “would,” “could” or “may,” or by variations of such words or by similar expressions. These statements are not historical facts, but instead represent our current expectations, plans or forecasts and are based on the beliefs and assumptions of the management and the information available to management at the time that these disclosures were prepared.
Forward-looking statements are subject to numerous assumptions, risks (both known and unknown) and uncertainties, and other factors which change over time. Forward-looking statements speak only as of the date they are made. We do not assume any duty and do not undertake to update our forward-looking statements. Because forward-looking statements are subject to assumptions, risks, uncertainties, and other factors, actual results or future events could differ, possibly materially, from those that we anticipated in our forward-looking statements and future results could differ materially from our historical performance.
The following MD&A providesfactors, among others, could cause our future results to differ materially from the plans, objectives, goals, expectations, anticipations, estimates and intentions expressed in forward-looking statements:
our ability to successfully implement growth, reduce expenses and other strategic initiatives and to integrate and fully realize cost savings and other benefits we estimate in connection with acquisitions;
a deterioration in general economic conditions, either nationally, internationally, or in our market areas, including extended declines in the real estate market and constrained financial markets;
the possibility that the benefits anticipated from the HVB Merger will not be fully realized;
as a result of the HVB Merger, the Bank’s total assets exceed $10 billion, which makes the Bank subject to regulatory oversight by the Consumer Financial Protection Bureau and the Bank will also become subject to provisions of the Durbin Amendment, which will impact the Bank’s debit card interchange fees;
adverse publicity, regulatory actions or litigation with respect to us or other well-known companies and the financial services industry in general and a failure to satisfy regulatory standards;
the effects of and changes in monetary and fiscal policies of the Board of Governors of the Federal Reserve System and the U.S. Government, respectively;
our ability to make accurate assumptions and judgments about an appropriate level of allowance for loan losses and the collectability of our loan portfolio, including changes in the level and trend of loan delinquencies and write-offs that may lead to increased losses and non-performing assets in our loan portfolio, result in our allowance for loan losses not being adequate to cover actual losses, and require us to materially increase our reserves;
our use of estimates in determining the fair value of certain of our assets, which may prove to be incorrect and result in significant declines in valuation;
changes in the levels of general interest rates, and the relative differences between short and long term interest rates, deposit interest rates, our net interest margin and funding sources;
our ability to capitalize on our substantial investments in our information we believe necessary to understandtechnology and operational infrastructure and systems;
changes in other economic, competitive, governmental, regulatory, and technological factors affecting our markets, operations, pricing, products, services and fees; and
our success at managing the risks involved in the foregoing and managing our business.
Additional factors that may affect our results of operations, our financial conditionare discussed in this annual Report on Form 10-K under “Item 1A, Risk Factors” and changes thereinelsewhere in this Report or in other filings with the SEC. These risks and cash flows. The MD&Auncertainties should be readconsidered in conjunction with the consolidated financial statements, notes to consolidated financialevaluating forward-looking statements and other information contained in this report.undue reliance should not be placed on such statements. You should read such statements carefully.
Critical Accounting Policies
Our accounting and reporting policies are prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and conform to general practices within the banking industry. Accounting policies considered critical to our financial results include the allowance for loan losses, accounting for business combinations, accounting for goodwill, trade names and other intangible assets, accounting for deferred income taxes and the recognition of interest income. For additional information on our significant accounting policies see Note 1. “Basis of FInancial Statement Presentation and Summary of Significant Accounting Policies” in the notes to consolidated financial statements.
Allowance for Loan Losses. The methodology for determining the allowance for loan losses is considered by the Companyus to be a critical accounting policy due to the high degree of judgment involved, the subjectivity of the assumptions utilized and the potential for changes in the economic environment that could result in changes to the amount of the allowance for loan losses considered necessary. We evaluate our loans at least quarterly, andincluding a review of their risk components and their carrying value, and the allowance is adjusted accordingly. While management uses the best information available to make evaluations, future adjustments to the allowance may be necessary if conditions differ substantially from the information used in making the evaluations. In addition, as aan integral part of that evaluation. their examination process, our regulatory agencies periodically review the allowance for loan losses. Such agencies may require us to recognize additions to the allowance based on their judgments of information available to them at the time of their examination.
See Note 1. Basis“Basis of Financial Statement Presentation and Summary of Significant Accounting Policies to ourPolicies” in the notes to the consolidated financial statements for a discussion of the risk components. We consistently review the risk components to identify any changes in trends. At
September 30, 2013Business Combinations. Sterling hasWe account for business combinations under the purchase method of accounting. The application of this method of accounting requires the use of significant estimates and assumptions in the determination of the fair value of assets acquired and liabilities assumed in order to properly allocate purchase price consideration between assets that are amortized, accreted or depreciated from those that are recorded $28.9 million in its allowance for loan losses.as goodwill. Our estimates of the fair values of assets acquired and liabilities assumed are based upon assumptions that we believe to be reasonable, and whenever necessary, include assistance from independent third-party appraisal and valuation firms.
Goodwill, Trade Names and Other Intangible Assets. The Company accountsWe account for goodwill, trade names and other intangible assets in accordance with GAAP, which, in general, requires that goodwill and trade names not be amortized, but rather that itthey be tested for impairment at least annually. The Company assessesWe assess qualitative factors to determine whether it is more likely than not (i.e., a likelihood of more than 50 percent) that the fair value of a reporting unit is less than its carrying amount. In evaluating whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount, the Company assesseswe assess relevant events and circumstances (e.g., macroeconomic
conditions, industry and market considerations, overall financial performance and other relevant Company-specific events). If, after assessing the totality of events or circumstances such as those described above, the Company determineswe determine that it is not more likely than not that the fair value of a reporting unit is less than its carrying amount, then the first and second steps of the goodwill impairment test are unnecessary. Testing for impairment of goodwill, trade names and other intangible assets is performed annually and involves the identification of reporting units and the estimation of fair values. The estimation of fair values involves a high degree of judgment and subjectivity in the assumptions used. Changes in the local and national economy, the federal and state legislative and regulatory environments for financial institutions, the stock market, interest rates and other external factors (such as natural disasters or significant world events) may occur from time to time, often with great unpredictability, and may materially impact the fair value of publicly traded financial institutions and could result in an impairment charge at a future date.
We also use judgment in the valuation of other intangible assets. A core deposit base intangible asset has been recorded for core deposits (defined as checking, money market and savings deposits) that were acquired in acquisitions that were accounted for as purchase business combinations.acquisitions. The core deposit base intangible asset has been recorded using the assumption that the acquired deposits provide a more favorable source of funding than more expensive wholesale borrowings. An intangible asset has been recorded for the present value of the difference between the expected interest to be incurred on these deposits and interest expense that would be expected if these deposits were replaced by wholesale borrowings, over the expected lives of the core deposits. If we find these deposits have a shorter life than was estimated, we will write down the asset by expensing the amount that is impaired. At September 30, 2013 the Bank had $1.9 million in naming rights net of amortization included in other intangibles related to Provident Bank Ball Park and $2.0 million in mortgage servicing rights included in other assets.
Deferred Income Taxes. We use the asset and liability method of accounting for income taxes. Under this method, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. If current available information raises doubt as to the realization of the deferred tax assets, a valuation allowance is established. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. We exercise significant judgment in evaluating the amount and timing of recognition of the resulting tax liabilities and assets, including projections of future taxable income. These judgments and estimates are reviewed on a continual basis as regulatory and business factors change. At September 30, 2013, Sterling Bancorp had net deferred tax assets of $15.0 million.
Interest income. Interest income on loans, securities and other interest-earning assets is accrued monthly unless the Company considerswe consider the collection of interest to be doubtful. Loans are placed on non-accrual status upon the earlier of (i) when payments are contractually past due 90 days or more,more; or (ii) when we have determined that the borrower is unlikely to meet contractual principal or interest obligations, unless the assets are well secured and in the process of collection. At such time, unpaid interest is reversed by charging interest income for interest in the current fiscal year or the allowance for loan losses with respect to prior year income. Interest payments received on non-accrual loans (including
impaired loans) are not recognized as income unless future collections are reasonably assured. Loans are returned to accrual status when collectability is no longer considered doubtful. At September 30, 2013, Sterling had $22.8 millionLoans we acquired in mergers are initially recorded at fair value, which involves estimating the amount and timing of principal and interest cash flows initially expected to be collected on the loans and discounting those cash flows at an appropriate market rate of interest. We continue to evaluate reasonableness of expectations for the timing and amount of cash to be collected. Subsequent decreases in non-accrual status.expected cash flows may result in changes in the amortization or accretion of fair market value adjustments, and in some cases may result in the loan being considered impaired.
SummaryGeneral
On January 27, 2015, the Board amended our bylaws to change our fiscal year end from September 30 to December 31. As a result of the change in year end, we filed a Transition Report on Form 10-KT with the SEC on March 6, 2015, which included audited financial statements as of December 31, 2014 and for the three months then ended. For comparative purposes we presented financial statements as of December 31, 2013 and for the three months then ended, which are unaudited. In this report, in accordance with guidance that is applicable to a financial reporting period that follows a transition period, our discussion and analysis will present the more significant factors affecting our financial condition at December 31, 2015 and December 31, 2014. For the results of operations, our discussion and analysis will present the more significant factors affecting the periods presented as follows:
the calendar year ended December 31, 2015 (“calendar 2015”) compared to the fiscal year ended September 30, 2014 (“fiscal 2014”);
the transition periods from October 1, 2014 through December 31, 2014 (the “transition period”) compared to the year earlier period October 1, 2013 through December 31, 2013 (the “2013 transition period”); and
fiscal 2014 compared to the Company reported net income totaling $25.3 million, whichfiscal year ended September 30, 2013 (“fiscal 2013”).
The HVB Merger, the Provident Merger, and the other acquisitions discussed in Note 2. “Acquisitions” in the notes to consolidated financial statements were accounted for as purchase transactions, and accordingly, their related results of operations are included from the date of acquisition. The discussion and analysis should be read in conjunction with the consolidated financial statements, notes to consolidated financial statements and other information contained in this report.
On June 30, 2015, we completed the HVB Merger. The HVB Merger was consistent with our strategy of expanding in the greater New York metropolitan region and beyond, and building a 27.0% increase over net income of $19.9 million in fiscal 2012. Results for fiscal 2013 were positively impacteddiversified company with significant commercial and consumer banking capabilities. We believe the HVB Merger created a larger, more efficient and more profitable bank by an increase in loancombining our differentiated team-based distribution channels with HVHC’s strong presence and deposit balances acquired from Gotham Bankbase in August 2012.Westchester County. We anticipate that the HVB Merger will allow us to accelerate organic loan growth, increase our ability to gather low cost core deposits and generate substantial cost savings and revenue enhancement opportunities.
The Company’s diluted earnings per share were $0.58 in fiscal 2013, which represented 11.5% growth over diluted earnings per share of $0.52 in fiscal 2012. In August 2012,We completed the Company issued 6.3 million common shares in connection with the acquisition of Gotham Bank which increased weighted average diluted shares outstanding from 38.2 million in fiscal 2012 to 43.8 million in fiscal 2013.
A substantial amount of the Company’s growth in fiscal 2013 was generated through our commercial banking teams. Comparing fiscal 2013 results relative to 2012, commercial real estate and commercial & industrial loans grew by $301.0 million to $1.7 billion, which represented a growth rate of 21.3%. We also experienced growth in our deposit balances. During fiscal 2013, non-interest bearing and interest bearing demand deposits grew by $80.1 million to $912 million, which represented growth of 9.6%.
The emphasisProvident Merger on growing our commercial banking activities and consolidation of our financial centers has allowed us to increase the variable component of our operating expense base and significantly improve our core operating efficiency. In fiscal 2013, core total revenues (which includes net interest income and non-interest income) grew at 11.5% while total core operating expenses declined 2.0%. The Company will continue to focus on generating revenue growth that outpaces the growth in expenses.
On October 31, 2013 we completed our acquisition of Legacy Sterling.2013. This acquisition iswas consistent with our strategy of expanding in the greater New York metropolitan region and focusing on commercial banking. We believe this merger will createthe Provident Merger created a larger, more efficient organizationprofitable company by combining Sterling’sLegacy Provident’s differentiated team-based distribution channels with Legacy Sterling’s diverse commercial and consumer lending product capabilities. We anticipate that theThe Provident Merger will allow us to accelerate loan growth, increase our ability to gather low cost core deposits and generate substantial cost savings and revenue enhancement opportunities. On a pro forma combined basis, Sterling Bancorp had total assets of $6.8 billion and total deposits of $5.2 billion as of September 30, 2013.
We believe the Merger will significantly diversifydiversified our business. Legacy Sterling was predominately a commercial & industrial lender, which will complementcomplemented our loan portfolio, which iswas substantially collateralized by real estate. Further, Legacy Sterling providesprovided us with a greater non-interest income revenue stream. On a combined basis, we anticipate approximately 20-25% of our total revenues will consist of non-interest income.streams.
Results of Operations
ComparisonWe reported net income of Financial Condition at September 30, 2013 and September 30, 2012
Total assets as of September 30, 2013 were $4.0 billion, an increase of $26.2$66.1 million, or $0.60 per diluted common share for calendar 2015, compared to September 30, 2012. The increase was a resultnet income of growth in$27.7 million, or $0.34 per diluted common share for fiscal 2014, and net loansincome of $292.8$25.3 million, and growth in investment securities of $55.1 million. These increases were substantially offset by a $324.9 million decline in the balance of cash and due from banks.
Net loans as of September 30, 2013 were $2.4 billion, an increase of $292.8 million, or 14.0%, over net loans of $2.1 billion at September 30, 2012. In fiscal 2013 we continued to focus on growing our commercial real estate and commercial & industrial loan portfolios. During the year, we increased commercial real estate loans $204.5 million, or 19.1%, and commercial & industrial loans $96.5 million, or 28.1%. The growth in commercial loan balances was offset by a decline in ADC loans, which decreased $41.6 million or 28.9% to $102.5 million compared to $144.1 million as of September 30, 2012. We expect to continue to reduce the outstanding balance of ADC loans$0.58 per diluted common share, in fiscal 2014. Residential mortgage loans2013. In connection with the HVB Merger, the Company issued 38.5 million common shares, which increased by $50.0weighted average diluted shares outstanding from 80.5 million, or 14.3% for fiscal 2014 to 110.3 million for calendar 2015. In connection with the Provident Merger, the Company issued 39.1 million common shares, which increased weighted average diluted shares outstanding from 43.8 million in fiscal 2013 driven by an increaseto 80.5 million in fiscal 2014.
We reported net income of $17.0 million, or $0.20 per diluted common share for the transition period, compared to a net loss of $14.0 million, or $0.20 per common share in the amount of adjustable rate mortgage loans retained2013 transition period. The net loss incurred in the Company’s held for investment portfolio. Management believes that the risk-adjusted return on these loans is more attractive than alternatives such as mortgage-backed securities and other investment securities. The allowance for loan losses increased from $28.3 million to $28.9 million as a result of provisions for loan losses of $12.2 million and net charge-offs of $11.6 million.
Total securities increased by $55.1 million, to $1.2 billion at September 30, 2013. Securities purchases were $659.5 million, sales of securities were $340.3 million, and maturities, calls, and repayments were $224.6 million.
Goodwill and other intangibles totaled $169.0 million at September 30, 2013 a decrease of $1.4 million compared to September 30, 2012. The decrease transition period was mainly the result of amortization of core deposit intangibles.merger-related expense and restructuring charges incurred in connection with the Provident Merger.
Depositsas The table below summarizes our results of September 30, 2013operations on a tax-equivalent basis. Tax equivalent adjustments are the result of increasing income from tax-free securities by an amount equal to the taxes that would be paid if the income were $2.96 billion,fully taxable based on a decrease of $148.9 million, or 4.8%, from September 30, 2012. Included35% federal tax rate, thus making tax-exempt yields comparable to taxable asset yields.
Dollar amounts in depositstables and the accompanying discussion that follows are stated in thousands, except for September 30, 2013 were $374.3 million in short-term seasonal municipal deposits compared to $424.6 million at September 30, 2012. The change in total deposits was driven by a decrease of $144.7 million in municipal deposits duringper share amounts and ratios.
Selected operating data, return on average assets, return on average common equity and dividends per common share for the year. The balance of municipalcomparable periods follow:
deposits typically reaches peak levels |
| | | | | | | | | | | | | | | | | | | |
| | Year ended | | Three months ended | | Fiscal year ended |
| | December 31, | | December 31, | | September 30, |
| | 2015 | | 2014 | | 2013 | | 2014 | | 2013 |
| Tax equivalent net interest income | $ | 317,719 |
| | $ | 61,783 |
| | $ | 47,040 |
| | $ | 223,616 |
| | $ | 115,227 |
|
| Less tax equivalent adjustment | (6,503 | ) | | (1,546 | ) | | (1,164 | ) | | (5,628 | ) | | (3,060 | ) |
| Net interest income | 311,216 |
| | 60,237 |
| | 45,876 |
| | 217,988 |
| | 112,167 |
|
| Provision for loan losses | 15,700 |
| | 3,000 |
| | 3,000 |
| | 19,100 |
| | 12,150 |
|
| Non-interest income | 62,751 |
| | 13,957 |
| | 9,148 |
| | 47,370 |
| | 27,692 |
|
| Non-interest expense | 260,318 |
| | 45,814 |
| | 72,974 |
| | 208,428 |
| | 91,041 |
|
| Income (loss) before income tax expense | 97,949 |
| | 25,380 |
| | (20,950 | ) | | 37,830 |
| | 36,668 |
|
| Income tax expense (benefit) | 31,835 |
| | 8,376 |
| | (6,948 | ) | | 10,152 |
| | 11,414 |
|
| Net income (loss) | $ | 66,114 |
| | $ | 17,004 |
| | $ | (14,002 | ) | | $ | 27,678 |
| | $ | 25,254 |
|
| | | | | | | | | | |
| Earnings per common share - basic | $ | 0.60 |
| | $ | 0.20 |
| | $ | (0.20 | ) | | $ | 0.34 |
| | $ | 0.58 |
|
| Earnings per common share - diluted | 0.60 |
| | 0.20 |
| | (0.20 | ) | | 0.34 |
| | 0.58 |
|
| Dividends per common share | 0.28 |
| | 0.07 |
| | — |
| | 0.21 |
| | 0.30 |
|
| Return on average assets | 0.69 | % | | 0.92 | % | | (0.92 | )% | | 0.41 | % | | 0.63 | % |
| Return on average equity | 4.9 |
| | 6.9 |
| | (7.1 | ) | | 3.1 |
| | 5.2 |
|
| Average equity to average assets | 14.17 |
| | 13.26 |
| | 13.00 |
| | 13.41 |
| | 12.82 |
|
Net Income (Loss)
For calendar 2015, net income was $66,114 compared to net income of $27,678 for fiscal 2014. Results for calendar 2015 include the impact of the HVB Merger since the effective date of June 30, 2015. In connection with the HVB Merger, the Damian Acquisition and the FCC Acquisition, we incurred merger-related expense of $17,079, charges for asset write-downs, retention and severance of $29,046, a charge to terminate our pension plan of $13,384 and amortization of non-compete agreements of $3,526. Excluding the impact of these items, net income was $105,398, and diluted earnings per share were $0.96 for calendar 2015. Please refer to Item 6. “Selected Financial Data” for a reconciliation of this non-GAAP financial measure.
For the transition period, net income was $17,004 compared to a net loss of $14,002 for the 2013 transition period. Results for the transition period reflected the continued execution of our strategy since the Provident Merger, as we have focused on growing total revenues through organic earning assets growth and increasing fee income, while maintaining strong controls over operating expenses. As the effective date of the Provident Merger was October 31, 2013, results for the 2013 transition period include Legacy Sterling only beginning on November 1, 2013. Results in the 2013 transition period were significantly impacted by merger-related expense of $9,068 and charges for asset write-downs, banking system conversion, retention and severance, the settlement of benefit plan obligations, and other charges of $22,167.
Net income increased $2,424 to $27,678 for fiscal 2014 compared to fiscal 2013. Results in fiscal 2014 were positively impacted by the Provident Merger and organic growth generated through our commercial banking teams. This resulted in a $108,389 increase in tax equivalent net interest income and a $19,678 increase in non-interest income between the monthsperiods. Results in fiscal 2014 were also impacted by merger-related expense associated with the Provident Merger, and charges for asset write-downs, banking systems conversion, retention and severance, the settlement of Septemberbenefit plan obligations, and December. The Company continuedother charges, which totaled $45,630. These charges were partially offset by gain on sale of a financial center and redemption of trust preferred securities, which totaled $1,637. Excluding the impact of these items, net income was $57,842, and diluted earnings per share were $0.72 in fiscal 2014. Please refer to focus on decreasingItem 6. “Selected Financial Data” for a reconciliation of this non-GAAP financial measure.
Details of the balancechanges in the various components of higher cost certificates of deposit. In fiscal 2013, certificates of deposit decreased $119.4 million or 30.8% to $268.1 million. Excluding municipal deposits and certificates of deposits the total balance of deposits increased from $1.83 billion at September 30, 2012 to $1.95 billion at September 30, 2013, which represented growth of 6.6%.net income are further discussed below.
BorrowingsNet Interest Income increased by $215.8 million, or 62.5%, from September 30, 2012, to $561.0 million. Included inis the the difference between interest income on earning assets, such as loans and securities, and interest expense on liabilities, such as deposits and borrowings, at September 30, 2013 is $100 million of Senior Notes issued in connection with the Merger. The remaining increase in borrowings of $115.8 million was driven by incremental borrowings from the Federal Home Loan Bank of New York that werewhich are used mainly to fund loan growth.
Stockholders’ equity decreased $8.3 million from September 30, 2012 to $482.9 million at September 30, 2013. The decrease was primarily due to a $26.5 million decline, netthose assets. Net interest income is our largest source of tax,revenue, representing 83.2% and 82.1% of total revenue in calendar 2015 and fiscal 2014, respectively. Net interest margin is the fair value of available for sale securities. As interest rates increased during the year, the value of our available for sale securities declined. Offsetting this decline was an increase of $12.0 million in retained earnings, which consisted of net income of $25.3 million and dividends declared of $13.3 million. During fiscal ratio2013, the Company did not repurchase shares of common stock under the treasury repurchase program.
As of September 30, 2013 the Company had authorization to purchase up to an additional 776,713 shares of common stock. The Bank’s Tier 1 leverage ratio was 9.33% and consolidated tangible equity as a percentage of tangible assets was 8.09%.
Credit Quality
Non-performing loans (“NPLs”) decreased $12.9 million, or 32.4%, to $26.9 million at September 30, 2013 compared to $39.8 million at September 30, 2012. During the fiscal year ended September 30, 2013, we continued to focus on the resolution of non-performing ADC loans. As a result of these efforts, we reduced non-performing ADC loans by $10.0 million and reduced our non-performing residential mortgage loans by $2.0 million, mainly by foreclosing on properties. We also reduced non-performing CRE loans by $1.7 million. There were small offsetting increases in NPLs of $310 thousand in HELOC loans, $2 thousand in consumer loans and $445 thousand in C&I loans.
The allowance for loan losses increased from $28.3 million to $28.9 million as the provisions exceeded net charge-offs by $595 thousand. The allowance for loan losses at September 30, 2013 was $28.9 million, which represented 107.3% of non-performing loans and 1.20% of the total loan portfolio. Net charge-offs for the year ended September 30, 2013 were $11.6 million, or 0.52% of average loans, compared to net charge-offs of $10.2 million, or 0.56% of average loans for the prior year. The decrease in net charge-offs as a percentage of average loans was mostly due to improved performance in our commercial & industrial loans and ADC loans.
Our classified loans, those rated substandard or worse, declined from $88.7 million at September 30, 2012 to $61.1 million at September 30, 2013 primarily due to $40.6 million in loans that were upgraded in risk rating or the repayment of loans contained in this category. Also contributing to the decline were $9.6 million in net charge-offs and transfers to other real estate owned. Partially offsetting these declines were new loans risk rated substandard of $23.1 million. Special mention loans decreased from $42.4 million at September 30, 2012 to $13.5 million at September 30, 2013. This decline was primarily the result of $38.1 million in loans that were upgraded in risk rating or repayment of loans contained in this category. There were $300 thousand in net charge-offs from this category. Partially offsetting these declines was new loans risk rated special mention and loans that were upgraded from substandard of $9.5 million.
Average Balancesof taxable equivalent net interest income to average interest-earning assets for the period. The level of interest rates and the volume and mix of earning assets and interest bearing liabilities impact net interest income and net interest margin.
We are primarily funded by core deposits, and non-interest bearing demand deposits represent a significant portion of our funding. Our low cost funding base has had a positive impact on our net interest income and net interest margin; we expect this positive impact would be more significant in a rising interest rate environment.
The following table sets forth average balance sheets, average yields and costs, and certain other information for the yearsperiods indicated. Tax exempt securities are reported on a tax-equivalent basis, using a 35% federal tax rate. All average balances are daily average balances. Non-accrual loans were included in the computation of average balances, but have been reflected in the table as loans carrying a zero yield. The yields set forth below include the effect of deferred fees, discounts and premiums that are amortized or accreted to interest income or expense.
| | | | For the year ended September 30, | | | | | | | | | | | | | | | | | | | |
| | 2013 | | 2012 | | 2011 | For the year ended | | For the fiscal years ended September 30, |
| | Average balance | | Interest | | Yield/Rate | | Average
balance | | Interest | | Yield/Rate | | Average
balance | | Interest | | Yield/Rate | December 31, 2015 | | 2014 | | 2013 |
| | (Dollars in thousands) | Average balance | | Interest | | Yield/Rate | | Average
balance | | Interest | | Yield/Rate | | Average
balance | | Interest | | Yield/Rate |
| Interest earning assets: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Loans (1) | $ | 2,216,871 |
| | $ | 107,810 |
| | 4.86 | % | | $ | 1,806,136 |
| | $ | 91,010 |
| | 5.04 | % | | $ | 1,665,360 |
| | $ | 89,500 |
| | 5.37 | % | $ | 6,261,470 |
| | $ | 292,496 |
| | 4.67 | % | | $ | 4,120,749 |
| | $ | 202,982 |
| | 4.93 | % | | $ | 2,216,871 |
| | $ | 107,810 |
| | 4.86 | % |
| Securities taxable | 948,884 |
| | 17,509 |
| | 1.85 |
| | 778,994 |
| | 16,537 |
| | 2.12 |
| | 695,961 |
| | 14,493 |
| | 2.08 |
| 1,742,907 |
| | 39,369 |
| | 2.26 | % | | 1,371,703 |
| | 30,067 |
| | 2.19 | % | | 948,884 |
| | 17,509 |
| | 1.85 | % |
| Securities-tax exempt | 174,386 |
| | 8,742 |
| | 5.01 |
| | 188,520 |
| | 9,996 |
| | 5.30 |
| | 213,450 |
| | 11,448 |
| | 5.36 |
| |
| Federal Reserve Bank | 59,375 |
| | 193 |
| | 0.33 |
| | 51,351 |
| | 127 |
| | 0.25 |
| | 14,044 |
| | 32 |
| | 0.23 |
| |
| Other | 23,905 |
| | 867 |
| | 3.63 |
| | 18,901 |
| | 865 |
| | 4.58 |
| | 20,933 |
| | 1,148 |
| | 5.48 |
| |
| Total interest-earnings assets | 3,423,421 |
| | 135,121 |
| | 3.95 |
| | 2,843,902 |
| | 118,535 |
| | 4.17 |
| | 2,609,748 |
| | 116,621 |
| | 4.47 |
| |
| Securities tax exempt | | 413,149 |
| | 18,578 |
| | 4.50 | % | | 321,185 |
| | 16,081 |
| | 5.01 | % | | 174,386 |
| | 8,742 |
| | 5.01 | % |
| Interest earning deposits | | 152,116 |
| | 297 |
| | 0.20 | % | | 109,626 |
| | 292 |
| | 0.27 | % | | 59,375 |
| | 193 |
| | 0.33 | % |
| FRB and FHLB Stock | | 80,675 |
| | 3,903 |
| | 4.84 | % | | 56,104 |
| | 3,112 |
| | 5.55 | % | | 23,905 |
| | 867 |
| | 3.63 | % |
| Total interest earnings assets | | 8,650,317 |
| | 354,643 |
| | 4.10 | % | | 5,979,367 |
| | 252,534 |
| | 4.22 | % | | 3,423,421 |
| | 135,121 |
| | 3.95 | % |
| Non-interest earning assets | 392,188 |
| | | | | | 351,397 |
| | | | | | 339,503 |
| | | | | 953,939 |
| | | | | | 777,727 |
| | | | | | 392,188 |
| | | | |
| Total assets | $ | 3,815,609 |
| | | | | | $ | 3,195,299 |
| | | | | | $ | 2,949,251 |
| | | | | $ | 9,604,256 |
| | | | | | $ | 6,757,094 |
| | | | | | $ | 3,815,609 |
| | | | |
| Interest bearing liabilities: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| NOW deposits | $ | 466,110 |
| | $ | 391 |
| | 0.08 | % | | $ | 399,819 |
| | $ | 483 |
| | 0.12 | % | | $ | 315,623 |
| | $ | 595 |
| | 0.19 | % | |
| Demand deposits | | $ | 1,128,667 |
| | $ | 2,159 |
| | 0.19 | % | | $ | 706,160 |
| | $ | 571 |
| | 0.08 | % | | $ | 466,110 |
| | $ | 391 |
| | 0.08 | % |
Savings deposits (2) | 572,246 |
| | 973 |
| | 0.17 |
| | 485,624 |
| | 393 |
| | 0.08 |
| | 432,227 |
| | 444 |
| | 0.10 |
| 871,339 |
| | 2,315 |
| | 0.27 | % | | 622,414 |
| | 876 |
| | 0.14 | % | | 572,246 |
| | 973 |
| | 0.17 | % |
| Money market deposits | 819,442 |
| | 2,436 |
| | 0.30 |
| | 671,325 |
| | 2,194 |
| | 0.33 |
| | 489,347 |
| | 1,595 |
| | 0.33 |
| 2,286,376 |
| | 9,845 |
| | 0.43 | % | | 1,458,852 |
| | 5,096 |
| | 0.35 | % | | 819,442 |
| | 2,436 |
| | 0.30 | % |
| Certificates of deposit | 352,469 |
| | 2,123 |
| | 0.60 |
| | 289,230 |
| | 2,511 |
| | 0.87 |
| | 373,142 |
| | 3,470 |
| | 0.93 |
| 520,139 |
| | 3,158 |
| | 0.61 | % | | 554,396 |
| | 2,421 |
| | 0.44 | % | | 352,469 |
| | 2,123 |
| | 0.60 | % |
| Senior notes | 24,478 |
| | 1,431 |
| | 5.85 |
| | 19,136 |
| | 753 |
| | 3.93 |
| | 51,498 |
| | 2,017 |
| | 3.92 |
| 98,679 |
| | 5,894 |
| | 5.97 | % | | 98,202 |
| | 5,872 |
| | 5.98 | % | | 24,478 |
| | 1,431 |
| | 5.85 | % |
| Borrowings | 422,438 |
| | 12,540 |
| | 2.97 |
| | 337,160 |
| | 12,239 |
| | 3.65 |
| | 371,318 |
| | 13,203 |
| | 3.56 |
| |
| Total interest-bearing liabilities | 2,657,183 |
| | 19,894 |
| | 0.75 |
| | 2,202,294 |
| | 18,573 |
| | 0.84 |
| | 2,033,155 |
| | 21,324 |
| | 1.05 |
| |
| Other borrowings | | 888,843 |
| | 13,553 |
| | 1.52 | % | | 716,207 |
| | 14,082 |
| | 1.97 | % | | 422,438 |
| | 12,540 |
| | 2.97 | % |
| Total interest bearing liabilities | | 5,794,043 |
| | 36,924 |
| | 0.64 | % | | 4,156,231 |
| | 28,918 |
| | 0.70 | % | | 2,657,183 |
| | 19,894 |
| | 0.75 | % |
| Non-interest bearing deposits | 646,373 |
| | | | | | 520,265 |
| | | | | | 472,388 |
| | | | | 2,332,814 |
| | | | | | 1,580,108 |
| | | | | | 646,373 |
| | | | |
| Other non-interest bearing liabilities | 22,641 |
| | | | | | 25,675 |
| | | | | | 16,418 |
| | | | | 116,540 |
| | | | | | 114,621 |
| | | | | | 22,641 |
| | | | |
| Total liabilities | 3,326,197 |
| | | | | | 2,748,234 |
| | | | | | 2,521,961 |
| | | | | 8,243,397 |
| | | | | | 5,850,960 |
| | | | | | 3,326,197 |
| | | | |
| Stockholders’ equity | 489,412 |
| | | | | | 447,065 |
| | | | | | 427,290 |
| | | | | 1,360,859 |
| | | | | | 906,134 |
| | | | | | 489,412 |
| | | | |
| Total liabilities and Stockholders’ equity | $ | 3,815,609 |
| | | | | | $ | 3,195,299 |
| | | | | | $ | 2,949,251 |
| | | | | |
| Total liabilities and stockholders’ equity | | $ | 9,604,256 |
| | | | | | $ | 6,757,094 |
| | | | | | $ | 3,815,609 |
| | | | |
Net interest rate spread (3) | | | | | 3.20 | % | | | | | | 3.33 | % | | | | | | 3.42 | % | | | | | 3.46 | % | | | | | | 3.52 | % | | | | | | 3.20 | % |
Net interest-earning assets (4) | $ | 766,238 |
| | | | | | $ | 641,608 |
| | | | | | $ | 576,593 |
| | | | | |
Net interest margin (5) | | | 115,227 |
| | 3.37 | % | | | | 99,962 |
| | 3.51 | % | | | | 95,297 |
| | 3.65 | % | |
Net interest earning assets (4) | | $ | 2,856,274 |
| | | | | | $ | 1,823,136 |
| | | | | | $ | 766,238 |
| | | | |
| Net interest margin | | | | 317,719 |
| | 3.67 | % | | | | 223,616 |
| | 3.74 | % | | | | 115,227 |
| | 3.37 | % |
| Less tax equivalent adjustment | | | (3,060 | ) | | | | | | (3,498 | ) | | | | | | (4,007 | ) | | | | | (6,503 | ) | | | | | | (5,628 | ) | | | | | | (3,060 | ) | | |
| Net interest income | | | $ | 112,167 |
| | | | | | $ | 96,464 |
| | | | | | $ | 91,290 |
| | | | | $ | 311,216 |
| | | | | | $ | 217,988 |
| | | | | | $ | 112,167 |
| | |
| Ratio of interest-earning assets to interest bearing liabilities | | | 128.8 | % | | | | | | 129.1 | % | |
| | | | 128.4 | % | | | |
| Ratio of interest earning assets to interest bearing liabilities | | | | 149.3 | % | | | | | | 143.9 | % | | | | | | 128.8 | % | | |
_________________________
See legend on the following page.
|
| | | | | | | | | | | | | | | | | | | | | |
| | For the three months ended December 31, |
| | 2014 | | 2013 |
| | Average balance | | Interest | | Yield/Rate | | Average
balance | | Interest | | Yield/Rate |
| Interest earning assets: | | | | | | | | | | | |
Loans (1) | $ | 4,756,015 |
| | $ | 56,868 |
| | 4.74 | % | | $ | 3,516,129 |
| | $ | 43,288 |
| | 4.88 | % |
| Securities taxable | 1,355,104 |
| | 7,417 |
| | 2.17 | % | | 1,330,646 |
| | 6,903 |
| | 2.06 | % |
| Securities tax exempt | 366,017 |
| | 4,408 |
| | 4.78 | % | | 250,520 |
| | 3,325 |
| | 5.27 | % |
| Interest earning deposits | 86,415 |
| | 41 |
| | 0.19 | % | | 75,076 |
| | 69 |
| | 0.36 | % |
| FRB and FHLB Stock | 65,564 |
| | 899 |
| | 5.44 | % | | 35,065 |
| | 290 |
| | 3.28 | % |
| Total interest earning assets | 6,629,115 |
| | 69,633 |
| | 4.17 | % | | 5,207,436 |
| | 53,875 |
| | 4.10 | % |
| Non-interest earning assets | 711,217 |
| | | | | | 806,380 |
| | | | |
| Total assets | $ | 7,340,332 |
| | | | | | $ | 6,013,816 |
| | | | |
| Interest bearing liabilities: | | | | | | | | | | | |
| Demand deposits | $ | 756,217 |
| | $ | 163 |
| | 0.09 | % | | $ | 619,746 |
| | $ | 98 |
| | 0.06 | % |
Savings deposits (2) | 685,142 |
| | 423 |
| | 0.24 | % | | 622,530 |
| | 258 |
| | 0.16 | % |
| Money market deposits | 1,817,091 |
| | 1,605 |
| | 0.35 | % | | 1,182,858 |
| | 914 |
| | 0.31 | % |
| Certificates of deposit | 457,996 |
| | 627 |
| | 0.54 | % | | 565,462 |
| | 564 |
| | 0.40 | % |
| Senior notes | 98,435 |
| | 1,471 |
| | 5.98 | % | | 98,064 |
| | 1,465 |
| | 5.93 | % |
| Other borrowings | 803,864 |
| | 3,561 |
| | 1.76 | % | | 611,061 |
| | 3,536 |
| | 2.30 | % |
| Total interest bearing liabilities | 4,618,745 |
| | 7,850 |
| | 0.67 | % | | 3,699,721 |
| | 6,835 |
| | 0.73 | % |
| Non-interest bearing deposits | 1,626,341 |
| | | | | | 1,361,622 |
| | | | |
| Other non-interest bearing liabilities | 122,157 |
| | | | | | 172,232 |
| | | | |
| Total liabilities | 6,367,243 |
| | | | | | 5,233,575 |
| | | | |
| Stockholders’ equity | 973,089 |
| | | | | | 780,241 |
| | | | |
| Total liabilities and stockholders’ equity | $ | 7,340,332 |
| | | | | | $ | 6,013,816 |
| | | | |
Net interest rate spread (3) | | | | | 3.50 | % | | | | | | 3.37 | % |
Net interest earning assets (4) | $ | 2,010,370 |
| | | | | | $ | 1,507,715 |
| | | | |
| Net interest margin | | | 61,783 |
| | 3.70 | % | | | | 47,040 |
| | 3.58 | % |
| Less tax equivalent adjustment | | | (1,546 | ) | | | | | | (1,164 | ) | | |
| Net interest income | | | $ | 60,237 |
| | | | | | $ | 45,876 |
| | |
| Ratio of interest earning assets to interest bearing liabilities | | | 143.5 | % | | | | | | 140.8 | % | | |
| |
| (1) | Includes the effect of net deferred loan origination fees and costs, allowance for loan losses, and non-accrual loans. Includesaccretion of net purchase accounting adjustments, prepayment fees and late charges.charges and non-accrual loans. |
| |
| (2) | Includes club accounts and interest-bearinginterest bearing mortgage escrow balances. |
| |
| (3) | Net interest rate spread represents the difference between the tax equivalent yield on average interest-earninginterest earning assets and the cost of average interest-bearinginterest bearing liabilities. |
| |
| (4) | Net interest-earninginterest earning assets represents total interest-earninginterest earning assets less total interest-bearinginterest bearing liabilities. |
| |
(5) | Net interest margin represents net interest income (tax equivalent) divided by average total interest-earning assets. |
Net interest income is the difference between interest income on interest-earning assets and interest expense on interest-bearing liabilities. Net interest income depends on the relative amounts of interest-earning assets and interest-bearing liabilities and the interest rates earned or paid on them, respectively.
The following table presents the dollar amount of changes in interest income (on a fully tax-equivalenttax equivalent basis) and interest expense for the major categories of our interest-earninginterest earning assets and interest-bearinginterest bearing liabilities. Information is provided for each category of interest-earninginterest earning assets and interest-bearinginterest bearing liabilities with respect to (i) changes attributable to changes in volume (i.e.,, changes in average balances multiplied by the prior-periodprior period average rate); and (ii) changes attributable to rate (i.e.(i.e., changes in average rate multiplied by prior-periodprior period average balances). For purposes of this table, changes attributable to both rate and volume, which cannot be segregated, have been allocated proportionately to the change due to volume and the change due to rate.
|
| | | | | | | | | | | | | | | | | | | | | | | |
| | 2013 vs. 2012 | | 2012 vs. 2011 |
| | Increase (Decrease) due to | | Total increase | | Increase (Decrease)
due to | | Total increase |
| | Volume | | Rate | | (decrease) | | Volume | | Rate | | (decrease) |
| | (Dollars in thousands) |
| Interest-earning assets: | | | | | | | | | | | |
| Loans | $ | 20,489 |
| | $ | (3,689 | ) | | $ | 16,800 |
| | $ | 7,367 |
| | $ | (5,857 | ) | | $ | 1,510 |
|
| Securities taxable | 3,269 |
| | (2,297 | ) | | 972 |
| | 1,761 |
| | 283 |
| | 2,044 |
|
| Securities tax exempt | (725 | ) | | (529 | ) | | (1,254 | ) | | (1,325 | ) | | (127 | ) | | (1,452 | ) |
| Federal Reserve Bank | 22 |
| | 44 |
| | 66 |
| | 92 |
| | 3 |
| | 95 |
|
| Other earning assets | 180 |
| | (178 | ) | | 2 |
| | (90 | ) | | (193 | ) | | (283 | ) |
| Total interest-earning assets | 23,235 |
| | (6,649 | ) | | 16,586 |
| | 7,805 |
| | (5,891 | ) | | 1,914 |
|
| Interest-bearing liabilities: | | | | | | | | | | | |
| NOW deposits | 76 |
| | (168 | ) | | (92 | ) | | 139 |
| | (251 | ) | | (112 | ) |
| Savings deposits | 79 |
| | 501 |
| | 580 |
| | 46 |
| | (97 | ) | | (51 | ) |
| Money market deposits | 456 |
| | (214 | ) | | 242 |
| | 599 |
| | — |
| | 599 |
|
| Certificates of deposit | 485 |
| | (873 | ) | | (388 | ) | | (745 | ) | | (214 | ) | | (959 | ) |
| Senior notes | 247 |
| | 431 |
| | 678 |
| | (1,269 | ) | | 5 |
| | (1,264 | ) |
| Borrowings | 2,764 |
| | (2,463 | ) | | 301 |
| | (1,223 | ) | | 259 |
| | (964 | ) |
| Total interest-bearing liabilities | 4,107 |
| | (2,786 | ) | | 1,321 |
| | (2,453 | ) | | (298 | ) | | (2,751 | ) |
| Less tax equivalent adjustment | (245 | ) | | (193 | ) | | (438 | ) | | (466 | ) | | (43 | ) | | (509 | ) |
| Change in net interest income | $ | 19,373 |
| | $ | (3,670 | ) | | $ | 15,703 |
| | $ | 10,724 |
| | $ | (5,550 | ) | | $ | 5,174 |
|
Comparison of Operating Results for the Years Ended September 30, 2013 and September 30, 2012
Net income for the year ended September 30, 2013 was $25.3 million or $0.58 per diluted share. This compares to net income of $19.9 million, or $0.52 per diluted share for the year ended September 30, 2012.
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | For the year ended December 31, 2015 vs. | | For the three months ended December 31, | | For the fiscal year ended September 30, |
| | the fiscal year ended September 30, 2014 | | 2014 vs. 2013 | | 2014 vs. 2013 |
| | Increase (Decrease) due to | | Total increase | | Increase (Decrease)
due to | | Total
increase | | Increase (Decrease)
due to | | Total increase |
| | Volume | | Rate | | (decrease) | | Volume | | Rate | | (decrease) | | Volume | | Rate | | (decrease) |
| Interest earning assets: | | | | | | | | | | | | | | | | | |
| Loans | $ | 101,940 |
| | $ | (12,426 | ) | | $ | 89,514 |
| | $ | 15,017 |
| | $ | (1,437 | ) | | $ | 13,580 |
| | $ | 95,915 |
| | $ | (743 | ) | | $ | 95,172 |
|
| Securities taxable | 8,320 |
| | 982 |
| | 9,302 |
| | 132 |
| | 382 |
| | 514 |
| | 8,891 |
| | 3,667 |
| | 12,558 |
|
| Securities tax exempt | 4,259 |
| | (1,762 | ) | | 2,497 |
| | 1,412 |
| | (329 | ) | | 1,083 |
| | 7,339 |
| | — |
| | 7,339 |
|
| Interest earning deposits | 95 |
| | (90 | ) | | 5 |
| | 9 |
| | (37 | ) | | (28 | ) | | 141 |
| | (42 | ) | | 99 |
|
| FRB and FHLB Stock | 1,229 |
| | (438 | ) | | 791 |
| | 347 |
| | 262 |
| | 609 |
| | 1,612 |
| | 633 |
| | 2,245 |
|
| Total interest earning assets | 115,843 |
| | (13,734 | ) | | 102,109 |
| | 16,917 |
| | (1,159 | ) | | 15,758 |
| | 113,898 |
| | 3,515 |
| | 117,413 |
|
| Interest bearing liabilities: | | | | | | | | | | | | | | | | | |
| Demand deposits | 481 |
| | 1,107 |
| | 1,588 |
| | 20 |
| | 45 |
| | 65 |
| | 180 |
| | — |
| | 180 |
|
| Savings deposits | 433 |
| | 1,006 |
| | 1,439 |
| | 28 |
| | 137 |
| | 165 |
| | 82 |
| | (179 | ) | | (97 | ) |
| Money market deposits | 3,385 |
| | 1,364 |
| | 4,749 |
| | 557 |
| | 134 |
| | 691 |
| | 2,192 |
| | 468 |
| | 2,660 |
|
| Certificates of deposit | (158 | ) | | 895 |
| | 737 |
| | (117 | ) | | 180 |
| | 63 |
| | 973 |
| | (675 | ) | | 298 |
|
| Senior notes | 31 |
| | (9 | ) | | 22 |
| | 2 |
| | 4 |
| | 6 |
| | 3,378 |
| | (408 | ) | | 2,970 |
|
| Other borrowings | 3,038 |
| | (3,567 | ) | | (529 | ) | | 1,206 |
| | (1,181 | ) | | 25 |
| | 6,508 |
| | (3,495 | ) | | 3,013 |
|
| Total interest bearing liabilities | 7,210 |
| | 796 |
| | 8,006 |
| | 1,696 |
| | (681 | ) | | 1,015 |
| | 13,313 |
| | (4,289 | ) | | 9,024 |
|
| Less tax equivalent adjustment | 1,494 |
| | (619 | ) | | 875 |
| | 490 |
| | (108 | ) | | 382 |
| | 2,568 |
| | — |
| | 2,568 |
|
| Change in net interest income | $ | 107,139 |
| | $ | (13,911 | ) | | $ | 93,228 |
| | $ | 14,731 |
| | $ | (370 | ) | | $ | 14,361 |
| | $ | 98,017 |
| | $ | 7,804 |
| | $ | 105,821 |
|
Interest Income. Tax equivalent interest income for the year ended September 30, 2013 increased to $135.1 million, an increase of $16.6 million, or 14.0%, compared to the prior year. Average interest-earning assets for the year ended September 30, 2013 were $3.4 billion, an increase of $579.5 million, or 20.4%, over average interest-earning assets for the year ended September 30, 2012.
Interest income on loans increased $16.8 million in fiscal 2013
Year ended December 31, 2015 compared to the prior year.fiscal year ended September 30, 2014
Tax equivalent net interest income increased $94,103 to $317,719 for calendar 2015 compared to $223,616 for fiscal 2014. The increase was due tothe result of an increase in average balances due to the HVB Merger and organic loan balancesgrowth from our commercial banking teams. The average volume of $410.7 millioninterest earning assets increased $2,670,950, or 44.7%, for calendar 2015 relative to $2.2 billion, which increasedfiscal 2014. The tax equivalent net interest income by $20.5 million. This was partially offset by an 18margin decreased 7 basis points to 3.67% for calendar 2015 from 3.74% in fiscal 2014. The decrease in the net interest margin was mainly due to a decline in the yield on loans to 4.86% in fiscal 2013 as a result of the continuing low interest rate environment. Interest earning assets yielded 4.10% for calendar 2015 compared to 5.04%4.22% for fiscal 2014 and the cost of interest bearing liabilities was 0.64% in the year ended December 31, 2015 compared to 0.70% for fiscal 2012 which reduced interest income on2014.
The average balance of loans by $3.7 million. Theoutstanding increased $2,140,721 in calendar 2015 compared to fiscal 2014. Approximately $900,000 of the growth in loans represents an increase in loan volume was due toassociated with the success ofHVB Merger and approximately $1,240,721 represents organic growth generated mainly by our commercial banking teamsteams. Loans accounted for 72.4% of average interest earning assets in calendar 2015 compared to 68.9% in fiscal 2014. The average yield on loans was 4.67% in calendar 2015 compared to 4.93% in fiscal 2014. Included in yield on loans is the accretion of purchase accounting discounts from our prior acquisitions. Accretion on loans was $14,880 for calendar 2015 and our successful retention of Gotham Bank interest-earning assets;contributed 24 basis points to the decline in loan yields reflects mainlyyield on loans. Accretion on loans was $8,870 for fiscal 2014 and contributed 22 basis points to the repayment of loans booked in prior periods that were replaced with loans at current market rates of interest.yield on loans. At December 31, 2015, remaining purchase accounting discounts totaled $41,383.
Tax equivalent interest income on securities increased $971 thousand. A $155.6 million$11,799 to $57,947 in calendar 2015 compared to $46,148 for fiscal 2014. This was mainly the result of an increase of $463,168 in the average balance of securities. In connection with the HVB Merger, we acquired $713,842 of securities on June 30, 2015, which on average contributed $356,921 of the increase for calendar 2015. The tax equivalent yield on securities was 2.69% in calendar 2015 compared to 2.73% in fiscal 2014. The decrease in tax equivalent yield on securities in calendar 2015 was mainly the result of the cash flows from existing securities being reinvested at lower interest rates due to the low interest rate environment. The proportion of tax exempt securities was 19.2% of average securities in calendar 2015 compared to 19.0% in fiscal 2014. We expect to further increase the percentage of tax exempt securities to average securities in 2016.
Average deposits increased $2,217,405 in calendar 2015 and were $7,139,335 compared to $4,921,930 for fiscal 2014. Average interest bearing deposits increased $1,464,699 in calendar 2015 compared to fiscal 2014. Average non-interest bearing deposits increased $752,706 and were $2,332,814 for calendar 2015 compared to $1,580,108 for fiscal 2014. The growth in average deposits was due to the HVB Merger and organic growth mainly generated by our commercial banking teams. The average cost of interest bearing deposits was 0.36% in calendar 2015 compared to 0.27% in fiscal 2014.
Average borrowings increased $173,113 to $987,522 in calendar 2015 compared to $814,409 in fiscal 2014. The increase in average borrowings in calendar 2015 was mainly utilized to fund growth in loans and other earning assets. The average cost of borrowings was 1.97% for calendar 2015 compared to 2.45% in fiscal 2014. The decline in the average cost of borrowings between the periods was mainly due to an increase in short-term FHLB borrowings as a percentage of total average borrowings.
Three months ended December 31, 2014 compared to three months ended December 31, 2013
Tax equivalent net interest income increased $14,743 to $61,783 for the transition period compared to $47,040 for the 2013 transition period. The increase was the result of an increase in average balances due to the Provident Merger and organic growth generated by our commercial banking teams. The average volume of interest earning assets increased $1,421,679, or 27.3%, for the transition period relative to the 2013 transition period as a full three months of Legacy Sterling operations was included in the transition period vs. only two months in the 2013 transition period. The tax equivalent net interest margin increased 12 basis points to 3.70% for the quarter from 3.58% in the 2013 transition period. The increase in net interest margin was due to an increase in the yield on interest earning assets, which was 4.17% in the transition period compared to 4.10% in the 2013 transition period, and a decrease in the cost of interest bearing liabilities to 0.67% for the transition period compared to 0.73% for 2013 transition period.
The average balance of loans outstanding increased $1,239,886 in the transition period compared to 2013 transition period. Approximately $550,000 of the growth in loans was due to the Provident Merger and approximately $690,000 represented organic growth generated by our commercial banking teams. Loans accounted for 71.7% of average interest earning assets in the transition period compared to 67.5% in the 2013 transition period. The average yield on loans was 4.74% in the transition period compared to 4.88% in the 2013 transition period.
Tax equivalent interest income on securities increased $1,597, to $11,825 in the transition period compared to $10,228 for the 2013 transition period. This was mainly the result of an increase of approximately $139,955 in the average balance of securities. In connection with the Provident Merger, we acquired $607,911 of securities on October 31, 2013, a portion of which were sold after the closing date as these securities did not meet our investment portfolio strategy and guidelines. The tax equivalent yield on securities was 2.73% in the transition period compared to 2.57% in the 2013 transition period. The higher tax equivalent yield on securities in the
transition period was mainly due to the proportion of tax exempt securities which comprised 21.3% of average securities in the transition period compared to 15.8% in the 2013 transition period.
Average deposits increased $990,569 in the transition period and were $5,342,787 compared to $4,352,218 for the 2013 transition period. Average interest bearing deposits increased $725,850 in the transition period compared to the 2013 transition period. The increase was mainly due to the timing of the Provident Merger in the 2013 transition period and organic growth generated by our commercial banking teams. Average non-interest bearing deposits increased $264,719 and were $1,626,341 for the transition period compared to $1,361,622 for the 2013 transition period. The average cost of interest bearing deposits was 0.30% in the transition period compared to 0.24% in the 2013 transition period.
Average borrowings increased $193,174 to $902,299 in the transition period compared to $709,125 in the 2013 transition period. The increase in average borrowings was mainly utilized to fund loan growth. The average cost of borrowings was 2.21% for the transition period compared to 2.80% in the 2013 transition period. The decline in the average cost of borrowings between the periods was mainly due to an increase in short-term FHLB borrowings as a percentage of total average borrowings.
Fiscal year ended September 30, 2014 compared to fiscal year ended September 30, 2013
Tax equivalent net interest income increased $108,389 to $223,616 for fiscal 2014 compared to $115,227 for fiscal 2013. The increase was the result of an increase in average balances due to the Provident Merger and organic loan growth generated by our commercial banking teams. The average balance of interest earning assets increased $2,555,946, or 74.7%, in fiscal 2014 in relation to fiscal 2013. Tax equivalent net interest margin increased 37 basis points to 3.74% in fiscal 2014 from 3.37% in fiscal 2013. The increase in net interest margin was mainly due to an increase in the yield on interest earning assets, which was 4.22% in fiscal 2014 compared to 3.95% in fiscal 2013. The increase was principally the result of higher yielding loans acquired in the Provident Merger and a rebalancing of earning assets from investment securities to higher yielding loans. For fiscal 2014, our securities to earning assets ratio was 28.3% versus 32.8% in fiscal 2013.
The average balance of loans outstanding increased $1,903,878, or 85.9% in fiscal 2014 compared to fiscal 2013. In connection with the Provident Merger, we acquired $1,698,108 of loans on October 31, 2013; we also increased average loans outstanding during the year through organic growth. Loans accounted for 68.9% of average interest earning assets in fiscal 2014 compared to 64.8% in fiscal 2013. The average yield on loans was 4.93% in fiscal 2014 compared to 4.86% in fiscal 2013.
Tax equivalent interest income on securities increased $19,897, or 75.8% in fiscal 2014 over fiscal 2013, which was mainly the result of an increase of $569,618, or 50.7% in the average balance of securities. In connection with the Provident Merger, we acquired $607,911 of securities on October 31, 2013. The tax equivalent yield on securities was 2.73% in fiscal 2014 compared to 2.34% in fiscal 2013. The increase in tax equivalent yield in fiscal 2014 was mainly due to the proportion of tax exempt securities, which comprised 19.0% of average securities in fiscal 2014 compared to 15.5% in fiscal 2013, and a rebalancing of the securities portfolio due to the Provident Merger, which increased the yield on taxable securities in fiscal 2014 to 2.19% compared to 1.85% in fiscal 2013.
Average deposits increased $2,065,290, or 72.3%, in fiscal 2014 and were $4,921,930 compared to $2,856,640 in fiscal 2013. The increase in the average balance of securities contributed $3.3 milliondeposits was mainly due to the Provident Merger, as we assumed $2,297,190 in deposits on October 31, 2013. Average interest bearing deposits increased $1,131,555, or 51.2%, in fiscal 2014. Average non-interest bearing deposits increased $933,735 and were $1,580,108 in fiscal 2014 compared to $646,373 in fiscal 2013. The average cost of additional interest income. A declinebearing deposits was 0.27% in fiscal 2014 and 2013. The cost of deposits reflects the yield on securities of 40 basis points to 2.34% reducedcurrent low interest income from securities by $2.3 million.rate environment.
Average other earning assets and balances at the Federal Reserve Bankborrowings increased $13.0 million, which contributed $202 thousand to interest income. This was substantially offset by lower rates earned on these average balances, which declined to 1.27%$367,493, or 82.2% in fiscal 2013 from 1.41%2014 and were $814,409 compared to $446,916 in fiscal 2012.
Interest Expense for the year ended September 30, 2013 increased by $1.3 million to $19.9 million, an increase of 7.1% compared to interest expense of $18.6 million for the prior fiscal year.2013. The increase in interest expenseaverage borrowings in fiscal 2014 was duerequired to fund loan growth and included the increase$100,000 of senior notes issued in connection with the Provident Merger. Average borrowings also included $15,743, representing the average balance of interest-bearing liabilitiessubordinated debentures for fiscal 2014, which were redeemed in June 2014. The average cost of $454.9 million, whichborrowings was partially offset by a nine basis point reduction2.45% for fiscal 2014 compared to 3.13% in fiscal 2013. The decline in the totalaverage cost of interest-bearing liabilities to 0.75% in fiscal 2013 from 0.84% in fiscal 2012. Interest expense on interest-bearing deposits increased $342 thousand. Average total interest-bearing deposits increased $364.3 million in fiscal 2013, which added $1.1 million to interest expense forborrowings between the fiscal year. However, the rate incurred on interest-bearing deposits declined to 27 basis points from 30 basis points, which reduced interest expense by $754 thousand. Interest expense incurred on the Senior Notes in fiscal 2013periods was $1.4 million. Interest expense on other borrowings increased $301 thousand in fiscal 2013 mainly due to an increase in short-term FHLB borrowings as a percentage of $85.3 million in thetotal average daily balance of other borrowings which increased interest expense by $2.8 million. As a greater portion of the borrowings were short-term, including overnight borrowings, the rate on other borrowings declined to 2.97% in fiscal 2013 from 3.63% in fiscal 2012.
Net Interest Income for the fiscal year ended September 30, 2013 was $112.2 million, compared to $96.5 million for the year ended September 30, 2012. The tax equivalent net interest margin was 3.37%, which declined 14 basis points relative to fiscal 2012. The main components of this decrease were the repayment of interest-earning assets originated in prior periods that were replaced with assets at current market rates of interest.borrowings.
Provision for Loan Losses. The provision for loan losses is determined by the Companyus as the amount to be added to the allowance for loan losses after net charge-offs have been deducted in order to bring the allowance to a level that is the Company’sour best estimate of probable incurred credit losses inherent in the outstanding loan portfolio. We recorded $12.2 million in loan loss provisions inIn calendar 2015, the transition period, the 2013 transition period; fiscal 2014 and fiscal 2013 compared to $10.6 million in fiscal 2012, an increase of $1.5 million. Net charge-offs in the loan portfolio were $11.6 million in fiscal 2013, compared to $10.2 million in the previous year. The amount of provision for loan losses consideredtotaled (i) $15,700; (ii) $3,000; (iii) $3,000; (iv) $19,100; and (v) $12,150, respectively. See the improvementsection captioned “Loans - Provision for Loan Losses” elsewhere in this discussion for further analysis of the provision for loan losses.
Non-interest income. The components of non-interest income were as follows:
|
| | | | | | | | | | | | | | | | | | | |
| | Year ended | | Three months ended | | Fiscal year ended |
| | December 31, | | December 31, | | September 30, |
| | 2015 | | 2014 | | 2013 | | 2014 | | 2013 |
| Accounts receivable management / factoring commissions and other related fees | $ | 17,088 |
| | $ | 4,134 |
| | $ | 2,226 |
| | $ | 13,146 |
| | $ | — |
|
| Mortgage banking income | 11,405 |
| | 2,858 |
| | 1,616 |
| | 8,086 |
| | 1,979 |
|
| Deposit fees and service charges | 15,871 |
| | 4,221 |
| | 3,942 |
| | 15,595 |
| | 10,964 |
|
| Net gain (loss) on sale of securities | 4,837 |
| | (43 | ) | | (645 | ) | | 641 |
| | 7,391 |
|
| Bank owned life insurance | 5,235 |
| | 1,024 |
| | 740 |
| | 3,080 |
| | 1,998 |
|
| Investment management fees | 2,397 |
| | 403 |
| | 540 |
| | 2,209 |
| | 2,413 |
|
| Other | 5,918 |
| | 1,360 |
| | 729 |
| | 4,613 |
| | 2,947 |
|
| Total non-interest income | $ | 62,751 |
| | $ | 13,957 |
| | $ | 9,148 |
| | $ | 47,370 |
| | $ | 27,692 |
|
Non-interest income was $62,751 for calendar 2015 compared to $47,370 for fiscal 2014 and $27,692 in fiscal 2013. Non-interest income was $13,957 for the transition period compared to $9,148 in the credit quality2013 transition period. Included in non-interest income is net gain (loss) on sale of our loan portfolio, net charge-offssecurities which were (i) $4,837; (ii) $(43); (iii) $(645); (iv) $641; and (v) $7,391 for calendar 2015, the growth intransition period, the loan portfolio.
Non-interest income was $27.7 million for2013 transition period, fiscal 2014 and fiscal 2013, compared to $32.2 million for fiscal 2012. Non-interest income is principally comprised of deposit fees and service charges,respectively. As presented in Item 6. “Selected Financial Data - Non-GAAP Financial Measures” we eliminate net gain on sale of securities bank-owned life insurance (“BOLI”) contracts,in calculating our core total revenues and core net gainsincome. Net gain (loss) on the sale of loanssecurities is impacted significantly by changes in market interest rates and title insurancestrategies we use to manage liquidity and investment management fees. Duringinterest rate risk: therefore, net gain (loss) on sale of securities is not part of our core business plan and, as we analyze non-interest income performance, we eliminate the impact of these gains and losses in evaluating our results.
Excluding net gain (loss) on sale of securities, non-interest income was $57,914 for calendar 2015, $14,000 for the transition period, $9,793 for the 2013 transition period, $46,729 in fiscal 2014 and $20,301 in fiscal 2013. The main driver of growth between calendar 2015 and fiscal 2014 was the HVB Merger. The growth in the transition period compared to 2013 transition period, and the growth in fiscal 2014 compared to fiscal 2013, was mainly due to fees generated in accounts receivable management and mortgage banking income as a result of the Provident Merger. We evaluate potential acquisitions of specialty commercial lending businesses that are also fee income generators regularly; consistent with this strategy, during calendar 2015 we completed the Damian Acquisition and the FCC Acquisition. We have also recently announced new team hires that will expand our health care asset-based lending, middle market loan syndication, swaps and cash management businesses, which we expect will also contribute to non-interest income declined $4.5 million,growth over time.
Accounts receivable management / factoring commissions and other related fees represents fees generated in our factoring and payroll finance businesses. In factoring, we receive a nonrefundable factoring fee, which is generally a percentage of the factored receivables or 13.9%,sales volume and is designed to compensate us for the bookkeeping and collection services provided and, if applicable, the credit review of the client’s customer and assumption of customer credit risk. In payroll finance, we provide outsourcing support services for clients in the temporary staffing industry. We generate fee income in exchange for providing full back-office, payroll, tax and accounting services to independently-owned temporary staffing companies. Accounts receivable management / factoring commissions and other related fees totaled $17,088 for calendar 2015 compared to $13,146 for fiscal 2014 and $0 in fiscal 2013, as these business lines were acquired in connection with the Provident Merger. The increase in calendar 2015 of $3,942, or 30.0% compared to fiscal 2014 was due to a $3.1 million declinecombination of organic growth and the Damian Acquisition and the FCC Acquisition. Fee revenue was $4,134 for the transition period compared to $2,226 for the 2013 transition period. The increase between these periods was due to organic growth plus the impact of the timing of Provident Merger which included these revenues for only two of the months in netthe 2013 transition period.
Mortgage banking income represents residential mortgage banking and mortgage brokerage business conducted through loan production offices located principally in New York City and through our financial centers. The Provident Merger substantially increased our mortgage banking volume; mortgage banking revenue was $11,405 for calendar 2015 compared to $8,086 in fiscal 2014 and $1,979 in fiscal 2013. The continued low interest rate environment contributed to growth in loan originations and mortgage banking income in 2015. Mortgage banking revenues were $2,858 in the transition period compared to $1,616 for the 2013 transition period. The increase was mainly due to the Provident Merger. In the transition period we sold $42,229 of residential mortgage loans which previously were held for investment and recorded a gain on sale of securities, and a $1.4 million decline in title insurance and investment management fees. In fiscal 2012, we sold the assets of our former subsidiaries that were active in the title insurance and investment management businesses. We commenced new initiatives for title insurance and wealth management during fiscal 2013. In fiscal 2013, fees from these new initiatives were $2.8 million as compared to $4.3 million fiscal 2012.approximately $600.
Deposit fees and service charges decreased by $413 thousand, or 3.6%, to $11.0 million aswere $15,871 for calendar 2015 compared to $11.4 million$15,595 for fiscal 2014, and $10,964 in fiscal 2012.2013. Revenues from deposit fees has lagged the growth rate in average deposit balances we experienced as a result of the HVB Merger, Provident Merger and organic deposit growth. This decline was caused byis the result of a changeshift in the compositionmix of our deposit balances to a greater proportion of commercial deposits versus retail deposits, as deposits gathered by our relationshipcommercial banking teams are generally higher balance deposits but typically generate lower levels of fees and service charges than retail deposits. BOLI incomeThe increase in deposit fees and net gain on sale of loans were both relatively unchanged inservice charges between fiscal 2013 compared to fiscal 2012. During fiscal 2013 the Company sold $94.1million in residential mortgage loans2014 and recorded $2.0 million in gains compared to $79.1 million in loans sold with $1.9 million in gains at fiscal 2012. The majority of net gain on sale of loans was generated in the first half of fiscal 2013 before interest rates began to increase. Other non-interest income for fiscal 2013 was $2.6 million,mainly the result of the Provident Merger. Deposit fees and service charges were $4,221 for the transition period, which represented a $410 thousand7.1% increase compared to $3,942 for the 2013 transition period, which was also a result of the Provident Merger.
Bank owned life insurance (“BOLI”) income mainly represents the change in the cash surrender value of life insurance policies owned by the Bank. BOLI income was $5,235 for calendar 2015, compared to $3,080 for fiscal 2012. 2014 and $1,998 for fiscal 2013. The increase in BOLI income between calendar 2015 and fiscal 2014 was mainly due to the HVB Merger and a $30,000 BOLI purchase completed in October 2014. The increase in BOLI income between fiscal 2014 and fiscal 2013 was due to the Provident Merger. BOLI income was $1,024 for the transition period compared to $740 in the 2013 transition period; the increase was mainly the result of the October 2014 BOLI purchase referenced above.
Investment management fees principally represent fees from the sale of mutual funds and annuities, and since the HVB Merger, also includes trust fees. These revenues were $2,397 for calendar 2015 compared to $2,209 in fiscal 2014 and $2,413 in fiscal 2013. Investment management fees were $403 in the transition period compared to $540 in the 2013 transition period. In connection with the HVB Merger, we acquired a trust business which generated trust fees of $1,148 during calendar 2015 since the merger date. We are evaluating strategic alternatives for this business, including a potential divestiture. We do not expect the sale would materially impact our results from operations. We continue to explore opportunities to enhance the delivery of our investment management businesses through various distribution channels.
Other non-interest income principally includes loan servicing revenues, miscellaneous loan fees earned, letter of credit fees, swap fees, title insurance revenues and safe deposit box rentals. Other non-interest income was $5,918 for calendar 2015 compared to $4,613 in fiscal 2014 and $2,947 in fiscal 2013. The increase in calendar 2015 compared to fiscal 2014 was due to an increase in miscellaneous loan fees earned of $1,300, which was mainly the result of organic growth in loan volumes and the HVB Merger. The increase between fiscal 2014 and fiscal 2013 was mainly due to the Provident Merger. Other non-interest income increased $631 to $1,360 for the transition period compared to $729 for the 2013 transition period. The increase was mainly due to an increase in title insurance revenues of $391 and loan swap fees of $127.
Non-interest expenseexpense. The components of non-interest expense were as follows:
|
| | | | | | | | | | | | | | | | | | | |
| | Year ended | | Three months ended | | Fiscal year ended |
| | December 31, | | December 31, | | September 30, |
| | 2015 | | 2014 | | 2013 | | 2014 | | 2013 |
| Compensation and employee benefits | $ | 104,939 |
| | $ | 22,410 |
| | $ | 20,811 |
| | $ | 90,215 |
| | $ | 47,833 |
|
| Stock-based compensation plans | 4,581 |
| | 1,146 |
| | 991 |
| | 3,703 |
| | 2,239 |
|
| Occupancy and office operations | 32,915 |
| | 7,245 |
| | 6,333 |
| | 27,726 |
| | 14,953 |
|
| Amortization of intangible assets | 10,043 |
| | 1,873 |
| | 1,875 |
| | 9,408 |
| | 1,296 |
|
| FDIC insurance and regulatory assessments | 7,380 |
| | 1,568 |
| | 1,164 |
| | 6,146 |
| | 3,010 |
|
| Other real estate owned expense | 274 |
| | (81 | ) | | 368 |
| | (237 | ) | | 1,562 |
|
| Merger-related expense | 17,079 |
| | 502 |
| | 9,068 |
| | 9,455 |
| | 2,772 |
|
| Pension plan termination charge | 13,384 |
| | — |
| | 2,743 |
| | 4,095 |
| | — |
|
| Charge for asset write-downs, severance and retention and banking system conversion | 29,046 |
| | 2,493 |
| | 22,167 |
| | 22,976 |
| | — |
|
| Other | 40,677 |
| | 8,658 |
| | 7,454 |
| | 34,941 |
| | 17,376 |
|
| Total non-interest expense | $ | 260,318 |
| | $ | 45,814 |
| | $ | 72,974 |
| | $ | 208,428 |
| | $ | 91,041 |
|
Non-interest expense for calendar 2015 was $260,318 compared to $208,428 in fiscal 2014 and $91,041 for fiscal 2013. The increase in calendar 2015 was mainly the result of the HVB Merger. In connection with the completion of the HVB merger and our other acquisitions in 2015, we incurred merger-related expense of $17,079 and restructuring charges totaling $29,046 that are shown separately above. Non-interest expense for fiscal 2014 included Provident Merger merger-related expense of $9,455 and restructuring charges totaling $22,976 that are shown separately above. The changes in the various components of non-interest expense between fiscal 2014 and fiscal 2013 decreased by $916 thousand, or 1.0% to $91.0 million,were mainly the result of the Provident Merger, which significantly increased our personnel, facilities and operating expense base.
Non-interest expense in the transition period was $45,814, a $27,160 decrease compared to $92.0 million$72,974 for the same period2013 transition period. The decrease was mainly due to costs incurred in 2012. Non-interestconnection with the completion of the Provident Merger in the fourth calendar quarter of 2013, which included $9,068 of merger-related expense is principally comprised of compensationand other charges totaling $22,167, presented separately above.
Compensation and employee benefits occupancyexpense and full time equivalent employees (“FTEs”) are presented in the following table:
|
| | | | | | |
| | Compensation for period presented | | FTEs at period end |
| Calendar 2015 | $ | 104,939 |
| | 1.089 |
|
| HVB Merger date June 30, 2015 | NA |
| | 1,196 |
|
| Transition period | 22,410 |
| | 829 |
|
| 2013 transition period | 20,811 |
| | 977 |
|
| Fiscal 2014 | 90,215 |
| | 836 |
|
| Fiscal 2013 | 47,833 |
| | 477 |
|
Compensation expense for calendar 2015 increased $14,724 compared to fiscal 2014 and was $104,939. At period end, our FTEs increased by 253 employees between the periods due to the HVB Merger. Since the HVB Merger date, our FTEs have declined by 107 employees due to the successful integration of the HVB Merger including the consolidation of eight financial center locations. Partially offsetting this decline in FTEs, we have continued expanding our commercial banking strategy and hired four commercial banking teams to add capabilities in several existing and new businesses and we have also continued to invest in personnel to support our risk management infrastructure as we are now over $10 billion in assets. Compensation expense for fiscal 2014 increased $46,477 compared to fiscal 2013, consistent with the increase in FTEs which were 836 at September 30, 2014 compared to 477 at September 30, 2013. This increase was mainly the result of the Provident Merger. For the transition period compensation was $22,410 compared to $20,811 for the 2013 transition period. Between the periods our FTEs declined by 148 due to the successful integration of the Provident Merger. As the Provident Merger occurred on October 31, 2013, our results included compensation for Legacy Sterling employees for only two months of the 2013 transition period.
In calendar 2015, we terminated and settled our remaining pension obligations through lump sum distributions and purchases of annuities. In fiscal 2014, we terminated our Employee Stock Ownership Plan. Although we continue to sponsor several post retirement benefit plans including a Supplemental Executive Retirement Plan, to certain of our former directors and officers, life insurance benefits to certain directors, officers and former officers and a defined contribution plan established under Section 401(k) of the IRS Code, we have focused on simplifying our compensation structure by reducing the number of benefit plans. For additional information related to our benefit plans, see Note 13. “Pension and Other Post Retirement Plans” in the consolidated financial statements included elsewhere in this Report.
Stock-based compensation plans expensewas $4,581 for calendar 2015 compared to $3,703 for fiscal 2014 and $2,239 in fiscal 2013. Stock-based compensation plan expense was $1,146 in the transition period compared to $991 in the 2013 transition period. The increase for calendar 2015 was due to the increase in personnel included in the stock-based compensation plan and the HVB Merger. The increase in fiscal 2014 compared to fiscal 2013 was mainly due to an increase in personnel and stock awards granted in connection with the Provident Merger. For additional information related to our stock-based compensation, see Note 12. “Stock-Based Compensation Plans” in the notes to consolidated financial statements included elsewhere in this Report.
Occupancy and office operations merger-related expense was $32,915 for calendar 2015 an increase of $5,189 compared to $27,726 in fiscal 2014. The fiscal 2014 increase was $12,773 compared to $14,953 of occupancy and operations expense in fiscal 2013. The increase in calendar 2015 compared to fiscal 2014 was the result of the HVB Merger. The increase in fiscal 2014 compared to fiscal 2013 was due to the Provident Merger. Occupancy and office operations expense was $7,245 in the transition period compared to $6,333 in the 2013 transition period. The increase between periods was mainly due to the timing of the Provident Merger. We consolidated eight financial center locations during calendar 2015 and plan to consolidate at least four financial centers in 2016.
Amortization of intangible assets mainly includes amortization of core deposit intangible assets and non-compete agreements. Amortization of intangible assets was $10,043 for calendar 2015 compared to $9,408 for fiscal 2014 and $1,873 for fiscal 2013. The increase in calendar 2015 compared to fiscal 2014 was mainly due to the HVB Merger. In connection with the HVB Merger we added $33,839 to our core deposit intangible, and the Damian Acquisition, in which we recorded an $8,950 customer list intangible asset. The increase in amortization of intangible assets in fiscal 2014 compared to fiscal 2013 was due to the Provident Merger. Amortization of intangible assets was $1,873 for the transition period and declined $2 compared to the 2013 transition period. During the transition period, several non-compete agreements that were recorded in connection with the Provident Merger expired, decreasing amortization expense. Amortization of intangible assets is expected to be $11,953 in 2016. For additional information related to our intangible assets see Note 7. “Goodwill and Other Intangible Assets” in the notes to consolidated financial statements included elsewhere in this Report.
FDIC insurance and regulatory assessments professional feesexpense was $7,380 for calendar 2015 compared to $6,146 for fiscal 2014 and other$3,010 for fiscal 2013. FDIC insurance assessment is primarily based on quarterly average assets less quarterly average eligible capital. OCC assessments are based on total assets at June 30 and December 31. The increase in FDIC insurance and regulatory assessments between the periods was due to our growth in assets as a result of organic growth, the HVB Merger and the Provident Merger. FDIC insurance and regulatory assessments was $1,568 for the transition period compared to $1,164 for the 2013 transition period, and the increase was mainly due to the Provident Merger.
Other real estate owned expenses.(“OREO”) expense includes maintenance costs, taxes, insurance, write-downs (subsequent to any write-down at the time of foreclosure or transfer to OREO), and gains and losses from the disposition of OREO. OREO includes real estate assets foreclosed and financial center locations that are held for sale. OREO expense was $274 for calendar 2015 compared to a benefit of $237 in fiscal 2014 and OREO expense of $1,562 for fiscal 2013. In calendar 2015, OREO expenses were $1,417 and OREO gain on sale and rental income was $1,143. In fiscal 2014, OREO expenses were $1,047 and OREO gain on sale and rental income was $1,284, which included a gain of $925 on the sale of a financial center location that was acquired in the Provident Merger. For fiscal 2013, OREO expense was $1,819, which included $1,010 of OREO write-downs and OREO gain on sale and rental income was $257. OREO benefit was $81 for the transition period compared to OREO expense of $368 for the 2013 transition period. The declinedecrease in expense was mainly due to OREO write-downs of $224 that were recognized in the 2013 transition period.
Merger-related expense was $17,079 for calendar 2015 compared to $9,455 in fiscal 2014 and $2,772 for fiscal 2013. Merger-related expense in calendar 2015 was mainly related to the HVB Merger and included change in control payments and financial and legal advisory fees. Contributing to merger-related expense in calendar 2015 were costs of approximately $2,000 incurred in connection with the Damian Acquisition and the FCC Acquisition. These costs included retention and severance to certain employees, and due diligence and legal fees for both transactions. Merger-related expense in fiscal 2014 was incurred in connection with the Provident Merger and included change in control payments, legal advisory fees and a portion of the financial advisory fees. Merger related expense in fiscal 2013 was related to the Provident Merger and included mainly a portion of the financial advisory fees and costs for due diligence. Merger-related expense was $502 in the transition period compared to $9,068 in the 2013 transition period. In the transition period we mainly incurred investment banking fees associated with the then pending HVB Merger; in 2013 transition period we incurred the majority of the merger-related costs for the Provident Merger.
Pension plan termination charge was $13,384 for calendar 2015 compared to $4,095 in fiscal 2014 and $0 for fiscal 2013. The charge incurred in calendar 2015 represents a full termination of $58,171 remaining defined benefit pension plan liabilities. The termination charge consisted mainly of the change for the year in the fair value of plan assets and the elimination of the accumulated other comprehensive benefit maintained in the equity accounts on the consolidated balance sheet until termination. The charge in fiscal 2014 represented the settlement of $44,774 of plan liabilities through the purchase of annuities and the charge mainly represented the acceleration of the amortization of the accumulated other comprehensive benefit. There was no pension plan termination charge incurred in the transition period and a termination charge of $2,743 was incurred in the 2013 transition period, which represented the charge incurred in connection with the settlement of $13,698 of plan liabilities.
Charge for asset write-downs, severance and retention and banking system conversion expense was $29,046 for calendar 2015 compared to $22,976 in fiscal 2014 and $0 for fiscal 2013. Asset write-downs were mainly charges we incurred to consolidate financial centers that we acquired in mergers and have previously owned. Severance and retention represents payments we have made in
connection with prior mergers. These charges were incurred in connection with the HVB Merger (calendar 2015) and the Provident Merger (fiscal 2014), respectively. We converted our core banking system in the transition period and during fiscal 2014 we incurred charges of $3,249. In the transition period we incurred charges of $1,418 for the core banking system conversion and charges of $1,075 for asset write-downs. In the 2013 transition period we incurred charges for asset write-downs, severance and retention of $22,167 associated with the Provident Merger.
Other non-interest expense betweenfor calendar 2015 was $40,677 compared to $34,941 for fiscal 20132014 and $17,376 for fiscal 20122013. Other non-interest expense mainly includes professional fees, data processing, insurance, and advertising and promotion. Additional details regarding these expenses is included in Note 14. “Other Non-interest Expense” in the notes to consolidated financial statements included elsewhere in this Report. Also included in other non-interest expense is postage, communication, supplies and loan processing. The increases in other non-interest expense is mainly due to lower merger-related expenses. Merger-related expenses in fiscala combination of organic growth and our prior merger transactions. Other non-interest expense was $8,658 for the transition period compared to $7,454 for the 2013 transition period and the increase was mainly due to the timing of $2.8 million included due diligence costs for the Provident Merger, which closed October 31, 2013, but did not include restructuring costs or other charges. Merger-related expenses2013.
