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STERLING BANCORP 10-Q 2012

Documents found in this filing:

  1. 10-Q
  2. Ex-31.1
  3. Ex-31.2
  4. Ex-32.1
  5. Ex-32.1
Form 10-Q
Table of Contents

 

 

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM 10-Q

 

 

 

x QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2012

OR

 

¨ TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from              to             

Commission File Number: 001-35385

 

 

PROVIDENT NEW YORK BANCORP

(Exact Name of Registrant as Specified in its Charter)

 

 

 

Delaware   80-0091851
(State or Other Jurisdiction of   (IRS Employer ID No.)
Incorporation or Organization)  
400 Rella Boulevard, Montebello, New York   10901
(Address of Principal Executive Office)   (Zip Code)

(845) 369-8040

(Registrant’s Telephone Number including area code)

 

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding twelve months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes  x    No  ¨

Indicate by checkmark whether the registrant has submitted electronically and posted on its corporate website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes  x    No  ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):

 

Large Accelerated Filer   ¨    Accelerated Filer   x
Non-Accelerated Filer   ¨    Smaller Reporting Company   ¨

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes  ¨    No  x

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

 

Classes of Common Stock

  

Shares Outstanding as of May 1, 2012

$0.01 per share

   37,899,007

 

 

 

 


Table of Contents

PROVIDENT NEW YORK BANCORP AND SUBSIDIARIES

QUARTERLY PERIOD ENDED MARCH 31, 2012

 

   PART I. FINANCIAL INFORMATION      

Item 1. 1.

   Financial Statements      
   Consolidated Statements of Financial Condition (unaudited) at March 31, 2012 and September 30, 2011         3   
   Consolidated Statements of Income (unaudited) for the Three Months Ended March 31, 2012 and 2011         4   
   Consolidated Statements of Income (unaudited) for the Six Months Ended March 31, 2012 and 2011         4   
   Consolidated Statements of Comprehensive Income (Loss) for the Three Months Ended March 31, 2012 and 2011         5   
   Consolidated Statements of Comprehensive Income (Loss) for the Six Months Ended March 31, 2012 and 2011         5   
   Consolidated Statements of Changes in Stockholders’ Equity (unaudited) for the Six Months Ended March 31,         6   
   Consolidated Statements of Cash Flows (unaudited) for the Six Months Ended March 31, 2012 and 2011         7   
   Notes to Consolidated Financial Statements (unaudited)         9   

Item 2.

   Management’s Discussion and Analysis of Financial Condition and Results of Operations         41   

Item 3.

   Quantitative and Qualitative Disclosures about Market Risk         52   

Item 4.

   Controls and Procedures         53   
   PART II. OTHER INFORMATION      

Item 1.

   Legal Proceedings         53   

Item 1A.

   Risk Factors         53   

Item 2.

   Unregistered Sales of Equity Securities and Use of Proceeds         53   

Item 3.

   Defaults Upon Senior Securities         53   

Item 4.

   Mine Safety Disclosures         53   

Item 5.

   Other Information         53   

Item 6.

   Exhibits         54   
   Signatures         55   

 


Table of Contents

PROVIDENT NEW YORK BANCORP AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION (unaudited)

(In thousands, except share data)

 

     March 31,
2012
    September 30,
2011
 
ASSETS     

Cash and due from banks

   $ 89,019      $ 281,512   

Securities (including $799,798 and $644,910 pledged as collateral for borrowings and deposits at March 31, 2012 and September 30, 2011 respectively)

    

Available for Sale

     852,717        739,844   

Held to maturity, at amortized cost (fair value of $176,869 and $111,272 at March 31, 2012 and September 30, 2011, respectively)

     174,824        110,040   
  

 

 

   

 

 

 

Total securities

     1,027,541        849,884   
  

 

 

   

 

 

 

Loans held for sale

     1,736        4,176   

Gross loans:

     1,799,112        1,703,799   

Allowance for loan losses

     (27,787     (27,917
  

 

 

   

 

 

 

Total loans, net

     1,771,325        1,675,882   
  

 

 

   

 

 

 

Federal Home Loan Bank (“FHLB”) stock, at cost

     17,129        17,584   

Accrued interest receivable

     9,975        9,904   

Premises and equipment, net

     39,162        40,886   

Goodwill

     160,861        160,861   

Core deposit and other intangible assets

     4,001        4,629   

Bank owned life insurance

     57,987        56,967   

Forclosed properties

     5,828        5,391   

Other assets

     26,307        29,726   
  

 

 

   

 

 

 

Total assets

   $ 3,210,871      $ 3,137,402   
  

 

 

   

 

 

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

    

LIABILITIES

    

Deposits

   $ 2,368,988      $ 2,296,695   

FHLB borrowings (including repurchase agreements of $206,982 and $211,694 at March 31, 2012 and September 30, 2011, respectively)

     313,849        323,522   

Borrowings senior unsecured note (FDIC insured)

     —          51,499   

Mortgage escrow funds

     15,210        9,701   

Other liabilities

     73,125        24,851   
  

 

 

   

 

 

 

Total liabilities

     2,771,172        2,706,268   
  

 

 

   

 

 

 

Commitments and contingent liabilities

     —          —     

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; 45,929,552 issued; 37,899,007 and 37,864,008 shares outstanding at March 31, 2012 and September 30, 2011, respectively)

     459        459   

Additional paid-in capital

     357,406        357,063   

Unallocated common stock held by employee stock ownership plan (“ESOP”)

     (5,888     (6,138

Treasury stock, at cost (8,030,545 and 8,065,544 shares at March 31, 2012 and September 30, 2011, respectively)

     (90,328     (90,585

Retained earnings

     172,065        165,199   

Accumulated other comprehensive income, net of taxes

     5,985        5,136   
  

 

 

   

 

 

 

Total stockholders’ equity

     439,699        431,134   
  

 

 

   

 

 

 

Total liabilities and stockholders’ equity

   $ 3,210,871      $ 3,137,402   
  

 

 

   

 

 

 

See accompanying notes to unaudited consolidated financial statements

 

3


Table of Contents

PROVIDENT NEW YORK BANCORP AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME (unaudited)

(Dollars in thousands, except share data)

 

     For the Three Months
Ended March 31,
    For the Six Months
Ended March 31,
 
     2012     2011     2012     2011  

Interest and dividend income:

        

Loans

   $ 22,153      $ 22,039      $ 44,302      $ 45,244   

Taxable securities

     4,415        3,531        8,405        7,061   

Non-taxable securities

     1,599        1,901        3,373        3,826   

Other earning assets

     244        332        499        732   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total interest and dividend income

     28,411        27,803        56,579        56,863   

Interest expense:

        

Deposits

     1,217        1,585        2,530        3,227   

Borrowings

     3,289        3,707        6,906        7,941   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total interest expense

     4,506        5,292        9,436        11,168   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net interest income

     23,905        22,511        47,143        45,695   

Provision for loan losses

     2,850        2,100        4,800        4,200   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net interest income after provision for loan losses

     21,055        20,411        42,343        41,495   

Non-interest income:

        

Deposit fees and service charges

     2,706        2,643        5,496        5,410   

Net gain on sale of securities

     2,899        748        4,888        4,950   

Other than temporary impairment on securities

     —          —          (38     —     

Title insurance fees

     265        274        525        637   

Bank owned life insurance

     502        553        1,020        1,047   

Gain on sale of loans

     450        310        890        852   

Investment management fees

     800        789        1,565        1,532   

Fair value gain (loss) on interest rate cap

     (40     (2     (43     232   

Other

     389        480        844        1,018   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total non-interest income

     7,971        5,795        15,147        15,678   

Non-interest expense:

        