Income Tax was $31,835 for calendar 2015 compared to $10,152 in fiscal 20122014, and $11,414 in fiscal 2013, which represented an effective income tax rate of $5.9 million included both32.5% and 26.8% and 31.1%, respectively. The effective income tax rates differed from the 35% federal statutory rate during the periods primarily due diligence, restructuring coststo the effect of tax exempt income from securities and BOLI income. The effective tax rate in calendar 2015 increased compared to fiscal 2014 due to our higher pre-tax income as compared to fiscal 2014. The effective tax rate in fiscal 2014 declined compared to fiscal 2013 due to a higher proportion of income being tax exempt and given the merger-related expenses and other charges detailed above. We estimate our effective tax rate will be 34.0% for 2016. Income tax expense was $8,376 for the transition period compared to a benefit of $6,948 for the 2013 transition period, which represented an effective income tax rate of 33.0% and (33.2)%, respectively. The income tax benefit recorded in the 2013 transition period was due to a pre-tax loss generated by merger-related expense and other charges recorded in connection with the acquisitionProvident Merger. For more information see Note 11. “Income Taxes” in the notes to consolidated financial statements included elsewhere in this Report.
Sources and Uses of Gotham Bank.Funds
The following table illustrates the mix of the Company’s funding sources and the assets in which those funds are invested as a percentage of the Company’s total average assets for the period indicated. Average assets totaled $9,604,256 for calendar 2015 compared to $6,757,094 for fiscal 2014 and $3,815,609 in fiscal 2013. Average assets totaled $7,340,332 in the transition period compared to $6,013,816 for the 2013 transition period.
|
| | | | | | | | | | | | | | |
| | For the year ended | | For the three months ended | | For the fiscal year ended |
| | December 31, | | December 31, | | September 30, |
| | 2015 | | 2014 | | 2013 | | 2014 | | 2013 |
| Sources of Funds: | | | | | | | | | |
| Non-interest bearing deposits | 24.3 | % | | 22.2 | % | | 22.6 | % | | 23.4 | % | | 17.0 | % |
| Interest bearing deposits | 50.0 |
| | 50.6 |
| | 49.7 |
| | 49.5 |
| | 57.9 |
|
| FHLB and other borrowings | 9.3 |
| | 10.9 |
| | 9.9 |
| | 10.4 |
| | 11.1 |
|
| Subordinated debentures | — |
| | — |
| | 0.3 |
| | 0.2 |
| | — |
|
| Senior notes | 1.0 |
| | 1.3 |
| | 1.6 |
| | 1.4 |
| | 0.6 |
|
| Other non-interest bearing liabilities | 1.2 |
| | 1.7 |
| | 2.9 |
| | 1.7 |
| | 0.6 |
|
| Stockholders’ equity | 14.2 |
| | 13.3 |
| | 13.0 |
| | 13.4 |
| | 12.8 |
|
| Total | 100.0 | % | | 100.0 | % | | 100.0 | % | | 100.0 | % | | 100.0 | % |
| | | | | | | | | | |
| Uses of Funds: | | | | | | | | | |
| Loans | 65.2 | % | | 64.8 | % | | 58.5 | % | | 61.0 | % | | 58.1 | % |
| Securities | 22.5 |
| | 23.4 |
| | 26.3 |
| | 25.1 |
| | 29.4 |
|
| Interest bearing deposits | 1.6 |
| | 1.2 |
| | 1.2 |
| | 1.6 |
| | 1.6 |
|
| FRB and FHLB stock | 0.8 |
| | 0.9 |
| | 0.6 |
| | 0.8 |
| | 0.6 |
|
| Other non-interest earning assets | 9.9 |
| | 9.7 |
| | 13.4 |
| | 11.5 |
| | 10.3 |
|
| Total | 100.0 | % | | 100.0 | % | | 100.0 | % | | 100.0 | % | | 100.0 | % |
General. Deposits, borrowings, repayments and prepayments of loans and securities, proceeds from sales of loans and securities, proceeds from maturing securities and cash flows from operations are our primary sources of funds for use in lending, investing and for other general corporate purposes. Non-interest bearing deposits and low cost interest bearing deposits comprise over 70% of our sources of funds for all periods, as shown above. Generating and maintaining these deposits through our commercial banking teams and financial centers is key to our strategy. The Company primarily uses funds to originate loans and purchase securities.
The table below segregates total growth in average balances from organic growth in average balances of deposits, loans and securities in calendar 2015, fiscal 2014 and fiscal 2013.
|
| | | | | | | | | | | | | | | | | | | | | | |
| | Average balance for the year ended December 31, 2015 | | Annualized acquired balances in HVB Merger(1) | | Average balance less annualized acquired balance | | Organic growth(2) | | Average balance for the fiscal year ended September 30, 2014 | | Annualized organic growth calendar 2015 vs. fiscal 2014(3) |
| Deposits | $ | 7,139,335 |
| | $ | 1,580,373 |
| | $ | 5,558,962 |
| | $ | 637,032 |
| | $ | 4,921,930 |
| | 10.3 | % |
| Loans | 6,261,470 |
| | 896,260 |
| | 5,365,210 |
| | 1,244,461 |
| | 4,120,749 |
| | 24.1 | % |
| Securities | 2,156,056 |
| | 356,921 |
| | 1,799,135 |
| | 106,247 |
| | 1,692,888 |
| | 5.0 | % |
See legend below.
|
| | | | | | | | | | | | | | | | | | | | | | |
| | Average balance for the fiscal year ended September 30, 2014 | | Annualized acquired balances(4) | | Average Balance less annualized acquired balance | | Organic growth(2) | | Average balance for the fiscal year ended September 30, 2013 | | Annualized organic growth percent fiscal 2014 vs. fiscal 2013 |
| Deposits | $ | 4,921,930 |
| | $ | 2,105,757.5 |
| | $ | 2,816,172 |
| | $ | (40,468 | ) | | $ | 2,856,640 |
| | (1.4 | )% |
| Loans | 4,120,749 |
| | 1,556,599 |
| | 2,564,150 |
| | 347,279 |
| | 2,216,871 |
| | 15.7 | % |
| Securities | 1,692,888 |
| | 557,252 |
| | 1,135,636 |
| | 12,366 |
| | 1,123,270 |
| | 1.1 | % |
(1) Balances acquired in the HVB Merger were acquired on June 30, 2015 and the annualized balance represents 50% of the acquired balance. Acquired balances in deposits, loans and securities were $3,160,746; $1,792,519 and $713,842, respectively.
(2) Organic growth represents the difference between the average balance less annualized acquired balance less the balance from the prior fiscal year end.
(3) Annualized organic growth represents the organic growth divided by the average balance for the prior fiscal year. For fiscal 2014 annualized organic growth is calculated by multiplying organic growth by 365 and dividing the factor by (365+92).
(4) Balances acquired in the Provident Merger were acquired October 31, 2013 and the annualized balance represents 11/12 of the acquired balance. Acquired balances in deposits, loans and securities were $2,297,190; $1,698,108 and $607,911, respectively.
Average deposits increased $2,217,405, or 45.1%, in calendar 2015 to $7,139,335, compared to $4,921,930 for fiscal 2014, of which 10.3% was due to organic growth and the remainder due to the HVB Merger. Average deposits increased $2,065,290, or 72.3%, in fiscal 2014 compared to fiscal 2013 due to the Provident Merger, while organically deposits declined 1.4% as we acquired certain higher cost deposits in connection with the Provident Merger that were not retained. For the transition period average deposits were $5,342,787 compared to $4,352,218 for the 2013 transition period; the increase was also due to the Provident Merger and organic growth.
Average loans increased $2,140,721, or 51.9%, in calendar 2015 to $6,261,470, compared to $4,120,749 for fiscal 2014 which included organic growth of $1,244,461, or 24.1%, with the balance attributable to the HVB Merger. Average loans increased 85.9% in fiscal 2014 to $4,120,749 compared to $2,216,871 for fiscal 2013, and included 15.7% organic growth. For the transition period average loans were $4,756,015 compared to $3,516,129 for the 2013 transition period.
Average securities increased $463,168, or 27.4% in calendar 2015 to $2,156,056 compared to $1,692,888 for fiscal 2014. The majority of the expenseincrease was due to the HVB Merger. Average securities increased $569,618 in fiscal 2014 from $1,123,270 for fiscal 2013, mainly due to the Provident Merger. For the transition period compared to the 2013 transition period, securities increased $139,955.
As shown above, and consistent with our strategy, we continue to focus on creating a more efficient balance sheet as investment securities decline as a percentage of our total average earning assets and are replaced by higher yielding loans originated through our commercial banking teams and specialty lending businesses.
Portfolio Loans
The following table sets forth the composition of our portfolio loans, which excludes loans held for sale, by type of loan at the periods indicated.
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | December 31, | | September 30, |
| | 2015 | | 2014 | | 2014 | | 2013 | | 2012 |
| | Amount | | % | | Amount | | % | | Amount | | % | | Amount | | % | | Amount | | % |
| Commercial: | | | | | | | | | | | | | | | | | | | |
| Commercial & industrial | $ | 1,681,704 |
| | 21.4 | % | | $ | 1,244,555 |
| | 25.8 | % | | $ | 1,164,537 |
| | 24.5 | % | | $ | 434,932 |
| | 18.0 | % | | $ | 343,307 |
| | 16.2 | % |
| Payroll finance | 221,831 |
| | 2.8 |
| | 154,229 |
| | 3.2 |
| | 145,474 |
| | 3.1 |
| | — |
| | — |
| | — |
| | — |
|
| Warehouse lending | 387,808 |
| | 4.9 |
| | 173,786 |
| | 3.6 |
| | 192,003 |
| | 4.0 |
| | 4,855 |
| | 0.2 |
| | — |
| | — |
|
| Factored receivables | 208,382 |
| | 2.7 |
| | 161,625 |
| | 3.4 |
| | 181,433 |
| | 3.8 |
| | — |
| | — |
| | — |
| | — |
|
| Equipment finance | 631,303 |
| | 8.0 |
| | 411,449 |
| | 8.5 |
| | 393,027 |
| | 8.3 |
| | — |
| | — |
| | — |
| | — |
|
| Total commercial | 3,131,028 |
| | 39.8 |
| | 2,145,644 |
| | 44.5 |
| | 2,076,474 |
| | 43.7 |
| | 439,787 |
| | 18.2 |
| | 343,307 |
| | 16.2 |
|
| Commercial mortgage: | | | | | | | | | | | | | | | | | | | |
| Commercial real estate | 2,733,351 |
| | 34.8 |
| | 1,458,277 |
| | 30.3 |
| | 1,449,052 |
| | 30.4 |
| | 969,490 |
| | 40.2 |
| | 896,746 |
| | 42.3 |
|
| Multi-family | 796,030 |
| | 10.1 |
| | 384,544 |
| | 8.0 |
| | 368,524 |
| | 7.7 |
| | 307,547 |
| | 12.7 |
| | 175,758 |
| | 8.3 |
|
| Acquisition, development & construction | 186,398 |
| | 2.4 |
| | 96,995 |
| | 2.0 |
| | 92,149 |
| | 1.9 |
| | 102,494 |
| | 4.2 |
| | 144,061 |
| | 6.8 |
|
| Total commercial mortgage | 3,715,779 |
| | 47.3 |
| | 1,939,816 |
| | 40.3 |
| | 1,909,725 |
| | 40.0 |
| | 1,379,531 |
| | 57.1 |
| | 1,216,565 |
| | 57.4 |
|
| Residential mortgage | 713,036 |
| | 9.1 |
| | 529,766 |
| | 11.0 |
| | 570,431 |
| | 12.0 |
| | 400,009 |
| | 16.6 |
| | 350,022 |
| | 16.5 |
|
| Consumer | 299,517 |
| | 3.8 |
| | 200,415 |
| | 4.2 |
| | 203,808 |
| | 4.3 |
| | 193,571 |
| | 8.1 |
| | 209,578 |
| | 9.9 |
|
| Total loans | 7,859,360 |
| | 100.0 | % | | 4,815,641 |
| | 100.0 | % | | 4,760,438 |
| | 100.0 | % | | 2,412,898 |
| | 100.0 | % | | 2,119,472 |
| | 100.0 | % |
| Allowance for loan losses | (50,145 | ) | | | | (42,374 | ) | | | | (40,612 | ) | | | | (28,877 | ) | | | | (28,282 | ) | | |
| Total portfolio loans, net | $ | 7,809,215 |
| | | | $ | 4,773,267 |
| | | | $ | 4,719,826 |
| | | | $ | 2,384,021 |
| | | | $ | 2,091,190 |
| | |
Overview.Net total portfolio loans increased $3,035,948 to $7,809,215 at December 31, 2015 compared to $4,773,267 at December 31, 2014, the increase was due to organic growth and the HVB Merger. At September 30, 2014 the balance was $4,719,826 and increased $2,335,805 compared to $2,384,021 at September 30, 2013, the increase was due to the Provident Merger and organic growth. Prior to fiscal 2014, the Bank’s portfolio loan composition was concentrated in real estate loans, mainly commercial mortgages, residential mortgages and other consumer loans collateralized by real estate. In connection with the Provident Merger, the Bank more evenly balanced its loan portfolio between commercial loans and real estate loans. The HVHC portfolio was more highly concentrated in loans collateralized by real estate. As a result, at December 31, 2015, commercial loans comprised 39.8% of the loan portfolio compared to 44.5% at December 31, 2014 and 43.7% at September 30, 2014. Total commercial mortgage loans comprised 47.3%, 40.3% and 40.0% of the loan portfolio at December 31, 2015, December 31, 2014 and September 30, 2014, respectively.
General. Our commercial banking teams focus on the origination of commercial loans and commercial mortgage loans. We also originate residential mortgage loans and consumer loans such as home equity lines of credit, homeowner loans and personal loans in our market area. We sell many of the residential mortgage loans we originate and we enter into loan participations in some commercial loans for portfolio management purposes.
Loan Approval/Authority and Underwriting. The Board has established the Credit Risk Committee (the “CRC”) a sub-committee of the Company’s Enterprise Risk Committee, to oversee the lending functions of the Bank. The CRC oversees the performance of the Bank’s loan portfolio and its various components and assists in the development of strategic initiatives to enhance portfolio performance.
The Senior Credit Committee (the “SCC”) consists of the Chief Executive Officer, Chief Banking Officer, Chief Credit Officer, and other senior lending personnel. The SCC is authorized to approve all loans within the legal lending limit of the Bank.
The SCC may also authorize lending authority to individual Bank officers for both single and dual initial approval authority. Other than overdrafts, the only single initial lending authority is for credit scored small business loans up to $250.
We have established a risk rating system for all of our commercial loans (all types of commercial and commercial mortgage loans) other than our small business loans, which are subject to a scoring process. The risk rating system assesses a variety of factors to rank the risk of default and risk of loss associated with the loan. These ratings are assessed by commercial credit personnel who do not have responsibility for loan originations. We determine our maximum loan-to-one-borrower limits based on the rating of the loan and the relative risk associated with the borrower’s portfolio type.
In connection with our residential mortgage and commercial real estate loans, we generally require property appraisals to be performed by independent appraisers who are approved by the Board. Appraisals are then reviewed by the appropriate loan underwriting areas. Under certain conditions, appraisals may not be required for loans under $250 or in other limited circumstances. We also require title insurance, hazard insurance and, if indicated, flood insurance on property securing mortgage loans. Title insurance is not required for consumer loans under $100 thousand, such as home equity lines of credit and homeowner loans and in connection with certain residential mortgage refinances.
Commercial & Industrial Lending. We make various types of secured and unsecured commercial & industrial loans to small and medium-sized businesses in our market area, including loans collateralized by assets, such as accounts receivable, inventory, marketable securities, other liquid collateral, equipment and other assets. The terms of these loans generally range from less than one year to seven years. The loans are either structured on a fixed-rate basis or carry adjustable interest rates indexed to a lending rate that is determined internally, or a short-term market rate index. At December 31, 2015, commercial loans totaled $3,131,028, or 39.8% of our total loan portfolio.
In the Provident Merger we acquired the following commercial lending businesses:
Payroll Finance Lending.The Bank provides financing and human resource business process outsourcing support services to the temporary staffing industry. The Bank provides full back-office, computer and tax accounting services, and financing to independently-owned staffing companies located throughout the United States. Loans typically are structured as an advance used by our clients to fund their payroll and are outstanding on average for 40 to 45 days.
Warehouse Lending. The Bank provides residential mortgage warehouse funding services to mortgage bankers. These loans consist of a line of credit used by the mortgage banker as a form of temporary financing during the period between the closing of a mortgage loan until its sale into the secondary market, which typically lasts from 15 to 30 days. The Bank provides warehouse lines ranging from $5,000 to $60,000. The warehouse lines are collateralized by high quality first mortgage loans, which include mainly conventional Fannie Mae and Freddie Mac, jumbo and FHA loans.
Factored Receivables Lending. We provide accounts receivable management services. The purchase of a client’s accounts receivable is traditionally known as “factoring” and results in payment by the client of a nonrefundable factoring fee, which is generally a percentage of the factored receivables or sales volume and is designed to compensate the Bank for the bookkeeping and collection services provided and, if applicable, its credit review of the client’s customer and assumption of customer credit risk. When the Bank “Factors” (i.e., purchases) an account receivable from a client, it records the receivable as an asset (included in “Gross loans” ), records a liability for the funds due to the client (included in “Other liabilities”) and credits to non-interest income the nonrefundable factoring fee (included in “Accounts receivable management/factoring commissions and other fees”). The Bank also may advance funds to its client prior to the collection of receivables, charging interest on such advances (in addition to any factoring fees) and normally satisfying such advances by the collection of receivables. The accounts receivable factoring is primarily for clients engaged in the apparel and textile industries.
Equipment Finance Lending. The Bank offers equipment financing across the United States through direct lending programs, third-party sources and vendor programs. The Bank finances full payout term loans and secured loans for various types of business equipment, generally written on a recourse basis i.e., with personal guarantees of the principals, with terms generally ranging from 24 to 60 months. We acquired $71,219 of equipment finance loans in the HVB Merger.
The above four categories of loans, plus our commercial & industrial loans are referred to as C&I in the discussion below.
Underwriting of a commercial loan is based on an assessment of the willingness and ability of the principal to repay in accordance with the proposed terms, as well as an overall assessment of the risks involved. This includes an evaluation of the principal to determine character and capacity to manage. Personal guarantees of the principals are generally required, with exceptions primarily in the case of certain factored receivables the Bank accepts on a non-recourse basis, as well as in the case of loans made to publicly owned and not-for-profit corporations. In addition to an evaluation of the financial statements of the principal and/or potential borrower, we analyze the adequacy of the primary and secondary sources of repayment to be relied upon in the transaction. Credit agency reports of the credit history of the principal supplement our analysis of creditworthiness. Checking with other banks and trade investigations may also be conducted. Collateral supporting a secured transaction also is analyzed to determine its marketability.
Commercial Real Estate and Multi-Family Lending. We originate real estate loans secured predominantly by first liens on commercial real estate and multi-family properties. The underlying collateral of our commercial real estate loans consists of multi-family properties,
retail properties, including shopping centers and strip centers, office buildings, nursing homes, industrial and warehouse properties, hotels, motels, restaurants, and schools. To a lesser extent, we originate commercial real estate loans for medical use, non-profits, gas stations and other categories. We may, from time to time, purchase commercial real estate loan participations. At December 31, 2015, loans secured by commercial real estate and multi-family properties totaled $3,529,381, or 44.9% of our total loan portfolio. Substantially all of our commercial real estate loans are secured by properties located in our primary market area.
The majority of our commercial real estate loans have a term of ten years and are structured as (i) five-year fixed rate loans with a rate adjustment for the second five-year period or (ii) as ten-year fixed-rate loans. Amortization on these loans is typically based on 20 to 25 year terms with balloon maturities generally in five or ten years. Interest rates on commercial real estate loans generally range from 200 basis points to 300 basis points above a reference index.
In the underwriting of commercial real estate loans, we generally lend up to 75% of the appraised value. Decisions to lend are based on the economic viability of the property and the creditworthiness of the borrower. In evaluating a proposed commercial real estate loan, we primarily emphasize the ratio of the projected net cash flow to the debt service requirement (generally targeting a minimum ratio of 120%), computed after deductions for a vacancy factor and property expenses we deem appropriate. In addition, a personal guarantee of the loan or a portion thereof is generally required from the principal(s) of the borrower, except for loans secured by multi-family properties, which meet certain debt service coverage and loan to value thresholds. We require title insurance insuring the priority of our lien, fire and extended coverage casualty insurance, and flood insurance, if appropriate, in order to protect our security interest in the underlying property.
Commercial real estate loans may involve significant loan balances concentrated with single borrowers or groups of related borrowers. In addition, the payment experience on loans secured by income-producing properties typically depends on the successful operation of the related real estate project and may be subject to adverse conditions in the real estate market and in the general economy. For commercial real estate loans in which the borrower is a significant tenant, repayment experience also depends on the successful operation of the borrower’s underlying business.
Acquisition, Development and Construction (“ADC”) Lending. We originate ADC loans to selected builders in our market area. Since 2011, the Company has deemphasized this lending activity. In connection with the HVB Merger we acquired $73,415 of ADC loans and we currently originate construction loans to well qualified borrowers.
ADC loans help finance the purchase of land intended for further development, including single-family homes, multi-family housing, and commercial income properties. Historically, we have made an acquisition loan before the borrower received approval to develop the land as planned; however, we did not originate any such loans in calendar 2015, the transition period, fiscal 2014 or fiscal 2013 In general, the maximum loan-to-value ratio for a land acquisition loan is 50% of the appraised value of the property, although higher loan-to-value ratios may be allowed for certain borrowers we deem to be lower risk. We also have funded development loans to builders in our market area to finance improvements to real estate, consisting mainly of single-family subdivisions, typically to finance the cost of utilities, roads, sewers and other development costs. Builders generally rely on the sale of single-family homes to repay development loans, although in some cases the improved building lots may be sold to another builder. The maximum loan amount is generally limited to the cost of the improvements, plus limited approval of soft costs, subject to an overall loan-to-value limitation. In general, we do not originate loans with Legacy Sterlinginterest reserves. Advances are made in accordance with a schedule reflecting the cost of the improvements.
We also make construction loans to finance the cost of completing homes on the improved property. Advances on construction loans are made in accordance with a schedule reflecting the cost of construction. Repayment of construction loans on residential subdivisions is normally expected from the sale of units to individual purchasers, except in cases of owner occupied construction loans. In the case of income-producing property, repayment is usually expected from permanent financing upon completion of construction. We provide permanent mortgage financing on most of our construction loans on income-producing property. Collateral coverage and risk profile are maintained by restricting the number of model or speculative units in each project.
ADC lending exposes us to greater credit risk than permanent mortgage financing. The repayment of ADC loans generally depends on the sale of the property to third parties or the availability of permanent financing upon completion of all improvements. In the event we make an acquisition loan on property that is not yet approved for the planned development, there is the risk that approvals will not be granted or will be delayed. These events may adversely affect the borrower and the collateral value of the property. Development and construction loans also expose us to the risk that improvements will not be completed on time in accordance with specifications and projected costs. In addition, the ultimate sale or rental of the property may not occur as anticipated.
Large Credit Relationships. The Company originates and maintains large credit relationships with numerous commercial customers in the ordinary course of business. The Company considers large credit relationships to be those with commitments equal to or in excess of
$10,000, prior to any portion being sold. Large relationships also include loan participations purchased if the credit relationship with the agent is equal to, or in excess of, $10,000. In addition to the Company’s normal policies and procedures related to the origination of large credits, the SCC must approve all new and renewed credit facilities which are part of large credit relationships. The SCC meets regularly, and reviews large credit relationship activity and discusses the current loan pipeline, among other things. The following table provides additional information on the Company’s large credit relationships outstanding: |
| | | | | | | | | | | | | | | | | | |
| | Number of Relationships | | Period end balances | | Average loan balances |
| | Committed | | Outstanding | | Committed | | Outstanding |
| Committed amount at: | |
| December 31, 2015 | | | | | | | | | |
| $20.0 million and greater | 81 |
| | $ | 2,452,488 |
| | $ | 1,799,143 |
| | $ | 30,278 |
| | $ | 22,212 |
|
| $10.0 million to $19.9 million | 118 |
| | 1,641,117 |
| | 1,400,932 |
| | 13,908 |
| | 11,872 |
|
| | | | | | | | | | |
| December 31, 2014 | | | | | | | | | |
| $20.0 million and greater | 40 |
| | $ | 1,129,350 |
| | $ | 792,807 |
| | $ | 28,234 |
| | $ | 19,820 |
|
| $10.0 million to $19.9 million | 83 |
| | 1,137,672 |
| | 942,582 |
| | 13,707 |
| | 11,356 |
|
We review large credit relationships on an ongoing basis. In the qualitative factors portion of our allowance for loan loss calculation we consider the amount of loans in our portfolio that are comprised of loans over $10,000.
Industry concentrations. As of December 31, 2015 and 2014 , there were no concentrations of loans within any single industry in excess of 10% of total loans, as segregated by Standard Industrial Classification code (“SIC code”). The SIC code is a federally designed standard industrial numbering system used by the Company to categorize loans by the borrower’s type of business. The majority of the Bank’s loans are to borrowers located in the greater New York metropolitan region. The Bank has no foreign loans.
Residential Mortgage Lending. We offer conforming and non-conforming, fixed-rate and adjustable-rate residential mortgage (“ARM”) loans with maturities up to 30 years and maximum loan amounts generally up to $4,000 that are fully amortizing with monthly or bi-weekly loan payments. Our residential mortgage loan portfolio totaled $713,036, or 9.1% of our total loan portfolio at December 31, 2015.
Residential mortgage loans are generally underwritten according to Fannie Mae and Freddie Mac guidelines for loans they designate as acceptable for purchase. Loans that conform to such guidelines are referred to as “conforming loans.” We generally originate fixed-rate loans in amounts up to the maximum conforming loan limits as established by Fannie Mae and Freddie Mac, which are currently $417 in many locations in the continental U.S. and are $625.5 in high-cost areas such as New York City and surrounding counties. Private mortgage insurance is generally required for loans with loan-to-value ratios in excess of 80%. The Bank operates a residential mortgage banking and brokerage business through our financial centers located in the greater New York metropolitan area. In order to manage our exposure to rising interest rates, we sell the majority of our conforming fixed rate residential mortgage loans in the secondary market to nationally known entities including government sponsored entities such as Fannie Mae and Freddie Mac.
We also originate loans above conforming limits, referred to as “jumbo loans,” which have been underwritten to substantially the same credit standards as conforming loans. We generally originate these loans with the intent to sell, but, in some cases they may be held in our residential mortgage loan portfolio. Our bi-weekly residential mortgage loans result in shorter repayment schedules than conventional monthly mortgage loans, and are repaid through an automatic deduction from the borrower’s savings or checking account. We retained the servicing rights on a portion of loans sold; however, beginning in the fourth calendar quarter of 2013, the majority of loans sold were sold with servicing rights released. As of December 31, 2015, residential mortgage loans serviced for others, excluding loan participations, totaled approximately $204,886. Effective October 1, 2013, we transferred the servicing function for residential mortgage loans we own and service for others to a nationally recognized subsequentmortgage loan servicer.
We currently offer several ARM loan products secured by residential properties with rates that are fixed for a period ranging from six months to September 30, 2013.ten years. After the initial term, if the loan is not already refinanced, the interest rate on these loans generally resets every year based upon a contractual spread or margin above the average yield on U.S. Treasury securities, adjusted to a constant maturity of one year, as published weekly by the Federal Reserve Board and subject to certain periodic and lifetime limitations on interest rate changes. Many of the borrowers who select these loans have shorter-term credit needs than those who select long-term, fixed-rate loans. ARM loans generally pose different credit risks than fixed-rate loans primarily because the underlying debt service payments of the borrowers rise as interest rates rise, thereby increasing the potential for default.
In fiscal 2013 compensation and employee benefits increased $1.8 million, or 3.9%, to $47.8 million compared to $46.0 million in the prior year. At September 30, 2013 and 2012 we had 16 relationship teams; however, several of the teams were recruited over the course of 2012. Our full-time equivalent employees were 477 at September 30, 2013 compared to 493 at September 30, 2012. The decline in personnel, was the result of efficiencies generated by the acquisition of Gotham Bank and four branch consolidations in fiscal 2013.
Professional fees declined $854 thousandWe require title insurance on all of our residential mortgage loans, and we also require that borrowers maintain fire and extended coverage or all risk casualty insurance (and, if appropriate, flood insurance) in an amount at least equal to $3.4 million comparedthe loan balance or the replacement cost of the improvements, but in any event in an amount calculated to $4.2 million in fiscal 2012 due mainlyavoid the effect of any coinsurance clause. Residential mortgage loans generally are required to lower costs incurred in connection with loan workoutshave a mortgage escrow account from which disbursements are made for real estate taxes and collections given the improvement in our asset quality.for hazard and flood insurance.
Income Tax Consumer Lendingexpense was $11.4 million. for fiscal 2013, compared to $6.2 million for fiscal 2012We originate a variety of consumer loans, including homeowner loans, home equity lines of credit, new and used automobile loans, and personal unsecured loans, including fixed-rate installment loans and variable lines of credit. As of December 31, 2015, consumer loans totaled $299,517, or 3.8%, representing an effective tax rate of 31.1% and 23.6%, respectively. The higher effective tax rate recognized in fiscal 2013 was mainly the result of merger-related expenses incurred during the year that were fully non-tax deductible. In addition, the tax rate in fiscal 2013 relative to fiscal 2012 was impacted by a change in the proportion of municipal securities tax-exempt income and BOLI income relative to total pre-tax income.loan portfolio.
ComparisonWe offer fixed-rate, fixed-term second mortgage loans, referred to as homeowner loans, and we also offer adjustable-rate home equity lines of Financial Conditioncredit secured by junior liens on residential properties. As of December 31, 2015, homeowner loans totaled $19,378, or 0.25%, of our total loan portfolio. The disbursed portion of home equity lines of credit totaled $261,778, or 3.3%, of our total loan portfolio at September 30, 2012 and September 30, 2011
Total assets as of September 30, 2012 were $4.0 billion, an increase of $885.6 million compared to September 30, 2011. Significant contributors to the increase were the acquisition of Gotham Bank, whose assets totaled $431.4 million on the acquisition date, and seasonal funds received from municipal tax collection activity.December 31, 2015, with $137,303 remaining undisbursed.
Net loansLoan Portfolio Maturities and Yields. The following table summarizes the scheduled repayments of our loan portfolio at December 31, 2015. Demand loans, loans having no stated repayment schedule or maturity, and overdraft loans are reported as being due in one year or less. Weighted average rates are computed based on the rate of September 30, 2012 were $2.1 billion, an increase of $415.3 million, or 24.8%, over netthe loan balances of $1.7 billion at September 30, 2011. Approximately half of this increase was due to the loans acquired from Gotham Bank. Commercial real estate loans increased $369.1 million, or 52.5%, commercial & industrial loans increased $133.4 million, or 63.5%, and ADC loans decreased $31.9 million or 18.1% to $144.1 million compared to $175.9 million as of September 30, 2011, reflecting our decision to decrease ADC lending. Total loan originations, excluding loans originated for sale, were $735.7 million for fiscal 2012, while repayments were $509.1 million. The allowance for loan losses increased from $27.9 million to $28.3 million as a result of provisions for loan losses of $10.6 million and net charge-offs of $10.2 million.December 31, 2015.
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Less than one year | | One to five years | | Over five years | | Total |
| | Amount | | Rate | | Amount | | Rate | | Amount | | Rate | | Amount | | Rate |
| Commercial loans: | | | | | | | | | | | | | | | |
| Commercial & industrial | $ | 858,771 |
| | 4.19 | % | | $ | 488,179 |
| | 3.95 | % | | $ | 334,754 |
| | 3.57 | % | | $ | 1,681,704 |
| | 3.98 | % |
| Payroll finance | 221,831 |
| | 10.40 |
| | — |
| | — |
| | — |
| | — |
| | 221,831 |
| | 10.40 |
|
| Warehouse lending | 387,808 |
| | 3.18 |
| | — |
| | — |
| | — |
| | — |
| | 387,808 |
| | 3.18 |
|
| Factored receivables | 208,382 |
| | 4.44 |
| | — |
| | — |
| | — |
| | — |
| | 208,382 |
| | 4.44 |
|
| Equipment financing | 17,834 |
| | 4.63 |
| | 526,549 |
| | 4.08 |
| | 86,920 |
| | 4.20 |
| | 631,303 |
| | 4.11 |
|
| Total C&I | 1,694,626 |
| | 4.81 |
| | 1,014,728 |
| | 4.02 |
| | 421,674 |
| | 3.70 |
| | 3,131,028 |
| | 4.39 |
|
| Commercial mortgage: | | | | | | | | | | | | | | | |
| CRE | 247,064 |
| | 4.54 |
| | 1,269,970 |
| | 4.15 |
| | 1,216,317 |
| | 4.23 |
| | 2,733,351 |
| | 4.22 |
|
| Multi-family | 66,692 |
| | 4.27 |
| | 369,627 |
| | 3.74 |
| | 359,711 |
| | 4.09 |
| | 796,030 |
| | 3.94 |
|
| ADC | 120,625 |
| | 4.34 |
| | 62,247 |
| | 4.43 |
| | 3,526 |
| | 3.09 |
| | 186,398 |
| | 4.35 |
|
| Total commercial mortgage | 434,381 |
| | 4.44 |
| | 1,701,844 |
| | 4.07 |
| | 1,579,554 |
| | 4.20 |
| | 3,715,779 |
| | 4.17 |
|
| Residential mortgage | 3,937 |
| | 6.64 |
| | 13,373 |
| | 3.97 |
| | 695,726 |
| | 4.21 |
| | 713,036 |
| | 4.22 |
|
| Consumer | 8,427 |
| | 8.45 |
| | 7,939 |
| | 6.47 |
| | 283,151 |
| | 3.96 |
| | 299,517 |
| | 4.09 |
|
| Total loans | $ | 2,141,371 |
| | 4.75 | % | | $ | 2,737,884 |
| | 4.05 | % | | $ | 2,980,105 |
| | 4.20 | % | | $ | 7,859,360 |
| | 4.17 | % |
Total securities increased by $303.4 million, to $1.2 billionThe following table sets forth the composition of fixed-rate and adjustable-rate loans at September 30, 2012 from $849.9 million at September 30, 2011. Securities purchases were $774.7 million, sales of securities were $344.4 million,December 31, 2015 that are contractually due after December 31, 2016:
|
| | | | | | | | | | | |
| | Fixed | | Adjustable | | Total |
| Commercial & industrial | $ | 483,739 |
| | $ | 339,194 |
| | $ | 822,933 |
|
| Equipment financing | 613,469 |
| | — |
| | 613,469 |
|
| CRE | 1,367,039 |
| | 1,119,248 |
| | 2,486,287 |
|
| Multi-family | 352,636 |
| | 376,702 |
| | 729,338 |
|
| ADC | 3,733 |
| | 62,040 |
| | 65,773 |
|
| Residential mortgage | 402,822 |
| | 306,277 |
| | 709,099 |
|
| Consumer | 23,611 |
| | 267,479 |
| | 291,090 |
|
| Total loans | $ | 3,247,049 |
| | $ | 2,470,940 |
| | $ | 5,717,989 |
|
All payroll finance, warehouse lending and maturities, calls, and repayments were $237.5 million.factored receivables are contractually due within 12 months.
GoodwillDelinquent Loans, Troubled Debt Restructuring, Impaired Loans, Other Real Estate Owned and other intangiblesClassified Assets
Loan Portfolio Delinquencies. totaled $170.4 millionThe following table sets forth certain information on our loan portfolio delinquencies at September 30, 2012 an increase of $4.9 million. The increase is mainly related to the August 2012 acquisition of Gotham Bank offset by decreases relating to the sale of assets of Hudson Valley Investment Advisors.dates indicated:
Depositsas of September 30, 2012 were $3.1 billion, an increase of $814.5 million, or 35.5%, from September 30, 2011. Included in deposits for September 30, 2012 were approximately $425.0 million in short-term seasonal municipal deposits compared to $284.0 million at September 30, 2011. As of September 30, 2012, transaction accounts were 44.9% of deposits, or $1.4 billion compared to $1.1 billion or 45.9% at September 30, 2011. As of September 30, 2012, savings deposits were $506.5 million, an increase of $76.7 million or 17.8%. Money market accounts increased $312.2 million or 61.3% to $821.7 million at September 30, 2012 and certificates of deposit increased $83.8 million or 27.6% to $387.5 million.
Borrowings decreased by $29.8 million, or 8.0%, from September 30, 2011, to $345.2 million primarily due to the maturity of the Company’s FDIC guaranteed borrowing. The Company restructured $5.0 million of FHLB advances during the first quarter of fiscal 2012 which had a weighted average rate of 4.04% and duration of 1.5 years, into new borrowings with a weighted average rate of 2.37%, and duration of 1.6 years. Prepayment penalties of $278 thousand associated with the modifications are being amortized into interest expense over the modification period on a level yield basis.
Stockholders’ equity increased $60.0 million from September 30, 2011 to $491.1 million at September 30, 2012. The increase was primarily due to an increase of $46.5 million in additional paid-in capital from the issuance of 6,258,504 shares of common stock at a price of $7.35 per share in connection with the acquisition of Gotham Bank. The Company received net proceeds of approximately $46.0 million. The Company’s retained earnings increased $10.8 million and accumulated other comprehensive income increased by $1.8 million. During fiscal 2012, the Company did not repurchase shares of common stock under the treasury repurchase program.
As of September 30, 2012, the Bank’s Tier 1 leverage ratio was 7.49% and consolidated tangible equity as a percentage of tangible assets was 8.30%.
|
| | | | | | | | | | | | | | | | | |
| | Loans delinquent for | | | | |
| | 30-89 Days | | 90 days or more still accruing & non-accrual | | Total |
| | Number | | Amount | | Number | | Amount | | Number | | Amount |
| At December 31, 2015: | | | | | | | | | | | |
| Commercial & industrial | 76 | | $ | 40,440 |
| | 37 | | $ | 10,629 |
| | 113 | | $ | 51,069 |
|
| Payroll finance | 2 | | 349 |
| | 2 | | 88 |
| | 4 | | 437 |
|
| Factored receivables | — | | — |
| | 2 | | 220 |
| | 2 | | 220 |
|
| Equipment finance | 17 | | 2,603 |
| | 16 | | 1,644 |
| | 33 | | 4,247 |
|
| CRE | 15 | | 9,938 |
| | 46 | | 20,742 |
| | 61 | | 30,680 |
|
| Multi-family | 1 | | 2,485 |
| | 5 | | 1,717 |
| | 6 | | 4,202 |
|
| ADC | — | | — |
| | 7 | | 3,783 |
| | 7 | | 3,783 |
|
| Residential mortgage | 28 | | 6,911 |
| | 91 | | 19,680 |
| | 119 | | 26,591 |
|
| Consumer | 64 | | 5,270 |
| | 93 | | 7,908 |
| | 157 | | 13,178 |
|
| | 203 | | $ | 67,996 |
| | 299 | | $ | 66,411 |
| | 502 | | $ | 134,407 |
|
| At December 31, 2014: | | | | | | | | | | | |
| Commercial & industrial | 56 | | $ | 7,156 |
| | 15 | | $ | 5,035 |
| | 71 | | $ | 12,191 |
|
| Payroll finance | — | | — |
| | 3 | | 115 |
| | 3 | | 115 |
|
| Factored receivables | — | | — |
| | 2 | | 244 |
| | 2 | | 244 |
|
| Equipment finance | 2 | | 726 |
| | 4 | | 240 |
| | 6 | | 966 |
|
| CRE | 32 | | 13,306 |
| | 46 | | 11,738 |
| | 78 | | 25,044 |
|
| Multi-family | 1 | | 317 |
| | 3 | | 428 |
| | 4 | | 745 |
|
| ADC | 7 | | 851 |
| | 7 | | 6,413 |
| | 14 | | 7,264 |
|
| Residential mortgage | 28 | | 3,910 |
| | 94 | | 16,259 |
| | 122 | | 20,169 |
|
| Consumer | 50 | | 2,717 |
| | 77 | | 6,170 |
| | 127 | | 8,887 |
|
| | 176 | | $ | 28,983 |
| | 251 | | $ | 46,642 |
| | 427 | | $ | 75,625 |
|
| At September 30, 2014: | | | | | | | | | | | |
| Commercial & industrial | 15 | | $ | 9,359 |
| | 8 | | $ | 4,324 |
| | 23 | | $ | 13,683 |
|
| Payroll finance | 1 | | 99 |
| | 2 | | 346 |
| | 3 | | 445 |
|
| Factored receivables | — | | — |
| | 2 | | 370 |
| | 2 | | 370 |
|
| Equipment finance | 2 | | 851 |
| | 1 | | 262 |
| | 3 | | 1,113 |
|
| CRE | 6 | | 4,281 |
| | 36 | | 10,966 |
| | 42 | | 15,247 |
|
| Multi-family | — | | — |
| | 2 | | 131 |
| | 2 | | 131 |
|
| ADC | 1 | | 56 |
| | 21 | | 12,361 |
| | 22 | | 12,417 |
|
| Residential mortgage | 41 | | 6,059 |
| | 97 | | 16,460 |
| | 138 | | 22,519 |
|
| Consumer | 48 | | 4,574 |
| | 61 | | 5,743 |
| | 109 | | 10,317 |
|
| Total | 114 | | $ | 25,279 |
| | 230 | | $ | 50,963 |
| | 344 | | $ | 76,242 |
|
| At September 30, 2013: | | | | | | | | | | | |
| C&I | 5 | | $ | 180 |
| | 8 | | $ | 789 |
| | 13 | | $ | 969 |
|
| CRE | 8 | | 4,335 |
| | 26 | | 8,769 |
| | 34 | | 13,104 |
|
| ADC | 2 | | 768 |
| | 11 | | 5,420 |
| | 13 | | 6,188 |
|
| Residential Mortgage | 6 | | 621 |
| | 52 | | 9,316 |
| | 58 | | 9,937 |
|
| Consumer | 14 | | 566 |
| | 28 | | 2,612 |
| | 42 | | 3,178 |
|
| Total | 35 | | $ | 6,470 |
| | 125 | | $ | 26,906 |
| | 160 | | $ | 33,376 |
|
| At September 30, 2012: | | | | | | | | | | | |
| C&I | 7 | | $ | 237 |
| | 2 | | $ | 344 |
| | 9 | | $ | 581 |
|
| CRE | 7 | | 1,875 |
| | 30 | | 10,453 |
| | 37 | | 12,328 |
|
| ADC | 9 | | 7,067 |
| | 29 | | 15,404 |
| | 38 | | 22,471 |
|
| Residential mortgage | 10 | | 1,352 |
| | 56 | | 11,314 |
| | 66 | | 12,666 |
|
| Consumer | 22 | | 1,816 |
| | 21 | | 2,299 |
| | 43 | | 4,115 |
|
| Total | 55 | | $ | 12,347 |
| | 138 | | $ | 39,814 |
| | 193 | | $ | 52,161 |
|
Collection Procedures for Residential and Commercial Mortgage Loans and Consumer Loans. A late payment notice is generated after the 16th day of the loan payment due date requesting the payment due plus any late charge assessed. Legal action, notwithstanding ongoing collection efforts, is generally initiated 90 days after the original due date for failure to make payment. Unsecured consumer loans are generally charged-off after 120 days. For commercial loans, procedures vary depending on individual circumstances.
Past Due, Non-Performing Loans, Non-Performing Assets (Risk Elements). The table below sets forth the amounts and categories of our non-performing assets at the dates indicated.
|
| | | | | | | | | | | | | | | | | | | |
| | December 31, | | September 30, |
| | 2015 | | 2014 | | 2014 | | 2013 | | 2012 |
| Non-accrual loans: | | | | | | | | | |
| Commercial & industrial | $ | 10,142 |
| | $ | 4,975 |
| | $ | 4,324 |
| | $ | 500 |
| | $ | 344 |
|
| Factored receivables | 220 |
| | 244 |
| | 370 |
| | — |
| | — |
|
| Equipment finance | 1,644 |
| | 240 |
| | 262 |
| | — |
| | — |
|
| CRE | 20,742 |
| | 11,286 |
| | 10,445 |
| | 5,573 |
| | 7,319 |
|
| Multi-family | 1,717 |
| | 272 |
| | 131 |
| | 1,622 |
| | 1,496 |
|
| ADC | 3,700 |
| | 6,413 |
| | 12,361 |
| | 5,420 |
| | 15,404 |
|
| Residential mortgage | 19,680 |
| | 16,259 |
| | 15,926 |
| | 7,484 |
| | 9,051 |
|
| Consumer | 7,892 |
| | 6,170 |
| | 5,743 |
| | 2,208 |
| | 1,830 |
|
| Accruing loans past due 90 days or more | 674 |
| | 783 |
| | 1,401 |
| | 4,099 |
| | 4,370 |
|
| Total non-performing loans | 66,411 |
| | 46,642 |
| | 50,963 |
| | 26,906 |
| | 39,814 |
|
| OREO | 14,614 |
| | 5,867 |
| | 7,580 |
| | 6,022 |
| | 6,403 |
|
| Total non-performing assets | $ | 81,025 |
| | $ | 52,509 |
| | $ | 58,543 |
| | $ | 32,928 |
| | $ | 46,217 |
|
| TDRs accruing and not included above | $ | 13,701 |
| | $ | 17,261 |
| | $ | 17,653 |
| | $ | 23,895 |
| | $ | 14,077 |
|
| Ratios: | | | | | | | | | |
| Non-performing loans to total loans | 0.84 | % | | 0.97 | % | | 1.07 | % | | 1.12 | % | | 1.87 | % |
| Non-performing assets to total assets | 0.68 |
| | 0.71 |
| | 0.80 |
| | 0.81 |
| | 1.15 |
|
Loans are reviewed on a regular basis and are placed on non-accrual status upon the earlier of (i) when full payment of principal or interest is in doubt; or (ii) when either principal or interest is 90 days or more past due, unless the loan is well secured and in the process of collection. Interest accrued and unpaid at the time a loan is placed on non-accrual status is reversed against interest income. Interest payments received on non-accrual loans are generally applied to the principal balance of the outstanding loan. However, based on an assessment of the borrower’s financial condition and payment history, an interest payment may be applied to interest income on a cash basis. Appraisals are performed at least annually on classifieds loans. At December 31, 2015, we had non-accrual loans of $65,737, and we had $674 of loans 90 days past due and still accruing interest which were well secured and in the process of collection. At December 31, 2014 non-accrual loans were $45,859 and we had $783 of loans 90 days past due and still accruing interest. At September 30, 2014, we had non-accrual loans of $49,562 and $1,401 of loans 90 days past due and still accruing interest.
Non-performing loans (“NPLs”) increased $19,769 at December 31, 2015 to $66,411 compared to $46,642 at December 31, 2014. The increase was mainly due to the HVB Merger. At December 31, 2015, purchase credit impaired loans acquired in the HVB Merger and Provident Merger included in the non-performing totals above were $20,025. This was the primary factor contributing to the increase in C&I, CRE and residential mortgage NPLs decreasedbetween the periods. See additional information regarding purchase credit impaired loans below.
At December 31, 2014 NPLs declined $4,321 to $39.8 million$46,642 from $50,963 at September 30, 20122014. The decline was mainly due to the resolution of an ADC loan that had shown sustained performance for an extended period of time and was returned to accrual status during the transition period.
At September 30, 2014, NPLs increased $24,057 to $50,963 compared to $40.6 million$26,906 at September 30, 2011. However,2013 mainly due to non-performing loans peakedacquired in the Provident Merger. Included in this increase were $3,763 of loans that were identified as purchased credit impaired loans, of which $1,523 were commercial & industrial loans, $2,101 were residential mortgage loans and $139 were CRE loans. NPLs in the ADC portfolio increased by $6,941 in fiscal 2014 to $12,361; the increase consisted of three loans which are well secured and one loan which performed as expected in fiscal 2014 and was returned to accrual status.
Residential mortgage NPLs increased $3,421 in calendar 2015 to $19,680 compared to $16,259 at $52.0 million at MarchDecember 31, 2012.2014. The increase duringwas mainly due to non-accrual loans acquired in the first halfHVB Merger. Residential mortgage NPLs increased $333 in the transition period after increasing $8,442 in fiscal 2014. The level of our residential mortgage NPLs is mainly attributed to the extended period of time necessary to foreclose on residential mortgages in New York state. In fiscal 2014, we outsourced all residential mortgage servicing activities to a third-party vendor. This outsourcing relationship has allowed us to better service our residential mortgage portfolio and manager our loan servicing operating expenses.
Troubled Debt Restructuring. The Company has formally modified loans to certain borrowers who experienced financial difficulty. If the terms of the modification include a concession, as defined by GAAP, the loan is considered a troubled debt restructuring (“TDR”), which are also considered impaired loans. Nearly all of these loans are secured by real estate. Total TDRs were $22,292 at December 31, 2015, of which $8,591 were non-accrual, $13,047 were current and performing according to terms and accruing interest income, and $654 were 30 to 89 days past due. A TDR accruing interest income is a loan that at the time of modification, was not in non-accrual status and is continuing to perform in accordance with the terms of the modification, or a loan that had been placed on non-accrual that has demonstrated a period of satisfactory performance after modification, generally at least six months. Loan modifications include actions such as extension of maturity date or the lowering of interest rates and monthly payments. As of December 31, 2015, there were no commitments to lend additional funds to borrowers with loans that have been modified.
Other Real Estate Owned. Real estate acquired as a result of foreclosure or by deed in lieu of foreclosure is classified as OREO until such time as it is sold. In addition, financial centers that were closed or consolidated due to the Provident Merger that are held for sale are also classified as OREO. When real estate is transfered to OREO, it is recorded at the lower of our investment in the loan/asset or fair value less cost to sell. If the fair value less cost to sell is less than the loan balance, the difference is charged against the allowance for loan losses. If the fair value of a financial center that we hold for sale is less than its prior carrying value, we recognize a charge included in other operating expense to reduce the recorded value of the investment to fair value, less costs to sell. At December 31, 2015, we had OREO properties with a recorded balance of $14,614. After transfer to OREO, we regularly update the fair value of the property. Subsequent declines in fair value are charged to current earnings and included in other non-interest expense as part of OREO expense.
Classification of Assets. Our policies, consistent with regulatory guidelines, provide for the classification of loans and other assets that are considered to be of lesser quality such as substandard, doubtful, or loss assets. An asset is considered substandard if it is inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any. Substandard assets include those characterized by the distinct possibility that the Bank will sustain some loss if the deficiencies are not corrected. Assets classified as “doubtful” have all of the weaknesses inherent in those classified as “substandard” with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions, and values, highly questionable and improbable. Assets classified as “loss” are those considered uncollectible and of such little value that their continuance as assets is not warranted and are charged-off. Assets that do not expose us to risk sufficient to warrant classification in one of the aforementioned categories, but which possess potential weaknesses that deserve our close attention, are designated as “special mention”. As of December 31, 2015, we had $68,003 of assets designated as “special mention”.
Our determination as to the classification of our assets and the amount of our loan loss allowance are subject to review by our regulators, which can order the establishment of an additional valuation allowance. Management regularly reviews our asset portfolio to determine whether any assets require classification in accordance with applicable regulations. On the basis of management’s review of our assets at December 31, 2015, classified assets consisted of loans of $130,378 and OREO of $14,614.
For the year primarily resulted from deteriorationended December 31, 2015, gross interest income that would have been recorded had the non-accrual loans at the end of calendar 2015 remained on accrual status throughout the period amounted to approximately $2,466. Interest income actually recognized on such loans totaled $336.
Allowance for Loan Losses. We believe the allowance for loan losses is critical to the understanding of our financial condition and results of operations. Selection and application of this “critical accounting policy” involves judgments, estimates, and uncertainties that are susceptible to change. In the event that different assumptions or conditions were to occur, and depending upon the severity of such changes, materially different financial conditions or results of operations are a reasonable possibility. In addition, as an integral part of their examination process, our regulatory agencies 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.
We maintain our allowance for loan losses at a level that the Company believes is adequate to absorb probable losses inherent in our ADCthe existing loan portfolio combined withbased on an increase in non-performingevaluation of the collectibility of loans, underlying collateral, geographic and other concentrations, and prior loss experience. We use a risk rating system for all commercial loans, including commercial real estate loans, to evaluate the adequacy of the allowance for loan losses. With this system, each loan, with the exception of those included in large groups of smaller-
balance homogeneous loans, is risk rated between one and ten, by credit administration, loan review or loan committee, with one being the best case and ten being a loss or the worst case. Loans with risk ratings between seven and nine are monitored more closely by the credit administration team and when measured for impairment, if impairment is found that portion is charged-off against the allowance for loan losses. We calculate an average historical loss experience by loan type that is a twelve quarter average for commercial loans and eight quarter average for consumer loans. ThroughTo the loss experience, we apply individual qualitative loss factors that result in an overall loss factor at an appropriate level for the allowance for loan losses for a combinationparticular loan type. These qualitative loss factors are determined by management, based on historical loss experience for the applicable loan category, and are adjusted to reflect our evaluation of:
levels of, and trends in, delinquencies and non-accruals;
trends in volume and terms of loans;
effects of any changes in lending policies and procedures;
experience, ability, and depth of lending management and staff;
national and local economic trends and conditions;
concentrations of credit by such factors as location, industry, inter-relationships, and borrower; and
for commercial loans, trends in risk ratings.
The allowance for loan restructurings, saleslosses also includes an element for estimated probable but undetected losses. We analyzes loans by two broad segments or classes: real estate secured loans and partial charge-offs,loans that are either unsecured or secured by other collateral. The segments or classes considered real estate secured are: residential mortgage loans; CRE loans; multi-family loans; ADC loans; homeowner loans; and home equity lines of credit. The segments or classes considered unsecured or secured by other than real estate collateral are: C&I loans, which includes asset based loans; payroll finance loans; warehouse lending; factored receivables; equipment finance loans; business banking C&I loans and consumer loans. In all segments or classes, significant loans are reviewed for impairment once they are placed in a non-accrual status or are assessed as a TDR. Generally we reducedconsider a homogeneous residential mortgage loan or home equity line of credit to be significant if our investment in the NPLs duringloan is greater than $500. If a loan is deemed to be impaired in one of the second halfreal estate secured segments, and it is anticipated that our ultimate source of fiscal 2012. repayment will be through foreclosure and sale of the underlying collateral, it is generally considered collateral dependent. If the value of the collateral securing a collateral dependent impaired loan is less than the carrying value of the loan, a charge-off is recognized equal to the difference between the value of the collateral and the book value of the loan. In addition, included in impairment losses are amounts recognized for estimated costs to hold and to liquidate the collateral. These costs to hold and liquidate are generally in the range of 22% and are applied to all loans collateralized by real estate.
For loans in the consumer segment,we charge-off the full amount of the loan when it becomes 90 to 120 days or more past due, or earlier in the case of bankruptcy, after giving effect to any cash or marketable securities pledged as collateral for the loan. For C&I loans we conduct a cash flow projection, and charge-off the difference between the net present value of the cash flows discounted at the effective note rate and the carrying value of the loan, and may recognize an additional charge-off amount to account for the imprecision of our estimates.
ADC lending exposes us to greater credit risk than permanent mortgage financing. The repayment of ADC loans often depends on the sale of the property to third parties or the availability of permanent financing upon completion of all improvements. In the event we make an acquisition loan on property that is not yet approved for the planned development, there is the risk that approvals will not be granted or will be delayed. These events may adversely affect the borrower and the collateral value of the property. ADC loans also expose us to the risk that improvements will not be completed on time in accordance with specifications and projected costs. In addition, the ultimate sale or rental of the property may not occur as anticipated. All of these factors are considered as part of the underwriting, structuring and pricing of the loan. We have deemphasized acquisition and development loans, and make construction loans to well qualified borrowers.
CRE loans subject us to the risks that the property securing the loan may not generate sufficient cash flow to service the debt or the borrower may use the cash flow for other purposes. In addition, the foreclosure process, if necessary, may be slow and properties may deteriorate in the process. The market values are also subject to a wide variety of factors, including general economic conditions, industry specific factors, environmental factors, interest rates and the availability and terms of credit.
Commercial & industrial lending also exposes us to risk because repayment depends on the successful operation of the business which is subject to a wide range of risks and uncertainties. In addition, the ability to successfully liquidate collateral, if any, is subject to a variety of risks because we must gain control of assets used in the borrower’s business before liquidating, which we cannot be assured of doing, and the value in liquidation may be uncertain.
Allowance for Loan Losses. The following table sets forth activity in our allowance for loan losses for the years indicated.
|
| | | | | | | | | | | | | | | | | | | |
| | For the year ended | | For the three months ended | | For the fiscal year ended |
| | December 31, | | December 31, | | September 30, |
| | 2015 | | 2014 | | 2014 | | 2013 | | 2012 |
| Balance at beginning of period | $ | 42,374 |
| | $ | 40,612 |
| | $ | 28,877 |
| | $ | 28,282 |
| | $ | 27,917 |
|
| Charge-offs: | | | | | | | | | |
| Commercial & industrial | (1,575 | ) | | (733 | ) | | (2,901 | ) | | (1,354 | ) | | (1,526 | ) |
| Payroll finance | (406 | ) | | — |
| | (758 | ) | | — |
| | — |
|
| Factored receivables | (291 | ) | | — |
| | (211 | ) | | — |
| | — |
|
| Equipment finance | (3,423 | ) | | — |
| | (1,074 | ) | | — |
| | — |
|
| CRE | (1,695 | ) | | (172 | ) | | (741 | ) | | (3,285 | ) | | (2,682 | ) |
| Multi-family | (17 | ) | | — |
| | (418 | ) | | (440 | ) | | (25 | ) |
| ADC | — |
| | (488 | ) | | (1,479 | ) | | (3,422 | ) | | (4,124 | ) |
| Residential mortgage | (1,251 | ) | | (310 | ) | | (963 | ) | | (2,547 | ) | | (2,551 | ) |
| Consumer | (2,360 | ) | | (203 | ) | | (786 | ) | | (2,009 | ) | | (1,901 | ) |
| Total charge-offs | (11,018 | ) | | (1,906 | ) | | (9,331 | ) | | (13,057 | ) | | (12,809 | ) |
| Recoveries: | | | | | | | | | |
| Commercial & industrial | 1,720 |
| | 638 |
| | 1,073 |
| | 410 |
| | 1,116 |
|
| Payroll finance | 35 |
| | — |
| | — |
| | — |
| | — |
|
| Factored receivables | 60 |
| | — |
| | 9 |
| | — |
| | — |
|
| Equipment finance | 825 |
| | — |
| | 194 |
| | — |
| | — |
|
| CRE | 148 |
| | 1 |
| | 161 |
| | 567 |
| | 528 |
|
| Multi-family | 9 |
| | — |
| | 92 |
| | 10 |
| | — |
|
| ADC | 52 |
| | — |
| | — |
| | 182 |
| | 299 |
|
| Residential mortgage | 92 |
| | 2 |
| | 323 |
| | 101 |
| | 356 |
|
| Consumer | 148 |
| | 27 |
| | 114 |
| | 232 |
| | 263 |
|
| Total recoveries | 3,089 |
| | 668 |
| | 1,966 |
| | 1,502 |
| | 2,562 |
|
| Net charge-offs | (7,929 | ) | | (1,238 | ) | | (7,365 | ) | | (11,555 | ) | | (10,247 | ) |
| Provision for loan losses | 15,700 |
| | $ | 3,000 |
| | 19,100 |
| | 12,150 |
| | 10,612 |
|
| Balance at end of period | $ | 50,145 |
| | $ | 42,374 |
| | $ | 40,612 |
| | $ | 28,877 |
| | $ | 28,282 |
|
| Ratios: | | | | | | | | | |
| Net charge-offs to average loans outstanding | 0.13 | % | | 0.10 | % | | 0.24 | % | | 0.52 | % | | 0.56 | % |
| Allowance for loan losses to NPLs | 90.8 |
| | 90.8 |
| | 80.0 |
| | 107.0 |
| | 71.0 |
|
| Allowance for loan losses to total loans | 0.64 |
| | 0.88 |
| | 0.85 |
| | 1.20 |
| | 1.33 |
|
The allowance for loan losses increased from $27.9 million$42,374 at December 31, 2014 to $28.3 million$50,145 at December 31, 2015 as the provisionsprovision for loan losses exceeded net charge-offs by $365,000.$7,771 in the period. The increase in the allowance was mainly due to the increase in the loan portfolio. Net charge-offs to average loans outstanding were 0.13% for calendar 2015. The allowance for loan losses at September 30, 2012 was $28.3 million, whichDecember 31, 2015 represented 71.0%90.8% of non-performing loans and 1.48%0.64% of ourthe total loan portfolio. Net charge-offs for the year ended September 30, 2012transition period were $10.2 million,$1,238, or 0.56%0.10% of average loans on an annualized basis. Net charge-offs to average loans outstanding were 0.24% for fiscal 2014 compared to net charge-offs of $19.5 million, or 1.17% of average loans0.52% for the prior year.fiscal 2013. The decrease in net charge-offs isas a percentage of average loans between fiscal 2014 and fiscal 2013 was mostly due to decreasesimproved collateral values and performance in net charge-offs in commercial & industrialour CRE and ADC loans. Fiscal 2011included $8.9 million in net charge-offs in the ADC portfolio of which $7.5 million related to one borrower.loan portfolios.
Our classified loans, those rated substandard or worse, declined from $94.0 million at September 30, 2011 to $88.7 million at September 30, 2012 primarily driven by a reduction in our ADC loans commensurate with the reduction in the non-performing loans from this segment. Special mention loans, however, increased from $23.0 million at September 30, 2011 to $42.4 million at September 30 2012, driven by increases in our commercial portfolios. Increases in commercial & industrial special mention loans were primarily caused by a downgrade of a loan to a substantial borrower that was used to partially finance a residential housing development that has been paying according to terms. The increase in commercial real estate portfolio special mention loans primarily resulted from upgrades from the substandard category.
Comparison of Operating Results for the Years Ended September 30, 2012 and September 30, 2011
Net income for the fiscal year ended September 30, 2012 was $19.9 million or $0.52 per diluted share. This compares to net income of $11.7 million, or $0.31 per diluted share for the fiscal year ended September 30, 2011.
Interest Income on a tax equivalent basis for the fiscal year ended September 30, 2012 increased to $100.0 million, an increase of $4.7 million, or 4.9 %, compared to the prior year. Average interest-earning assets were $2.8 billion, an increase of $234.2 million, or 9.0%, over the prior year. Average loan balances increased by $140.8 million, average balances at the Federal Reserve Bank increased $37.3 million and average balances of other earning assets decreased by $2.0 million, primarily FHLB stock. On a tax-equivalent basis, average yields on interest-earning assets decreased by 30 basis points to 4.17%, from 4.47% for the prior year. The primary reasons for the decrease in asset yields are declines in general market interest rates on new lending activity, and the sale of securities with subsequent reinvestment at lower yields.
Interest income on loans for the year ended September 30, 2012 increased $1.5 million to $91.0 million from $89.5 million for the prior fiscal year. Interest income on commercial loans increased to $61.2 million, as compared to commercial loan interest income of $57.4 million for the prior fiscal year. Average balances of commercial loans grew $173.4 million to $1.2 billion, with a 47 basis points decrease in the average yield. Interest income on consumer loans decreased to $10.1 million, as compared to consumer loan interest income of $10.5 million for the prior fiscal year. Average balances of consumer loans decreased $11.9 million to $221.4 million, with an increase of 5 basis points in the average yield. Consumer loans adjustable with the prime rate totaled $162.2 million at September 30, 2012. Income earned on residential mortgage loans was $19.7 million for the year ended September 30, 2012, down $1.9 million from the prior year as a result of refinancing activity at lower rates and lower outstanding average balances.
Tax-equivalent interest income on securities, balances at the Federal Reserve Bank and other earning assets increased to $27.5 million for the year ended September 30, 2012, compared to $27.1 million for the prior year. This was due to higher balances of securities offset by a tax-equivalent decrease of 22 basis points in yields. The Company sold $344.4 million in securities and recorded $10.5 million in net gains on sale. Further during fiscal 2012, proceeds totaling $237.5 million in securities maturities and repayments were reinvested at current market rates.
Interest Expense for fiscal 2012 decreased by $2.8 million to $18.6 million, a decrease of 12.9% compared to interest expense of $21.3 million for the prior fiscal year. The decrease in interest expense was primarily due to a decrease in balances on average borrowings and lower rates paid on interest bearing deposits. Rates paid on interest bearing liabilities decreased to 0.84% from 1.05% in fiscal 2011. The average interest rate paid on certificates of deposit decreased by six basis points to 0.87% for the year ended September 30, 2012, from 0.93% for the prior year. The rates paid on NOW accounts decreased seven basis points for fiscal 2012 as compared to fiscal 2011. The average cost of borrowings increased to 3.63% at September 30, 2012 from 3.56% in 2011; however, average borrowings balance decreased by $34.2 million. Further, during the year, the Bank restructured $5.0 million in FHLB advances and paid $278 thousand in prepayment fees as part of the modification.
Net Interest Income for the fiscal year ended September 30, 2012 was $96.5 million, compared to $91.3 million for the year ended September 30, 2011. The tax equivalent net interest margin decreased by 14 basis points to 3.51%. The main component of this decrease relates to the fact that the Bank’s cash position throughout the year was higher than normal, and that cash was placed in lower yielding investments. Additionally, loans originated during the year were at lower yields than the historical weighted average book yield.
Provision for Loan Losses. We recorded $10.6 million$15,700 in loan loss provisionsprovision for the year ended September 30, 2012calendar 2015 compared to $16.6 million$19,100 in fiscal 2014 and $12,150 in fiscal 2013. Provision for loan loss expense in 2015 mainly reflected the amount we added to the allowance for loan losses
for organic loan growth and for loans acquired in the prior year, a decrease of $6.0 million. We decreasedHVB Merger that were initially recorded at fair value and in accordance with GAAP that did not carry an allowance for loan losses at the acquisition date, but have since been renewed or otherwise transitioned into our allowance for loan loss analysis. The decline in provision expense in calendar 2015 compared to fiscal 2014 was due to decreased net charge-offs,the loans acquired in the Provident Merger. The loans acquired in the Provident Merger included specialty finance loans, the majority of which were $10.2 millionincorporated into our allowance for loan loss analysis within a 12 month period. The loans acquired in the HVB Merger were more concentrated in real estate and are being incorporated into our allowance for loan losses analysis over a longer period of time. The increase of $6,950 in fiscal 2012,2014 compared to $19.5 millionfiscal 2013 reflected loans acquired in the previous year. The ADCProvident Merger that were initially recorded at fair value and in accordance with GAAP, did not carry an allowance for loan segment continued to experience higher levels of charge-offslosses at the acquisition date. In the transition period and in comparison to the other segmentsfiscal 2014, we recorded provision for loan losses as a result of real estate market conditions.organic loan growth and loans acquired in the Provident Merger that had been renewed since the merger date.
Our historical loan loss experience indicates classified loans, which are those rated substandard or worse, require higher levels of provision and allowance for loan losses than loans that are not classified. Classified loans increased to $130,378 in calendar 2015 from $74,901 at December 31, 2014. This $55,477 increase was primarily comprised of increases in C&I loans and CRE loans. The remaining charge-offs were concentratedincrease in write-downs of mortgage secured non-performingCRE loans based on declining collateral values. Prior year net charge-offs were at an all-time highwas mainly due to recording $8.9 million of charge-offsthe HVB Merger. The increase in the ADC portfolio, including $7.5 million inclassified C&I loans was mainly due to one relationship, as sale activity in residential housing subdivisions dropped sharply in the second half of fiscal year 2011.
During the year, our specialtaxi medallion relationship. Special mention loans increased from $23.0 million$31,318 to $68,003 primarily due to the HVB Merger.
Taxi Medallion Loans. At December 31, 2015, we had $61,950, or 0.79%, of total portfolio loans collateralized by taxi medallions. New York City taxi medallion loans collateralized $56,780, or 91.7% of tax medallion loans, the remainder are collateralized by Newark, NJ and Chicago, IL taxi medallions. In the fourth quarter of 2015, we downgraded one of our four taxi medallion borrower relationships in the amount of $24,032 to substandard. We are closely monitoring the collateral values, cash flows and performance of these loans.
Impaired Loans. A loan is impaired when it is probable we will be unable to collect all amounts due according to the contractual terms of the loan agreement. Impaired loan values are based on one of three measures: (i) the present value of expected future cash flows discounted at the loan’s effective interest rate; (ii) the loan’s observable market price; or (iii) the fair value of the collateral if the loan is collateral dependent. If the measure of an impaired loan is less than its recorded investment, the Bank’s practice is to write-down the loan against the allowance for loan losses so the recorded investment matches the impaired value of the loan. Impaired loans generally include a portion of non-performing loans and accruing and performing TDR loans. At December 31, 2015, we had $28,372 in impaired loans compared to $31,023 at December 31, 2014, $36,208 at September 30, 2011 to $42.4 million2014 and $36,821 at September 30, 2012, while our substandard2013. The decline between December 31, 2015 and doubtfulDecember 31, 2014 of $2,651, was principally due to a decline of $2,955 in impaired ADC loans. This decline in impaired ADC loans decreased from $94.0 millionwas mainly due to $88.7 million. All significantone relationship in which we charged-off and transferred a portion of the collateral to OREO. The decline of $5,185 between December 31, 2014 and September 30, 2014 was mainly due to a decline in impaired ADC loans, classified substandard or special mention are reviewed for impairment. As awhich was the result of our review we establishedthe return to accrual status of a specific reserve, which totaled $3.2 million atpreviously impaired loan relationship. The balance of impaired loans was relatively unchanged between September 30, 2012.2014 and September 30, 2013 as impaired loans acquired in the Provident Merger were offset by the resolution of existing impaired loans.
Non-interest income was $32.2 millionIn fiscal 2013, we modified the methodology we use to determine the allowance for the fiscal year ended September 30, 2012 compared to $29.9 millionloan losses required for the fiscal year ended September 30, 2011. Income on securities sales, deposit fees and service charges, investment management fees, net increases in the cash surrender value of BOLI contracts, and net gains on the sale of loans made up the majority of non-interest income. During fiscal 2012, the Company recorded gains on sales of investment securities totaling $10.5 million compared to $10.0 million for the prior year. Deposit fees and service charges increased by $566,000, or 5.24%. During fiscal 2012 the Company originated and sold $80.6 million in residential mortgage loans and recorded $1.9 millionequity lines of credit. In prior periods, we evaluated these loans for impairment on an individual basis. We now evaluate residential mortgage loans and equity lines of credit with an outstanding balance of $500 or less on a homogeneous pool basis. This modified approach to our methodology did not have a material impact on the allowance for loan losses.
Purchased Credit Impaired (“PCI”) Loans. A PCI loan is an acquired loan that has demonstrated evidence of deterioration in gains comparedcredit quality subsequent to $49.8 millionorigination. As of December 31, 2015, the balance of PCI loans was $85,293 and included PCI loans acquired in the HVB Merger and Provident Merger of $20,025, which are accounted for under the cost-recovery method and were included in our non-accrual loan totals above. The remaining $65,268 of PCI loans sold with $1.0 millionare accounted for under applicable guidance which results in gainsan accretable yield that represents the prior year.amount of expected cash flows that exceeds the initial investment in the loan. The balance of PCI loans was $3,415 at December 31, 2014 and consisted of loans acquired in the Provident Merger. See the tables of loans evaluated for impairment by segment and changes in accretable yield for PCI loans in Note 4. “Portfolio Loans” in the notes to consolidated financial statements for additional information.
Non-interest expenseAllocation of Allowance for Loan Losses. The following tables set forth the allowance for loan losses allocated by loan category, the total loan balances by category (excluding loans held for sale), and the percent of loans in each category to total loans at the dates indicated. The allowance for loan losses allocated to each category is not necessarily indicative of future losses in any particular category and does not restrict the use of the allowance to absorb losses in other categories.
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | December 31, | | September 30, |
| | 2015 | | 2014 | | 2014 |
| | Allowance for loan losses | | Loan balance | | % of total loans | | Allowance for loan losses | | Loan balance | | % of total loans | | Allowance for loan losses | | Loan balance | | % of total loans |
| Commercial & industrial | $ | 13,262 |
| | $ | 1,681,704 |
| | 21.4 | % | | $ | 11,027 |
| | $ | 1,244,555 |
| | 25.8 | % | | $ | 9,536 |
| | $ | 1,164,537 |
| | 24.5 | % |
| Payroll finance | 1,936 |
| | 221,831 |
| | 2.8 |
| | 1,506 |
| | 154,229 |
| | 3.2 |
| | 1,379 |
| | 145,474 |
| | 3.1 |
|
| Warehouse lending | 589 |
| | 387,808 |
| | 4.9 |
| | 608 |
| | 173,786 |
| | 3.6 |
| | 630 |
| | 192,003 |
| | 4.0 |
|
| Factored receivables | 1,457 |
| | 208,382 |
| | 2.7 |
| | 1,205 |
| | 161,625 |
| | 3.4 |
| | 1,294 |
| | 181,433 |
| | 3.8 |
|
| Equipment finance | 4,925 |
| | 631,303 |
| | 8.0 |
| | 2,569 |
| | 411,449 |
| | 8.5 |
| | 2,621 |
| | 393,027 |
| | 8.3 |
|
| CRE | 13,861 |
| | 2,733,351 |
| | 34.8 |
| | 10,121 |
| | 1,458,277 |
| | 30.3 |
| | 10,844 |
| | 1,449,052 |
| | 30.4 |
|
| Multi-family | 2,741 |
| | 796,030 |
| | 10.1 |
| | 2,111 |
| | 384,544 |
| | 8.0 |
| | 1,867 |
| | 368,524 |
| | 7.7 |
|
| ADC | 2,009 |
| | 186,398 |
| | 2.4 |
| | 2,987 |
| | 96,995 |
| | 2.0 |
| | 2,120 |
| | 92,149 |
| | 1.9 |
|
| Residential mortgage | 5,007 |
| | 713,036 |
| | 9.1 |
| | 5,843 |
| | 529,766 |
| | 11.0 |
| | 5,837 |
| | 570,431 |
| | 12.0 |
|
| Consumer | 4,358 |
| | 299,517 |
| | 3.8 |
| | 4,397 |
| | 200,415 |
| | 4.2 |
| | 4,484 |
| | 203,808 |
| | 4.3 |
|
| Total | $ | 50,145 |
| | $ | 7,859,360 |
| | 100.0 | % | | $ | 42,374 |
| | $ | 4,815,641 |
| | 100.0 | % | | $ | 40,612 |
| | $ | 4,760,438 |
| | 100.0 | % |
|
| | | | | | | | | | | | | | | | | | | | | |
| | September 30, |
| | 2013 | | 2012 |
| | Allowance for loan losses | | Loan balance | | % of total loans | | Allowance for loan losses | | Loan balance | | % of total loans |
| C&I | $ | 5,302 |
| | $ | 434,932 |
| | 18.0 | % | | $ | 4,603 |
| | $ | 343,307 |
| | 16.2 | % |
| Warehouse lending | — |
| | 4,855 |
| | 0.2 |
| | — |
| | — |
| | — |
|
| CRE | 7,567 |
| | 969,490 |
| | 40.2 |
| | 5,754 |
| | 896,746 |
| | 42.3 |
|
| Multi-family | 2,400 |
| | 307,547 |
| | 12.7 |
| | 1,476 |
| | 175,758 |
| | 8.3 |
|
| ADC | 5,806 |
| | 102,494 |
| | 4.2 |
| | 8,526 |
| | 144,061 |
| | 6.8 |
|
| Residential mortgage | 4,474 |
| | 400,009 |
| | 16.6 |
| | 4,359 |
| | 350,022 |
| | 16.5 |
|
| Consumer | 3,328 |
| | 193,571 |
| | 8.1 |
| | 3,564 |
| | 209,578 |
| | 9.9 |
|
| Total | $ | 28,877 |
| | $ | 2,412,898 |
| | 100.0 | % | | $ | 28,282 |
| | $ | 2,119,472 |
| | 100.0 | % |
Loans acquired through merger or acquisition were recorded at fair value with no allowance for loan losses at the acquisition date. Since the date of acquisition, as these acquired loans are renewed, or replaced through organic loan growth, they become loans subject to our allowance for loan loss. The allowance for loan losses at December 31, 2015 increased $7,771 to $50,145 compared to $42,374 at December 31, 2014. The increase is due to growth in the loan portfolio, and the increase from acquired loans that are now covered by our allowance for loan losses. At December 31, 2015, the allowance allocated to total C&I loans was $22,169, or 44.2% of the allowance for loan losses, compared to $16,915, or 39.9% of the allowance for loan losses at December 31, 2014 and $15,460 or 38.1% of the allowance for loan losses at September 30, 2014. Prior to the Provident Merger, as a savings and loan holding company, our loans were mainly collateralized by real estate. The increase in the allowance for loan losses allocated to C&I loans reflects mainly the increase in C&I loans as a percentage of the total loan portfolio.
CRE, multi-family and ADC loans represented 47.3% of the total loan portfolio at December 31, 2015 compared to 40.3% of the loan portfolio at December 31, 2014 and 40.0% at September 30, 2014. The allowance for loans collateralized by commercial real estate was $18,611, or 37.1% of the allowance, at December 31, 2015 compared to $15,219, or 35.9% of the allowance at December 31, 2014. At September 30, 2014, the allowance for loans collateralized by commercial real estate was $14,831, or 36.5% of the allowance.
In general, the allowance for loan losses has become more heavily weighted towards C&I and CRE loans as we have emphasized loan growth in those areas and deemphasized loan growth in residential mortgage and consumer lending. The growth in residential mortgage and consumer loans in 2015 was mainly due to the HVB Merger and these loans, like most of the C&I and CRE loans, are covered by remaining purchase accounting valuation allowances established at the date of acquisition. At December 31, 2015, there was $41,383 of purchase accounting valuation allowances that reduced the carrying value of loans acquired in prior acquisitions compared to $6,034 of such valuation allowances at December 31, 2014. See Note 5. “Allowance for Loan Losses” to the consolidated financial statements included elsewhere in this Report for additional information regarding total valuation allowances held against our portfolio loans.
Investment Securities
Available for Sale Portfolio. The following table sets forth the composition of our available for sale securities portfolio at the dates indicated.
|
| | | | | | | | | | | | | | | | | | | | | | | |
| | December 31, 2015 | | December 31, 2014 | | September 30, 2014 |
| | Amortized cost | | Fair value | | Amortized cost | | Fair value | | Amortized cost | | Fair value |
| Residential MBS: | | | | | | | | | | | |
| Agency-backed | $ | 1,222,912 |
| | $ | 1,217,862 |
| | $ | 528,818 |
| | $ | 533,663 |
| | $ | 477,003 |
| | $ | 477,705 |
|
| CMO/Other MBS | 79,430 |
| | 78,373 |
| | 85,619 |
| | 84,838 |
| | 115,395 |
| | 114,145 |
|
| Total residential MBS | 1,302,342 |
| | 1,296,235 |
| | 614,437 |
| | 618,501 |
| | 592,398 |
| | 591,850 |
|
| Other securities: | | | | | | | | | | | |
| Mutual fund | 8,781 |
| | 8,790 |
| | — |
| | — |
| | — |
| | — |
|
| Federal agencies | 85,124 |
| | 84,267 |
| | 150,623 |
| | 147,156 |
| | 158,114 |
| | 152,814 |
|
| Corporate bonds | 321,630 |
| | 314,188 |
| | 206,267 |
| | 204,831 |
| | 195,547 |
| | 192,839 |
|
| State and municipal | 187,399 |
| | 189,035 |
| | 129,576 |
| | 132,065 |
| | 131,715 |
| | 134,898 |
|
| Trust preferred | 27,928 |
| | 28,517 |
| | 37,687 |
| | 38,293 |
| | 37,684 |
| | 38,412 |
|
| Total other securities | 630,862 |
| | 624,797 |
| | 524,153 |
| | 522,345 |
| | 523,060 |
| | 518,963 |
|
| Total available for sale securities | $ | 1,933,204 |
| | $ | 1,921,032 |
| | $ | 1,138,590 |
| | $ | 1,140,846 |
| | $ | 1,115,458 |
| | $ | 1,110,813 |
|
Held to Maturity Portfolio. The following table sets forth the composition of our held to maturity securities portfolio at the dates indicated.
|
| | | | | | | | | | | | | | | | | | | | | | | |
| | December 31, 2015 | | December 31, 2014 | | September 30, 2014 |
| | Amortized cost | | Fair value | | Amortized cost | | Fair value | | Amortized cost | | Fair value |
| Residential MBS: | | | | | | | | | | | |
| Agency-backed | $ | 252,760 |
| | $ | 253,403 |
| | $ | 138,589 |
| | $ | 141,350 |
| | $ | 142,329 |
| | $ | 143,586 |
|
| CMO/Other MBS | 49,842 |
| | 49,310 |
| | 60,166 |
| | 59,660 |
| | 62,690 |
| | 61,495 |
|
| Total residential MBS | 302,602 |
| | 302,713 |
| | 198,755 |
| | 201,010 |
| | 205,019 |
| | 205,081 |
|
| Other securities: | | | | | | | | | | | |
| Federal agencies | 104,135 |
| | 105,958 |
| | 136,618 |
| | 140,398 |
| | 136,413 |
| | 138,085 |
|
| State and municipal | 285,813 |
| | 295,006 |
| | 231,964 |
| | 239,588 |
| | 232,643 |
| | 239,334 |
|
| Corporate bonds | 25,241 |
| | 25,052 |
| | — |
| | — |
| | — |
| | — |
|
| Other | 5,000 |
| | 5,350 |
| | 5,000 |
| | 5,350 |
| | 5,000 |
| | 5,338 |
|
| Total other securities | 420,189 |
| | 431,366 |
| | 373,582 |
| | 385,336 |
| | 374,056 |
| | 382,757 |
|
| Total held to maturity securities | $ | 722,791 |
| | $ | 734,079 |
| | $ | 572,337 |
| | $ | 586,346 |
| | $ | 579,075 |
| | $ | 587,838 |
|
Overview. The Board’s Enterprise Risk Committee oversees our investment program and evaluates our investment policy and objectives. Our Chief Financial Officer, Chief Executive Officer, Chief Investment Officer/Treasurer and certain other senior officers have the authority to purchase and sell securities within specific guidelines established in the investment policy. In addition, a summary of all transactions is reviewed by the Board at least quarterly.
Our objective for the fiscal year endedinvestment securities is to maintain a high quality, liquid investment securities with a structure and duration profile designed to limit the impact of a rising interest rate environment on the fair value of the portfolio. The investment portfolio provides for flexibility in interest rate risk management and additional liquidity, in addition to contributing to our overall earnings. Investment securities are also utilized for pledging purposes as collateral for borrowings from FHLB, municipal deposits, and other borrowings. We regularly evaluate the portfolio within the context of our balance sheet optimization strategy of maintaining a prudent liquidity position while producing growth in earnings and attractive returns on equity and assets. We evaluate the portfolio’s size, risk and duration on a daily basis. At December 31, 2015, investment securities represented 22.1% of total assets compared to 23.1% at December 31, 2014
and 23.0% at September 30, 2012 increased by $1.8 million,2014. Our goal is to achieve and maintain the investment portfolio at 18.0% to 20.0% of total assets over time.
FASB ASC Topic 320, Investments - Debt and Equity Securities, requires that, at the time of purchase, we designate a security as held to maturity, available for sale, or 2.0%trading, depending on our intent and ability to $92.0 million,hold the security. Securities designated available for sale are reported at fair value, while securities designated held to maturity are reported at amortized cost. We do not have a trading portfolio. The carrying value of investment securities is comprised of the fair value of investment securities available for sale and the amortized cost of held to maturity securities.
Investment portfolio activity. At December 31, 2015, the carrying value of investment securities was $2,643,823, an increase of $930,640, or 54.3%, compared to $90.1 millionDecember 31, 2014. In the HVB Merger, we acquired investment securities with a fair value of $713,842. The investment portfolio increased $23,295 at December 31, 2014 compared to September 30, 2014.
Portfolio Maturities and Yields. The following table summarizes the composition, maturities and weighted average yield of our investment securities portfolio at December 31, 2015. 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.
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | 1 Year or Less | | 1-5 years | | 5-10 years | | 10 years or more | | Total |
| | Amortized cost | | Yield | | Amortized
cost | | Yield | | Amortized
cost | | Yield | | Amortized
cost | | Yield | | Amortized
cost | | Fair Value | | Yield |
| Available for sale: | | | | | | | | | | | | | | | | | | | | | |
| Residential MBS: | | | | | | | | | | | | | | | | | | | | |
| Agency-backed | $ | — |
| | — | % | | $ | 12,926 |
| | 4.37 | % | | $ | 78,982 |
| | 2.62 | % | | $ | 1,131,004 |
| | 2.66 | % | | $ | 1,222,912 |
| | $ | 1,217,862 |
| | 2.67 | % |
| CMO/Other MBS | — |
| | — |
| | 1,464 |
| | 4.50 |
| | 8,355 |
| | 2.33 |
| | 69,611 |
| | 2.40 |
| | 79,430 |
| | 78,373 |
| | 2.43 |
|
| Residential MBS | — |
| | — |
| | 14,390 |
| | 4.38 |
| | 87,337 |
| | 2.59 |
| | 1,200,615 |
| | 2.64 |
| | 1,302,342 |
| | 1,296,235 |
| | 2.66 |
|
| Federal agencies | 2,500 |
| | 0.58 |
| | 82,624 |
| | 1.43 |
| | — |
| | — |
| | — |
| | — |
| | 85,124 |
| | 84,267 |
| | 1.40 |
|
| Corporate | — |
| | — |
| | 119,954 |
| | 3.93 |
| | 201,676 |
| | 4.30 |
| | — |
| | — |
| | 321,630 |
| | 314,188 |
| | 4.16 |
|
| State and municipal | 15,629 |
| | 2.93 |
| | 99,905 |
| | 3.00 |
| | 51,296 |
| | 3.17 |
| | 20,569 |
| | 3.31 |
| | 187,399 |
| | 189,035 |
| | 3.07 |
|
| Trust preferred | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 27,928 |
| | 6.56 |
| | 27,928 |
| | 28,517 |
| | 6.56 |
|
| Other | 8,781 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 8,781 |
| | 8,790 |
| | — |
|
| Total | $ | 26,910 |
| | 1.75 | % | | $ | 316,873 |
| | 3.01 | % | | $ | 340,309 |
| | 3.69 | % | | $ | 1,249,112 |
| | 2.74 | % | | $ | 1,933,204 |
| | $ | 1,921,032 |
| | 2.94 | % |
| | | | | |
| | | |
| | | |
| | | | | | | | |
| Held to maturity: | | | | | | | | | | | | | | | | | | | | | |
| Residential MBS: | | | | | | | | | | | | | | | | | | | | |
| Agency-backed | $ | — |
| | — | % | | $ | 14,563 |
| | 3.00 | % | | $ | 28,236 |
| | 2.94 | % | | $ | 209,961 |
| | 2.83 | % | | $ | 252,760 |
| | $ | 253,403 |
| | 2.85 | % |
| CMO/Other MBS | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 49,842 |
| | 1.92 |
| | 49,842 |
| | 49,310 |
| | 1.92 |
|
| Residential MBS | — |
| | — |
| | 14,563 |
| | 3.00 |
| | 28,236 |
| | 2.94 |
| | 259,803 |
| | 2.66 |
| | 302,602 |
| | 302,713 |
| | 2.70 |
|
| Federal agencies | — |
| | — |
| | 33,655 |
| | 1.60 |
| | 70,480 |
| | 2.05 |
| | — |
| | — |
| | 104,135 |
| | 105,958 |
| | 1.90 |
|
| Corporate | — |
| | — |
| | 5,240 |
| | 5.88 |
| | 20,001 |
| | 4.99 |
| | — |
| | — |
| | 25,241 |
| | 25,052 |
| | 5.18 |
|
| State and municipal | 11,725 |
| | 2.68 |
| | 2,897 |
| | 2.84 |
| | 136,153 |
| | 3.38 |
| | 135,038 |
| | 4.06 |
| | 285,813 |
| | 295,006 |
| | 3.67 |
|
| Other | 250 |
| | 1.23 |
| | 4,500 |
| | 3.19 |
| | 250 |
| | 3.77 |
| | — |
| | — |
| | 5,000 |
| | 5,350 |
| | 3.12 |
|
| Total | $ | 11,975 |
| | 2.65 | % | | $ | 60,855 |
| | 2.48 | % | | $ | 255,120 |
| | 3.09 | % | | $ | 394,841 |
| | 3.13 | % | | $ | 722,791 |
| | $ | 734,079 |
| | 3.06 | % |
Mortgage-Backed Securities. Mortgage-backed securities (“MBS”) are created by pooling mortgages and issuing a security collateralized by the pool of mortgages with an interest rate that is less than the interest rate on the underlying mortgages. Mortgage-backed securities typically represent a participation interest in a pool of single-family or multi-family mortgages, although most of our mortgage-backed securities are collateralized by single-family mortgages. The issuers of such securities (generally U.S. Government agencies and government sponsored enterprises, including Fannie Mae, Freddie Mac and Ginnie Mae) pool and resell the participation interests in the form of securities to investors, such as us, and guarantee the payment of principal and interest to these investors. Investments in mortgage-backed securities involve a risk in addition to the guarantee of repayment of principal outstanding that actual prepayments will be greater or less than the prepayment rate estimated at the time of purchase, which may require adjustments to the amortization of any premium or accretion of any discount relating to such instruments, thereby affecting the net yield and duration of such securities. We review prepayment estimates for our mortgage-backed securities at purchase to ensure that prepayment assumptions are reasonable considering the underlying collateral for the same periodsecurities at issue and current interest rates, and to determine the yield and
estimated maturity of the mortgage-backed securities portfolio. Periodic reviews of current prepayment speeds are performed in 2011.order to ascertain whether prepayment estimates require modification that would cause amortization or accretion adjustments.
A portion of our mortgage-backed securities portfolio is invested in collateralized mortgage obligations (“CMOs”), including Real Estate Mortgage Investment Conduits (“REMICs”), backed by Fannie Mae, Freddie Mac and Ginnie Mae. CMOs and REMICs are types of debt securities issued by special-purpose entities that aggregate pools of mortgages and mortgage-backed securities and create different classes of securities with varying maturities and amortization schedules, as well as a residual interest, with each class possessing different risk characteristics. The largest componentscash flows from the underlying collateral are generally divided into “tranches” or classes that have descending priorities with respect to the distribution of non-interest expense consistprincipal and interest cash flows, while cash flows on pass-through mortgage-backed securities are distributed pro rata to all security holders. Our practice is to limit fixed-rate CMO investments primarily to the early-to-intermediate tranches, which have the greatest cash flow stability. Floating rate CMOs are purchased with an emphasis on the relative trade-offs between lifetime rate caps, prepayment risk, and interest rates.
Government and Agency Securities. While these securities generally provide lower yields than other investments such as mortgage-backed securities, our current investment strategy is to maintain investments in such instruments to the extent appropriate for liquidity purposes and as collateral for borrowings and municipal deposits.
Corporate Bonds. Corporate bonds have a higher risk of salariesdefault due to potential for adverse changes in the creditworthiness of the issuer. In recognition of this risk, our policy limits investments in corporate bonds to securities with maturities of ten years or less and employee benefits, occupancyrated “BBB-” or better by at least one nationally recognized rating agency at time of purchase, and office expenses, merger-related expenseto a transaction size of no more than $20,000 per issuer. Our total corporate bond portfolio limit is the lesser of 5% of total assets or 75% of Tier 1 capital.
State and professional fees.Municipal Bonds. The investment policy limits municipal bonds to securities with maturities of 20 years or less and rated as investment grade by at least one nationally recognized rating agency at the time of purchase. However, we also purchase securities that are issued by local government entities within our service area. Such local entity obligations generally are not rated, and are subject to internal credit reviews. In addition, the policy generally imposes a transaction limit of $10,000 per municipal issuer and a total municipal bond portfolio limit the lesser of of 10% of assets or 100% of Tier 1 capital. At December 31, 2015, we did not hold any obligations that were rated less than “A-” as available for sale.
Trust preferred securities. The Company owns securities of single-issuer bank trust preferred securities, all of which are paying in accordance with their terms and have no deferrals of interest or other deferrals. Management analyzes the credit risk and the probability of impairment on the contractual cash flows of applicable securities. Based upon our analysis, all of the issuers have maintained performance levels adequate to support the contractual cash flows of the securities.
Deposits
The following table sets forth the distribution of average deposit accounts by account category and the average rates paid at the dates indicated.
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | For the year ended | | For the three months ended | | For the fiscal year ended |
| | December 31, 2015 | | December 31, 2014 | | September 30, 2014 | | September 30, 2013 |
| | Average balance | | Rate | | Average balance | | Rate | | Average balance | | Rate | | Average
balance | | Rate |
| Non-interest bearing demand | $ | 2,332,814 |
| | — | % | | $ | 1,626,341 |
| | — | % | | $ | 1,580,108 |
| | — | % | | $ | 646,373 |
| | — | % |
| Interest bearing demand | 1,128,667 |
| | 0.19 |
| | 756,217 |
| | 0.09 |
| | 706,160 |
| | 0.08 |
| | 466,110 |
| | 0.08 |
|
| Savings | 871,339 |
| | 0.27 |
| | 685,142 |
| | 0.24 |
| | 622,414 |
| | 0.14 |
| | 572,246 |
| | 0.17 |
|
| Money market | 2,286,376 |
| | 0.43 |
| | 1,817,091 |
| | 0.35 |
| | 1,458,852 |
| | 0.35 |
| | 819,442 |
| | 0.30 |
|
| Certificates of deposit | 520,139 |
| | 0.61 |
| | 457,996 |
| | 0.54 |
| | 554,396 |
| | 0.44 |
| | 352,469 |
| | 0.60 |
|
| Total interest bearing deposits | 4,806,521 |
| | 0.36 |
| | 3,716,446 |
| | 0.30 |
| | 3,341,822 |
| | 0.27 |
| | 2,210,267 |
| | 0.27 |
|
| Total deposits | $ | 7,139,335 |
| | 0.24 | % | | $ | 5,342,787 |
| | 0.21 | % | | $ | 4,921,930 |
| | 0.18 | % | | $ | 2,856,640 |
| | 0.21 | % |
Average deposits for calendar 2015 were $7,139,335 and increased $2,217,405 compared to fiscal 2014. The increase was primarily attributable to merger expense of $5.9 million relateddue to the acquisitionHVB Merger and organic growth generated by our commercial banking teams. The increase of Gotham Bank$2,065,290 in average deposits between fiscal 2014 and increased compensation and employee benefitsfiscal 2013 was mainly due to the Provident Merger. Average deposits for the transition period were $5,342,787, an increase of $2.4 million to $46.0 million$420,857 compared to $43.7 million$4,921,930 in fiscal 2014. The increase in the prior year. These increasesaverage balance of deposits was mainly a result of the
timing of the Provident Merger, seasonality in our municipal banking business, and organic growth generated by our commercial banking teams. The average cost of interest bearing deposits was 0.36% for the calendar 2015, 0.30% in the transition period and 0.27% during fiscal 2014 and fiscal 2013. The average cost of total deposits was 0.24% for calendar 2015, 0.21% in the transition period, 0.18% in fiscal 2014 and 0.21% in fiscal 2013.
Distribution of Deposit Accounts by Type. The following table sets forth the distribution of total deposit accounts, by account type, at the dates indicated. |
| | | | | | | | | | | | | | | | | | | | |
| | December 31, 2015 | | December 31, 2014 | | September 30, 2014 |
| | Amount | | % | | Amount | | % | | Amount | | % |
| Non-interest bearing demand | $ | 2,936,980 |
| | 34.2 | % | | $ | 1,481,870 |
| | 28.4 | % | | $ | 1,799,685 |
| | 34.0 | % |
| Interest bearing demand | 1,274,417 |
| | 14.9 |
| | 747,667 |
| | 14.3 |
| | 766,852 |
| | 14.5 |
|
| Savings | 943,632 |
| | 11.0 |
| | 711,509 |
| | 13.7 |
| | 698,443 |
| | 13.2 |
|
| Money market | 2,819,788 |
| | 32.9 |
| | 1,790,435 |
| | 34.4 |
| | 1,595,803 |
| | 30.1 |
|
| Subtotal | 7,974,817 |
| | 92.9 |
| | 4,731,481 |
| | 90.8 |
| | 4,860,783 |
| | 91.8 |
|
| Certificates of deposit | 605,190 |
| | 7.1 |
| | 480,844 |
| | 9.2 |
| | 437,871 |
| | 8.2 |
|
| Total deposits | $ | 8,580,007 |
| | 100.0 | % | | $ | 5,212,325 |
| | 100.0 | % | | $ | 5,298,654 |
| | 100.0 | % |
The following table presents the proportion of each component of total deposits for the periods presented:
|
| | | | | | | | |
| | December 31, 2015 | | December 31, 2014 |
| | September 30, 2014 |
|
| Retail and business deposits | 76.1 | % | | 77.6 | % | | 77.1 | % |
| Municipal deposits | 13.3 |
| | 16.9 |
| | 18.7 |
|
| Wholesale deposits | 10.6 |
| | 5.5 |
| | 4.2 |
|
| | 100.0 | % | | 100.0 | % | | 100.0 | % |
As of December 31, 2015, December 31, 2014 and September 30, 2014, we had $1,140,206, $883,350, and $992,761 respectively, in municipal deposits. Municipal deposits experience seasonality associated with school district tax collections and typically peak at September 30 each year and gradually return to more normalized levels over the fourth quarter. Wholesale deposits were off set$427,029, $284,684, and $220,711 at December 31, 2015, December 31, 2014 and September 30, 2014, respectively. Wholesale deposits consist of brokered deposits and deposits acquired through listing services.
Certificates of Deposit by decreasesInterest Rate Range. The following table sets forth information concerning certificates of $1.5 milliondeposit by interest rate range at the dates indicated.
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | At December 31, 2015 | | |
| | Period to maturity | | | | |
| | 1 year or less | | 1-2 years | | 2-3 years | | 3 years or more | | Total | | % of
total | | December 31, 2014 | | September 30, 2014 |
| Interest rate range: | | | | | | | | | | | | | | | |
| 1.00% and below | $ | 453,573 |
| | $ | 14,051 |
| | $ | 8,658 |
| | $ | 7,429 |
| | $ | 483,711 |
| | 79.9 | % | | $ | 403,242 |
| | $ | 352,093 |
|
| 1.01% to 2.00% | 40,386 |
| | 61,673 |
| | 11,811 |
| | 7,326 |
| | 121,196 |
| | 20.0 |
| | 72,332 |
| | 75,927 |
|
| 2.01% to 3.00% | 283 |
| | — |
| | — |
| | — |
| | 283 |
| | 0.1 |
| | 4,412 |
| | 6,615 |
|
| 3.01% to 4.00% | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 857 |
| | 3,235 |
|
| 4.01% to 5.00% | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 1 |
| | 1 |
|
| Total | $ | 494,242 |
| | $ | 75,724 |
| | $ | 20,469 |
| | $ | 14,755 |
| | $ | 605,190 |
| | 100.0 | % | | $ | 480,844 |
| | $ | 437,871 |
|
Certificates of Deposit by Time to advertisingMaturity. The following table sets forth certificates of deposit by time remaining until maturity as of December 31, 2015.
|
| | | | | | | | | | | | | | | | | | | | | | |
| | Period to maturity | | | | |
| | 3 months or less | | 3-6 months | | 6-12 months | | Over 12 months | | Total | | Rate |
| Certificates of deposit less than $100,000 | $ | 53,014 |
| | $ | 31,604 |
| | $ | 33,690 |
| | $ | 22,104 |
| | $ | 140,412 |
| | 0.44 | % |
| Certificates of deposit $100,000 or more | 221,712 |
| | 72,118 |
| | 82,104 |
| | 88,844 |
| | 464,778 |
| | 0.64 |
|
| | $ | 274,726 |
| | $ | 103,722 |
| | $ | 115,794 |
| | $ | 110,948 |
| | $ | 605,190 |
| | 0.60 | % |
Brokered Deposits. We utilize brokered deposits on a limited basis and promotionmaintain limits for the use of wholesale deposits and prior year restructuring chargesother short-term funding in general to be less than 10% of $3.2 million and deferred benefit settlement / CEO transition chargestotal assets. Most of $1.8 million.the brokered deposit funding maintained by the Bank has a maturity to coincide with the anticipated inflows of deposits through municipal tax collections.
Listed below are our brokered deposits:
|
| | | | | | | | | | | |
| | December 31, | | September 30, |
|
| | 2015 | | 2014 | | 2014 |
| Money market | $ | 152,180 |
| | $ | 75,462 |
| | $ | 84,022 |
|
Reciprocal CDARs 1 | 169,958 |
| | 6,666 |
| | 34,017 |
|
| CDARs one way | 106,647 |
| | 86,530 |
| | 3,028 |
|
| Total brokered deposits | $ | 428,785 |
| | $ | 168,658 |
| | $ | 121,067 |
|
|
| |
1 | Certificate of deposit account registry service, reciprocal CDARs represent deposits in which a core deposit client of our Bank has elected to diversify their deposits between us and other financial institutions. However, we maintain full control over the client relationship and deposit pricing. We consider reciprocal CDARs core deposits. |
Income Tax expenseShort-term Borrowings was $6.2 million for. Our primary source of short-term borrowings (which include borrowings with a maturity less than one year) are advances from the fiscal year ended September 30, 2012 compared to $2.8 million for fiscal 2011, representing effective tax ratesFederal Home Loan Bank of 23.7%New York. Short-term borrowings also include federal funds purchased and 19.3%, respectively. The lower tax rate in 2011 was primarily due to higher proportion of tax-free income and BOLI relative to the total levels of pre-tax income.repurchase agreements.
The following table sets forth information concerning balances and interest rates on our short-term borrowings at the dates indicated.
|
| | | | | | | | | | | |
| | December 31, | | September 30, |
| | 2015 | | 2014 | | 2014 |
| Balance at end of period | $ | 999,222 |
| | $ | 532,835 |
| | $ | 370,365 |
|
| Average balance during period | 572,009 |
| | 427,750 |
| | 264,249 |
|
| Maximum amount outstanding at any month end | 999,222 |
| | 532,835 |
| | 536,085 |
|
| Weighted average interest rate at end of period | 0.69 | % | | 0.39 | % | | 0.69 | % |
| Weighted average interest rate during period | 0.47 |
| | 0.43 |
| | 0.68 |
|
Short-term borrowings balances have been mainly used to fund continued loan growth. On a daily and average balance basis, the amount of short-term borrowings will fluctuate based on the inflows and outflows of municipal deposits and other deposits.
Off-Balance Sheet Arrangements and Aggregate Contractual Obligations
In the normal course of our operations, the Company engageswe engage in a variety of financial transactions that, in accordance with generally accepted accounting principles,GAAP, are not recorded in our financial statements. We enter into these transactions to meet the financial statements, or are recorded in amounts that differ from the notional amounts.financing needs of our clients and for general corporate purposes. These transactions include commitments to extend credit and letters of credit and involve, to varying degrees, elements of credit, interest rate, and liquidity risk. Such transactions are used by the Company for general corporate purposes or for customer needs. The Company minimizes itsWe minimize our exposure to loss under these commitments by subjecting them to credit approval and monitoring procedures.
The Company’sOur off-balance sheet arrangements which principally include lending commitments, are described below.
Lending Commitments. Lending commitments include loan commitments, unused credit lines, and letters of credit. These instruments are not recorded in the consolidated balance sheet until funds are advanced under the commitments.
For our non-real estate commercial customers, loan commitments generally take the form of revolving credit arrangements to finance customers’ working capital requirements. At September 30, 2013December 31, 2015, these commitments totaled $169.0 million.$547,787. For our real estate businesses, loan commitments are generally for residential, construction, multi-family and commercial construction projects, which totaled $71.0 million$132,333 at September 30, 2013.December 31, 2015. Loan commitments for our retail customers are generally home equity lines of credit secured by residential property and totaled $100.0 million.$137,303. In addition, loan commitments for overdrafts were $10.5 million.$16,912. Letters of credit issued by the Companyus generally are standby letters of credit. Standby letters of credit are commitments issued by the Companyus on behalf of itsour customer/obligor in favor of a beneficiary that specify an amount the Companywe can be called upon to pay upon the beneficiary’s compliance with the terms of the letter of credit. These commitments are primarily issued in favor of local municipalities to support the obligor’s completion of real estate development projects. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loan facilities to customers. Standby letters of credit are conditional commitments to support performance, typically of a contract or the financial integrity of a customer to a third-party, and represent an independent undertaking by the Companyus to the third-party. Letters of credit as of September 30, 2013December 31, 2015 totaled $35.1 million.$102,930.
See Note 16. Commitments and Contingencies17. “Off-Balance-Sheet Financial Instruments” in the notes to the consolidated financial statements for additional information regarding lending commitments.
Contractual Obligations. In the ordinary course of our operations, we enter into certain contractual obligations. Such obligations include operating leases for premises and equipment.
Payments Due by Period. The following table summarizes our significant fixed and determinable contractual obligations and other funding needs by payment date at September 30, 2013. The paymentDecember 31, 2015. Payments for borrowings do not include interest. Payments for operating leases are based on payments specified in the underlying contracts. Loan commitments, including letters of credit and undrawn lines of credit, are presented at contractual amounts; however, since many of these commitments have historically expired unused or partially used, the total amounts represent those amounts due to the recipient.of these commitments do not necessarily reflect future cash requirements.
| | | | Payments due by period | Payments due by period |
| | 1 year or less | | 1-3 years | | 3-5 years | | 5 years or more | | Total | 1 year or less | | 1-3 years | | 3-5 years | | 5 years or more | | Total |
| Contractual obligations: | | | | | | | | | | |
| FHLB borrowings | | $ | 982,656 |
| | $ | 425,000 |
| | $ | — |
| | $ | 2,229 |
| | $ | 1,409,885 |
|
| Other borrowings | | 16,566 |
| | — |
| | — |
| | — |
| | 16,566 |
|
| Senior notes | | — |
| | 98,893 |
| | — |
| | — |
| | 98,893 |
|
| Time deposits | | 494,242 |
| | 96,193 |
| | 14,755 |
| | — |
| | 605,190 |
|
| Operating leases | | 11,656 |
| | 20,270 |
| | 13,265 |
| | 27,792 |
| | 72,983 |
|
| | (Dollars in thousands) | 1,505,120 |
| | 640,356 |
| | 28,020 |
| | 30,021 |
| | 2,203,517 |
|
| FHLB and other borrowings | $ | 158,897 |
| | $ | 78,908 |
| | $ | 320,447 |
| | $ | 2,734 |
| | $ | 560,986 |
| |
| Time deposits | 239,104 |
| | 22,433 |
| | 6,591 |
| | — |
| | 268,128 |
| |
| Letters of credits | 24,890 |
| | 1,561 |
| | 25 |
| | 8,576 |
| | 35,052 |
| |
| Other commitments: | | | | | | | | | | |
| Letters of credit | | 85,881 |
| | 9,426 |
| | — |
| | 7,623 |
| | 102,930 |
|
| Undrawn lines of credit | 207,201 |
| | — |
| | — |
| | — |
| | 207,201 |
| 519,912 |
| | 410,639 |
| | — |
| | — |
| | 930,551 |
|
| Operating leases | 3,458 |
| | 6,351 |
| | 6,270 |
| | 16,083 |
| | 32,162 |
| |
| Total | $ | 633,550 |
| | $ | 109,253 |
| | $ | 333,333 |
| | $ | 27,393 |
| | $ | 1,103,529 |
| $ | 2,110,913 |
| | $ | 1,060,421 |
| | $ | 28,020 |
| | $ | 37,644 |
| | $ | 3,236,998 |
|
| Commitments to extend credit | $ | 171,032 |
| | — |
| | — |
| | — |
| | $ | 171,032 |
| |
See Note 18. “Commitments and Contingencies” in the notes to consolidated financial statements for additional information regarding our contractual obligations.
Impact of Inflation and Changing Prices
The consolidated financial statements and related notes of Sterling Bancorp have been prepared in accordance with U.S. GAAP, which generally requires the measurement of financial position and operating results in terms of historical dollars without consideration for changes in the relative purchasing power of money over time due to inflation. The primary impact of inflation is reflected in the increased cost of our operations. Unlike industrial companies, ouroperating costs. Our assets and liabilities are primarily monetary in nature. Asnature and, as a result, changes in market interest rates have a greater impact on performance than the effects of inflation.
Liquidity and Capital Resources
Capital. At December 31, 2015, stockholders’ equity totaled $1,665,073 compared to $975,200 at December 31, 2014 and $961,138 at September 30, 2014. The overallfactors that contributed to the change in stockholders’ equity for the periods is presented in the following table:
|
| | | | | | | | | | | |
| | For the year ended | | For the three months ended | | For the fiscal year ended |
| | December 31, 2015 |
| | December 31, 2014 |
| | September 30, 2014 |
| Beginning of period | $ | 975,200 |
| | $ | 961,138 |
| | $ | 482,866 |
|
| Net income | 66,114 |
| | 17,004 |
| | 27,678 |
|
| Stock-based compensation | 7,344 |
| | 1,720 |
| | 6,648 |
|
| Common stock issuance | 85,059 |
| | — |
| | — |
|
| Common stock issued in merger transactions | 563,613 |
| | — |
| | 457,752 |
|
| Other comprehensive (loss) gain | (1,873 | ) | | 1,208 |
| | 3,871 |
|
| Dividends | (30,384 | ) | | (5,870 | ) | | (17,677 | ) |
| Balance at end of period | $ | 1,665,073 |
| | $ | 975,200 |
| | $ | 961,138 |
|
In connection with the Provident Merger, on October 31, 2013, we issued 39,057,968 common shares at the closing price of $11.72 per share, which resulted in a $457,752 increase in stockholders’ equity at September 30, 2014.
The increase in stockholders’ equity for calendar 2015 was mainly due to the following three items: (i) the acquisition of Hudson Valley on June 30, 2015, in which we issued 38,525,154 common shares at the June 29, 2015 closing price of $14.63 which increased stockholders’ equity by $563,613; (ii) the February 11, 2015 common equity raise, in which we issued 6,900,000 common shares and received proceeds, net of costs of issuance of $85,059; and (iii) net income of $66,114. These were partially offset by dividends of $30,384.
The accumulated other comprehensive loss (“AOCI”) component of stockholders’ equity totaled a net, after-tax unrealized loss of $12,124 at December 31, 2015 compared to a net, after-tax unrealized loss of $10,251 at December 31, 2014 and $11,459 at September 30, 2014. The decline in calendar 2015 was the result of a $7,484 decrease in the net after-tax value of securities due to changes in market interest rates and was partially offset by an increase in AOCI attributed to the estimated fair value of retirement plan obligations of $5,611, which was mainly due to the pension plan termination. The increase in the transition period was due to a $4,145 increase in the net after-tax value of securities impacted by AOCI which was partially offset by a net unrealized loss on the defined benefit pension plan of $2,937. The increase in fiscal 2014 was the result of an $8,801 net after-tax increase in the fair value of available for sale securities, a $214 after-tax decrease in the net unrealized loss on the defined benefit pension plan and a net after-tax decrease in the net unrealized loss on securities transferred to held maturity of $5,144.
Under current regulatory requirements, amounts reported as AOCI related to securities available for sale, securities transferred to held to maturity, and defined benefit pension plans do not reduce or increase regulatory capital and are not included in the calculation of leverage and risk-based capital ratios. Regulatory agencies for banks and bank holding companies utilize capital guidelines to measure Tier 1 and total capital and to take into consideration the risk inherent in both on-balance sheet and off-balance sheet items. See Note 16. “Stockholders’ Equity” in the notes to consolidated financial statements included elsewhere in this Report.
At December 31, 2015 we held 6,666,223 shares in treasury compared to 7,318,452 at December 31, 2014. We generally use treasury shares for stock-based compensation purposes.
Stock repurchase plans. Our Board has authorized the repurchase of our common stock. At December 31, 2015, there were 776,713 shares available for repurchase. No shares were repurchased under this plan during calendar 2015, the fourth quarter of 2014, fiscal 2014 or 2013. See Part II, Item 5. “Market for Registrants Common Equity, Related Stockholder Matters, Issuer Purchases of Equity Securities”, included elsewhere in this Report.
Dividends. We paid a quarterly dividend of $0.07 per common share in each quarter of 2015 and in the fourth calendar quarter of 2014. We paid a dividend of $0.06 per common share in the first fiscal quarter of 2014 and a dividend of $0.07 per common share in the second, third and fourth fiscal quarters of fiscal 2014.
Basel III Capital Rules. The Basel III Capital Rules became effective for us and the Bank on January 1, 2015 (subject to a phase-in period for certain provisions). In connection with the adoption of the Basel III Capital Rules, we elected to opt-out of the requirement to include most components of AOCI in regulatory capital. Accordingly, amounts reported as AOCI related to securities available for sale, securities transferred to held-to-maturity in connection with the Provident Merger and our remaining post-retirement benefit plans do not increase or reduce regulatory capital and are not included in the calculation of risk-based capital and leverage ratios. Regulatory agencies for banks and bank holding companies utilize capital guidelines designed to measure capital and take into consideration the risk inherent in both on-balance sheet and off-balance sheet items. See Note 16. “Stockholders’ Equity - (a) Regulatory Capital Requirements” in the notes to consolidated financial statements included elsewhere in this Report.
Liquidity. Liquidity measures the ability to meet current and future cash flow needs as they become due. The liquidity of a financial institution reflects its ability to meet loan requests, to accommodate possible outflows in deposits and to take advantage of interest rate market opportunities. The ability of a financial institution to meet its current financial obligations is a function of its balance sheet structure, its ability to liquidate assets and its access to alternative sources of funds. The objective of our liquidity management is to ensure the availability of sufficientmanage cash fundsflow and liquidity reserves so that they are adequate to fund our operations and to meet obligations and other commitments on a timely basis and at a reasonable cost. We seek to achieve this objective and ensure that funding needs are met by maintaining an appropriate level of liquid funds through asset/liability management, which includes managing the mix and time to maturity of financial assets and financial liabilities on our balance sheet. Our liquidity position is enhanced by its ability to raise additional funds as needed in the wholesale markets.
Asset liquidity is provided by liquid assets which are readily marketable or pledgeable or which will mature in the near future. Liquid assets include cash, interest-bearing deposits in banks, securities available for sale, cash flow from securities held to maturity and maturities of securities held to maturity.
Our ability to access liabilities in a timely fashion is provided by access to funding sources which include core deposits, federal funds purchased and repurchase agreements. Our liquidity position is continuously monitored and adjustments are made to the balance between sources and uses of funds as deemed appropriate. Liquidity risk management is an important element in our asset/liability management process. We regularly model liquidity stress scenarios to assess potential liquidity outflows or funding problems resulting from economic activity, volatility in the financial markets, unexpected credit events or other significant occurrences. These scenarios are incorporated into our contingency funding plan, which provides the basis for the identification of our liquidity needs. As of December 31, 2015, management is not aware of any events that are reasonably likely to have a material adverse effect on our liquidity, capital resources or operations. In addition, management is not aware of any regulatory recommendations regarding liquidity that would have a material adverse effect on us.
At December 31, 2015, the Bank had $224,421 in cash on hand and unused borrowing capacity at the FHLB of $853,276. In addition, the Bank may purchase additional federal funds from other institutions, enter into additional repurchase agreements, and acquire deposits from wholesale and other sources.
We are a bank holding company and do not conduct operations. Our primary sources of liquidity are dividends received from the Bank and borrowings from outside sources. Banking regulations may limit the amount of dividends that may be paid by the Bank. At December 31, 2015, the Bank had capacity to pay up to $68,383 of dividends to us. At December 31, 2015, we had cash of $19,529, and $15,000 available under a revolving line of credit facility.
In September 2015, we renewed our $15,000 revolving line of credit facility with a third-party financial institution that matures on September 5, 2016. The use of proceeds are for general corporate purposes. The facility has not been used and requires us and the Bank to maintain certain ratios related to capital, nonperforming assets to capital, reserves to nonperforming loans and debt service coverage. We and the Bank were in compliance with all financial commitmentsrequirements at December 31, 2015.
We have an effective shelf registration statement filed with the Commission on Form S-3 dated February 4, 2015. On February 11, 2015, we issued 6,900,000 shares of our common stock raising $85,059 in proceeds net of underwriters discounts, commissions and to take advantage of investment opportunities. We manage liquidity in order to meet deposit withdrawals on demand or at contractual maturity, to repay borrowingsoffering expenses. The net proceeds were injected as they mature,equity capital into the Bank and were used to fund new loansacquisition of of specialty commercial lending businesses, including the Damian Acquisition, which closed on February 27, 2015 and investments as opportunities arise.
the FCC Acquisition, which closed on May 7, 2015. Our shelf registration statement allows us to issue a variety of debt and equity instruments which are
Our primary sources of funds are deposits, principal and interest payments on loans and securities, wholesale borrowings, the proceeds from maturing securities and short-term investments, and the proceeds from the sales of loans and securities. The scheduled amortizations of loans and securities, as well as proceeds from borrowings, are predictable sources of funds. Other funding sources, however, such as deposit inflows, mortgage prepayments and mortgage loan sales are greatly influenced by market interest rates, economic conditions and competition.
Our cash flows are derived from operating activities, investing activities and financing activities as reported in the Consolidated Statements of Cash Flows in our consolidated financial statements. Our primary investing activities are the origination of commercial loans and residential mortgage loans, and the purchase of investment securities. During the years ended September 30, 2013, 2012 and 2011, our loan originations totaled $1.2 billion, $ 816.3 million and $628.4 million, respectively. Purchases of securities available for sale totaled $490.2 million, $679.6 million and $622.6 million for the years ended September 30, 2013, 2012 and 2011, respectively. Purchases of securities held to maturity totaled $169.3 million, $95.2 million and $93.8 million for the years ended September 30, 2013, 2012 and 2011, respectively. These activities were funded primarily by borrowings and by principal repayments on loans and securities. Loan origination commitments totaled $171.0 million at September 30, 2013. Unused lines of credit granted to customers were $207.2 million at September 30, 2013. We anticipate that we will have sufficient funds available to meet current loan commitments and lines of credit.
The Company’s investments in BOLI are considered illiquid and are therefore classified as other assets. Earnings from BOLI are derived from the net increase in cash surrender value of the BOLI contracts and the proceeds from the payment on the insurance policies, if any. The recorded value of BOLI contracts totaled $60.9 million and $59.0 million at September 30, 2013 and September 30, 2012, respectively.
Deposit flows are generally affected by the level of market interest rates, the interest rates and other conditions on deposit products offered by our competitors, and other factors. The net (decrease) / increase in total deposits was ($148.9 million), $814.5 million and $154.0 million for the years ended September 30, 2013, 2012 and 2011, respectively. Certificates of deposit that are scheduled to mature in one year or less from September 30, 2013 totaled $239.1 million. Based upon prior experience and our current pricing strategy, we believe that a significant portion of such deposits will remain with us, although we may be required to compete for many of the maturing certificates in a highly competitive environment.
Credit spreads narrowed steadily during the past year and many are very near historically low levels. Furthermore, the extremely low interest rate environment caused our deposits to remain at elevated levels which have also strengthened our liquidity position. Many banks are experiencing a situation similar to ours resulting in the industry liquidity to be at significantly elevated levels. The preference of depositors to maintain their funds in short-term deposit products could lead to potential liquidity reductions in the future if interest rates change.
We generally remain fully invested and access additional funds through Federal Home Loan Bank of New York (“FHLB”) advances and other sources of which $561.0 million was outstanding at September 30, 2013. Cash and short-term borrowing capacity at September 30, 2013 is summarized below:
|
| | | |
| | (Dollars in thousands) |
| Cash and due from banks | $ | 113,090 |
|
| Unpledged investment securities | 549,728 |
|
| Unpledged mortgage collateral | 443,297 |
|
| Total funding available | $ | 1,106,115 |
|
Sterling Bank is subject to regulatory capital requirements that are discussed in “Capital Requirements” under “Regulation”. The Company’s tangible equity as a % of tangible assets - consolidated ratio was 8.09% as of September 30, 2013. The Bank’s regulatory capital ratios as of September 30, 2013 were as follows:
|
| | |
Tier 1 leverage ratio | 9.33 | % |
Tier 1 risk based capital ratio | 13.18 | % |
Total risk based capital ratio | 14.24 | % |
The Company has an effective shelf registration covering $14 million of debt and equity securities remaining available for use, subject to Board authorization and market conditions, to issue equity or debt securities at our discretion.conditions. While we seek to preserve flexibility with respect to cash requirements, there can be no assurance that market conditions would permit us to sell securities on acceptable terms at any given time or at all.
Item 7. CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION
We make statements in this Report, and we may from time to time make other statements, regarding our outlook or expectations for earnings, revenues, expenses and/or other financial, business or strategic matters regarding or affecting Sterling Bancorp that are forward-looking statements within the meaning of the Private Securities Litigation Reform Act. Forward-looking statements are typically identified by words such as “believe,” “expect,” “anticipate,” “intend,” “outlook,” “target,” “estimate,” “forecast,” “project” by future conditional verbs such as “will,” “should,” “would,” “could” or “may”, or by variations of such words or by similar expressions. These statements are not historical facts, but instead represent our current expectations, plans or forecasts and are based on the beliefs and assumptions of the management and the information available to management at the time that these disclosures were prepared.
Forward-looking statements are subject to numerous assumptions, risks and uncertainties, which change over time. Forward-looking statements speak only as of the date they are made. We do not assume any duty and do not undertake to update our forward-looking statements. Because forward-looking statements are subject to assumptions and uncertainties, actual results or future events could differ, possibly materially, from those that we anticipated in our forward-looking statements and future results could differ materially from our historical performance.
The following factors, among others, could cause our future results to differ materially from the plans, objectives, goals, expectations, anticipations, estimates and intentions expressed in the forward-looking statements:
our Company’s ability to successfully implement growth, expense reduction and other strategic initiatives and to integrate and fully realize costs savings and other benefits we estimated in connection with the Merger;
continued implementation of our team based business strategy, including customer acceptance of our products and services and the perceived overall value, pricing and quality of them, compared to our competitors;
business disruption following the Merger;
legislative and regulatory changes such as the Dodd-Frank Act and its implementing regulations that adversely affect our business including changes in regulatory policies and principles or the interpretation of regulatory capital or other rules;
adverse publicity, regulatory actions or litigation with respect to us or other well-known companies and the financial services industry in general and a failure to satisfy regulatory standards;
general economic conditions, either nationally, internationally, or in our market areas, including fluctuations in real estate values and constrained financial markets;
the effects of and changes in monetary and fiscal policies of the Board of Governors of the Federal Reserve System and the U.S. Government;
our ability to make accurate assumptions and judgments about an appropriate level of allowance for loan losses and the collectability of our loan portfolio, including changes in the level and trend of loan delinquencies and write-offs that may lead to increased losses and non-performing assets in our loan portfolio, result in our allowance for loan losses not being adequate to cover actual losses, and require us to materially increase our reserves;
our use of estimates in determining fair value of certain of our assets, which estimates may prove to be incorrect and result in significant declines in valuation;
changes in the levels of general interest rates, and the relative differences between short and long term interest rates, deposit interest rates, our net interest margin and funding sources;
computer systems on which we depend could fail or experience a security breach, implementation of new technologies may not be successful; and our ability to anticipate and respond to technological changes can affect our ability to meet customer needs;
changes in other economic, competitive, governmental, regulatory, and technological factors affecting our markets, operations, pricing, products, services and fees;
our success at managing the risks involved in the foregoing and managing our business; and
the timing and occurrence or non-occurrence of events that may be subject to circumstances beyond our control.
Additional factors that may affect our results are discussed in this annual report on Form 10-K under “Item 1A, Risk Factors” and elsewhere in this Report or in other filings with the SEC. These risks and uncertainties should be considered in evaluating forward-looking statements and undue reliance should not be placed on such statements.
| |
| ITEM 7A. | Quantitative and Qualitative Disclosures about Market Risk |
Management believes that our most significant form of market risk is interest rate risk. The general objective of our interest rate risk management is to determine the appropriate level of risk given our business strategy, and then manage that risk in a manner that is consistent with our policy to limit the exposure of our net interest income to changes in market interest rates. Sterling NationalThe Bank’s Asset/Liability Management Committee (“ALCO”), which consists of certain members of senior management, evaluates the interest rate risk inherent in certain assets and liabilities, our operating environment, and capital and liquidity requirements, and modifies our lending, investing and deposit gathering strategies accordingly. A committee of the Board of Directors reviews ALCO’s activities and strategies, the effect of those strategies on our net interest margin, and the effect that changes in market interest rates would have on the economic value of our loan and securities portfolios, as well as the intrinsic value of our deposits and borrowings.
We actively evaluate interest rate risk in connection with our lending, investing, and deposit activities. We emphasize the origination of commercial real estate loans, commercial & industrial loans, and residential fixed-rate mortgage loans that are repaid monthly and bi-weekly, and adjustable-rate residential and consumer loans. Depending on market interest rates and our capital and liquidity position, we may retain all of the fixed-rate, fixed-term residential mortgage loans that we originate or we may sell or securitize all, or a portion of such longer-term loans, generally on a servicing-retainedservicing-released basis. We also invest in shorter-termshorter term securities, which generally have lower yields compared to longer-term investments. Shortening the average maturity of our interest-earning assets by increasing our investments in shorter-term loans and securities may help us to better match the maturities and interest rates of our assets and liabilities, thereby reducing the exposure of our net interest income to changes in market interest rates. These strategies may adversely affect net interest income due to lower initial yields on these investments in comparison to longer-term, fixed-rate loans and investments.
Management monitors interest rate sensitivity primarily through the use of a model that simulates net interest income (“NII”) under varying interest rate assumptions. Management also evaluates this sensitivity using a model that estimates the change in the Company’sour and the Bank’s economic value of equity (“EVE”) over a range of interest rate scenarios. EVE is the present value of expected cash flows from assets, liabilities and off-balance sheet contracts. The model assumes estimated loan prepayment rates, reinvestment rates and deposit decay rates that seem reasonable, based on historical experience during prior interest rate changes.
Estimated Changes in EVE and NII. The table below sets forth, as of September 30, 2013,December 31, 2015, the estimated changes in our (1)(i) EVE that would result from the designated instantaneous changes in the forward rate curves, and (2)(ii) NII that would result from the designated instantaneous changes in the U.S. Treasury yield curve. Computations of prospective effects of hypothetical interest rate changes are based on numerous assumptions including relative levels of market interest rates, loan prepayments and deposit decay, and should not be relied on as indicative of actual results.
| | | Interest rates | | Estimated | | Estimated change in EVE | | Estimated | | Estimated change in NII | | Estimated | | Estimated change in EVE | | Estimated | | Estimated change in NII |
| (basis points) | | EVE | | Amount | | Percent | | NII | | Amount | | Percent | | EVE | | Amount | | Percent | | NII | | Amount | | Percent |
| | | (Dollars in thousands) | |
| +300 | | $ | 565,776 |
| | $ | (48,679 | ) | | (7.9 | )% | | $ | 119,056 |
| | $ | 6,961 |
| | 6.2 | % | | $ | 1,550,755 |
| | $ | (65,263 | ) | | (4.0 | )% | | $ | 434,244 |
| | $ | 45,455 |
| | 11.7 | % |
| +200 | | 587,069 |
| | (26,386 | ) | | (4.3 | ) | | 117,349 |
| | 5,254 |
| | 4.7 |
| | 1,581,595 |
| | (34,423 | ) | | (2.1 | ) | | 419,707 |
| | 30,918 |
| | 8.0 |
|
| +100 | | 606,751 |
| | (6,704 | ) | | (1.1 | ) | | 114,296 |
| | 2,201 |
| | 2.0 |
| | 1,609,413 |
| | (6,605 | ) | | (0.4 | ) | | 403,922 |
| | 15,133 |
| | 3.9 |
|
| 0 | | 613,455 |
| | — |
| | — |
| | 112,095 |
| | — |
| | — |
| | 1,616,018 |
| | — |
| | — |
| | 388,789 |
| | — |
| | — |
|
| -100 | | 611,771 |
| | 1,684 |
| | 0.3 |
| | 104,600 |
| | (7,495 | ) | | (6.7 | ) | | 1,602,956 |
| | (13,062 | ) | | (0.8 | ) | | 361,639 |
| | (27,150 | ) | | (7.0 | ) |
The table above indicates that at September 30, 2013,December 31, 2015, in the event of an immediate 200 basis point increase in interest rates, we would expect to experience a 4.3%2.1% decrease in EVE and a 4.7%8.0% increase in NII. Due to the current level of interest rates, management is unable to reasonably model the impact of decreases in interest rates on EVE and NII beyond -100 basis points.
Certain shortcomings are inherent in the methodology used in the above interest rate risk measurements. Modeling changes in EVE and NII requiresrequire making certain assumptions that may or may not reflect the manner in which actual yields and costs respond to changes in market interest rates. The EVE and NII table presented above assumes that the composition of our interest-rate sensitive assets and liabilities existing at the beginning of a period remains constant over the period being measured and, accordingly, the data does not reflect any actions management may undertake in response to changes in interest rates. The table also assumes that a particular change in interest rates is reflected uniformly across the yield curve regardless of the duration to maturity or the re-pricing characteristics of
specific assets and liabilities. Accordingly, although the EVE and NII table provides an indication of our sensitivity to interest rate changes at a particular point in time, such measurements are not intended to and do not provide a
precise forecast of the effect of changes inthat market interest rates may have on our net interest income. Actual results will likely differ.
During the fiscal year 2013,fourth quarter of 2015, the federal funds target rate remained inincreased a range of 0.00quarter point to 0.25 - 0.25% as the Federal Open Market Committee (“FOMC”) did not change the target overnight lending rate.0.50%. U.S. Treasury yields in the two year maturities increased 1039 basis points from 0.23%0.67% to 0.33% in fiscal 20131.06% over the twelve months December 31, 2015 while the yield on U.S. Treasury 10-year notes increased 9910 basis points from 1.65%2.17% to 2.64%2.27% over the same twelve month period. The greaterlesser increase in rates on longer termlonger-term maturities relative to the increase in rates to short-term maturities resulted in a steeperflatter 2-10 year treasury yield curve at the end of fiscal 20132015 relative to December 31, 2014. At its December 2015 meeting, the beginning ofFederal Open Market Committee (the “FOMC”) stated that given the fiscal year. Duringcurrent economic outlook, and recognizing the fourth quarter,time it takes for policy actions to affect future economic outcomes, it was appropriate to raise the FOMC reaffirmedfederal funds rate, and that its willingness to maintain an accommodative stance on monetary policy stating that it intends to do so until the unemployment rate and inflation expectations reach certain thresholds.remains accommodative. However, should economic conditions improve at a faster pace than anticipated, the FOMC could reverse direction and increase the federal funds target rate.rate even further. This could cause the shorter end of the yield curve to rise disproportionately relative to the longer end, thereby resulting in a short-terman even flatter yield curve and more margin compression environment. We hold a notional amount of $50 million in interest rate caps to help mitigate this risk.compression.
| |
| ITEM 8. | Financial Statements and Supplementary Data |
The following are included in this item:
| |
| (A) | Report of Independent Registered Public Accounting Firm |
| |
| (B) | Consolidated Balance Sheets as of September 30, 2013December 31, 2015 and 20122014 |
| |
| (C) | Consolidated Statements of IncomeOperations for the year ended December 31, 2015, for the three months ended December 31, 2014 and 2013 (2013 Unaudited) and for the fiscal years ended September 30, 2013, 20122014, and 20112013 |
| |
| (D) | Consolidated Statements of Changes in Stockholders’ EquityComprehensive Income (Loss) for the year ended December 31, 2015, for the three months ended December 31, 2014 and 2013 (2013 Unaudited) and for the fiscal years ended September 30, 2013, 20122014, and 20112013 |
| |
| (E) | Consolidated Statements of Changes in Stockholders’ Equity for the year ended December 31, 2015, for the three months ended December 31, 2014 and 2013 (2013 Unaudited) and for the fiscal years ended September 30, 2014, and 2013 |
| |
| (F) | Consolidated Statements of Cash Flows for the year ended December 31, 2015, for the three months ended December 31, 2014 and 2013 (2013 Unaudited) and for the fiscal years ended September 30, 2013, 20122014, and 20112013 |
| |
(F)(G) | Notes to Consolidated Financial Statements |
The supplementary data required by this item (selected quarterly financial data) is provided in Note 21. Quarterly22. “Quarterly Results of Operations (Unaudited)” in the notes to the consolidated financial statements.statements included in this item.
Report of Independent Registered Public Accounting Firm
Board of Directors and Stockholders
Sterling Bancorp
We have audited the accompanying consolidated balance sheets of Sterling Bancorp as of September 30, 2013December 31, 2015, and 2012,2014, and the related consolidated statements of income,operations, comprehensive income (loss), changes in stockholders’ equity and cash flows for each ofthe year ended December 31, 2015, the three months ended December 31, 2014 and the years in the three year period ended September 30, 2014 and 2013. We also have audited Sterling Bancorp’s internal control over financial reporting as of September 30, 2013,December 31, 2015, based on criteria established in the 2013 Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Sterling Bancorp’s management is responsible for these financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying, Management’s Annual Report of Management on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on these consolidated financial statements and an opinion on the company's internal control over financial reporting based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement and whether effective internal control over financial reporting was maintained in all material respects. Our audits of the consolidated financial statements included examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.
A company'scompany’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of consolidated financial statements for external purposes in accordance with generally accepted accounting principles. A company'scompany’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of consolidated financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company's assets that could have a material effect on the consolidated financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Sterling Bancorp as of September 30, 2013December 31, 2015, and 2012,2014, and the results of its operations and its cash flows for each ofthe year ended December 31, 2015, the 3 months ended December 31, 2014 and the years in the three-year period ended September 30, 2014 and 2013, in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, Sterling Bancorp maintained, in all material respects, effective internal control over financial reporting as of September 30, 2013,December 31, 2015, based on criteria established in the 2013 Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).Commission.
/s/ Crowe Horwath LLP
New York, New York
December 6, 2013February 29, 2016
STERLING BANCORP AND SUBSIDIARIES
Consolidated Balance Sheets
As of December 31, 2015 and 2014
(Dollars in thousands, except per share data)
STERLING BANCORP AND SUBSIDIARIES Consolidated Balance Sheets (Dollars in thousands, except per share data) | |
| | | | September 30, | December 31, |
| | 2013 | | 2012 | 2015 | | 2014 |
| ASSETS: | | | | | | |
| Cash and due from banks | $ | 113,090 |
| | $ | 437,982 |
| $ | 229,513 |
| | $ | 121,520 |
|
| Securities: | | | | | | |
| Available for sale, at fair value | 954,393 |
| | 1,010,872 |
| 1,921,032 |
| | 1,140,846 |
|
| Held to maturity, at amortized cost (fair value of $250,896 and $146,324 in 2013 and 2012, respectively) | 253,999 |
| | 142,376 |
| |
| Held to maturity, at amortized cost (fair value of $734,079, and $586,346 at December 31, 2015 and 2014, respectively) | | 722,791 |
| | 572,337 |
|
| Total securities | 1,208,392 |
| | 1,153,248 |
| 2,643,823 |
| | 1,713,183 |
|
| Assets held for sale | — |
| | 4,550 |
| |
| Loans held for sale | 1,011 |
| | 7,505 |
| 34,110 |
| | 46,599 |
|
| Gross loans | 2,412,898 |
| | 2,119,472 |
| |
| Portfolio loans | | 7,859,360 |
| | 4,815,641 |
|
| Allowance for loan losses | (28,877 | ) | | (28,282 | ) | (50,145 | ) | | (42,374 | ) |
| Total loans, net | 2,384,021 |
| | 2,091,190 |
| |
| Federal Home Loan Bank (“FHLB”) stock, at cost | 24,312 |
| | 19,249 |
| |
| Portfolio loans, net | | 7,809,215 |
| | 4,773,267 |
|
| Federal Home Loan Bank (“FHLB”) and Federal Reserve Bank (“FRB”) stock, at cost | | 116,758 |
| | 75,437 |
|
| Accrued interest receivable | | 31,531 |
| | 19,301 |
|
| Premises and equipment, net | 36,520 |
| | 38,483 |
| 63,362 |
| | 46,156 |
|
| Goodwill | 163,117 |
| | 163,247 |
| 670,699 |
| | 388,926 |
|
| Core deposit and other intangible assets | 5,891 |
| | 7,164 |
| 77,367 |
| | 43,332 |
|
| Bank owned life insurance | 60,914 |
| | 59,017 |
| 196,288 |
| | 150,522 |
|
| Other real estate owned | 6,022 |
| | 6,403 |
| 14,614 |
| | 5,867 |
|
| Other assets | 45,882 |
| | 34,944 |
| 68,672 |
| | 40,712 |
|
| Total assets | $ | 4,049,172 |
| | $ | 4,022,982 |
| $ | 11,955,952 |
| | $ | 7,424,822 |
|
| LIABILITIES AND STOCKHOLDERS’ EQUITY | | | | | | |
| LIABILITIES: | | | |
| | |
| Deposits | $ | 2,962,294 |
| | $ | 3,111,151 |
| $ | 8,580,007 |
| | $ | 5,212,325 |
|
| FHLB and other borrowings | 462,953 |
| | 345,176 |
| |
| FHLB borrowings | | 1,409,885 |
| | 1,003,209 |
|
| Other borrowings (repurchase agreements) | | 16,566 |
| | 9,846 |
|
| Senior notes | 98,033 |
| | — |
| 98,893 |
| | 98,498 |
|
| Mortgage escrow funds | 12,646 |
| | 11,919 |
| 13,778 |
| | 4,167 |
|
| Other liabilities | 30,380 |
| | 63,614 |
| 171,750 |
| | 121,577 |
|
| Total liabilities | 3,566,306 |
| | 3,531,860 |
| 10,290,879 |
| | 6,449,622 |
|
| Commitments and Contingent liabilities (See Note 16.) |
|
| |
|
| |
| Commitments and Contingent liabilities (See Note 18.) | |
|
| | — |
|
| STOCKHOLDERS’ EQUITY: | | | | | | |
| Preferred stock, (par value $0.01 per share; 10,000,000 shares authorized; none issued or outstanding) | — |
| | — |
| |
| Common stock (par value $0.01 per share; 75,000,000 shares authorized; 52,188,056 and 45,929,552 issued for 2013 and 2012, respectively; 44,351,046 and 44,173,470 shares outstanding in 2013 and 2012 respectively) | 522 |
| | 522 |
| |
| Preferred stock (par value $0.01 per share; 10,000,000 shares authorized; none issued or outstanding) | | — |
| | — |
|
| Common stock (par value $0.01 per share; 190,000,000 shares authorized; 136,673,149 and 91,246,024 shares issued at December 31, 2015 and 2014, respectively; 130,006,926 and 83,927,572, outstanding at December 31, 2015 and 2014, respectively) | | 1,367 |
| | 912 |
|
| Additional paid-in capital | 403,816 |
| | 403,541 |
| 1,506,612 |
| | 858,489 |
|
| Unallocated common stock held by employee stock ownership plan (“ESOP”); 549,262 and 599,194 unallocated shares outstanding in 2013 and 2012, respectively | (5,493 | ) | | (5,638 | ) | |
| Treasury stock, at cost (7,837,010 shares in 2013 and 8,014,586 shares in 2012) | (88,538 | ) | | (90,173 | ) | |
| Treasury stock, at cost (6,666,223 shares and 7,318,452 shares at December 31, 2015 and 2014, respectively) | | (76,190 | ) | | (82,908 | ) |
| Retained earnings | 187,889 |
| | 175,971 |
| 245,408 |
| | 208,958 |
|
| Accumulated other comprehensive (loss) income, net of tax (benefit) expense of ($10,482) in 2013 and $4,688 in 2012 | (15,330 | ) | | 6,899 |
| |
| Accumulated other comprehensive (loss), net of tax (benefit) of ($8,961) at December 31, 2015 and ($7,576) at December 31, 2014 | | (12,124 | ) | | (10,251 | ) |
| Total stockholders’ equity | 482,866 |
| | 491,122 |
| 1,665,073 |
| | 975,200 |
|
| Total liabilities and stockholders’ equity | $ | 4,049,172 |
| | $ | 4,022,982 |
| $ | 11,955,952 |
| | $ | 7,424,822 |
|
See accompanying notes to consolidated financial statements.
STERLING BANCORP AND SUBSIDIARIES
Consolidated Statements of Operations
For the year ended December 31, 2015, three months ended December 31, 2014 and 2013 (2013 unaudited) and fiscal years ended September 30, 2014 and 2013
(Dollars in thousands, except per share data)
STERLING BANCORP AND SUBSIDIARIES Consolidated Statements of Income For the year ended September 30, (Dollars in thousands, except per share data) | |
| | | | | Year ended | | Three months ended | | Fiscal year ended |
| | | | | | | | December 31, | | December 31, | | September 30, |
| | 2013 | | 2012 | | 2011 | 2015 | | 2014 | | 2013 | | 2014 | | 2013 |
| Interest and dividend income: | | | | | | | | | | | | | | |
| Loans, including fees | $ | 107,810 |
| | $ | 91,010 |
| | $ | 89,500 |
| $ | 292,496 |
| | $ | 56,869 |
| | $ | 43,288 |
| | $ | 202,982 |
| | $ | 107,810 |
|
| Taxable securities | 17,509 |
| | 16,538 |
| | 14,493 |
| 39,369 |
| | 7,413 |
| | 6,903 |
| | 30,067 |
| | 17,509 |
|
| Non-taxable securities | 5,682 |
| | 6,497 |
| | 7,441 |
| 12,076 |
| | 2,865 |
| | 2,161 |
| | 10,453 |
| | 5,682 |
|
| Other earning assets | 1,060 |
| | 992 |
| | 1,180 |
| 4,200 |
| | 940 |
| | 359 |
| | 3,404 |
| | 1,060 |
|
| Total interest and dividend income | 132,061 |
| | 115,037 |
| | 112,614 |
| 348,141 |
| | 68,087 |
| | 52,711 |
| | 246,906 |
| | 132,061 |
|
| Interest expense: | | | | | | | | | | | | | | |
| Deposits | 5,923 |
| | 5,581 |
| | 6,104 |
| 17,478 |
| | 2,818 |
| | 1,834 |
| | 8,964 |
| | 5,923 |
|
| Borrowings | 13,971 |
| | 12,992 |
| | 15,220 |
| 19,447 |
| | 5,032 |
| | 5,001 |
| | 19,954 |
| | 13,971 |
|
| Total interest expense | 19,894 |
| | 18,573 |
| | 21,324 |
| 36,925 |
| | 7,850 |
| | 6,835 |
| | 28,918 |
| | 19,894 |
|
| Net interest income | 112,167 |
| | 96,464 |
| | 91,290 |
| 311,216 |
| | 60,237 |
| | 45,876 |
| | 217,988 |
| | 112,167 |
|
| Provision for loan losses | 12,150 |
| | 10,612 |
| | 16,584 |
| 15,700 |
| | 3,000 |
| | 3,000 |
| | 19,100 |
| | 12,150 |
|
| Net interest income after provision for loan losses | 100,017 |
| | 85,852 |
| | 74,706 |
| 295,516 |
| | 57,237 |
| | 42,876 |
| | 198,888 |
| | 100,017 |
|
| Non-interest income: | | | | | | | | | | | | | | |
| Accounts receivable management / factoring commissions and other related fees | | 17,088 |
| | 4,134 |
| | 2,226 |
| | 13,146 |
| | — |
|
| Mortgage banking income | | 11,405 |
| | 2,858 |
| | 1,616 |
| | 8,086 |
| | 1,979 |
|
| Deposit fees and service charges | 10,964 |
| | 11,377 |
| | 10,811 |
| 15,871 |
| | 4,221 |
| | 3,942 |
| | 15,595 |
| | 10,964 |
|
| Net gain on sale of securities | 7,391 |
| | 10,452 |
| | 10,011 |
| |
| Other than temporary impairment on securities: | | | | | | |
| Total impairment loss | (73 | ) | | (90 | ) | | (787 | ) | |
| Loss recognized in other comprehensive income | 41 |
| | 43 |
| | 509 |
| |
| Net impairment loss recognized in earnings | (32 | ) | | (47 | ) | | (278 | ) | |
| Title insurance fees | 395 |
| | 1,106 |
| | 1,224 |
| |
| Net gain (loss) on sale of securities | | 4,837 |
| | (43 | ) | | (645 | ) | | 641 |
| | 7,391 |
|
| Bank owned life insurance | 1,998 |
| | 2,050 |
| | 2,049 |
| 5,235 |
| | 1,024 |
| | 740 |
| | 3,080 |
| | 1,998 |
|
| Net gain on sale of loans | 1,979 |
| | 1,897 |
| | 1,027 |
| |
| Investment management fees | 2,413 |
| | 3,143 |
| | 3,080 |
| 2,397 |
| | 403 |
| | 540 |
| | 2,209 |
| | 2,413 |
|
| Other | 2,584 |
| | 2,174 |
| | 2,027 |
| 5,918 |
| | 1,360 |
| | 729 |
| | 4,613 |
| | 2,947 |
|
| Total non-interest income | 27,692 |
| | 32,152 |
| | 29,951 |
| 62,751 |
| | 13,957 |
| | 9,148 |
| | 47,370 |
| | 27,692 |
|
| Non-interest expense: | | | | | | | | | | | | | | |
| Compensation and employee benefits | 47,833 |
| | 46,038 |
| | 43,662 |
| 104,939 |
| | 22,410 |
| | 20,811 |
| | 90,215 |
| | 47,833 |
|
| Stock-based compensation plans | 2,239 |
| | 1,187 |
| | 1,162 |
| 4,581 |
| | 1,146 |
| | 991 |
| | 3,703 |
| | 2,239 |
|
| Merger-related expense | 2,772 |
| | 5,925 |
| | 255 |
| |
| Occupancy and office operations | 14,953 |
| | 14,457 |
| | 14,508 |
| 32,915 |
| | 7,245 |
| | 6,333 |
| | 27,726 |
| | 14,953 |
|
| Amortization of intangible assets | 1,296 |
| | 1,245 |
| | 1,426 |
| 10,043 |
| | 1,873 |
| | 1,875 |
| | 9,408 |
| | 1,296 |
|
| Other real estate owned expense | 1,562 |
| | 1,618 |
| | 1,171 |
| |
| FDIC insurance and regulatory assessments | 3,010 |
| | 3,096 |
| | 2,910 |
| 7,380 |
| | 1,568 |
| | 1,164 |
| | 6,146 |
| | 3,010 |
|
| Other real estate owned (income) expense, net | | 274 |
| | (81 | ) | | 368 |
| | (237 | ) | | 1,562 |
|
| Merger-related expense | | 17,079 |
| | 502 |
| | 9,068 |
| | 9,455 |
| | 2,772 |
|
| Defined benefit plan termination charge | | 13,384 |
| | — |
| | 2,743 |
| | 4,095 |
| | — |
|
| Other | 17,376 |
| | 18,391 |
| | 25,017 |
| 69,723 |
| | 11,151 |
| | 29,621 |
| | 57,917 |
| | 17,376 |
|
| Total non-interest expense | 91,041 |
| | 91,957 |
| | 90,111 |
| 260,318 |
| | 45,814 |
| | 72,974 |
| | 208,428 |
| | 91,041 |
|
| Income before income tax expense | 36,668 |
| | 26,047 |
| | 14,546 |
| |
| Income tax expense | 11,414 |
| | 6,159 |
| | 2,807 |
| |
| Net income | $ | 25,254 |
| | $ | 19,888 |
| | $ | 11,739 |
| |
| Income (loss) before income taxes | | 97,949 |
| | 25,380 |
| | (20,950 | ) | | 37,830 |
| | 36,668 |
|
| Income tax expense (benefit) | | 31,835 |
| | 8,376 |
| | (6,948 | ) | | 10,152 |
| | 11,414 |
|
| Net income (loss) | | $ | 66,114 |
| | $ | 17,004 |
| | $ | (14,002 | ) | | $ | 27,678 |
| | $ | 25,254 |
|
| Weighted average common shares: | | | | | | | | | | | | | | |
| Basic | 43,734,425 |
| | 38,227,653 |
| | 37,452,596 |
| 109,907,645 |
| | 83,831,380 |
| | 70,493,305 |
| | 80,268,970 |
| | 43,734,425 |
|
| Diluted | 43,783,053 |
| | 38,248,046 |
| | 37,453,542 |
| 110,329,353 |
| | 84,194,916 |
| | 70,493,305 |
| | 80,534,043 |
| | 43,783,053 |
|
| Earnings per common share | | | | | | |
| Earnings per common share: | | | | | | | | | | |
| Basic | $ | 0.58 |
| | $ | 0.52 |
| | $ | 0.31 |
| $ | 0.60 |
| | $ | 0.20 |
| | $ | (0.20 | ) | | $ | 0.34 |
| | $ | 0.58 |
|
| Diluted | 0.58 |
| | 0.52 |
| | 0.31 |
| 0.60 |
| | 0.20 |
| | (0.20 | ) | | 0.34 |
| | 0.58 |
|
STERLING BANCORP AND SUBSIDIARIES
Consolidated Statements of Comprehensive Income (Loss)
For the year ended December 31, 2015, three months ended December 31, 2014 and 2013 (2013 unaudited) and fiscal years ended September 30, 2014, and 2013
(Dollars in thousands, except per share data)
|
| | | | | | | | | | | |
| | 2013 | | 2012 | | 2011 |
| Net income | $ | 25,254 |
| | $ | 19,888 |
| | $ | 11,739 |
|
| Other comprehensive (loss) income: | | | | | |
| Securities available for sale: | | | | | |
| Net unrealized holding (losses) gains on securities available for sale net of related tax (benefit) expense of ($15,154), $5,220 and $4,624 | (22,167 | ) | | 7,641 |
| | 6,762 |
|
| Less: | | | | | |
| Reclassification adjustment for net realized gains included in net income, net of related income tax expense of $3,001, $4,246 and $4,065 | 4,390 |
| | 6,206 |
| | 5,946 |
|
| Reclassification adjustment for other than temporary losses included in net income, net of related income tax benefit of ($13), ($19) and ($113) | (19 | ) | | (28 | ) | | (165 | ) |
| Total securities available for sale | (26,538 | ) | | 1,463 |
| | 981 |
|
| Change in funded status of defined benefit plans, net of related income tax expense (benefit) of $2,929, $205 and ($665) | 4,309 |
| | 300 |
| | (969 | ) |
| Other comprehensive (loss) income | (22,229 | ) | | 1,763 |
| | 12 |
|
| Total comprehensive income | $ | 3,025 |
| | $ | 21,651 |
| | $ | 11,751 |
|
|
| | | | | | | | | | | | | | | | | | | |
| | Year ended | | Three months ended | | Fiscal year ended |
| | December 31, | | December 31, | | September 30, |
| | 2015 | | 2014 | | 2013 | | 2014 | | 2013 |
| Net income (loss) | $ | 66,114 |
| | $ | 17,004 |
| | $ | (14,002 | ) | | $ | 27,678 |
| | $ | 25,254 |
|
| Other comprehensive income (“OCI”) (loss): | | | | | | | | | |
| Change in unrealized holding (losses) gains on securities available for sale | (9,591 | ) | | 6,858 |
| | (615 | ) | | 15,948 |
| | (37,325 | ) |
| Change in net unrealized gain (loss) on securities transferred to held to maturity | 1,412 |
| | 310 |
| | (9,841 | ) | | (8,947 | ) | | — |
|
| Reclassification adjustment for net realized (gains) losses included in net income | (4,837 | ) | | 43 |
| | 645 |
| | (641 | ) | | (7,391 | ) |
| Reclassification adjustment for other than temporary impaired losses included in net income | — |
| | — |
| | — |
| | — |
| | 32 |
|
| Change in funded status of defined benefit plans and acceleration of future amortization of accumulated other comprehensive loss on defined benefit pension plan | 9,758 |
| | (5,108 | ) | | 2,336 |
| | 372 |
| | 7,255 |
|
| Total other comprehensive (loss) income items | (3,258 | ) | | 2,103 |
| | (7,475 | ) | | 6,732 |
| | (37,429 | ) |
| Related income tax benefit (expense) | 1,385 |
| | (895 | ) | | 3,340 |
| | (2,861 | ) | | 15,200 |
|
| Other comprehensive (loss) income | (1,873 | ) | | 1,208 |
| | (4,135 | ) | | 3,871 |
| | (22,229 | ) |
| Total comprehensive income (loss) | $ | 64,241 |
| | $ | 18,212 |
| | $ | (18,137 | ) | | $ | 31,549 |
| | $ | 3,025 |
|
See accompanying notes to consolidated financial statements.
STERLING BANCORP AND SUBSIDIARIES
Consolidated Statements of Changes in Stockholders’ Equity
For the year ended December 31, 2015, the three months ended December 31, 2014 and the fiscal years ended September 30, 2014 and 2013
(Dollars in thousands, except per share data)
| | | | Number of shares | | Common stock | | Additional paid-in capital | | Unallocated ESOP shares | | Treasury stock | | Retained earnings | | Accumulated other comprehensive income (loss) | | Total stockholders’ equity | Number of shares | | Common stock | | Additional paid-in capital | | Unallocated ESOP shares | | Treasury stock | | Retained earnings | | Accumulated other comprehensive income (loss) | | Total stockholders’ equity |
| Balance at October 1, 2010 | 38,262,288 |
| | $ | 459 |
| | $ | 356,912 |
| | $ | (6,637 | ) | | $ | (87,336 | ) | | $ | 162,433 |
| | $ | 5,124 |
| | $ | 430,955 |
| |
| Balance at October 1, 2012 | | 44,173,470 |
| | $ | 522 |
| | $ | 403,541 |
| | $ | (5,638 | ) | | $ | (90,173 | ) | | $ | 175,971 |
| | $ | 6,899 |
| | $ | 491,122 |
|
| Net income | | | | | | | | | | | 11,739 |
| | | | 11,739 |
| — |
| | — |
| | — |
| | — |
| | — |
| | 25,254 |
| | — |
| | 25,254 |
|
| Other comprehensive income | | | | | | | | | | | | | 12 |
| | 12 |
| |
| Deferred compensation transactions | — |
| | — |
| | 45 |
| | — |
| | — |
| | — |
| | — |
| | 45 |
| |
| Stock option transactions, net | — |
| | — |
| | 558 |
| | — |
| |
|
| | — |
| | — |
| | 558 |
| |
| ESOP shares allocated or committed to be released for allocation (49,932 shares) | — |
| | — |
| | (59 | ) | | 499 |
| | — |
| | — |
| | — |
| | 440 |
| |
| Restricted stock awards, net | 59,174 |
| | — |
| | (393 | ) | | — |
| | 531 |
| | — |
| | — |
| | 138 |
| |
| Purchase of treasury stock | (457,454 | ) | | — |
| | — |
| | — |
| | (3,780 | ) | | — |
| | — |
| | (3,780 | ) | |
| Cash dividends paid ($0.24 per common share) | — |
| | — |
| | — |
| | — |
| | — |
| | (8,973 | ) | | — |
| | (8,973 | ) | |
| Balance at September 30, 2011 | 37,864,008 |
| | 459 |
| | 357,063 |
| | (6,138 | ) | | (90,585 | ) | | 165,199 |
| | 5,136 |
| | 431,134 |
| |
| Net income | | | | | | | | | | | 19,888 |
| | | | 19,888 |
| |
| Other comprehensive income | | | | | | | | | | | | | 1,763 |
| | 1,763 |
| |
| Deferred compensation transactions | — |
| | — |
| | 164 |
| | — |
| | — |
| | — |
| | — |
| | 164 |
| |
| Stock option transactions, net | — |
| | — |
| | 521 |
| | — |
| | — |
| | — |
| | — |
| | 521 |
| |
| ESOP shares allocated or committed to be released for allocation (49,932 shares) | — |
| | — |
| | 43 |
| | 500 |
| | — |
| | — |
| | — |
| | 543 |
| |
| Restricted stock awards, net | 50,958 |
| | — |
| | (187 | ) | | — |
| | 412 |
| | — |
| | — |
| | 225 |
| |
| Capital raise | 6,258,504 |
| | 63 |
| | 45,937 |
| | — |
| | — |
| | — |
| | — |
| | 46,000 |
| |
| Cash dividends paid ($0.24 per common share) | — |
| | — |
| | — |
| | — |
| | — |
| | (9,100 | ) | | — |
| | (9,100 | ) | |
| Other | — |
| | — |
| | — |
| | — |
| | — |
| | (16 | ) | | — |
| | (16 | ) | |
| Balance at September 30, 2012 | 44,173,470 |
| | 522 |
| | 403,541 |
| | (5,638 | ) | | (90,173 | ) | | 175,971 |
| | 6,899 |
| | 491,122 |
| |
| Net income | — |
| |
| |
| |
| |
| | 25,254 |
| | — |
| | 25,254 |
| |
| Other comprehensive income | — |
| |
| |
| |
| |
| |
| | (22,229 | ) | | (22,229 | ) | |
| Deferred compensation transactions | — |
| | — |
| | 35 |
| | — |
| | — |
| | — |
| | — |
| | 35 |
| |
| Stock option transactions, net | 8,250 |
| | — |
| | 695 |
| | — |
| | 95 |
| | (33 | ) | | — |
| | 757 |
| |
| Other comprehensive loss | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (22,229 | ) | | (22,229 | ) |
| Stock option & other stock transactions, net | | 8,250 |
| | — |
| | 730 |
| | — |
| | 95 |
| | (33 | ) | | — |
| | 792 |
|
| ESOP shares allocated or committed to be released for allocation (49,932 shares) | — |
| | — |
| | 119 |
| | 145 |
| | — |
| | — |
| | — |
| | 264 |
| — |
| | — |
| | 119 |
| | 145 |
| | — |
| | — |
| | — |
| | 264 |
|
| Restricted stock awards, net | 169,326 |
| | — |
| | (574 | ) | | — |
| | 1,540 |
| | — |
| | — |
| | 966 |
| 169,326 |
| | — |
| | (574 | ) | | — |
| | 1,540 |
| | — |
| | — |
| | 966 |
|
| Cash dividends declared ($0.30 per common share) | — |
| | — |
| | — |
| | — |
| | — |
| | (13,303 | ) | | — |
| | (13,303 | ) | — |
| | — |
| | — |
| | — |
| | — |
| | (13,303 | ) | | — |
| | (13,303 | ) |
| Balance at September 30, 2013 | 44,351,046 |
| | $ | 522 |
| | $ | 403,816 |
| | $ | (5,493 | ) | | $ | (88,538 | ) | | $ | 187,889 |
| | $ | (15,330 | ) | | $ | 482,866 |
| 44,351,046 |
| | 522 |
| | 403,816 |
| | (5,493 | ) | | (88,538 | ) | | 187,889 |
| | (15,330 | ) | | 482,866 |
|
| Net income | | — |
| | — |
| | — |
| | — |
| | — |
| | 27,678 |
| | — |
| | 27,678 |
|
| Other comprehensive income | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 3,871 |
| | 3,871 |
|
| Common stock issued in Provident Merger transaction | | 39,057,968 |
| | 390 |
| | 457,362 |
| | — |
| | — |
| | — |
| | — |
| | 457,752 |
|
| Stock option & other stock transactions, net | | 267,188 |
| | — |
| | 880 |
| | — |
| | 3,333 |
| | (430 | ) | | — |
| | 3,783 |
|
| ESOP shares allocated and ESOP termination | | (488,403 | ) | | — |
| | 1,280 |
| | 5,493 |
| | (5,983 | ) | | — |
| | — |
| | 790 |
|
| Restricted stock awards, net | | 440,468 |
| | — |
| | (2,774 | ) | | — |
| | 4,849 |
| | — |
| | — |
| | 2,075 |
|
| Cash dividends declared ($0.21 per common share) | | — |
| | — |
| | — |
| | — |
| | — |
| | (17,677 | ) | | — |
| | (17,677 | ) |
| Balance at September 30, 2014 | | 83,628,267 |
| | 912 |
| | 860,564 |
| | — |
| | (86,339 | ) | | 197,460 |
| | (11,459 | ) | | 961,138 |
|
| Net income | | — |
| | — |
| | — |
| | — |
| | — |
| | 17,004 |
| | — |
| | 17,004 |
|
| Other comprehensive income | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 1,208 |
| | 1,208 |
|
| Stock option & other stock transactions, net | | 95,033 |
| | — |
| | 328 |
| | — |
| | 1,132 |
| | 364 |
| | — |
| | 1,824 |
|
| Restricted stock awards, net | | 204,272 |
| | — |
| | (2,403 | ) | | — |
| | 2,299 |
| | — |
| | — |
| | (104 | ) |
| Cash dividends declared ($0.07 per common share) | | — |
| | — |
| | — |
| | — |
| | — |
| | (5,870 | ) | | — |
| | (5,870 | ) |
| Balance at December 31, 2014 | | 83,927,572 |
| | 912 |
| | 858,489 |
| | — |
| | (82,908 | ) | | 208,958 |
| | (10,251 | ) | | 975,200 |
|
| Net income | | — |
| | — |
| | — |
| | — |
| | — |
| | 66,114 |
| | — |
| | 66,114 |
|
| Other comprehensive loss | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (1,873 | ) | | (1,873 | ) |
| Common stock issued in HVB Merger transaction | | 38,525,154 |
| | 386 |
| | 563,227 |
| | — |
| | — |
| | — |
| | — |
| | 563,613 |
|
| Stock option & other stock transactions, net | | 322,132 |
| | — |
| | 940 |
| | — |
| | 3,502 |
| | 720 |
| | — |
| | 5,162 |
|
| Restricted stock awards, net | | 332,068 |
| | — |
| | (1,034 | ) | | — |
| | 3,216 |
| | — |
| | — |
| | 2,182 |
|
| Common equity issued, net of costs of issuance | | 6,900,000 |
| | 69 |
| | 84,990 |
| | — |
| | — |
| | — |
| | — |
| | 85,059 |
|
| Cash dividends declared ($0.28 per common share) | | — |
| | — |
| | — |
| | — |
| | — |
| | (30,384 | ) | | — |
| | (30,384 | ) |
| Balance at December 31, 2015 | | 130,006,926 |
| | $ | 1,367 |
| | $ | 1,506,612 |
| | $ | — |
| | $ | (76,190 | ) | | $ | 245,408 |
| | $ | (12,124 | ) | | $ | 1,665,073 |
|
See accompanying notes to consolidated financial statements.