Compensation and employee benefits

     11,395        11,183        22,320        22,411   

Retirement benefit settlement charge

     —          278        —          278   

Stock-based compensation plans

     284        296        559        575   

Merger related expense

     299        —          546        —     

Occupancy and office operations

     3,409        3,757        7,110        7,392   

Advertising and promotion

     427        843        1,040        1,796   

Professional fees

     1,056        1,043        1,983        2,105   

Data and check processing

     710        691        1,382        1,333   

Amortization of intangible assets

     305        371        628        783   

Foreclosed property expense

     412        117        617        33   

FDIC insurance and regulatory assessments

     743        919        1,471        1,687   

ATM/debit card expense

     425        366        836        759   

Other

     1,825        1,927        3,519        3,908   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total non-interest expense

     21,290        21,791        42,011        43,060   

Income before income tax expense

     7,736        4,415        15,479        14,113   

Income tax expense

     2,035        842        4,061        3,820   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net Income

   $ 5,701      $ 3,573      $ 11,418      $ 10,293   
  

 

 

   

 

 

   

 

 

   

 

 

 

Weighted average common shares:

        

Basic

     37,280,651        37,496,395        37,266,480        37,524,627   

Diluted

     37,316,778        37,497,467        37,275,633        37,524,950   

Per common share

        

Basic

   $ 0.15      $ 0.10      $ 0.31      $ 0.27   

Diluted

   $ 0.15      $ 0.10      $ 0.31      $ 0.27   

See accompanying notes to unaudited consolidated financial statements

 

4


Table of Contents

PROVIDENT NEW YORK BANCORP AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (unaudited)

(In thousands, except share data)

 

     For the Three Months
Ended  March 31,
    For the Six Months
Ended March 31,
 
     2012     2011     2012     2011  

Net Income:

   $ 5,701      $ 3,573      $ 11,418      $ 10,293   

Other comprehensive income (loss) :

        

Net unrealized holding gains ( losses) on securities available for sale net of related tax expense (benefit) of $(220), $158 and $2,090 , ($8,772)

     (320     229        3,056        (12,828

Less:

        

Reclassification adjustment for net unrealized gains included in net income, net of related income tax expense of $1,177, $304 and $1,985, $2,010

     1,722        444        2,903        2,940   

Reclassification adjustment for other than temporary impaired losses included in net income, net of related income tax benefit of $15

     —          —          (23     —     
  

 

 

   

 

 

   

 

 

   

 

 

 
     (2,042     (215     176        (15,768

Change in funded status of defined benefit plans, net of related income tax expense of $231, $306 and $460, $380

     335        449        673        556   
  

 

 

   

 

 

   

 

 

   

 

 

 

Comprehensive income

     (1,707     234        849        (15,212
  

 

 

   

 

 

   

 

 

   

 

 

 

Total comprehensive income (loss)

   $ 3,994      $ 3,807      $ 12,267      $ (4,919
  

 

 

   

 

 

   

 

 

   

 

 

 

See accompanying notes to unaudited consolidated financial statements

 

5


Table of Contents

PROVIDENT NEW YORK BANCORP AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY (unaudited)

(In thousands, except share data)

 

     Number
of
Shares
    Common
Stock
     Additional
Paid-In
Capital
    Unallocated
ESOP
Shares
    Treasury
Stock
    Retained
Earnings
    Accumulated
Other
Comprehensive
Income
     Total
Stockholders’
Equity
 

Balance at October 1, 2011

     37,864,008      $ 459       $ 357,063      $ (6,138   $ (90,585   $ 165,199      $ 5,136       $ 431,134   

Net income

     —          —           —          —          —          11,418        —           11,418   

Other comprehensive income

     —          —           —          —          —          —          849         849   
                  

 

 

 

Total comprehensive income

                     12,267   

Deferred compensation transactions

     —          —           138        —          —          —          —           138   

Stock option transactions, net

     —          —           252        —          —          —          —           252   

ESOP shares allocated or committed to be released for allocation (24,966 shares)

     —          —           89        250        —          —          —           339   

RRP Awards

     36,000        —           (277     —          267        —          —           (10

Vesting of RRP Awards

     —          —           141        —          —          —          —           141   

Other RRP Awards

     (1,001     —           —          —          (10     —          —           (10

Purchase of treasury shares

     —          —           —          —          —          —          —           —     

Cash dividends paid ($0.12 per common share)

     —          —           —          —          —          (4,552     —           (4,552
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

Balance at March 31, 2012

     37,899,007      $ 459       $ 357,406      $ (5,888   $ (90,328   $ 172,065      $ 5,985       $ 439,699   
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

See accompanying notes to unaudited consolidated financial statements

 

6


Table of Contents

PROVIDENT NEW YORK BANCORP AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)

(In thousands, except share data)

 

    

For the Six Months

Ended March 31,

 
     2012     2011  

Cash flows from operating activities:

    

Net income

   $ 11,418      $ 10,293   

Adjustments to reconcile net income to net cash provided by operating activities

    

Provision for loan losses

     4,800        4,200   

Loss on real estate owned

     178        100   

Depreciation of premises and equipment

     2,505        2,860   

Amortization of intangibles

     628        783   

Net gains on loans held for sale

     (890     (852

Other than temporary impairment loss (credit loss)

     38        —     

Net gains on sale of securities

     (4,888     (4,950

Fair value (gain) loss on interest rate cap

     43        (232

Net amortization of premium on securities

     1,466        4,714   

Accretion (amortization) of premiums on borrowings

     1        (32

Amortization of prepaid penalties on borrowings

     727        338   

ESOP and RRP expense

     308        302   

ESOP forfeitures

     (1     (3

Retirement benefit settlement expense

     —          278   

Stock option compensation expense

     252        278   

Originations of loans held for sale

     (35,935     (37,819

Proceeds from sales of loans held for sale

     39,265        44,561   

Increase in cash surrender value of bank owned life insurance

     (1,020     (1,047

Deferred income tax benefit

     (6,700     (1,225

Net changes in accrued interest receivable and payable

     (329     (726

Other adjustments (principally net changes in other assets and other liabilities)

     9,206        (8,692
  

 

 

   

 

 

 

Net cash provided by operating activities

     21,072        13,129   
  

 

 

   

 

 

 

Cash flows from investing activities

    

Purchases of available for sale securities

     (261,775     (357,238

Purchases of held to maturity securities

     (77,080     (8,005

Proceeds from maturities, calls and other principal payments on securities:

    

Available for sale

     52,149        131,361   

Held to maturity

     12,027        10,844   

Proceeds from sales of securities available for sale and held to maturity

     150,657        270,351   

Loan originations

     (362,282     (261,632

Loan principal payments

     259,975        272,853   

Proceeds from sales of other real estate owned

     1,449        —     

Purchase of FHLB stock, net

     455        1,393   

Purchases of premises and equipment

     (781     (2,092
  

 

 

   

 

 

 

Net cash (used in) provided by investing activities

     (225,206     57,835   
  

 

 

   

 

 

 

 

 

(Continued)

 

7


Table of Contents

PROVIDENT NEW YORK BANCORP AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)

(In thousands, except share data)

 

    

For the Six Months Ended

March 31,

 
     2012     2011  

Cash flows from financing activities

    

Net increase (decrease) in transaction, savings and money market deposits

     101,863        (23,967

Net decrease in time deposits

     (29,570     (28,831

Net decrease in short-term borrowings

     (10,000     (62,340

Gross repayments of long-term borrowings

     (5,122     (57,756

Restructured debt

     5,000        89,135   

Payment of penalties on restructured borrowings

     (278     (5,151

Net decrease in borrowings senior note

     (51,500     —     

Net increase in mortgage escrow funds

     5,509        6,088   

Treasury shares purchased

     —          (1,941

Stock option transactions

     153        4   

Other stock-based compensation transactions

     138        19   

Cash dividends paid

     (4,552     (4,426
  

 

 

   

 

 

 

Net cash used in financing activities

     11,641        (89,166
  

 

 

   

 

 

 