STERLING BANCORP AND SUBSIDIARIES
Consolidated Statements of Cash Flows
For the year ended December 31, 2015, three months ended December 31, 2014 and 2013 (2013 unaudited) and fiscal years ended September 30, 2014 and 2013
(Dollars in thousands)
STERLING BANCORP AND SUBSIDIARIES Consolidated Statements of Cash Flows For the Year Ended September 30, (Dollars in thousands)
| |
| | | | | Year ended | | Three months ended | | Fiscal year ended |
| | | | | | | | December 31, | | December 31, | | September 30, |
| | 2013 | | 2012 | | 2011 | 2015 | | 2014 | | 2013 | | 2014 | | 2013 |
| Cash flows from operating activities: | | | | | | | | | | | | | | |
| Net income | $ | 25,254 |
| | $ | 19,888 |
| | $ | 11,739 |
| |
| Net income (loss) | | $ | 66,114 |
| | $ | 17,004 |
| | $ | (14,002 | ) | | $ | 27,678 |
| | $ | 25,254 |
|
| Adjustments to reconcile net income to net cash provided by operating activities: | | | | | | | | | | | | | | |
| Provisions for loan losses | 12,150 |
| | 10,612 |
| | 16,584 |
| 15,700 |
| | 3,000 |
| | 3,000 |
| | 19,100 |
| | 12,150 |
|
| Loss and write downs on other real estate owned | 1,285 |
| | 694 |
| | 869 |
| |
| (Gain) loss and write-downs on other real estate owned | | (1,066 | ) | | (83 | ) | | 332 |
| | (1,208 | ) | | 1,285 |
|
| (Gain) on redemption of Subordinated Debentures | | — |
| | — |
| | — |
| | (712 | ) | | — |
|
| Depreciation of premises and equipment | 4,243 |
| | 4,746 |
| | 6,177 |
| 7,476 |
| | 1,456 |
| | 1,617 |
| | 6,507 |
| | 4,243 |
|
| Asset impairments and other restructuring charges | | 40,350 |
| | 610 |
| | 9,302 |
| | 11,043 |
| | — |
|
| Charge for termination of defined benefit pension plans | | 13,384 |
| | — |
| | 2,743 |
| | 4,095 |
| | — |
|
| Amortization of intangibles | 1,296 |
| | 1,245 |
| | 1,426 |
| 10,043 |
| | 1,873 |
| | 1,875 |
| | 9,408 |
| | 1,296 |
|
| Net gain on sale of securities | (7,391 | ) | | (10,452 | ) | | (10,011 | ) | |
| Amortization of low income housing tax credit | | 194 |
| | 46 |
| | — |
| | 520 |
| | — |
|
| Net (gain) loss on sale of securities | | (4,837 | ) | | 43 |
| | 645 |
| | (641 | ) | | (7,391 | ) |
| Net gains on loans held for sale | (1,979 | ) | | (1,897 | ) | | (1,027 | ) | (11,405 | ) | | (2,858 | ) | | (1,616 | ) | | (8,086 | ) | | (1,979 | ) |
| Loss (gain) on sale of premises and equipment | 75 |
| | (75 | ) | | — |
| 116 |
| | — |
| | (93 | ) | | (93 | ) | | 75 |
|
| Net amortization of premium and discount on securities | 2,068 |
| | (1,006 | ) | | 3,181 |
| 5,916 |
| | 694 |
| | 511 |
| | 3,176 |
| | 2,068 |
|
| Change in unamortized acquisition costs and premiums | 1,050 |
| | — |
| | — |
| |
| Accrued restructuring expense | — |
| | — |
| | 3,201 |
| |
| Accretion of premium on borrowings (includes calls on borrowings), net | 87 |
| | (67 | ) | | (30 | ) | |
| Amortization of pre-payment fees on restructured borrowings | 1,466 |
| | 1,459 |
| | 1,033 |
| |
| ESOP and restricted stock expense | 1,544 |
| | 667 |
| | 607 |
| |
| Net (accretion) amortization on loans | | (10,555 | ) | | 435 |
| | 364 |
| | 2,330 |
| | 2,516 |
|
| Accretion of discount, amortization of premium on borrowings, net | | (81 | ) | | (69 | ) | | 87 |
| | (446 | ) | | 87 |
|
| Restricted stock and ESOP expense | | 3,671 |
| | 830 |
| | 772 |
| | 2,803 |
| | 1,544 |
|
| Stock option compensation expense | 695 |
| | 521 |
| | 558 |
| 909 |
| | 316 |
| | 219 |
| | 901 |
| | 695 |
|
| Originations of loans held for sale | (85,657 | ) | | (80,579 | ) | | (49,807 | ) | (599,853 | ) | | (138,542 | ) | | (113,572 | ) | | (462,030 | ) | | (85,657 | ) |
| Proceeds from sales of loans held for sale | 94,130 |
| | 79,147 |
| | 52,548 |
| 623,747 |
| | 112,013 |
| | 122,020 |
| | 483,622 |
| | 94,130 |
|
| Increase in cash surrender value of bank owned life insurance | (1,998 | ) | | (2,050 | ) | | (2,049 | ) | |
| Increase in cash surrender value of BOLI | | (5,235 | ) | | (1,024 | ) | | (742 | ) | | (3,198 | ) | | (1,998 | ) |
| Deferred income tax expense (benefit) | 719 |
| | (64 | ) | | 118 |
| 339 |
| | (12,080 | ) | | 1,857 |
| | (3,059 | ) | | 719 |
|
| Other adjustments (principally net changes in other assets and other liabilities) | (26,413 | ) | | 2,237 |
| | (8,639 | ) | (63,171 | ) | | (5,405 | ) | | (6,281 | ) | | 35,954 |
| | (26,413 | ) |
| Net cash provided by operating activities | 22,624 |
| | 25,026 |
| | 26,478 |
| |
| Net cash provided by (used in) operating activities | | 91,756 |
| | (21,741 | ) | | 9,038 |
| | 127,664 |
| | 22,624 |
|
| Cash flows from investing activities: | | | | | | | | | | | | | | |
| Purchases of securities: | | | | | | | | | | | | | | |
| Available for sale | (490,160 | ) | | (679,553 | ) | | (622,551 | ) | (1,113,952 | ) | | (292,554 | ) | | (67,044 | ) | | (407,438 | ) | | (490,160 | ) |
| Held to maturity | (169,320 | ) | | (95,157 | ) | | (93,764 | ) | (193,282 | ) | | (4,347 | ) | | (54,315 | ) | | (172,899 | ) | | (169,320 | ) |
| Proceeds from maturities, calls and other principal payments on securities: | | | | | | | | | | | | | | |
| Available for sale | 168,771 |
| | 174,497 |
| | 251,774 |
| 135,978 |
| | 23,739 |
| | 42,972 |
| | 163,199 |
| | 168,771 |
|
| Held to maturity | 55,866 |
| | 63,037 |
| | 17,220 |
| 45,340 |
| | 11,153 |
| | 5,258 |
| | 31,227 |
| | 55,866 |
|
| Proceeds from sales of securities available for sale | 339,123 |
| | 344,431 |
| | 540,145 |
| 893,610 |
| | 244,835 |
| | 247,650 |
| | 529,107 |
| | 339,123 |
|
| Proceeds from sales of securities held to maturity | 1,187 |
| | — |
| | 357 |
| — |
| | — |
| | — |
| | — |
| | 1,187 |
|
| Loan originations | (1,124,310 | ) | | (735,676 | ) | | (578,631 | ) | |
| Loan principal payments | 813,695 |
| | 509,060 |
| | 553,235 |
| |
| (Purchases) proceeds from sale of FHLB stock, net | (5,063 | ) | | (620 | ) | | 1,988 |
| |
| Loan originations, net | | (1,266,519 | ) | | (98,699 | ) | | (9,780 | ) | | (659,013 | ) | | (310,615 | ) |
| Proceeds from sale of loans held for investment | | 44,020 |
| | 42,863 |
| | — |
| | — |
| | — |
|
| (Purchases) of FHLB and FRB stock, net | | (35,491 | ) | | (9,352 | ) | | (11,338 | ) | | (34,093 | ) | | (5,063 | ) |
| Proceeds from sales of other real estate owned | 4,730 |
| | 3,468 |
| | 301 |
| 3,566 |
| | 1,825 |
| | — |
| | 9,645 |
| | 4,730 |
|
| Purchases of premises and equipment | (2,355 | ) | | (1,853 | ) | | (3,465 | ) | (8,047 | ) | | (4,326 | ) | | (8,572 | ) | | (2,584 | ) | | (2,355 | ) |
| Proceeds from sale of Hudson Valley Investment Advisors | 4,738 |
| | — |
| | — |
| — |
| | — |
| | — |
| | — |
| | 4,738 |
|
| Proceeds from sale of fixed assets | — |
| | 75 |
| | — |
| — |
| | — |
| | 627 |
| | 310 |
| | — |
|
| Purchases of bank owned life insurance | — |
| | — |
| | (3,980 | ) | |
| Redemption (purchase) of bank owned life insurance | | 3,700 |
| | (30,000 | ) | | — |
| | — |
| | — |
|
STERLING BANCORP AND SUBSIDIARIES
Consolidated Statements of Cash Flows
For the year ended December 31, 2015, three months ended December 31, 2014 and 2013 (2013 unaudited) and fiscal years ended September 30, 2014 and 2013
(Dollars in thousands)
STERLING BANCORP AND SUBSIDIARIES Consolidated Statements of Cash Flows Continued For the year ended September 30, (Dollars in thousands) |
| | | | | | | | | | | |
| | | | | | |
| | 2013 | | 2012 | | 2011 |
| Cash received from Gotham acquisition | — |
| | 126,818 |
| | — |
|
| Net cash (used in) provided by investing activities | (403,098 | ) | | (291,473 | ) | | 62,629 |
|
| Cash flows from financing activities: | | | | | |
| Net (decrease) increase in transaction, savings and money market deposits | (29,503 | ) | | 499,340 |
| | 227,907 |
|
| Net (decrease) in time deposits | (119,354 | ) | | (53,786 | ) | | (73,914 | ) |
| Net increase (decrease) in short-term FHLB borrowings | 91,528 |
| | (5,000 | ) | | (34,840 | ) |
| Increase in long-term FHLB borrowings | 25,000 |
| | — |
| | — |
|
| Gross repayments of long-term FHLB borrowings | (217 | ) | | (5,244 | ) | | (1,238 | ) |
| Payments of pre-payment fees on FHLB borrowings | — |
| | (278 | ) | | (5,151 | ) |
| Repayment of senior unsecured note | — |
| | (51,499 | ) | | — |
|
| Net proceeds from Senior Notes | 97,946 |
| | — |
| | — |
|
| Net increase in mortgage escrow funds | 727 |
| | 2,218 |
| | 1,503 |
|
| Treasury shares purchased | — |
| | — |
| | (3,810 | ) |
| Stock option transactions | 62 |
| | 102 |
| | 4 |
|
| Other stock-based compensation transactions | 35 |
| | 164 |
| | 45 |
|
| Equity capital raise | — |
| | 46,000 |
| | — |
|
| Cash dividends paid | (10,642 | ) | | (9,100 | ) | | (8,973 | ) |
| Net cash provided by financing activities | 55,582 |
| | 422,917 |
| | 101,533 |
|
| Net (decrease) increase in cash and cash equivalents | (324,892 | ) | | 156,470 |
| | 190,640 |
|
| Cash and cash equivalents at beginning of year | 437,982 |
| | 281,512 |
| | 90,872 |
|
| Cash and cash equivalents at end of year | $ | 113,090 |
| | $ | 437,982 |
| | $ | 281,512 |
|
| Supplemental cash flow information: | | | | | |
| Interest payments | $ | 18,831 |
| | $ | 18,447 |
| | $ | 21,815 |
|
| Income tax payments | 4,475 |
| | 1,873 |
| | 9,070 |
|
| Real estate acquired in settlement of loans | 5,634 |
| | 6,148 |
| | 1,932 |
|
| Unsettled securities transactions | — |
| | 41,758 |
| | — |
|
| Dividends declared, not yet paid | 2,661 |
| | — |
| | — |
|
| | | | | | |
| Acquisitions: | | | | | |
| Non-cash assets acquired: | | | | | |
| Securities available for sale | — |
| | $ | 54,994 |
| | — |
|
| Total loans, net | — |
| | 205,453 |
| | — |
|
| FHLB stock | — |
| | 1,045 |
| | — |
|
| Accrued interest receivable | — |
| | 417 |
| | — |
|
| Goodwill | — |
| | 5,665 |
| | — |
|
| Core deposit intangibles | — |
| | 4,818 |
| | — |
|
| Premises and equipment, net | — |
| | 490 |
| | — |
|
| Other assets | — |
| | 1,663 |
| | — |
|
| Total non-cash assets acquired | — |
| | 274,545 |
| | — |
|
| | | | | | |
| | | | | | |
|
| | | | | | | | | | | | | | | | | | | |
| | Year ended | | Three months ended | | Fiscal year ended |
| | December 31, | | December 31, | | September 30, |
| | 2015 | | 2014 | | 2013 | | 2014 | | 2013 |
| Purchase low income housing tax credit | — |
| | — |
| | — |
| | (1,966 | ) | | — |
|
| Cash received from acquisitions | 854,318 |
| | — |
| | 277,798 |
| | 277,798 |
| | — |
|
| Net cash provided by (used in) investing activities | (636,759 | ) | | (114,863 | ) | | 423,256 |
| | (266,707 | ) | | (403,098 | ) |
STERLING BANCORP AND SUBSIDIARIES
Consolidated Statements of Cash Flows
For the year ended December 31, 2015, three months ended December 31, 2014 and 2013 (2013 unaudited) and fiscal years ended September 30, 2014 and 2013
(Dollars in thousands)
STERLING BANCORP AND SUBSIDIARIES Consolidated Statements of Cash Flows Continued For the year ended September 30, (Dollars in thousands) |
| | | | | | | | | | | |
| | 2013 | | 2012 | | 2011 |
| Liabilities assumed: | | | | | |
| Deposits | — |
| | $ | 368,902 |
| | — |
|
| FHLB and other borrowings | — |
| | 30,784 |
| | — |
|
| Other liabilities | — |
| | 1,677 |
| | — |
|
| Total liabilities assumed | — |
| | 401,363 |
| | — |
|
| | | | | | |
| Net non-cash (liabilities) acquired | — |
| | $ | (126,818 | ) | | — |
|
| Cash and cash equivalents acquired in acquisitions | — |
| | 126,818 |
| | — |
|
|
| | | | | | | | | | | | | | | | | | | |
| | Year ended | | Three months ended | | Fiscal year ended |
| | December 31, | | December 31, | | September 30, |
| | 2015 | | 2014 | | 2013 | | 2014 | | 2013 |
| Cash flows from financing activities: | | | | | | | | | |
| Net increase (decrease) in transaction, savings and money market deposits | 186,431 |
| | (129,302 | ) | | (289,376 | ) | | 301,028 |
| | (29,503 | ) |
| Net increase (decrease) in time deposits | 20,505 |
| | 42,973 |
| | (49,544 | ) | | (261,858 | ) | | (119,354 | ) |
| Net increase (decrease) in short-term FHLB borrowings | 127,000 |
| | 128,309 |
| | (36,729 | ) | | 112,383 |
| | 36,633 |
|
| Advances of term FHLB borrowings | 605,000 |
| | 90,000 |
| | 50,000 |
| | 375,000 |
| | 90,000 |
|
| Repayments of term FHLB borrowings | (325,243 | ) | | (10,059 | ) | | (66,705 | ) | | (236,877 | ) | | (10,322 | ) |
| Net (decrease) in repurchase agreements and other short-term borrowings | (18,646 | ) | | (35,793 | ) | | — |
| | (37,177 | ) | | — |
|
| Repayment of debt assumed in acquisition | (4,485 | ) | | — |
| | — |
| | — |
| | — |
|
| Redemption of Subordinated Debentures | — |
| | — |
| | — |
| | (26,140 | ) | | — |
|
| Net proceeds from Senior Notes | — |
| | — |
| | — |
| | — |
| | 97,946 |
|
| Net increase (decrease) in mortgage escrow funds | 4,995 |
| | (327 | ) | | 814 |
| | (8,152 | ) | | 727 |
|
| Stock option transactions | 2,764 |
| | 574 |
| | 1,479 |
| | 3,042 |
| | 97 |
|
| Equity capital raise | 85,059 |
| | — |
| | — |
| | — |
| | — |
|
| Cash dividends paid | (30,384 | ) | | (5,870 | ) | | (2,661 | ) | | (17,677 | ) | | (10,642 | ) |
| Net cash provided by (used in) financing activities | 652,996 |
| | 80,505 |
| | (392,722 | ) | | 203,572 |
| | 55,582 |
|
| Net increase (decrease) in cash and cash equivalents | 107,993 |
| | (56,099 | ) | | 39,572 |
| | 64,529 |
| | (324,892 | ) |
| Cash and cash equivalents at beginning of year | 121,520 |
| | 177,619 |
| | 113,090 |
| | 113,090 |
| | 437,982 |
|
| Cash and cash equivalents at end of year | $ | 229,513 |
| | $ | 121,520 |
| | $ | 152,662 |
| | $ | 177,619 |
| | $ | 113,090 |
|
| Supplemental cash flow information: | | | | | | | | | |
| Interest payments | $ | 37,198 |
| | $ | 6,429 |
| | $ | 6,061 |
| | $ | 29,419 |
| | $ | 18,831 |
|
| Income tax payments | 39,315 |
| | 12,473 |
| | 4,651 |
| | 12,473 |
| | 4,475 |
|
| Real estate acquired in settlement of loans | 11,025 |
| | 29 |
| | 873 |
| | 2,542 |
| | 5,634 |
|
| Dividends declared, not yet paid | — |
| | — |
| | — |
| | — |
| | 2,661 |
|
| Loans transfered from held for investment to held for sale | 44,020 |
| | 42,229 |
| | — |
| | — |
| | — |
|
| Securities available for sale transferred to held to maturity | — |
| | — |
| | 221,904 |
| | — |
| | — |
|
| Securities held to maturity transferred to available for sale | — |
| | — |
| | 165,230 |
| | — |
| | — |
|
| Acquisitions: | | | | | | | | | |
| Non-cash assets acquired: | | | | | | | | | |
| Securities available for sale | $ | 710,230 |
| | $ | — |
| | $ | 233,244 |
| | $ | 233,190 |
| | $ | — |
|
| Securities held to maturity | 3,611 |
| | — |
| | 374,721 |
| | 374,721 |
| | — |
|
| Loans held for sale | — |
| | — |
| | 30,341 |
| | 30,341 |
| | — |
|
| Total loans, net | 1,814,826 |
| | — |
| | 1,698,108 |
| | 1,698,108 |
| | — |
|
| FRB stock | 5,830 |
| | — |
| | 7,680 |
| | 7,680 |
| | — |
|
| Accrued interest receivable | 7,392 |
| | — |
| | 6,590 |
| | 6,590 |
| | — |
|
| Goodwill | 281,773 |
| | — |
| | 224,400 |
| | 225,809 |
| | — |
|
| Trade name | — |
| | — |
| | 20,500 |
| | 20,500 |
| | — |
|
| Core deposit intangibles | 42,789 |
| | — |
| | 20,089 |
| | 20,089 |
| | — |
|
| Bank owned life insurance | 44,231 |
| | — |
| | 55,374 |
| | 55,374 |
| | — |
|
STERLING BANCORP AND SUBSIDIARIES
Consolidated Statements of Cash Flows
For the year ended December 31, 2015, three months ended December 31, 2014 and 2013 (2013 unaudited) and fiscal years ended September 30, 2014 and 2013
(Dollars in thousands)
|
| | | | | | | | | | | | | | | | | | | |
| | Year ended | | Three months ended | | Fiscal year ended |
| | December 31, | | December 31, | | September 30, |
| | 2015 | | 2014 | | 2013 | | 2014 | | 2013 |
| Premises and equipment, net | 17,063 |
| | — |
| | 23,594 |
| | 23,594 |
| | — |
|
| Other real estate owned | 222 |
| | — |
| | 5,815 |
| | 5,815 |
| | — |
|
| Other assets | 25,871 |
| | — |
| | 22,266 |
| | 20,933 |
| | — |
|
| Total non-cash assets acquired | 2,953,838 |
| | — |
| | 2,722,722 |
| | 2,722,744 |
| | — |
|
| Liabilities assumed: | | | | | | | | | |
| Deposits | 3,160,746 |
| | — |
| | 2,297,190 |
| | 2,297,190 |
| | — |
|
| Escrow deposits | 4,616 |
| | — |
| | — |
| | — |
| | — |
|
| FHLB and other borrowings | — |
| | — |
| | 100,619 |
| | 100,619 |
| | — |
|
| Other borrowings | 25,366 |
| | — |
| | 62,465 |
| | 62,465 |
| | — |
|
| Subordinated debentures | — |
| | — |
| | 26,527 |
| | 26,527 |
| | — |
|
| Other liabilities | 50,181 |
| | — |
| | 55,960 |
| | 55,960 |
| | — |
|
| Total liabilities assumed | $ | 3,240,909 |
| | $ | — |
| | $ | 2,542,761 |
| | $ | 2,542,761 |
| | $ | — |
|
| | | | | | | | | | |
| Net non-cash (liabilities) acquired | $ | (287,071 | ) | | $ | — |
| | $ | 179,961 |
| | $ | 179,983 |
| | $ | — |
|
| Cash and cash equivalents acquired in acquisitions | 879,240 |
| | — |
| | 277,798 |
| | 277,798 |
| | — |
|
| Total consideration paid | $ | 592,169 |
| | $ | — |
| | $ | 457,759 |
| | $ | 457,781 |
| | $ | — |
|
The Provident Merger was effective on October 31, 2013 and was presented initially in the statement of cash flows for the three months ended December 31, 2013. The differences between the acquired balances in the three months ended December 31, 2013 and the fiscal year ended September 30, 2014 were principally related to updates to the fair value adjustments on the net assets acquired, associated deferred taxes (included in other assets acquired) and goodwill recorded in the Provident Merger.
See accompanying notes to consolidated financial statements.
STERLING BANCORP AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Year ended December 31, 2015, three months ended December 31, 2014 and 2013 (unaudited) and
fiscal years ended September 30, 2014 and 2013
(Dollars in thousands, except per share data)
(1) Basis of Financial Statement Presentation and Summary of Significant Accounting Policies
Merger with Hudson Valley Holding Corp.
On June 30, 2015, Hudson Valley Holding Corp. (“HVHC”) merged with and into Sterling Bancorp (the “HVB Merger”). In connection with the merger, Hudson Valley Bank, the principal subsidiary of HVHC, also merged with and into Sterling National Bank.
Merger with Sterling Bancorp
On October 31, 2013, Provident New York Bancorp completed its acquisition of(“Legacy Provident”) merged with Sterling Bancorp (“Legacy Sterling”). In connection with the merger, Provident New York Bancorp completed the following corporate actions:actions occurred:
Legacy Sterling merged with and into Legacy Provident. Legacy Provident New York Bancorp. Provident New York Bancorp was the accounting acquirer and the surviving entity.
Legacy Provident New York Bancorp changed its legal entity name to Sterling Bancorp and became a bank holding company and a financial holding company as defined by the Bank Holding Company Act of 1956, as amended.amended (“Sterling” or the “Company”).
Provident Bank converted to a national bank charter.
Sterling National Bank merged into Provident Bank.
Provident Bank changed its legal entity name to Sterling National Bank.
Provident Municipal Bank merged into Sterling National Bank.
We refer to the transactions detailed above collectively as the “Merger”.“Provident Merger.”
Change in Fiscal Year End
On January 27, 2015, the Board of Directors amended the Company’s bylaws to change the fiscal year end from September 30 to December 31.
Nature of Operations and Principles of Consolidation
The consolidated financial statements include the accounts of Sterling; Sterling Bancorp (“Sterling” or the “Company”)Risk Management, Inc., PBNYwhich is a captive insurance company; STL Holdings, Inc. which has an investment in PB MadisonSterling Silver Title Agency L.P., aan inactive company that providesprovided title searches and title insurance for residential and commercial real estate, LandSave Development, LLC an inactive subsidiary, Provident Risk Management (a captive insurance company), Sterling National Bank (the “Bank”)estate; the Bank; and the Bank’s wholly ownedwholly-owned subsidiaries. TheseThe Bank’s subsidiaries included at September 30, 2013December 31, 2015: (i) Provident Municipal Bank (“PMB”) which was a limited-purpose, New York State-chartered commercial bank formed to accept deposits from municipalities in the Company’s market areaSterling REIT, Inc., and was merged into the Bank at the time of the Merger, (ii) Provident REIT, Inc. and WSB Funding, Inc.Grassy Sprain Real Estate Holding, which are real estate investment trusts that hold a portion of the Company’s real estate loans, (iii)loans; (ii) Sterling National Funding Corp (formerly known as Provest Services Corp. I, which has invested inI), a low-income housing partnership,company that originates loans to municipalities and (iv)governmental entities and acquires securities issued by state and local governments; (iii) Provest Services Corp. II, which has engaged a third-party provider to sell mutual funds and annuities to the Bank’s customers and (v) Limited Liability Companies,(iv) several limited liability companies which hold other real estate owned held by the Bank.owned. Intercompany transactions and balances are eliminated in consolidation.
The consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America. Certain amounts from prior yearsperiods have been reclassified to conform to the current fiscal yearperiod presentation. Reclassifications had no affect on prior yearperiod net income or stockholders’ equity. As a result of the change in fiscal year end, the financial statements include audited balance sheets as of December 31, 2015 and 2014. Financial statements including: results of operations, changes in stockholders’ equity, accumulated other comprehensive income (loss) and cash flows are presented for the year ended December 31, 2015; for the three months ended December 31, 2014; and for the fiscal years ended September 30, 2014 and 2013. For comparative purposes, we have also presented financial statements and accompanying footnotes for the three months ended December 31, 2013, which are unaudited. The unaudited information, in the opinion of management, includes all adjustments consisting of normal recurring accruals, necessary for a fair presentation of the Company’s financial position and results of its operations.
(a)Nature of Business
Since October 31, 2013, Sterling Bancorp (“Sterling” or the “Company”) is a bank holding company and financial holding company under the Bank Holding Company Act of 1956. Sterling is a Delaware corporation that owns all of the outstanding shares of Sterling National Bank (the “Bank”) and was formed in connection with the second step offering on January 14, 2004.Bank. Sterling is listed on the New York Stock Exchange (NYSE)(“NYSE”) under the symbol STL.
Sterling NationalThe Bank, an independent, full-service bank founded in 1888, is headquartered in Montebello, New York and is the principal bank subsidiary of Sterling. The Bank accounts for substantially all of Sterling’s consolidated assets and net income. We operate The Bank operates
Notes to Consolidated Financial Statements
Year ended December 31, 2015, three months ended December 31, 2014 and 2013 (unaudited) and
fiscal years ended September 30, 2014 and 2013
(Dollars in thousands, except per share data)
through commercial banking teams and financial centers which serve the greater New York metropolitan region. The Bank targets specificthe following geographic markets -markets: (i) the New York Metro Market, which includes Manhattan and Long Island; and our(ii) the New York Suburban Market, which consists of Rockland, Orange, Sullivan, Ulster, Putnam and Westchester counties in New York and Bergen County in New Jersey. The Bank also operates several specialty lending businesses, which include asset-based lending, payroll financing, factoring, warehouse lending, equipment financing and public sector financing (included with commercial and industrial loans), which target markets across the U.S.
The Bank’s principal business is accepting deposits and, together with funds generated from operations and borrowings, investing in various types of loans and securities. In connection with the Provident Merger, the Bank became a national bank and its deposits are insured up to applicable limits by the Deposit Insurance Fund of the Federal Deposit Insurance Corporation (FDIC)(“FDIC”). The Office of the Comptroller of the Currency (“OCC”) and the Federal Reserve Board are the primary regulators for the Bank and the Company, respectively.
At September 30, 2012, the Company had $4.5 million of assets held for sale that represented the assets of Hudson Valley Investment Advisors (“HVIA”). The Company entered into an agreement to sell HVIA subsequent to September 30, 2012. The transaction settled on November 16, 2012.
STERLING BANCORP AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollars in thousands, except per share data)
(b)Use of estimates
The consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America.GAAP. In preparing the consolidated financial statements, the Company is required to make estimates and assumptions based on available information that affect the reported amounts of assets, liabilities, income and expense. Actual results could differ significantly from these estimates. An estimate that is particularly susceptible to significant near-term change is the allowance for loan losses, which is discussed below. Also subject to change are estimates involving goodwill impairment evaluations, mortgage servicing rights, benefit plans, deferred income taxes and fair values of financial instruments.
(c)Cash Flows
For purposes of reporting cash flows, cash equivalents include highly liquid, short-term investments, such as overnight federal funds, as well as cash and deposits with other financial institutions.institutions with an original maturity of 90 days or less. Net cash flows are reported for customer loan and deposit transactions, interest bearing deposits in other financial institutions, and short-term borrowings with an original maturity of 90 days or less.federal funds purchased and repurchase agreements.
(d)Restrictions on Cash
A portionThe Bank was required to have $25,070 and $18,100 of the Company's cash on hand andor on deposit with the Federal Reserve Bank was required to meet regulatory reserve and clearing requirements.requirements at December 31, 2015 and 2014, respectively.
(e)Long Term Assets
Premises and equipment, core deposit and other intangible assets are reviewed annually for impairment or when events indicate their carrying amount may not be recoverable from future undiscounted cash flows. If impaired, the assets are recorded at fair value.
(f)Fair Values of Financial Instruments
Fair values of financial instruments are estimated using relevant market information and other assumptions, as more fully disclosed in a separate note. Fair value estimates involve uncertainties and matters of significant judgment regarding interest rates, credit risk, prepayments, and other factors, especially in the absence of broad markets for particular items. Changes in assumptions or in market conditions could significantly affect the estimates. (See Note 17.)
(g)Adoption of New Accounting Standards
Accounting Standards Update (ASU) 2013-02, Comprehensive Income (Topic 220): Reporting Amounts Reclassified out of Accumulated Other Comprehensive Income. The amendments in this Update supersede and replace the presentation requirements for reclassifications out of accumulated other comprehensive income in ASUs 2011-05 (issued in June 2011) and 2011-12 (issued in December 2011) for all public and private organizations. The amendments require an entity to provide additional information about reclassifications out of accumulated other comprehensive income. For public entities, the amendments were effective for reporting periods beginning after December 15, 2012. See Note 19. Accumulated Other Comprehensive (Loss) Income for the impact of this standard.
(h)Securities
Securities include U.S. Treasury, U.S. Government Agency and Government Sponsored Agencies, municipal and corporate bonds, mortgage-backed securities, collateralized mortgage obligations and marketable equitytrust preferred securities.
The Company can classifyclassifies its securities among three categories: held to maturity, trading, and available for sale. We determineThe Company determines the appropriate classification of the Company’s securities at the time of purchase.
Held to maturity securities are limited to debt securities for which we havethere is the intent and the ability to hold to maturity. These securities are reported at amortized cost.
Trading securities are debt and equity securities held principally for the purpose of selling them in the near term.near-term. These securities are reported at fair value, with unrealized gains and losses included in earnings. The Company does not engage in securities trading activities.
All other debt and marketable equity securities are classified as available for sale. These
Available for sale securities are reported at fair value, with unrealized gains and losses (net of the related deferred income tax effect) excluded from earnings and reported in a separate component of stockholders’ equity (accumulated other comprehensive income or loss). Available for sale securities include securities that we intendthe Company intends to hold for an indefinite period of time, such as securities to be used as part of the Company’s
STERLING BANCORP AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollars in thousands, except per share data)
asset/liability management strategy or securities that may be sold to fund loan growth, in response to changes in interest rates, changes inand prepayment risks, the need to increase capital, or similar factors.
Premiums and discounts on debt securities are recognized in interest income on a level yield basis over the period to maturity. Amortization of premiums and accretion of discounts on mortgage-backed securities are based on the estimated cash flows of the mortgage-backed securities, periodically adjusted for changes in estimated lives, on a level yield basis. The cost of securities sold is determined using the specific identification method.
Securities are evaluated for impairmentother-than-temporary-impairment (“OTTI”) at least quarterly, and more frequently when economic and market conditions warrant such an evaluation. For securities in an unrealized loss position, we considerthe Company considers the extent and duration of the unrealized loss, and the financial condition of the issuer. The Company also assesses whether it intends to sell, or is more likely than not that it will be required to sell, a security in an unrealized loss position before recovery of its amortized cost basis. If either criteria regarding intent to sell is met, the entire difference between amortized cost and fair value is recognized as
Notes to Consolidated Financial Statements
Year ended December 31, 2015, three months ended December 31, 2014 and 2013 (unaudited) and
fiscal years ended September 30, 2014 and 2013
(Dollars in thousands, except per share data)
impairment through earnings. If (i) the Company does not expect to recover the entire amortized cost basis of the security,security; (ii) the Company does not intend to sell the securitysecurity; (iii) and it is not more likely than not that the Company will be required to sell the security before recovery of its amortized cost basis, the other than temporary impairmentOTTI is separated into a)(a) the amount representing the credit loss and b)(b) the amount related to all other factors. The amount of other than temporary impairmentOTTI related to credit loss is recognized in earnings while the amount related to other factors is recognized in other comprehensive income, net of applicable taxes. The cost basis of individual equity securities is written down to estimated fair value through a charge to earnings when declines in value below cost are considered to be other than temporary. As of September 30, 2013December 31, 2015, the Company does not intend to sell nor is it more likely than not that it would be required to sell any of its debt securities with unrealized losses prior to recovery of its amortized cost basis less any current period credit loss. (See Note 3. “Securities”).
(i)Loans Held For Sale
Mortgage loans originated and intended for sale in the secondary market are carried at the lower of aggregate cost or fair value, as determined by outstanding commitments from investors. In the absence of commitments from investors, fair value is based on current investor yield requirements. Net unrealized losses, if any, are recorded as a valuation allowance and charged to earnings.
MortgagePrior to October 2013, mortgage loans held for sale arewere generally sold with the servicing rights retained. Since that time, we have generally sold mortgage loans with the servicing rights released. The carrying value of mortgage loans sold is reduced by the amount allocated to the value of the servicing rightrights, which is its fair value. Gains and losses on sales of mortgage loans are based on the difference between the selling price and the carrying value of the related loan sold.
Portfolio Loans
Loans where Sterling has the intent and ability to hold for the foreseeable future or until maturity or payoff (other than loans held for sale) are reported at amortized cost less the allowance for loan losses. Interest income on loans is accrued on the unpaid principal balance. The Company defers nonrefundable loan origination and commitment fees, and certain direct loan origination costs, and amortizes the net amount as an adjustment of the yield over the estimated life of the loan. If a loan is prepaid or sold, the net deferred amount is recognized in the statement of operations at that time. Interest and fees on loans include prepayment fees and late charges collected.
A loan is placed on non-accrual status upon the earlier of (i) when Sterling determines that the borrower may likely be unable to meet contractual principal or interest obligations; or (ii) when payments are 90 days or more past due, unless well secured and in the process of collection. Accrual of interest ceases and, in general, uncollected past due interest is reversed and charged against current interest income. Interest payments received on non-accrual loans, including impaired loans, are not recognized as income unless warranted based on the borrower’s financial condition and payment record. Furthermore, negative tax escrow will be included in the unpaid principal for loans individually evaluated for impairment, as this is part of the customer’s legal obligation to the Company. (See Note 4 “Portfolio Loans”).
Acquired Loans, Including Purchased Credit Impaired Loans
Loans the Company acquired in acquisitions are initially recorded at fair value with no carryover of the related allowance for loan losses. Determining the fair value of the loans involves estimating the amount and timing of principal and interest cash flows initially expected to be collected on the loans and discounting those cash flows at an appropriate market rate of interest. Acquired loans are included with portfolio loans in the consolidated balance sheets.
Loans for which there is, at acquisition, both evidence of deterioration of credit quality since origination and probability, at acquisition, that all contractually required payments would not be collected represent purchase credit impaired loans (“PCI loans”). For PCI loans, the Company initially determines which loans will be treated under the cost recovery method (similar to a non-accrual loan) from loans that will be subject to accretion. The Company recognizes the accretable yield, which is defined as the excess of all cash flows expected at acquisition over the initial fair value of the loan, as interest income on a level-yield basis over the expected remaining life of the loan. The excess of the loan’s contractually required payments over the cash flows expected to be collected is the nonaccretable difference. The nonaccretable difference is not recognized as an adjustment of yield, a loss accrual, or a valuation allowance. Going forward, the Company continues to evaluate whether the timing and the amount of cash to be collected are reasonably expected. Subsequent significant increases in cash flows the Company expects to collect will first reduce any previously recognized valuation allowance and then be reflected prospectively as an increase to the level yield. Subsequent decreases in expected cash flows may result in the loan being considered impaired. Interest income is not recognized to the extent that the net investment in the loan would increase to an amount greater than the estimated payoff amount.
Notes to Consolidated Financial Statements
Year ended December 31, 2015, three months ended December 31, 2014 and 2013 (unaudited) and
fiscal years ended September 30, 2014 and 2013
(Dollars in thousands, except per share data)
For PCI loans, the expected cash flows reflect anticipated prepayments, determined on a loan by loan basis according to the anticipated collection plan of these loans. The expected prepayments used to determine the accretable yield are consistent between the cash flows expected to be collected and projections of contractual cash flows so as to not affect the nonaccretable difference. Changes in prepayment assumptions may change the amount of interest income and principal expected to be collected.
For loans for which there was no clear evidence of deterioration of credit quality since origination nor evidence that all contractually required payments would not be collected, the Company accretes interest income based on the contractually required cash flows. Loans that do not meet the PCI loan criteria are collectively evaluated for an allowance for loan loss.
Acquired loans that met the criteria for non-accrual of interest prior to an acquisition were generally considered non-performing upon acquisition, as the Company was unable to reasonably estimate the timing and amount of the expected cash flows on such loans.
Allowance for Loan Losses
The allowance for loan losses is a reserve established through a provision for loan losses charged to expense, which represents management’s best estimate of probable incurred credit losses inherent in the loan portfolio. The allowance for loan losses is a critical accounting estimate and requires substantial judgment of management. The allowance for loan losses includes allowance allocations calculated in accordance with ASC Subtopic 450-20, “Loss Contingencies” and ASC Subtopic 310-10-35-2, “Loan Impairment.” The level of the allowance reflects management’s continuing evaluation of loan loss experience, specific credit risks, current loan portfolio quality, industry and loan type concentrations, economic and regulatory conditions and unidentified losses inherent in the loan portfolios, as well as trends in the foregoing. The Company analyzes loans by two broad segments: real estate secured loans and loans that are either unsecured or secured by other collateral.
The classes considered real estate secured are: residential mortgage loans; commercial real estate (“CRE”) loans, multi-family loans; acquisition, development and construction (“ADC”) loans; and homeowner loans, and home equity lines of credit. The classes considered unsecured or secured by other than real estate collateral are: commercial & industrial (“C&I”) loans, which includes asset based loans; payroll finance loans; warehouse lending; factored receivables; equipment finance loans; business banking C&I loans and consumer loans. In all segments or classes, significant loans are reviewed for impairment once they are past due 90 days or more or are classified substandard or doubtful. Generally the Company considers a homogeneous residential mortgage or home equity line of credit to be significant if the Company’s investment in the loan is greater than $500. If a loan is deemed to be impaired in one of the real estate secured segments, it is generally considered collateral dependent. If the value of the collateral securing a collateral dependent impaired loan is less than the loan’s carrying value, a charge-off is recognized equal to the difference between the appraised value and the book value of the loan. Additionally, impairment reserves are recognized for estimated costs to hold and liquidate and for a discount to the appraisal value, which is generally 22% for all loans collateralized by real estate. Impaired loans in the real estate secured segments are re-appraised using a summary or drive-by appraisal report every six to nine months.
For smaller balance C&I loans we charge-off the full amount of the loan when it becomes 90 days or more past due, or earlier in the case of bankruptcy, after giving effect to any cash or marketable securities pledged as collateral for the loan. For other classes of C&I loans, we prepare a cash flow projection, and charge-off the difference between the net present value of the cash flows discounted at the effective note rate and the carrying value of the loan, and generally recognize a 10% impairment reserve to account for the potential imprecision of our estimates. However, on most of these cases receipt of future cash flows is too unreliable to be considered probable, resulting in the charge-off of the entire balance of the loan. For unsecured consumer loans, charge-offs are recognized once the loan is 90 days to 120 days or more past due or the borrower files for bankruptcy protection.
Subsequent recoveries, if any, are credited to the allowance for loan losses. The allowance for loan losses consists of amounts specifically allocated to non-performing loans and other criticized or classified loans (if any), as well as allowances determined for the pass rated loans in each major loan category. After we establish an allowance for loan losses for loans that are known to be non-performing, criticized or classified, we calculate a percentage to apply to the remaining loan portfolio to estimate the probable incurred losses inherent in that portion of the portfolio. These percentages are determined by management, based on historical loss experience for the applicable loan class, and are adjusted to reflect our evaluation of:
•levels of, and trends in, delinquencies and non-accruals;
•trends in volume and terms of loans;
•effects of any changes in lending policies and procedures;
Notes to Consolidated Financial Statements
Year ended December 31, 2015, three months ended December 31, 2014 and 2013 (unaudited) and
fiscal years ended September 30, 2014 and 2013
(Dollars in thousands, except per share data)
•experience, ability, and depth of lending management and staff;
•national and local economic trends and conditions;
concentrations of credit by such factors as location, industry, inter-relationships, and borrower;
and for commercial loans, trends in risk ratings.
CRE loans subject us to the risks that the property securing the loan may not generate sufficient cash flow to service the debt or the borrower may use the cash flow for other purposes. In addition, if necessary, the foreclosure process may be slow and properties may deteriorate in the process. The market values are also subject to a wide variety of factors, including general economic conditions, industry specific factors, environmental factors, interest rates and the availability and terms of credit.
Commercial lending presents a risk because repayment depends on the successful operation of the business which is subject to a wide range of risks and uncertainties. In addition, the ability to successfully liquidate collateral, if any, is subject to a variety of risks because we must gain control of assets used in the borrower’s business before foreclosing which we cannot be assured of doing, and the value in a foreclosure sale or other means of liquidation is uncertain.
ADC lending is considered higher risk and exposes us to greater credit risk than permanent mortgage financing. The repayment of ADC loans depends upon the sale of the property to third parties or the availability of permanent financing upon completion of all improvements. In the event we make a land acquisition loan on property that is not yet approved for the planned development, there is the risk that approvals will not be granted or will be delayed. These events may adversely affect the borrower and the collateral value of the property. Development and construction loans also expose us to the risk that improvements will not be completed on time or in accordance with specifications and projected costs. In addition, the ultimate sale or rental of the property may not occur as anticipated. All of these factors are considered as part of the underwriting, structuring and pricing of the loan. We have deemphasized acquisition lending and originate development and orginate construction loans on an exception basis.
When we evaluate residential mortgage loans and home equity loans we weigh both the credit capacity of the borrower and the collateral value of the home. If unemployment or underemployment increase, the credit capacity of underlying borrowers will decrease, which increases our risk. Similarly, as we obtain a mortgage on the property, if home prices decline, we are exposed to risk in both our first mortgage and equity lending programs due to declines in the value of our collateral. We are also exposed to risk because the time to foreclose is significant and has become longer under current market conditions. (See Note 5 “Allowance for Loan Losses”).
Troubled Debt Restructuring
Troubled debt restructuring (“TDR”) is a formally renegotiated loan in which the Bank, for economic or legal reasons related to a borrower’s financial difficulties, grants a concession to the borrower that would not have been granted to the borrower otherwise. Not all loans that are restructured as a TDR are classified as non-accrual before the restructuring occurs. Restructured loans can convert from non-accrual to accrual status when said loans have demonstrated performance, generally evidenced by six months of consistent payment performance in accordance with the restructured terms, or by the presence of other significant items. (See Note 4 “Portfolio Loans”).
Federal Reserve Bank of New York and Federal Home Loan Bank Stock
As a member of the Federal Reserve Bank of New York (“FRB”) and the Federal Home Loan Bank of New York (“FHLB”), the Bank is required to hold a certain amount of FRB and FHLB common stock. This stock is a non-marketable equity security and is reported at cost.
Premises and Equipment
Land is reported at cost, while premises and equipment are reported at cost, less accumulated depreciation and amortization. Depreciation is computed using the straight-line method over the estimated useful lives of the related assets, which range from three years for equipment and 40 years for premises. Leasehold improvements are amortized on a straight-line basis over the terms of the respective leases, including renewal options, or the estimated useful lives of the improvements, whichever is shorter. Routine holding costs are charged to expense as incurred, while significant improvements are capitalized. The Company recognizes an impairment charge to its premises and equipment, generally in connection with a decision to consolidate or close a financial center. Impairment is based on the excess of the carrying amount of assets over the fair value of the assets. Fair value is determined by third-party valuations or appraisals and evaluations prepared by management. (See Note 6 “Premises and Equipment, Net”).
Notes to Consolidated Financial Statements
Year ended December 31, 2015, three months ended December 31, 2014 and 2013 (unaudited) and
fiscal years ended September 30, 2014 and 2013
(Dollars in thousands, except per share data)
Goodwill, Trade Names and Other Intangible Assets
Goodwill resulting from business combinations represents the excess of the purchase price over the fair value of the net assets of businesses acquired. Goodwill and trade names (which are included with core deposits and other intangible assets in the consolidated balance sheet) acquired in a purchase business combination have an indefinite useful life are not amortized, but are tested for impairment at least annually. Goodwill and trade names are the only intangible assets with an indefinite life on our balance sheet.
The Company accounts for goodwill, trade names and other intangible assets in accordance with GAAP, which, in general, requires that goodwill and trade names not be amortized, but rather that they be tested for impairment at least annually at the reporting unit level. The Company has the option to first perform a qualitative assessment to test goodwill for impairment on a reporting-unit-by-reporting-unit basis. If, after performing the qualitative assessment, the Company concludes that it is more likely than not that the fair value of a reporting unit is less than its carrying amount, the Company will perform the two-step process described below:
| |
| 1. | Identify potential impairments by comparing the fair value of a reporting unit to its carrying amount, including goodwill. Goodwill is not considered impaired as long as the fair value of the reporting unit is greater than its carrying value. The second step is only required if a potential impairment to goodwill is identified in step one. |
| |
| 2. | Compare the implied fair value of goodwill to its carrying amount, where the implied fair value of goodwill is computed on a residual basis, that is, by subtracting the sum of the fair values of the individual asset categories (tangible and intangible) from the indicated fair value of the reporting unit as determined under step one. If the carrying amount of goodwill exceeds its implied fair value, an impairment loss is recognized. That loss is equal to the carrying amount of goodwill that is in excess of its implied fair value, and it must be presented as a separate line item on financial statements. |
At December 31, 2015, the Company assessed goodwill for impairment using qualitative factors and concluded the two-step process was unnecessary.
Core deposit intangibles recorded in acquisitions are amortized to expense using an accelerated method over their estimated lives of 8 to ten years. Non-compete agreements are amortized on a straight line basis over their estimated life. Prior to the Provident Merger, intangibles related to the naming rights on Provident Bank Ball Park were amortized over ten years on a straight-line basis. As part of the Provident Merger we impaired the carrying value of the naming rights to Provident Bank Ball Park and have since settled our remaining naming rights obligation. Impairment losses on intangible assets and other long-term assets are charged to expense, if and when they occur, with the assets recorded at fair value. (See Note 7. “Goodwill and Other Intangible Assets”).
Servicing Rights
Servicing rights are included with other assets on the balance sheet. When mortgage loans are sold with servicing retained, servicing rights are initially recorded at fair value with the income statement of operations effect recorded in gains on sales of loans. Fair value is based on market prices for comparable mortgage servicing contracts, when available, or alternatively, is based on a valuation model that calculates the present value of estimated future net servicing income. All classes of servicing assets are subsequently measured using the amortization method, which requires servicing rights to be amortized into non-interest income in proportion to, and over the period of, the estimated future net servicing income of the underlying loans.
Under the amortization measurement method, the Company subsequently measures servicing rights at fair value at each reporting date and records any impairment in value of servicing assets in earnings in the period in which the impairment occurs. The fair values of servicing rights are subject to significant fluctuations as a result of changes in estimated and actual prepayment speeds and default rates and losses.
Servicing fee income, which is reported on the incomeconsolidated statement of operations as other income, is recorded for fees earned for servicing loans. The fees are based on a contractual percentage of the outstanding principal;principal or a fixed amount per loan, and are recorded as income when earned. Servicing fees totaled $778, $695 and $623 for the years ended September 30, 2013, 2012 and 2011, respectively. Lateincluding late fees and ancillary fees related to loan servicing, are not material. Note effective October 1, 2013material to the results of our operations. The Bank transferredgenerally outsources the servicing of residential mortgage loans to a nationally recognized mortgage loan servicing company.
(k)LoansBank Owned Life Insurance (BOLI)
Loans where we haveThe Company owns life insurance policies (purchased and acquired) on certain officers and key executives. Bank owned life insurance (“BOLI”) is recorded at its cash surrender value (or the intent and ability to hold for the foreseeable future or until maturity or payoff (other than loans held for sale) are reported at amortized cost less the allowance for loan losses. Interest income on loans is accrued on the unpaid principal balance.amount that can be realized).
STERLING BANCORP AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Year ended December 31, 2015, three months ended December 31, 2014 and 2013 (unaudited) and
fiscal years ended September 30, 2014 and 2013
(Dollars in thousands, except per share data)
A loan is placed on non-accrual status when we have determined that the borrower may likely be unable to meet contractual principal or interest obligations, or when payments are 90 days or more past due, unless well secured and in the process of collection. Accrual of interest ceases and, in general, uncollected past due interest is reversed and charged against current interest income. Interest payments received on non-accrual loans, including impaired loans, are not recognized as income unless warranted based on the borrower’s financial condition and payment record. Furthermore, negative tax escrow will be included in the unpaid principal for loans individually evaluated for impairment, as this is part of the customer’s legal obligation to the Company.
The Company defers nonrefundable loan origination and commitment fees, and certain direct loan origination costs, and amortizes the net amount as an adjustment of the yield over the estimated life of the loan. If a loan is prepaid or sold, the net deferred amount is recognized in the statement of income at that time. Interest and fees on loans include prepayment fees and late charges collected.
(l)Allowance for Loan Losses
The allowance for loan losses is a reserve established through a provision for loan losses charged to expense, which represents management’s best estimate of probable incurred credit losses inherent in the loan portfolio. The allowance for loan losses, is a critical accounting estimate and requires substantial judgment of management. The allowance for loan losses includes allowance allocations calculated in accordance with ASC Subtopic 450-20, “Loss Contingencies” and ASC Subtopic 310-35-2, “Loan Impairment.” The level of the allowance reflects management’s continuing evaluation of loan loss experience, specific credit risks, current loan portfolio quality, industry and loan type concentrations, economic and regulatory conditions and unidentified losses inherent in the loan portfolios, as well as trends in the foregoing. The Company analyzes loans by two broad segments or classes: real estate secured loans and loans that are either unsecured or secured by other collateral.
The segments or classes considered real estate secured are: residential mortgage loans; commercial real estate (“CRE”) loans; business banking CRE; acquisition, development and construction (“ADC”) loans; homeowner loans, and home equity lines of credit. The segments or classes considered unsecured or secured by other than real estate collateral are: commercial & industrial (“C&I”) loans, business banking C&I loans and consumer loans. In all segments or classes, significant loans are reviewed for impairment once they are past due 90 days or more, or are classified substandard or doubtful. Generally the Company considers a homogeneous residential mortgage or home equity line of credit to be significant if the Company’s investment in the loan is greater than $500. If a loan is deemed to be impaired in one of the real estate secured segments, it is generally considered collateral dependent. If the value of the collateral securing a collateral dependent impaired loan is less than the loan’s carrying value, a charge-off is recognized equal to the difference between the appraised value and the book value of the loan. Additionally impairment reserves are recognized for estimated costs to hold and to liquidate and a 10% discount of the appraisal value. The ranges for the costs to hold and liquidate are 12-22% for the following segments: CRE, business banking CRE and ADC loans and 7-13% for homeowner loans, home equity lines of credit, and residential mortgage loans. Impaired loans in the real estate secured segments are re-appraised using a summary or drive-by appraisal report every six to nine months.
For loans in the business banking C&I segmentwe charge off the full amount of the loan when it becomes 90 days or more past due, or earlier in the case of bankruptcy, after giving effect to any cash or marketable securities pledged as collateral for the loan. For loans in the C&I loan segment, we conduct a cash flow projection, and charge off the difference between the net present value of the cash flows discounted at the effective note rate and the carrying value of the loan, and generally recognize a 10% impairment reserve to account for the imprecision of our estimates. However, for most of these cases receipt of future cash flows is too unreliable to be considered probable, resulting in the charge off of the entire balance of the loan. For unsecured consumer loans, charge offs are recognized once the loan is 90 to 120 days or more past due or the borrower files for bankruptcy protection.
Subsequent recoveries, if any, are credited to the allowance for loan losses. The allowance for loan losses consists of amounts specifically allocated to non-performing loans and other criticized or classified loans (if any), as well as allowances determined for the pass rated loans in each major loan category. After we establish an allowance for loan losses that are known to be non-performing, criticized or classified, we calculate a percentage to apply to the remaining loan portfolio to estimate the probable incurred losses inherent in that portion of the portfolio. These percentages are determined by management, based on historical loss experience for the applicable loan category, and are adjusted to reflect our evaluation of:
•levels of, and trends in, delinquencies and non-accruals;
STERLING BANCORP AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollars in thousands, except per share data)
•trends in volume and terms of loans;
•effects of any changes in lending policies and procedures;
•experience, ability, and depth of lending management and staff;
•national and local economic trends and conditions;
concentrations of credit by such factors as location, industry, inter-relationships, and borrower; and for commercial loans, trends in risk ratings.
Land acquisition, development and construction lending is considered higher risk and exposes us to greater credit risk than permanent mortgage financing. The repayment of land acquisition, development and construction loans depends upon the sale of the property to third parties or the availability of permanent financing upon completion of all improvements. In the event we make an acquisition loan on property that is not yet approved for the planned development, there is the risk that approvals will not be granted or will be delayed. These events may adversely affect the borrower and the collateral value of the property. Development and construction loans also expose us to the risk that improvements will not be completed on time in accordance with specifications and projected costs. In addition, the ultimate sale or rental of the property may not occur as anticipated. All of these factors are considered as part of the underwriting, structuring and pricing of the loan. We have deemphasized this type of loan.
Commercial real estate loans subject us to the risks that the property securing the loan may not generate sufficient cash flow to service the debt or the borrower may use the cash flow for other purposes. In addition, the foreclosure process, if necessary may be slow and properties may deteriorate in the process. The market values are also subject to a wide variety of factors, including general economic conditions, industry specific factors, environmental factors, interest rates and the availability and terms of credit.
Commercial business lending is also higher risk because repayment depends on the successful operation of the business which is subject to a wide range of risks and uncertainties. In addition, the ability to successfully liquidate collateral, if any, is subject to a variety of risks because we must gain control of assets used in the borrower’s business before foreclosing which we cannot be assured of doing, and the value in a foreclosure sale or other means of liquidation is subject to downward pressure.
When we evaluate residential mortgage loans and equity loans we weigh both the credit capacity of the borrower and the collateral value of the home. As unemployment and underemployment increases, and liquidity reserves if any, diminish, the credit capacity of the borrower decreases, which increases our risk. Also, after a period of years of stable or increasing home values in our market, home prices have declined from a high in 2005 and 2006. We are exposed to risk in both our first mortgage and equity lending programs due to declines in values in recent years. We are also exposed to risk because the time to foreclose is significant and has become longer under current conditions.
The carrying value of loans is periodically evaluated and the allowance is adjusted accordingly. While management uses the best information available to make evaluations, future adjustments to the allowance may be necessary if conditions differ substantially from the information used in making the evaluations. In addition, as an integral part of their examination process, our regulatory agencies periodically review the allowance for loan losses. Such agencies may require us to recognize additions to the allowance based on their judgments of information available to them at the time of their examination.
(m) Troubled Debt Restructuring
Troubled debt restructuring (“TDR”) is a formally renegotiated loan in which the Bank, for economic or legal reasons related to a borrower’s financial difficulties, grants a concession to the borrower that would not have been granted to the borrower otherwise. Not all loans that are restructured as a TDR are classified as non accrual before the restructuring occurs. Restructured loans can convert from non accrual to accrual status when said loans have demonstrated performance, generally evidenced by six months of payment performance in accordance with the restructured terms, or by the presence of other significant items.
(n) Federal Home Loan Bank Stock
As a member of the Federal Home Loan Bank (FHLB) of New York, the Bank is required to hold a certain amount of FHLB common stock. This stock is a non-marketable equity security and, accordingly, is reported at cost.
(o) Premises and Equipment
Land is reported at cost, while premises and equipment are reported at cost, less accumulated depreciation and amortization. Depreciation is computed using the straight-line method over the estimated useful lives of the related assets, which range from three years for equipment and 40 years for premises. Leasehold improvements are amortized on a straight-line basis over the
STERLING BANCORP AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollars in thousands, except per share data)
terms of the respective leases, including renewal options, or the estimated useful lives of the improvements, whichever is shorter. Routine holding costs are charged to expense as incurred, while significant improvements are capitalized.
(p) Goodwill and Other Intangible Assets
Goodwill resulting from business combinations represents the excess of the purchase price over the fair value of the net assets of businesses acquired. Goodwill and intangible assets acquired in a purchase business combination and determined to have an indefinite useful life are not amortized, but tested for impairment at least annually. Goodwill is the only intangible asset with an indefinite life on our balance sheet.
The Company accounts for goodwill and other intangible assets in accordance with GAAP, which, in general, requires that goodwill not be amortized, but rather that it be tested for impairment at least annually at the reporting unit level. The Company has the option to first perform a qualitative assessment to test goodwill for impairment on a reporting-unit-by-reporting-unit basis. If after performing the qualitative assessment, the Company concludes that it is more likely than not that the fair value of a reporting unit is less than its carrying amount, the Company will perform the two-step process described below:
| |
1. | Identify potential impairments by comparing the fair value of a reporting unit to its carrying amount, including goodwill. Goodwill is not considered impaired as long as the fair value of the reporting unit is greater than its carrying value. The second step is only required if a potential impairment to goodwill is identified in step one. |
| |
2. | Compare the implied fair value of goodwill to its carrying amount, where the implied fair value of goodwill is computed on a residual basis, that is, by subtracting the sum of the fair values of the individual asset categories (tangible and intangible) from the indicated fair value of the reporting unit as determined under step one. If the carrying amount of goodwill exceeds its implied fair value, an impairment loss is recognized. That loss is equal to the carrying amount of goodwill that is in excess of its implied fair value, and it must be presented as a separate line item on financial statements. |
At September 30, 2013 the Company assessed goodwill for impairment using qualitative factors and concluded the two-step process was unnecessary. Changes in the local and national economy, the federal and state legislative and regulatory environments for financial institutions, the stock market, interest rates and other external factors (such as natural disasters or significant world events) may occur from time to time, often with great unpredictability, and may materially impact the fair value of publicly traded financial institutions and could result in an impairment charge at a future date.
Core deposit intangibles recorded in acquisitions are amortized to expense using an accelerated method over their estimated lives of approximately eight years. Intangibles related to the naming rights on Provident Bank Ball Park are amortized over 10 years on a straight-line basis. Impairment losses on intangible assets are charged to expense, if and when they occur.
(q)Other Real Estate Owned
Real estate properties acquired through loan foreclosures are recorded initially at estimated fair value, less expected sales costs, with any resulting write-down charged to the allowance for loan losses. Other real estate owned (“OREO”) also includes the fair value of the Bank’s financial centers that are held for sale. Any write-down associated with the transfer of a financial center from premises and equipment to OREO was included as a charge to other non-interest expense in the consolidated statement of operations. Subsequent valuations of OREO are performed by management, and the carrying amount of a property is adjusted by a charge to expense to reflect any subsequent declines in estimated fair value. Fair value estimates are based on recent appraisals and other available information. Routine holding costs are charged to expense as incurred, while significant improvements are capitalized. Gains and losses on sales of real estate ownedOREO properties are recognized upon disposition. Other real estate owned totaled $6.0 million and $6.4 million at September 30, 2013 and 2012, respectively.
(r)Other Borrowings - Securities Repurchase Agreements
In securities repurchase agreements, the Company transfers securities to a counterparty under an agreement to repurchase the identical securities at a fixed price on a future date. These agreements are accounted for as secured financing transactions since the Company maintains effective control over the transferred securities and the transfer meets other specified criteria. Accordingly, the transaction proceeds are recorded as borrowings and the underlying securities continue to be carried in the Company’s investment securities portfolio. Disclosure of the pledged securities is made in the consolidated balance sheets if the counterparty has the right by contract to sell or re-pledge such collateral. (See Note 9. “Borrowings”).
STERLING BANCORP AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollars in thousands, except per share data)
(s)Income Taxes
Net deferred taxes are recognized for the estimated future tax effects attributable to “temporary differences” between the financial statement carrying amounts and the tax bases of existing assets and liabilities. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which the temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax laws or rates is recognized in income tax expense in the period that includes the enactment date of the change.
A deferred tax liability is recognized for all temporary differences that will result in future taxable income. A deferred tax asset is recognized for all temporary differences that will result in future tax deductions, subject to reduction of the asset by a valuation allowance in certain circumstances. This valuation allowance is recognized if, based on an analysis of available evidence, we determine that it is more likely than not that some portion, or all of the deferred tax asset will not be realized.
The valuation allowance is subject to ongoing adjustment based on changes in circumstances that affect management’s judgment about the realizability of the deferred tax asset. Adjustments to increase or decrease the valuation allowance are charged or credited, respectively, to income tax expense. The Company recognizes interest and/or penalties related to income tax matters in income taxother non-interest expense.
The Company evaluates uncertain tax positions in a two step process. The first step is recognition, which requires a determination of whether it is more likely than not that a tax position will be sustained upon examination. The second step is measurement. Under the measurement step, a tax position that meets the more likely than not recognition threshold is measured at the largest amount of benefit that is greater than fifty percent likely of being realized upon ultimate settlement. Tax positions that previously failed to meet the more likely than not recognition threshold should be recognized in the first subsequent financial reporting period in which that threshold is met. PreviouslyA previously recognized tax position that no longer meetmeets the more likely than not recognition threshold should be derecognized in the first subsequent financial reporting period in which the threshold is no longer met. The Company did not have any such position as of September 30, 2013. SeeDecember 31, 2015. (See Note 1011. “Income Taxes”.
(t) Bank Owned Life Insurance (BOLI)
The Company has purchased life insurance policies on certain officers and key executives. Bank owned life insurance is recorded at its cash surrender value (or the amount that can be realized)).
(u) Stock-Based Compensation PlansDerivatives
Compensation expense isDerivatives are recognized foras assets and liabilities in the Employee stock ownership plan (“ESOP”) equal to theconsolidated balance sheets and measured at fair value. For exchange-traded contracts, fair value of shares that have been allocated or committed to be released for allocation to participants. Any difference between theis based on quoted market prices. For non-exchange traded contracts, fair value at that time and the ESOP’s original acquisition cost is charged or credited to stockholders’ equity (additional paid-in capital). The cost of ESOP shares that have not yet been allocated or committed to be released for allocation is deducted from stockholders’ equity.
Compensation cost is recognized for stock options issued to employees, based on dealer quotes, pricing models, discounted cash flow methodologies, or similar techniques for which the determination of fair value may require management judgment or estimation relating to future rates and credit activities.
For asset/liability management purposes, the Bank uses interest rate swap agreements to modify interest rate risk characteristics of these awards at the date of grant. A Black-Scholes model is utilizedcertain portfolio loans as an accommodation to estimate the fair value of stock options. Compensation cost is recognized over the required service period, generally defined as the vesting period.
During the fiscal years ended September 30, 2013, 2012 and 2011 the Company issued 360,500, 515,000 and 119,526 new stock option awards and recognized total non-cash stock-based compensation cost of $634, $521 and $558, respectively. As of September 30, 2013, the total remaining unrecognized compensation cost related to non-vested stock options was $1,360. Options granted in 2013 have 3 year vesting periods.
The Company also has a restricted stock planour borrowers. Interest rate swaps are contracts in which shares awardeda series of interest rate flows are transferred from treasury stock at cost withexchanged over a prescribed period. The notional amount on which the difference between the fair market value on the grant dateinterest payments are based is not exchanged. These swap agreements are derivative instruments and the cost basisthese instruments effectively convert a portion of the shares recorded as a reductionBank’s fixed-rate borrowings to retained earnings or an increase to additional paid-in capital, as applicable. The expense is amortized over the vesting period of the awards. The Company issued 186,900 shares during 2013 and 58,000 during 2012 and 63,870 shares were issued in 2011variable rate borrowings. (See Note 10. “Derivatives”). The total restricted stock compensation cost recognized during 2013, 2012 and 2011 was $1,108, $276, and $168, respectively. As of September 30, 2013, the total remaining unrecognized compensation cost related to restricted stock was $1,239.
The Company’s stock-based compensation plans allow for accelerated vesting when employees retire under circumstances in accordance with the terms of the plans. Grants which are subject to such accelerated vesting, are expensed over the shorter
STERLING BANCORP AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Year ended December 31, 2015, three months ended December 31, 2014 and 2013 (unaudited) and
fiscal years ended September 30, 2014 and 2013
(Dollars in thousands, except per share data)
Fair Values of the time to retirement age or the vesting scheduleFinancial Instruments
Fair values of financial instruments are estimated using relevant market information and other assumptions, as more fully disclosed in accordance with the grant. Thus the vesting period can be less than the vesting period expresseda separate note. Fair value estimates involve uncertainties and matters of significant judgment regarding interest rates, credit risk, prepayments, and other factors, especially in the stock based compensation agreement, depending uponabsence of broad markets for particular items. Changes in assumptions or in market conditions could significantly affect the age of the grantee. As of September 30, 2013, 11,533 restricted shares and 48,121 stock options were potentially subject to accelerated vesting, and have been fully expensed. The Company recognized expense associated with the acceleration of restricted shares of $5 for fiscal 2013,and no expense in fiscal 2012 and 2011estimates. (See Note 19. “Fair Value Measurements”). The Company recognized expense associated with the acceleration of 2,000 shares in 2013, and no stock option shares in 2012 and 2011, respectively.
(v)Loss Contingencies
Loss contingencies, including claims and legal actions arising in the ordinary course of business, are recorded as liabilities when the likelihood of loss is probable and an amount or range of loss can be reasonably estimated. The Company does not believe there are such matters that will have a material effect on the consolidated financial statements. (See Note 18. “Commitments and Contingencies”).
Loan Commitments and Related Financial Instruments
Financial instruments include off-balance sheet credit instruments, such as commitments to make loans and commercial letters of credit, issued to meet customer financing needs. The face amount for these items represents the exposure to loss, before considering customer collateral or ability to repay. Such financial instruments are recorded when they are funded. (See Note 18. “Commitments and Contingencies”).
Stock-Based Compensation Plans
Compensation expense for stock options, non-vested stock awards/stock units is based on the fair value of the award on the measurement date, which is the date of grant. The expense is recognized ratably over the service period of the award. The fair value of stock options is estimated using a Black-Scholes valuation model. The fair value of non-vested stock awards/stock units is generally the market price of the Company’s common stock on the date of grant. (See Note 12 “Stock-Based Compensation”).
Earnings Per Share
Basic earnings per share (“EPS”) is computed by dividing net income applicable to common stock by the weighted average number of common shares outstanding during the period.
Diluted EPS is computed in a similar manner to basic EPS, except that the weighted average number of common shares is increased to include incremental shares (computed using the treasury stock method) that would have been outstanding if all potentially dilutive stock options were exercised and unvested restricted stock shares became vested during the periods. For purposes of computing both basic and diluted EPS, outstanding shares includeincluded earned ESOP (as defined below) shares. (See Note 15. “Earnings Per Common Share”).
(w)Segment Information
Public companies are required to report certain financial information about significant revenue-producing segments of the business for which such information is available and utilized by the chief operating decision maker. Substantially all of the Company’s operations occur through the Bank and involve the delivery of loan and deposit products to customers. Management makes operating decisions and assesses performance based on an ongoing review of its banking operation, which constitutes the Company’s only operating segment for financial reporting purposes.
(x) Loss Contingencies(2) Acquisitions
Loss contingencies, including claims and legal actions arisingHVB Merger
On June 30, 2015, the Company completed the HVB Merger. Under the terms of the HVB Merger agreement, HVHC shareholders received 1.92 shares of the Company’s common stock for each share of HVHC common stock, which resulted in the ordinary courseissuance of business, are recorded as liabilities when the likelihood of loss is probable and an amount or range of loss can be reasonably estimated. The Company does not believe there are such matters that will have a material effect on the financial statements.
(y) Derivatives
At the inception of a derivative contract, the Company designates the derivative as one of three types based38,525,154 shares. Based on the Company’s intentions and belief asclosing stock price of $14.63 per share on June 29, 2015, the aggregate consideration paid to likely effectiveness as a hedge. These three types are (1) a hedgeHVHC shareholders was $566,307, which, in accordance with the HVB Merger agreement, also included the in-the-money cash value of outstanding HVHC stock options, the fair value of a recognized asset or liability oroutstanding HVHC restricted stock awards and cash in lieu of an unrecognized firm commitment (“fair value hedge”), (2) a hedgefractional shares. Consistent with the Company’s strategy, the primary reason for the HVB Merger was the expansion of a forecasted transaction or the variability of cash flows to be received or paid related to a recognized asset or liability (“cash flow hedge”), or (3) an instrument with no hedging designation (“stand-alone derivative”). For a fair value hedge, the gain or loss on the derivative, as well as the offsetting loss or gain on the hedged item, are recognized in current earnings as fair values change. For a cash flow hedge, the gain or loss on the derivative is reported in other comprehensive income and is reclassified into earningsCompany’s geographic footprint in the same periods during which the hedged transaction affects earnings. For both types of hedges, changes in the fair value of derivatives that are not highly effective in hedging the changes in fair value or expected cash flows of the hedged item are recognized immediately in current earnings. Changes in the fair value of derivatives that do not qualify for hedge accounting are reported currently in earnings, as non-interest income. Net cash settlements on derivatives that qualify for hedge accounting are recorded in interest income or interest expense, based on the item being hedged. Net cash settlements on derivatives that do not qualify for hedge accounting are reported in non-interest income. Cash flows on hedges are classified in the cash flow statement the same as the cash flows of the items being hedged.greater New York metropolitan region and beyond.
The Company formally documentsassets acquired and liabilities assumed have been accounted for under the relationship between derivatives and hedged items, as well as the risk-management objective and the strategy for undertaking hedge transactions at the inceptionacquisition method of the hedging relationship. This documentation includes linking fair value or cash flow hedges to specificaccounting. The assets and liabilities, on the balance sheet or to specific firm commitments or forecasted transactions. The Company also formally assesses, both tangible and intangible, were recorded at the hedge’s inception and on an ongoing basis, whether the derivative instruments that are used are highly effective in offsetting changes intheir fair values or cash flowsas of June 30, 2015 based on management’s best estimate using the information available as of the hedged items.HVB Merger date. The Company discontinues hedgeapplication of the acquisition method of accounting when it determines that the derivative is no longer effective in offsetting changesresulted in the fair value or cash flowsrecognition of the hedged item, the derivative is settled or terminates,goodwill of $269,757 and a hedged forecasted transaction is no longer probable,core deposit intangible of $33,839. As of June 30, 2015, HVHC had assets with a hedged firm commitment is no longer firm, or treatment of the derivative as a hedge is no longer appropriate or intended.
When hedge accounting is discontinued, subsequent changes in fair value of the derivative are recorded as non-interest income. When a fair value hedge is discontinued, the hedged asset or liability is no longer adjusted for changes in fair value and thenet book
STERLING BANCORP AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Year ended December 31, 2015, three months ended December 31, 2014 and 2013 (unaudited) and
fiscal years ended September 30, 2014 and 2013
(Dollars in thousands, except per share data)
value of approximately $288,208, including loans with a net book value of approximately $1,816,767, and deposits with a net book value of approximately $3,160,746. The table below summarizes the amounts recognized as of the HVB Merger date for each major class of assets acquired and liabilities assumed, the estimated fair value adjustments and the amounts recorded in the Company’s financial statements at fair value at the HVB Merger date:
|
| | | | | | |
| Consideration paid through Sterling Bancorp common stock issued to HVHC shareholders | $ | 566,307 |
|
|
| | | | | | | | | | | |
| | HVHC net book value | | Fair value adjustments | | As recorded at acquisition |
| Cash and cash equivalents | $ | 878,988 |
| | $ | — |
| | $ | 878,988 |
|
| Investment securities | 713,625 |
| | 217 |
| (a) | 713,842 |
|
| Loans | 1,816,767 |
| | (24,248 | ) | (b) | 1,792,519 |
|
| Federal Reserve Bank stock | 5,830 |
| | — |
| | 5,830 |
|
| Bank owned life insurance | 44,231 |
| | — |
| | 44,231 |
|
| Premises and equipment | 11,918 |
| | 4,925 |
| (c) | 16,843 |
|
| Accrued interest receivable | 7,392 |
| | — |
| | 7,392 |
|
| Core deposits and other intangibles | — |
| | 33,839 |
| (d) | 33,839 |
|
| Other real estate owned | 222 |
| | — |
| | 222 |
|
| Other assets | 32,639 |
| | (7,931 | ) | (e) | 24,708 |
|
| Deposits | (3,160,746 | ) | | — |
| | (3,160,746 | ) |
| Other borrowings | (25,366 | ) | | — |
| | (25,366 | ) |
| Other liabilities | (37,292 | ) | | 1,540 |
| (f) | (35,752 | ) |
| Total identifiable net assets | $ | 288,208 |
| | $ | 8,342 |
| | $ | 296,550 |
|
| Goodwill recorded in the HVB Merger | | | | | $ | 269,757 |
|
Explanation of certain fair value related adjustments:
| |
| (a) | Represents the fair value adjustment on investment securities held to maturity. |
| |
| (b) | Represents the elimination of HVHC’s allowance for loan losses and an adjustment of the net book value of loans to estimated fair value, which includes an interest rate mark and credit mark adjustment. |
| |
| (c) | Represents an adjustment to reflect the fair value of HVHC owned real estate as determined by independent appraisals, which will be amortized on a straight-line basis over the estimated useful lives of the individual assets. |
| |
| (d) | Represents intangible assets recorded to reflect the fair value of core deposits. The core deposit asset was recorded as an identifiable intangible asset and will be amortized on an accelerated basis over the estimated average life of the deposit base. |
| |
| (e) | Represents an adjustment in net deferred tax assets resulting from the fair value adjustments related to the acquired assets, liabilities assumed and identifiable intangibles recorded. |
| |
| (f) | Represents the elimination of HVHC’s deferred rent liability. |
existing basis adjustment is amortized or accreted overThe fair values for loans acquired from HVB were estimated using cash flow projections based on the remaining lifematurity and repricing terms. Cash flows were adjusted by estimating future credit losses and the rate of prepayments. Projected monthly cash flows were then discounted to present value using a risk-adjusted market rate for similar loans. For collateral dependent loans with deteriorated credit quality, fair value was estimated by analyzing the value of the asset or liability. When a cash flow hedge is discontinued butunderlying collateral, assuming the hedged cash flows or forecasted transactions are still expectedfair values of the loans were derived from the eventual sale of the collateral. These values were discounted using market derived rates of return, with consideration given to occur, gains orthe period of time and costs associated with the foreclosure and disposition of the collateral. There was no carryover of HVHC’s allowance for loan losses associated with the loans that were accumulated in other comprehensive income are amortized into earnings overacquired, as the same periods whichloans were initially recorded at fair value on the hedged transactions will affect earnings.date of the HVB Merger.
Acquired loan portfolio data in the HVB Merger is presented below:
Notes to Consolidated Financial Statements
Year ended December 31, 2015, three months ended December 31, 2014 and Related Financial Instruments2013 (unaudited) and
Financial instruments include off-balance sheet credit instruments, suchfiscal years ended September 30, 2014 and 2013
(Dollars in thousands, except per share data)
|
| | | | | | | | | | | |
| | Fair value of acquired loans at acquisition date | | Gross contractual amounts receivable at acquisition date | | Best estimate at acquisition date of contractual cash flows not expected to be collected |
| Acquired loans with evidence of deterioration since origination | $ | 96,973 |
| | $ | 122,104 |
| | $ | 12,604 |
|
| Acquired loans with no evidence of deterioration since origination | 1,695,546 |
| | 1,974,740 |
| | NA |
|
The core deposit intangible asset recognized is being amortized over its estimated useful life of approximately 10 years utilizing the sum-of-the-years digits method.
Goodwill is not amortized for book purposes; however, it is reviewed at least annually for impairment and is not deductible for tax purposes.
The fair value of land, buildings and equipment was estimated using appraisals. Buildings will be amortized over their estimated useful lives of approximately 30 years. Improvements and equipment will be amortized or depreciated over their estimated useful lives ranging from one to five years.
The fair value of retail demand and interest bearing deposit accounts was assumed to approximate the carrying value as commitments to make loansthese accounts have no stated maturity and commercial lettersare payable on demand. The fair value of credit, issued to meet customer financing needs. The face amounttime deposits was estimated by discounting the contractual future cash flows using market rates offered for time deposits of similar remaining maturities. Management concluded the carrying value was an appropriate estimate of fair value for these items representsdeposits.
Direct acquisition and other charges incurred in connection with the exposure to loss, before considering customer collateralHVB Merger were expensed as incurred and totaled $14,381 for calendar 2015 and $502 for the transition period. These expenses were recorded in Merger-related expenses on the consolidated statements of operations. Results of operations for calendar 2015 included a charge for asset write-downs, severance and retention compensation, information technology services and other contract terminations, and impairment of leases which totaled $28,055 and was recorded in other non-interest expense in the consolidated statements of operations. The results of operations were not impacted by the HVB Merger for the other periods presented on the consolidated statements of operations.
The following table presents selected unaudited pro forma financial information reflecting the HVB Merger assuming it was completed as of October 1, 2013. The unaudited pro forma financial information is presented for illustrative purposes only and is not necessarily indicative of the financial results of the combined companies had the HVB Merger actually been completed at the beginning of the periods presented, nor does it indicate future results for any other interim or ability to repay. Suchfull fiscal year period. Pro forma basic and diluted earnings per common share were calculated using the Company’s actual weighted average shares outstanding for the periods presented, plus the incremental shares issued, assuming the HVB Merger occurred at the beginning of the periods presented. The unaudited pro forma information is based on the actual financial instruments are recorded when they are funded.
(2) Acquisitions
On August 10, 2012,statements of the Company acquired 100%for the periods presented, and on the actual financial statements of HVHC for the 2014 period presented and in 2015 until the date of the outstanding shares of Gotham Bank of New York (“Gotham”) in exchange for $40,510 in cash. Under the terms of the acquisition, common shareholders received cash equal to 125% of adjusted tangible net worth. The acquisition of Gotham allowed the Company to expand in the New York City market. Gotham delivered a long-term client base with core loan and deposit relationships, an attractive location in midtown Manhattan and our initial commercial banking team in New York City. Gotham’sHVB Merger, at which time HVHC’s results of operations were included in the Company’s results beginning on August 10, 2012. Acquisition-related costs of $5,925 are included in non-interest expense in the Company’s income statement for the year ended September 30, 2012.
financial statements.
The following table summarizesunaudited pro forma information for calendar 2015, the consideration paid for Gothamtransition period and fiscal 2014 set forth below reflects adjustments related to (a) purchase accounting fair value adjustments; (b) amortization of core deposit and other intangibles; and (c) adjustments to interest income and expense due to amortization of premiums and accretion of discounts. Direct merger-related expenses and charges incurred in calendar 2015 and the amountstransition period and costs incurred to write-down assets and accrue for retention and severance compensation are assumed to have occurred prior to October 1, 2013. Furthermore, the unaudited pro forma information does not reflect management’s estimate of the assets acquired and liabilities assumed recognized at the acquisition date:
|
| | | |
| | August 10, |
| | 2012 |
| ASSETS: | |
| Cash and due from banks | $ | 167,328 |
|
| Securities, available for sale | 54,994 |
|
| Total loans, net | 205,453 |
|
Federal Home Loan Bank (“FHLB”) stock | 1,045 |
|
| Accrued interest receivable | 417 |
|
| Premises and equipment, net | 490 |
|
| Other assets | 1,793 |
|
| Total assets acquired | $ | 431,520 |
|
| | |
| LIABILITIES: | |
| Deposits | $ | 368,902 |
|
| FHLB and other borrowings | 30,784 |
|
| Other liabilities | 1,677 |
|
| Total liabilities assumed | $ | 401,363 |
|
| | |
| Total identifiable net assets | $ | 30,157 |
|
| Core deposit intangible | 4,818 |
|
| Goodwill | 5,535 |
|
| Cash paid | $ | 40,510 |
|
any revenue enhancement opportunities or anticipated potential cost savings for periods that include data as of June 30, 2015 or earlier.
STERLING BANCORP AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Year ended December 31, 2015, three months ended December 31, 2014 and 2013 (unaudited) and
fiscal years ended September 30, 2014 and 2013
(Dollars in thousands, except per share data)
The following table presents pro forma information as if |
| | | | | | | | | | | |
| | Pro forma information |
| | For the year ended | | For the three months ended | | For the fiscal year ended |
| | December 31, 2015 | | December 31, 2014 | | September 30, 2014 |
| Net interest income | $ | 360,271 |
| | $ | 82,540 |
| | $ | 306,401 |
|
| Non-interest income | 66,686 |
| | 17,214 |
| | 60,356 |
|
| Non-interest expense | 261,453 |
| | 73,263 |
| | 318,804 |
|
| Net income | 100,086 |
| | 16,971 |
| | 23,596 |
|
| Pro forma earnings per share from continuing operations: | | | | | |
| Basic | $ | 0.78 |
| | $ | 0.14 |
| | $ | 0.20 |
|
| Diluted | 0.78 |
| | 0.14 |
| | 0.20 |
|
Damian Acquisition
On February 27, 2015, the Bank acquired 100% of the outstanding common stock of Damian Services Corporation (“Damian”) for total consideration of $24,670 in cash. Damian is a payroll services provider located in Chicago, Illinois. In connection with the acquisition, had occurred at October 1, 2010. The pro forma information includes adjustments for interest income onthe Bank acquired $22,307 of outstanding payroll finance loans and securitiesassumed $14,560 of liabilities. The Bank recognized a customer list intangible asset of $8,950 that is being amortized over its 16 year estimated life, and $11,930 of goodwill. The Bank also recognized a $1,500 restructuring charge, consisting mainly of retention and severance compensation and asset write-downs related to the consolidation of Damian’s operations, and approximately $300 of legal fees.
FCC Acquisition
On May 7, 2015, the Bank acquired amortizationa factoring portfolio from FCC, LLC, a subsidiary of intangibles arising fromFirst Capital Holdings, Inc., with an outstanding factoring receivables balance of approximately $44,500. The total consideration was $45,500 and included a premium of $1,000 in addition to the transaction, interest expenseoutstanding receivables balance.
Provident Merger
On October 31, 2013, the Company completed the Provident Merger. Under the terms of the Agreement and Plan of Merger, Legacy Sterling shareholders received 1.2625 shares of Legacy Provident’s common stock for each share of Legacy Sterling common stock, which resulted in the issuance of 39,057,968 shares. Based on depositsthe closing stock price of $11.72 per share on October 31, 2013, the aggregate consideration paid to Legacy Sterling shareholders was $457,781, including $23 paid in cash for fractional shares, and $6 which represented outstanding vested stock options. Consistent with the Company’s strategy, the primary reason for the Provident Merger was the expansion of the Company’s geographic footprint and diversification of its business in the greater New York metropolitan region and beyond.
The assets acquired and liabilities assumed were accounted for under the related income tax effects.acquisition method of accounting. The pro forma financialassets and liabilities, both tangible and intangible, were recorded at their fair values as of October 31, 2013, based on management’s best estimate using the information is not necessarily indicativeavailable as of the resultsProvident Merger date. The application of operations that would have occurred had the transactions been effected onacquisition method of accounting resulted in the assumed dates.
|
| | | | | | | |
| | September 30, |
| | 2012 | | 2011 |
| Net interest income | $ | 103,999 |
| | $ | 102,447 |
|
| Net income | 22,914 |
| | 16,068 |
|
| Basic earnings per share | 0.60 |
| | 0.37 |
|
| Diluted earnings per share | 0.60 |
| | 0.37 |
|
Future Amortizationrecognition of Core Deposit and Other Intangible Assets. The following table sets forth the future amortizationgoodwill of $225,809, a core deposit intangible of $20,089 and othera trade name intangible of $20,500. As of October 31, 2013, Legacy Sterling had assets with a book value of approximately $2,759,628, loans, including naming rightsloans held for sale with a book value of $1,870approximately $1,735,142, and deposits with a book value of approximately $2,296,713. The table below summarizes the amounts recognized as of the Provident Merger date for each major class of assets acquired and liabilities assumed, the estimated fair value adjustments and the amounts recorded in the Company’s financial statements at September 30, 2013:
|
| | | | | | | |
| | September 30, |
| | 2013 | | 2012 |
| Less than one year | $ | 925 |
| | $ | 853 |
|
| One to two years | 771 |
| | 960 |
|
| Two to three years | 726 |
| | 814 |
|
| Three to four years | 695 |
| | 751 |
|
| Four to five years | 669 |
| | 714 |
|
| Beyond five years | 2,105 |
| | 3,072 |
|
| Total | $ | 5,891 |
| | $ | 7,164 |
|
fair value at the Provident Merger date:
STERLING BANCORP AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Year ended December 31, 2015, three months ended December 31, 2014 and 2013 (unaudited) and
fiscal years ended September 30, 2014 and 2013
(Dollars in thousands, except per share data)
|
| | | | | | |
| Consideration paid through Sterling Bancorp common stock issued to Legacy Sterling shareholders | $ | 457,781 |
|
|
| | | | | | | | | | | |
| | Legacy Sterling carrying value | | Fair value adjustments | | As recorded at acquisition |
| Cash and cash equivalents | $ | 277,798 |
| | $ | — |
| | $ | 277,798 |
|
| Investment securities | 613,154 |
| | (5,243 | ) | (a) | 607,911 |
|
| Loans held for sale | 30,341 |
| | — |
| | 30,341 |
|
| Loans | 1,704,801 |
| | (6,693 | ) | (b) | 1,698,108 |
|
| Federal Reserve Bank stock | 7,680 |
| | — |
| | 7,680 |
|
| Bank owned life insurance | 55,374 |
| | — |
| | 55,374 |
|
| Premises and equipment | 21,293 |
| | 2,301 |
| (c) | 23,594 |
|
| Accrued interest receivable | 6,590 |
| | — |
| | 6,590 |
|
| Core deposit and other intangibles | — |
| | 20,089 |
| (d) | 20,089 |
|
| Trade name intangible | — |
| | 20,500 |
| (e) | 20,500 |
|
| Other real estate owned | 1,720 |
| | 4,095 |
| (f) | 5,815 |
|
| Other assets | 40,877 |
| | (19,944 | ) | (g) | 20,933 |
|
| Deposits | (2,296,713 | ) | | (477 | ) | (h) | (2,297,190 | ) |
| FHLB borrowings | (100,346 | ) | | (273 | ) | (i) | (100,619 | ) |
| Other borrowings | (62,465 | ) | | — |
| | (62,465 | ) |
| Subordinated Debentures | (25,774 | ) | | (753 | ) | (j) | (26,527 | ) |
| Other liabilities | (60,462 | ) | | 4,502 |
| (k) | (55,960 | ) |
| Total identifiable net assets | $ | 213,868 |
| | $ | 18,104 |
| | $ | 231,972 |
|
| Goodwill recorded in the Provident Merger | | | | | $ | 225,809 |
|
Explanation of certain fair value related adjustments:
| |
| (a) | Represents the fair value adjustment on investment securities held to maturity. |
| |
| (b) | Represents the elimination of Legacy Sterling’s allowance for loan losses and an adjustment of the amortized cost of loans to estimated fair value, which includes an interest rate mark and credit mark. Gross loans acquired were $1,723,447; and of the acquired loans, $1,699,271 were not considered purchased credit impaired. The Company recorded a fair value adjustment of $14,440. |
| |
| (c) | Represents an adjustment to reflect the fair value of leasehold improvements. |
| |
| (d) | Represents intangible assets recorded to reflect the fair value of core deposits and below market rent on leased premises. The core deposit asset was recorded as an identifiable intangible asset and will be amortized on an accelerated basis over the estimated average life of the deposit base. The below market rent intangible asset will be amortized on a straight-line basis over the remaining term of the leases. |
| |
| (e) | Represents the estimated fair value of Legacy Sterling’s trade name. This intangible asset will not be amortized and will be reviewed at least annually for impairment. |
| |
| (f) | Represents an adjustment to an acquired property which Legacy Sterling utilized as a financial center and recorded as premises and equipment. The Company included this asset in OREO, as it was held for sale. This asset was sold during fiscal 2014. |
| |
| (g) | Consists primarily of adjustments in net deferred tax assets resulting from the fair value adjustments related to the acquired assets, liabilities assumed and identifiable intangibles recorded. |
| |
| (h) | Represents the fair value adjustment on deposits as the weighted average interest rate of deposits assumed exceeded the cost of similar funding available in the market at the time of the Provident Merger. |
| |
| (i) | Represents the fair value adjustment on FHLB borrowings, as the weighted average interest rate of FHLB borrowings assumed exceeded the cost of similar funding available in the market at the time of the Provident Merger. |
Notes to Consolidated Financial Statements
Year ended December 31, 2015, three months ended December 31, 2014 and 2013 (unaudited) and
fiscal years ended September 30, 2014 and 2013
(Dollars in thousands, except per share data)
| |
| (j) | Represents the fair value adjustment on subordinated debentures as the weighted average interest rate of the debentures assumed exceeded the cost of similar debt funding available in the market at the time of the Provident Merger. |
| |
| (k) | Represents the fair value of other liabilities assumed at the Provident Merger date. |
Except for collateral dependent loans with deteriorated credit quality, the fair values for loans acquired from Legacy Sterling were estimated using cash flow projections based on the remaining maturity and repricing terms. Cash flows were adjusted by estimating future credit losses and the rate of prepayments. Projected monthly cash flows were then discounted to present value using a risk-adjusted market rate for similar loans. For collateral dependent loans with deteriorated credit quality, fair value was estimated by analyzing the value of the underlying collateral, assuming the fair values of the loans were derived from the eventual sale of the collateral. These values were discounted using market derived rates of return, with consideration given to the period of time and costs associated with the foreclosure and disposition of the collateral. There was no carryover of Legacy Sterling’s allowance for loan losses associated with the loans that were acquired, as the loans were initially recorded at fair value on the date of the Provident Merger.
The impaired loans acquired in the Provident Merger as of October 31, 2013 were accounted for in accordance with ASC Topic 310-30 Accounting for Certain Loans or Debt Securities Acquired in a Transfer (“ASC 310-30”) and were comprised of collateral dependent loans with deteriorated credit quality as follows:
|
| | | |
| | ASC 310-30 loans |
| Contractual principal balance at acquisition | $ | 24,176 |
|
| Principal not expected to be collected (non-accretable discount) | (10,927 | ) |
| Expected cash flows at acquisition | 13,249 |
|
| Interest component of expected cash flows (accretable discount) | — |
|
| Fair value of acquired loans | $ | 13,249 |
|
The core deposit intangible asset recognized is being amortized over its estimated useful life of approximately 10 years utilizing the accelerated method. Other intangibles consist of below market rents which are amortized over the remaining life of each lease using the straight-line method.
Goodwill is not amortized for book purposes; however, it is reviewed at least annually for impairment and is not deductible for tax purposes.
The fair value of premises and equipment and other real estate owned was estimated using appraisals of like kind properties and assets. Premises, equipment and leasehold improvements will be amortized or depreciated over their estimated useful lives ranging from one to five years for equipment or over the life of the lease for leasehold improvements. OREO is not amortized and is carried at estimated fair value determined by the appraised value less costs to sell.
The fair value of retail demand and interest bearing deposit accounts was assumed to approximate the carrying value as these accounts have no stated maturity and are payable on demand. The fair value of time deposits was estimated by discounting the contractual future cash flows using market rates offered for time deposits of similar remaining maturities. The fair value of borrowed funds was estimated by discounting the future cash flows using market rates for similar borrowings.
Direct acquisition and integration costs of the Provident Merger were expensed as incurred and totaled $9,455 and $2,772, for fiscal 2014 and fiscal 2013, respectively. These items were recorded as Merger-related expenses in the consolidated statement of operations. Other direct integration costs of the Provident Merger for transition period and for fiscal 2014 totaled $610 and $26,590, respectively, and included charges for asset write-downs, severance and retention compensation, and banking systems conversion. These items were recorded in other non-interest expense in the consolidated statement of operations.
Notes to Consolidated Financial Statements
Year ended December 31, 2015, three months ended December 31, 2014 and 2013 (unaudited) and
fiscal years ended September 30, 2014 and 2013
(Dollars in thousands, except per share data)
(3) Securities
A summary of amortized cost and estimated fair value of our securities is presented below:
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | September 30, 2013 | | September 30, 2012 |
| | Amortized cost | | Gross unrealized gains | | Gross unrealized losses | | Fair value | | Amortized cost | | Gross unrealized gains | | Gross unrealized losses | | Fair value |
| Available for sale | | | | | | | | | | | | | | | |
| Residential mortgage-backed securities: | | | | | | | | | | | | | | | |
| Fannie Mae | $ | 214,191 |
| | $ | 1,168 |
| | $ | (3,921 | ) | | $ | 211,438 |
| | $ | 155,601 |
| | $ | 5,806 |
| | $ | — |
| | $ | 161,407 |
|
| Freddie Mac | 67,272 |
| | 593 |
| | (236 | ) | | 67,629 |
| | 81,509 |
| | 3,751 |
| | — |
| | 85,260 |
|
| Ginnie Mae | 3,374 |
| | 88 |
| | — |
| | 3,462 |
| | 4,488 |
| | 290 |
| | — |
| | 4,778 |
|
| CMO/Other MBS | 169,336 |
| | 356 |
| | (3,038 | ) | | 166,654 |
| | 191,867 |
| | 1,787 |
| | (590 | ) | | 193,064 |
|
| Total residential mortgage-backed securities: | 454,173 |
| | 2,205 |
| | (7,195 | ) | | 449,183 |
| | 433,465 |
| | 11,634 |
| | (590 | ) | | 444,509 |
|
| Other securities: | | | | | | | | | | | | | | | |
| Federal agencies | 273,637 |
| | — |
| | (12,090 | ) | | 261,547 |
| | 404,820 |
| | 4,013 |
| | (10 | ) | | 408,823 |
|
| Corporate bonds | 118,575 |
| | 153 |
| | (3,795 | ) | | 114,933 |
| | — |
| | — |
| | — |
| | — |
|
| State and municipal | 127,324 |
| | 3,447 |
| | (2,041 | ) | | 128,730 |
| | 146,136 |
| | 10,349 |
| | (4 | ) | | 156,481 |
|
| Equities | — |
| | — |
| | — |
| | — |
| | 1,087 |
| | — |
| | (28 | ) | | 1,059 |
|
| Total other securities | 519,536 |
| | 3,600 |
| | (17,926 | ) | | 505,210 |
| | 552,043 |
| | 14,362 |
| | (42 | ) | | 566,363 |
|
| Total available for sale | $ | 973,709 |
| | $ | 5,805 |
| | $ | (25,121 | ) | | $ | 954,393 |
| | $ | 985,508 |
| | $ | 25,996 |
| | $ | (632 | ) | | $ | 1,010,872 |
|
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | December 31, 2015 |
| | Available for Sale | | Held to Maturity |
| | Amortized cost | | Gross unrealized gains | | Gross unrealized losses | | Fair value | | Amortized cost | | Gross unrealized gains | | Gross unrealized losses | | Fair value |
| Residential MBS: | | | | | | | | | | | | | | | |
| Agency-backed | $ | 1,222,912 |
| | $ | 2,039 |
| | $ | (7,089 | ) | | $ | 1,217,862 |
| | $ | 252,760 |
| | $ | 1,857 |
| | $ | (1,214 | ) | | $ | 253,403 |
|
| CMO/Other MBS | 79,430 |
| | 76 |
| | (1,133 | ) | | 78,373 |
| | 49,842 |
| | 87 |
| | (619 | ) | | 49,310 |
|
| Total residential MBS | 1,302,342 |
| | 2,115 |
| | (8,222 | ) | | 1,296,235 |
| | 302,602 |
| | 1,944 |
| | (1,833 | ) | | 302,713 |
|
| Other securities: | | | | | | | | | | | | | | | |
| Federal agencies | 85,124 |
| | 7 |
| | (864 | ) | | 84,267 |
| | 104,135 |
| | 2,458 |
| | (635 | ) | | 105,958 |
|
| Corporate | 321,630 |
| | 522 |
| | (7,964 | ) | | 314,188 |
| | 25,241 |
| | 11 |
| | (200 | ) | | 25,052 |
|
| State and municipal | 187,399 |
| | 2,187 |
| | (551 | ) | | 189,035 |
| | 285,813 |
| | 9,327 |
| | (134 | ) | | 295,006 |
|
| Trust preferred | 27,928 |
| | 589 |
| | — |
| | 28,517 |
| | — |
| | — |
| | — |
| | — |
|
| Other | 8,781 |
| | 9 |
| | — |
| | 8,790 |
| | 5,000 |
| | 350 |
| | — |
| | 5,350 |
|
| Total other securities | 630,862 |
| | 3,314 |
| | (9,379 | ) | | 624,797 |
| | 420,189 |
| | 12,146 |
| | (969 | ) | | 431,366 |
|
| Total securities | $ | 1,933,204 |
| | $ | 5,429 |
| | $ | (17,601 | ) | | $ | 1,921,032 |
| | $ | 722,791 |
| | $ | 14,090 |
| | $ | (2,802 | ) | | $ | 734,079 |
|
| | | | September 30, 2013 | | September 30, 2012 | December 31, 2014 |
| | Amortized cost | | Gross unrealized gains | | Gross unrealized losses | | Fair value | | Amortized cost | | Gross unrealized gains | | Gross unrealized losses | | Fair value | Available for Sale | | Held to Maturity |
| Held to maturity | | | | | | | | | | | | | | | | |
| Residential mortgage-backed securities: | | | | | | | | | | | | | | | | |
| Fannie Mae | $ | 70,502 |
| | $ | 399 |
| | $ | (86 | ) | | $ | 70,815 |
| | $ | 28,637 |
| | $ | 1,212 |
| | $ | — |
| | $ | 29,849 |
| |
| Freddie Mac | 59,869 |
| | 317 |
| | (22 | ) | | 60,164 |
| | 42,706 |
| | 1,347 |
| | — |
| | 44,053 |
| |
| | | Amortized cost | | Gross unrealized gains | | Gross unrealized losses | | Fair value | | Amortized cost | | Gross unrealized gains | | Gross unrealized losses | | Fair value |
| Residential MBS: | | | | | | | | | | | | | | | | |
| Agency-backed | | $ | 528,818 |
| | $ | 5,398 |
| | $ | (553 | ) | | $ | 533,663 |
| | $ | 138,589 |
| | $ | 2,763 |
| | $ | (2 | ) | | $ | 141,350 |
|
| CMO/Other MBS | 25,776 |
| | 33 |
| | (315 | ) | | 25,494 |
| | 27,921 |
| | 226 |
| | (28 | ) | | 28,119 |
| 85,619 |
| | 178 |
| | (959 | ) | | 84,838 |
| | 60,166 |
| | 58 |
| | (564 | ) | | 59,660 |
|
| Total residential mortgage-backed securities | 156,147 |
| | 749 |
| | (423 | ) | | 156,473 |
| | 99,264 |
| | 2,785 |
| | (28 | ) | | 102,021 |
| |
| Total residential MBS | | 614,437 |
| | 5,576 |
| | (1,512 | ) | | 618,501 |
| | 198,755 |
| | 2,821 |
| | (566 | ) | | 201,010 |
|
| Other securities: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Federal agencies | 77,341 |
| | — |
| | (3,458 | ) | | 73,883 |
| | 22,236 |
| | 106 |
| | — |
| | 22,342 |
| 150,623 |
| | 4 |
| | (3,471 | ) | | 147,156 |
| | 136,618 |
| | 4,328 |
| | (548 | ) | | 140,398 |
|
| Corporate | | 206,267 |
| | 319 |
| | (1,755 | ) | | 204,831 |
| | — |
| | — |
| | — |
| | — |
|
| State and municipal | 19,011 |
| | 556 |
| | (546 | ) | | 19,021 |
| | 19,376 |
| | 1,059 |
| | — |
| | 20,435 |
| 129,576 |
| | 2,737 |
| | (248 | ) | | 132,065 |
| | 231,964 |
| | 7,713 |
| | (89 | ) | | 239,588 |
|
| Trust preferred | | 37,687 |
| | 652 |
| | (46 | ) | | 38,293 |
| | — |
| | — |
| | — |
| | — |
|
| Other | 1,500 |
| | 19 |
| | — |
| | 1,519 |
| | 1,500 |
| | 26 |
| | — |
| | 1,526 |
| — |
| | — |
| | — |
| | — |
| | 5,000 |
| | 350 |
| | — |
| | 5,350 |
|
| Total other securities | 97,852 |
| | 575 |
| | (4,004 | ) | | 94,423 |
| | 43,112 |
| | 1,191 |
| | — |
| | 44,303 |
| 524,153 |
| | 3,712 |
| | (5,520 | ) | | 522,345 |
| | 373,582 |
| | 12,391 |
| | (637 | ) | | 385,336 |
|
| Total held to maturity | $ | 253,999 |
| | $ | 1,324 |
| | $ | (4,427 | ) | | $ | 250,896 |
| | $ | 142,376 |
| | $ | 3,976 |
| | $ | (28 | ) | | $ | 146,324 |
| |
| Total securities | | $ | 1,138,590 |
| | $ | 9,288 |
| | $ | (7,032 | ) | | $ | 1,140,846 |
| | $ | 572,337 |
| | $ | 15,212 |
| | $ | (1,203 | ) | | $ | 586,346 |
|
STERLING BANCORP AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Year ended December 31, 2015, three months ended December 31, 2014 and 2013 (unaudited) and
fiscal years ended September 30, 2014 and 2013
(Dollars in thousands, except per share data)
The amortized cost and estimated fair value of securities at September 30, 2013December 31, 2015 are presented below by contractual maturity. Actual maturities may differ from contractual maturities because issuers may have the right to call or prepay obligations. Residential mortgage-backed securities are shown separately since they are not due at a single maturity date.
| | | | September 30, 2013 | December 31, 2015 |
| | Available for sale | | Held to maturity | Available for sale | | Held to maturity |
| | Amortized cost | | Fair value | | Amortized cost | | Fair value | Amortized cost | | Fair value | | Amortized cost | | Fair value |
| Other securities remaining period to contractual maturity: | | | | | | | | | | | | | | |
| One year or less | $ | 2,242 |
| | $ | 2,259 |
| | $ | 3,800 |
| | $ | 3,841 |
| $ | 26,910 |
| | $ | 26,958 |
| | $ | 11,975 |
| | $ | 12,060 |
|
| One to five years | 81,057 |
| | 81,596 |
| | 14,756 |
| | 14,578 |
| 302,483 |
| | 299,550 |
| | 46,292 |
| | 47,428 |
|
| Five to ten years | 417,655 |
| | 403,270 |
| | 73,152 |
| | 69,970 |
| 252,972 |
| | 249,272 |
| | 226,884 |
| | 232,177 |
|
| Greater than ten years | 18,582 |
| | 18,085 |
| | 6,144 |
| | 6,034 |
| 48,497 |
| | 49,017 |
| | 135,038 |
| | 139,701 |
|
| Total other securities | 519,536 |
| | 505,210 |
| | 97,852 |
| | 94,423 |
| 630,862 |
| | 624,797 |
| | 420,189 |
| | 431,366 |
|
| Residential mortgage-backed securities | 454,173 |
| | 449,183 |
| | 156,147 |
| | 156,473 |
| |
| Residential MBS | | 1,302,342 |
| | 1,296,235 |
| | 302,602 |
| | 302,713 |
|
| Total securities | $ | 973,709 |
| | $ | 954,393 |
| | $ | 253,999 |
| | $ | 250,896 |
| $ | 1,933,204 |
| | $ | 1,921,032 |
| | $ | 722,791 |
| | $ | 734,079 |
|
Sales of securities for the periods indicated below were as follows:
| | | | | | | | | | For the year ended | | For the three months ended | | For the fiscal year ended |
| | September 30, | December 31, | | December 31, | | September 30, |
| | 2013 | | 2012 | | 2011 | 2015 | | 2014 | | 2013 | | 2014 | | 2013 |
| Available for sale: | | | | | | | | | | | | | | |
| Proceeds from sales | $ | 339,123 |
| | $ | 344,431 |
| | $ | 540,145 |
| $ | 893,610 |
| | $ | 244,835 |
| | $ | 247,650 |
| | $ | 529,107 |
| | $ | 339,123 |
|
| Gross realized gains | 7,709 |
| | 10,468 |
| | 10,000 |
| 6,018 |
| | 409 |
| | 211 |
| | 1,964 |
| | 7,709 |
|
| Gross realized losses | (377 | ) | | — |
| | — |
| (1,181 | ) | | (452 | ) | | (856 | ) | | (1,323 | ) | | (377 | ) |
| Income tax expense on realized net gains | 2,282 |
| | 2,475 |
| | 1,930 |
| |
| Income tax (benefit) expense on realized net gains (losses) | | (1,572 | ) | | (14 | ) | | (214 | ) | | 172 |
| | 2,282 |
|
Held to maturity: (1) | | | | | | | | | | | | | | |
| Proceeds from sales | $ | 1,187 |
| | — |
| | $ | 357 |
| $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | 1,187 |
|
| Gross realized gains | 59 |
| | — |
| | 18 |
| — |
| | — |
| | — |
| | — |
| | 59 |
|
| Income tax expense on realized gains | 18 |
| | — |
| | 3 |
| — |
| | — |
| | — |
| | — |
| | 18 |
|
(1) During the fiscal year ended September 30, 2013, and 2011 the Company sold held to maturity securities after the Company had already collected at least 85% of the principal balance outstanding at acquisition.
At December 31, 2015 and 2014, there were no holdings of securities of any one issuer, other than the U.S. Government and its agencies, in an amount greater than 10% of stockholders’ equity.
STERLING BANCORP AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Year ended December 31, 2015, three months ended December 31, 2014 and 2013 (unaudited) and
fiscal years ended September 30, 2014 and 2013
(Dollars in thousands, except per share data)
The following table summarizes those securities available for sale with unrealized losses, segregated by the length of time in a continuous unrealized loss position:
| | | | Continuous unrealized loss position | | | | | Continuous unrealized loss position | | | | |
| | Less than 12 months | | 12 months or longer | | Total | Less than 12 months | | 12 months or longer | | Total |
| | Fair value | | Unrealized losses | | Fair value | | Unrealized losses | | Fair value | | Unrealized losses | Fair value | | Unrealized losses | | Fair value | | Unrealized losses | | Fair value | | Unrealized losses |
| Available for sale | | | | | | | | | | | | | | | �� | | | | | | | |
| As of September 30, 2013 | | | | | | | | | | | | |
| Residential mortgage-backed securities: | | | | | | | | | | | | |
| December 31, 2015 | | | | | | | | | | | | |
| Residential MBS: | | | | | | | | | | | | |
| Agency-backed | $ | 137,265 |
| | $ | (4,157 | ) | | $ | — |
| | $ | — |
| | $ | 137,265 |
| | $ | (4,157 | ) | $ | 18,983 |
| | $ | (528 | ) | | $ | 854,491 |
| | $ | (6,561 | ) | | $ | 873,474 |
| | $ | (7,089 | ) |
| CMO/other MBS | 122,324 |
| | (2,742 | ) | | 7,820 |
| | (296 | ) | | 130,144 |
| | (3,038 | ) | |
| Total residential mortgage-backed securities | 259,589 |
| | (6,899 | ) | | 7,820 |
| | (296 | ) | | 267,409 |
| | (7,195 | ) | |
| CMO/Other MBS | | 23,682 |
| | (717 | ) | | 41,946 |
| | (416 | ) | | 65,628 |
| | (1,133 | ) |
| Total residential MBS | | 42,665 |
| | (1,245 | ) | | 896,437 |
| | (6,977 | ) | | 939,102 |
| | (8,222 | ) |
| Other securities: | | | | | | | | | | | | |
| Federal agencies | 261,547 |
| | (12,090 | ) | | — |
| | — |
| | 261,547 |
| | (12,090 | ) | 14,933 |
| | (260 | ) | | 57,886 |
| | (604 | ) | | 72,819 |
| | (864 | ) |
| Corporate | 95,013 |
| | (3,795 | ) | | — |
| | — |
| | 95,013 |
| | (3,795 | ) | 19,257 |
| | (715 | ) | | 236,048 |
| | (7,249 | ) | | 255,305 |
| | (7,964 | ) |
| State and municipal | 43,585 |
| | (2,033 | ) | | 112 |
| | (8 | ) | | 43,697 |
| | (2,041 | ) | 3,439 |
| | (27 | ) | | 42,924 |
| | (524 | ) | | 46,363 |
| | (551 | ) |
| Trust preferred | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
| Total other securities | | 37,629 |
| | (1,002 | ) | | 336,858 |
| | (8,377 | ) | | 374,487 |
| | (9,379 | ) |
| Total | $ | 659,734 |
| | $ | (24,817 | ) | | $ | 7,932 |
| | $ | (304 | ) | | $ | 667,666 |
| | $ | (25,121 | ) | $ | 80,294 |
| | $ | (2,247 | ) | | $ | 1,233,295 |
| | $ | (15,354 | ) | | $ | 1,313,589 |
| | $ | (17,601 | ) |
| As of September 30, 2012 | | | | | | | | | | | | |
| CMO/other MBS | $ | 64,065 |
| | $ | (590 | ) | | $ | — |
| | $ | — |
| | $ | 64,065 |
| | $ | (590 | ) | |
| December 31, 2014 | | | | | | | | | | | | |
| Residential MBS: | | | | | | | | | | | | |
| Agency-backed | | $ | 17,379 |
| | $ | (37 | ) | | $ | 21,616 |
| | $ | (516 | ) | | $ | 38,995 |
| | $ | (553 | ) |
| CMO/Other MBS | | 25,551 |
| | (206 | ) | | 43,475 |
| | (753 | ) | | 69,026 |
| | (959 | ) |
| Total residential MBS | | 42,930 |
| | (243 | ) | | 65,091 |
| | (1,269 | ) | | 108,021 |
| | (1,512 | ) |
| Other securities: | | | | | | | | | | | | |
| Federal agencies | 4,993 |
| | (10 | ) | | — |
| | — |
| | 4,993 |
| | (10 | ) | 5,959 |
| | (87 | ) | | 140,699 |
| | (3,384 | ) | | 146,658 |
| | (3,471 | ) |
| Corporate | | 85,055 |
| | (731 | ) | | 65,648 |
| | (1,024 | ) | | 150,703 |
| | (1,755 | ) |
| State and municipal | 716 |
| | (4 | ) | | — |
| | — |
| | 716 |
| | (4 | ) | 12,012 |
| | (68 | ) | | 11,400 |
| | (180 | ) | | 23,412 |
| | (248 | ) |
| Equities | — |
| | — |
| | 809 |
| | (28 | ) | | 809 |
| | (28 | ) | |
| Trust preferred | | 3,900 |
| | (46 | ) | | — |
| | — |
| | 3,900 |
| | (46 | ) |
| Total other securities | | 106,926 |
| | (932 | ) | | 217,747 |
| | (4,588 | ) | | 324,673 |
| | (5,520 | ) |
| Total | $ | 69,774 |
| | $ | (604 | ) | | $ | 809 |
| | $ | (28 | ) | | $ | 70,583 |
| | $ | (632 | ) | $ | 149,856 |
| | $ | (1,175 | ) | | $ | 282,838 |
| | $ | (5,857 | ) | | $ | 432,694 |
| | $ | (7,032 | ) |
Notes to Consolidated Financial Statements
Year ended December 31, 2015, three months ended December 31, 2014 and 2013 (unaudited) and
fiscal years ended September 30, 2014 and 2013
(Dollars in thousands, except per share data)
The following table summarizes securities held to maturity with unrealized losses, segregated by the length of time in a continuous unrealized loss position:
|
| | | | | | | | | | | | | | | | | | | | | | | |
| | Continuous unrealized loss position | | | | |
| | Less than 12 months | | 12 months or longer | | Total |
| | Fair value | | Unrealized losses | | Fair value | | Unrealized losses | | Fair value | | Unrealized losses |
| Held to maturity | | | | | | | | | | | |
| As of September 30, 2013 | | | | | | | | | | | |
| Fannie Mae | $ | 10,963 |
| | $ | (86 | ) | | $ | — |
| | $ | — |
| | $ | 10,963 |
| | $ | (86 | ) |
| CMO other MBS | 31,412 |
| | (337 | ) | | — |
| | — |
| | 31,412 |
| | (337 | ) |
| Federal agencies | 73,883 |
| | (3,458 | ) | | — |
| | — |
| | 73,883 |
| | (3,458 | ) |
| Municipal bonds | 9,530 |
| | (546 | ) | | — |
| | — |
| | 9,530 |
| | (546 | ) |
| Total | $ | 125,788 |
| | $ | (4,427 | ) | | $ | — |
| | $ | — |
| | $ | 125,788 |
| | $ | (4,427 | ) |
| September 30, 2012 | | | | | | | | | | | |
| Total | $ | 13,189 |
| | $ | (28 | ) | | $ | — |
| | $ | — |
| | $ | 13,189 |
| | $ | (28 | ) |
|
| | | | | | | | | | | | | | | | | | | | | | | |
| | Continuous unrealized loss position | | | | |
| | Less than 12 months | | 12 months or longer | | Total |
| | Fair value | | Unrealized losses | | Fair value | | Unrealized losses | | Fair value | | Unrealized losses |
| Held to maturity | | | | | | | | | | | |
| December 31, 2015 | | | | | | | | | | | |
| Residential MBS: | | | | | | | | | | | |
| Agency-backed | $ | — |
| | $ | — |
| | $ | 132,585 |
| | $ | (1,214 | ) | | $ | 132,585 |
| | $ | (1,214 | ) |
| CMO/Other MBS | 5,960 |
| | (156 | ) | | 40,033 |
| | (463 | ) | | $ | 45,993 |
| | (619 | ) |
| Total residential MBS | 5,960 |
| | (156 | ) | | 172,618 |
| | (1,677 | ) | | 178,578 |
| | (1,833 | ) |
| Other securities: | | | | | | | | | | | |
| Federal agencies | 14,642 |
| | (358 | ) | | 9,723 |
| | (277 | ) | | 24,365 |
| | (635 | ) |
| Corporate | — |
| | — |
| | 20,039 |
| | (200 | ) | | 20,039 |
| | (200 | ) |
| State and municipal | 2,562 |
| | (48 | ) | | 12,989 |
| | (86 | ) | | 15,551 |
| | (134 | ) |
| Total other securities | 17,204 |
| | (406 | ) | | 42,751 |
| | (563 | ) | | 59,955 |
| | (969 | ) |
| Total | $ | 23,164 |
| | $ | (562 | ) | | $ | 215,369 |
| | $ | (2,240 | ) | | $ | 238,533 |
| | $ | (2,802 | ) |
| December 31, 2014 | | | | | | | | | | | |
| Residential MBS: | | | | | | | | | | | |
| Agency-backed | $ | 1,208 |
| | $ | (2 | ) | | $ | — |
| | $ | — |
| | $ | 1,208 |
| | $ | (2 | ) |
| CMO/Other MBS | — |
| |
|
| | 42,979 |
| | (564 | ) | | 42,979 |
| | (564 | ) |
| Total residential MBS | 1,208 |
| | (2 | ) | | 42,979 |
| | (564 | ) | | 44,187 |
| | (566 | ) |
| Other securities: | | | | | | | | | | | |
| Federal agencies | 9,711 |
| | (289 | ) | | 14,741 |
| | (259 | ) | | 24,452 |
| | (548 | ) |
| State and municipal | 11,501 |
| | (86 | ) | | 233 |
| | (3 | ) | | 11,734 |
| | (89 | ) |
| Total other securities | 21,212 |
| | (375 | ) | | 14,974 |
| | (262 | ) | | 36,186 |
| | (637 | ) |
| Total | $ | 22,420 |
| | $ | (377 | ) | | $ | 57,953 |
| | $ | (826 | ) | | $ | 80,373 |
| | $ | (1,203 | ) |
Substantially all of the unrealized losses at September 30, 2013 relate to investment grade debt securities and are attributable to changes in market interest rates subsequent to purchase. At September 30, 2013,December 31, 2015, a total of 323361 available for sale securities were in a continuous unrealized loss position for less than 12 months and two40 securities were in an unrealized loss position for 12 months or longer. For securities with fixed maturities, there are no securities past due or securities for which the Company currently believes it is not probable that it will collect all amounts due according to the contractual terms of the investment.
STERLING BANCORP AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollars in thousands, except per share data)
Declines in the fair value of held to maturity and available for sale and held to maturity securities below their cost that are deemed to be other than temporary are reflected in earnings as realized losses to the extent the impairment is related to credit losses. The amount of the impairment related to other factors is recognized in other comprehensive income. In estimating other-than-temporary impairmentOTTI losses, (“OTTI”), management considers, among other things,things: (i) the length of time and the extent to which the fair value has been less than cost,cost; (ii) the financial condition and near-term prospects of the issuer,issuer; and (iii) the intent and ability of the Company to retain its investment in the investmentissuer for a period of time sufficient to allow for anany anticipated recovery in cost.
WithinManagement has the CMO categoryability and intent to hold the securities classified as held to maturity in the table above until they mature, at which time the Company will receive full value for the securities. Furthermore, as of December 31, 2015, management does not have the intent to sell any of the securities classified as available for sale portfolio therein the table above and believes that it is more likely than not that the Company will not have to sell any such securities before a recovery of cost. Any unrealized losses are four private label CMOs that had an amortized cost of $3,636 and alargely due to increases in market interest rates over the yields available at the time the underlying securities were purchased. The fair value (carrying value)is expected to recover as the securities approach their maturity date or repricing date or if market yields for such investments decline. As of $3,613 as of September 30, 2013. TwoDecember 31, 2015 management does not believe any of the four securities are consideredimpaired due to be OTTIreasons of credit quality and management believes the impairments detailed in the table above are below investment grade. The impaired private label CMOs had an amortized costtemporary. No impairment loss has been realized in the Company’s consolidated statements of operations.
Notes to Consolidated Financial Statements
Year ended December 31, 2015, three months ended December 31, 2014 and a fair value of $3,263 at September 30, 2013. Impairment charges on these securities were $14 (unaudited) and$47 for the
fiscal years ended September 30, 20132014 and September 30, 2012, respectively. At September 30, 2013 total cumulative impairment charges on these two private label CMOs were $61. The remaining two securities are rated investment grade and were performing as of September 30, 2013 and are expected to continue to perform based on current information. In determining whether OTTI existed on these debt securities the Company evaluated the present value of cash flows expected to be collected based on collateral specific assumptions, including credit risk and liquidity risk, and determined that no additional credit losses were expected. The Company will continue to evaluate its investment securities portfolio for OTTI on at least a quarterly basis.
(Dollars in thousands, except per share data)
Excluding FHLB and New York Business Development Corporation stock, the Company owned one equity security with a balance of $809 at September 30, 2012, which was sold during the fiscal year ended September 30, 2013. For the twelve months ended September 30, 2013 and 2012, the Company incurred OTTI on this security of $18 and $0, respectively.
Securities pledged for borrowings at FHLB and other institutions, and securities pledged for municipal deposits and other purposes were as follows: | | | | September 30, | December 31, |
| | 2013 | | 2012 | 2015 | | 2014 |
| Available for sale securities pledged for borrowings, at fair value | $ | 199,642 |
| | $ | 192,482 |
| $ | 101,994 |
| | $ | 187,314 |
|
| Available for sale securities pledged for municipal deposits, at fair value | 580,756 |
| | 703,261 |
| 849,186 |
| | 550,681 |
|
| Available for sale securities pledged for customer back-to-back swaps, at fair value | 4,645 |
| | 4,174 |
| 1,839 |
| | 1,959 |
|
| Held to maturity securities pledged for borrowings, at amortized cost | 55,497 |
| | 53,507 |
| 206,337 |
| | 154,712 |
|
| Held to maturity securities pledged for municipal deposits, at amortized cost | 167,926 |
| | 138,855 |
| 327,589 |
| | 352,843 |
|
| Total securities pledged | $ | 1,008,466 |
| | $ | 1,092,279 |
| $ | 1,486,945 |
| | $ | 1,247,509 |
|
STERLING BANCORP AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollars in thousands, except per share data)
(4) Portfolio Loans
The componentscomposition of the Company’s loan portfolio, excluding loans held for sale, were as follows:
|
| | | | | | | |
| | September 30, |
| | 2013 | | 2012 |
| Residential mortgage | $ | 400,009 |
| | $ | 350,022 |
|
| Commercial: | | | |
| Commercial real estate | 1,277,037 |
| | 1,072,504 |
|
| Commercial & industrial | 439,787 |
| | 343,307 |
|
| Acquisition, development & construction | 102,494 |
| | 144,061 |
|
| Total commercial | 1,819,318 |
| | 1,559,872 |
|
| Consumer: | | | |
| Home equity lines of credit | 156,995 |
| | 165,200 |
|
| Other consumer loans | 36,576 |
| | 44,378 |
|
| Total consumer | 193,571 |
| | 209,578 |
|
| Total loans | 2,412,898 |
| | 2,119,472 |
|
| Allowance for loan losses | (28,877 | ) | | (28,282 | ) |
| Total loans, net | $ | 2,384,021 |
| | $ | 2,091,190 |
|
|
| | | | | | | |
| | December 31, |
| | 2015 | | 2014 |
| Commercial: | | | |
| Commercial & industrial (“C&I”) | $ | 1,681,704 |
| | $ | 1,244,555 |
|
| Payroll finance | 221,831 |
| | 154,229 |
|
| Warehouse lending | 387,808 |
| | 173,786 |
|
| Factored receivables | 208,382 |
| | 161,625 |
|
| Equipment financing | 631,303 |
| | 411,449 |
|
| Total commercial | 3,131,028 |
| | 2,145,644 |
|
| Commercial mortgage: | | | |
| Commercial real estate (“CRE”) | 2,733,351 |
| | 1,458,277 |
|
| Multi-family | 796,030 |
| | 384,544 |
|
| Acquisition, development & construction (“ADC”) | 186,398 |
| | 96,995 |
|
| Total commercial mortgage | 3,715,779 |
| | 1,939,816 |
|
| Total commercial and commercial mortgage | 6,846,807 |
| | 4,085,460 |
|
| Residential mortgage | 713,036 |
| | 529,766 |
|
| Consumer | 299,517 |
| | 200,415 |
|
| Total loans | 7,859,360 |
| | 4,815,641 |
|
| Allowance for loan losses | (50,145 | ) | | (42,374 | ) |
| Total portfolio loans, net | $ | 7,809,215 |
| | $ | 4,773,267 |
|
Total loans include net deferred loan origination costs (fees) of $1,201$2,029 at December 31, 2015 and $(310)$1,609 at September 30, 2013 and 2012, respectively.
Included in the Company’s loan portfolio are loans acquired from Gotham Bank. These loans were recorded at fair value at acquisition and carried a balance of $133,493 and $205,764 at September 30, 2013 and September 30, 2012, respectively. The discount associated with these loans which includes adjustments associated with market interest rates and expected credit losses, was $1,879 and $3,924 at September 30, 2013 and September 30, 2012, respectively. We evaluate these loans for impairment collectively. None of the Gotham Bank acquired loans were identified as purchase credit impaired at acquisition.December 31, 2014.
At September 30, 2013,December 31, 2015, the Company has pledged loans totaling $784.4 million$2,050,982 to the FHLB as collateral for certain borrowing arrangements. See Note 8. Borrowings.9. “Borrowings and Senior Notes”.
STERLING BANCORP AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Year ended December 31, 2015, three months ended December 31, 2014 and 2013 (unaudited) and
fiscal years ended September 30, 2014 and 2013
(Dollars in thousands, except per share data)
The following tables set forth the amounts and status of the Company’s loans and troubled debt restructurings (“TDRs”)TDRs at September 30, 2013December 31, 2015 and September 30, 2012:2014:
| | | | September 30, 2013 | December 31, 2015 |
| | Current loans | | 30-59 days past due | | 60-89 days past due | | 90+ days past due | | Non- accrual | | Total | Current | | 30-59 days past due | | 60-89 days past due | | 90+ days past due | | Non- accrual | | Total |
| C&I | | $ | 1,630,635 |
| | $ | 9,380 |
| | $ | 31,060 |
| | $ | 487 |
| | $ | 10,142 |
| | $ | 1,681,704 |
|
| Payroll finance | | 221,394 |
| | — |
| | 349 |
| | 88 |
| | — |
| | 221,831 |
|
| Warehouse lending | | 387,808 |
| | — |
| | — |
| | — |
| | — |
| | 387,808 |
|
| Factored receivables | | 208,162 |
| | — |
| | — |
| | — |
| | 220 |
| | 208,382 |
|
| Equipment financing | | 627,056 |
| | 1,088 |
| | 1,515 |
| | — |
| | 1,644 |
| | 631,303 |
|
| CRE | | 686,445 |
| | 7,417 |
| | 2,521 |
| | — |
| | 20,742 |
| | 2,733,351 |
|
| Multi-family | | 2,702,671 |
| | 2,485 |
| | — |
| | — |
| | 1,717 |
| | 796,030 |
|
| ADC | | 791,828 |
| | — |
| | — |
| | 83 |
| | 3,700 |
| | 186,398 |
|
| Residential mortgage | $ | 390,072 |
| | $ | 354 |
| | $ | 267 |
| | $ | 1,832 |
| | $ | 7,484 |
| | $ | 400,009 |
| 182,615 |
| | 6,014 |
| | 897 |
| | — |
| | 19,680 |
| | 713,036 |
|
| Commercial real estate | 1,263,933 |
| | 1,978 |
| | 2,357 |
| | 1,574 |
| | 7,195 |
| | 1,277,037 |
| |
| Commercial & industrial | 438,818 |
| | 178 |
| | 2 |
| | 289 |
| | 500 |
| | 439,787 |
| |
| Acquisition, development & construction | 96,306 |
| | 768 |
| | — |
| | — |
| | 5,420 |
| | 102,494 |
| |
| Consumer | 190,393 |
| | 566 |
| | — |
| | 404 |
| | 2,208 |
| | 193,571 |
| 286,339 |
| | 4,950 |
| | 320 |
| | 16 |
| | 7,892 |
| | 299,517 |
|
| Total loans | $ | 2,379,522 |
| | $ | 3,844 |
| | $ | 2,626 |
| | $ | 4,099 |
| | $ | 22,807 |
| | $ | 2,412,898 |
| $ | 7,724,953 |
| | $ | 31,334 |
| | $ | 36,662 |
| | $ | 674 |
| | $ | 65,737 |
| | $ | 7,859,360 |
|
| Total TDRs included above | $ | 23,754 |
| | $ | — |
| | $ | — |
| | $ | 141 |
| | $ | 2,199 |
| | $ | 26,094 |
| $ | 13,047 |
| | $ | 654 |
| | $ | — |
| | $ | — |
| | $ | 8,591 |
| | $ | 22,292 |
|
| Non-performing loans: | | | | | | | | | | | | | | | | | | | | | | |
| Loans 90+ days past due and still accruing | | | | | | | | | $ | 4,099 |
| | | | | | | | | | | $ | 674 |
| | |
| Non-accrual loans | | | | | | | | | 22,807 |
| | | | | | | | | | | 65,737 |
| | |
| Total non-performing loans | | | | | | | | | $ | 26,906 |
| | | | | | | | | | | $ | 66,411 |
| | |
| | | | September 30, 2012 | December 31, 2014 |
| | Current loans | | 30-59 Days past due | | 60-89 Days past due | | 90+ Days past due | | Non- accrual | | Total | Current | | 30-59 days past due | | 60-89 days past due | | 90+ days past due | | Non- accrual | | Total |
| C&I | | $ | 1,232,363 |
| | $ | 6,237 |
| | $ | 920 |
| | $ | 60 |
| | $ | 4,975 |
| | $ | 1,244,555 |
|
| Payroll finance | | 154,114 |
| | — |
| | — |
| | 115 |
| | — |
| | 154,229 |
|
| Warehouse lending | | 173,786 |
| | — |
| | — |
| | — |
| | — |
| | 173,786 |
|
| Factored receivables | | 161,381 |
| | — |
| | — |
| | — |
| | 244 |
| | 161,625 |
|
| Equipment financing | | 410,483 |
| | 707 |
| | 19 |
| | — |
| | 240 |
| | 411,449 |
|
| CRE | | 1,433,235 |
| | 7,982 |
| | 5,322 |
| | 452 |
| | 11,286 |
| | 1,458,277 |
|
| Multi-family | | 383,799 |
| | 317 |
| | — |
| | 156 |
| | 272 |
| | 384,544 |
|
| ADC | | 89,730 |
| | 401 |
| | 451 |
| | — |
| | 6,413 |
| | 96,995 |
|
| Residential mortgage | $ | 337,356 |
| | $ | 855 |
| | $ | 497 |
| | $ | 2,263 |
| | $ | 9,051 |
| | $ | 350,022 |
| 509,597 |
| | 2,935 |
| | 975 |
| | — |
| | 16,259 |
| | 529,766 |
|
| Commercial real estate | 1,060,176 |
| | 902 |
| | 973 |
| | 1,638 |
| | 8,815 |
| | 1,072,504 |
| |
| Commercial & industrial | 342,726 |
| | 96 |
| | 141 |
| | — |
| | 344 |
| | 343,307 |
| |
| Acquisition, development & construction | 121,590 |
| | 7,067 |
| | — |
| | — |
| | 15,404 |
| | 144,061 |
| |
| Consumer | 205,463 |
| | 1,551 |
| | 265 |
| | 469 |
| | 1,830 |
| | 209,578 |
| 191,528 |
| | 1,110 |
| | 1,607 |
| | — |
| | 6,170 |
| | 200,415 |
|
| Total loans | $ | 2,067,311 |
| | $ | 10,471 |
| | $ | 1,876 |
| | $ | 4,370 |
| | $ | 35,444 |
| | $ | 2,119,472 |
| $ | 4,740,016 |
| | $ | 19,689 |
| | $ | 9,294 |
| | $ | 783 |
| | $ | 45,859 |
| | $ | 4,815,641 |
|
| Total TDRs included above | $ | 13,543 |
| | $ | 270 |
| | $ | 264 |
| | $ | — |
| | $ | 10,870 |
| | $ | 24,947 |
| $ | 16,238 |
| | $ | 847 |
| | $ | 176 |
| | $ | — |
| | $ | 11,427 |
| | $ | 28,688 |
|
| Non-performing loans: | | | | | | | | | | | | | | | | | | | | | | |
| Loans 90+ days past due and accruing | | | | | | | | | $ | 4,370 |
| | | |
| Loans 90+ days past due and still accruing | | | | | | | | | | $ | 783 |
| | |
| Non-accrual loans | | | | | | | | | 35,444 |
| | | | | | | | | | | 45,859 |
| | |
| Total non-performing loans | | | | | | | | | $ | 39,814 |
| | | | | | | | | | | $ | 46,642 |
| | |
Activity inThe following table provides additional analysis of the allowance for loan losses for the year ended September 30, 2013, 2012Company’s non-accrual loans at December 31, 2015 and 2011 is summarized below:
|
| | | | | | | | | | | | | | | | | | | | | | | |
| | For the year ended September 30, 2013 |
| | Beginning balance | | Charge-offs | | Recoveries | | Net charge-offs | | Provision | | Ending balance |
| Residential mortgage | $ | 4,359 |
| | $ | (2,547 | ) | | $ | 101 |
| | $ | (2,446 | ) | | $ | 2,561 |
| | $ | 4,474 |
|
| Commercial real estate | 7,230 |
| | (3,725 | ) | | 577 |
| | (3,148 | ) | | 5,885 |
| | 9,967 |
|
| Commercial & industrial | 4,603 |
| | (1,354 | ) | | 410 |
| | (944 | ) | | 1,643 |
| | 5,302 |
|
| Acquisition, development & construction | 8,526 |
| | (3,422 | ) | | 182 |
| | (3,240 | ) | | 520 |
| | 5,806 |
|
| Consumer | 3,564 |
| | (2,009 | ) | | 232 |
| | (1,777 | ) | | 1,541 |
| | 3,328 |
|
| Total loans | $ | 28,282 |
| | $ | (13,057 | ) | | $ | 1,502 |
| | $ | (11,555 | ) | | $ | 12,150 |
| | $ | 28,877 |
|
| Net charge-offs to average loans outstanding | | | | | | | | | | | 0.52 | % |
2014:
STERLING BANCORP AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Year ended December 31, 2015, three months ended December 31, 2014 and 2013 (unaudited) and
fiscal years ended September 30, 2014 and 2013
(Dollars in thousands, except per share data)
|
| | | | | | | | | | | | | | | | | | | | | | | |
| | For the year ended September 30, 2012 |
| | Beginning balance | | Charge-offs | | Recoveries | | Net charge-offs | | Provision | | Ending balance |
| Residential mortgage | $ | 3,498 |
| | $ | (2,551 | ) | | $ | 356 |
| | $ | (2,195 | ) | | $ | 3,056 |
| | $ | 4,359 |
|
| Commercial real estate | 5,568 |
| | (2,707 | ) | | 528 |
| | (2,179 | ) | | 3,841 |
| | 7,230 |
|
| Commercial & industrial | 5,945 |
| | (1,526 | ) | | 1,116 |
| | (410 | ) | | (932 | ) | | 4,603 |
|
| Acquisition, development & construction | 9,895 |
| | (4,124 | ) | | 299 |
| | (3,825 | ) | | 2,456 |
| | 8,526 |
|
| Consumer | 3,011 |
| | (1,901 | ) | | 263 |
| | (1,638 | ) | | 2,191 |
| | 3,564 |
|
| Total loans | $ | 27,917 |
| | $ | (12,809 | ) | | $ | 2,562 |
| | $ | (10,247 | ) | | $ | 10,612 |
| | $ | 28,282 |
|
| Net charge-offs to average loans outstanding | | | | | | | | | | | 0.56 | % |
|
| | | | | | | | | | | | | | | | | | | | | | | |
| | For the year ended September 30, 2011 |
| | Beginning balance | | Charge-offs | | Recoveries | | Net charge-offs | | Provision | | Ending balance |
| Residential mortgage | $ | 2,641 |
| | $ | (2,140 | ) | | $ | 15 |
| | $ | (2,125 | ) | | $ | 2,982 |
| | $ | 3,498 |
|
| Commercial real estate | 5,915 |
| | (1,802 | ) | | 2 |
| | (1,800 | ) | | 1,453 |
| | 5,568 |
|
| Commercial & industrial | 8,970 |
| | (5,400 | ) | | 605 |
| | (4,795 | ) | | 1,770 |
| | 5,945 |
|
| Acquisition, development & construction | 9,752 |
| | (8,939 | ) | | 10 |
| | (8,929 | ) | | 9,072 |
| | 9,895 |
|
| Consumer | 3,565 |
| | (1,989 | ) | | 128 |
| | (1,861 | ) | | 1,307 |
| | 3,011 |
|
| Total loans | $ | 30,843 |
| | $ | (20,270 | ) | | $ | 760 |
| | $ | (19,510 | ) | | $ | 16,584 |
| | $ | 27,917 |
|
| Net charge-offs to average loans outstanding | | | | | | |
|
| | | | 1.17 | % |
Management considers a loan to be impaired when, based on current information and events, it is determined that the Company will not be able to collect all amounts due according to the loan contract, including scheduled interest payments. Determination of impairment is treated the same across all classes of loans on a loan-by-loan basis. When management identifies a loan as impaired, the impairment is measured based on the present value of expected future cash flows, discounted at the loan’s effective interest rate, except when the sole remaining source of repayment of the loan is the operation or liquidation of the collateral. In these cases management uses the current fair value of the collateral, less selling costs when foreclosure is probable, instead of discounted cash flows. If management determines that the value of the impaired loan is less than the recorded investment in the loan (net of previous charge-offs, deferred loan fees or costs and unamortized premium or discount), impairment is recognized through an allowance estimate or a charge-off to the allowance for loan losses. |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | December 31, 2015 | | December 31, 2014 |
| | Recorded investment Non-accrual loans | | Recorded investment PCI non-accrual loans | | Recorded investment total non-accrual loans | | Unpaid principal balance non-accrual loans | | Recorded investment Non-accrual loans | | Recorded investment PCI non-accrual loans | | Recorded investment total non-accrual loans | | Unpaid principal balance non-accrual loans |
| C&I | $ | 4,314 |
| | $ | 5,828 |
| | $ | 10,142 |
| | $ | 10,503 |
| | $ | 3,780 |
| | $ | 1,195 |
| | $ | 4,975 |
| | $ | 5,739 |
|
| Payroll finance | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
| Factored receivables | 220 |
| | — |
| | 220 |
| | 220 |
| | 244 |
| | — |
| | 244 |
| | 244 |
|
| Equipment financing | 1,644 |
| | — |
| | 1,644 |
| | 1,644 |
| | 240 |
| | — |
| | 240 |
| | 240 |
|
| CRE | 13,119 |
| | 7,623 |
| | 20,742 |
| | 23,678 |
| | 11,146 |
| | 140 |
| | 11,286 |
| | 11,498 |
|
| Multi-family | 1,717 |
| | — |
| | 1,717 |
| | 1,837 |
| | 272 |
| | — |
| | 272 |
| | 272 |
|
| ADC | 3,700 |
| | — |
| | 3,700 |
| | 3,829 |
| | 6,413 |
| | — |
| | 6,413 |
| | 7,637 |
|
| Residential mortgage | 13,683 |
| | 5,997 |
| | 19,680 |
| | 24,386 |
| | 14,179 |
| | 2,080 |
| | 16,259 |
| | 20,097 |
|
| Consumer | 7,315 |
| | 577 |
| | 7,892 |
| | 9,404 |
| | 6,170 |
| | — |
| | 6,170 |
| | 6,270 |
|
| | $ | 45,712 |
| | $ | 20,025 |
| | $ | 65,737 |
| | $ | 75,501 |
| | $ | 42,444 |
| | $ | 3,415 |
| | $ | 45,859 |
| | $ | 51,997 |
|
When the ultimate collectibility of the total principal of an impaired loan is in doubt and the loan is on non-accrual status, all payments are applied to principal, under the cost recovery method. When the ultimate collectibility of the total principal of an impaired loan is not in doubt and the loan is on non-accrual status, contractual interest is credited to interest income when received, under the cash basis method. Impaired loans, or portions thereof, are charged-off when deemed uncollectible.
During
At December 31, 2015, the third quarterrecorded investment of fiscal 2013, we modified the methodology we use to determine the allowance for loan losses required for residential mortgage loans and home equity linesthat were formally in process of credit. In prior periods, we evaluated these loans for impairment on an individual basis. Effective the third quarter of fiscal 2013, we evaluateforeclosure was $9,638, which are included in non-accrual residential mortgage loans and home equity lines of credit with an outstanding balance of $500 or less on a homogeneous pool basis. This modified approach to our methodology did not have a material impact on the allowance for loan losses.
STERLING BANCORP AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollars in thousands, except per share data)above.
The following table sets forth the loans evaluated for impairment by segment and the allowance evaluated by segment at September 30, 2013:
December 31, 2015:
| | | | Loans evaluated by segment | | Allowance evaluated by segment | Loans evaluated by segment | | Allowance evaluated by segment |
| | Individually evaluated for impairment | | Collectively evaluated for impairment | | Total loans | | Individually evaluated for impairment | | Collectively evaluated for impairment | | Total allowance for loan losses | Individually evaluated for impairment | | Collectively evaluated for impairment | | Purchased credit impaired loans | | Total loans | | Individually evaluated for impairment | | Collectively evaluated for impairment | | Total allowance for loan losses |
| C&I | | $ | 3,138 |
| | $ | 1,661,163 |
| | $ | 17,403 |
| | $ | 1,681,704 |
| | $ | — |
| | $ | 13,262 |
| | $ | 13,262 |
|
| Payroll finance | | — |
| | 221,831 |
| | — |
| | 221,831 |
| | — |
| | 1,936 |
| | 1,936 |
|
| Warehouse lending | | — |
| | 387,808 |
| | — |
| | 387,808 |
| | — |
| | 589 |
| | 589 |
|
| Factored receivables | | — |
| | 208,382 |
| | — |
| | 208,382 |
| | — |
| | 1,457 |
| | 1,457 |
|
| Equipment financing | | 1,017 |
| | 630,286 |
| | — |
| | 631,303 |
| | — |
| | 4,925 |
| | 4,925 |
|
| CRE | | 13,492 |
| | 2,669,673 |
| | 50,186 |
| | 2,733,351 |
| | — |
| | 13,861 |
| | 13,861 |
|
| Multi-family | | 1,541 |
| | 790,017 |
| | 4,472 |
| | 796,030 |
| | — |
| | 2,741 |
| | 2,741 |
|
| ADC | | 8,669 |
| | 173,065 |
| | 4,664 |
| | 186,398 |
| | — |
| | 2,009 |
| | 2,009 |
|
| Residential mortgage | $ | 515 |
| | $ | 399,494 |
| | $ | 400,009 |
| | $ | — |
| | $ | 4,474 |
| | $ | 4,474 |
| 515 |
| | 705,245 |
| | 7,276 |
| | 713,036 |
| | — |
| | 5,007 |
| | 5,007 |
|
| Commercial real estate | 14,091 |
| | 1,262,946 |
| | 1,277,037 |
| | 803 |
| | 9,164 |
| | 9,967 |
| |
| Commercial & industrial | 2,631 |
| | 437,156 |
| | 439,787 |
| | 249 |
| | 5,053 |
| | 5,302 |
| |
| Acquisition, development & construction | 19,582 |
| | 82,912 |
| | 102,494 |
| | 540 |
| | 5,266 |
| | 5,806 |
| |
| Consumer | 2 |
| | 193,569 |
| | 193,571 |
| | 1 |
| | 3,327 |
| | 3,328 |
| — |
| | 298,225 |
| | 1,292 |
| | 299,517 |
| | — |
| | 4,358 |
| | 4,358 |
|
| Total loans | $ | 36,821 |
| | $ | 2,376,077 |
| | $ | 2,412,898 |
| | $ | 1,593 |
| | $ | 27,284 |
| | $ | 28,877 |
| $ | 28,372 |
| | $ | 7,745,695 |
| | $ | 85,293 |
| | $ | 7,859,360 |
| | $ | — |
| | $ | 50,145 |
| | $ | 50,145 |
|
There was $272 included in the allowance for loan losses associated with PCI loans at December 31, 2015.
Notes to Consolidated Financial Statements
Year ended December 31, 2015, three months ended December 31, 2014 and 2013 (unaudited) and
fiscal years ended September 30, 2014 and 2013
(Dollars in thousands, except per share data)
The following table sets forth the loans evaluated for impairment by segment and the allowance evaluated by segment at September 30, 2012:December 31, 2014:
| | | | Loans evaluated by segment | | Allowance evaluated by segment | Loans evaluated by segment | | Allowance evaluated by segment |
| | Individually evaluated for impairment | | Collectively evaluated for impairment | | Total loans | | Individually evaluated for impairment | | Collectively evaluated for impairment | | Total allowance for loan losses | Individually evaluated for impairment | | Collectively evaluated for impairment | | Purchased credit impaired loans | | Total loans | | Individually evaluated for impairment | | Collectively evaluated for impairment | | Total allowance for loan losses |
| C&I | | $ | 4,461 |
| | $ | 1,238,899 |
| | $ | 1,195 |
| | $ | 1,244,555 |
| | $ | — |
| | $ | 11,027 |
| | $ | 11,027 |
|
| Payroll finance | | — |
| | 154,229 |
| | — |
| | 154,229 |
| | — |
| | 1,506 |
| | 1,506 |
|
| Warehouse lending | | — |
| | 173,786 |
| | — |
| | 173,786 |
| | — |
| | 608 |
| | 608 |
|
| Factored receivables | | — |
| | 161,625 |
| | — |
| | 161,625 |
| | — |
| | 1,205 |
| | 1,205 |
|
| Equipment financing | | — |
| | 411,449 |
| | — |
| | 411,449 |
| | — |
| | 2,569 |
| | 2,569 |
|
| CRE | | 14,423 |
| | 1,443,714 |
| | 140 |
| | 1,458,277 |
| | — |
| | 10,121 |
| | 10,121 |
|
| Multi-family | | — |
| | 384,544 |
| | — |
| | 384,544 |
| | — |
| | 2,111 |
| | 2,111 |
|
| ADC | | 11,624 |
| | 85,371 |
| | — |
| | 96,995 |
| | — |
| | 2,987 |
| | 2,987 |
|
| Residential mortgage | $ | 12,739 |
| | $ | 337,283 |
| | $ | 350,022 |
| | $ | 871 |
| | $ | 3,488 |
| | $ | 4,359 |
| 515 |
| | 527,171 |
| | 2,080 |
| | 529,766 |
| | — |
| | 5,843 |
| | 5,843 |
|
| Commercial real estate | 13,017 |
| | 1,059,487 |
| | 1,072,504 |
| | 1,036 |
| | 6,194 |
| | 7,230 |
| |
| Commercial & industrial | 357 |
| | 342,950 |
| | 343,307 |
| | 48 |
| | 4,555 |
| | 4,603 |
| |
| Acquisition, development & construction | 24,880 |
| | 119,181 |
| | 144,061 |
| | 996 |
| | 7,530 |
| | 8,526 |
| |
| Consumer | 2,299 |
| | 207,279 |
| | 209,578 |
| | 263 |
| | 3,301 |
| | 3,564 |
| — |
| | 200,415 |
| | — |
| | 200,415 |
| | — |
| | 4,397 |
| | 4,397 |
|
| Total loans | $ | 53,292 |
| | $ | 2,066,180 |
| | $ | 2,119,472 |
| | $ | 3,214 |
| | $ | 25,068 |
| | $ | 28,282 |
| $ | 31,023 |
| | $ | 4,781,203 |
| | $ | 3,415 |
| | $ | 4,815,641 |
| | $ | — |
| | $ | 42,374 |
| | $ | 42,374 |
|
The Company acquired PCI loans in the HVB Merger and the Provident Merger. The carrying value of such loans is presented in the tables above. At December 31, 2015, the net recorded amount of PCI loans was $85,293. The balance of $3,415 at December 31, 2014 represented the remaining net recorded amount of PCI loans acquired in the Provident Merger.
The following table presents the changes in the balance of the accretable yield discount for PCI loans for calendar 2015; the transition period; the 2013 transition period (unaudited); fiscal 2014; and fiscal 2013:
|
| | | | | | | | | | | | | | | | | | | |
| | For the year ended | | For the three months ended | | For the fiscal year ended |
| | December 31, | | December 31, | | September 30, |
| | 2015 | | 2014 | | 2013 | | 2014 | | 2013 |
| Balance at beginning of period | $ | 724 |
| | $ | 724 |
| | $ | — |
| | $ | — |
| | $ | — |
|
| Acquisition | 12,527 |
| | — |
| | 10,927 |
| | 10,927 |
| | — |
|
| Accretion | (2,229 | ) | | — |
| | — |
| | — |
| | — |
|
| Disposals | (50 | ) | | — |
| | (8,086 | ) | | (10,203 | ) | | — |
|
| Reclassification from non-accretable difference | 239 |
| | — |
| | — |
| | — |
| | — |
|
| Balance at end of period | $ | 11,211 |
| | $ | 724 |
| | $ | 2,841 |
| | $ | 724 |
| | $ | — |
|
STERLING BANCORP AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Year ended December 31, 2015, three months ended December 31, 2014 and 2013 (unaudited) and
fiscal years ended September 30, 2014 and 2013
(Dollars in thousands, except per share data)
Income is not recognized on PCI loans unless the Company can reasonably estimate the cash flows that are expected to be collected over the life of the loan. The following table presents the carrying value of the Company’s PCI loans segregated by those PCI loans subject to accretion, and those PCI loans under the cost recovery method at December 31, 2015 and 2014:
|
| | | | | | | | | | | | | | | | | | | | | | | |
| | December 31, 2015 | | December 31, 2014 |
| | PCI loans subject to accretion | | PCI loans under cost recovery method (non-accrual) | | Total PCI loans | | PCI loans subject to accretion | | PCI loans under cost recovery method (non-accrual) | | Total PCI loans |
| C&I | $ | 11,575 |
| | $ | 5,828 |
| | $ | 17,403 |
| | $ | — |
| | $ | 1,195 |
| | $ | 1,195 |
|
| Payroll finance | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
| Factored receivables | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
| Equipment financing | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
| CRE | 42,563 |
| | 7,623 |
| | 50,186 |
| | — |
| | 140 |
| | 140 |
|
| Multi-family | 4,472 |
| | — |
| | 4,472 |
| | — |
| | — |
| | — |
|
| ADC | 4,664 |
| | — |
| | 4,664 |
| | — |
| | — |
| | — |
|
| Residential | 1,279 |
| | 5,997 |
| | 7,276 |
| | — |
| | 2,080 |
| | 2,080 |
|
| Consumer | 715 |
| | 577 |
| | 1,292 |
| | — |
| | — |
| | — |
|
| | $ | 65,268 |
| | $ | 20,025 |
| | $ | 85,293 |
| | $ | — |
| | $ | 3,415 |
| | $ | 3,415 |
|
The following table presents loans individually evaluated for impairment by segment of loans at September 30, 2013December 31, 2015 and 2012:2014:
|
| | | | | | | | | | | | | | | | | | | | | | | |
| | September 30, 2013 | | September 30, 2012 |
| | Unpaid principal balance | | Recorded investment | | Related allowance | | Unpaid principal balance | | Recorded investment | | Related allowance |
| With no related allowance recorded: | | | | | | | | | | | |
| Residential mortgage | $ | 515 |
| | $ | 515 |
| | $ | — |
| | $ | 6,193 |
| | $ | 5,413 |
| | $ | — |
|
| Commercial real estate | 12,451 |
| | 11,820 |
| | — |
| | 9,296 |
| | 7,837 |
| | — |
|
| Commercial & industrial | 2,175 |
| | 2,131 |
| | — |
| | 262 |
| | 262 |
| | — |
|
| Acquisition, development and construction | 17,971 |
| | 17,945 |
| | — |
| | 24,144 |
| | 20,597 |
| | — |
|
| Consumer | — |
| | — |
| | — |
| | 1,146 |
| | 1,122 |
| | — |
|
| Subtotal | 33,112 |
| | 32,411 |
| | — |
| | 41,041 |
| | 35,231 |
| | — |
|
| With an allowance recorded: | | | | | | | | | | | |
| Residential mortgage | — |
| | — |
| | — |
| | 8,485 |
| | 7,326 |
| | 871 |
|
| Commercial real estate | 3,150 |
| | 2,271 |
| | 803 |
| | 5,942 |
| | 5,180 |
| | 1,036 |
|
| Commercial & industrial | 500 |
| | 500 |
| | 249 |
| | 95 |
| | 95 |
| | 48 |
|
| Acquisition, development & construction | 2,753 |
| | 1,637 |
| | 540 |
| | 7,159 |
| | 4,283 |
| | 996 |
|
| Consumer | 2 |
| | 2 |
| | 1 |
| | 1,400 |
| | 1,177 |
| | 263 |
|
| Subtotal | 6,405 |
| | 4,410 |
| | 1,593 |
| | 23,081 |
| | 18,061 |
| | 3,214 |
|
| Total | $ | 39,517 |
| | $ | 36,821 |
| | $ | 1,593 |
| | $ | 64,122 |
| | $ | 53,292 |
| | $ | 3,214 |
|
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | C&I | | Equipment financing | | CRE | | Multi-family | | ADC | | Residential mortgage | | Total |
| Loans with no related allowance recorded: | | | | | | | | | | | | |
| December 31, 2015 | | | | | | | | | | | | | |
| Unpaid principal balance | $ | 3,145 |
| | $ | 1,017 |
| | $ | 15,092 |
| | $ | 1,541 |
| | $ | 8,669 |
| | $ | 515 |
| | $ | 29,979 |
|
| Recorded investment | 3,138 |
| | 1,017 |
| | 13,492 |
| | 1,541 |
| | 8,669 |
| | 515 |
| | 28,372 |
|
| December 31, 2014 | | | | | | | | | | | | | |
| Unpaid principal balance | 4,571 |
| | — |
| | 14,635 |
| | — |
| | 12,848 |
| | 515 |
| | 32,569 |
|
| Recorded investment | 4,461 |
| | — |
| | 14,423 |
| | — |
| | 11,624 |
| | 515 |
| | 31,023 |
|
During fiscal 2014 the Company modified its allowance for loan loss policy to generally require a charge-off of the difference between the book balance of a collateral dependent impaired loan and the net value of the collateral securing the loan. As a result, there were no impaired loans with an allowance recorded at December 31, 2015 or December 31, 2014.
STERLING BANCORP AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Year ended December 31, 2015, three months ended December 31, 2014 and 2013 (unaudited) and
fiscal years ended September 30, 2014 and 2013
(Dollars in thousands, except per share data)
The following table presentstables present the average recorded investment and interest income recognized related to loans individually evaluated for impairment by segment for calendar 2015; the year ended September 30,transition period; the 2013 transition period (unaudited), 2012fiscal 2014 and 2011:fiscal 2013:
|
| | | | | | | | | | | | | | | | | | | | | | | |
| | 2013 | | 2012 |
| | YTD average recorded investment | | Interest income recognized | | Cash-basis interest income recognized | | YTD average recorded investment | | Interest income recognized | | Cash-basis interest income recognized |
| With no related allowance recorded: | | | | | | | | | | | |
| Residential mortgage | $ | 309 |
| | $ | — |
| | $ | — |
| | $ | 5,493 |
| | $ | 310 |
| | $ | 137 |
|
| Commercial real estate | 17,325 |
| | 286 |
| | 275 |
| | 7,869 |
| | 520 |
| | 291 |
|
| Commercial & industrial | 1,821 |
| | 91 |
| | 86 |
| | 467 |
| | 26 |
| | 26 |
|
| Acquisition, development and construction | 12,827 |
| | 631 |
| | 587 |
| | 22,043 |
| | 636 |
| | 367 |
|
| Consumer | 61 |
| | — |
| | — |
| | 1,113 |
| | 28 |
| | 8 |
|
| Subtotal | 32,343 |
| | 1,008 |
| | 948 |
| | 36,985 |
| | 1,520 |
| | 829 |
|
| With an allowance recorded: | | | | | | | | | | | |
| Residential mortgage | 1,602 |
| | 14 |
| | 10 |
| | 7,770 |
| | 180 |
| | 141 |
|
| Commercial real estate | 6,646 |
| | 7 |
| | 7 |
| | 5,970 |
| | 84 |
| | 84 |
|
| Commercial & industrial | 705 |
| | — |
| | — |
| | 99 |
| | 76 |
| | 76 |
|
| Acquisition, development & construction | 1,104 |
| | — |
| | — |
| | 5,868 |
| | 18 |
| | 6 |
|
| Consumer | 228 |
| | — |
| | — |
| | 1,503 |
| | — |
| | — |
|
| Subtotal | 10,285 |
| | 21 |
| | 17 |
| | 21,210 |
| | 358 |
| | 307 |
|
| Total | $ | 42,628 |
| | $ | 1,029 |
| | $ | 965 |
| | $ | 58,195 |
| | $ | 1,878 |
| | $ | 1,136 |
|
|
| | | | | | | | | | | |
| | For the year ended |
| | December 31, 2015 |
| | YTD average
recorded
investment | | Interest
income
recognized | | Cash-basis
interest
income
recognized |
| With no related allowance recorded: | | | | | |
| C&I | $ | 2,718 |
| | $ | — |
| | $ | — |
|
| Equipment Financing | 757 |
| | — |
| | — |
|
| CRE | 12,155 |
| | 102 |
| | — |
|
| Multi-family | 1,078 |
| | — |
| | — |
|
| ADC | 8,819 |
| | 234 |
| | — |
|
| Residential mortgage | 515 |
| | $ | — |
| | — |
|
| Total | $ | 26,042 |
| | $ | 336 |
| | $ | — |
|
|
| | | | | | | | | | | |
| | 2011 |
| | YTD average recorded investment | | Interest income recognized | | Cash-basis interest income recognized |
| With no related allowance recorded: | | | | | |
| Residential mortgage | $ | 2,702 |
| | $ | 92 |
| | $ | 51 |
|
| Commercial real estate | 8,917 |
| | 497 |
| | 248 |
|
| Commercial & industrial | 862 |
| | 42 |
| | 42 |
|
| Acquisition, development and construction | 26,111 |
| | 1,892 |
| | 1,454 |
|
| Consumer | 1,860 |
| | 61 |
| | 13 |
|
| Subtotal | 40,452 |
| | 2,584 |
| | 1,808 |
|
| With an allowance recorded: | | | | | |
| Residential mortgage | 6,319 |
| | 159 |
| | 159 |
|
| Commercial real estate | 6,505 |
| | 199 |
| | 144 |
|
| Acquisition, development & construction | 6,963 |
| | 114 |
| | 96 |
|
| Consumer | 642 |
| | 33 |
| | 22 |
|
| Subtotal | 20,429 |
| | 505 |
| | 421 |
|
| Total | $ | 60,881 |
| | $ | 3,089 |
| | $ | 2,229 |
|
|
| | | | | | | | | | | | | | | | | | | | | | | |
| | For the three months ended |
| | December 31, 2014 | | December 31, 2013 |
| | QTD average recorded investment | | Interest income recognized | | Cash-basis interest income recognized | | QTD average recorded investment | | Interest income recognized | | Cash-basis interest income recognized |
| With no related allowance recorded: | | | | | | | | | | | |
| C&I | $ | 4,482 |
| | $ | — |
| | $ | — |
| | $ | 3,759 |
| | $ | 20 |
| | $ | 2 |
|
| CRE | 14,503 |
| | 44 |
| | 42 |
| | 19,318 |
| | 52 |
| | — |
|
| ADC | 11,897 |
| | 62 |
| | 62 |
| | 17,108 |
| | 148 |
| | — |
|
| Residential mortgage | 515 |
| | — |
| | — |
| | 4,890 |
| | — |
| | — |
|
| Total | $ | 31,397 |
| | $ | 106 |
| | $ | 104 |
| | $ | 45,075 |
| | $ | 220 |
| | $ | 2 |
|
There were no impaired loans with an allowance recorded at December 31, 2015 or December 31, 2014. At December 31, 2013, there were C&I loans with a balance of $314 and ADC loans with a balance of $1,932 with an allowance recorded. There was no income recognized on these loans during the period.