Net decrease in cash and cash equivalents

     (192,493     (18,202

Cash and cash equivalents at beginning of period

     281,512        90,872   
  

 

 

   

 

 

 

Cash and cash equivalents at end of period

   $ 89,019      $ 72,670   
  

 

 

   

 

 

 

Supplemental information:

    

Interest payments

   $ 9,695      $ 15,899   

Income tax payments

     1,575        4,810   

Net change in net unrealized gains recorded on securities available for sale

     296        (9,320

Change in deferred taxes on net unrealized gains on securities available for sale

     (121     3,783   

Real estate acquired in settlement of loans

     2,064        143   

Trade day security accounting

     49,955        —     

See accompanying notes to unaudited consolidated financial statements

 

8


Table of Contents

PROVIDENT NEW YORK BANCORP AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

(In thousands, except share data)

1. Basis of Presentation

The consolidated financial statements include the accounts of Provident New York Bancorp (“Provident Bancorp” or “the Company”), Hardenburgh Abstract Title Company, Inc., which provides title searches and insurance for residential and commercial real estate, Hudson Valley Investment Advisors, LLC (“HVIA”), a registered investment advisor, Provident Risk Management, (a captive insurance company), Provident Bank (“the Bank”), and the Bank’s wholly owned subsidiaries. These subsidiaries are (i) Provident Municipal Bank (“PMB”) which is a limited-purpose, New York State-chartered commercial bank formed to accept deposits from municipalities in the Company’s market area, (ii) Provident REIT, Inc. and WSB Funding, Inc. which are real estate investment trusts that hold a portion of the Company’s real estate loans, (iii) Provest Services Corp. I, which has invested in a low-income housing partnership, (iv) Provest Services Corp. II, which has engaged a third-party provider to sell mutual funds and annuities to the Bank’s customers, and (v) companies that hold foreclosed properties acquired by the Bank. Intercompany transactions and balances are eliminated in consolidation.

The Company’s off-balance sheet activities are limited to loan origination commitments, loan commitments pending sale, lines of credit extended to customers and letters of credit on behalf of customers, which all occur in the ordinary course of its lending activities. In addition, the Company purchased interest rate caps with a notional value of $50,000 during the first quarter of fiscal 2010. The Company does not engage in off-balance sheet financing transactions or other activities involving the use of special-purpose or variable interest entities.

The consolidated financial statements have been prepared by management without audit, but, in the opinion of management, include all adjustments, consisting of normal recurring accruals, necessary for a fair presentation of the Company’s financial position and results of operations as of the dates and for the periods presented. Although certain information and footnote disclosures have been condensed or omitted pursuant to the rules and regulations of the Securities and Exchange Commission applicable to quarterly reports on Form 10-Q, the Company believes that the disclosures are adequate to make the information presented clear. The results of operations for the three months and six months ended March 31, 2012 are not necessarily indicative of results to be expected for other interim periods or the entire fiscal year ending September 30, 2012. The unaudited consolidated financial statements presented herein should be read in conjunction with the annual audited financial statements included in the Company’s Form 10-K for the fiscal year ended September 30, 2011.

The consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America. In preparing the consolidated financial statements, management is required to make estimates and assumptions that affect the reported amounts of assets, liabilities, income and expense. Actual results could differ significantly from these estimates. A material estimate that is particularly susceptible to near-term change is the allowance for loan loss (see note 4), which reflects the application of a critical accounting policy.

Certain loan amounts from prior periods have been reclassified to conform to the current fiscal year presentation.

2. Stock-Based Compensation

The Company has two share based compensation plans as described below. Total compensation cost that has been charged against income for those plans was $181, and $176, for the three months ending March 31, 2012 and 2011. There was no income tax benefit for the three months ending March 31, 2012 and 2011. Total compensation cost that has been charged against income for those plans was $373, and $339, for the six months ending March 31, 2012 and 2011. There was no income tax benefit for the six months ending March 31, 2012 and 2011.

Stock Option Plan

The Company’s shareholders approved the 2012 Employee Share Option Plan (stock option plan) on February 16, 2012. The plan, permits the grant of share options to employees for up to 2,890,000 shares of common stock as of March 31, 2012. The plan allows for the following type of stock based awards to be issued: options, stock appreciation rights, restricted stock awards, performance based restricted stock awards, restricted stock unit awards, deferred stock awards, performance unit awards or other stock based awards. Option awards are generally granted with an exercise price equal to the market price of the Company’s common stock at the date of grant; those option awards have vesting periods ranging from 2 to 5 years and have 10 year contractual terms. The Company has a policy of using 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.

The Company’s 2004 Employee Share Option Plan (stock option plan), which is shareholder-approved, permits the grant of share options to its employees for up to 19,107 shares of common stock as of March 31, 2012. Option awards are generally granted with an exercise price equal to the market price of the Company’s common stock at the date of grant; those option awards have vesting periods ranging from 2 to 5 years and have 10 year contractual terms. The Company has a policy of using 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.

 

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PROVIDENT NEW YORK BANCORP AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

(In thousands, except share data)

 

The fair value of each option award is estimated on the date of grant using a closed form option valuation (Black-Scholes) model that uses the assumptions noted in the table below. Expected volatilities are based on historical volatilities of the Company’s common stock. The expected term of options granted is based on historical data and represents the period of time that options granted are expected to be outstanding, which takes into account that the options are not transferable. The risk-free interest rate for the expected term of the option is based on the U.S. Treasury yield curve in effect at the time of the grant.

The fair value of options granted was determined using the following weighted-average assumptions as the grant date:

 

    

Six months ended

March 31,

 
     2012     2011  

Risk-free interest rate (1)

     1.5     —     

Expected stock price volatility

     39.8     —     

Dividend yield (2)

     3.1     —     

Expected term in years

     5.8        —     

The following table summarizes the Company’s stock option activity for the six months ended March 31, 2012:

 

     Number of
Shares
    Weighted
Average
Exercise
Price
 

Outstanding at October 1, 2011

     1,906,020      $ 12.20   

Granted

     419,500        7.73   

Exercised

     —          —     

Forfeited

     (241,000     12.36   
  

 

 

   

 

 

 

Outstanding at March 31, 2012

     2,084,520      $ 11.28   
  

 

 

   

 

 

 

Exercisable at March 31, 2012

     1,419,944      $ 12.63   
  

 

 

   

 

 

 

Weighted average estimated fair value of options granted during the period

     $ 2.27   
    

 

 

 

Information related to the stock option plan during each year follows:

 

     2012      2011      2010  

Intrinsic value of options exercised

   $ —         $ —         $ 1,615   

Cash received from option exercises

     —           —           984   

Tax benefit realized from option exercises

     —           —           —     

Weighted average fair value of options granted

     2.27         2.27         2.69   

As of March 31, 2012, there was $1,216 of total unrecognized compensation cost related to non-vested stock options granted under the Plan. The cost is expected to be recognized over a weighted-average period of 1.6 years.

There were no modifications for the six months ending March 31, 2012 and 2011.

 

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PROVIDENT NEW YORK BANCORP AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

(In thousands, except share data)

 

Share Award Plan

The Company’s 2004 Recognition and Retention Plan (“RRP”) provides for the issuance of shares to directors and officers. Compensation expense is recognized on a straight line basis over the vesting period of the awards based on the fair value of the stock at issue date. RRP shares vest annually on the anniversary of the grant date over the vesting period. Total shares remaining that are authorized and available for future grant under the RRP are 2,120 at March 31, 2012. Inducement shares of 41,370 were issued in July 2011.

The approval of the 2012 Employee Share Option Plan will provide for the Company to issue RRP shares.