STERLING BANCORP AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Year ended December 31, 2015, three months ended December 31, 2014 and 2013 (unaudited) and
fiscal years ended September 30, 2014 and 2013
(Dollars in thousands, except per share data)
|
| | | | | | | | | | | | | | | | | | | | | | | |
| | For the fiscal year ended |
| | September 30, 2014 | | September 30, 2013 |
| | YTD average recorded investment | | Interest income recognized | | Cash-basis interest income recognized | | YTD average recorded investment | | Interest income recognized | | Cash-basis interest income recognized |
| With no related allowance recorded: | | | | | | | | | | | |
| C&I | $ | 4,180 |
| | $ | — |
| | $ | — |
| | $ | 1,821 |
| | $ | 91 |
| | $ | 86 |
|
| CRE | 14,016 |
| | 186 |
| | 180 |
| | 17,325 |
| | 286 |
| | 275 |
|
| ADC | 20,525 |
| | 239 |
| | 239 |
| | 12,827 |
| | 631 |
| | 587 |
|
| Residential mortgage | 515 |
| | — |
| | — |
| | 309 |
| | — |
| | — |
|
| Consumer | — |
| | — |
| | — |
| | 61 |
| | — |
| | — |
|
| Subtotal | 39,236 |
| | 425 |
| | 419 |
| | 32,343 |
| | 1,008 |
| | 948 |
|
| With an allowance recorded: | | | | | | | | | | | |
| C&I | — |
| | — |
| | — |
| | 705 |
| | — |
| | — |
|
| CRE | — |
| | — |
| | — |
| | 6,646 |
| | 7 |
| | 7 |
|
| ADC | — |
| | — |
| | — |
| | 1,104 |
| | — |
| | — |
|
| Residential mortgage | — |
| | — |
| | — |
| | 1,602 |
| | 14 |
| | 10 |
|
| Consumer | — |
| | — |
| | — |
| | 228 |
| | — |
| | — |
|
| Subtotal | — |
| | — |
| | — |
| | 10,285 |
| | $ | 21 |
| | 17 |
|
| Total | $ | 39,236 |
| | $ | 425 |
| | $ | 419 |
| | $ | 42,628 |
| | $ | 1,029 |
| | $ | 965 |
|
Troubled Debt RestructuringsRestructuring
A TDR is a formally renegotiated loan in whichThe following tables set forth the Bank, for economic or legal reasons related to a borrower’s financial difficulties, grants a concession to the borrower that would not have been granted to the borrower otherwise. The restructuring of a loan may include, but is not limited to: (1) the transfer from the borrower to the Bank of real estate, receivables from third parties, other assets, or an equity interest in the borrower to the Bank in full or partial satisfactionamounts and past due status of the loan, (2) a modification of the loan terms, such as a reduction of the stated interest rate, principal, or accrued interest or an extension of the maturity date at a stated interest rate lower than the current market rate for new debt with similar risk, or (3) a combination of the above.
In order to determine whether a borrower is experiencing financial difficulty, an evaluation is performed of the probability that the borrower will be in payment default on any of its debt in the foreseeable future without modification. This evaluation is performed under the Bank’s internal underwriting policy. Modifications have involved a reduction of the stated interest rate of the loan for period ranging from three months to 30 years. Modifications involving an extension of the maturity date were for periods ranging from three months to 30 years. Restructured loans are recorded in accrual status when the loans have demonstrated performance, generally evidenced by six months of payment performance in accordance with the restructured terms, or by the presence of other significant characteristics.
All loans whose terms have been modified in a TDR, including both commercial and consumer loans, must be evaluated for impairment. Not all loans that are restructured as a TDR are classified as non-accrual before the restructuring occurs. If the subsequent TDR designation of these accruing loans has been assigned because of a below market interest rate or an extension of time, the new restructured loan may remain on accrual when management determines it is probable that all contractual principal and interest due under the restructured terms will be collected. TDRs that were on non-accrual before or while the loan was designated a TDR require a minimum of six months of performance in accordance with regulatory guidelines to return the loan to accrual status.
Company’s TDRs at September 30, 2013December 31, 2015 and 2012 were as follows:
|
| | | | | | | | | | | | | | | | | | | | | | | |
| | September 30, 2013 |
| | Current loans | | 30-59 days past due | | 60-89 days past due | | 90+ days past due | | Non- accrual | | Total |
| Residential mortgage | $ | 2,416 |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | 1,792 |
| | $ | 4,208 |
|
| Commercial real estate | 5,305 |
| | — |
| | — |
| | — |
| | — |
| | 5,305 |
|
| Commercial & industrial | 1,843 |
| | — |
| | — |
| | 141 |
| | — |
| | 1,984 |
|
| Acquisition, development & construction | 14,190 |
| | — |
| | — |
| | — |
| | 151 |
| | 14,341 |
|
| Consumer | — |
| | — |
| | — |
| | — |
| | 256 |
| | 256 |
|
| Total | $ | 23,754 |
| | $ | — |
| | $ | — |
| | $ | 141 |
| | $ | 2,199 |
| | $ | 26,094 |
|
| Allowance for loan losses | $ | 438 |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | 439 |
| | $ | 877 |
|
December 31, 2014 :
|
| | | | | | | | | | | | | | | | | | | | | | | |
| | September 30, 2012 |
| | Current loans | | 30-59 days past due | | 60-89 days past due | | 90+ days past due | | Non- accrual | | Total |
| Residential mortgage | $ | 1,226 |
| | $ | — |
| | $ | 264 |
| | $ | — |
| | $ | 2,178 |
| | $ | 3,668 |
|
| Commercial real estate | 2,640 |
| | 270 |
| | — |
| | — |
| | — |
| | 2,910 |
|
| Acquisition, development & construction | 9,677 |
| | — |
| | — |
| | — |
| | 8,692 |
| | 18,369 |
|
| Total | $ | 13,543 |
| | $ | 270 |
| | $ | 264 |
| | $ | — |
| | $ | 10,870 |
| | $ | 24,947 |
|
| Allowance for loan losses | $ | — |
| | $ | — |
| | $ | 41 |
| | $ | — |
| | $ | 955 |
| | $ | 996 |
|
The Company has outstanding commitments to lend additional amounts of $4,101 and $4,225 to customers with loans that are classified as TDRs as of September 30, 2013 and September 30, 2012, respectively. |
| | | | | | | | | | | | | | | | | | | | | | | |
| | December 31, 2015 |
| | Current loans | | 30-59 days past due | | 60-89 days past due | | 90+ days past due | | Non- accrual | | Total |
| C&I | $ | 154 |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | 2,052 |
| | $ | 2,206 |
|
| Equipment financing | 338 |
| | — |
| | — |
| | — |
| | — |
| | 338 |
|
| CRE | 2,787 |
| | — |
| | — |
| | — |
| | — |
| | 2,787 |
|
| ADC | 5,107 |
| | — |
| | — |
| | — |
| | 3,700 |
| | 8,807 |
|
| Residential mortgage | 4,661 |
| | 654 |
| | — |
| | — |
| | 2,839 |
| | 8,154 |
|
| Total | $ | 13,047 |
| | $ | 654 |
| | $ | — |
| | $ | — |
| | $ | 8,591 |
| | $ | 22,292 |
|
STERLING BANCORP AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Year ended December 31, 2015, three months ended December 31, 2014 and 2013 (unaudited) and
fiscal years ended September 30, 2014 and 2013
(Dollars in thousands, except per share data)
|
| | | | | | | | | | | | | | | | | | | | | | | |
| | December 31, 2014 |
| | Current loans | | 30-59 days past due | | 60-89 days past due | | 90+ days past due | | Non- accrual | | Total |
| C&I | $ | 245 |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | 2,065 |
| | $ | 2,310 |
|
| Equipment financing | 409 |
| | — |
| | — |
| | — |
| | — |
| | 409 |
|
| CRE | 4,833 |
| | 263 |
| | — |
| | — |
| | — |
| | 5,096 |
|
| ADC | 5,487 |
| | — |
| | — |
| | — |
| | 6,373 |
| | 11,860 |
|
| Residential mortgage | 5,264 |
| | 584 |
| | 176 |
| | — |
| | 2,768 |
| | 8,792 |
|
| Consumer | — |
| | — |
| | — |
| | — |
| | 221 |
| | 221 |
|
| Total | $ | 16,238 |
| | $ | 847 |
| | $ | 176 |
| | $ | — |
| | $ | 11,427 |
| | $ | 28,688 |
|
The Company had no outstanding commitments to lend additional amounts to customers with loans classified as TDRs as of December 31, 2015 and 2014, respectively.
There were no loans modified as TDRs that occurred during calendar 2015 or the transition period. The following table presents loans by segment modified as TDRs inthat occurred during the fiscal year ended September 30, 20132014 and 2012:
fiscal 2013:
| | | | September 30, 2013 | | September 30, 2012 | September 30, 2014 | | September 30, 2013 |
| | | | Recorded investment | | | Recorded investment | | | Recorded investment | | | Recorded investment |
| | Number | Pre- modification | | Post- modification | | Number | Pre- modification | | Post- modification | Number | Pre- modification | | Post- modification | | Number | Pre- modification | | Post- modification |
| C&I | | — |
| | $ | — |
| | $ | — |
| | 5 | | $ | 2,001 |
| | $ | 2,001 |
|
| CRE | | — |
| | — |
| | — |
| | 2 | | 2,682 |
| | 2,682 |
|
| ADC | | 2 |
| | 1,060 |
| | 1,060 |
| | 7 | | 5,772 |
| | 5,772 |
|
| Residential mortgage | 6 | | $ | 1,436 |
| | $ | 1,372 |
| | 5 | | $ | 1,525 |
| | $ | 1,295 |
| — |
| | — |
| | — |
| | 6 | | 1,436 |
| | 1,372 |
|
| Commercial real estate | 2 | | 2,682 |
| | 2,682 |
| | 3 | | 2,336 |
| | 2,351 |
| |
| Commercial & industrial | 5 | | 2,001 |
| | 2,001 |
| | — | | — |
| | — |
| |
| Acquisition, development & construction | 7 | | 5,772 |
| | 5,772 |
| | 4 | | 5,299 |
| | 5,299 |
| |
| Consumer | 1 | | 302 |
| | 302 |
| | — | | — |
| | — |
| — |
| | — |
| | — |
| | 1 | | 302 |
| | 302 |
|
| Total restructured loans | 21 | | $ | 12,193 |
| | $ | 12,129 |
| | 12 | | $ | 9,160 |
| | $ | 8,945 |
| 2 |
| | $ | 1,060 |
| | $ | 1,060 |
| | 21 | | $ | 12,193 |
| | $ | 12,129 |
|
The amount of TDRs described above increasedcharged-off against the allowance for loan losses by $300 and $134 and resultedwas $74 in charge-offs ofcalendar 2015, $0 in the transition period, $110 in fiscal 2014 and $0 for thein fiscal 2013.
Notes to Consolidated Financial Statements
Year ended December 31, 2015, three months ended December 31, 2014 and 2013 (unaudited) and
fiscal years ended September 30, 20132014 and 2012, respectively.2013
(Dollars in thousands, except per share data)
(5) Allowance for Loan Losses
There was one consumerActivity in the allowance for loan totaling $256 that was modified as TDRs duringlosses for calendar 2015, the last twelve months that had subsequently defaulted duringtransition period, the twelve2013 transition period (unaudited), fiscal 2014 and fiscal 2013 is summarized below:
|
| | | | | | | | | | | | | | | | | | | | | | | |
| | For the year ended December 31, 2015 |
| | Beginning balance | | Charge-offs | | Recoveries | | Net charge-offs | | Provision | | Ending balance |
| C&I | $ | 11,027 |
| | $ | (1,575 | ) | | $ | 1,720 |
| | $ | 145 |
| | $ | 2,090 |
| | $ | 13,262 |
|
| Payroll finance | 1,506 |
| | (406 | ) | | 35 |
| | (371 | ) | | 801 |
| | 1,936 |
|
| Warehouse lending | 608 |
| | — |
| | — |
| | — |
| | (19 | ) | | 589 |
|
| Factored receivables | 1,205 |
| | (291 | ) | | 60 |
| | (231 | ) | | 483 |
| | 1,457 |
|
| Equipment financing | 2,569 |
| | (3,423 | ) | | 825 |
| | (2,598 | ) | | 4,954 |
| | 4,925 |
|
| CRE | 10,121 |
| | (1,695 | ) | | 148 |
| | (1,547 | ) | | 5,287 |
| | 13,861 |
|
| Multi-family | 2,111 |
| | (17 | ) | | 9 |
| | (8 | ) | | 638 |
| | 2,741 |
|
| ADC | 2,987 |
| | — |
| | 52 |
| | 52 |
| | (1,030 | ) | | 2,009 |
|
| Residential mortgage | 5,843 |
| | (1,251 | ) | | 92 |
| | (1,159 | ) | | 323 |
| | 5,007 |
|
| Consumer | 4,397 |
| | (2,360 | ) | | 148 |
| | (2,212 | ) | | 2,173 |
| | 4,358 |
|
| Total allowance for loan losses | $ | 42,374 |
| | $ | (11,018 | ) | | $ | 3,089 |
| | $ | (7,929 | ) | | $ | 15,700 |
| | $ | 50,145 |
|
| Annualized net charge-offs to average loans outstanding | | | | | | | | 0.13 | % |
|
| | | | | | | | | | | | | | | | | | | | | | | |
| | For the three months ended December 31, 2014 |
| | Beginning balance | | Charge-offs | | Recoveries | | Net charge-offs | | Provision | | Ending balance |
| C&I | $ | 9,536 |
| | $ | (733 | ) | | $ | 638 |
| | $ | (95 | ) | | $ | 1,586 |
| | $ | 11,027 |
|
| Payroll finance | 1,379 |
| | — |
| | — |
| | — |
| | 127 |
| | 1,506 |
|
| Warehouse lending | 630 |
| | — |
| | — |
| | — |
| | (22 | ) | | 608 |
|
| Factored receivables | 1,294 |
| | — |
| | — |
| | — |
| | (89 | ) | | 1,205 |
|
| Equipment financing | 2,621 |
| | — |
| | — |
| | — |
| | (52 | ) | | 2,569 |
|
| CRE | 10,844 |
| | (172 | ) | | 1 |
| | (171 | ) | | (552 | ) | | 10,121 |
|
| Multi-family | 1,867 |
| | — |
| | — |
| | — |
| | 244 |
| | 2,111 |
|
| ADC | 2,120 |
| | (488 | ) | | — |
| | (488 | ) | | 1,355 |
| | 2,987 |
|
| Residential mortgage | 5,837 |
| | (310 | ) | | 2 |
| | (308 | ) | | 314 |
| | 5,843 |
|
| Consumer | 4,484 |
| | (203 | ) | | 27 |
| | (176 | ) | | 89 |
| | 4,397 |
|
| Total allowance for loan losses | $ | 40,612 |
| | $ | (1,906 | ) | | $ | 668 |
| | $ | (1,238 | ) | | $ | 3,000 |
| | $ | 42,374 |
|
| Annualized net charge-offs to average loans outstanding | | | | | | | | 0.10 | % |
|
| | | | | | | | | | | | | | | | | | | | | | | |
| | For the three months ended December 31, 2013 (Unaudited) |
| | Beginning balance | | Charge-offs | | Recoveries | | Net charge-offs | | Provision | | Ending balance |
| C&I | $ | 5,302 |
| | $ | (528 | ) | | $ | 501 |
| | $ | (27 | ) | | $ | 1,611 |
| | $ | 6,886 |
|
| CRE | 9,967 |
| | (671 | ) | | 37 |
| | (634 | ) | | 659 |
| | 9,992 |
|
| ADC | 5,806 |
| | (218 | ) | | — |
| | (218 | ) | | 269 |
| | 5,857 |
|
| Residential mortgage | 4,474 |
| | (270 | ) | | 7 |
| | (263 | ) | | 389 |
| | 4,600 |
|
| Consumer | 3,328 |
| | (147 | ) | | 24 |
| | (123 | ) | | 72 |
| | 3,277 |
|
| Total allowance for loan losses | $ | 28,877 |
| | $ | (1,834 | ) | | $ | 569 |
| | $ | (1,265 | ) | | $ | 3,000 |
| | $ | 30,612 |
|
| Annualized net charge-offs to average loans outstanding | | | | | | | | 0.14 | % |
Notes to Consolidated Financial Statements
Year ended December 31, 2015, three months ended December 31, 2014 and 2013 (unaudited) and
fiscal years ended September 30, 2014 and 2013
(Dollars in thousands, except per share data)
|
| | | | | | | | | | | | | | | | | | | | | | | |
| | For the fiscal year ended September 30, 2014 |
| | Beginning
balance | | Charge-offs | | Recoveries | | Net
charge-offs | | Provision | | Ending balance |
| C&I | $ | 5,302 |
| | $ | (2,901 | ) | | $ | 1,073 |
| | $ | (1,828 | ) | | $ | 6,062 |
| | $ | 9,536 |
|
| Payroll finance | — |
| | (758 | ) | | — |
| | (758 | ) | | 2,137 |
| | 1,379 |
|
| Warehouse lending | — |
| | — |
| | — |
| | — |
| | 630 |
| | 630 |
|
| Factored receivables | — |
| | (211 | ) | | 9 |
| | (202 | ) | | 1,496 |
| | 1,294 |
|
| Equipment financing | — |
| | (1,074 | ) | | 194 |
| | (880 | ) | | 3,501 |
| | 2,621 |
|
| CRE | 9,967 |
| | (741 | ) | | 161 |
| | (580 | ) | | 1,457 |
| | 10,844 |
|
| Multi-family | — |
| | (418 | ) | | 92 |
| | (326 | ) | | 2,193 |
| | 1,867 |
|
| ADC | 5,806 |
| | (1,479 | ) | | — |
| | (1,479 | ) | | (2,207 | ) | | 2,120 |
|
| Residential mortgage | 4,474 |
| | (963 | ) | | 323 |
| | (640 | ) | | 2,003 |
| | 5,837 |
|
| Consumer | 3,328 |
| | (786 | ) | | 114 |
| | (672 | ) | | 1,828 |
| | 4,484 |
|
| Total allowance for loan losses | $ | 28,877 |
| | $ | (9,331 | ) | | $ | 1,966 |
| | $ | (7,365 | ) | | $ | 19,100 |
| | $ | 40,612 |
|
| Annualized net charge-offs to average loans outstanding | | | | | | | | 0.18 | % |
|
| | | | | | | | | | | | | | | | | | | | | | | |
| | For the fiscal year ended September 30, 2013 |
| | Beginning
balance | | Charge-offs | | Recoveries | | Net
charge-offs | | Provision | | Ending balance |
| C&I | $ | 4,603 |
| | $ | (1,354 | ) | | $ | 410 |
| | $ | (944 | ) | | $ | 1,643 |
| | $ | 5,302 |
|
| CRE | 7,230 |
| | (3,725 | ) | | 577 |
| | (3,148 | ) | | 5,885 |
| | 9,967 |
|
| ADC | 8,526 |
| | (3,422 | ) | | 182 |
| | (3,240 | ) | | 520 |
| | 5,806 |
|
| Residential mortgage | 4,359 |
| | (2,547 | ) | | 101 |
| | (2,446 | ) | | 2,561 |
| | 4,474 |
|
| Consumer | 3,564 |
| | (2,009 | ) | | 232 |
| | (1,777 | ) | | 1,541 |
| | 3,328 |
|
| Total allowance for loan losses | $ | 28,282 |
| | $ | (13,057 | ) | | $ | 1,502 |
| | $ | (11,555 | ) | | $ | 12,150 |
| | $ | 28,877 |
|
| Annualized net charge-offs to average loans outstanding | | | | | | | | 0.52 | % |
Notes to Consolidated Financial Statements
Year ended December 31, 2015, three months ended December 31, 2014 and 2013 (unaudited) and
fiscal years ended September 30, 2014 and 2013
(Dollars in thousands, except per share data)
Total Valuation Balances Recorded Against Portfolio Loans
The following analysis presents the allowance for loan losses to originated loans, remaining purchase accounting marks to acquired loan portfolios and a holistic view of valuation balances recorded against portfolio loans at December 31, 2015 and 2014:
|
| | | | | | | | | | | | | | | | | | | | | | | |
| | December 31, 2015 |
| Originated: | Pass | | Special mention | | Substandard | | Doubtful | | Loss | | Total |
| C&I | $ | 1,356,685 |
| | $ | 11,041 |
| | $ | 29,621 |
| | $ | 445 |
| | $ | — |
| | $ | 1,397,792 |
|
| Payroll finance | 221,735 |
| | — |
| | 96 |
| | — |
| | — |
| | 221,831 |
|
| Factored receivables | 206,814 |
| | — |
| | 1,568 |
| | — |
| | — |
| | 208,382 |
|
| Equipment financing | 512,314 |
| | 460 |
| | 1,644 |
| | — |
| | — |
| | 514,418 |
|
| Warehouse lending | 387,808 |
| | — |
| | — |
| | — |
| | — |
| | 387,808 |
|
| CRE | 2,002,638 |
| | 9,361 |
| | 24,104 |
| | — |
| | — |
| | 2,036,103 |
|
| Multi-family | 550,438 |
| | — |
| | 1,717 |
| | — |
| | — |
| | 552,155 |
|
| ADC | 118,552 |
| | 1,575 |
| | 7,236 |
| | — |
| | — |
| | 127,363 |
|
| Residential | 419,534 |
| | 897 |
| | 13,497 |
| | — |
| | — |
| | 433,928 |
|
| Consumer | 195,684 |
| | 407 |
| | 7,167 |
| | 268 |
| | — |
| | 203,526 |
|
| Total originated loans | $ | 5,972,202 |
| | $ | 23,741 |
| | $ | 86,650 |
| | $ | 713 |
| | $ | — |
| | $ | 6,083,306 |
|
| Allowance for loan losses | $ | 43,925 |
| | $ | 884 |
| | $ | 4,801 |
| | $ | 535 |
| | $ | — |
| | $ | 50,145 |
|
| As a % of originated loans | 0.74 | % | | 3.72 | % | | 5.54 | % | | 75.04 | % | | — | % | | 0.82 | % |
|
| | | | | | | | | | | | | | | | | | | | | | | |
| | December 31, 2015 |
| Acquired loans: | Pass | | Special mention | | Substandard | | Doubtful | | Loss | | Total |
| C&I | $ | 267,541 |
| | $ | 9,724 |
| | $ | 6,647 |
| | $ | — |
| | $ | — |
| | $ | 283,912 |
|
| Equipment finance | 116,885 |
| | — |
| |
| | — |
| | — |
| | 116,885 |
|
| CRE | 645,951 |
| | 23,111 |
| | 28,186 |
| | — |
| | — |
| | 697,248 |
|
| Multi-family | 237,948 |
| | 5,927 |
| | — |
| | — |
| | — |
| | 243,875 |
|
| ADC | 52,775 |
| | 5,500 |
| | 760 |
| | — |
| | — |
| | 59,035 |
|
| Residential | 272,336 |
| | — |
| | 6,772 |
| | — |
| | — |
| | 279,108 |
|
| Consumer | 95,341 |
| | — |
| | 650 |
| | — |
| | — |
| | 95,991 |
|
| Total loans subject to purchase accounting marks | $ | 1,688,777 |
| | $ | 44,262 |
| | $ | 43,015 |
| | $ | — |
| | $ | — |
| | $ | 1,776,054 |
|
| Remaining purchase accounting mark | $ | 37,351 |
| | $ | 1,649 |
| | $ | 2,383 |
| | $ | — |
| | $ | — |
| | $ | 41,383 |
|
| As a % of acquired loans | 2.21 | % | | 3.73 | % | | 5.54 | % | | — | % | | — | % | | 2.33 | % |
| | | | | | | | | | | | |
| Total portfolio loans | $ | 7,660,979 |
| | $ | 68,003 |
| | $ | 129,665 |
| | $ | 713 |
| | $ | — |
| | $ | 7,859,360 |
|
| Total allowance for loan losses and remaining purchase accounting mark | $ | 81,276 |
| | $ | 2,533 |
| | $ | 7,184 |
| | $ | 535 |
| | $ | — |
| | $ | 91,528 |
|
| As a % of portfolio loans | 1.06 | % | | 3.72 | % | | 5.54 | % | | 75.04 | % | | — | % | | 1.16 | % |
Notes to Consolidated Financial Statements
Year ended December 31, 2015, three months ended December 31, 2014 and 2013 (unaudited) and
fiscal years ended September 30, 2014 and 2013
(Dollars in thousands, except per share data)
|
| | | | | | | | | | | | | | | | | | | | | | | |
| | December 31, 2014 |
| Originated: | Pass | | Special mention | | Substandard | | Doubtful | | Loss | | Total |
| C&I | $ | 1,004,123 |
| | $ | 13,060 |
| | $ | 6,207 |
| | $ | — |
| | $ | — |
| | $ | 1,023,390 |
|
| Payroll finance | 153,118 |
| | 996 |
| | 115 |
| | — |
| | — |
| | 154,229 |
|
| Factoring | 161,347 |
| | 34 |
| | 244 |
| | — |
| | — |
| | 161,625 |
|
| Equipment financing | 266,752 |
| | — |
| | 240 |
| | — |
| | — |
| | 266,992 |
|
| Warehouse lending | 173,786 |
| | — |
| | — |
| | — |
| | — |
| | 173,786 |
|
| CRE | 1,189,306 |
| | 12,707 |
| | 28,055 |
| | — |
| | — |
| | 1,230,068 |
|
| Multi-family | 379,254 |
| | 317 |
| | 272 |
| | — |
| | — |
| | 379,843 |
|
| ADC | 79,952 |
| | 1,027 |
| | 16,016 |
| | — |
| | — |
| | 96,995 |
|
| Residential | 410,243 |
| | 975 |
| | 14,301 |
| | — |
| | — |
| | 425,519 |
|
| Consumer | 192,525 |
| | 1,200 |
| | 6,690 |
| | — |
| | — |
| | 200,415 |
|
| Total portfolio loans in allowance calculation | $ | 4,010,406 |
| | $ | 30,316 |
| | $ | 72,140 |
| | $ | — |
| | $ | — |
| | $ | 4,112,862 |
|
| Allowance for loan losses | $ | 34,744 |
| | $ | 1,178 |
| | $ | 5,896 |
| | $ | — |
| | $ | — |
| | $ | 41,818 |
|
| As a % of originated loans | 0.87 | % | | 3.89 | % | | 8.17 | % | | — | % | | — | % | | 1.02 | % |
|
| | | | | | | | | | | | | | | | | | | | | | | |
| | December 31, 2014 |
| Acquired loans: | Pass | | Special mention | | Substandard | | Doubtful | | Loss | | Total |
| C&I | $ | 219,641 |
| | $ | — |
| | $ | 1,523 |
| | $ | — |
| | $ | — |
| | $ | 221,164 |
|
| Equipment finance | 144,457 |
| | — |
| | — |
| | — |
| | — |
| | 144,457 |
|
| CRE | 228,070 |
| | — |
| | 139 |
| | — |
| | — |
| | 228,209 |
|
| Multi-family | 4,701 |
| | — |
| | — |
| | — |
| | — |
| | 4,701 |
|
| ADC | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
| Residential | 102,146 |
| | — |
| | 2,101 |
| | — |
| | — |
| | 104,247 |
|
| Consumer | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
| Total loans subject to purchase accounting marks | $ | 699,015 |
| | $ | — |
| | $ | 3,763 |
| | $ | — |
| | $ | — |
| | $ | 702,778 |
|
| Remaining purchase accounting mark | $ | 5,310 |
| | $ | — |
| | $ | 724 |
| | $ | — |
| | $ | — |
| | $ | 6,034 |
|
| As a % of acquired loans | 0.76 | % | | — | % | | 19.24 | % | | — | % | | — | % | | 0.86 | % |
| | | | | | | | | | | | |
| Total portfolio loans | $ | 4,709,421 |
| | $ | 30,316 |
| | $ | 75,903 |
| | $ | — |
| | $ | — |
| | $ | 4,815,640 |
|
| Total allowance for loan losses and remaining purchase accounting mark | $ | 40,054 |
| | $ | 1,178 |
| | $ | 6,620 |
| | $ | — |
| | $ | — |
| | $ | 47,852 |
|
| As a % of portfolio loans | 0.85 | % | | 3.89 | % | | 8.72 | % | | — | % | | — | % | | 0.99 | % |
Purchase accounting marks accreted into interest income on loans was $14,880 for calendar 2015; $1,260 for the transition period; $1,875 for the 2013 transition period (unaudited); $8,870 for fiscal 2014; and $2,045 for fiscal 2013.
Notes to Consolidated Financial Statements
Year ended December 31, 2015, three months ended December 31, 2014 and 2013 (unaudited) and
fiscal years ended September 30, 2014 and 2013
(Dollars in thousands, except per share data)
Credit Quality Indicators
As part of the on-going monitoring of the credit quality of the Company’s loan portfolio, management tracks certain credit quality indicators including trends related to (i) the weighted-average risk grade of commercial loans and commercial real estate loans, (ii) the level of classified commercial loans and commercial real estate loans, (iii) the delinquency status of residential mortgage loans and consumer loans, (residential mortgage and HELOC) (iv) net charge-offs, (v) non-performing loans (see details above) and (vi) the general economic conditions in the greater New York metropolitan region. The Bank analyzes loans individually by classifying the loans as to credit risk.risk, except residential mortgage loans and consumer loans, which are evaluated on a homogeneous pool basis unless the loan balance is greater than $500. This analysis is performed on at least a quarterly basis on all criticized/classified loans. The Bank uses the following definitions of risk ratings:
1 and 2 - These grades include loans that are secured by cash, marketable securities or cash surrender value of life insurance policies.
3 - This grade includes loans to borrowers with strong earnings and cash flow and that have the ability to service debt. The borrower’s assets and liabilities are generally well matched and are above average quality. The borrower has ready access to multiple sources of funding including alternatives such as term loans, private equity placements or trade credit.
4 - This grade includes loans to borrowers with above average cash flow, adequate earnings and debt service coverage ratios. The borrower generates discretionary cash flow, assets and liabilities are reasonably matched, and the borrower has access to other sources of debt funding or additional trade credit at market rates.
5 - This grade includes loans to borrowers with adequate earnings and cash flow and reasonable debt service coverage ratios. Overall leverage is acceptable and there is average reliance upon trade debt.credit. Management has a reasonable amount of experience and modest debtdepth, and owners are willing to invest available outside capital as necessary.
6 - This grade includes loans to borrowers where there is evidence of some strain, earnings are inconsistent and volatile, and the borrowers’ outlook is uncertain. Generally such borrowers have higher leverage than those with a better risk rating. These borrowers typically have limited access to alternative sources of bank debt and may be dependent upon debt funding for working capital support.
7 - Special Mention (OCC definition) - Other Assets Especially Mentioned (OAEM) are loans that are currently protected but are potentially weak. Loans with special mention ratings have potential weaknesses which may, if not reviewedreversed or corrected, weaken the asset or inadequately protect the bank’sBank’s credit position at some future date. Such assets constitute an undue and unwarranted credit risk but not to the point of justifying a classification of substandard.“Substandard.” The credit risk may be relatively minor yet constitute an unwarranted risk in light of the circumstances surrounding a specific asset.
8 - Substandard (OCC definition) - These loans are inadequately protected by the current sound worth and paying capacity of the obligor or of the collateral pledged, if any. Assets so classified must have a well-defined weakness that jeopardizes the liquidation of the debt. They are
STERLING BANCORP AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollars in thousands, except per share data)
characterized by the distinct possibility that the Bank will sustain some losslosses if the deficiencies are not corrected. Loss potential, while existing in the aggregate amount of substandard assets, does not have to exist in individual assets classified as substandard.
9 - Doubtful (OCC definition) - These loans have all the weakness inherent in one classified as substandard“Substandard” with the added characteristics that the weakness makes collection or liquidation in full, on the basis of currently existing facts, conditions, and values, highly questionable and improbable. The possibility of loss is extremely high, but because of certain important and reasonably specific pending factors which may work to the advantage and strengthening of the asset, its classification as an estimated loss is deferred until its more exact status may be determined. Pending factors include proposed merger, acquisition, or liquidating procedures, capital injection,injections, perfecting liens or additional collateral and refinancing plans.
10 - Loss (OCC definition) - These loans are charged-off because they are determined to be uncollectible and unbankable assets. This classification does not reflect that the asset has no absolute recovery or salvage value, but rather it is not practical or desirable to defer writing offwriting-off this asset even though partial recovery may be effected in the future. Losses should be taken in the period in which they are determined to be uncollectible.
Notes to Consolidated Financial Statements
Year ended December 31, 2015, three months ended December 31, 2014 and 2013 (unaudited) and
fiscal years ended September 30, 2014 and 2013
(Dollars in thousands, except per share data)
Loans that are risk-rated 1 through 6 as defined above are considered to be pass-rated loans. As of September 30, 2013December 31, 2015 and September 30, 2012,2014 the risk category of gross loans by segment was as follows:
| | | | September 30, 2013 | | September 30, 2012 | December 31, 2015 | | December 31, 2014 |
| | Special Mention | | Substandard | | Doubtful | | Special Mention | | Substandard | | Doubtful | Special mention | | Substandard | | Doubtful | | Special mention | | Substandard | | Doubtful |
| Commercial & industrial | | $ | 20,765 |
| | $ | 36,268 |
| | $ | 445 |
| | $ | 13,060 |
| | $ | 7,730 |
| | $ | — |
|
| Payroll finance | | — |
| | 96 |
| | — |
| | 996 |
| | 115 |
| | — |
|
| Warehouse lending | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
| Factored receivables | | — |
| | 1,568 |
| | — |
| | 34 |
| | 244 |
| | — |
|
| Equipment financing | | 460 |
| | 1,644 |
| | — |
| | — |
| | 240 |
| | — |
|
| CRE | | 32,472 |
| | 52,290 |
| | — |
| | 12,707 |
| | 28,194 |
| | — |
|
| Multi-family | | 5,927 |
| | 1,717 |
| | — |
| | 317 |
| | 272 |
| | — |
|
| ADC | | 7,075 |
| | 7,996 |
| | — |
| | 1,027 |
| | 16,016 |
| | — |
|
| Residential mortgage | $ | 824 |
| | $ | 9,786 |
| | $ | — |
| | $ | 830 |
| | $ | 11,314 |
| | $ | — |
| 897 |
| | 20,269 |
| | — |
| | 975 |
| | 16,402 |
| | — |
|
| Commercial real estate | 7,279 |
| | 24,561 |
| | 227 |
| | 20,729 |
| | 27,674 |
| | — |
| |
| Commercial & industrial | 3,545 |
| | 3,855 |
| | 365 |
| | 14,920 |
| | 3,995 |
| | 338 |
| |
| Acquisition, development & construction | 1,867 |
| | 19,410 |
| | — |
| | 5,669 |
| | 42,871 |
| | — |
| |
| Consumer | 15 |
| | 2,891 |
| | — |
| | 274 |
| | 2,482 |
| | — |
| 407 |
| | 7,817 |
| | 268 |
| | 1,200 |
| | 6,690 |
| | — |
|
| Total | $ | 13,530 |
| | $ | 60,503 |
| | $ | 592 |
| | $ | 42,422 |
| | $ | 88,336 |
| | $ | 338 |
| $ | 68,003 |
| | $ | 129,665 |
| | $ | 713 |
| | $ | 30,316 |
| | $ | 75,903 |
| | $ | — |
|
There were no loans rated loss at December 31, 2015 and 2014.
(5)(6) Premises and Equipment, Net
Premises and equipment are summarized as follows:
|
| | | | | | | |
| | September 30, |
| | 2013 | | 2012 |
| Land and land improvements | $ | 7,282 |
| | $ | 7,331 |
|
| Buildings | 30,558 |
| | 31,903 |
|
| Leasehold improvements | 8,136 |
| | 7,931 |
|
| Furniture, fixtures and equipment | 40,164 |
| | 38,292 |
|
| Total premises and equipment, gross | 86,140 |
| | 85,457 |
|
| Accumulated depreciation and amortization | (49,620 | ) | | (46,974 | ) |
| Total premises and equipment, net | $ | 36,520 |
| | $ | 38,483 |
|
(6) Goodwill |
| | | | | | | |
| | December 31, |
| | 2015 | | 2014 |
| Land and land improvements | $ | 12,460 |
| | $ | 6,048 |
|
| Buildings | 27,803 |
| | 23,118 |
|
| Leasehold improvements | 32,576 |
| | 33,044 |
|
| Furniture, fixtures and equipment | 66,478 |
| | 54,603 |
|
| Total premises and equipment, gross | 139,317 |
| | 116,813 |
|
| Accumulated depreciation and amortization | (75,955 | ) | | (70,657 | ) |
| Total premises and equipment, net | $ | 63,362 |
| | $ | 46,156 |
|
The changeFor calendar 2015, the Company recorded impairment charges on premises and equipment of $7,575 that were mainly related to financial center consolidations associated with the HVB Merger. For the transition period and fiscal 2014, the Company recorded impairment charges on premises and equipment of $610 and $11,043, respectively, related to financial center consolidations associated with the Provident Merger. These charges were included in goodwill duringother non-interest expense in the year is as follows:consolidated statement of operations.
|
| | | | | | | | | | | |
| | September 30, |
| | 2013 | | 2012 | | 2011 |
| Beginning of year balance | $ | 163,247 |
| | $ | 160,861 |
| | $ | 160,861 |
|
| Acquisitions | (130 | ) | | 5,665 |
| | — |
|
| Disposals | — |
| | (3,279 | ) | | — |
|
| End of year balance | $ | 163,117 |
| | $ | 163,247 |
| | $ | 160,861 |
|
STERLING BANCORP AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Year ended December 31, 2015, three months ended December 31, 2014 and 2013 (unaudited) and
fiscal years ended September 30, 2014 and 2013
(Dollars in thousands, except per share data)
During the fiscal year ended September 30, 2013, the Company decreased the identifiable assets acquired in connection with the Gotham Bank acquisition by $130 based on the completion of the analysis of fair value of the net assets acquired.(7) Goodwill and Other Intangible Assets
Included in core depositGoodwill and other intangible assets is an intangible asset associated with the naming rights to Provident bank ball park stadium which is located in Rockland County, New York. The Company has determined that in connection with the Merger it will write-off the intangible asset and incur an impairment charge of approximately $965are presented in the firsttables below. The increase in goodwill and certain other intangible assets in calendar 2015 was primarily related to the HVB Merger and the Damian Acquisition (See Note 2. “Acquisitions”).
Goodwill
The change in goodwill for the periods presented was as follows:
|
| | | | | | | |
| | For the year ended |
| | December 31, |
| | 2015 | | 2014 |
| Beginning of period balance | $ | 388,926 |
| | $ | 388,926 |
|
| Acquisitions | 281,773 |
| | — |
|
| Disposals | — |
| | — |
|
| End of period balance | $ | 670,699 |
| | $ | 388,926 |
|
Other intangible assets
The balance of other intangible assets for the periods presented was as follows:
|
| | | | | | | | | | | |
| | Gross intangible assets | | Accumulated amortization | | Net intangible assets |
| December 31, 2015 | | | | | |
| Core deposits | $ | 58,021 |
| | $ | (12,227 | ) | | $ | 45,794 |
|
| Customer lists | 8,950 |
| | (991 | ) | | 7,959 |
|
| Non-compete agreements | 11,808 |
| | (8,883 | ) | | 2,925 |
|
| Trade name | 20,500 |
| | — |
| | 20,500 |
|
| Fair value of below market leases | 725 |
| | (536 | ) | | 189 |
|
| | $ | 100,004 |
| | $ | (22,637 | ) | | $ | 77,367 |
|
| | | | | | |
| December 31, 2014 | | | | | |
| Core deposits | $ | 24,182 |
| | $ | (5,709 | ) | | $ | 18,473 |
|
| Non-compete agreements | 10,308 |
| | (6,349 | ) | | 3,959 |
|
| Trade name | 20,500 |
| | — |
| | 20,500 |
|
| Fair value of below market leases | 725 |
| | (325 | ) | | 400 |
|
| | $ | 55,715 |
| | $ | (12,383 | ) | | $ | 43,332 |
|
Other intangible assets are amortized on a straight-line or accelerated bases over their estimated useful lives, which range from one to 10 years. Amortization expense related to core deposits and non-compete agreements totaled $10,043 in calendar 2015; $1,873 in the transition period; $1,875 in the 2013 transition period; $9,408 in fiscal quarter2014; and $1,296 in fiscal 2013. The amortization of 2014.the fair value of below market leases was included in rent expense for all periods. The estimated aggregate future amortization expense for other intangible assets remaining as of December 31, 2015 was as follows:
Notes to Consolidated Financial Statements
Year ended December 31, 2015, three months ended December 31, 2014 and 2013 (unaudited) and
fiscal years ended September 30, 2014 and 2013
(Dollars in thousands, except per share data)
|
| | | |
| | Amortization expense |
| 2016 | $ | 11,953 |
|
| 2017 | 8,088 |
|
| 2018 | 7,098 |
|
| 2019 | 6,074 |
|
| 2020 | 5,428 |
|
| Thereafter | 18,226 |
|
| Total | $ | 56,867 |
|
(7)(8) Deposits
Deposit balances at September 30, 2013December 31, 2015 and 20122014 are summarized as follows:
| | | | September 30, | December 31, |
| | 2013 | 2012 | 2015 | | 2014 |
| Non-interest bearing | $ | 943,934 |
| | $ | 947,304 |
| |
| Interest bearing | 434,398 |
| | 448,123 |
| |
| Non-interest bearing demand | | $ | 2,936,980 |
| | $ | 1,481,870 |
|
| Interest bearing demand | | 1,274,417 |
| | 747,667 |
|
| Savings | 580,125 |
| | 506,538 |
| 943,632 |
| | 711,509 |
|
| Money market | 735,709 |
| | 821,704 |
| 2,819,788 |
| | 1,790,435 |
|
| Certificates of deposit | 268,128 |
| | 387,482 |
| 605,190 |
| | 480,844 |
|
| Total deposits | $ | 2,962,294 |
| | $ | 3,111,151 |
| $ | 8,580,007 |
| | $ | 5,212,325 |
|
Municipal deposits totaled $757,066$1,140,206 and $901,739$883,350 at September 30, 2013December 31, 2015 and September 30, 2012,December 31, 2014, respectively. See Note 3. Securities“Securities” for the amount of securities that were pledged as collateral for municipal deposits and other purposes. Municipal deposits received for tax receipts were approximately $374,348 and $424,610 at September 30, 2013 and 2012, respectively.
Certificates of deposit had remaining periods to contractual maturity as follows: | | | | September 30, | December 31, |
| | 2013 | | 2012 | 2015 | | 2014 |
| Remaining period to contractual maturity: | | | | | | |
| Less than one year | $ | 239,104 |
| | $ | 344,033 |
| $ | 494,242 |
| | $ | 385,458 |
|
| One to two years | 17,248 |
| | 26,407 |
| 75,724 |
| | 52,480 |
|
| Two to three years | 5,185 |
| | 10,601 |
| 20,469 |
| | 34,219 |
|
| Three to four years | 3,062 |
| | 3,261 |
| 9,573 |
| | 4,778 |
|
| Four to five years | 3,529 |
| | 3,180 |
| 5,182 |
| | 3,909 |
|
| Total certificates of deposit | $ | 268,128 |
| | $ | 387,482 |
| $ | 605,190 |
| | $ | 480,844 |
|
Certificates of deposit accounts with a denomination of $250 or more totaled $98,324 and $174,499 at December 31, 2015 and 2014, respectively.
Listed below are the Company’s brokered deposits:
|
| | | | | | | |
| | December 31, |
| | 2015 | | 2014 |
| Money market | $ | 152,180 |
| | $ | 75,462 |
|
Reciprocal CDARs 1 | 169,958 |
| | 6,666 |
|
| CDARs one way | 106,647 |
| | 86,530 |
|
| Total brokered deposits | $ | 428,785 |
| | $ | 168,658 |
|
1 Certificate of deposit account registry service
STERLING BANCORP AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Year ended December 31, 2015, three months ended December 31, 2014 and 2013 (unaudited) and
fiscal years ended September 30, 2014 and 2013
(Dollars in thousands, except per share data)
Certificates of deposit accounts with a denomination of $100 or more totaled $104,225(9) Borrowings and $203,516 at September 30, 2013 and 2012, respectively. Listed below are the Company’s brokered deposits:
|
| | | | | | | |
| | September 30, |
| | 2013 | | 2012 |
| Savings | $ | — |
| | $ | 13,344 |
|
| Money market | 34,571 |
| | 46,566 |
|
Reciprocal CDAR’s 1 | 1,343 |
| | 1,354 |
|
| CDAR’s one way | 768 |
| | 764 |
|
| Total brokered deposits | $ | 36,682 |
| | $ | 62,028 |
|
1 Certificate of deposit account registry service
(8) BorrowingsSenior Notes
The Company’s borrowings and weighted average interest rates are summarized as follows:
| | | | September 30, | December 31, |
| | 2013 | | 2012 | 2015 | | 2014 |
| | Amount | | Rate | | Amount | | Rate | Amount | | Rate | | Amount | | Rate |
| By type of borrowing: | | | | | | | | | | | | | | |
| FHLB advances and overnight | $ | 442,602 |
| | 2.77 | % | | $ | 324,529 |
| | 3.71 | % | $ | 1,409,885 |
| | 1.32 | % | | $ | 1,003,209 |
| | 1.37 | % |
| Repurchase agreements | 20,351 |
| | 0.88 |
| | 20,647 |
| | 0.88 |
| 16,566 |
| | 0.55 |
| | 9,846 |
| | 0.30 |
|
| Senior notes | 98,033 |
| | 5.98 |
| | — |
| | — |
| 98,893 |
| | 5.98 |
| | 98,498 |
| | 5.98 |
|
| Total borrowings | $ | 560,986 |
| | 3.26 | % | | $ | 345,176 |
| | 3.54 | % | $ | 1,525,344 |
| | 1.61 | % | | $ | 1,111,553 |
| | 1.77 | % |
| By remaining period to maturity: | | | | | | | | | | | | | | |
| Less than one year | $ | 158,897 |
| | 0.95 | % | | $ | 10,136 |
| | 1.88 | % | 999,222 |
| | 0.69 | % | | $ | 532,835 |
| | 0.39 | % |
| One to two years | 78,717 |
| | 1.97 |
| | 56,819 |
| | 2.00 |
| 295,000 |
| | 3.19 |
| | 152,760 |
| | 0.69 |
|
| Two to three years | 191 |
| | 5.32 |
| | 52,693 |
| | 2.89 |
| 228,893 |
| | 3.57 |
| | 255,000 |
| | 3.54 |
|
| Three to four years | 202,414 |
| | 4.21 |
| | 201 |
| | 5.32 |
| — |
| | — |
| | 168,498 |
| | 4.38 |
|
| Four to five years | 118,033 |
| | 5.57 |
| | 202,386 |
| | 4.21 |
| — |
| | — |
| | — |
| | — |
|
| Greater than five years | 2,734 |
| | 4.92 |
| | 22,941 |
| | 3.74 |
| 2,229 |
| | 4.92 |
| | 2,460 |
| | 4.92 |
|
| Total borrowings | $ | 560,986 |
| | 3.26 | % | | $ | 345,176 |
| | 3.54 | % | $ | 1,525,344 |
| | 1.61 | % | | $ | 1,111,553 |
| | 1.77 | % |
FHLB advances and overnight.As a member of the FHLB, the Bank may borrow up to the amount of eligible mortgages and securities that have been pledged as collateral under a blanket security agreement. As of September 30, 2013December 31, 2015 and 2012,2014, the Bank had pledged residential mortgage and commercial real estate loans totaling $784,422$2,050,982 and $613,554,$1,302,681, respectively. The Bank had also pledged securities to secure borrowings, which are disclosed in Note 3. Securities.“Securities.” As of September 30, 2013,December 31, 2015, the Bank may increase its borrowing capacity by pledging securities and mortgage loans not required to be pledged for other purposes with a collateral value of $531,209.$853,276.
FHLB borrowings which are putable quarterly at the discretion of the FHLB, were $200,000$200,000 at September 30, 2013December 31, 2015 and 2012.2014. These borrowings have a weighted average remaining term to the contractual maturity dates of approximately 3.561.31 and 2.31 years and 4.56 years anda weighted average interest ratesrate of 4.23% at December 31, 2015 and 2014, respectively.
Repurchase agreements. 4.23%Securities sold under repurchase agreements are utilized to facilitate the needs of our clients and are secured short-term borrowings that mature in one to 30 days. Repurchase agreements are stated at September 30, 2013 and 2012, respectively.the amount of cash received in connection with these transactions. The Bank monitors collateral levels on a continuous basis. The Bank may be required to provide additional collateral based on the fair value of the underlying securities. Securities pledged as collateral are maintained with our safekeeping agents.
The Bank had two $10,000 repurchase agreements with a financial institution. The Bank has pledged a portion of the securities disclosed in Note 3. Securities as collateral for these borrowings.
Senior Notes.On July 2, 2013, the Company issued $100,000 principal amount of 5.50% fixed rate Senior Notessenior notes (the “Senior Notes”) through a private placement at a discount of 1.75%. The cost of issuance was $303, and at September 30, 2013December 31, 2015 and 2014 the unamortized discount was $1,967,$1,107 and $1,502, respectively, which will be accreted to interest expense over the life of the Senior Notes, resulting in an all-in costeffective yield of 5.98%. Interest is due semi-annually
STERLING BANCORP AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollars in thousands, except per share data)
in arrears on January 2 and July 2 of each year beginning January 2, 2014 until maturity on July 2, 2018. The Senior Notes were issued under an indenture (the “Indenture”) between the Company and U.S. Bank National Association, as trustee.
The senior notesSenior Notes are unsecured obligations of the Company and rank equally with all other unsecured unsubordinated indebtedness, and will be effectively subordinated to any secured indebtedness to the extent of the value of the collateral securing such indebtedness, and structurally subordinated to the existing and future indebtedness of the Company’s subsidiaries.
The indentureIndenture includes provisions that, among other things, restrict the Company’s ability to dispose of or issue shares of voting stock of a principal subsidiary bank (as defined in the Indenture) or transfer the entirety of, or a substantial amount of, the Company’s assets or merge or consolidate with or into other entities, without satisfying certain conditions.
Notes to Consolidated Financial Statements
Year ended December 31, 2015, three months ended December 31, 2014 and 2013 (unaudited) and
fiscal years ended September 30, 2014 and 2013
(Dollars in thousands, except per share data)
The Senior Notes willare not be registered under the Securities Act of 1933, as amended, and may not be offered or sold in the U.S. absent registration or an applicable exemption from registration requirements.
(9) DerivativesRevolving line of credit. On September 5, 2015, the Company amended and renewed its existing revolving line of credit agreement for a new 12-month term. The loan agreement is for a $15,000 revolving line of credit facility (the “Credit Facility”) with a financial institution that matures on September 5, 2016. The balance was zero at December 31, 2015 and December 31, 2014. The use of proceeds are for general corporate purposes. The line and accrued interest is payable at maturity, and is required to maintain a zero balance for at least 30 days during its term. The line bears interest at one-month LIBOR plus 1.25%. Under the terms of the facility, the Company and the Bank must maintain certain ratios related to capital, non-performing assets to capital, reserves to non-performing loans and debt service coverage. The Company and the Bank were in compliance with all requirements of the Credit Facility at December 31, 2015.
TheTrust preferred capital securities. In connection with the Provident Merger, the Company purchased twoassumed $25,000 of trust preferred capital securities (the “Subordinated Debentures”). On June 1, 2014, the Company redeemed all of the outstanding capital securities at a redemption price equal to 100% of the liquidation amount of the securities plus accumulated and unpaid interest, rate caps inwith such redemption payment made on June 2, 2014. In connection with the first quarter of fiscal 2010redemption, the Company eliminated the unamortized premium recorded to offset a portion of interest rate exposure should short-term rate increases lead to rapid increases in general levels of market interest rates on deposits. These caps are linked to LIBOR and have strike prices of 3.5% and 4.0%. These caps are stand alone derivatives and therefore changes in fair value are reported in current period earnings. Losses recognized in earnings were $2 and $63 in fiscal 2013 and 2012, respectively. Thereflect the fair value of the interest rate capsSubordinated Debentures at September 30, 2013, is reflected in other assets withthe date of the Provident Merger. The balance of the unamortized premium was $712 and this amount was recognized as a corresponding credit (charge) to incomegain on extinguishment of debt and recorded as a gain (loss) toreduction of other non-interest income.expense in the fiscal year ended September 30, 2014.
(10) Derivatives
The Company has entered into certain interest rate swap contracts that are not designated as hedging instruments. These derivative contracts relate to transactions in which the Company enters into an interest rate swap with a customer while at the same time entering into an offsetting interest rate swap with anothera financial institution. In connection with each swap transaction, the CorporationCompany agrees to pay interest to the customer on a notional amount at a variable interest rate and receive interest from the customer on a similar notional amount at a fixed interest rate. At the same time, the Company agrees to pay anothera financial institution the same fixed interest rate on the same notional amount and receive the same variable interest rate on the same notional amount. The transaction allows the Company’s customercustomers to effectively convert a variable rate loan to a fixed rate. Because the Company acts as an intermediary for its customer, changes in the fair value of the underlying derivative contracts for the most part offset each other and do not significantly impact the Company’s results of operations.
The Company pledged collateral to anothera financial institution in the form of investment securities with an amortized cost of $5,040$1,863 and a fair value of $4,645$1,839 as of September 30, 2013.December 31, 2015. The Company does not typically require its commercial customers to post cash or securities as collateral on its program of back-to-back swaps. However, certain language is written into the International Swaps and Derivatives Association (“ISDA”) agreement and loan documents where, in default situations, the Company is allowed to access collateral supporting the loan relationship to recover any losses suffered on the derivative asset or liability. The Company may need to post additional collateral to swap counterparties in the future in proportion to potential increases in unrealized loss positions.
The derivative transactions we enter into with other financial institutions are generally executed under ISDA master agreements which include “right of set-off” provisions. In such cases there is generally a legally enforceable right to offset recognized amounts and there may be an intention to settle such amounts on a net basis. However, we do not offset such financial instruments in our consolidated financial statements.
STERLING BANCORP AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Year ended December 31, 2015, three months ended December 31, 2014 and 2013 (unaudited) and
fiscal years ended September 30, 2014 and 2013
(Dollars in thousands, except per share data)
Summary information as of December 31, 2015 and 2014 regarding these derivatives is presented below:
| | | | Notional amount | | Average maturity (in years) | | Weighted average fixed rate | | Weighted average variable rate | | Fair value | Notional amount | | Average maturity (in years) | | Weighted average fixed rate | | Weighted average variable rate | | Fair value |
| September 30, 2013 | | | | | | | | |
| Interest rate caps | $ | 50,000 |
| | 1.18 | | 3.75 | % | | NA | | $ | — |
| |
| December 31, 2015 | | | | | | | | |
| 3rd party interest rate swap | 54,180 |
| | 5.76 | | 4.22 |
| | 1 m Libor + 2.45 | | 997 |
| $ | 87,094 |
| | 5.44 | | 4.09 | % | | 1 m Libor + 2.15 | | $ | 1,839 |
|
| Customer interest rate swap | (54,180 | ) | | 5.76 | | 4.22 |
| | 1 m Libor + 2.45 | | (997 | ) | (87,094 | ) | | 5.44 | | 4.09 |
| | 1 m Libor + 2.15 | | (1,839 | ) |
| September 30, 2012 | | | | | | |
| Interest rate caps | $ | 50,000 |
| | 2.18 | | 3.75 | % | | NA | | $ | 2 |
| |
| December 31, 2014 | | | | | | |
| 3rd party interest rate swap | 42,332 |
| | 7.30 | | 4.29 |
| | 1 m Libor + 2.28 | | 2,485 |
| 67,551 |
| | 4.70 | | 4.13 |
| | 1 m Libor + 2.36 | | 1,332 |
|
| Customer interest rate swap | (42,332 | ) | | 7.30 | | 4.29 |
| | 1 m Libor + 2.28 | | (2,485 | ) | (67,551 | ) | | 4.70 | | 4.13 |
| | 1 m Libor + 2.36 | | (1,332 | ) |
The Company regularly enters into various commitments to originate and sell residential real estate loans into the secondary market. Such commitments are considered to be derivative financial instruments; however, the fair value of these commitments is not material.
STERLING BANCORP AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollars in thousands, except per share data)
(10)(11) Income Taxes
Income tax expense consistsfor the periods indicated consisted of the following:
| | | | For the year ended September 30, | For the year ended | | For the three months ended | | For the fiscal year ended |
| | 2013 | | 2012 | | 2011 | December 31, | | December 31, | | September 30, |
| Current tax expense: | | | | | | |
| | | 2015 | | 2014 | | 2013 | | 2014 | | 2013 |
| Current tax expense (benefit): | | | | | | | | | | |
| Federal | $ | 9,146 |
| | $ | 5,538 |
| | $ | 1,912 |
| $ | 25,634 |
| | $ | 17,134 |
| | $ | (8,205 | ) | | $ | 11,613 |
| | $ | 9,146 |
|
| State | 1,549 |
| | 685 |
| | 777 |
| 5,862 |
| | 3,322 |
| | (600 | ) | | 1,598 |
| | 1,549 |
|
| Total current tax expense | 10,695 |
| | 6,223 |
| | 2,689 |
| |
| Total current tax expense (benefit) | | 31,496 |
| | 20,456 |
| | (8,805 | ) | | 13,211 |
| | 10,695 |
|
| Deferred tax expense (benefit): | | | | | | | | | | | | | | |
| Federal | 522 |
| | (261 | ) | | 282 |
| (1,406 | ) | | (10,954 | ) | | 2,229 |
| | (2,745 | ) | | 522 |
|
| State | 197 |
| | 197 |
| | (164 | ) | 1,745 |
| | (1,126 | ) | | (372 | ) | | (314 | ) | | 197 |
|
| Total deferred tax expense (benefit) | 719 |
| | (64 | ) | | 118 |
| 339 |
| | (12,080 | ) | | 1,857 |
| | (3,059 | ) | | 719 |
|
| Total income tax expense | $ | 11,414 |
| | $ | 6,159 |
| | $ | 2,807 |
| $ | 31,835 |
| | $ | 8,376 |
| | $ | (6,948 | ) | | $ | 10,152 |
| | $ | 11,414 |
|
Actual income tax expense differs from the tax computed based on pre-tax income and the applicable statutory Federal tax rate for the following reasons:
|
| | | | | | | | | | | |
| | For the year ended September 30, |
| | 2013 | | 2012 | | 2011 |
| Tax at Federal statutory rate of 35% | $ | 12,833 |
| | $ | 9,116 |
| | $ | 5,090 |
|
| State and local income taxes, net of Federal tax benefit | 1,135 |
| | 573 |
| | 430 |
|
| Tax-exempt interest, net of disallowed interest | (2,192 | ) | | (2,448 | ) | | (2,551 | ) |
| BOLI income | (699 | ) | | (718 | ) | | (714 | ) |
| Non-deductible compensation expense | — |
| | — |
| | 594 |
|
| Non-deductible acquisition related costs | 416 |
| | 418 |
| | — |
|
| Other, net | (79 | ) | | (782 | ) | | (42 | ) |
| Actual income tax expense | $ | 11,414 |
| | $ | 6,159 |
| | $ | 2,807 |
|
| Effective income tax rate | 31.1 | % | | 23.6 | % | | 19.3 | % |
|
| | | | | | | | | | | | | | | | | | | |
| | For the year ended | | For the three months ended | | For the fiscal year ended |
| | December 31, | | December 31, | | September 30, |
| | 2015 | | 2014 | | 2013 | | 2014 | | 2013 |
| Tax at federal statutory rate of 35% | $ | 34,282 |
| | $ | 8,884 |
| | $ | (7,335 | ) | | $ | 13,241 |
| | $ | 12,833 |
|
| State and local income taxes, net of federal tax benefit | 4,945 |
| | 683 |
| | (632 | ) | | 834 |
| | 1,135 |
|
| Tax-exempt interest, net of disallowed interest | (5,218 | ) | | (1,029 | ) | | (768 | ) | | (3,824 | ) | | (2,192 | ) |
| BOLI income | (1,853 | ) | | (341 | ) | | (259 | ) | | (1,110 | ) | | (699 | ) |
| Non-deductible acquisition related costs | 700 |
| | 53 |
| | 712 |
| | 712 |
| | 416 |
|
| Low income housing tax credits | (215 | ) | | (220 | ) | | — |
| | (165 | ) | | — |
|
| Other, net | (806 | ) | | 346 |
| | 1,334 |
| | 464 |
| | (79 | ) |
| Actual income tax expense | $ | 31,835 |
| | $ | 8,376 |
| | $ | (6,948 | ) | | $ | 10,152 |
| | $ | 11,414 |
|
| Effective income tax rate | 32.5 | % | | 33.0 | % | | (33.2 | )% | | 26.8 | % | | 31.1 | % |
STERLING BANCORP AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Year ended December 31, 2015, three months ended December 31, 2014 and 2013 (unaudited) and
fiscal years ended September 30, 2014 and 2013
(Dollars in thousands, except per share data)
The following table presents the Company’s deferred tax position at September 30, 2013December 31, 2015 and 2012:2014:
| | | | September 30, | December 31, |
| | 2013 | | 2012 | 2015 | | 2014 |
| Deferred tax assets: | | | | | | |
| Allowance for loan losses | $ | 11,809 |
| | $ | 11,566 |
| $ | 19,684 |
| | $ | 17,675 |
|
| Deferred compensation | 798 |
| | 1,429 |
| 736 |
| | 653 |
|
| Other accrued compensation and benefits | 1,497 |
| | 1,722 |
| 8,229 |
| | 4,952 |
|
| Accrued post retirement expense | 1,441 |
| | 1,512 |
| 1,967 |
| | 2,722 |
|
| Deferred rent | 1,059 |
| | 873 |
| 3,849 |
| | 1,967 |
|
| Intangibles amortization | — |
| | 109 |
| |
| Intangible assets | | 2,676 |
| | 2,655 |
|
| Other comprehensive loss (securities) | 7,844 |
| | — |
| 8,245 |
| | 2,712 |
|
| Other comprehensive loss (defined benefit plans) | 2,638 |
| | 5,612 |
| 566 |
| | 4,865 |
|
| Depreciation of premises and equipment | | 2,738 |
| | 569 |
|
| State NOL carryforward | | 379 |
| | 1,012 |
|
| Other | 2,172 |
| | 2,971 |
| 4,205 |
| | 3,423 |
|
| Total deferred tax assets | 29,258 |
| | 25,794 |
| 53,274 |
| | 43,205 |
|
| Deferred tax liabilities: | | | | | | |
| Undistributed earnings of subsidiary not consolidated for tax return purposes (income from REITs) | 4,483 |
| | 5,195 |
| |
| Prepaid pension costs | 3,758 |
| | 4,189 |
| 4,492 |
| | 10,429 |
|
| Purchase accounting adjustments | 1,057 |
| | 597 |
| 15,503 |
| | 15,883 |
|
| Depreciation of premises and equipment | 2,686 |
| | 2,822 |
| |
| Other comprehensive income (securities) | — |
| | 10,300 |
| |
| Intangibles amortization | 112 |
| | — |
| |
| Other | 2,207 |
| | 2,187 |
| 2,200 |
| | 2,036 |
|
| Total deferred tax liabilities | 14,303 |
| | 25,290 |
| 22,195 |
| | 28,348 |
|
| Net deferred tax asset | $ | 14,955 |
| | $ | 504 |
| $ | 31,079 |
| | $ | 14,857 |
|
Based on the Company’s consideration of historical and anticipated future pre-tax income, as well as the reversal period for the items giving rise to the deferred tax assets and liabilities, a valuation allowance for deferred tax assets was not considered necessary at September 30, 2013 and 2012.either December 31, 2015 or 2014.
Retained earnings at September 30, 2013December 31, 2015 and 2012 include2014, included approximately $9,313$9,313 for which no provision for federal income taxes has been made. This amount represents the tax bad debt reserve at December 31, 1987, which is the end of the Bank’s base year for purposes of calculating the bad debt deduction for tax purposes. If this portion of retained earnings is used in the future for any purposes other than to absorb bad debts, the amount used will be added to future taxable income. The unrecorded deferred tax liability on the above amount at September 30, 2013both December 31, 2015 and 20122014, was approximately $3,260.$3,260.
AsAt December 31, 2015 and 2014, the Company has state and local net operating loss (“NOL”) carryforwards that were acquired from Legacy Sterling as part of September 30, 2013the Provident Merger on October 31, 2013. The utilization of state and 2012,local NOLs are subject to an annual limitation. Based on our projections, we believe the state and local NOL carryforwards will be fully utilized before expiration.
At December 31, 2015 and 2014, the Company had no unrecognized tax benefits or accrued interest and penalties recorded. The Company does not expect the total amount of unrecognized tax benefits to significantly increase within the next twelve months. The Company records interest and penalties as a component of income taxother non-interest expense.
Sterling BancorpThe Company and its subsidiaries are subject to U.S. federal income tax, as well as income tax of the state of New York and various other states. The Company is generally no longer subject to examination by Federal, state and New Yorklocal taxing authorities for fiscal tax years prior to 2010.September 30, 2012.
(11) Employee Benefit Plans
Notes to Consolidated Financial Statements
Year ended December 31, 2015, three months ended December 31, 2014 and 2013 (unaudited) and
fiscal years ended September 30, 2014 and 2013
(Dollars in thousands, except per share data)
(12) Stock-Based Compensation Plans
The Company has active stock-based compensation plans as described below.
The Company’s stockholders approved the 2015 Omnibus Equity and Incentive Plan (the “2015 Plan”) on May 28, 2015. The 2015 Plan permits the grant of stock options, stock appreciation rights, restricted stock (both time-based and performance-based), restricted stock units, deferred stock and other stock-based awards. The total number of shares that may be awarded under the 2015 Plan is 2,800,000 shares plus the remaining shares available for grant under the 2014 Stock Incentive Plan (the “2014 Plan”). At December 31, 2015, there were 4,125,665 shares available for future grant under the 2015 Plan.
The Company’s stockholders approved the 2014 Plan on February 20, 2014. The approval of the 2015 Plan resulted in the termination of the 2014 Plan. Awards outstanding as of May 28, 2015 will continue to be governed by the 2014 Plan document; however, no future grants will be made under the 2014 Plan.
Under the 2015 Plan, one share is deducted from the 2015 Plan for every share that is awarded and delivered under the 2015 Plan.
Restricted stock awards are granted with a fair value equal to the market price of the Company’s common stock at the date of grant. Stock option awards are granted with a strike price that is equal to the market price of the Company’s stock at the date of grant. The awards generally vest in equal installments annually on the anniversary date and have total vesting periods ranging from 1 to 5 years and stock options have 10 year contractual terms.
In addition to the 2015 Plan and the 2014 Plan, the Company previously granted awards under its 2011 Employment Inducement Stock Program which included options to purchase 107,256 shares of common stock and restricted stock awards covering 29,550 shares of common stock, all of which vested in four equal installments through July 2015.
In connection with the Provident Merger, the Company granted 104,152 options at an exercise price of $14.25 per share pursuant to a Registration Statement on Form S-8 under which the Company assumed all outstanding fully vested Legacy Sterling stock options. These options expire March 15, 2017. The Company also granted 95,991 shares under the Legacy Sterling 2013 Employment Inducement Award Plan to certain executive officers of Legacy Sterling. In addition, the Company issued 255,973 shares of restricted stock from shares available under a prior plan to certain executives of Legacy Sterling. The weighted average grant date fair value was $11.72 per share and the restricted stock awards vest in equal annual installments on the anniversary date over a three-year period.
Notes to Consolidated Financial Statements
Year ended December 31, 2015, three months ended December 31, 2014 and 2013 (unaudited) and
fiscal years ended September 30, 2014 and 2013
(Dollars in thousands, except per share data)
The following table summarizes the activity in the Company’s active stock-based compensation plans for the periods presented:
|
| | | | | | | | | | | | | | | | |
| | | | Non-vested stock awards/stock units outstanding | | Stock options outstanding |
| | Shares available for grant | | Number of shares | | Weighted average grant date fair value | | Number of shares | | Weighted average exercise price |
| Balance at October 1, 2013 | 2,066,184 |
| | 209,697 |
| | $ | 8.73 |
| | 2,114,509 |
| | $ | 10.71 |
|
| 2014 Stock Incentive Plan | 3,400,000 |
| | — |
| | — |
| | — |
| | — |
|
| 2012 Stock Incentive Plan termination | (566,554 | ) | | — |
| | — |
| | — |
| | — |
|
Grants associated with the Provident Merger(1) | (921,503 | ) | | 351,964 |
| | 11.72 |
| | 104,152 |
| | 14.25 |
|
Granted (1) | (719,674 | ) | | 115,145 |
| | 11.53 |
| | 324,862 |
| | 11.45 |
|
| Stock awards vested | — |
| | (69,211 | ) | | 9.51 |
| | — |
| | — |
|
| Exercised | — |
| | — |
| | — |
| | (507,955 | ) | | 11.29 |
|
| Forfeited | 439,594 |
| | (18,841 | ) | | 9.18 |
| | (375,235 | ) | | 12.24 |
|
| Canceled/expired | (347,286 | ) | | — |
| | — |
| | — |
| | — |
|
| Balance at September 30, 2014 | 3,350,761 |
| | 588,754 |
| | $ | 10.99 |
| | 1,660,333 |
| | $ | 10.55 |
|
Granted (1) | (1,360,006 | ) | | 250,624 |
| | 12.96 |
| | 482,811 |
| | 13.29 |
|
| Stock awards vested | — |
| | (193,129 | ) | | 10.84 |
| | — |
| | — |
|
| Exercised | — |
| | — |
| | — |
| | (95,033 | ) | | 12.31 |
|
| Forfeited | 8,267 |
| | (2,362 | ) | | 13.23 |
| | — |
| | — |
|
| Canceled/expired | — |
| | — |
| | — |
| | (7,812 | ) | | 14.09 |
|
| Balance at December 31, 2014 | 1,999,022 |
| | 643,887 |
| | $ | 11.79 |
| | 2,040,299 |
| | $ | 11.10 |
|
| 2015 Omnibus Equity and Incentive Plan | 2,800,000 |
| | — |
| | — |
| | — |
| | — |
|
Granted (1) | (732,023 | ) | | 447,807 |
| | 14.02 |
| | 24,566 |
| | 14.22 |
|
| Stock awards vested | — |
| | (330,384 | ) | | 11.23 |
| | — |
| | — |
|
| Exercised | — |
| | — |
| | — |
| | (406,422 | ) | | 11.58 |
|
| Forfeited | 192,970 |
| | (34,510 | ) | | 12.92 |
| | (71,871 | ) | | 12.90 |
|
| Canceled/expired | (134,304 | ) | | — |
| | — |
| | — |
| | — |
|
| Balance at December 31, 2015 | 4,125,665 |
| | 726,800 |
| | $ | 13.36 |
| | 1,586,572 |
| | $ | 10.95 |
|
| Exercisable at December 31, 2015 | | | | | | | 1,159,405 |
| | $ | 10.31 |
|
(1) Reflects certain non-vested stock awards that counted as 3.5 shares or 3.6 shares for each share award granted.
Other information regarding options outstanding at December 31, 2015 follows:
|
| | | | | | | | | | | | | | | | | |
| | Outstanding | | Exercisable |
| | | | Weighted average | | | | Weighted average |
| | Number of stock options | | Exercise price | | Life (in years) | | Number of stock options | | Exercise price | | Life (in years) |
| Range of exercise prices: | | | | | | | | | | | |
| $6.71 to $8.73 | 353,611 |
| | $ | 8.00 |
| | 5.94 | | 339,861 |
| | $ | 8.05 |
| | 5.94 |
| $9.00 to $10.03 | 332,968 |
| | 9.28 |
| | 6.35 | | 331,301 |
| | 9.28 |
| | 6.35 |
| $11.36 to $13.18 | 363,504 |
| | 11.71 |
| | 6.93 | | 260,539 |
| | 11.81 |
| | 6.60 |
| $13.23 to $15.01 | 536,489 |
| | 13.42 |
| | 7.80 | | 227,704 |
| | 13.48 |
| | 7.26 |
| | 1,586,572 |
| | 10.95 |
| | 6.88 | | 1,159,405 |
| | 10.31 |
| | 6.82 |
Notes to Consolidated Financial Statements
Year ended December 31, 2015, three months ended December 31, 2014 and 2013 (unaudited) and
fiscal years ended September 30, 2014 and 2013
(Dollars in thousands, except per share data)
The total intrinsic value of outstanding in-the-money stock options and outstanding in-the-money exercisable stock options was $8,363 and $6,851, at December 31, 2015.
Proceeds from stock option exercises were $2,764 for calendar 2015; $574 for the transition period; $1,479 for the 2013 transition period; $3,042 for fiscal 2014; and $97 for fiscal 2013.
The Company uses an option pricing model to estimate the grant date fair value of stock options granted. The weighted average estimated value per option granted was $2.14 for calendar 2015; $1.89 for the transition period; $2.49 for the 2013 transition period; $2.51 in fiscal 2014; and $2.74 for fiscal 2013.
The fair value of options granted was determined using the following weighted-average assumptions as of the grant date:
|
| | | | | | | | | | | | | | |
| | For the year ended | | For the three months ended | | For the fiscal year ended |
| | December 31, | | December 31, | | September 30, |
| | 2015 | | 2014 | | 2013 | | 2014 | | 2013 |
| Risk-free interest rate | 1.8 | % | | 1.9 | % | | 1.7 | % | | 1.8 | % | | 1.0 | % |
| Expected stock price volatility | 21.2 |
| | 20.3 |
| | 26.5 |
| | 26.4 |
| | 40.8 |
|
Dividend yield (1) | 3.1 |
| | 3.2 |
| | 2.1 |
| | 2.0 |
| | 2.6 |
|
| Expected term in years | 5.76 |
| | 5.73 |
| | 5.75 |
| | 5.67 |
| | 5.75 |
|
(1) Represents the approximate annualized cash dividend rate paid with respect to a share of common stock at or near the grant date.
Stock-based compensation expense is recognized ratably over the requisite service period for all awards. Stock-based compensation expense associated with stock options and non-vested stock awards and the related income tax benefit was as follows:
|
| | | | | | | | | | | | | | | | | | | |
| | For the year ended | | For the three months ended | | For the fiscal year ended |
| | December 31, | | December 31, | | September 30, |
| | 2015 | | 2014 | | 2013 | | 2014 | | 2013 |
| Stock options | $ | 909 |
| | $ | 316 |
| | $ | 219 |
| | $ | 901 |
| | $ | 695 |
|
| Non-vested stock awards/performance units | 3,451 |
| | 828 |
| | 620 |
| | 2,508 |
| | 1,047 |
|
| Total | $ | 4,360 |
| | $ | 1,144 |
| | $ | 839 |
| | $ | 3,409 |
| | $ | 1,742 |
|
| Income tax benefit | 1,417 |
| | 378 |
| | 279 |
| | 914 |
| | 542 |
|
Unrecognized stock-based compensation expense at December 31, 2015 was as follows:
|
| | | |
| | December 31, 2015 |
| Stock options | $ | 738 |
|
| Non-vested stock awards/performance units | 7,451 |
|
| Total | $ | 8,189 |
|
The weighted average period over which unrecognized stock options is expected to be recognized is 1.55 years. The weighted average period over which unrecognized non-vested awards/performance units was expected to be recognized is 2.11 years.
(13) Pension and Other Post Retirement Benefits
(a) Pension Plans
On May 31, 2014, the Company merged the Provident Bank Benefit Pension Plan (the “Legacy Provident Plan”) and the Legacy Sterling/Sterling National Bank Employees’ Retirement Plan (the “Legacy Sterling Plan”) and formed the Sterling National Bank Defined Benefit Pension Plan (the “Plan”). The Company has a noncontributory defined benefit pension plan coveringlegacy Provident Plan covered employees that were eligible as of September 30, 2006. In July, 2006, the2006. The Board of Directors approved a curtailment to the legacy Provident Bank Defined Benefit Pension Plan (the “Plan”) effective September 30, 2006.2006. At that time, all benefit
Notes to Consolidated Financial Statements
Year ended December 31, 2015, three months ended December 31, 2014 and 2013 (unaudited) and
fiscal years ended September 30, 2014 and 2013
(Dollars in thousands, except per share data)
accruals for future service ceased and no new participants were allowed to enter the plan.Plan. The purpose of the Plan curtailment was to afford flexibility in the retirement benefits the Company provides, while preserving all retirement plan participants’ earned and vested benefits, and to manage the increasing costs associated with the defined benefit pension plan. The Legacy Sterling Plan was a defined benefit plan that covered eligible employees of Legacy Sterling and Legacy Sterling National Bank and certain of its subsidiaries who were hired prior to January 3, 2006 and who attained age 21 prior to January 3, 2007. Effective October 31, 2013, the Legacy Sterling Plan was amended and the accrued benefit of each eligible actively employed participant that had not yet commenced benefits was increased by approximately 4.4% and the accrual of future service benefits ceased.
On October 15, 2015, the Company terminated the Plan and satisfied all obligations owed to Plan participants through the purchase of annuities from a third-party insurance carrier and lump sum distributions as elected by Plan participants in an aggregate amount of $58,171. In connection with the Plan termination, the Company incurred a settlement charge of $13,384, which was comprised of the change in fair value of Plan assets of $4,068, the recognition of the remaining balance of accumulated other comprehensive loss through earnings of $7,936, and a charge representing the difference between the Company’s effective tax rate and its marginal tax rate of $1,380. The balance of the pension reversion asset is $11,442 (which is recorded in other assets in the consolidated balance sheet) at December 31, 2015. This asset will be held in custody by the Company’s 401(k) plan custodian and is expected to be charged to earnings over the next five to seven years as it is distributed to employees under qualified compensation and benefit programs.
The following is a summary of changes in the projected benefit obligation and fair value of Plan assets. The measurement date used by the Company for its pension plans was October 15, 2015, which is the date of the Plan termination, and December 31, 2014.
|
| | | | | | | |
| | December 31, |
| | 2015 | | 2014 |
| Changes in projected benefit obligation: | | | |
| Beginning of year balance | $ | 57,877 |
| | $ | 49,718 |
|
| Interest cost | 1,766 |
| | 555 |
|
| Actuarial loss | — |
| | 7,750 |
|
| Plan termination / Partial settlement | (58,171 | ) | | — |
|
| Benefits and distributions paid | — |
| | (146 | ) |
| End of year balance | 1,472 |
| | 57,877 |
|
| Changes in fair value of plan assets: | | | |
| Beginning of year balance | 72,170 |
| | 68,570 |
|
| Actual (loss) gain on plan assets | (1,085 | ) | | 3,746 |
|
| Plan termination / Partial settlement | (58,171 | ) | | — |
|
| Benefits and distributions paid | — |
| | (146 | ) |
| End of year balance | 12,914 |
| | 72,170 |
|
| Reversion asset / Funded status at end of year | $ | 11,442 |
| | $ | 14,293 |
|
The components of net periodic pension expense were as follows:
|
| | | | | | | | | | | | | | | | | | | |
| | For the year ended | | For the three months ended | | For the fiscal year ended |
| | December 31, | | December 31, | | September 30, |
| | 2015 | | 2014 | | 2013 | | 2014 | | 2013 |
| Interest cost | $ | 1,766 |
| | $ | 555 |
| | $ | 402 |
| | $ | 2,779 |
| | $ | 1,452 |
|
| Expected return on plan assets | (2,187 | ) | | (682 | ) | | (672 | ) | | (3,380 | ) | | (2,462 | ) |
| Amortization of unrecognized actuarial loss | 272 |
| | — |
| | 97 |
| | 236 |
| | 2,062 |
|
| Plan termination / Partial settlement charge | 13,384 |
| | — |
| | 2,743 |
| | 3,922 |
| | — |
|
| Net periodic pension expense (benefit) | $ | 13,235 |
| | $ | (127 | ) | | $ | 2,570 |
| | $ | 3,557 |
| | $ | 1,052 |
|
Net periodic pension expense (benefit) is included in compensation and benefits in the consolidated statements of operations; however, the termination and settlement charge for the defined benefit pension plan was presented as a separate line item due to its significance.
STERLING BANCORP AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Year ended December 31, 2015, three months ended December 31, 2014 and 2013 (unaudited) and
fiscal years ended September 30, 2014 and 2013
(Dollars in thousands, except per share data)
There were no amounts recognized in accumulated other comprehensive (loss) at December 31, 2015 due to the Plan termination. At December 31, 2014 the accumulated other comprehensive loss, net of tax was $6,159.
The principal actuarial assumptions used at December 31, 2014 were as follows:
|
| | |
| December 31, |
| 2014 |
| Projected benefit obligation: | |
| Discount rate | 4.10 | % |
| Net periodic pension cost: | |
| Discount rate | 4.10 | % |
| Long-term rate of return on plan assets | 4.00 | % |
definedThe discount rate used in the measurement of the projected benefit pension plan. obligation was determined by comparing the expected future retirement benefit payment cash flows of the Plan to the cash flows of a high-quality corporate bond portfolio as of the measurement date. The expected long-term rate of return on Plan assets reflected earnings expectations on Plan assets. In estimating this rate, appropriate consideration was given to historical returns earned by Plan assets in the funds and the rates of return that were expected to be available for reinvestment. The rate of return estimated at December 31, 2014 reflected the shift in the allocation of the Plan assets to a liability driven investment strategy, which was more heavily weighted towards long-term fixed income assets with a similar duration profile to the Plan liabilities.
The Company’s funding policy iswas to annually contribute annually an amount sufficient to meet statutory minimum funding requirements, but not in excess of the maximum amount deductible for Federal income tax purposes. Contributions arewere intended to provide not only for benefits attributed to service to date, but also for benefits expected to be earned in the future.
The following is a summary of changes in the projected benefit obligation and fair value of plan assets. The Company uses a September 30 measurement date for its pension plans.
|
| | | | | | | |
| | September 30, |
| | 2013 | | 2012 |
| Changes in projected benefit obligation: | | | |
| Beginning of year balance | $ | 35,471 |
| | $ | 30,612 |
|
| Service cost | — |
| | — |
|
| Interest cost | 1,452 |
| | 1,501 |
|
| Actuarial (gain) loss | (3,672 | ) | | 4,961 |
|
| Benefits and distributions paid | (1,546 | ) | | (1,603 | ) |
| End of year balance | 31,705 |
| | 35,471 |
|
| Changes in fair value of plan assets: | | | |
| Beginning of year balance | 32,657 |
| | 28,312 |
|
| Actual gain on plan assets | 4,306 |
| | 5,948 |
|
| Employer contributions | — |
| | — |
|
| Benefits and distributions paid | (1,546 | ) | | (1,603 | ) |
| End of year balance | 35,417 |
| | 32,657 |
|
| Funded status at end of year | $ | 3,712 |
| | $ | (2,814 | ) |
Amounts recognized in accumulated other comprehensive (loss) at September 30, 2013 and 2012 consisted of:
|
| | | | | | | |
| | September 30, |
| | 2013 | | 2012 |
| Unrecognized actuarial loss | $ | (5,479 | ) | | $ | (13,056 | ) |
| Deferred tax asset | 2,225 |
| | 5,612 |
|
| Net amount recognized in accumulated other comprehensive (loss) | $ | (3,254 | ) | | $ | (7,444 | ) |
The discount rates used to determine the actuarial present value of the projected benefit obligation and the net periodic pension expense were 5.2%, 4.1% and 5.0% at September 30, 2013, 2012 and 2011, respectively. No compensation increases were used as the Plan is frozen. The expected weighted average long-term rate of return on plan assets was 7.8% for the fiscal years ended 2013 and 2012.
Estimated future benefit payments are the following for the years ending September 30:
|
| | | |
| 2014 | $ | 1,570 |
|
| 2015 | 1,670 |
|
| 2016 | 1,790 |
|
| 2017 | 1,716 |
|
| 2018 | 1,937 |
|
| 2019 - 2023 | 10,326 |
|
STERLING BANCORP AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollars in thousands, except per share data)
The components of the net periodic pension expense were as follows:
|
| | | | | | | | | | | |
| | For the year ended September 30, |
| | 2013 | | 2012 | | 2011 |
| Service cost | $ | — |
| | $ | — |
| | $ | — |
|
| Interest cost | 1,452 |
| | 1,501 |
| | 1,498 |
|
| Expected return on plan assets | (2,462 | ) | | (2,125 | ) | | (2,343 | ) |
| Amortization of unrecognized actuarial loss | 2,062 |
| | 2,316 |
| | 1,667 |
|
| Settlement charge | — |
| | — |
| | 490 |
|
| Net periodic pension expense | $ | 1,052 |
| | $ | 1,692 |
| | $ | 1,312 |
|
The amount of unrecognized actuarial loss and prior service cost that is expected to be amortized to pension expense during the fiscal year ending September 30, 2014 is $400.
The following is a description of the valuation methodologies used for assets measured at fair value. There were no changes in the methodologies used at September 30, 2013 and 2012.in any of the periods presented. See Note 17. Fair19. “Fair Value MeasurementsMeasurements” for a detailed discussion of the three levels of inputs that may be used to measure fair values.
The fair value of the Plan assets iswas based on the lowest level of any input that iswas significant to the fair value measurement within the fair value hierarchy. Plan assets consisted of pooled separate accounts at September 30, 2013.December 31, 2014. The fair value of shares of units of participation in pooled separate accounts arewere based on the net asset values of the funds reported by the fund managers as of September 30, 2013December 31, 2014 and recent transaction prices (Level 2 inputs). Assets allocated to these pooled separate accounts can include,included, but are not limited to, stocks (both domestic and foreign), bonds and mutual funds. While some pooled separate accounts may have publicly quoted prices (Level 1 inputs), the units of separate accounts are not publicly quoted and arewere therefore classified as Level 2. The fair value of Plan assets by asset category as of September 30, 2013 and 2012,December 31, 2014 was the following:
|
| | | | | | | | | | | | | | | |
| | September 30, 2013 |
| | Fair value | | Level 1 inputs | | Level 2 inputs | | Level 3 inputs |
| Asset category: | | | | | | | |
| Large cap U.S. equity | $ | 16,378 |
| | $ | — |
| | $ | 16,378 |
| | $ | — |
|
| Small and mid cap U.S. equity | 4,443 |
| | — |
| | 4,443 |
| | — |
|
| International equity | 3,654 |
| | — |
| | 3,654 |
| | — |
|
| Total equity | 24,475 |
| | — |
| | 24,475 |
| | — |
|
| Total balanced asset allocation | 1,691 |
| | — |
| | 1,691 |
| | — |
|
| High yield bond | 1,018 |
| | — |
| | 1,018 |
| | — |
|
| Intermediate term bond | 8,233 |
| | — |
| | 8,233 |
| | — |
|
| Total fixed income | 9,251 |
| | — |
| | 9,251 |
| | — |
|
| Total assets | $ | 35,417 |
| | $ | — |
| | $ | 35,417 |
| | $ | — |
|
STERLING BANCORP AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollars in thousands, except per share data)
|
| | | | | | | | | | | | | | | |
| | September 30, 2012 |
| | Fair value | | Level 1 inputs | | Level 2 inputs | | Level 3 inputs |
| Asset category: | | | | | | | |
| Large cap U.S. equity | $ | 14,358 |
| | $ | — |
| | $ | 14,358 |
| | $ | — |
|
| Small and mid cap U.S. equity | 3,672 |
| | — |
| | 3,672 |
| | — |
|
| International equity | 3,284 |
| | — |
| | 3,284 |
| | — |
|
| Total equity | 21,314 |
| | — |
| | 21,314 |
| | — |
|
| Total balanced asset allocation | 1,646 |
| | — |
| | 1,646 |
| | — |
|
| High yield bond | 981 |
| | — |
| | 981 |
| | — |
|
| Intermediate term bond | 8,716 |
| | — |
| | 8,716 |
| | — |
|
| Total fixed income | 9,697 |
| | — |
| | 9,697 |
| | — |
|
| Total assets | $ | 32,657 |
| | $ | — |
| | $ | 32,657 |
| | $ | — |
|
|
| | | | | | | | | | | | | | | |
| | December 31, 2014 |
| | Fair value | | Level 1 inputs | | Level 2 inputs | | Level 3 inputs |
| Asset category: | | | | | | | |
| Intermediate term bond | $ | 8,763 |
| | $ | — |
| | $ | 8,763 |
| | $ | — |
|
| Long-term bond | 63,407 |
| | — |
| | 63,407 |
| | — |
|
| Total assets | $ | 72,170 |
| | $ | — |
| | $ | 72,170 |
| | $ | — |
|
The Company’s policy iswas to invest the Plan assets in a prudent manner for the purpose of providing benefit payments to participants and offsetingoffsetting reasonable expenses of administration. The Company’sAs of December 31, 2014, the majority of the Plan assets were invested in funds specifically designed for liability driven investment strategy is designed to providestrategies and had a totalweighted average expected rate of return that, over the long-term, places a strong emphasis on the preservation of capital. The strategy attempts to maximize investment returns on assets at a level of risk deemed appropriate by the Company while complying with applicable regulations and laws.4.0%.
Notes to Consolidated Financial Statements
Year ended December 31, 2015, three months ended December 31, 2014 and 2013 (unaudited) and
fiscal years ended September 30, 2014 and 2013
(Dollars in thousands, except per share data)
The Plan’s investment policy prohibits the direct investment in real estate but allows the Plan’s mutual funds to include a small percentage of real estate related investments. The investment strategy utilizes asset allocation as a principal determinant for establishing an appropriate risk profile. Weighted-averageWeighted average pension plan asset allocations based on the fair value of such assets at September 30, 2013,December 31, 2014 were 12% allocated to intermediate term bonds and September 30, 2012 and target allocations for 2013, by asset category, are as follows:
|
| | | | | | | | | | |
| | 2013 | | 2012 | | Target allocation range 2013 | | Weighted average expected rate of return |
| Large cap U.S. equity | 44 | % | | 46 | % | |
| | 10.0 | % |
| Small and mid cap U.S. equity | 11 |
| | 13 |
| |
| | 15.5 |
|
| International equity | 10 |
| | 10 |
| |
| | 12.0 |
|
| Total equity | 65 |
| | 69 |
| | 45% - 70% | | 11.3 |
|
| Total balanced asset allocation | 5 |
| | 5 |
| |
| | 6.0 |
|
| High yield bond | 3 |
| | 3 |
| |
| | 8.0 |
|
| Intermediate term bond | 27 |
| | 23 |
| |
| | 6.0 |
|
| Total fixed income | 30 |
| | 26 |
| | 20% - 40% | | 6.2 |
|
| Total assets | 100 | % | | 100 | % | | | | 9.7 |
|
| Cash | — |
| | — |
| | 0% - 20% | | — |
|
The expected88% allocated to long-term rate of return assumption as of each measurement date was determined by taking into consideration asset allocations as of each such date, historical returns on the types of assets held, and current economic factors. Under this method, historical investment returns for each major asset category are applied to the expected future investment allocation in that category as a percentage of total plan assets, and a weighted average is determined. The Company’s investment policy for determining the asset allocation targets was developed based on the desire to optimize total return while placing a strong emphasis on preservation of capital. In general, it is hoped that, in the aggregate, changes in the fair value of plan assets will be less volatile than similar changes in appropriate market indices. Returns on invested assets are periodically compared with target market indices for each asset type to aid us in evaluating such returns.
There were no pension plan assets consisting of Sterling Bancorp equity securities (common stock) at September 30, 2013 or at September 30, 2012.
The Company makes contributions to its funded qualified pension plans as required by government regulation or as deemed appropriate by management after considering the fair value of plan assets, expected returns on such assets, and the present value of benefit obligations of the plans. At this time, the Company has not determined whether contributions in fiscal 2014 will be made.
STERLING BANCORP AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollars in thousands, except per share data)
The Company has also established a non-qualified Supplemental Executive Retirement Plan (“SERP”) to provide certain executives with supplemental retirement benefits in addition to the benefits provided by the pension plan due to amounts limited by the Internal Revenue Code of 1986, as amended (“IRS Code”). The periodic pension expense for the supplemental plan amounted to $49, $41 and $44 for the years ended September 30, 2013, 2012 and 2011, respectively. Additionally, a settlement charge of $278 in 2011 was recorded reflecting the partial settlement of the defined benefit portion of the SERP relating to the benefit obligation of a former employee. The actuarial present value of the projected benefit obligation and the vested benefit obligation was $1,194 and $1,016 at September 30, 2013 and 2012, respectively, and the vested benefit obligation was $1,180 and $1,016 for the same periods, respectively, all of which is unfunded. Discount rates of 3.0% and 3.8% were used in determining the actuarial projected benefit at September 30, 2013 and 2.5% and 3.25% for September 30, 2012.bonds.
(b) Other Post retirementRetirement Benefit Plans
The Company’sCompany provides other post retirement benefit plans, which are unfunded, provideunfunded. Included in the tables below is information regarding Supplemental Executive Retirement Plans (“SERP”) to certain former directors and officers of the Company, life insurance benefits to certain directors, officers and former officers of Legacy Sterling and the Company’s optional medical, dental and life insurance benefits to retirees or death benefit payments to beneficiaries of employees covered by the Company and Bank Owned Life Insurance policies. The Company elected to amortize the transition obligation for accumulated benefits to retirees as an expense over a 20 year period.plan, which was terminated on December 31, 2014.
Data relating to theother post retirement benefit planplans is the following:
| | | | | | | | For the year ended | | For the three months ended | | For the fiscal year ended |
| | September 30, | December 31, | | December 31, | | September 30, |
| | 2013 | | 2012 | 2015 | | 2014 | | 2013 | | 2014 | | 2013 |
| Changes in accumulated post retirement benefit obligation: | | | | | | | | | | | | |
| Beginning of year | $ | 3,103 |
| | $ | 2,509 |
| $ | 11,096 |
| | $ | 10,990 |
| | $ | 3,302 |
| | $ | 3,302 |
| | $ | 3,103 |
|
| Obligations assumed in acquisitions | | 16,059 |
| | — |
| | 9,644 |
| | 9,644 |
| | — |
|
| Plan amendment | | — |
| | 45 |
| | — |
| | — |
| | — |
|
| Service cost | 48 |
| | 46 |
| 6 |
| | 3 |
| | 12 |
| | 51 |
| | 48 |
|
| Interest cost | 134 |
| | 125 |
| 373 |
| | 59 |
| | 34 |
| | 683 |
| | 134 |
|
| Actuarial loss | 177 |
| | 548 |
| 364 |
| | 72 |
| | 18 |
| | 79 |
| | 177 |
|
| Plan participants’ contributions | — |
| | — |
| |
| Amendments | — |
| | — |
| |
| Curtailment (gain) | | — |
| | — |
| | — |
| | (2,485 | ) | | — |
|
| Benefits paid | (160 | ) | | (125 | ) | (16,165 | ) | | (73 | ) | | (71 | ) | | (284 | ) | | (160 | ) |
| End of year | 3,302 |
| | 3,103 |
| 11,733 |
| | 11,096 |
| | 12,939 |
| | 10,990 |
| | 3,302 |
|
| Changes in fair value of plan assets: | | | | | | | | | | | | |
| Beginning of year | $ | — |
| | $ | — |
| $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
|
| Employer contributions | 160 |
| | 125 |
| 16,165 |
| | 73 |
| | 71 |
| | 284 |
| | 160 |
|
| Plan participants’ contributions | — |
| | — |
| — |
| | — |
| | — |
| | — |
| | — |
|
| Benefits paid | (160 | ) | | (125 | ) | (16,165 | ) | | (73 | ) | | (71 | ) | | (284 | ) | | (160 | ) |
| End of year | — |
| | — |
| — |
| | — |
| | — |
| | — |
| | — |
|
| Funded status | $ | (3,302 | ) | | $ | (3,103 | ) | $ | (11,733 | ) | | $ | (11,096 | ) | | $ | (12,939 | ) | | $ | (10,990 | ) | | $ | (3,302 | ) |
Components
In connection with the purchase of net periodic$30,000 of BOLI during the three months ended December 31, 2014, the Company provided a post retirement benefit expense:
|
| | | | | | | | | | | |
| | For the year ended September 30, |
| | 2013 | | 2012 | | 2011 |
| Service cost | $ | 48 |
| | $ | 46 |
| | $ | 38 |
|
| Interest cost | 134 |
| | 125 |
| | 107 |
|
| Amortization of transition obligation | 24 |
| | 24 |
| | 24 |
|
| Amortization of prior service cost | 47 |
| | 47 |
| | 48 |
|
| Amortization of net actuarial loss (gain) | 2 |
| | (25 | ) | | (60 | ) |
| Total | $ | 255 |
| | $ | 217 |
| | $ | 157 |
|
Total unrecognized actuarial gainIn connection with the HVB Merger, the Company assumed SERP liabilities of $16,059. The Company terminated the HVHC SERP as of the acquisition date. Plan participants received a lump-sum cash payment in July 2015 and prior service cost expected to be amortized from accumulated other comprehensive income in fiscal year 2014 is all plan obligations were satisfied.
$20.
STERLING BANCORP AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Year ended December 31, 2015, three months ended December 31, 2014 and 2013 (unaudited) and
fiscal years ended September 30, 2014 and 2013
(Dollars in thousands, except per share data)
Components of net periodic (benefit) expense for other post retirement benefit plans was the following:
|
| | | | | | | | | | | | | | | | | | | |
| | For the year ended | | For the three months ended | | For the fiscal year ended |
| | December 31, | | December 31, | | September 30, |
| | 2015 | | 2014 | | 2013 | | 2014 | | 2013 |
| Service cost | $ | 6 |
| | $ | 3 |
| | $ | 12 |
| | $ | 51 |
| | $ | 48 |
|
| Interest cost | 373 |
| | 59 |
| | 34 |
| | 683 |
| | 134 |
|
| Amortization of transition obligation | — |
| | 3 |
| | 6 |
| | 34 |
| | 24 |
|
| Amortization of prior service cost | 161 |
| | — |
| | 12 |
| | 270 |
| | 47 |
|
| Amortization of net actuarial (gain) loss | — |
| | 6 |
| | — |
| | (45 | ) | | 2 |
|
| Curtailment (gain) | — |
| | — |
| | — |
| | (2,485 | ) | | — |
|
| Total | $ | 540 |
| | $ | 71 |
| | $ | 64 |
| | $ | (1,492 | ) | | $ | 255 |
|
The Company terminated the optional medical, dental and life insurance benefits plan to retirees effective September 30, 2014 and all payments under this plan ceased on December 31, 2014. Net periodic benefit expense for other post retirement benefit plans is included in non-interest expense - compensation and employee benefits in the consolidated statements of operations for the periods presented above. The Company’s liability under its other post retirement benefit plans is included in other liabilities in the balance sheets.
Estimated future benefit payments are the following for the years ending September 30:December 31:
| | | 2014 | $ | 208 |
| |
| 2015 | 209 |
| |
| 2016 | 211 |
| $ | 175 |
|
| 2017 | 212 |
| 187 |
|
| 2018 | 215 |
| 227 |
|
| 2019 - 2023 | 1,107 |
| |
| 2019 | | 269 |
|
| 2020 | | 313 |
|
| Thereafter | | 1,849 |
|
Plan assumptions for the other post retirement medical, dental and vision plans include the following:
|
| | | | | |
| | For the year ended September 30, |
| | 2013 | | 2012 |
| Medical trend rate next year | 4.5 | % | | 4.5 | % |
| Ultimate trend rate | 4.5 |
| | 4.5 |
|
| Discount rate | 4.2 |
| | 4.1 |
|
| Discount rate used to value periodic cost | 4.1 |
| | 4.3 |
|
There is no impact of a 1% increase or decrease in health care trend rate due to the Company’s cap on cost.
Amounts recognized in accumulated other comprehensive (loss) at September 30, 2013 and 2012 consisted of the following:
|
| | | | | | | |
| | For the year ended September 30, |
| | 2013 | | 2012 |
| Post retirement plan unrecognized actuarial (gain) loss | $ | (20 | ) | | $ | 175 |
|
| Post retirement plan unrecognized service cost | (270 | ) | | (317 | ) |
| Post retirement unrecognized transition obligation | (20 | ) | | (30 | ) |
| Post retirement SERP | (307 | ) | | (400 | ) |
| Post employment BOLI | (399 | ) | | (122 | ) |
| Subtotal | (1,016 | ) | | (694 | ) |
| Deferred tax asset | 413 |
| | 282 |
|
| Net amount recognized in accumulated other comprehensive (loss) | $ | (603 | ) | | $ | (412 | ) |
|
| | | |
| | December 31, |
| | 2015 | | 2014 |
| Discount rate | 3.00% to 4.00% | | 2.75% to 3.92% |
| Discount rate used to value periodic cost | 3.00% to 4.00% | | 2.75% to 4.27% |
(c) Employee Savings Plan
The Company also sponsors a defined contribution plan established under Section 401(k) of the IRS Code. Eligible employees may elect to contribute up to 50.0% of their compensation to the plan. The Company currently makes matching contributions equal to 50.0% of a participant’s contributions up to a maximum matching contribution of 3.0% of eligible compensation. The plan also provides for a discretionary profit sharing component, in addition to the matching contributions. Fiscal year 2013 did not includeThere was no profit sharing component for any period presented in the consolidated statements of operations. However, the Company intends to implement a profit sharing component.plan in 2016 equal to 3.0% of eligible compensation of all employees, which will be funded by pension reversion asset described above. Voluntary matching and profit sharing contributions are invested in accordance with the participant’s direction in one or a number of investment options. Savings plan expense was $935, $1,029 and $1,875$1,769 for calendar 2015; $381 for the years ended September 30,transition period; $278 for the 2013, 2012 transition period; $1,614 for fiscal 2014; and 2011, respectively.$935 for fiscal 2013.
(d) Employee Stock Ownership Plan (“ESOP”)
In connection with the Second-Step Stock ConversionLegacy Provident’s second step stock conversion and Offeringoffering in January 2004,, the Company Legacy Provident established an ESOP for substantially all eligible employees who meet certain age and service requirements. The ESOP borrowed $9,987$9,987 from Sterling BancorpLegacy Provident and used the funds to purchase 998,650 shares of common stock in the offering. The term of this ESOP loan is twenty years.
ESOP shares are held by the plan trustee in a suspense account until allocated to participant accounts. Shares released from the suspense account are allocated to participants on the basis of their relative compensation in the year of allocation. Participants become vested in the allocated shares over a period not to exceed five years.was 20 years.
STERLING BANCORP AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Year ended December 31, 2015, three months ended December 31, 2014 and 2013 (unaudited) and
fiscal years ended September 30, 2014 and 2013
(Dollars in thousands, except per share data)
ESOP expense was $497, $390, and $436 for the years ended September 30, 2013, 2012 and 2011, respectively. Of the 998,650 shares of common stock acquired by the ESOP through September 30, 2013 and 2012, a total of 439,388 and 389,456 common shares, respectively, have been allocated to participants or committed to be released for allocation. The cost of ESOP shares that have not yet been allocated to participants or committed to be released for allocation is deducted from stockholders’ equity; this was 549,262 shares with a cost of $5,493 and a fair value of approximately $5,981 at September 30, 2013 and 599,194 shares with a cost of $5,992 and a fair value of approximately $5,638 at September 30, 2012.
EffectiveOn October 30, 2013, the Company terminated the ESOP plan.ESOP. In accordance with the provisions of the plan,ESOP, all participants will receivereceived contributions thefor calendar year 2013 and will become 100%became 100.0% vested in their accounts. UnallocatedOn February 4, 2014, the ESOP held 499,330 shares will be liquidated andof the Company’s common stock. Of these shares, 488,403 were used to retire the ESOP trust outstanding loan obligation. The Company estimates plan termination costs of approximately $150obligation, which will be incurred in fiscal 2014.
The Company established a supplemental savings plan for certain senior officers to compensate executives for benefits provided under the Bank’s tax qualified plans (employee’s savings plan and ESOP) that are limited by the IRS Code. Expense recognized for this planwas $5,983 including the defined benefit component was $79, $0, and $340, for the years ended September 30, 2013, 2012 and 2011, respectively. Amounts accrued and recorded in other liabilities at September 30, 2013 and 2012, including the defined benefit component were $1.2 million.
(e) Stock Compensation Plans
The Company has two active stock compensation plans, the 2004 Stock Incentive Plan (the “2004 Plan”) and the 2012 Stock Incentive Plan (the “2012 Plan”). Both the 2004 Plan and the 2012 Plan were established to help the Company promote growth and profitability by providing certain directors, key officers and employees with an incentive to achieve corporate objectives through a participation interest in the performance of the common stock of the Company.
Under the 2004 Plan, the Company may grant among other things, nonqualified stock options, incentive stock options, restricted stock awards, stock appreciation rights, or any combination thereof to certain employees and directors. The Company’s stockholders authorized the issuance of up to 798,920 shares of common stock as restricted stock awards, and 1,997,300 shares available for stock options and stock appreciation rights. The awards are subject to accelerated vesting for death, retirement and change in control. As of September 30, 2013, 11,533 restricted shares were potentially subject to accelerated vesting as the employees were eligible for retirement. A total of 191,724 options and 7,120 restricted stock awards remain available for future grant at September 30, 2013.
Under the 2012 Plan the Company may grant, in addition to the types of grants available under the 2004 Plan, performance based awards, restricted stock unit awards, other stock-based awards, or any combination thereof to certain employees and directors.
The Company’s stockholders authorized the issuance of up to 2,900,000 shares of common stock. Stock options or stock appreciation rights awards are accounted as one share for every share granted. Other awards permitted under the 2012 Plan are accounted as 3.6 shares for every share granted. As of September 30, 2013, 48,121 restricted shares were potentially subject to accelerated vesting as the employees were eligible for retirement. A total of 1,867,340 shares of common stock remain available for future grant as of September 30, 2013.
interest. In addition to the above plans, the Company provided awards under its 2011 Employment Inducement Stock Program which included options to purchase 107,256 shares of common stock and restricted stock awards covering 29,550 shares of common stock, both of which vest in four equal installments through July 2015, and performance-based restricted stock awards covering 11,820 shares which vest upon attainment of designated performance conditions in combination with continued service through December 31, 2014. These awards are governed by the terms of an award notice and the terms of the 2004 Plan.
Under the Company’s stock based compensation plans, forfeited shares are available for re-issuance. The Company generally funds restricted stock awards with treasury stock. On grant date, restricted shares awarded under the 2004 Plan and the 2012 Plan were transferred from treasury stock at cost with the difference between the fair market value on the grant date and the cost basis of the shares recorded as a reduction to retained earnings or an increase to additional paid-in capital, as applicable.
The fair market value of the restricted shares awarded under the plans is being amortized to expense on a straight-line basis over the vesting period of the underlying shares. Compensation expense related to restricted stock awards was $1,108, $276, and $168 for the years ended September 30, 2013, 2012 and 2011, respectively. The remaining unearned compensation cost of $1,239 as of September 30, 2013 is recorded as a reduction of additional paid-in capital and will be expensed over three years. The total fair value of restricted stock vested for the fiscal years ended September 30, 2013, 2012 and 2011 was $716, $157, and $73, respectively.
STERLING BANCORP AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollars in thousands, except per share data)
Under both plans, options vest over periods ranging from two to five years and have a ten-year contractual term and may be either non-qualified stock options or incentive stock options. The Company uses shares held as treasury stock to satisfy share option exercises. Currently, the Company has a sufficient number of treasury shares to satisfy expected share option exercises. Each option entitles the holder to purchase one share of common stock at an exercise price equal to the fair market value of the stock on the grant date. Employees who retire under circumstances in accordance with the termsprovisions of the Plan, may be entitled to accelerated vesting of individual awards.
As of September 30, 2013, 48,121ESOP, the remaining 10,927 shares were potentially subjectallocated ratably to accelerated vesting. Substantially all stock options outstanding are expected to vest. CompensationESOP participants. ESOP expense related to stock option awards was $634, $521 and $558$0 for the years ended September 30, 2013, 2012 and 2011, respectively.
The following table summarizes the activity in the Company’s active stock-based compensation plans for
September 30, 2013:
|
| | | | | | | | | | | | | | | | |
| | | | Non-vested stock awards/stock units outstanding | | Stock options outstanding |
| | Shares available for grant | | Number of shares | | Weighted average grant date fair value | | Number of shares | | Weighted average exercise price |
| Balance at October 1, 2012 | 2,875,877 |
| | 97,817 |
| | $ | 8.31 |
| | 1,972,480 |
| | $ | 11.04 |
|
Granted (1) | (1,028,140 | ) | | 186,900 |
| | 9.04 |
| | 360,500 |
| | 9.04 |
|
| Stock awards vested | — |
| | (65,720 | ) | | 8.94 |
| | — |
| | — |
|
| Exercised | — |
| | — |
| | — |
| | (8,250 | ) | | 7.51 |
|
| Forfeited | 225,501 |
| | (9,300 | ) | | 7.28 |
| | (203,167 | ) | | 11.06 |
|
| Canceled/expired | (7,054 | ) | | — |
| | — |
| | (7,054 | ) | | 13.97 |
|
| Balance at September 30, 2013 | 2,066,184 |
| | 209,697 |
| | $ | 8.73 |
| | 2,114,509 |
| | $ | 10.71 |
|
| Exercisable at September 30, 2013 | | | | | | | 1,386,619 |
| | $ | 11.90 |
|
(1) Reflects certain non-vested stock awards that count as 3.6 shares for each share granted.
The total intrinsic value of stock options vested (exercisable)transition period; $152 for the fiscal years ended September 30, 2013, 2012 and 2011 was $651, $33 and $0 respectively. The unrecognized compensation expense associated with stock options was $1,360 as of September 30, 2013 and is expected to be recognized over a period of 3 years.
The aggregate intrinsic value of options outstanding as of September 30, 2013 was $2,428. The aggregate intrinsic value represents the total pre-tax intrinsic value (the difference between the Company’s closing stock price on the last trading day of the year ended September 30, 2013 and the exercise price, multiplied by the number of in-the-money options). The cash received from option exercises was $62 and $0 transition period; $295 for fiscal 20132014; and 2012, respectively. There was no tax benefit recorded from the exercise of options$497 for fiscal 2013 or fiscal 2012.
A summary of stock options at September 30, 2013 follows:
|
| | | | | | | | | | | | | | | | | |
| | Outstanding | | Exercisable |
| | | | Weighted-average | | | | Weighted-average |
| | Number of stock options | | Exercise price | | Life (in years) | | Number of stock options | | Exercise price | | Life (in years) |
| Range of exercise price: | | | | | | | | | | | |
| $6.71 to $9.00 | 875,309 |
| | $ | 8.34 |
| | 8.55 | | 187,419 |
| | $ | 8.12 |
| | 8.55 |
| $9.28 to $12.64 | 263,000 |
| | 10.41 |
| | 5.64 | | 223,000 |
| | 10.60 |
| | 5.64 |
| $12.84 to $13.92 | 976,200 |
| | 12.92 |
| | 1.79 | | 976,200 |
| | 12.92 |
| | 1.79 |
| | 2,114,509 |
| | $ | 10.71 |
| | 5.06 | | 1,386,619 |
| | $ | 11.90 |
| | 5.06 |
STERLING BANCORP AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollars in thousands, except per share data)
The Company uses an option pricing model to estimate the grant date fair value of stock options granted. The weighted-average estimated value per option granted was $2.74 in 2013, $2.31 in 2012, and $2.27 in 2011.
The fair value of options granted was determined using the following weighted-average assumptions as of the grant date:
|
| | | | | | | | |
| | For the year ended September 30, |
| | 2013 | | 2012 | | 2011 |
| Risk-free interest rate | 1.0 | % | | 1.4 | % | | 2.2 | % |
| Expected stock price volatility | 40.8 |
| | 40.0 |
| | 34.5 |
|
Dividend yield (1) | 2.6 |
| | 3.0 |
| | 2.8 |
|
| Expected term in years | 5.75 |
| | 5.82 |
| | 5.90 |
|
(1) Represents the approximate annualized cash dividend rate paid with respect to a share of common stock at or near the grant date.2013.
(12)(14) Other Non-interest Expense
Other non-interest expense items are presented in the following table. Components exceeding 1% of the aggregate of total net interest income and total non-interest income are presented separately.
| | | | | | | | | | For the year ended | | For the three months ended | | For the fiscal year ended |
| | | For the year ended September 30, | December 31, | | December 31. | | September 30, |
| | | 2013 | | 2012 | | 2011 | 2015 | | 2014 | | 2013 | | 2014 | | 2013 |
| Other non-interest expense: | | | | | | | | | | | | | | | |
| Defined benefit settlement charge / CEO transition | | $ | — |
| | $ | — |
| | $ | 1,772 |
| |
| Restructuring charge (severance / branch consolidation) | | — |
| | — |
| | 3,201 |
| |
| Advertising and promotion | | 1,502 |
| | 1,849 |
| | 3,328 |
| $ | 2,522 |
| | $ | 782 |
| | $ | 309 |
| | $ | 2,358 |
| | $ | 1,502 |
|
| Professional fees | | 3,393 |
| | 4,247 |
| | 4,389 |
| 8,308 |
| | 1,314 |
| | 1,818 |
| | 6,913 |
| | 3,393 |
|
| Data and check processing | | 2,520 |
| | 2,802 |
| | 2,763 |
| 8,825 |
| | 1,424 |
| | 595 |
| | 3,439 |
| | 2,520 |
|
| ATM/debt card expense | | 1,722 |
| | 1,711 |
| | 1,584 |
| |
| ATM/debit card expense | | 552 |
| | 291 |
| | 364 |
| | 1,249 |
| | 1,722 |
|
| Insurance & surety bond premium | | 3,186 |
| | 595 |
| | 675 |
| | 2,703 |
| | 1,199 |
|
| Charge for asset write-downs, severance, retention and change in fiscal year end | | 29,046 |
| | 1,075 |
| | 22,167 |
| | 22,976 |
| | — |
|
| Charge for banking systems conversion | | — |
| | 1,418 |
| | — |
| | 3,249 |
| | — |
|
| Other | | 8,239 |
| | 7,782 |
| | 7,980 |
| 17,284 |
| | 4,252 |
| | 3,693 |
| | 15,030 |
| | 7,040 |
|
| Total other non-interest expense | | $ | 17,376 |
| | $ | 18,391 |
| | $ | 25,017 |
| $ | 69,723 |
| | $ | 11,151 |
| | $ | 29,621 |
| | $ | 57,917 |
| | $ | 17,376 |
|
| | | | | | | | |
(13)(15) Earnings Per Common Share
The following is a summary of the calculation of earnings per share (“EPS”):
| | | | For the year ended September 30, | For the year ended December 31, | | For the three months ended December 31, | | For the fiscal year ended September 30, |
| | 2013 | | 2012 | | 2011 | 2015 | | 2014 | | 2013 | | 2014 | | 2013 |
| Net income | $ | 25,254 |
| | $ | 19,888 |
| | $ | 11,739 |
| |
Weighted-average common shares outstanding for computation of basic EPS (1) | 43,734,425 |
| | 38,227,653 |
| | 37,452,596 |
| |
| Net income (loss) | | $ | 66,114 |
| | $ | 17,004 |
| | $ | (14,002 | ) | | $ | 27,678 |
| | $ | 25,254 |
|
Weighted average common shares outstanding for computation of basic EPS (1) | | 109,907,645 |
| | 83,831,380 |
| | 70,493,305 |
| | 80,268,970 |
| | 43,734,425 |
|
Common-equivalent shares due to the dilutive effect of stock options (2) | 48,628 |
| | 20,393 |
| | 946 |
| 421,708 |
| | 363,536 |
| | — |
| | 265,073 |
| | 48,628 |
|
| Weighted average common shares for computation of diluted EPS | 43,783,053 |
| | 38,248,046 |
| | 37,453,542 |
| 110,329,353 |
| | 84,194,916 |
| | 70,493,305 |
| | 80,534,043 |
| | 43,783,053 |
|
| Earnings per common share: | | | | | | | | | | | | | | |
| Basic | $ | 0.58 |
| | $ | 0.52 |
| | $ | 0.31 |
| $ | 0.60 |
| | $ | 0.20 |
| | $ | (0.20 | ) | | $ | 0.34 |
| | $ | 0.58 |
|
| Diluted | $ | 0.58 |
| | $ | 0.52 |
| | $ | 0.31 |
| 0.60 |
| | 0.20 |
| | (0.20 | ) | | 0.34 |
| | 0.58 |
|
Weighted average common shares that could be exercised that were anti-dilutive for the period(3) | | 2,394 |
| | 82,625 |
| | 2,025,501 |
| | 697,475 |
| | 1,786,608 |
|
| |
| (1) | Includes earned ESOP shares. |
STERLING BANCORP AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollars in thousands, except per share data)
| |
| (2) | Represents incremental shares computed using the treasury stock method. |
As of September 30, 2013, 2012 and 2011 there were 1,786,608, 1,771,132 and 1,871,299 stock options, respectively, that were considered anti-dilutive and were(3) Anti-dilutive shares are not included in common-equivalent shares.determining diluted earnings per share.
(14)Notes to Consolidated Financial Statements
Year ended December 31, 2015, three months ended December 31, 2014 and 2013 (unaudited) and
fiscal years ended September 30, 2014 and 2013
(Dollars in thousands, except per share data)
(16) Stockholders’ Equity
(a) Regulatory Capital
OCC regulations require banks to maintain a minimum ratio of tangible capital to total adjusted assets of 1.5%, a minimum ratio of Tier 1 (core) capital to total adjusted assets of 4.0%, and a minimum ratio of total (core and supplementary) capital to risk-weighted assets of 8.0%. The Bank met these capital requirements as of September 30, 2013.
Requirements
In connection with the Provident Merger, the Company became a bank holding company and a financial holding company as defined by the Bank Holding Company Act of 1956, as amended. Effective the quarter ending December 31, 2013, Sterling Bancorp is
Banks and bank holding companies are subject to various regulatory capital ratio requirements including: Tier 1 leverage capital to average assets, tier 1 leverage capital to risk-weighted assets,administered by the federal banking agencies. Capital adequacy guidelines, and, total capital to risk-weighted assets.
Under itsadditionally for banks, prompt corrective action regulations, the OCC is required to take certain supervisory actions (and may take additional discretionary actions) with respect to an undercapitalized institution. Such actions could have a direct material effect on the institution’s financial statements.
The regulations establish a framework for the classification of banks into five categories: well-capitalized; adequately capitalized; undercapitalized; significantly undercapitalized; and critically undercapitalized. Generally, an institution is considered well-capitalized if it has a Tier 1 (core) capital to total adjusted assets ratio of at least 5.0%, a Tier 1 risk-based capital ratio of at least 6.0%, and a total risk-based capital ratio of at least 10.0%.
The foregoing capital ratios are based, in part, on specificinvolve quantitative measures of assets, liabilities, and certain off-balance-sheetoff-balance sheet items as calculated under regulatory accounting practices. Capital amounts and classifications are also subject to qualitative judgments by the OCCregulators about capital components, risk weightingsrisk-weighting, and other factors. These
The Basel III Capital Rules became effective for the Company and the Bank on January 1, 2015 (subject to a phase-in period for certain provisions). Quantitative measures established by the Basel III Capital Rules to ensure capital adequacy require the maintenance of minimum amounts and ratios (set forth in the table below) of Common Equity Tier 1 capital (as defined in the regulations), Tier 1 capital (as defined in the regulations) and Total capital (as defined in the regulations) to risk-weighted assets (as defined, “RWA”), and of Tier 1 capital to adjusted quarterly average assets (as defined) (the “Tier 1 leverage ratio”).
The Company’s and the Bank’s Common Equity Tier 1 capital consists of common stock and related paid-in capital, net of treasury stock, and retained earnings. In connection with the adoption of the Basel III Capital Rules, we elected to opt-out of the requirement to include most components of accumulated other comprehensive income in Common Equity Tier 1 capital. Common Equity Tier 1 capital for both the Company and the Bank is reduced by goodwill and other intangible assets, net of associated deferred tax liabilities and subject to transition provisions.
Tier 1 capital includes Common Equity Tier 1 capital and additional Tier 1 capital. Total capital includes Tier 1 capital and Tier 2 capital. Tier 2 capital (as defined in the regulations) for both the Company and the Bank includes a permissible portion of the allowance for loan losses. Prior to January 1, 2015, the Company’s and the Bank’s Tier 1 capital consisted of total shareholders’ equity excluding accumulated other comprehensive income, goodwill and other intangible assets.
The Common Equity Tier 1 (beginning in 2015), Tier 1 and Total capital ratios are calculated by dividing the respective capital amounts by RWA. RWA is calculated based on regulatory requirements applyand includes total assets, excluding goodwill and other intangible assets, allocated by risk weight category, and certain off-balance-sheet items, among other things.
The Tier 1 leverage ratio is calculated by dividing Tier 1 capital by adjusted quarterly average total assets, which exclude goodwill and other intangible assets, among other things. When fully phased-in on January 1, 2019, the Basel III Capital Rules will require the Company and the Bank to maintain: (i) a minimum ratio of Common Equity Tier 1 capital to RWA of at least 4.5%, plus a 2.5% “capital conservation buffer” (which is added to the 4.5% Common Equity Tier 1 capital ratio as that buffer is phased in, effectively resulting in a minimum ratio of Common Equity Tier 1 capital to RWA of at least 7.0% upon full implementation); (ii) a minimum ratio of Tier 1 capital to RWA of at least 6.0%, plus the capital conservation buffer (which is added to the 6.0% Tier 1 capital ratio as that buffer is phased in, effectively resulting in a minimum Tier 1 capital ratio of 8.5% upon full implementation); (iii) a minimum ratio of Total capital (that is, Tier 1 plus Tier 2) to RWA of at least 8.0%, plus the capital conservation buffer (which is added to the 8.0% total capital ratio as that buffer is phased in, effectively resulting in a minimum total capital ratio of 10.5% upon full implementation); and (iv) a minimum Tier 1 leverage ratio of 4.0%.
The implementation of the capital conservation buffer will began on January 1, 2016 at the 0.625% level and will be phased in over a four-year period (increasing by that amount on each subsequent January 1, until it reaches 2.5% on January 1, 2019). The Basel III Capital Rules also provide for a “countercyclical capital buffer” that is applicable to only certain covered institutions and does not have any current applicability to the Company or the Bank.
The aforementioned capital conservation buffer is designed to absorb losses during periods of economic stress. Banking institutions with a ratio of Common Equity Tier 1 capital to RWA above the minimum but below the conservation buffer (or below the combined capital conservation buffer and countercyclical capital buffer, when the latter is applied) will face constraints on dividends, equity
Notes to Consolidated Financial Statements
Year ended December 31, 2015, three months ended December 31, 2014 and 2013 (unaudited) and
fiscal years ended September 30, 2014 and 2013
(Dollars in thousands, except per share data)
repurchases and compensation based on the amount of the shortfall.
The following table presents actual and required capital ratios as of December 31, 2015 for the Company and the Bank under the Basel III Capital Rules. The minimum required capital amounts presented include the minimum required capital levels as of December 31, 2015 based on the phase-in provisions of the Basel III Capital Rules and the minimum required capital levels as of January 1, 2019 when the Basel III Capital Rules have been fully phased-in. Capital levels required to be considered well capitalized are based upon prompt corrective action regulations, as amended, to reflect the changes under the Basel III Capital Rules.
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Actual | | Minimum capital required - Basel III phase-in schedule | | Minimum capital required - Basel III fully phased-in | | Required to be considered well capitalized |
| | Capital amount | | Ratio | | Capital amount | | Ratio | | Capital amount | | Ratio | | Capital amount | | Ratio |
| December 31, 2015 | | | | | | | | | | | | | | | |
| Common equity tier 1 to RWA: | | | | | | | | | | | | | | |
| Sterling National Bank | $ | 1,053,527 |
| | 11.45 | % | | $ | 413,951 |
| | 4.50 | % | | $ | 643,923 |
| | 7.00 | % | | $ | 597,929 |
| | 6.50 | % |
| Sterling Bancorp | 988,174 |
| | 10.74 |
| | 414,047 |
| | 4.50 |
| | 644,073 |
| | 7.00 |
| | N/A |
| | N/A |
|
| | | | | | | | | | | | | | | | |
| Tier 1 capital RWA: | | | | | | | | | | | | | | |
| Sterling National Bank | 1,053,527 |
| | 11.45 | % | | 551,934 |
| | 6.00 | % | | 781,907 |
| | 8.50 | % | | 735,912 |
| | 8.00 | % |
| Sterling Bancorp | 988,174 |
| | 10.74 |
| | 552,063 |
| | 6.00 |
| | 782,089 |
| | 8.50 |
| | N/A |
| | N/A |
|
| | | | | | | | | | | | | | | | |
| Total capital to RWA: | | | | | | | | | | | | | | |
| Sterling National Bank | 1,104,221 |
| | 12.00 | % | | 735,912 |
| | 8.00 | % | | 965,885 |
| | 10.50 | % | | 919,891 |
| | 10.00 | % |
| Sterling Bancorp | 1,038,868 |
| | 11.29 |
| | 736,084 |
| | 8.00 |
| | 966,110 |
| | 10.50 |
| | N/A |
| | N/A |
|
| | | | | | | | | | | | | | | | |
| Tier 1 leverage ratio: | | | | | | | | | | | | | | | |
| Sterling National Bank | 1,053,527 |
| | 9.65 | % | | 436,678 |
| | 4.00 | % | | 436,678 |
| | 4.00 | % | | 545,848 |
| | 5.00 | % |
| Sterling Bancorp | 988,174 |
| | 9.03 |
| | 437,629 |
| | 4.00 |
| | 437,629 |
| | 4.00 |
| | N/A |
| | N/A |
|
The following table presents actual and required capital ratios as of December 31, 2014 for the Bank and do not consider additionalthe Company under the regulatory capital retained by Sterling Bancorp.rules then in effect:
Notes to Consolidated Financial Statements
We believeYear ended December 31, 2015, three months ended December 31, 2014 and 2013 (unaudited) and
fiscal years ended September 30, 2014 and 2013
(Dollars in thousands, except per share data)
|
| | | | | | | | | | | | | | | | | | | | |
| | | | | | Regulatory requirements |
| | Actual | | Minimum capital
adequacy | | Classification as well
capitalized |
| | Capital amount | | Ratio | | Capital amount | | Ratio | | Capital amount | | Ratio |
| December 31, 2014 | | | | | | | | | | | |
| Tier 1 capital to RWA: | | | | | | | | | | | |
| Sterling National Bank | $ | 651,203 |
| | 12.00 | % | | $ | 216,988 |
| | 4.00 | % | | $ | 325,481 |
| | 6.00 | % |
| Sterling Bancorp | 569,609 |
| | 10.43 |
| | 218,405 |
| | 4.00 |
| | N/A |
| | N/A |
|
| | | | | | | | | | | | |
| Total capital to RWA: | | | | | | | | | | | |
| Sterling National Bank | 693,972 |
| | 12.79 | % | | 433,975 |
| | 8.00 | % | | 542,469 |
| | 10.00 | % |
| Sterling Bancorp | 612,378 |
| | 11.22 |
| | 436,809 |
| | 8.00 |
| | N/A |
| | N/A |
|
| | | | | | | | | | | | |
| Tier 1 leverage ratio: | | | | | | | | | | | |
| Sterling National Bank | 651,203 |
| | 9.39 | % | | 277,534 |
| | 4.00 | % | | 346,918 |
| | 5.00 | % |
| Sterling Bancorp | 569,609 |
| | 8.21 |
| | 277,352 |
| | 4.00 |
| | N/A |
| | N/A |
|
Management believes that as of September 30, 2013 and 2012December 31, 2015, the Bank met all capital adequacy requirements to which it was subject. Further,“well-capitalized”. At December 31, 2015, and December 31, 2014, the most recent OCC notificationregulatory notifications categorized the Bank as a well-capitalized institutionwell capitalized under the regulatory framework for prompt corrective action regulations.action. There have beenare no conditions or events since that notification that we believemanagement believes have changed the Bank’s capital classification.category.
The following is a summary of the Bank’s actual regulatory capital amounts and ratios at September 30, 2013 and 2012, compared to the OCC requirements for minimum capital adequacy and for classification as a well-capitalized institution.
STERLING BANCORP AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollars in thousands, except per share data)
|
| | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | OCC requirements |
| | | Bank actual | | Minimum capital adequacy | | Classification as well- capitalized |
| |
| | | Amount | | Ratio | | Amount | | Ratio | | Amount | | Ratio |
| | September 30, 2013: | | | | | | | | | | | |
| | Tier 1 leverage | $ | 363,274 |
| | 9.3 | % | | $ | 155,670 |
| | 4.0 | % | | $ | 194,587 |
| | 5.0 | % |
| | Risk-based capital: | | | | | | | | | | | |
| | Tier 1 | 363,274 |
| | 13.2 |
| | — |
| | — |
| | 165,352 |
| | 6.0 |
|
| | Total | 392,376 |
| | 14.2 |
| | 220,469 |
| | 8.0 |
| | 275,587 |
| | 10.0 |
|
| | September 30, 2012: | | | | | | | | | | | |
| | Tier 1 leverage | $ | 289,441 |
| | 7.5 | % | | $ | 153,469 |
| | 4.0 | % | | $ | 191,836 |
| | 5.0 | % |
| | Risk-based capital: | | | | | | | | | | | |
| | Tier 1 | 289,441 |
| | 12.1 |
| | — |
| | — |
| | 143,085 |
| | 6.0 |
|
| | Total | 317,929 |
| | 13.3 |
| | 190,780 |
| | 8.0 |
| | 238,475 |
| | 10.0 |
|
Tangible and Tier 1 capital amounts represent the stockholder’s equity of the Bank, less intangible assets and after-tax net unrealized gains (losses) on securities available for sale and any other disallowed assets, such as deferred income taxes. Total capital represents Tier 1 capital plus the allowance for loan losses up to a maximum amount equal to 1.3% of risk-weighted assets.
The following is aA reconciliation of the Company’s and the Bank’s total stockholder’sstockholders’ equity under accounting principles generally accepted in the United States of America (“GAAP”)to their respective regulatory capital at December 31, 2015 and its regulatory capital:
2014 is as follows:
|
| | | | | | | |
| | September 30, |
| | 2013 | | 2012 |
| Total GAAP stockholder’s equity (Sterling National Bank) | $ | 516,281 |
| | $ | 466,037 |
|
| Goodwill and certain intangible assets | (168,122 | ) | | (169,525 | ) |
| Unrealized losses (gains) on securities available for sale included in other accumulated comprehensive income (loss) | 11,455 |
| | (15,077 | ) |
| Disallowed servicing asset | (198 | ) | | (162 | ) |
| Other comprehensive loss | 3,858 |
| | 8,168 |
|
| Tier 1 risk-based capital | 363,274 |
| | 289,441 |
|
| Allowance for loan losses and off-balance sheet commitments | 29,102 |
| | 28,488 |
|
| Total risk-based capital | $ | 392,376 |
| | $ | 317,929 |
|
|
| | | | | | | | | | | | | | | |
| | The Company | | The Bank |
| | December 31, | | December 31, |
| | 2015 | | 2014 | | 2015 | | 2014 |
| Total U.S. GAAP stockholders’ equity | $ | 1,665,073 |
| | $ | 975,200 |
| | $ | 1,705,841 |
| | $ | 1,024,361 |
|
| Disallowed goodwill and other intangible assets | (689,023 | ) | | (415,842 | ) | | (664,225 | ) | | (383,406 | ) |
| Net unrealized loss on available for sale securities | 6,999 |
| | 3,669 |
| | 6,992 |
| | 3,666 |
|
| Net accumulated other comprehensive income components | 5,125 |
| | 6,582 |
| | 4,919 |
| | 6,582 |
|
| Tier 1 risk-based capital | 988,174 |
| | 569,609 |
| | 1,053,527 |
| | 651,203 |
|
| Allowance for loan losses and off-balance sheet commitments | 50,694 |
| | 42,769 |
| | 50,694 |
| | 42,769 |
|
| Total risk-based capital | $ | 1,038,868 |
| | $ | 612,378 |
| | $ | 1,104,221 |
| | $ | 693,972 |
|
(b) Dividend PaymentsRestrictions
OCCThe Company is mainly dependent upon dividends from the Bank to provide funds for the payment of dividends to stockholders and to provide for other cash requirements. Banking regulations may limit the amount of cash dividends that canmay be madepaid. Approval by regulatory authorities is required if the effect of dividends declared would cause the regulatory capital of the Bank to fall below specified minimum levels. Approval is also required if dividends declared exceed the Company. Furthermore, becausenet profits for that year combined with the retained net profits for the preceding two years. Under the foregoing dividend restrictions, and while maintaining its “well-capitalized” status, at December 31, 2015, the Bank is a subsidiaryhad capacity to pay aggregate dividends of a holding company, it must file a notice withup to $68,383 to the Federal Reserve at least 30 days beforeCompany without prior regulatory approval.
(c) Stock Repurchase Plans
From time to time, the Bank’sCompany’s Board of Directors declares a dividend. This notice may be disapproved if the Federal Reserve finds that:
the Bank would be undercapitalized or worse following the dividend;
the proposed dividend raises safety and soundness concerns; or
the dividend would violate a prohibition contained in any statute, regulation, enforcement action, or agreement with or condition imposed by an appropriate federal banking agency.
Under OCC regulations, the Bank generally may declare annual cash dividends up to an amount equal to the sum of net income for the current calendar year and net income retained for the two preceding calendar years. Dividend payments in excess of this amount require OCC approval. After September 30, 2013 the amount that can be paid to Sterling Bancorp by Sterling National Bank is $35.8 million plus earnings for the remainder of calendar year 2013. The Bank did not pay dividends to Sterling Bancorp during the fiscal year ended September 30, 2013. The Bank paid dividends to Sterling Bancorp of $6.0 million during the fiscal year ended 2012 and $10.0 million during the fiscal year ended September 30, 2011.
STERLING BANCORP AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollars in thousands, except per share data)
has authorized stock repurchase plans. The Company has 776,713 shares that are available to be purchased under an announced stock repurchase program. There were no shares repurchased under the repurchase programs during calendar 2015, the transition period, the 2013 transition period, fiscal year2014 or fiscal 2013.
Notes to Consolidated Financial Statements
Year ended December 31, 2015, three months ended December 31, 2014 and 2013 (unaudited) and
fiscal years ended September 30, 20132014 and 2012 . The total number of shares repurchased under repurchase programs during fiscal2011 was 457,454 at a total cost of $3.8 million.2013
(Dollars in thousands, except per share data)
(c)(d) Liquidation Rights
Upon completion of the second-step conversion in January 2004, the Bank established a special “liquidation account” in accordance with OCC regulations. The account was established for the benefit of Eligible Account Holders and Supplemental Eligible Account Holders (as defined in the plan of conversion) in an amount equal to the greater of (i) the Mutual Holding Company’s ownership interest in the retained earnings of the Bank as of the date of its latest balance sheet contained in the prospectus,prospectus; or (ii) the retained earnings of the Bank at the time that the Bank reorganized into the Mutual Holding Company in 1999. Each Eligible Account Holder and Supplemental Eligible Account Holder that continues to maintain his or her deposit account at the Bank would be entitled, in the event of a complete liquidation of the Bank, to a pro rata interest in the liquidation account prior to any payment to the stockholders of the Holding Company.Company (as defined in the plan of conversion). The liquidation account is reduced annually on September 30 to the extent that Eligible Account Holders and Supplemental Eligible Account Holders have reduced their qualifying deposits as of each anniversary date. At September 30, 2013December 31, 2015, the liquidation account had a balance of $13.3 million.$13,300. Subsequent increases in deposits do not restore such account holder’s interest in the liquidation account. The Bank may not pay cash dividends or make other capital distributions if the effect thereof would be to reduce its stockholder’s equity below the amount of the liquidation account.
(15)(17) Off-Balance-Sheet Financial Instruments
In the normal course of business, the Company enters into various transactions, which in accordance with generally accepted accounting principlesGAAP are not included in its consolidated balance sheet.sheets. The Company enters into these transactions to meet the financing needs of its customers. These transactions include commitments to extend credit and standby letters of credit, which involve, to varying degrees, elements of credit risk and interest rate risk in excess of the amounts recognized in the consolidated balance sheets. The Company minimizes its exposure to loss under these commitments by subjecting them to credit approval and monitoring procedures.
The Company enters into contractual commitments to extend credit, normally with fixed expiration dates or termination clauses, at specified rates and for specific purposes. Substantially all of the Company’s commitments to extend credit are contingent upon customers maintaining specific credit standards at the time of loan funding. Standby letters of credit are written conditional commitments issued by the Company to guarantee the performance of a customer to a third party.third-party. In the event the customer does not perform in accordance with the terms of the agreement with the third party,third-party, the Company would be required to fund the commitment. The maximum potential amount of future payments the Company could be required to make is represented by the contractual amount of the commitment. If the commitment were funded, the Company would be entitled to seek recovery from the customer. Based on the Company’s credit-riskcredit risk exposure assessment of standby letter of credit arrangements, the arrangements contain security and debt covenants similar to those contained in loan agreements. As of September 30, 2013,December 31, 2015, the Company had $35,052$102,930 in outstanding letters of credit, of which $17,159$36,861 were secured by cash collateral and $28,812 were secured by other collateral. The carrying value of these obligations are not considered material.
The contractual or notional amounts of these instruments, which reflect the extent of the Company’s involvement in particular classes of off-balance sheet financial instruments, are summarized as follows:
| | | | September 30, | December 31, |
| | 2013 | | 2012 | 2015 | | 2014 |
| Loan origination commitments | $ | 171,032 |
| | $ | 125,729 |
| $ | 269,636 |
| | $ | 208,486 |
|
| Unused lines of credit | 207,201 |
| | 265,940 |
| 660,915 |
| | 332,295 |
|
| Letters of credit | 35,052 |
| | 26,441 |
| 102,930 |
| | 83,316 |
|
STERLING BANCORP AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Year ended December 31, 2015, three months ended December 31, 2014 and 2013 (unaudited) and
fiscal years ended September 30, 2014 and 2013
(Dollars in thousands, except per share data)
(16)(18) Commitments and Contingencies
Certain premises and equipment are leased under operating leases with terms expiring through 2033. The Company has the option to renew certain of these leases for additional terms. Future minimum rental payments due under non-cancelablenon-cancellable operating leases with initial or remaining terms of more than one year at September 30, 2013December 31, 2015 were as follows:
| | | 2014 | $ | 3,458 |
| |
| 2015 | 3,220 |
| |
| 2016 | 3,131 |
| $ | 11,656 |
|
| 2017 | 3,152 |
| 10,724 |
|
| 2018 | 3,118 |
| 9,546 |
|
| 2019 and thereafter | 16,083 |
| |
| 2019 | | 7,310 |
|
| 2020 | | 5,955 |
|
| 2021 and thereafter | | 27,792 |
|
| | $ | 32,162 |
| $ | 72,983 |
|
Occupancy and office operations expense includes net rent expense of $3,340, $2,952 and $2,845$9,566 for calendar 2015; $2,450 for the years ended September 30,transition period; $2,157 for the 2013, 2012 transition period; $7,893 for fiscal 2014 and 2011, respectively.$3,340 for fiscal 2013.
Litigation
The Company and the Bank are involved in a number of judicial proceedings concerning matters arising from conducting their business activities. These include routine legal proceedings arising in the ordinary course of business. These proceedings also include actions brought against the Company and the Bank with respect to corporate matters and transactions in which the Company and the Bank were involved. In addition, the Company and the Bank may be requested to provide information or otherwise cooperate with government authorities in the conduct of investigations of other persons or industry groups.
There can be no assurance as to the ultimate outcome of a legal proceeding; however, the Company and the Bank have generally denied, or believe they have meritorious defenses and will deny, liability in all significant litigation pending against us including the matters described below, and we intend to defend vigorously each case, other than matters we describe as havingdetermine are appropriate to be settled. We accrue a liability for legal claims when payments associated with the claims become probable and the costs can be reasonably estimated. The actual costs of resolving legal claims may be substantially higher or lower than the amounts accrued for those claims.
Between April 9, 2013 and June 5, 2013, eight actions were filed on behalf of a putative class of Legacy Sterling shareholders against Legacy Sterling, its current directors, and Provident New York Bancorp in connection with the Merger described in Note 22. Subsequent Events. The first seven of the actions were filed in the Supreme Court of the State of New York, New York County; the eighth action was filed in the United States District Court for the Southern District of New York. On May 17, 2013, the seven state court actions were consolidated under the caption In re Sterling Shareholders Litigation, Index No. 651263/2013 (Sup. Ct., N.Y. Cnty.). On June 21, 2013, the lead plaintiffs in the consolidated state court action filed an amended class action complaint alleging that Legacy Sterling’s board of directors breached its fiduciary duties by agreeing to the proposed merger transaction and by failing to disclose all material information to shareholders. The consolidated and amended complaint also alleges that Provident New York Bancorp has aided and abetted those alleged fiduciary breaches. The consolidated state court action seeks, among other things, an order enjoining the defendants from proceeding with or consummating the merger, as well as other equitable relief and/or money damages in the event that the transaction is consummated. The federal action, captioned Miller v. Sterling Bancorp, et al., No. 13 CV 3845 (S.D.N.Y.), alleges the same breach of fiduciary duty and aiding and abetting claims against defendants, and also alleges defendants’ preliminary proxy statement was inaccurate or incomplete in violation of Sections 14(a) and 20(a) of the Securities Exchange Act of 1934. The plaintiff in the federal action agreed to coordinate his case with the earlier-filed consolidated state court action.
On September 12, 2013, following certain coordinated discovery and negotiations among counsel, the parties to these actions entered into a memorandum of understanding regarding a settlement in principle of this litigation. Although Legacy Sterling and Provident New York Bancorp believed that the disclosures concerning the proposed merger were accurate and complete in all material respects, to avoid the risk that the lawsuits could delay or otherwise adversely affect the consummation of the proposed merger and to minimize the expense and burden of defending such actions, the defendants agreed to make certain supplemental disclosures, which were set forth in a Form 8-K Current Report filed by Legacy Sterling with the U.S. Securities and Exchange Commission on September 12, 2013. The proposed settlement is subject to, among other things, certain confirmatory discovery
STERLING BANCORP AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollars in thousands, except per share data)
and approval of the New York State Supreme Court. Under the terms of the proposed settlement, following final approval by the court, each of the state and federal actions will be dismissed with prejudice.
(17)(19) Fair value measurements
Fair value is the exchange price that would be received for an asset or paid to transfer a liability (exit price) in an orderly transaction occurring in the principal or most advantageous market for thesuch asset or liability in an orderly transaction betweenliability. In estimating fair value, we estimate valuation techniques that are consistent with the market participants onapproach, the measurement date. Thereincome approach and/or the cost approach. Such valuation techniques are consistently applied. ASC Topic 820 Fair Value Measurements and Disclosures establishes a fair value hierarchy comprised of three levels of inputs that may be used to measure fair values.
Level 1 Inputs – Unadjusted quoted prices in active markets for identical assets and liabilities that the reporting entity has the ability to access at the measurement date.
Level 2 Inputs – Inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly. These might include quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable for the asset or liability (such as interest rates, volatilities, prepayment speeds, credit risk, etc.) or inputs that are derived principally from, or corroborated by, market data by correlation or other means.
Level 3 Inputs – Unobservable inputs for determining the fair valuesvalue of assets or liabilities that reflect an entity’s own assumptions about the assumptions that market participants would use in pricing the assets or liabilities.
In general, fair value is based on quoted market prices, when available. If quoted market prices in active markets are not available, fair value is based on internally developed models that primarily use, as inputs, observable market-based parameters. Valuation adjustments may be made to ensure that financial instruments are recorded at fair value. These adjustments may include amounts to reflect counterparty credit quality and the Company’s creditworthiness, among other things, as well as unobservable parameters. Any
Notes to Consolidated Financial Statements
Year ended December 31, 2015, three months ended December 31, 2014 and 2013 (unaudited) and
fiscal years ended September 30, 2014 and 2013
(Dollars in thousands, except per share data)
such valuation adjustments are applied consistently over time. The Company’s valuation methodologies may produce a fair value calculation that may not be indicative of net realizable value or reflective of future fair values. While management believes the Company’s valuation methodologies are appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different estimate of fair value at the reporting date. Furthermore, the reported fair value amounts have not been comprehensively revalued since the presentation dates, and therefore, estimates of fair value after the balance sheet date may differ significantly from the amounts presented herein. A more detailed description of the valuation methodologies used for assets and liabilities measured at fair value is set forth below. Transfers between levels of the fair value hierarchy are recognized on the actual date of the event or circumstances that caused the transfer, which generally coincidescoincide with the Company’s monthly and/or quarterly valuation process.
Investment Securities Available for Sale
The majority of the Company’s available for sale investment securities are reported at fair value utilizing Level 2 inputs. For these securities, the Company obtains fair value measurements from an independent pricing service. The fair value measurements consider observable data that may include dealer quotes, market spreads, cash flows, the U.S. Treasury yield curve, live trading levels, trade execution data, market consensus prepayment speeds, credit information and the securities’ terms and conditions, among other things.
The Company reviews the prices supplied by the independent pricing service, as well as their underlying pricing methodologies, for reasonableness and to ensure such prices are aligned with traditional pricing matrices. In general, the Company does not purchase investment securities that have a complicated structure. The Company’s entire portfolio consists of traditional investments, nearly all of which are mortgage pass-through securities, state and municipal general obligation or revenue bonds, U.S. agency bullet and callable securities and corporate bonds. Pricing for such instruments is fairly generic and is generally easily obtained. From time to time, the Company validates, on a sample basis, prices supplied by the independent pricing service by comparison to prices obtained from third-party sources or derived using internal models.
The Company reports the fair value of private label collateralized mortgage obligations or “CMOs” with a rating from a national recognized bond rating agency of below investment grade using Level 3 inputs. As of September 30, 2013, these securities have an amortized cost of $3,636 and a fair value of $3,613. In determining the fair value of these securities the Company utilized unobservable inputs which reflect assumptions regarding the inputs that management believes market participants would use in pricing these securities in an orderly market. Significant increases (decreases) inAt December 31, 2015, we do not believe any of the unobservable inputs would result inour securities are OTTI; however, we review all of our securities on at least a
STERLING BANCORP AND SUBSIDIARIES
Notes quarterly basis to Consolidated Financial Statements
(Dollars in thousands, except per share data)
significantly lower (higher) fair value measurement of the securities. Present value estimated cash flow models were used to discount expected cash flows at the interest rate reflective of similarly structured securities in an orderly market. These securities have a weighted average coupon rate of 3.12%, a weighted average life of 3.49 years, and a weighted average twelve month constant prepayment rate history of 20.39 years.The two private label CMOs with sub-investment grade ratings have a weighted average twelve month constant default rate of 4.30%. There was $14 of OTTI recognized on these securities during the year ended September 30, 2013.
The credit ratings of these securities were as follows at September 30, 2013:
|
| | | | | | | |
| | Amortized cost | | Fair value |
| Baa1 | $ | 246 |
| | $ | 248 |
|
| Ba1 | 102 |
| | 101 |
|
| B1 | 1,931 |
| | 1,919 |
|
| B3 | 1,357 |
| | 1,345 |
|
| Total private label CMOs | $ | 3,636 |
| | $ | 3,613 |
|
Derivatives
The fair values of derivatives are based on valuation models using current market terms (including interest rates and fees), the remaining terms of the agreements and the credit worthiness of the counter-partycounterparty as of the measurement date, (Level 2).which are considered Level 2 inputs. The Company’s derivatives at December 31, 2015, consist of two interest rate caps and twelve interest rate swaps. See(See Note 9. Derivatives.10. “Derivatives.”)
Commitments to Sell Real Estate Loans
The Company enters into various commitments to sell real estate loans in the secondary market. Such commitments are considered to be derivative financial instruments and therefore are carried at estimated fair value on the consolidated balance sheets. The estimated fair values of these commitments were generally calculated by reference to quoted prices in secondary markets for commitments to sell real estate loans to certain government sponsored agencies. The fair values of these commitments generally result in a Level 2 classification. The fair value of these commitments is not material.
Notes to Consolidated Financial Statements
Year ended December 31, 2015, three months ended December 31, 2014 and 2013 (unaudited) and
fiscal years ended September 30, 2014 and 2013
(Dollars in thousands, except per share data)
A summary of assets and liabilities at September 30, 2013December 31, 2015 measured at estimated fair value on a recurring basis is as follows:
|
| | | | | | | | | | | | | | | |
| | September 30, 2013 |
| | Fair value | | Level 1 inputs | | Level 2 inputs | | Level 3 inputs |
| Available for sale securities: | | | | | | | |
| Residential mortgage-backed securities: | | | | | | | |
| Fannie Mae | $ | 211,438 |
| | $ | — |
| | $ | 211,438 |
| | $ | — |
|
| Freddie Mac | 67,629 |
| | — |
| | 67,629 |
| | — |
|
| Ginnie Mae | 3,462 |
| | — |
| | 3,462 |
| | — |
|
| CMO/Other MBS | 163,041 |
| | — |
| | 163,041 |
| | — |
|
| Privately issued CMOs | 3,613 |
| | — |
| | — |
| | 3,613 |
|
| Total residential mortgage-backed securities | 449,183 |
| | — |
| | 445,570 |
| | 3,613 |
|
| Federal agencies | 261,547 |
| | — |
| | 261,547 |
| | — |
|
| Corporate bonds | 114,933 |
| | — |
| | 114,933 |
| | — |
|
| State and municipal | 128,730 |
| | — |
| | 128,730 |
| | — |
|
| Total available for sale securities | 954,393 |
| | — |
| | 950,780 |
| | 3,613 |
|
| Interest rate caps and swaps | 997 |
| | — |
| | 997 |
| | — |
|
| Total assets | $ | 955,390 |
| | $ | — |
| | $ | 951,777 |
| | $ | 3,613 |
|
| Swaps | $ | 997 |
| | $ | — |
| | $ | 997 |
| | $ | — |
|
| Total liabilities | $ | 997 |
| | $ | — |
| | $ | 997 |
| | $ | — |
|
|
| | | | | | | | | | | | | | | |
| | December 31, 2015 |
| | Fair value | | Level 1 inputs | | Level 2 inputs | | Level 3 inputs |
| Assets: | | | | | | | |
| Investment securities available for sale: | | | | | | | |
| Residential MBS: | | | | | | | |
| Agency-backed | $ | 1,217,862 |
| | $ | — |
| | $ | 1,217,862 |
| | $ | — |
|
| CMO/Other MBS | 78,373 |
| | — |
| | 78,373 |
| | — |
|
| Total residential MBS | 1,296,235 |
| | — |
| | 1,296,235 |
| | — |
|
| Federal agencies | 84,267 |
| | — |
| | 84,267 |
| | — |
|
| Corporate bonds | 314,188 |
| | — |
| | 314,188 |
| | — |
|
| State and municipal | 189,035 |
| | — |
| | 189,035 |
| | — |
|
| Trust preferred | 28,517 |
| | — |
| | 28,517 |
| | — |
|
| Other | 8,790 |
| | — |
| | 8,790 |
| | — |
|
| Total other securities | 624,797 |
| | — |
| | 624,797 |
| | — |
|
| Total investment securities available for sale | 1,921,032 |
| | — |
| | 1,921,032 |
| | — |
|
| Swaps | 1,839 |
| | — |
| | 1,839 |
| | — |
|
| Total assets | $ | 1,922,871 |
| | $ | — |
| | $ | 1,922,871 |
| | $ | — |
|
| Liabilities: | | | | | | | |
| Swaps | 1,839 |
| | $ | — |
| | $ | 1,839 |
| | $ | — |
|
| Total liabilities | $ | 1,839 |
| | $ | — |
| | $ | 1,839 |
| | $ | — |
|
STERLING BANCORP AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Year ended December 31, 2015, three months ended December 31, 2014 and 2013 (unaudited) and
fiscal years ended September 30, 2014 and 2013
(Dollars in thousands, except per share data)
A summary of assets and liabilities at September 30, 2012December 31, 2014 measured at estimated fair value on a recurring basis is theas follows:
| | | | September 30, 2012 | December 31, 2014 |
| | Fair value | | Level 1 inputs | | Level 2 inputs | | Level 3 inputs | Fair value | | Level 1 inputs | | Level 2 inputs | | Level 3 inputs |
| Available for sale securities: | | | | | | | | |
| Residential mortgage-backed securities: | | | | | | | | |
| Fannie Mae | $ | 161,407 |
| | $ | — |
| | $ | 161,407 |
| | $ | — |
| |
| Freddie Mac | 85,260 |
| | — |
| | 85,260 |
| | — |
| |
| Ginnie Mae | 4,778 |
| | — |
| | 4,778 |
| | — |
| |
| Assets: | | | | | | | | |
| Investment securities available for sale: | | | | | | | | |
| Residential MBS: | | | | | | | | |
| Agency-backed | | $ | 533,663 |
| | $ | — |
| | $ | 533,663 |
| | $ | — |
|
| CMO/Other MBS | 188,434 |
| | — |
| | 188,434 |
| | — |
| 84,838 |
| | — |
| | 84,838 |
| | — |
|
| Privately issued CMOs | 4,630 |
| | — |
| | — |
| | 4,630 |
| |
| Total residential mortgage-backed securities | 444,509 |
| | — |
| | 439,879 |
| | 4,630 |
| |
| Total residential MBS | | 618,501 |
| | — |
| | 618,501 |
| | — |
|
| Federal agencies | 408,823 |
| | — |
| | 408,823 |
| | — |
| 147,156 |
| | — |
| | 147,156 |
| | — |
|
| Corporate bonds | | 204,831 |
| | — |
| | 204,831 |
| | — |
|
| State and municipal | 156,481 |
| | — |
| | 156,481 |
| | — |
| 132,065 |
| | — |
| | 132,065 |
| | — |
|
| Equities | 1,059 |
| | — |
| | 1,059 |
| | — |
| |
| Trust preferred | | 38,293 |
| | — |
| | 38,293 |
| | — |
|
| Total investment securities available for sale | | 522,345 |
| | — |
| | 522,345 |
| | — |
|
| Total available for sale securities | 1,010,872 |
| | — |
| | 1,006,242 |
| | 4,630 |
| 1,140,846 |
| | — |
| | 1,140,846 |
| | — |
|
| Interest rate caps and swaps | 2,487 |
| | — |
| | 2,487 |
| | — |
| 1,332 |
| | — |
| | 1,332 |
| | — |
|
| Total assets | $ | 1,013,359 |
| | $ | — |
| | $ | 1,008,729 |
| | $ | 4,630 |
| $ | 1,142,178 |
| | $ | — |
| | $ | 1,142,178 |
| | $ | — |
|
| Liabilities: | | | | | | | | |
| Swaps | $ | 2,485 |
| | $ | — |
| | $ | 2,485 |
| | $ | — |
| $ | 1,332 |
| | $ | — |
| | $ | 1,332 |
| | $ | — |
|
| Total liabilities | $ | 2,485 |
| | $ | — |
| | $ | 2,485 |
| | $ | — |
| $ | 1,332 |
| | $ | — |
| | $ | 1,332 |
| | $ | — |
|
The changes in Level 3 assets measured at fair value on a recurring basis are summarized below:
|
| | | |
| | Change in Level 3 assets |
| Balance at September 30, 2010 | $ | 5,996 |
|
| Paydowns | (908 | ) |
| Accretion, net | 1 |
|
| OTTI | (75 | ) |
| Change in fair value | (163 | ) |
| Balance at September 30, 2011 | 4,851 |
|
| Paydowns | (675 | ) |
| Accretion, net | 15 |
|
| OTTI | (47 | ) |
| Change in fair value | 486 |
|
| Balance at September 30, 2012 | 4,630 |
|
| Paydowns | (1,018 | ) |
| Accretion, net | 3 |
|
| OTTI | (14 | ) |
| Change in fair value | 12 |
|
| Balance at September 30, 2013 | $ | 3,613 |
|
Changes in fair value are included as part of net unrealized holding gains (losses) on securities available for sale net of related tax expense on the Consolidated Statements of Comprehensive Income (Loss).
STERLING BANCORP AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollars in thousands, except per share data)
The following categories of financial assets are not measured at fair value on a recurring basis, but are subject to fair value adjustments in certain circumstances:circumstances (for example, when there is evidence of impairment).
Loans Held for Sale and Impaired Loans
Mortgage loans originated and intended for sale in the secondary market are carried at the lower of aggregate cost or fair value as determined by outstanding commitments from investors. Fair value of loans held for sale is determined using quoted prices for similar assets (Levelwhich are Level 2 inputs).inputs.
When mortgage loans held for sale are sold with servicing rights retained, the carrying value of mortgage loans sold is reduced by the amount allocated to the value of the servicing rights, which is equal to its fair value. Gains and losses on sales of mortgage loans are based on the difference between the selling price and the carrying value of the related loan sold.
The Company may record adjustments to the carrying value of loans based on fair value measurements, forgenerally as partial charge-offs of the uncollectible portions of these loans. These adjustments also include certain impairment amounts for collateral dependent loans calculated in accordance with FASB ASC Topic 310 – ReceivablesReceivables. , when establishing the allowance for loan losses. Impairment amounts are generally based on the fair value of the underlying collateral supporting the loan and, as a result, the carrying value of the loan less the calculated impairment amount applicable to that loan does not necessarily represent the fair value of the loan. Real estate collateral is valued using independent appraisals or other indications of value based on recent comparable sales of similar properties or assumptions generally observable by market participants. However, due to the substantial judgment applied and limited volume of activity as compared to other assets, fair value is based on Level 3 inputs. Estimates of fair value used for collateral supporting commercial loans generally are based on assumptions not observable in the market place and are also based on Level 3 inputs. Impaired loans are evaluated on at least a quarterly basis for additional impairment and their carrying values are adjusted as needed. Loans subject to non-recurring fair value measurements were $35,230$28,372 and $50,078 which equals the carrying value less the allowance for loan losses allocated to these loans$31,023 at September 30, 2013December 31, 2015, and 2012,2014, respectively. Changes in fair value recognized in provisionsas a charge-off on loans held by the Company were $2,726 and $5,088$0 for calendar 2015; $567 for the twelvetransition period; $905 for fiscal 2014; and $2,726 for fiscal 2013 (unaudited).
Notes to Consolidated Financial Statements
Year ended December 31, 2015, three months ended December 31, 2014 and 2013 (unaudited) and
fiscal years ended September 30, 20132014 and 2012, respectively.2013
(Dollars in thousands, except per share data)
When valuing impaired loans that are collateral dependent, the Company charges-off the difference between the recorded investment in the loan and the appraised value, which is generally less than 12 months old. A discount for estimated costs to dispose of the asset is used when evaluating the impaired loans. Nearly all of our impaired loans are considered collateral dependent.
A summary of impaired loans at September 30, 2013December 31, 2015 measured at estimated fair value on a non-recurring basis is the following:
|
| | | | | | | | | | | | | | | |
| | September 30, 2013 |
| | Fair value | | Level 1 inputs | | Level 2 inputs | | Level 3 inputs |
| Commercial real estate | $ | 3,672 |
| | $ | — |
| | $ | — |
| | $ | 3,672 |
|
| Commercial & industrial | 500 |
| | — |
| | — |
| | 500 |
|
| Acquisition, development and construction | 1,839 |
| | — |
| | — |
| | 1,839 |
|
| Consumer | 2 |
| | — |
| | — |
| | 2 |
|
| Total impaired loans measured at fair value | $ | 6,013 |
| | $ | — |
| | $ | — |
| | $ | 6,013 |
|
|
| | | | | | | | | | | | | | | |
| | December 31, 2015 |
| | Fair value | | Level 1 inputs | | Level 2 inputs | | Level 3 inputs |
| CRE | $ | 3,218 |
| | $ | — |
| | $ | — |
| | $ | 3,218 |
|
| Total impaired loans measured at fair value | $ | 3,218 |
| | $ | — |
| | $ | — |
| | $ | 3,218 |
|
A summary of impaired loans at September 30, 2012December 31, 2014 measured at estimated fair value on a non-recurring basis is the following:
|
| | | | | | | | | | | | | | | |
| | September 30, 2012 |
| | Fair value | | Level 1 inputs | | Level 2 inputs | | Level 3 inputs |
| Residential mortgage | $ | 8,628 |
| | $ | — |
| | $ | — |
| | $ | 8,628 |
|
| Commercial real estate | 6,537 |
| | — |
| | — |
| | 6,537 |
|
| Commercial & industrial | 95 |
| | — |
| | — |
| | 95 |
|
| Acquisition, development and construction | 8,232 |
| | — |
| | — |
| | 8,232 |
|
| Consumer | 1,215 |
| | — |
| | — |
| | 1,215 |
|
| Total impaired loans measured at fair value | $ | 24,707 |
| | $ | — |
| | $ | — |
| | $ | 24,707 |
|
STERLING BANCORP AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollars in thousands, except per share data) |
| | | | | | | | | | | | | | | |
| | December 31, 2014 |
| | Fair value | | Level 1 inputs | | Level 2 inputs | | Level 3 inputs |
| Commercial & industrial | $ | 65 |
| | $ | — |
| | $ | — |
| | $ | 65 |
|
| CRE | 1,950 |
| | — |
| | — |
| | 1,950 |
|
| ADC | 3,800 |
| | — |
| | — |
| | 3,800 |
|
| Total impaired loans measured at fair value | $ | 5,815 |
| | $ | — |
| | $ | — |
| | $ | 5,815 |
|
Mortgage Servicing Rights
When mortgage loans are sold with servicing retained, servicing rights are initially recorded at fair value with the income statement effect recorded in net gain on sales of loans.loans in the consolidated statements of operations. Fair value is based on market prices for comparable mortgage servicing contracts, when available, or alternatively, is based on a valuation model that calculates the present value of estimated future net servicing income.