A summary of restricted stock award activity for the six months ended March 31, 2012, is presented below:

 

     Number
of Shares
    Weighted
Average
Grant-Date
Fair Value
 

Nonvested shares at September 30, 2011

     57,520      $ 8.77   
  

 

 

   

 

 

 

Granted

     36,000        7.40   

Vested

     —          —     

Forfeited

     (1,000     9.85   
  

 

 

   

 

 

 

Nonvested shares at March 31, 2012

     92,520      $ 8.23   
  

 

 

   

 

 

 

As of March 31, 2012, there was $613 of total unrecognized compensation cost related to non-vested shares granted under the RRP. The cost is expected to be recognized over a weighted-average period of 2.69 years.

3. Recent Accounting Standards, Not Yet Adopted

Accounting standards update (ASU) 2011-11, Balance Sheet (Topic 210)—Disclosures about offsetting Assets and Liabilities has been issued to enhance disclosures required by U.S. GAAP by requiring improved information about financial instruments that are either (1) offset or (2) subject to an enforceable master netting arrangement. This information will enable users of an entity’s financial statements to evaluate the effect or potential effect of netting arrangements on an entity’s financial position. This standard is effective for the Company on January 1, 2013 and is not expected to have a material effect on the Company’s consolidated financial statements.

Adoption of New Accounting Standards

Accounting Standards Update (ASU) 2011-03, Transfers and Servicing (Topic 860) - Reconsideration of Effective Control for Repurchase Agreements has been issued, which is to improve the accounting for repurchase agreements and other agreements that both entitle and obligate a transferor to repurchase or redeem financial assets before their maturity. This standard was effective for the Company on January 1, 2012 and did not have a material effect on the Company’s consolidated financial statements.

Accounting Standards Update (ASU) 2011-04, Fair Value Measurement (Topic 820)-Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRS has been issued, which will conform the meaning and disclosure requirements of fair value measurement between U.S. GAAP and IFRS. This standard was effective for the Company on January 1, 2012 and did not have a material effect on the Company’s consolidated financial statements.

Accounting Standards Update (ASU) 2011-05- Presentation of Comprehensive Income (Topic 220) has been issued. This standard was issued to conform U.S. GAAP and IFRS as well as to increase the prominence of items reported in other comprehensive income. This standard was effective for the Company on January 1, 2012 and did not have a material effect on the Company’s consolidated financial statements.

 

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PROVIDENT NEW YORK BANCORP AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

(In thousands, except share data)

 

4. Loans

The components of the loan portfolio, excluding loans held for sale, were as follows:

 

     March 31, 2012     September 30, 2011  

One- to four-family residential mortgage loans

   $ 366,675      $ 389,765   
  

 

 

   

 

 

 

Commercial real estate loans

     854,661        703,356   

Commercial business loans

     198,547        209,923   

Acquisition, development & construction loans

     163,808        175,931   
  

 

 

   

 

 

 

Total Commercial loans

     1,217,016        1,089,210   
  

 

 

   

 

 

 

Consumer loans:

    

Home equity lines of credit

     168,603        174,521   

Homeowner loans

     38,092        40,969   

Other consumer loans, including overdrafts

     8,726        9,334   
  

 

 

   

 

 

 
     215,421        224,824   
  

 

 

   

 

 

 

Total loans

     1,799,112        1,703,799   

Allowance for loan losses

     (27,787     (27,917
  

 

 

   

 

 

 

Total loans, net

   $ 1,771,325      $ 1,675,882   
  

 

 

   

 

 

 

Total loans include net deferred loan origination fees of $77 at March 31, 2012 and $308 net deferred loan origination costs at September 30, 2011.

Loans where management 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 level yield method.

A loan is placed on non-accrual status when management has 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, while interest recorded in the prior year is charged to the allowance for loan losses. 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.

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.

The allowance for loan losses (the “allowance”) is increased through provisions charged against current earnings and additionally by crediting amounts of recoveries received, if any, on previously charged-off loans. The allowance is reduced by charge-offs on loans, in accordance with established policies, when all efforts of collection have been exhausted. The allowance is maintained at a level estimated to absorb probable credit losses inherent in the loan portfolio as well as other credit risk related charge-offs. The allowance is based on ongoing evaluations of the probable estimated losses inherent in the performing loan portfolio, as well as reserves for impaired loans.

The Bank’s methodology for evaluating the appropriateness of the allowance includes grouping the performing loan portfolio into loan segments based on common risk characteristics, tracking the historical levels of classified loans and delinquencies, applying economic outlook factors, assigning specific incremental reserves where necessary, providing specific reserves on impaired loans, and assessing the nature and trend of loan charge-offs. Additionally, the volume of delinquencies and non-performing loans, loan trends, concentration risks by relationship, type, and , collateral adequacy, credit policies and procedures, staffing, underwriting consistency, loan review and economic conditions are taken into consideration.

 

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PROVIDENT NEW YORK BANCORP AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

(In thousands, except share data)

 

The allowance for loan losses consists of the following elements: (i) specific reserves for individually impaired credits, (ii) reserves for other loans based on historical loss factors, (iii) reserves based on general economic conditions and other qualitative risk factors both internal and external to Provident Bank, including changes in loan portfolio volume and the composition and concentrations of credit.

The Credit and Risk Management Department individually evaluates non-accrual (non-homogeneous) loans and all troubled debt restructured loans to determine if an impairment reserve is needed. The Company considers a loan to be impaired when, based on current information and events, it is probable that the borrower will be unable to comply with contractual principal and interest payments due. Smaller-balance homogeneous loans are collectively evaluated for impairment, such as residential mortgage loans and consumer loans. The value of an impaired loan is measured based upon the underlying anticipated method of payment consisting of either the present value of expected future cash flows discounted at the loan’s effective interest rate, or the fair value of the collateral, if the loan is collateral dependent, and its payment is expected solely based on the underlying collateral. If the value of an impaired loan is less than its carrying amount, impairment is recognized through a provision to the allowance for loan losses. Loans in the commercial real estate segment are re-appraised using a summary report every six to nine months, and segments for residential mortgages, ELOCs, and Homeowner loans are also re-appraised every six to nine months primarily using drive-by appraisals because of the limitations on entering the premises for a full evaluation. All loans in real estate secured segments are evaluated for impairment on a quarterly basis based on information obtained by following ASU-2010-10-50, Receivables (Topic 310) guidelines. If the book value exceeds the fair market value of the collateral the difference is charged in that quarter to the allowance. This quarterly evaluation of value continues until the loan is transferred to Other Real Estate Owned (OREO) or is paid-off. If the loan is transferred to OREO, the Allowance for Loan and Lease Losses is charged for any subsequent negative adjustments that occur within a reporting period or 90 days, whichever is less. Subsequent negative adjustments are charged to the Bank’s income account - All other segments that are not secured by real estate are written off to the allowance between 90 or 120 days of deliquency or sooner if deemed uncollectible such as in the case of a bankruptcy. Once charged off all subsequent collection and legal expenses are expensed.

Collateral dependent impaired loan balances are written down to the current fair value. If repayment is based upon future expected cash flows, the present value of the expected future cash flows discounted at the loan’s original effective interest rate is compared to the carrying value of the loan, and any shortfall is recorded as a specific valuation allowance in the allowance for loan losses. Accrual of interest is discontinued on an impaired loan when management believes, after considering collection efforts and other factors, the borrower’s financial condition is such that collection of interest is doubtful. Cash collections on impaired loans are generally credited to the loan balance, and no interest income is recognized on these loans until the principal balance has been determined to be fully collectible.

A substantial portion of the Company’s loan portfolio is secured by residential and commercial real estate located primarily in Rockland and Orange Counties of New York and contiguous areas such as Ulster, Sullivan, Putnam and Westchester Counties of New York, Bergen County, New Jersey and New York City. The ability of the Company’s borrowers to make principal and interest payments is dependent upon, among other things, the level of overall economic activity and the real estate market conditions prevailing within the Company’s concentrated lending area. Commercial real estate and acquisition, development and construction loans are considered by management to be of somewhat greater credit risk than loans to fund the purchase of a primary residence due to the generally larger loan amounts and dependency on income production or sale of the real estate. Substantially all of these loans are collateralized by real estate located in the Company’s primary market area.