The Company utilizes the amortization method to subsequently measure the carrying value of its servicing rights. In accordance with FASB ASC Topic 860 - Transfers and Servicing, the Company must record impairment charges on a non-recurring basis, when the carrying value exceeds the estimated fair value. To estimate the fair value of servicing rights, the Company utilizes a third-party, which on a quarterly basis, considers the market prices for similar assets and the present value of expected future cash flows associated with the servicing rights. Assumptions utilized include estimates of the cost of servicing, loan default rates, an appropriate discount rate and prepayment speeds. The determination of fair value of servicing rights relies upon Level 3 inputs. The fair value of mortgage servicing rights at September 30, 2013December 31, 2015 and 20122014 were $1,978$1,204 and $1,624,$1,456, respectively.
Assets Taken in Foreclosure of Defaulted Loans
Assets taken in foreclosure of defaulted loans are initially recorded at fair value less costs to sell when acquired, which establishes a new cost basis. These assets are subsequently accounted for at the lower of cost or fair value less costs to sell and are primarily comprised of commercial and residential real estate property and upon initial recognition, wereare re-measured and reported at fair value through a charge-off to the allowance for loan losses based on the fair value of the foreclosed asset. The fair value is generally determined using appraisals or other indications of value based on recent comparable sales of similar properties or assumptions generally observable in the market place. Adjustments are routinely made in the appraisal process by the independent appraisers to adjust for differences between comparable sales and income data available. The fair value is derived using Level 3 inputs. Appraisals are reviewed by our credit department, our external loan review consultant and verified by officers in our credit administration area. Assets taken in foreclosure of defaulted loans and facilities held for sale subject to non-recurring fair value measurement were $6,022$14,614 and $6,403$5,867 at September 30, 2013December 31, 2015 and 2012.2014, respectively. There were write-downs of $1,083$0 in calendar 2015; $0 in the transition period; $224 in fiscal 2014; and $1,098$1,978 in fiscal 2013, related to changes in fair value recognized through income for those foreclosed assets held by the Company during the twelve months ending September 30, 2013 and 2012, respectively.Company.
STERLING BANCORP AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Year ended December 31, 2015, three months ended December 31, 2014 and 2013 (unaudited) and
fiscal years ended September 30, 2014 and 2013
(Dollars in thousands, except per share data)
Significant Unobservable Inputs to Level 3 Measurements
The following table presents quantitative information about significant unobservable inputs used in the fair value measurements for Level 3 assets at September 30, 2013:December 31, 2015:
|
| | | | | | | | | | |
| Non-recurring fair value measurements | | Fair value | | Valuation technique | | Unobservable input / assumptions | | Range (1) (weighted average) |
| Impaired loans: | | | | | | | | |
| Commercial real estate | | $ | 3,672 |
| | Appraisal | | Adjustments for comparable properties | | 15.0% - 36.0% (22.0%) |
| Commercial & industrial | | 500 |
| | Appraisal | | Adjustments for comparable properties | | 10.0% -19.0% (14.4%) |
| Acquisition, development & construction | | 1,839 |
| | Appraisal | | Adjustments for comparable properties | | 10.0% - 30.0% (13.5%) |
| Consumer | | 2 |
| | Appraisal | | Adjustments for comparable properties | | 0 |
| Assets taken in foreclosure: | | | | | | | | |
| Residential mortgage | | 998 |
| | Appraisal | | Adjustments by management to reflect current conditions/selling costs | | 16.0% - 59.0% (21.6%) |
| Commercial real estate | | 3,320 |
| | Appraisal | | Adjustments by management to reflect current conditions/selling costs | | 20.0% - 37.0% (24.8%) |
| Acquisition, development & construction | | 1,704 |
| | Appraisal | | Adjustments by management to reflect current conditions/selling costs | | 25.0% - 70.0% (30.2%) |
| Mortgage servicing rights | | 1,978 |
| | Third-party | | Discount rates | | 9.3% - 12.8% |
| | | | | Third-party | | Prepayment speeds | | 100 - 968 (224) |
|
| | | | | | | | | | |
| Non-recurring fair value measurements | | Fair value | | Valuation technique | | Unobservable input / assumptions | | Range (1) (weighted average) |
| Impaired loans: | | | | | | | | |
| CRE | | $ | 3,218 |
| | Appraisal | | Adjustments for comparable properties | | 22.0% |
| Assets taken in foreclosure: | | | | | | | | |
| Residential mortgage | | 2,334 |
| | Appraisal | | Adjustments by management to reflect current conditions/selling costs | | 22.0% |
CRE(2) | | 7,805 |
| | Appraisal | | Adjustments by management to reflect current conditions/selling costs | | 22.0% |
| ADC | | 3,990 |
| | Appraisal | | Adjustments by management to reflect current conditions/selling costs | | 22.0% |
| Mortgage servicing rights | | 1,204 |
| | Third-party | | Discount rates | | 8.3% - 11.3% (9.5%) |
| | | | | Third-party | | Prepayment speeds | | 100 - 480 (183) |
(1) Represents range of discount factors applied to the appraisal to determine fair value. The amounts used for loans collateralized by real estate or assets taken in foreclosure also include costs to carry and costs of sale. The amounts used for mortgage servicing rights are discounts applied by a third-party valuation provider which the Company believes are appropriate.
(2) Excludes $486 of commercial buildings that are former financial centers held for sale. These assets were not taken in foreclosure and their fair value is determined by appraisal, and our internal assessment of the market for this type of real estate in these locations.
Fair Values of Financial Instruments
FASB Codification Topic 825:825 Financial Instruments(“Topic 825”), requires disclosure of fair value information for those financial instruments for which it is practicable to estimate fair value, whether or not such financial instruments are recognized in the consolidated financial statements for interim and annual periods. Fair value is the amount for which a financial instrument could be exchanged in a current transaction between willing parties, other than in a forced sale or liquidation.
Quoted market prices are used to estimate fair values when those prices are available, although active markets do not exist for many types of financial instruments. Fair values for these instruments must be estimated by management using techniques such as discounted cash flow analysis and comparison to similar instruments. These estimates are highly subjective and require judgments regarding significant matters, such as the amount and timing of future cash flows and the selection of discount rates that appropriately reflect market and credit risks. Changes in these judgments often have a material effect on the fair value estimates. Since these estimates are made as of a specific point in time, they are susceptible to material near-term changes. Fair values disclosed in accordance with Topic 825 do not reflect any premium or discount that could result from the sale of a large volume of a particular financial instrument, nor do they reflect possible tax ramifications or estimated transaction costs.
The following is a summary of the carrying amounts and estimated fair value of financial assets and financial liabilities including those(none of which were held for trading purposes) as of December 31, 2015:
Notes to Consolidated Financial Statements
Year ended December 31, 2015, three months ended December 31, 2014 and 2013 (unaudited) and
fiscal years ended September 30, 2014 and 2013
(Dollars in thousands, except per share data)
|
| | | | | | | | | | | | | | | |
| | December 31, 2015 |
| | Carrying amount | |
Level 1 inputs | |
Level 2 inputs | |
Level 3 inputs |
| Financial assets: | | | | | | | |
| Cash and due from banks | $ | 229,513 |
| | $ | 229,513 |
| | $ | — |
| | $ | — |
|
| Securities available for sale | 1,921,032 |
| | — |
| | 1,921,032 |
| | — |
|
| Securities held to maturity | 722,791 |
| | — |
| | 734,079 |
| | — |
|
| Loans, net | 7,809,215 |
| | — |
| | — |
| | 7,876,064 |
|
| Loans held for sale | 34,110 |
| | — |
| | 34,110 |
| | — |
|
| Accrued interest receivable on securities | 11,329 |
| | — |
| | 11,329 |
| | — |
|
| Accrued interest receivable on loans | 20,202 |
| | — |
| | — |
| | 20,202 |
|
| FHLB stock and FRB stock | 116,758 |
| | — |
| | — |
| | — |
|
| Swaps | 1,839 |
| | — |
| | 1,839 |
| | — |
|
| Financial liabilities: | | | | | | | |
| Non-maturity deposits | (7,974,817 | ) | | (7,974,817 | ) | | — |
| | — |
|
| Certificates of deposit | (605,190 | ) | | — |
| | (603,634 | ) | | — |
|
| FHLB borrowings | (1,409,885 | ) | | — |
| | (1,418,155 | ) | | — |
|
| Other borrowings | (16,566 | ) | | — |
| | (16,430 | ) | | — |
|
| Senior notes | (98,893 | ) | | — |
| | (105,088 | ) | | — |
|
| Mortgage escrow funds | (13,778 | ) | | — |
| | (13,775 | ) | | — |
|
| Accrued interest payable on deposits | (483 | ) | | — |
| | (483 | ) | | — |
|
| Accrued interest payable on borrowings | (4,490 | ) | | — |
| | (4,490 | ) | | — |
|
| Swaps | (1,839 | ) | | — |
| | (1,839 | ) | | — |
|
Notes to Consolidated Financial Statements
Year ended December 31, 2015, three months ended December 31, 2014 and 2013 (unaudited) and
fiscal years ended September 30, 2014 and 2013
(Dollars in thousands, except per share data)
The following is a summary of the carrying amounts and estimated fair value of financial assets and financial liabilities that are not measured and reported at fair value on a recurring basis or non-recurring basis. The estimated fair value approximates carrying value(none of which were held for cash and cash equivalents and accrued interest receivable.trading purposes) as of December 31, 2014:
|
| | | | | | | | | | | | | | | |
| | December 31, 2014 |
| | Carrying amount | |
Level 1 inputs | |
Level 2 inputs | |
Level 3 inputs |
| Financial assets: | | | | | | | |
| Cash and due from banks | $ | 121,520 |
| | $ | 121,520 |
| | $ | — |
| | $ | — |
|
| Securities available for sale | 1,140,846 |
| | — |
| | 1,140,846 |
| | — |
|
| Securities held to maturity | 572,337 |
| | — |
| | 586,346 |
| | — |
|
| Loans, net | 4,773,267 |
| | — |
| | — |
| | 4,783,508 |
|
| Loans held for sale | 46,599 |
| | — |
| | 46,599 |
| | — |
|
| Accrued interest receivable on securities | 7,742 |
| | — |
| | 7,742 |
| | — |
|
| Accrued interest receivable on loans | 11,559 |
| | — |
| | — |
| | 11,559 |
|
| FHLB stock and FRB stock | 75,437 |
| | — |
| | — |
| | — |
|
| Swaps | 1,332 |
| | — |
| | 1,332 |
| | — |
|
| Financial liabilities: |
| |
| |
| |
|
| Non-maturity deposits | (4,731,481 | ) | | (4,731,481 | ) | | — |
| | — |
|
| Certificates of deposit | (480,844 | ) | | — |
| | (480,621 | ) | | — |
|
| FHLB borrowings | (1,003,209 | ) | | — |
| | (1,019,690 | ) | | — |
|
| Other borrowings | (9,846 | ) | | — |
| | (9,846 | ) | | — |
|
| Senior Notes | (98,498 | ) | | — |
| | (100,769 | ) | | — |
|
| Mortgage escrow funds | (4,167 | ) | | — |
| | (4,167 | ) | | — |
|
| Accrued interest payable on deposits | (329 | ) | | — |
| | (329 | ) | | — |
|
| Accrued interest payable on borrowings | (4,354 | ) | | — |
| | (4,354 | ) | | — |
|
| Swaps | (1,332 | ) | | — |
| | (1,332 | ) | | — |
|
The following paragraphs summarize the principal methods and assumptions used by the Company to estimate the fair value of the Company’s financial instruments.instruments:
Loans
The estimated fair value approximates carrying value for variable-rate loans that reprice frequently and with no significant change in credit risk. The fair value of fixed-rate loans and variable-rate loans which reprice on an infrequent basis is estimated by discounting future cash flows using the current interest rates at which similar loans with similar terms would be made to borrowers of similar credit quality. An overall valuation adjustment is made for specific credit risks as well as general portfolio credit risk.
FHLB of New York Stock and FRB Stock
The redeemable carrying amount of these securities with limited marketability approximates their fair value.
Deposits and Mortgage Escrow Funds
In accordance with FASB Codification Topic 825, deposits with no stated maturity (such as savings, demand, and money market and saving deposits) are assigned fair values equal to the carrying amounts payable on demand. Certificates of deposit and mortgage escrow funds are segregated by account type and original term, and fair values are estimated by discounting the contractual cash flows. The discount rate for each account grouping is equivalent to the current market rates for deposits of similar type and maturity.
These fair values do not include the value of core deposit relationships that comprise a significant portion of the Company’s deposits. We believe that the Company’s core deposit relationships provide a relatively stable, low-cost funding source that has a substantial value separate from the deposit balances.
STERLING BANCORP AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Year ended December 31, 2015, three months ended December 31, 2014 and 2013 (unaudited) and
fiscal years ended September 30, 2014 and 2013
(Dollars in thousands, except per share data)
FHLB Borrowings, other borrowings and Senior notesNotes
The estimated fair value approximates carrying value for short-term borrowings. The fair value of long-term fixed-rate borrowings is estimated using quoted market prices, if available, or by discounting future cash flows using current interest rates for similar financial instruments.
Other Financial Instruments
Other financial assets and liabilities listed in the table belowabove have estimated fair values that approximate the respective carrying amounts because the instruments are payable on demand or have short-term maturities and present relatively low credit risk and interest rate risk.
The fair values of the Company’s off-balance-sheet financial instruments described in Note 15. Off Balance17. “Off-Balance Sheet Financial InstrumentsInstruments” were estimated based on current market terms (including interest rates and fees), considering the remaining terms of the agreements and the credit worthiness of the counterparties. At September 30, 2013December 31, 2015 and September 30, 2012,2014, the estimated fair value of these instruments approximated the related carrying amounts, which were not material.
Accrued interest receivable/payable
The following is a summarycarrying amounts of accrued interest approximate fair value and are classified in accordance with the related instrument.
(20) Accumulated Other Comprehensive (Loss) Income
Components of accumulated other comprehensive income (loss) (“AOCI”) were as follows as of the carrying amounts and estimated fair value of financial assets and liabilities (none of which were held for trading purposes) as of September 30, 2013:
dates shown below:
|
| | | | | | | | | | | | | | | |
| | September 30, 2013 |
| | Carrying amount | |
Level 1 inputs | |
Level 2 inputs | |
Level 3 inputs |
| Financial assets: | | | | | | | |
| Cash and due from banks | $ | 113,090 |
| | $ | 113,090 |
| | $ | — |
| | $ | — |
|
| Securities available for sale | 954,393 |
| | — |
| | 950,780 |
| | 3,613 |
|
| Securities held to maturity | 253,999 |
| | — |
| | 250,896 |
| | — |
|
| Loans, net | 2,384,021 |
| | — |
| | — |
| | 2,422,824 |
|
| Loans held for sale | 1,011 |
| | — |
| | 1,011 |
| |
|
|
| Accrued interest receivable on securities | 4,892 |
| | — |
| | 4,892 |
| | — |
|
| Accrued interest receivable on loans | 6,805 |
| | — |
| | — |
| | 6,805 |
|
| FHLB stock | 24,312 |
| | — |
| | — |
| | — |
|
| Interest rate caps and swaps | 997 |
| | — |
| | 997 |
| | — |
|
| Financial liabilities: | | | | | | | |
| Non-maturity deposits | (2,694,166 | ) | | (2,694,166 | ) | | — |
| | — |
|
| Certificates of deposit | (268,128 | ) | | — |
| | (268,088 | ) | | — |
|
| FHLB and other borrowings | (462,953 | ) | | — |
| | (488,369 | ) | | — |
|
| Senior notes | (98,033 | ) | | — |
| | (98,142 | ) | | — |
|
| Mortgage escrow funds | (12,646 | ) | | — |
| | (12,644 | ) | | — |
|
| Accrued interest payable on deposits | (1,480 | ) | | — |
| | (1,480 | ) | | — |
|
| Accrued interest payable on borrowings | (1,525 | ) | |
|
| | (1,525 | ) | |
|
|
| Interest rate caps and swaps | (997 | ) | | — |
| | (997 | ) | | — |
|
|
| | | | | | | |
| | December 31, |
| | 2015 | | 2014 |
| Net unrealized holding (loss) gain on available for sale securities | $ | (12,172 | ) | | $ | 2,256 |
|
| Related income tax benefit (expense) | 5,173 |
| | (959 | ) |
| Available for sale securities AOCI, net of tax | (6,999 | ) | | 1,297 |
|
| Net unrealized holding loss on securities transferred to held to maturity | (7,226 | ) | | (8,638 | ) |
| Related income tax benefit | 3,071 |
| | 3,671 |
|
| Securities transferred to held to maturity AOCI, net of tax | (4,155 | ) | | (4,967 | ) |
| Net unrealized holding loss on retirement plans | (1,687 | ) | | (11,445 | ) |
| Related income tax benefit | 717 |
| | 4,864 |
|
| Retirement plan AOCI, net of tax | (970 | ) | | (6,581 | ) |
| Accumulated other comprehensive loss | $ | (12,124 | ) | | $ | (10,251 | ) |
STERLING BANCORP AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Year ended December 31, 2015, three months ended December 31, 2014 and 2013 (unaudited) and
fiscal years ended September 30, 2014 and 2013
(Dollars in thousands, except per share data)
The following is a summarytable presents the changes in each component of AOCI for calendar 2015, the carrying amountstransition period, the 2013 transition period (unaudited), fiscal 2014 and estimated fair value of financial assets and liabilities (none of which were held for trading purposes) as of September 30, 2012:fiscal 2013:
|
| | | | | | | | | | | | | | | |
| | September 30, 2012 |
| | Carrying amount | |
Level 1 inputs | |
Level 2 inputs | |
Level 3 inputs |
| Financial assets: | | | | | | | |
| Cash and due from banks | $ | 437,982 |
| | $ | 437,982 |
| | $ | — |
| | $ | — |
|
| Securities available for sale | 1,010,872 |
| | — |
| | 1,006,242 |
| | 4,630 |
|
| Securities held to maturity | 142,376 |
| | — |
| | 146,324 |
| | — |
|
| Loans, net | 2,091,190 |
| | — |
| | — |
| | 2,157,133 |
|
| Loans held for sale | 7,505 |
| | — |
| | 7,505 |
| | — |
|
| Accrued interest receivable on securities | 4,011 |
| | — |
| | 4,011 |
| | — |
|
| Accrued interest receivable on loans | 6,502 |
| | — |
| | — |
| | 6,502 |
|
| FHLB stock | 19,249 |
| | — |
| | — |
| | — |
|
| Interest rate caps and swaps | 2,487 |
| | — |
| | 2,487 |
| | — |
|
| Financial liabilities: | | | | | | | |
| Non-maturity deposits | (2,723,669 | ) | | (2,723,669 | ) | | — |
| | — |
|
| Certificates of deposit | (387,482 | ) | | — |
| | (389,031 | ) | | — |
|
| FHLB and other borrowings | (345,176 | ) | | — |
| | (377,906 | ) | | — |
|
| Mortgage escrow funds | (11,919 | ) | | — |
| | (11,917 | ) | | — |
|
| Accrued interest payable on deposits | (500 | ) | | — |
| | (500 | ) | | — |
|
| Accrued interest payable on borrowings | (1,442 | ) | |
|
| | (1,442 | ) | |
|
|
| Interest rate caps and swaps | (2,485 | ) | | — |
| | (2,485 | ) | | — |
|
|
| | | | | | | | | | | | | | | |
| | Net unrealized holding gain (loss) on AFS securities | | Net unrealized holding gain (loss) on securities transferred to held to maturity | | Net unrealized holding gain (loss) on retirement plans | | Total |
| Year ended December 31, 2015 | | | | | | | |
| Balance at beginning of the period | $ | 1,297 |
| | $ | (4,967 | ) | | $ | (6,581 | ) | | $ | (10,251 | ) |
| Other comprehensive (loss) gain before reclassification | (11,077 | ) | | — |
| | 435 |
| | (10,642 | ) |
| Amounts reclassified from AOCI | 2,781 |
| | 812 |
| | 5,176 |
| | 8,769 |
|
| Total other comprehensive (loss) income | (8,296 | ) | | 812 |
| | 5,611 |
| | (1,873 | ) |
| Balance at end of period | $ | (6,999 | ) | | $ | (4,155 | ) | | $ | (970 | ) | | $ | (12,124 | ) |
| Three months ended December 31, 2014 | | | | | | | |
| Balance at beginning of the period | $ | (2,671 | ) | | $ | (5,144 | ) | | $ | (3,644 | ) | | $ | (11,459 | ) |
| Other comprehensive gain (loss) before reclassification | 3,943 |
| | — |
| | (2,940 | ) | | 1,003 |
|
| Amounts reclassified from AOCI | 25 |
| | 177 |
| | 3 |
| | 205 |
|
| Total other comprehensive income (loss) | 3,968 |
| | 177 |
| | (2,937 | ) | | 1,208 |
|
| Balance at end of period | $ | 1,297 |
| | $ | (4,967 | ) | | $ | (6,581 | ) | | $ | (10,251 | ) |
| Three months ended December 31, 2013 | | | | | | | |
| Balance at beginning of the period | $ | (11,472 | ) | | $ | — |
| | $ | (3,858 | ) | | $ | (15,330 | ) |
| Other comprehensive (loss) before reclassification | (354 | ) | | (5,659 | ) | | — |
| | (6,013 | ) |
| Amounts reclassified from AOCI | 431 |
| | — |
| | 1,447 |
| | 1,878 |
|
| Total other comprehensive income (loss) | 77 |
| | (5,659 | ) | | 1,447 |
| | (4,135 | ) |
| Balance at end of period | $ | (11,395 | ) | | $ | (5,659 | ) | | $ | (2,411 | ) | | $ | (19,465 | ) |
| Fiscal year ended September 30, 2014 | | | | | | | |
| Balance at beginning of the period | $ | (11,472 | ) | | $ | — |
| | $ | (3,858 | ) | | $ | (15,330 | ) |
| Other comprehensive gain (loss) before reclassification | 9,170 |
| | (5,659 | ) | | — |
| | 3,511 |
|
| Amounts reclassified from AOCI | (369 | ) | | 515 |
| | 214 |
| | 360 |
|
| Total other comprehensive income (loss) | 8,801 |
| | (5,144 | ) | | 214 |
| | 3,871 |
|
| Balance at end of period | $ | (2,671 | ) | | $ | (5,144 | ) | | $ | (3,644 | ) | | $ | (11,459 | ) |
| Fiscal year ended September 30, 2013 | | | | | | | |
| Balance at beginning of the period | $ | 15,066 |
| | $ | — |
| | $ | (8,167 | ) | | $ | 6,899 |
|
| Other comprehensive (loss) gain before reclassification | (22,167 | ) | | — |
| | 3,041 |
| | (19,126 | ) |
| Amounts reclassified from AOCI | (4,371 | ) | | — |
| | 1,268 |
| | (3,103 | ) |
| Total other comprehensive (loss) income | (26,538 | ) | | — |
| | 4,309 |
| | (22,229 | ) |
| Balance at end of period | $ | (11,472 | ) | | $ | — |
| | $ | (3,858 | ) | | $ | (15,330 | ) |
| Location in statement of operations where reclassification from AOCI is included | Net gain (loss) on sale of securities | | Interest income on securities | | Compensation and benefits expense | | |
(18) Recently Issued Accounting Standards Not Yet Adopted
Accounting Standards Update (“ASU”) 2013-11 - Income Taxes (Topic 740) - Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists was issued. This standard provides that an unrecognized tax benefit, or a portion thereof, should be presented in the financial statements as a reduction to a deferred tax asset for a net operating loss carryforward, as similar tax loss, or a tax credit carryforward, except to the extent that a net operation loss carryforward, a similar tax loss, or a tax credit carryforward is not available at the reporting date to settle any additional income taxes that would result from disallowance of a tax position, or the tax law does not require the entity to use and the entity does not intend to use, the deferred tax asset for such purpose, then the unrecognized tax benefit should be presented as a liability. This standard is effective for the Company October 1, 2014 and is not expected to have a material effect on the Company’s consolidated financial statements.
ASU 2013-10 - Derivatives and Hedging (Topic 815) - Inclusion of the Fed Funds Effective Swap Rate (or Overnight Index Swap Rate) as a Benchmark Interest Rate for Hedge Accounting Purposes was issued. This standard permits the Fed Funds Effective Swap Rate to be used as a U.S. benchmark interest rate for hedge accounting purposes, in addition to U.S. Treasury and LIBOR. The standard also removes the restriction on using different benchmark rates for similar hedges. This standard was effective for the Company July 17, 2013 and did not have a material effect on the Company’s consolidated financial statements.
ASU 2013-03 - Liabilities (Topic 405) - Obligations Resulting from Joint and Several Liability Arrangements for Which the Total Amount of the Obligation is Fixed at the Reporting Date was issued. This standard provides guidance for the recognition, measurement, and disclosure of obligations resulting from joint and several liability arrangements for which the total amount of the obligation within the scope of this guidance (e.g. debt arrangements, other contractual obligations and settled litigation and judicial rulings) is fixed at the reporting date. This standard is effective for the Company October 1, 2014 and is not expected to have a material effect on the Company’s consolidated financial statements.
See Note 1. Basis of Financial Statement Presentation and Summary of Significant Accounting Policy for a discussion of the adoption of new accounting standards.
STERLING BANCORP AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Year ended December 31, 2015, three months ended December 31, 2014 and 2013 (unaudited) and
fiscal years ended September 30, 2014 and 2013
(Dollars in thousands, except per share data)
(19) Accumulated Other Comprehensive (Loss) Income
Activity in accumulated other comprehensive (loss) income (“AOCI”), net of tax, for the periods ended September 30, 2013, 2012 and 2011, was as follows:
|
| | | | | | | | | | | |
| | Unrealized gains(losses) on securities | | Unrealized gains (losses) for pension and other post-retirement obligations | | Total |
| Balance at September 30, 2010 | $ | 12,622 |
| | $ | (7,498 | ) | | $ | 5,124 |
|
| Period change | 981 |
| | (969 | ) | | 12 |
|
| Balance at September 30, 2011 | $ | 13,603 |
| | $ | (8,467 | ) | | $ | 5,136 |
|
| | | | | | |
| Balance at September 30, 2011 | $ | 13,603 |
| | $ | (8,467 | ) | | $ | 5,136 |
|
| Period change | 1,463 |
| | 300 |
| | 1,763 |
|
| Balance at September 30, 2012 | $ | 15,066 |
| | $ | (8,167 | ) | | $ | 6,899 |
|
| | | | | | |
| Balance at September 30, 2012 | $ | 15,066 |
| | $ | (8,167 | ) | | $ | 6,899 |
|
| Other comprehensive loss before reclassifications | (22,167 | ) | | 3,041 |
| | (19,126 | ) |
| Amounts reclassified from AOCI | (4,371 | ) | | 1,268 |
| | (3,103 | ) |
| Period change | (26,538 | ) | | 4,309 |
| | (22,229 | ) |
| Balance at September 30, 2013 | $ | (11,472 | ) | | $ | (3,858 | ) | | $ | (15,330 | ) |
The following table presents the reclassification adjustments from AOCI included in net income and the impacted line items on the income statement for the period ended September 30, 2013:
|
| | | | | | |
| Components of AOCI | | Amount reclassified from AOCI and impact on net income (1) | | Affected income statement line item |
| | | | | |
| Unrealized gains (losses) on available for sale securities | | | | |
| | | $ | 7,391 |
| | Non-interest income - net gain on sale of securities |
| | | (32 | ) | | Non-interest income - net impairment loss in earnings |
| | | 7,359 |
| | Net change before tax |
| | | (2,988 | ) | | Tax expense |
| | | $ | 4,371 |
| | Net change after tax |
| | | | | |
| Amortization of defined benefit pension items | | | | |
| Actuarial loss | | $ | (2,135 | ) | | Non-interest expense - compensation and employee benefits (2) |
| | | 867 |
| | Tax benefit |
| | | $ | (1,268 | ) | | Net change after tax |
| | | | | |
(1) Amounts in parentheses indicate a reduction from income.
(2)These accumulated other comprehensive (loss) income components are included in the computation of net periodic pension expense see Note 11. Pensions and Other Post Retirement Employee Benefit Plans and Stock-based Compensation Plans.
STERLING BANCORP AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollars in thousands, except per share data)
(20)(21) Condensed Parent Company Financial Statements
Set forth below are the condensed balance sheets of Sterling Bancorp and the related condensed statements of incomeoperations and cash flows:
| | | | September 30, | December 31, |
| | 2013 | | 2012 | 2015 | | 2014 |
| Assets: | | | | | | |
| Cash | $ | 56,230 |
| | $ | 6,716 |
| $ | 19,529 |
| | $ | 13,761 |
|
| Loan receivable from ESOP | 6,437 |
| | 6,896 |
| |
| Securities available for sale at fair value | — |
| | 809 |
| 3 |
| | — |
|
| Investment in Sterling National Bank | 517,907 |
| | 467,295 |
| 1,705,558 |
| | 1,024,361 |
|
| Investment in non-bank subsidiaries | 3,271 |
| | 5,482 |
| 3,942 |
| | 4,571 |
|
| Goodwill | | 19,054 |
| | 18,970 |
|
| Trade name | | 20,500 |
| | 20,500 |
|
| Other intangible assets, net | | 360 |
| | 792 |
|
| Other assets | 1,184 |
| | 5,371 |
| 1,418 |
| | 1,655 |
|
| Total assets | $ | 585,029 |
| | $ | 492,569 |
| $ | 1,770,364 |
| | $ | 1,084,610 |
|
| | | | | |
| Liabilities: | | | | | | |
| Senior notes | $ | 98,033 |
| | $ | — |
| |
| Senior Notes | | $ | 98,893 |
| | $ | 98,498 |
|
| Other liabilities | 4,130 |
| | 1,447 |
| 6,398 |
| | 10,912 |
|
| Total liabilities | 102,163 |
| | 1,447 |
| 105,291 |
| | 109,410 |
|
| Stockholders’ equity | 482,866 |
| | 491,122 |
| 1,665,073 |
| | 975,200 |
|
| Total liabilities & stockholders’ equity | $ | 585,029 |
| | $ | 492,569 |
| $ | 1,770,364 |
| | $ | 1,084,610 |
|
| | | | | |
The table below presents the condensed statement of income:operations:
| | | | | | | | | | For the year ended | | For the three months ended | | For the fiscal year ended |
| | Year ended September 30, | December 31, | | December 31, | | September 30, |
| | 2013 | | 2012 | | 2011 | 2015 | | 2014 | | 2013 | | 2014 | | 2013 |
| Interest income | $ | 262 |
| | $ | 282 |
| | $ | 304 |
| $ | 15 |
| | $ | 2 |
| | $ | 80 |
| | $ | 139 |
| | $ | 262 |
|
| Dividend income on equity securities | 22 |
| | 30 |
| | 31 |
| — |
| | — |
| | — |
| | — |
| | 22 |
|
| Dividends from Sterling National Bank | — |
| | 6,000 |
| | 10,000 |
| 42,500 |
| | 7,500 |
| | — |
| | 22,500 |
| | — |
|
| Dividends from non-bank subsidiaries | 1,600 |
| | 500 |
| | 500 |
| 500 |
| | — |
| | — |
| | 750 |
| | 1,600 |
|
| Bank owned life insurance income | — |
| | 10 |
| | 91 |
| |
| Other | | — |
| | — |
| | 4 |
| | 18 |
| | — |
|
| Interest expense | (1,431 | ) | | — |
| | — |
| (5,894 | ) | | (1,471 | ) | | (1,819 | ) | | (6,265 | ) | | (1,431 | ) |
| Non-interest expense | (2,700 | ) | | (1,838 | ) | | (1,819 | ) | (7,031 | ) | | (1,692 | ) | | (1,214 | ) | | (5,840 | ) | | (2,700 | ) |
| Income tax benefit | 898 |
| | 87 |
| | 157 |
| 4,154 |
| | 820 |
| | 1,117 |
| | 3,431 |
| | 898 |
|
| (Loss) income before equity in undistributed earnings of subsidiaries | (1,349 | ) | | 5,071 |
| | 9,264 |
| |
| Income (loss) before equity in undistributed earnings of subsidiaries | | 34,244 |
| | 5,159 |
| | (1,832 | ) | | 14,733 |
| | (1,349 | ) |
| Equity in undistributed (excess distributed) earnings of: | | | | | | | | | | | | | | |
| Sterling National Bank | 27,174 |
| | 13,739 |
| | 1,498 |
| 32,230 |
| | 11,171 |
| | (12,376 | ) | | 12,590 |
| | 27,174 |
|
| Non-bank subsidiaries | (571 | ) | | 1,078 |
| | 977 |
| (360 | ) | | 674 |
| | 206 |
| | 355 |
| | (571 | ) |
| Net income | $ | 25,254 |
| | $ | 19,888 |
| | $ | 11,739 |
| |
| Net income (loss) | | $ | 66,114 |
| | $ | 17,004 |
| | $ | (14,002 | ) | | $ | 27,678 |
| | $ | 25,254 |
|
STERLING BANCORP AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Year ended December 31, 2015, three months ended December 31, 2014 and 2013 (unaudited) and
fiscal years ended September 30, 2014 and 2013
(Dollars in thousands, except per share data)
The table below presents the condensed statement of cash flows:
| | | | | | | | | | For the year ended | | For the three months ended | | For the fiscal year ended |
| | Year ended September 30, | December 31, | | December 31, | | September 30, |
| | 2013 | | 2012 | | 2011 | 2015 | | 2014 | | 2013 | | 2014 | | 2013 |
| Cash flows from operating activities: | | | | | | | | | | | | | | |
| Net income | $ | 25,254 |
| | $ | 19,888 |
| | $ | 11,739 |
| |
| Adjustments to reconcile net income to net cash provided by operating activities: | | | | | | |
| Net income (loss) | | $ | 66,114 |
| | $ | 17,004 |
| | $ | (14,002 | ) | | $ | 27,678 |
| | $ | 25,254 |
|
| Adjustments to reconcile net income to net cash provided by (used in) operating activities: | | | | | | | | | | |
| Equity in (undistributed) excess distributed earnings of: | | | | | | | | | | | | | | |
| Sterling National Bank | (27,174 | ) | | (13,739 | ) | | (1,498 | ) | (32,230 | ) | | (11,171 | ) | | 12,376 |
| | (12,590 | ) | | (27,174 | ) |
| Non-bank subsidiaries | 571 |
| | (1,078 | ) | | (977 | ) | 360 |
| | (674 | ) | | (206 | ) | | (355 | ) | | 571 |
|
| (Gain) on redemption of Subordinated Debentures | | — |
| | — |
| | — |
| | (712 | ) | | — |
|
| Other adjustments, net | 5,259 |
| | 380 |
| | (1,444 | ) | (3,123 | ) | | (10,707 | ) | | 15,310 |
| | 22,065 |
| | 5,259 |
|
| Net cash provided by operating activities | 3,910 |
| | 5,451 |
| | 7,820 |
| |
| Net cash provided by (used in) operating activities | | 31,121 |
| | (5,548 | ) | | 13,478 |
| | 36,086 |
| | 3,910 |
|
| Cash flows from investing activities: | | | | | | | | | | | | | | |
| Purchase of equity securities, available for sale | — |
| | (105 | ) | | — |
| |
| Sales of securities | 818 |
| | 103 |
| | — |
| — |
| | — |
| | — |
| | 1,112 |
| | 818 |
|
| Investment in subsidiaries | (45,000 | ) | | (44,203 | ) | | — |
| (84,500 | ) | | — |
| | (15,000 | ) | | (15,000 | ) | | (45,000 | ) |
| ESOP loan principal repayments | 459 |
| | 441 |
| | 424 |
| — |
| | — |
| | 473 |
| | 6,437 |
| | 459 |
|
| Net cash (used for) provided by investing activities | (43,723 | ) | | (43,764 | ) | | 424 |
| |
| Net cash (used for) investing activities | | (84,500 | ) | | — |
| | (14,527 | ) | | (7,451 | ) | | (43,723 | ) |
| Cash flows from financing activities: | | | | | | | | | | | | | | |
| Treasury shares purchased | — |
| | — |
| | (3,810 | ) | |
| Senior notes offering | 97,946 |
| | — |
| | — |
| |
| Net change in other short-term borrowings | | — |
| | — |
| | — |
| | (20,659 | ) | | — |
|
| Redemption of Subordinated Debentures | | — |
| | — |
| | — |
| | (26,140 | ) | | — |
|
| Equity capital raise | — |
| | 46,000 |
| | — |
| 85,059 |
| | — |
| | — |
| | — |
| | — |
|
| Senior Notes offering | | — |
| | — |
| | — |
| | — |
| | 97,946 |
|
| Cash dividends paid | (10,642 | ) | | (9,100 | ) | | (8,973 | ) | (30,384 | ) | | (5,870 | ) | | (2,661 | ) | | (17,677 | ) | | (10,642 | ) |
| Stock option transactions including RRP | 1,758 |
| | 910 |
| | 770 |
| |
| Stock-based compensation transactions | | 4,472 |
| | 1,810 |
| | 2,569 |
| | 2,980 |
| | 1,758 |
|
| Other equity transactions | 265 |
| | 527 |
| | 441 |
| — |
| | — |
| | — |
| | — |
| | 265 |
|
| Net cash provided by (used for) financing activities | 89,327 |
| | 38,337 |
| | (11,572 | ) | 59,147 |
| | (4,060 | ) | | (92 | ) | | (61,496 | ) | | 89,327 |
|
| Net increase (decrease) in cash | 49,514 |
| | 24 |
| | (3,328 | ) | 5,768 |
| | (9,608 | ) | | (1,141 | ) | | (32,861 | ) | | 49,514 |
|
| Cash at beginning of year | 6,716 |
| | 6,692 |
| | 10,020 |
| |
| Cash at end of year | $ | 56,230 |
| | $ | 6,716 |
| | $ | 6,692 |
| |
| Cash at beginning of the period | | 13,761 |
| | 23,369 |
| | 56,230 |
| | 56,230 |
| | 6,716 |
|
| Cash at end of the period | | $ | 19,529 |
| | $ | 13,761 |
| | $ | 55,089 |
| | $ | 23,369 |
| | $ | 56,230 |
|
STERLING BANCORP AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Year ended December 31, 2015, three months ended December 31, 2014 and 2013 (unaudited) and
fiscal years ended September 30, 2014 and 2013
(Dollars in thousands, except per share data)
(21)(22) Quarterly Results of Operations (Unaudited)
The following is a condensed summary of quarterly results of operations for calendar 2015, the transition period and fiscal years ended September 30, 2013 and 2012:2014:
|
| | | | | | | | | | | | | | | |
| | First quarter | | Second quarter | | Third quarter | | Fourth quarter |
| Year Ended September 30, 2013: | | | | | | | |
| Interest and dividend income | $ | 33,145 |
| | $ | 32,420 |
| | $ | 32,593 |
| | $ | 33,903 |
|
| Interest expense | 5,222 |
| | 4,601 |
| | 4,276 |
| | 5,795 |
|
| Net interest income | 27,923 |
| | 27,819 |
| | 28,317 |
| | 28,108 |
|
| Provision for loan losses | 2,950 |
| | 2,600 |
| | 3,900 |
| | 2,700 |
|
| Non-interest income | 7,659 |
| | 6,852 |
| | 6,581 |
| | 6,600 |
|
| Non-interest expense | 22,546 |
| | 23,339 |
| | 21,789 |
| | 23,367 |
|
| Income before income tax | 10,086 |
| | 8,732 |
| | 9,209 |
| | 8,641 |
|
| Income tax expense | 3,066 |
| | 2,203 |
| | 2,833 |
| | 3,312 |
|
| Net income | $ | 7,020 |
| | $ | 6,529 |
| | $ | 6,376 |
| | $ | 5,329 |
|
| Earnings per common share: | | | | | | | |
| Basic | $ | 0.16 |
| | $ | 0.15 |
| | $ | 0.15 |
| | $ | 0.12 |
|
| Diluted | 0.16 |
| | 0.15 |
| | 0.15 |
| | 0.12 |
|
| Year Ended September 30, 2012: | | | | | | | |
| Interest and dividend income | $ | 28,168 |
| | $ | 28,411 |
| | $ | 28,345 |
| | $ | 30,113 |
|
| Interest expense | 4,930 |
| | 4,506 |
| | 4,263 |
| | 4,874 |
|
| Net interest income | 23,238 |
| | 23,905 |
| | 24,082 |
| | 25,239 |
|
| Provision for loan losses | 1,950 |
| | 2,850 |
| | 2,312 |
| | 3,500 |
|
| Non-interest income | 7,176 |
| | 7,971 |
| | 7,979 |
| | 9,026 |
|
| Non-interest expense | 20,721 |
| | 21,290 |
| | 21,162 |
| | 28,784 |
|
| Income before income tax | 7,743 |
| | 7,736 |
| | 8,587 |
| | 1,981 |
|
| Income tax expense (benefit) | 2,026 |
| | 2,035 |
| | 2,378 |
| | (280 | ) |
| Net income | $ | 5,717 |
| | $ | 5,701 |
| | $ | 6,209 |
| | $ | 2,261 |
|
| Earnings per common share: | | | | | | | |
| Basic | $ | 0.15 |
| | $ | 0.15 |
| | $ | 0.17 |
| | $ | 0.06 |
|
| Diluted | 0.15 |
| | 0.15 |
| | 0.17 |
| | 0.06 |
|
(22) Subsequent Events (Unaudited) |
| | | | | | | | | | | | | | | | | | | |
| | | | For the year ended December 31, 2015 |
| Reporting period | | | First quarter | | Second
quarter | | Third
quarter | | Fourth
quarter |
| For the quarter ended | | | March 31, 2015 | | June 30, 2015 | | September 30, 2015 | | December 31, 2015 |
| Interest and dividend income | | | $ | 66,672 |
| | $ | 71,947 |
| | $ | 103,298 |
| | $ | 106,224 |
|
| Interest expense | | | 7,805 |
| | 8,373 |
| | 9,944 |
| | 10,803 |
|
| Net interest income | | | 58,867 |
| | 63,574 |
| | 93,354 |
| | 95,421 |
|
| Provision for loan losses | | | 2,100 |
| | 3,100 |
| | 5,000 |
| | 5,500 |
|
| Non-interest income | | | 14,010 |
| | 13,857 |
| | 18,802 |
| | 16,081 |
|
| Non-interest expense | | | 45,921 |
| | 85,659 |
| | 71,315 |
| | 57,419 |
|
| Income (loss) before income tax | | | 24,856 |
| | (11,328 | ) | | 35,841 |
| | 48,583 |
|
| Income tax expense (benefit) | | | 8,078 |
| | (3,682 | ) | | 11,648 |
| | 15,792 |
|
| Net income (loss) | | | $ | 16,778 |
| | $ | (7,646 | ) | | $ | 24,193 |
| | $ | 32,791 |
|
| Earnings per common share: | | | | | | | | | |
| Basic | | | $ | 0.19 |
| | $ | (0.08 | ) | | $ | 0.19 |
| | $ | 0.25 |
|
| Diluted | | | 0.19 |
| | (0.08 | ) | | 0.19 |
| | 0.25 |
|
| | | | | | | | | | |
| | For the fiscal year ended September 30, 2014 | | |
| Reporting period | First quarter | | Second quarter | | Third quarter | | Fourth quarter | | Transition quarter |
| For the quarter ended | December 31, 2013 | | March 31, 2014 | | June 30, 2014 | | September 30, 2014 | | December 31, 2014 |
| Interest and dividend income | $ | 52,711 |
| | $ | 61,325 |
| | $ | 65,761 |
| | $ | 67,109 |
| | $ | 68,087 |
|
| Interest expense | 6,835 |
| | 7,297 |
| | 7,310 |
| | 7,476 |
| | 7,850 |
|
| Net interest income | 45,876 |
| | 54,028 |
| | 58,451 |
| | 59,633 |
| | 60,237 |
|
| Provision for loan losses | 3,000 |
| | 4,800 |
| | 5,950 |
| | 5,350 |
| | 3,000 |
|
| Non-interest income | 9,148 |
| | 12,415 |
| | 13,471 |
| | 12,286 |
| | 13,957 |
|
| Non-interest expense | 72,974 |
| | 46,723 |
| | 44,904 |
| | 43,780 |
| | 45,814 |
|
| (Loss) income before income tax | (20,950 | ) | | 14,920 |
| | 21,068 |
| | 22,789 |
| | 25,380 |
|
| Income tax (benefit) expense | (6,948 | ) | | 4,588 |
| | 6,057 |
| | 6,452 |
| | 8,376 |
|
| Net (loss) income | $ | (14,002 | ) | | $ | 10,332 |
| | $ | 15,011 |
| | $ | 16,337 |
| | $ | 17,004 |
|
| Earnings per common share: | | | | | | | | | |
| Basic | $ | (0.20 | ) | | $ | 0.12 |
| | $ | 0.18 |
| | $ | 0.20 |
| | $ | 0.20 |
|
| Diluted | (0.20 | ) | | 0.12 |
| | 0.18 |
| | 0.19 |
| | 0.20 |
|
On OctoberThe Company incurred a net loss in the second quarter ended June 30, 2015 due mainly to merger-related expense, asset write-downs and other charges associated with the HVB Merger. The Company recognized charges of $14,625, which mainly included charges for change-in-control payments, employee benefit plan terminations, financial and legal advisory fees and merger-related marketing expenses. Other restructuring charges of $28,055 mainly included charges for information technology services, contract terminations, impairments of leases and facilities and retention compensation.
The Company incurred a net loss in the first fiscal quarter of 2014, which ended on December 31, 2013, due mainly to merger-related expense, asset write-downs and other charges associated with the Provident New York Bancorp completed its acquisitionMerger. The Company recognized charges of Sterling Bancorp (“Legacy Sterling”) through the merger of Legacy Sterling into Provident New York Bancorp. Provident New York Bancorp was the accounting acquirer$22,167 for asset write-downs, retention and the surviving entity. Provident New York Bancorp changed its legal entity name to Sterling Bancorp and becameseverance compensation, a bank holding company and a financial holding company as defined by the Bank Holding Company Act of 1956, as amended. Sterling National Bank merged into Provident Bank and Provident Bank changed its legal entity name to Sterling National Bank and converted to a national bank charter. Consistent with our strategy of expanding in the greater New York metropolitan region, we believe the Merger creates a larger, more diversified company that will accelerate the build-out of our differentiated strategy targeting small-to-middle market commercial and consumer clients.
The Merger was a stock-for-stock transaction valued at $457.8 million based on the closing price of Provident New York Bancorp common stock on October 31, 2013. Legacy Sterling shareholders received a fixed ratio of 1.2625 shares of Provident New York Bancorp stock for eachwrite-off of the 30,937,004 sharesnaming rights to the remaining book value of Legacy Sterling common stock that were outstanding. The Company’s stockholders authorized an increase in the number of common shares from 75 million to 200 million. The Company issued 39,057,968 shares of common stock in the Merger; post-Merger, total shares outstanding were 83,868,972. Legacy Provident
STERLING BANCORP AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Year ended December 31, 2015, three months ended December 31, 2014 and 2013 (unaudited) and
fiscal years ended September 30, 2014 and 2013
(Dollars in thousands, except per share data)
shareholders own approximately 53%Provident Bank Ballpark. The Company recognized $9,068 of stock in the combined company andmerger-related expenses, which included professional advisory fees, legal fees, a portion of change-in-control payments to Legacy Sterling shareholders own approximately 47%.executive officers, costs associated with changing signage at various office and financial center locations and other merger-related items. In addition, the Company incurred a $2,743 charge for the settlement of a portion of the Legacy Provident pension plan in December 2013.
(23) Recently Issued Accounting Standards
OnAccounting Standards Update (“ASU”) ASU 2014-01, “Accounting for Investments in Qualified Affordable Housing Projects.” ASU 2014-01 provides guidance on accounting for investments by a pro forma combined basis,reporting entity in flow-through limited liability entities that manage or invest in affordable housing projects that qualify for the twelve months ended September 30, 2012,low-income housing tax credit. ASU 2014-01 allows the companies had revenue of $253 million and $33 million in net income. The combined company is expectedproportional amortization method to have approximately $6.7 billion in total assets.
be used by a reporting entity if certain conditions are met. ASU 2014-01 also defines when a qualified affordable housing project through a limited liability entity should be tested for impairment. If a qualified affordable housing project does not meet the conditions for using the proportional amortization method, the investment should be accounted for using an equity method investment or a cost method investment. The Company has engagedadopted ASU 2015-01 effective January 1, 2015 and its adoption did not have a significant impact on its consolidated financial statements.
ASU 2014-09, “Revenue from Contracts with Customers (Topic 606).” ASU 2014-09 implements a common revenue standard that clarifies the principles for recognizing revenue. The core principle of ASU 2014-09 is that an independent third-partyentity should recognize revenue to assist managementdepict the transfer of promised goods or services to customers in estimatingan amount that reflects the fair valueconsideration to which the entity expects to be entitled in exchange for those goods or services. To achieve that core principle, an entity should apply the following steps: (i) identify the contract(s) with a customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenue when (or as) the entity satisfies a performance obligation. ASU 2014-09 was originally going to be effective for us on January 1, 2017; however, the FASB recently issued ASU 2015-14, “Revenue from Contracts with Customers (Topic 606) - Deferral of the majorityEffective Date” which deferred the effective date of ASU 2014-09 by one year to January 1, 2018. The Company is currently evaluating the potential impact of ASU 2014-09 on its consolidated financial statements.
ASU 2014-11, “Transfers and Servicing (Topic 860).” ASU 2014-11 requires that repurchase-to-maturity transactions be accounted for as secured borrowings consistent with the accounting for other repurchase agreements. In addition, ASU 2014-11 requires separate accounting for repurchase financings, which entails the transfer of a financial asset executed contemporaneously with a repurchase agreement with the same counterparty. ASU 2014-11 requires entities to disclose certain information about transfers accounted for as sales in transactions that are economically similar to repurchase agreements. In addition, ASU 2014-11 requires disclosures related to collateral, remaining contractual tenor and of the assets acquiredpotential risks associated with repurchase agreements, securities lending transactions and liabilities assumed.repurchase-to-maturity transactions. ASU 2014-11 became effective for the Company on January 1, 2015 and did not have a significant impact on its consolidated financial statements. The disclosures required by ASU 2014-11 are included in Note 9. “Borrowings and Senior Notes - Repurchase Agreements” and Note 10. “Derivatives”.
ASU 2015-01, “Income Statement - Extraordinary and Unusual Items (Subtopic 225-20) - Simplifying Income Statement Presentation by Eliminating the Concept of Extraordinary Items.”ASU 2015-01 eliminates from GAAP the concept of extraordinary items, which, among other things, requires an entity to segregate extraordinary items considered to be unusual and infrequent from the results of ordinary operations and show the item separately in the income statement, net of tax, after income from continuing operations. The Company will fileadopted ASU 2015-01 effective January 1, 2015 and its adoption did not have a Current Reportsignificant impact on Form 8-K (or an amendmentits consolidated financial statements.
ASU 2015-02, “Consolidation (Topic 810) - Amendments to the Consolidation Analysis.” ASU 2015-02 implements changes to both the variable interest consolidation model and the voting interest consolidation model. ASU 2015-02 (i) eliminates certain criteria that must be met when determining when fees paid to a prior report) no later thandecision maker or service provider do not represent a variable interest; (ii) amends the criteria for determining whether a limited partnership is a variable interest entity; and (iii) eliminates the presumption that a general partner controls a limited partnership in the voting model. ASU 2015-02 was effective for the Company beginning January 15, 20141, 2016 and will not have a significant impact on its consolidated financial statements.
ASU 2015-03, “Interest - Imputation of Interest (Subtopic 835-30) - Simplifying the Presentation of Debt Issuance Costs.” ASU 2015-03 requires that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. The recognition and measurement guidance for debt issuance costs are not affected by the amendments in ASU 2015-03. ASU 2015-03 will include historical and pro forma information regarding Legacy Sterling and Sterling required in connection withbe effective for the Merger.
Company on
January 1, 2016. ASU 2015-03 will not have a significant impact on the Company’s consolidated financial statements.
ASU 2015-05, “Intangibles - Goodwill and Other - Internal-Use Software (Subtopic 350-40) - Customer’s Accounting for Fees Paid in a Cloud Computing Arrangement.” ASU 2015-05 addresses accounting for fees paid by a customer in cloud computing arrangements such as (i) software as a service; (ii) platform as a service; (iii) infrastructure as a service; and (iv) other similar hosting arrangements. ASU 2015-05 provides guidance to customers about whether a cloud computing arrangement includes a software license. If a cloud computing arrangement includes a software license, then the customer should account for the software license element of the arrangement consistent with the acquisition of other software licenses. If a cloud computing arrangement does not include a software license, the customer should account for the arrangement as a service contract. ASU 2015-05 was effective for the Company on January 1, 2016 and will not have a significant impact on its consolidated financial statements.
ASU 2015-15, “Interest – Imputation of Interest (Subtopic 835-30) – Presentation and Subsequent Measurement of Debt Issuance Costs Associated with Line-of-Credit Arrangements. Amendments to SEC Paragraphs Pursuant to Staff Announcement at June 18, 2015 EITF Meeting." ASU 2015-15 adds SEC paragraphs pursuant to an SEC Staff Announcement that given the absence of authoritative guidance within ASU 2015-03 for debt issuance costs related to line-of-credit arrangements, the SEC staff would not object to an entity deferring and presenting debt issuance costs as an asset and subsequently amortizing the deferred debt issuance costs ratably over the term of the line-of-credit arrangement, regardless of whether there are any outstanding borrowings on the line-of-credit arrangement.
ASU 2015-16, “Business combinations (Topic 805) - Simplifying the Accounting for Measurement-Period Adjustments.” ASU 2015-16 requires that adjustments to provisional amounts that are identified during the measurement period of a business combination be recognized in the reporting period in which the adjustment amounts are determined. Furthermore, the income statement effects of such adjustments, if any, must be calculated as if the accounting had been completed at the acquisition date. The portion of the amount recorded in current-period earnings that would have been recorded in previous reporting periods if the adjustment to the provisional amounts had been recognized as of the acquisition date. Under previous guidance, adjustments to provisional amounts identified during the measurement period are to be recognized retrospectively. ASU 2015-16 was effective for us on January 1, 2016 and is not expected to have a significant impact on our financial statements.
ASU 2016-1, “No. 2016-01, Financial Instruments – Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities.” ASU 2016-1, among other things; (i) requires equity investments, with certain exceptions, to be measured at fair value with changes in fair value recognized in net income, (ii) simplifies the impairment assessment of equity investments without readily determinable fair values by requiring a qualitative assessment to identify impairment; (iii) eliminates the requirement for public business entities to disclose the methods and significant assumptions used to estimate the fair value that is required to be disclosed for financial instruments measured at amortized cost on the balance sheet; (iv) requires public business entities to use the exit price notion when measuring the fair value of financial instruments for disclosure purposes; (v) requires an entity to present separately in other comprehensive income the portion of the total change in the fair value of a liability resulting from a change in the instrument-specific credit risk when the entity has elected to measure the liability at fair value in accordance with the fair value option for financial instruments; (vi) requires separate presentation of financial assets and financial liabilities by measurement category and form of financial asset on the balance sheet or the accompanying notes to the financial statements; and (vii) clarifies that an entity should evaluate the need for a valuation allowance on a deferred tax asset related to available-for-sale. ASU 2016-1 will be effective for us on January 1, 2018 and is not expected to have a significant impact on our financial statements.
ASU 2016-02, “Leases.” ASU 2016-02 amends existing lease accounting guidance, including the requirement to recognize most lease arrangements on the balance sheet. The adoption of this standard will result in the Company recognizing a right-of-use asset representing its rights to use the underlying asset for the lease term with an offsetting lease liability. ASU 2016-02 will be effective for fiscal years beginning after December 15, 2018, with early adoption permitted. The Company is currently evaluating the potential impact of the adoption of this accounting pronouncement to its consolidated financial statements, and to the Company’s and the Bank’s regulatory capital ratios.
See Note 1. “Basis of Financial Statement Presentation and Summary of Significant Accounting Policies” for a discussion of the adoption of new accounting standards.
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| ITEM 9. | Changes in and Disagreements with Accountants on Accounting and Financial Disclosure |
Not Applicable.
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| ITEM 9A. | Controls and Procedures |
(a) Evaluation of Disclosure Controls and Procedures
As of September 30, 2013,December 31, 2015, under the supervision and with the participation of Sterling Bancorp’s Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), management has evaluated the effectiveness of the design and operation of the Company’s disclosure controls and procedures. Based on that evaluation, the CEO and CFO concluded that the Company’s disclosure controls and procedures were effective at the reasonable assurance level in timely alerting them to material information required to be recorded, processed, summarized and reported in Sterling Bancorp’s periodic SEC reports.
Changes in Internal Control Over Financial Reporting
As of September 30, 2012, management’s assessment of the Company’s internal control over financial reporting identified two material weaknesses in internal control over financial reporting related to the provision for income taxes and to ensuring pension accounting matters were properly recorded and presented in the Consolidated Financial Statements. To remediate these weaknesses, during fiscal year 2013, made changes to senior accounting personnel, implemented systematic process and procedures to enable the Company to maintain effective internal controls over the provision for income taxes and deferred taxes and enhanced its internal controls over financial reporting related to pension accounting.
Except as disclosed herein, thereThere were no changes in the Company’s internal control over financial reporting during the year ended September 30, 2013December 31, 2015 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
(b) Management'sManagement’s Annual Report on Internal Control Over Financial Reporting
The management of Sterling Bancorp (the “Company”) is responsible for establishing and maintaining effective internal control over financial reporting. The Company’s system of internal controls is designed to provide reasonable assurance to the Company’s management and board of directorsthe Board regarding the preparation and fair presentation of published financial statements in accordance with U.S. generally accepted accounting principles.
All internal control systems have inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Management assessed the Company’s internal control over financial reporting as of September 30, 2013.December 31, 2015. This assessment was based on criteria for effective internal control over financial reporting established in the 2013 Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Based on this assessment, we have concluded that, as of September 30, 2013,December 31, 2015, the Company’s internal control over financial reporting is effective.
The effectiveness of the Company’s internal control over financial reporting as of September 30, 2013December 31, 2015 has been audited by Crowe Horwath LLP, as stated in their report which is included elsewhere herein.
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| ITEM 9B. | Other Information |
Not applicable.
PART III
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| ITEM 10. | Directors, Executive Officers, and Corporate Governance |
“Proposal I — Election of Directors” and “Section 16(a) Beneficial Ownership Reporting Compliance” sections of Sterling Bancorp’sThe information required by this item will be included in our Proxy Statement for the Annual Meeting of Stockholders to be held in February 2014(the “Proxy“2016 Proxy Statement”) and is incorporated herein by reference.
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| ITEM 11. | Executive Compensation |
“Proposal I — Election of Directors” section ofThe information required by this item will be included in the 2016 Proxy Statement and is incorporated herein by reference.
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| ITEM 12. | Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters |
Sterling Bancorp does not have any equity compensation programs that were not approved by stockholders, other than its employee stock ownership plan.stockholders.
Set forth below is certain information as of September 30, 2013,December 31, 2015, regarding equity compensation that has been approved by stockholders.
| | Equity compensation plans approved by stockholders | Number of securities to be issued upon exercise of outstanding options and rights | | Weighted average Exercise price (1) | | Number of securities remaining available for issuance under plan | Number of securities to be issued upon exercise of outstanding options and rights | | Weighted average Exercise price (1) | | Number of securities remaining available for issuance under plan |
| Stock Option Plans | 2,114,509 |
| | $ | 10.71 |
| | 2,066,184 |
| 1,586,572 |
| | $ | 10.95 |
| | 4,125,665 |
|
| |
| (1) | Weighted average exercise price represents Stock Option Plans only, since restricted shares have no exercise price. |
The “Proposal I — Election of Directors” section ofinformation required by this item will be included in the 2016 Proxy Statement and is incorporated herein by reference.
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| ITEM 13. | Certain Relationships and Related Transactions and Director Independence |
The “Transactions with Certain Related Persons” section ofinformation required by this item will be included in the 2016 Proxy Statement and is incorporated herein by reference.
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| ITEM 14. | Principal Accountant Fees and Services |
Proposal III - Ratification of appointment of “Independent Registered Public Accounting Firm” section ofThe information required by this item will be included in the proxy statement2016 Proxy Statement and is incorporated herein by reference.
PART IV
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ITEM 15. | Exhibits and Financial Statement Schedules |
ITEM 15. Exhibits and Financial Statement Schedules
(1) Financial Statements
The financial statements filed in Item 8 of this Form 10-K are as follows:
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(A) | Report of Independent Registered Public Accounting Firm on Financial Statements |
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(B) | Consolidated Balance Sheets as of September 30, 2013 and 2012 |
(A)Report of Independent Registered Public Accounting Firm on Financial Statements
(B)Consolidated Balance Sheets as of December 31, 2015 and 2014
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| (C) | Consolidated Statements of IncomeOperations for the year ended December 31, 2015, the three months ended December 31, 2014 and 2013 (2013 Unaudited) and the fiscal years ended September 30, 2013, 20122014 and 20112013 |
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| (D) | Consolidated Statements of Changes in Stockholders’ EquityComprehensive Income (Loss) for the year ended December 31, 2015, the three months ended December 31, 2014 and 2013 (2013 Unaudited) and for the fiscal years ended September 30, 2013, 20122014 and 20112013 |
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| (E) | Consolidated Statements of Cash FlowsChanges in Stockholders’ Equity for the year ended December 31, 2015, the three months ended December 31, 2014 and 2013 (2013 Unaudited) and the fiscal years ended September 30, 2013, 20122014 and 20112013 |
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| (F) | Notes to Consolidated Financial Statements of Cash Flows for the year ended December 31, 2015, the three months ended December 31, 2014 and 2013 (2013 Unaudited) and for the fiscal years ended September 30, 2014 and 2013 |
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(G) | Financial Statement Schedules |
(G)Notes to Consolidated Financial Statements
(H)Financial Statement Schedules
(2) All financial statement schedules have been omitted as the required information is inapplicable or has been included in
the Notes to Consolidated Financial Statements.
|
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| 2.1 | Agreement and Plan of Merger, dated as of November 4, 2014, by and between Sterling Bancorp and Hudson Valley Holding Corp. (incorporated by reference to Exhibit 2.1 of the Company’s Current Report on Form 8-K filed on November 7, 2014). |
| 3.1 | Certificate of Incorporation of the Company, as amended (incorporated by reference to Exhibit 3.1 of the Company’s Current Report on Form 8-K filed on NovemberJune 1, 2013)2015). |
| 3.2 | Bylaws of the Company, as amended (incorporated by reference to Exhibit 3.23.1 of the Company’s Current Report on Form 8-K filed on NovemberJune 1, 2013)2015). |
| 4.1 | Form of Common Stock Certificate of the Company (incorporated by reference to Exhibit 4.1 of the Company’s Current Report on Form 8-K filed on November 1, 2013). |
| 4.2 | Form of Corporate Governance Agreement (incorporated by reference to Exhibit 10.2 of the Company’s Current Report on Form 8-K filed on August 7, 2012). |
| 4.3 | Pursuant to Item 601(b)(4)(iii)(A) of Regulation S-K, no instrument which defines the holders of long-term debt of the Company or any of its consolidated subsidiaries is filed herewith. Pursuant to this regulation, the Company hereby agrees to furnish a copy of any such instrument to the Commission upon request. |
| 9.1 | Form of Voting Agreement, dated as of November 4, 2014, by and between Hudson Valley Holding Corp. and certain shareholders of Sterling Bancorp (incorporated by reference to Exhibit 10.1 of the Form S-4/A filed on March 13, 2015). |
| 9.2 | Form of Voting Agreement, dated as of November 4, 2014, by and between Sterling Bancorp and certain shareholders of Hudson Valley Holding Corp. (incorporated by reference to Exhibit 10.2 of the Form S-4/A filed on March 13, 2015). |
| 10.1 | Retention Letter by and among the Company, the Bank and Michael E. Finn, dated December 22, 2014 (filed herewith).*
|
| 10.2 | Change in control agreement by and among Hudson Valley Bank, Hudson Valley Holding Corp and Michael E. Finn, dated April 10, 2014 (filed herewith).* |
| 10.3 | Retention Letter by and among the Company, the Bank and James P. Blose, dated January 29, 2015 (filed herewith).* |
| 10.4 | Change in control agreement by and among Hudson Valley Bank, Hudson Valley Holding Corp and James P. Blose, dated April 10, 2014 (filed herewith).* |
| 10.5 | Amended and Restated Employment Agreement, dated as of June 20, 2011,December 8, 2015, with Jack L. Kopnisky (incorporated by reference to Exhibit 10.1 of the Company’s Current Report on Form 8-K filed on June 21, 2011)December 11, 2015).* |
10.210.6 | Form of Amendment to EmploymentSpecial Performance Award Notice and Agreement, dated as of November 26, 2012,December 8, 2015, with Jack L. Kopnisky (incorporated by reference to Exhibit 10.3 of the Company’sCompany's Current Report on Form 8-K filed on November 26, 2012)December 11, 2015).* |
10.310.7 | Amendment No. 2 toAmended and Restated Employment Agreement, dated as of April 3, 2013, with Jack L. Kopnisky (incorporated by reference to Exhibit 10.1 of the Company’s Amendment No. 1 to Current Report on Form 8-K filed on April 9, 2013).* |
10.4 | Employment Agreement, dated as of November 1, 2013,December 8, 2015, with Luis Massiani (incorporated by reference to Exhibit 10.2 of the Company’sCompany's Current Report on Form 8-K filed on November 4, 2013)December 11, 2015).* |
10.510.8 | Form of EmploymentSpecial Performance Award Notice and Agreement, dated as of November 22, 2011,December 8, 2015, with Rodney WhitwellLuis Massiani (incorporated by reference to Exhibit 10.2010.4 of the Company’s Annual Report on Form 10-K filed on December 14, 2012).* |
10.6 | Form of Reinstated Employment Agreement, dated as of November 26, 2012, with Rodney Whitwell (incorporated by reference to Exhibit 10.5 of the Company’sCompany's Current Report on Form 8-K filed on November 27, 2012)December 11, 2015).* |
|
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| 10.9 | Consulting Agreement, dated as of June 30, 2015, with James J. Landy (incorporated by reference to Exhibit 10.1 of the Company's Current Report on Form 8-K filed on July 2, 2015).* |
10.710.10 | Consulting Agreement, dated as of November 4, 2014, with Stephen R. Brown (incorporated by reference to Exhibit 10.3 of the Form S-4/A filed on March 13, 2015).* |
| 10.11 | Employment Agreement, dated as of November 1, 2013, with Rodney Whitwell (filed herewith).* |
| 10.12 | Employment Agreement, dated as of November 1, 2013, with David S. Bagatelle (incorporated by reference to Exhibit 10.1 of the Company’sCompany's Current Report on Form 8-K filed on November 4, 2013).*
|
10.810.13 | Amendment No. 1 to Employment Agreement, dated as of September 23, 2014, with David S. Bagatelle (incorporated by reference to Exhibit 10.1 of the Company's Current Report on Form 8-K filed on September 25, 2014).* |
| 10.14 | Employment Agreement, dated as of November 1, 2013, with James R. Peoples (incorporated by reference to Exhibit 10.3 of the Company’sCompany's Current Report on Form 8-k filed on November 4, 2013).* |
| 10.15 | Employment Agreement dated as of April 3, 2013, with Michael Bizenov (incorporated by reference to Exhibit 10.10 to the Company's Annual Report on Form 10-K filed on November 28, 2014).* |
| 10.16 | Separation Agreement with Howard Applebaum, dated as of January 29, 2015 (incorporated by reference to Exhibit 10.1 of the Company's Current Report on Form 8-K filed on November 4, 2013)February 3, 2015).* |
10.910.17 | Services and Covenant Agreement, dated as of April 3, 2013, by and between the Company and Louis J. Cappelli (incorporated
(incorporated by reference to Exhibit 10.1 to the Company’sCompany's Current Report on Form 8-K filed on November 1, 2013).* |
10.1010.18 | Services and Covenant Agreement, dated as of April 3, 2013, by and between the Company and John C. Millman (incorporated
(incorporated by reference to Exhibit 10.2 to the Company’sCompany's Current Report on Form 8-K filed on November 1, 2013).* |
10.11 | [Form[s] of Employment Agreement between Legacy Sterling and former Legacy Sterling executives who are now executives of the Company] |
|
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10.12 | Employment Agreement, dated as of July 1, 2012, with Daniel Rothstein (incorporated by reference to Exhibit 10.1 of the Company’s Current Report on Form 8-K filed on July 2, 2012). |
10.13 | Retention Award Letter, dated as of May 13, 2013, with Daniel G. Rothstein (incorporated by reference to Exhibit 10.1 of the Company’s Current Report on Form 8-K filed on May 14, 2013).* |
10.14 | Employment Agreement, dated as of January 9, 2012, with Stephen V. Masterson (incorporated by reference to Exhibit 10.1 of the Company’s Current Report on Form 8-K filed on January 10, 2012).* |
10.15 | Form of Separation Agreement, dated as of November 21, 2012, with Stephen V. Masterson (incorporated by reference to Exhibit 10.2 of the Company’s Current Report on Form 8-K filed on November 27, 2012).* |
10.1610.19 | Provident Bank Amended and Restated 1995 Supplemental Executive Retirement Plan (incorporated by reference to Exhibit 10.1 of the Company’sCompany's Quarterly Report on Form 10-Q filed on August 11, 2008 (File No. 0-25233)).* |
10.1710.20 | Provident Bank 2005 Supplemental Executive Retirement Plan (incorporated by reference to Exhibit 10.2 of the Company’sCompany's Quarterly Report on Form 10-Q filed on August 11, 2008 (File No. 0-25233)).* |
10.1810.21 | Provident Bank 2000 Stock Option Plan (incorporated by reference to Appendix A to the Company’sCompany's Proxy Statement filed on January 18, 2000 (File No. 0-25233)).* |
10.1910.22 | Provident Bancorp, Inc. 2004 Stock Incentive Plan(incorporated (incorporated by reference to Appendix A to the Company’sCompany's Proxy Statement filed on January 19, 2005 (File No. 0-25233)).* |
10.2010.23 | Form of Stock Option Agreement, dated as of July 6, 2011, between the Company and Jack L. Kopnisky (incorporated by reference to Exhibit 10.3 of the Company’sCompany's Quarterly Report on Form 10-Q filed on August 9, 2011).* |
10.2110.24 | Form of Restricted Stock Award Notice, dated as of July 6, 2011, between the Company and Jack L. Kopnisky (incorporated by reference to Exhibit 10.4 of the Company’sCompany's Quarterly Report on Form 10-Q filed on August 9, 2011)).* |
10.2210.25 | Form of Performance-Based Restricted Stock Award Notice, dated as of July 6, 2011, between the Company and Jack L. Kopnisky (incorporated by reference to Exhibit 10.5 of the Company’sCompany's Quarterly Report on Form 10-Q filed on August 9, 2011).* |
10.2310.26 | Provident Short-Term Incentive Plan (incorporated by reference to Exhibit 10.1 of the Company’sCompany's Current Report on Form 8-K8--K filed on November 1, 2011).* |
10.2410.27 | Provident New YorkSterling Bancorp 20122014 Stock Incentive Plan (incorporated(incorporated by reference to Appendix A to the Company’sCompany's Proxy Statement for the 20122014 Annual Meeting of Stockholders, filed on January 6, 2012)10, 2014).*
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10.25 | Amendment to the Provident New York Bancorp 2012 Stock Incentive Plan (incorporated by reference to Annex H to the Company’s Joint Proxy Statement / Prospectus filed on August 14, 2013).*
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10.2610.28 | Sterling Bancorp Stock Incentive Plan (incorporated by reference to Exhibit 10 to Legacy Sterling’sSterling's Quarterly Report on Form 10-Q for the quarter ended September 30, 2004 (File No. 1-05273)).* |
10.2710.29 | Form of Sterling Bancorp 2013 Employment Inducement Award Agreement (incorporated by reference to Exhibit 10.1 of the Company’sCompany's Post Effective Amendment on Form S-8 to Form S-4 filed on November 1, 2013.2013).* |
10.2810.30 | Form of Restricted Stock Unit Award Agreement Pursuant to the Provident New York Bancorp 2012 Stock Incentive Plan (incorporated by reference to Exhibit 10.3 to the Company’sCompany's Current Report on Form 8-K filed on November 1, 2013).* |
| 10.31 | Form of Restricted Stock Award Agreement Pursuant to the Provident New York Bancorp 2012 Stock Incentive Plan (incorporated by reference to Exhibit 10.27 to the Company's Annual Report on Form 10-K filed on November 28, 2014).* |
| 10.32 | Form of Stock Option Award Agreement Pursuant to the Provident New York Bancorp 2012 Stock Incentive Plan (incorporated by reference to Exhibit 10.29 to the Company's Annual Report on Form 10-K filed on November 28, 2014).* |
| 10.33 | Form of Performance-Based Stock Award Agreement Pursuant to the Provident New York Bancorp 2012 Stock Incentive Plan (incorporated by reference to Exhibit 10.30 to the Company's Annual Report on Form 10-K filed on November 28, 2014).* |
| 10.34 | Form of Restricted Stock Award Agreement Pursuant to the 2014 Stock Incentive Plan (incorporated by reference to Exhibit 10.31 to the Company's Annual Report on Form 10-K filed on November 28, 2014).* |
| 10.35 | Form of Stock Option Award Agreement Pursuant to the 2014 Stock Incentive Plan (incorporated by reference to Exhibit 10.31 to the Company's Annual Report on Form 10-K filed on November 28, 2014).* |
|
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| 10.36 | Form of Performance-Based Stock Award Agreement Pursuant to the 2014 Stock Incentive Plan (incorporated by reference to Exhibit 10.33 to the Company's Transition Report on Form 10-K/T filed on March 6, 2015).* |
| 10.37 | Sterling Bancorp 2015 Omnibus Equity and Incentive Plan (incorporated by reference to Annex B to the Company's Proxy Statement for the 2015 Annual Meeting of Stockholders, filed on April 17, 2015).* |
| 10.38 | Form of Stock Option Award Agreement Pursuant to the Sterling Bancorp 2015 Omnibus Equity and Incentive Plan (incorporated by reference to Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q filed on August 7, 2015).* |
| 10.39 | Form of Performance-Based Stock Award Agreement Pursuant to the Sterling Bancorp 2015 Omnibus Equity and Incentive Plan (incorporated by reference to Exhibit 10.2 to the Company's Quarterly Report on Form 10-Q filed on August 7, 2015).* |
| 10.40 | Form of NEO Restricted Stock Award Agreement Pursuant to the Sterling Bancorp 2015 Omnibus Equity and Incentive Plan (incorporated by reference to Exhibit 10.3 to the Company's Quarterly Report on Form 10-Q filed on August 7, 2015).* |
| 10.41 | Form of non-NEO Restricted Stock Award Agreement Pursuant to the Sterling Bancorp 2015 Omnibus Equity and Incentive Plan (incorporated by reference to Exhibit 10.4 to the Company's Quarterly Report on Form 10-Q filed on August 7, 2015).* |
| 21 | Subsidiaries of Registrant (filed herewith) |
| 23 | Consent of Crowe Horwath LLP (filed herewith) |
| 31.1 | Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith) |
| 31.2 | Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith) |
| 32 | Certification Pursuant to 18 U.S.C. Section 1350, as amended by Section 906 of the Sarbanes-Oxley Act of 2002 (filed (filed herewith)
|
| 101.INS | XBRL Instance Document (filed herewith) |
| 101.SCH | XBRL Taxonomy Extension Schema Document (filed herewith) |
| 101.CAL | XBRL Taxonomy Extension Calculation Linkbase Document (filed herewith) |
| 101.LAB | XBRL Taxonomy Extension Label Linkbase Document (filed herewith) |
|
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| 101.PRE | XBRL Taxonomy Extension Presentation Linkbase Document (filed herewith) |
| 101.DEF | XBRL Taxonomy Extension Definition Linkbase Document (filed herewith) |
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* | |
* Indicates management contract or compensatory plan or arrangement.
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SIGNATURES
Pursuant to the requirements of Section 13 of the Securities Exchange Act of 1934, Sterling Bancorp has duly caused this report to be signed on its behalf by the undersigned, there unto duly authorized.
Sterling Bancorp
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| | | | |
| Date: | December 9, 2013February 29, 2016 | By: | | /s/ Jack L. Kopnisky |
| | | | | Jack L. Kopnisky |
| | | | | President, Chief Executive Officer and Director (Principal Executive Officer) |
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
|
| | | | |
| By: | /s/ Jack L. Kopnisky | | By: | /s/ Luis Massiani |
| | Jack L. Kopnisky | | | Luis Massiani |
| | President, Chief Executive Officer and | | | Senior Executive Vice President |
| | Director | | | Chief Financial Officer |
| | Principal Executive Officer | | | Principal Financial Officer |
| Date: | December 9, 2013February 29, 2016 | | | Principal Accounting Officer |
| | | | Date: | December 9, 2013February 29, 2016 |
| | | | | |
| By: | /s/ Louis J. Cappelli | | | |
| | Louis J. Cappelli | | | |
| | Chairman of the Board of Directors | | | |
| Date: | December 9, 2013February 29, 2016 | | | |
|
| | | | | | | | | |
| | | | | | | | | | |
| By: | /s/ Robert Abrams | | By: | | /s/ James F. DeutschJohn P. Cahill | | By: | | /s/ Navy E. DjonovicJames F. Deutsch |
| | Robert Abrams | | | | James F. DeutschJohn P. Cahill | | | | Navy E. DjonovicJames F. Deutsch |
| | Director | | | | Director | | | | Director |
| Date: | December 9, 2013February 29, 2016 | | Date: | | December 9, 2013February 29, 2016 | | Date: | | December 9, 2013February 29, 2016 |
| | | | | | | | | | |
| By: | /s/ Navy E. Djonovic | | By: | | /s/ Fernando Ferrer | | By: | | /s/ William F. Helmer |
| | By:Navy E. Djonovic | | /s/ Thomas G. Kahn |
| | Fernando Ferrer | | | | William F. Helmer | | | | Thomas G. Kahn |
| | Director | | | | Director | | | | Director |
| Date: | December 9, 2013February 29, 2016 | | Date: | | December 9, 2013February 29, 2016 | | Date: | | December 9, 2013February 29, 2016 |
| | | | | | | | | | |
| By: | /s/ Thomas G. Kahn | | By: | | /s/ James B. KleinJ. Landy | | By: | | /s/ Robert W. Lazar | | By: | | /s/ John C. Millman |
| | Thomas Kahn | | | | James B. KleinJ. Landy | | | | Robert W. Lazar | | | | John C. Millman |
| | Director | | | | Director | | | | Director |
| Date: | December 9, 2013February 29, 2016 | | Date: | | December 9, 2013February 29, 2016 | | Date: | | December 9, 2013February 29, 2016 |
| | | | | | | | | | |
| By: | /s/ John C. Millman | | By: | | /s/ Richard O’Toole | | By: | | /s/ Burt Steinberg |
| | John C. Millman | | | |
| | Richard O’Toole | | | | Burt Steinberg |
| Director | | | | Director | | | | Director |
| Date: | February 29, 2016 | | Date: | | February 29, 2016 | | Date: | | February 29, 2016 |
| | | | | | | | | |
| By: | /s/ Craig S. Thompson | | By: | | /s/ William E. Whiston | | | | |
| Craig S. Thompson | | | | William E. Whiston | | | | |
| | Director | | | | Director | | | | |
| Date: | December 9, 2013February 29, 2016 | | Date: | | December 9, 2013February 29, 2016 | | | | |