The allowances established for inherent losses on specific loans are based on a regular analysis and evaluation of the loans. Loans are evaluated based on an internal credit risk rating system for the commercial loan portfolio segments and non-performing loan status for the residential and consumer loan portfolio segments. Loans are risk-rated based on an internal credit risk grading process that evaluates, among other things: (i) the obligor’s ability to repay; (ii) the underlying collateral, if any; and (iii) the economic environment and industry in which the borrower operates. This analysis is performed at the relationship manager level for all loans, and reviewed by the Portfolio Risk Management Department. Loans with a grade that is below “Pass” grade are adversely classified. Any change in the credit risk grade of performing and/or non-performing loans affects the amount of the related allowance. Once a loan is adversely classified, the assigned relationship manager and/or a special assets officer in conjunction with the Credit and Portfolio Risk Management Department analyze the loan to determine whether the loan is impaired and, if impaired, the need to specifically allocate a portion of the allowance for loan losses to the loan. Specific valuation allowances are determined by analyzing the borrower’s ability to repay amounts owed, collateral deficiencies, the relative risk grade of the loan and economic conditions affecting the borrower’s industry, among other things. Loans identified as losses by management are charged-off. Loans are assessed for full or partial charge-off when they are between 90 and 120 days past due or sooner if deemed uncollectible. Furthermore, residential mortgage and consumer loan accounts are charged off in accordance with regulatory requirements.

The allowance allocations for other loans (i.e.; risk rated loans that are not adversely classified and loans that are not risk rated) are calculated by applying historical loss factors for each loan portfolio segment to the applicable outstanding loan portfolio balances. Loss factors are calculated using a historical loss analysis supplemented by management judgment of general economic conditions and other qualitative risk factors both internal and external to Provident Bank. The management analysis includes an evaluation of loan portfolio volumes, the composition and concentrations of credit, credit quality and current delinquency trends.

The allowance also contains reserves to cover inherent losses within each of Provident’s loan portfolio segments, which have not been otherwise reviewed or measured on an individual basis. Such reserves include management’s evaluation of national and local economic and business conditions, loan portfolio volumes, the composition and concentrations of credit, credit quality and delinquency trends. These reserves reflect management’s attempt to ensure that the overall allowance reflects a margin for imprecision and the uncertainty that is inherent in estimates of probable credit losses.

.

 

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PROVIDENT NEW YORK BANCORP AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

(In thousands, except share data)

 

Activity in the allowance for loan losses and the recorded investments in loans by portfolio segment based on impairment method for March 31, 2012 are summarized below:

 

     For the Three Months ended March 31, 2012  
     Beginning
Allowance for

loan  losses
     Charge-offs     Recoveries      Net
Charge-offs
    Provision
for
losses
    Ending
Allowance for

Loan  Losses
 

Loans by segment:

              

Real estate—residential mortgage

   $ 4,167       $ (677   $ 1       $ (676   $ 696      $ 4,187   

Real estate—commercial mortgage

     4,772         (491     51         (440     1,408        5,740   

Real estate—commercial mortgage (CBL)

     750         (224     —           (224     200        726   

Commercial business loans

     1,209         (30     16         (14     (15     1,180   

Commercial business loans (CBL)

     4,412         (463     67         (396     (465     3,551   

Acquisition Development & Construction

     9,403         (1,021     —           (1,021     559        8,941   

Consumer, including home equity

     3,532         (566     29         (537     467        3,462   
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Total Loans

   $ 28,245       $ (3,472   $ 164       $ (3,308   $ 2,850      $ 27,787   
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Net charge-offs to average gross loans annualized

  

              0.74
     For the Six Months Ended March 31, 2012  
     Beginning
Allowance for
loan losses
     Charge-offs     Recoveries      Net
Charge-offs
    Provision
for

losses
    Ending
Allowance for
Loan Losses
 

Loans by segment:

              

Real estate—residential mortgage

   $ 3,498       $ (1,466   $ 120       $ (1,346   $ 2,035      $ 4,187   

Real estate—commercial mortgage

     4,533         (963     51         (912     2,119        5,740   

Real estate—commercial mortgage (CBL)

     1,035         (698     350         (348     39        726   

Commercial business loans

     1,331         (30     69         39        (190     1,180   

Commercial business loans (CBL)

     4,614         (671     560         (111     (952     3,551   

Acquisition Development & Construction

     9,895         (1,296     —           (1,296     342        8,941   

Consumer, including home equity

     3,011         (1,028     72         (956     1,407        3,462   
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Total Loans

   $ 27,917       $ (6,152   $ 1,222       $ (4,930   $ 4,800      $ 27,787   
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Net charge-offs to average gross loans annualized

                 0.56

 

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Table of Contents

PROVIDENT NEW YORK BANCORP AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

(In thousands, except share data)

 

The following table sets forth the loans evaluated for impairment by segment at March 31, 2012:

 

     March 31, 2012  
     Individually
evaluated for
impairment
     Collectively
evaluated for
impairment
     Total
ending loans
balance
 

Loans by segment:

        

Real estate—residential mortgage

   $ 11,177       $ 355,498       $ 366,675   

Real estate—commercial mortgage

     13,078         751,999         765,077   

Real estate—commercial mortgage (CBL)

     3,748         85,836         89,584   

Commercial business loans

     549         126,426         126,975   

Commercial business loans (CBL)

     71         71,501         71,572   

Acquisition Development & Construction

     29,362         134,446         163,808   

Consumer, including home equity

     3,397         212,024         215,421   
  

 

 

    

 

 

    

 

 

 

Total Loans

   $ 61,382       $ 1,737,730       $ 1,799,112   
  

 

 

    

 

 

    

 

 

 

The following table sets forth the allowance evaluated for impairment by segment at March 31, 2012:

 

     March 31, 2012  
     Individually
evaluated for
impairment
     Collectively
evaluated for
impairment
     Total
allowance
balance
 

Ending allowance by segment:

        

Real estate—residential mortgage

   $ 768       $ 3,419       $ 4,187   

Real estate—commercial mortgage

     1,082         4,658         5,740   

Real estate—commercial mortgage (CBL)

     211         515         726   

Commercial business loans

     65         1,115         1,180   

Commercial business loans (CBL)

     3         3,548         3,551   

Acquisition Development & Construction

     1,212         7,729         8,941   

Consumer, including home equity

     320         3,142         3,462   
  

 

 

    

 

 

    

 

 

 

Total allowance

   $ 3,661       $ 24,126       $ 27,787   
  

 

 

    

 

 

    

 

 

 

Activity in the allowance for loan losses and the recorded investments in loans by portfolio segment based on impairment method for March 31, 2011 are summarized below:

 

     For the Three Months March 31, 2011  
     Beginning
Allowance for

loan losses
     Charge-offs     Recoveries      Net
Charge-offs
    Provision
for
losses
    Ending
Allowance for

Loan Losses
 

Loans by segment:

              

Real estate—residential mortgage

   $ 2,837       $ (287   $ 1       $ (286   $ 988      $ 3,539   

Real estate—commercial mortgage

     5,313         (364     —           (364     265        5,214   

Real estate—commercial mortgage (CBL)

     1,020         (295     —           (295     337        1,062   

Commercial business loans

     2,869         (181     11         (170     (7     2,692   

Commercial business loans (CBL)

     6,246         (1,740     87         (1,653     853        5,446   

Acquisition Development & Construction

     9,053         (125     —           (125     (200     8,728   

Consumer, including home equity

     3,698         (159     46         (113     (136     3,449   
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Total Loans

   $ 31,036       $ (3,151   $ 145       $ (3,006   $ 2,100      $ 30,130   
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Net charge-offs to average gross loans outstanding annualized

                 0.71

 

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Table of Contents

PROVIDENT NEW YORK BANCORP AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

(In thousands, except share data)

 

     For the Six Months March 31, 2011  
     Beginning
Allowance for
loan losses
     Charge-offs     Recoveries      Net
Charge-offs
    Provision
for
losses
    Ending
Allowance for

Loan Losses
 

Loans by segment:

              

Real estate—residential mortgage

   $ 2,587       $ (440   $ 1       $ (439   $ 1,391      $ 3,539   

Real estate—commercial mortgage

     5,068         (434     —           (434     580        5,214   

Real estate—commercial mortgage (CBL)

     845         (3,098     212         (2,886     3,103        1,062   

Commercial business loans

     3,172         (182     176         (6     (474     2,692   

Commercial business loans (CBL)

     5,505         (442     —           (442     383        5,446   

Acquisition Development & Construction

     10,231         (125     8         (117     (1,386     8,728   

Consumer, including home equity

     3,435         (665     76         (589     603        3,449   
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Total Loans

   $ 30,843       $ (5,386   $ 473       $ (4,913   $ 4,200      $ 30,130   
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Net charge-offs to average gross loans outstanding annualized

  

           0.58

The following table sets forth the loans evaluated for impairment by segment at September 30, 2011:

 

     September 30, 2011  
     Individually
evaluated for
impairment
     Collectively
evaluated for
impairment
     Total
ending  loans
balance
 

Loans by segment:

        

Real estate—residential mortgage

   $ 8,573       $ 381,192       $ 389,765   

Real estate—commercial mortgage

     10,653         599,726         610,379   

Real estate—commercial mortgage (CBL)

     4,477         88,500         92,977   

Commercial business loans

     531         133,868         134,399   

Commercial business loans (CBL)

     —           75,524         75,524   

Acquisition Development & Construction

     28,223         147,708         175,931   

Consumer, including home equity

     2,504         222,320         224,824   
  

 

 

    

 

 

    

 

 

 

Total Loans

   $ 54,961       $ 1,648,838       $ 1,703,799   
  

 

 

    

 

 

    

 

 

 

The following table sets forth the allowance evaluated for impairment by segment at September 30, 2011:

 

     September 30, 2011  
     Individually
evaluated for
impairment
     Collectively
evaluated for
impairment
     Total
allowance
balance
 

Ending allowance by segment:

        

Real estate—residential mortgage

   $ 1,069       $ 2,429       $ 3,498   

Real estate—commercial mortgage

     474         4,059         4,533   

Real estate—commercial mortgage (CBL)

     594         441         1,035   

Commercial business loans

     —           1,331         1,331   

Commercial business loans (CBL)

     —           4,614         4,614   

Acquisition Development & Construction

     1,409         8,486         9,895   

Consumer, including home equity

     260         2,751         3,011   
  

 

 

    

 

 

    

 

 

 

Total allowance

   $ 3,806       $ 24,111       $ 27,917   
  

 

 

    

 

 

    

 

 

 

A loan is impaired when it is probable that a creditor will be unable to collect all amounts due according to the contractual terms of the loan agreement. Impaired loans substantially consist of non-performing loans and accruing and performing troubled debt restructured loans. The recorded investment of an impaired loan includes the unpaid principal balance, negative escrow and any tax in arrears.

 

16


Table of Contents

PROVIDENT NEW YORK BANCORP AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

(In thousands, except share data)

 

The following table presents loans individually evaluated for impairment by segment of loans as of March 31, 2012:

 

     Unpaid
Principal
Balance
     Recorded
Investment
     Allowance
for Loan
Losses
Allocated
     YTD
Average
Impaired
Loans
     Interest
Income
Recognized
     Cash-basis
Interest
Income
Recognized
 

With no related allowance recorded:

                 

Real estate—residential mortgage

   $ 4,406       $ 4,614       $ —         $ 4,244       $ 126       $ 57   

Real estate—commercial mortgage

     7,207         7,380         —           7,372         156         128   

Real estate—commercial mortgage (CBL)

     2,333         2,421         —           2,318         28         23   

Acquisition, development and construction

     19,852         20,251         —           21,715         344         229   

Commercial business loans

     456         456         —           785         20         20   

Commercial business loans (CBL)

     64         64         —           64         —           —     

Consumer loans, including home equity

     2,267         2,307         —           2,297         39         11   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Subtotal

     36,585         37,493         —           38,795         713         468   

With an allowance recorded:

                 

Real estate—residential mortgage

     6,382         6,563         768         6,968         69         59   

Real estate—commercial mortgage

     5,637         5,698         1,082         6,042         66         47   

Real estate—commercial mortgage (CBL)

     1,201         1,327         211         1,357         —           —     

Acquisition, development and construction

     8,600         9,111         1,212         10,941         88         82   

Commercial business loans

     93         93         65         94         3         3   

Commercial business loans (CBL)

     7         7         3         2         —           —     

Consumer loans, including home equity

     1,081         1,090         320         1,085         4         4   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Subtotal

     23,001         23,889         3,661         26,489         230         195   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 59,586       $ 61,382       $ 3,661       $ 65,284       $ 943       $ 663   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

17


Table of Contents

PROVIDENT NEW YORK BANCORP AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

(In thousands, except share data)

 

The following table presents loans individually evaluated for impairment by segment of loans as of September 30, 2011:

 

     Unpaid
Principal
Balance
     Recorded
Investment
     Allowance
for Loan
Losses
Allocated
     YTD
Average
Impaired
Loans
     Interest
Income
Recognized
     Cash-basis
Interest
Income
Recognized
 

With no related allowance recorded:

                 

Real estate—residential mortgage

   $ 2,437       $ 2,577       $ —         $ 2,702       $ 92       $ 51   

Real estate—commercial mortgage

     6,753         6,823         —           6,769         332         146   

Real estate—commercial mortgage (CBL)

     2,012         2,050         —           2,148         165         102   

Acquisition, development and construction

     20,914         21,316         —           26,111         1,892         1,454   

Commercial business loans

     531         531         —           862         42         42   

Commercial business loans (CBL)

     —           —           —           —           —           —     

Consumer loans, including home equity

     1,879         1,885         —           1,860         61         13   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Subtotal

     34,526         35,182         —           40,452         2,584         1,808   

With an allowance recorded:

                 

Real estate—residential mortgage

     5,836         5,996         1,069         6,319         159         159   

Real estate—commercial mortgage

     3,741         3,830         474         3,843         108         108   

Real estate—commercial mortgage (CBL)

     2,283         2,427         594         2,662         91         36   

Acquisition, development and construction

     6,900         6,907         1,409         6,963         114         96   

Commercial business loans

     —           —           —           —           —           —     

Commercial business loans (CBL)

     —           —           —           —           —           —     

Consumer loans, including home equity

     619         619         260         642         33         22   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Subtotal

     19,379         19,779         3,806         20,429         505         421   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 53,905       $ 54,961       $ 3,806       $ 60,881       $ 3,089       $ 2,229   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Listed below is the interest income recognized during impairment and cash received for interest during impairment for the three months ended March 31, 2012 and March 31, 2011, respectively.

 

     March 31,
2012
     March 31,
2011
 

Interest income recognized during impairment

   $ 437       $ 223   

Cash-basis interest income recognized

     336         306   

Listed below is the interest income recognized during impairment and cash received for interest during impairment for the six months ended March 31, 2012 and March 31, 2011, respectively.

 

     March 31,
2012
     March 31,
2011
 

Interest income recognized during impairment

   $ 943       $ 630   

Cash-basis interest income recognized

     663         541   

 

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Table of Contents

PROVIDENT NEW YORK BANCORP AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

(In thousands, except share data)

 

The following tables set forth the amounts and status of the Company’s loans, troubled debt restructurings and other real estate owned at March 31, 2012 and September 30, 2011.

 

     March 31, 2012  
     Current
Loans
     30-59
Days
Past Due
     60-89
Days
Past Due
     90+
Days
Past Due
     Non-
Accrual
    Total
Loans
 

Non-performing loans:

                

Real estate—residential mortgage

   $ 356,132       $ 1,020       $ 207       $ 1,888       $ 7,428      $ 366,675   

Real estate—commercial mortgage

     749,877         2,399         236         825         11,740        765,077   

Real estate—commercial mortgage (CBL)

     85,073         1,238         243         424         2,606        89,584   

Commercial business loans

     126,733         —           —           —           242        126,975   

Commercial business loans (CBL)

     71,263         209         29         —           71        71,572   

Acquisition, development and construction loans

     139,181         844         258         446         23,079        163,808   

Consumer, including home equity loans

     211,663         477         68         1,110         2,103        215,421   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Total

   $ 1,739,922       $ 6,187       $ 1,041       $ 4,693       $ 47,269      $ 1,799,112   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Total troubled debt restructurings included above

   $ 7,681       $ —         $ 258       $ —         $ 10,374      $ 18,313   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Non Performing Assets:

                

Loans 90+ and still accruing

               $ 4,693     

Nonaccrual loans

                 47,269     
              

 

 

   

Total non performing loans

                 51,962     
              

 

 

   

Other real estate owned:

                

Land

                 2,402     

Commercial real estate

                 1,503     

Acquisition, development & construction loans

                 991     

One- to four-family

                 793     

Consumer, including home equity loans

                 139     
              

 

 

   

Total other real estate owned

                 5,828     
              

 

 

   

Total non-performing assets

               $ 57,790     
              

 

 

   

Ratios:

                

Non-performing loans to total loans

                 2.89  

Non-performing assets to total assets

                 1.80  

Allowance for loan losses to total non-performing loans

  

              53.00  

Allowance for loan losses to average loans

                 1.57  

 

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Table of Contents

PROVIDENT NEW YORK BANCORP AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

(In thousands, except share data)

 

     September 30, 2011  
     Current
Loans
     30-59
Days
Past Due
     60-89
Days
Past Due
     90+
Days
Past Due
     Non-
Accrual
    Total
Loans
 

Non-performing loans:

                

Real estate—residential mortgage

   $ 380,577       $ 868       $ 344       $ 491       $ 7,485      $ 389,765   

Real estate—commercial mortgage

     599,619         768         337         1,639         8,016        610,379   

Real estate—commercial mortgage (CBL)

     89,418         —           —           350         3,209        92,977   

Commercial business loans

     133,741         490         —           —           168        134,399   

Commercial business loans (CBL)

     75,449         —           —           —           75        75,524   

Acquisition, development and construction loans

     154,682         3,859         406         446         16,538        175,931   

Consumer, including home equity loans

     221,880         494         300         1,164         986        224,824   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Total

   $ 1,655,366       $ 6,479       $ 1,387       $ 4,090       $ 36,477      $ 1,703,799   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Total troubled debt restructurings included above

   $ 9,060       $ 266       $ —         $ 446       $ 7,792      $ 17,564   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Non Performing Assets:

                

Loans 90+ and still accruing

               $ 4,090     

Nonaccrual loans

                 36,477     
              

 

 

   

Total non performing loans

                 40,567     
              

 

 

   

Other real estate owned:

                

Land

                 1,926     

Commercial real estate

                 2,163     

Acquisition, development & construction loans

                 745     

One- to four-family

                 557     
              

 

 

   

Total other real estate owned

                 5,391     
              

 

 

   

Total non-performing assets

               $ 45,958     
              

 

 

   

Ratios:

                

Non-performing loans to total loans

                 2.38  

Non-performing assets to total assets

                 1.46  

Allowance for loan losses to total non-performing loans

  

              69  

Allowance for loan losses to average loans

                 1.68  

Troubled Debt Restructurings:

Troubled debt restructurings are renegotiated loans for which concessions have been granted to the borrower that the Company would not have otherwise granted and the borrower is experiencing financial difficulty. In order to determine whether a borrower is experiencing financial difficulty, an evaluation is performed of the probability that the borrower will be in payment default on any of its debt in the foreseeable future without modification. This evaluation is performed under the Company’s internal underwriting policy. The modification of the terms of such loans include one or a combination of the following: a reduction of the stated interest rate of the loan; an extension of the maturity date at a stated rate of interest lower than the current market rate for new debt with similar risk; or a permanent reduction of the recorded investment in the loan. Modifications involving a reduction of the stated interest rate of the loan were for period ranging from 3 months to 30 years. Modifications involving an extension of the maturity date were for periods ranging from 3 months to 30 years. Restructured loans are recorded in accrual status when the loans have demonstrated performance, generally evidenced by six months of payment performance in accordance with the restructured terms, or by the presence of other significant items.

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 will remain on accrual. As noted all other loan restructures requires a minimum of 6 months of performance in accordance with the regulatory guideline.

 

20


Table of Contents

PROVIDENT NEW YORK BANCORP AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

(In thousands, except share data)

 

Troubled debt restructurings at March 31, 2012 were as follows:

 

      Current
Loans
     30-59
Days
Past Due
     60-89
Days
Past Due
     90+
Days
Past Due
     Non-
Accrual
     Total
TDR’s
 

Real estate—residential mortgage

   $ 2,155       $ —         $ —         $ —         $ 427       $ 2,582   

Real estate—commercial mortgage

     585         —           —           —           1,004         1,589   

Real estate—commercial mortgage (CBL)

     273         —           —           —           —           273   

Acquisition, development and construction

     4,668         —           258         —           8,943         13,869   

Consumer loans, including home equity

     —           —           —           —           —           —     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 7,681       $ —         $ 258       $ —         $ 10,374       $ 18,313   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Allowance

   $ 133       $ —         $ 63       $ —         $ 590       $ 786   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Troubled debt restructurings at September 30, 2011 were as follows:

 

      Current
Loans
     30-59
Days
Past Due
     60-89
Days
Past Due
     90+
Days
Past Due
     Non-
Accrual
     Total
TDR’s
 

Real estate—residential mortgage

   $ 485       $ —         $ —         $ —         $ 1,226       $ 1,711   

Real estate—commercial mortgage

     1,439         —           —           —           —           1,439   

Acquisition, development and construction

     6,975         266         —           446         6,566         14,253   

Consumer loans, including home equity

     161         —           —              —           161   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 9,060       $ 266       $ —         $ 446       $ 7,792       $ 17,564   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Allowance

   $ 7       $ 56       $ —         $ —         $ 346       $ 409   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

The Company has committed to lend additional amounts totaling up to $4,225 as of March 31, 2012, and September 30, 2011, to customers with outstanding loans that are classified as troubled debt restructurings. The commitments to lend on the restructured debt is contingent on clear title and a third party inspection to verify completion of work and is associated with loans that are considered to be performing.

The following table presents loans by class modified as troubled debt restructurings that occurred during the six months ending March 31, 2012:

 

            Recorded Investment  
     Number      Pre-
Modification
     Post -
Modification
 

Restructured Loans:

        

Real estate—residential mortgage

     4       $ 1,009       $ 995   

Real estate—commercial mortgage

     2         421         436   
  

 

 

    

 

 

    

 

 

 

Total restructured loans

     6       $ 1,430       $ 1,431   
  

 

 

    

 

 

    

 

 

 

The troubled debt restructurings described above increased the allowance for loan losses by $0 for the three months ended March 31, 2012 and $134 for the six months ended March 31, 2012. There were no charge offs as a result of the above troubled debt restructurings.

 

21


Table of Contents

PROVIDENT NEW YORK BANCORP AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

(In thousands, except share data)

 

A loan is considered to be in default once it is 90 days contractually past due under the modified terms. The following table presents by class loans that were modified as troubled debt restructurings during the last twelve months that have subsequently defaulted during the three and six months ended March 31, 2012:

 

     Three Months Ended
March 31, 2012
     Six Months Ended
March 31, 2012
 
     Number of
Loans
     Recorded
Investment
     Number of
Loans
     Recorded
Investment
 

Acquisition Development & Construction

     1       $ 446         1       $ 446   

Real estate-commercial mortgage

     —           —           1         850   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

     1       $ 446         2       $ 1,296   
  

 

 

    

 

 

    

 

 

    

 

 

 

Credit Quality Indicators:

The Company categorizes loans into risk categories based on relevant information about the ability of borrowers to service their debt such as: current financial information, historical payment experience, credit documentation, public information and current economic trends, among other factors. The Company analyzes loans individually by classifying the loans as to credit risk. This analysis includes all loans. This analysis is performed on a monthly basis on all criticized/classified loans. The Company uses the following definitions of risk ratings:

Special Mention. Loans classified as special mention have a potential weakness that deserves management’s close attention. If left uncorrected these potential weaknesses may result in the deterioration of the repayment prospects for the loan or the institution’s credit position at some future date.

Substandard. Loans classified as substandard are inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any. Loans so classified have a well-defined weakness or weaknesses that jeopardize the liquidation of debt. They are characterized by the distinct possibility that the institution will sustain some loss if the deficiencies are not corrected.

Doubtful. Loans classified as doubtful have all 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.

Loans not meeting the criteria above that are analyzed individually as part of the above described process are considered to be pass rated loans. Based on the most recent analysis performed as of March 31, 2012 and September 30, 2011, the risk category of loans by segment of gross loans is as follows:

 

     March 31, 2012  
     Special
Mention
     Substandard      Doubtful  

Real estate—residential mortgage

   $ 957       $ 10,793       $ —     

Real estate—commercial mortgage

     12,899         24,199         —     

Real estate—commercial mortgage (CBL)

     2,106         3,475         —     

Acquisition, development and construction

     6,377         44,321         —     

Commercial business loans

     14,271         2,715         —     

Commercial business loans (CBL)

     525         173         —     

Consumer loans, including home equity loans

     244         3,459         —     
  

 

 

    

 

 

    

 

 

 

Total

   $ 37,379       $ 89,135         $—     
  

 

 

    

 

 

    

 

 

 

 

22


Table of Contents

PROVIDENT NEW YORK BANCORP AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

(In thousands, except share data)

 

     September 30, 2011  
      Special
Mention
     Substandard      Doubtful  

Real estate—residential mortgage

   $ 3,701       $ 8,525       $ —     

Real estate—commercial mortgage

     10,175         25,952         —     

Real estate—commercial mortgage (CBL)

     897         4,044         —     

Acquisition, development and construction

     5,170         49,294         —     

Commercial business loans

     1,915         3,501         —     

Commercial business loans (CBL)

     557         150         —     

Consumer loans, including home equity loans

     611         2,523         —     
  

 

 

    

 

 

    

 

 

 

Total

   $ 23,026       $ 93,989       $ —     
  

 

 

    

 

 

    

 

 

 

5. Fair value measurements

Fair value is the exchange price that would be received for an asset or paid to transfer a liability (exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. There are three levels of inputs that may be used to measure fair values.

Level 1 – Valuation is based on quoted prices in active markets for identical assets and liabilities.

Level 2 – Valuation is determined from quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar instruments in markets that are not active or by model-based techniques in which all significant inputs are observable in the market.

Level 3 – Valuation is derived from model-based techniques in which at least one significant input is unobservable and based on the Company’s own estimates about the assumptions that the market participants would use to value the asset or liability.

When available, the Company attempts to use quoted market prices in active markets to determine fair value and classifies such items as Level 1 or Level 2. If quoted market prices in active markets are not available, fair value is often determined using model-based techniques incorporating various assumptions including interest rates, prepayment speeds and credit losses. Assets and liabilities valued using model-based techniques are classified as either Level 2 or Level 3, depending on the lowest level classification of an input that is considered significant to the overall valuation.

The following is a description of the valuation methodologies used for the Company’s assets and liabilities that are measured on a recurring basis at estimated fair value.

Investment securities available for sale

The majority of the Company’s available for sale investment securities have been valued by reference to prices for similar securities or through model-based techniques in which all significant inputs are observable and, therefore, such valuations have been classified as Level 2. U.S. Treasuries are actively traded and therefore have been classified as Level 1 valuations. As of October 1, 2010 the company determined that government sponsored agencies totaling $346,019 previously reported as Level 1 securities were not classified based on the lowest level within the fair value hierarchy and deemed it appropriate to transfer the securities to Level 2.

The Company utilizes an outside vendor to obtain valuations for its traded securities as well as information received from a third party investment advisor. The majority of the Company’s available for sale investment securities (mortgage backed securities issued by US government corporations and government sponsored entities) have been valued by reference to prices for similar securities or through model-based techniques in which all significant inputs are observable (Level 2). The Company utilizes prices from a leading provider of financial market data and compares them to dealer indicative bids from the Company’s external investment advisor. The Company does not make adjustments to these prices unless it is determined there is limited trading activity. For securities where there is limited trading activity (private label CMO’s) and less observable valuation inputs, the Company has classified such valuations as Level 3.

The Company reviewed the volume and level of activity for its available for sale securities to identify transactions which may not be orderly or reflective of significant activity and volume. Although estimated prices were generally obtained for such securities, there has been a decline in the volume and level of activity in the market for its private label mortgage backed securities. The market assumptions regarding credit adjusted cash flows and liquidity influences on discount rates were difficult to observe at the

 

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PROVIDENT NEW YORK BANCORP AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

(In thousands, except share data)

 

individual bond level. Because of the inactivity in the markets and the lack of observable valuation inputs the Company has classified the valuation of privately issued residential mortgage backed securities as Level 3. As of March 31, 2012, these securities have an amortized cost of $5,014 and a fair value of $4,711. In determining the fair value of these securities the Company utilized unobservable inputs which reflect assumptions regarding the inputs that market participants would use in pricing these securities in an orderly market. Present value estimated cash flow models were used discounted at a rate that was reflective of similarly structured securities in an orderly market. The resultant prices were averaged with prices obtained from two independent third parties to arrive at the fair value as of March 31, 2012. The Company’s Chief Financial Officer ultimately determines the fair value of level 3 investment securities. These securities have a weighted average coupon rate of 2.86%, a weighted average life of 5.6 years, a weighted average one month prepayment history of 15.1 years and a weighted average twelve month default rate of 3.38 CDR. It was determined that two of these securities with a carrying amount of $4,556 and an amortized cost of $4,259 had other than temporary losses which resulted in a $38 other than temporary impairment charge for the six months ending March 31, 2012. These two securities have a total of $113 in other than temporary charges.

The investment grades of these securities are as follows:

 

      Amortized
Cost
     Fair
Value
 

Investment Rating:

     

Aa1

   $ 322       $ 326   

Ba1

     136         125   

B1

     2,761         2,623   

B3

     1,795         1,637   
  

 

 

    

 

 

 

Total private label CMOs

   $ 5,014       $ 4,711   
  

 

 

    

 

 

 

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 party as of the measurement date (Level 2). The Company’s derivatives consist of two interest rate caps and six interest rate swaps (see note 9).

Commitments to sell real estate loans

The Company enters into various commitments to sell real estate loans into the secondary market. Such commitments are considered to be derivative financial instruments and therefore are carried at estimated fair value on the consolidated statements of financial condition. The estimated fair values of these commitments were generally calculated by reference to quoted prices in secondary markets for commitments to sell to certain government sponsored agencies. The fair values of these commitments generally result in a Level 2 classification. The fair values of these commitments are not considered material.

 

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PROVIDENT NEW YORK BANCORP AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

(In thousands, except share data)

 

A summary of assets and liabilities at March 31, 2012 measured at estimated fair value on a recurring basis were as follows:

 

      Fair Value
Measurements
at
March 31,