XNYS:NYB Quarterly Report 10-Q Filing - 3/31/2012

Effective Date 3/31/2012

Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF

THE SECURITIES EXCHANGE ACT OF 1934

FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2012

Commission File Number 1-31565

NEW YORK COMMUNITY BANCORP, INC.

(Exact name of registrant as specified in its charter)

 

Delaware   06-1377322

(State or other jurisdiction of

incorporation or organization)

  (I.R.S. Employer Identification No.)

615 Merrick Avenue, Westbury, New York 11590

(Address of principal executive offices)

(Registrant’s telephone number, including area code) (516) 683-4100

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 12 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 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 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, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.  Large Accelerated Filer X  Accelerated Filer      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

 

 

439,125,183

 
 

  Number of shares of common stock outstanding at  

May 3, 2012

 


Table of Contents

NEW YORK COMMUNITY BANCORP, INC.

FORM 10-Q

Quarter Ended March 31, 2012

 

INDEX

         Page No.  

Part I.

  FINANCIAL INFORMATION   

Item 1.

  Financial Statements   
  Consolidated Statements of Condition as of March 31, 2012 (unaudited) and December 31, 2011      1
  Consolidated Statements of Income and Comprehensive Income for the Three Months Ended March 31, 2012 and 2011 (unaudited)      2
  Consolidated Statement of Changes in Stockholders’ Equity for the Three Months Ended March 31, 2012 (unaudited)      3
  Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2012 and 2011 (unaudited)      4
  Notes to the Unaudited Consolidated Financial Statements      5

Item 2.

  Management’s Discussion and Analysis of Financial Condition and Results of Operations    39

Item 3.

  Quantitative and Qualitative Disclosures about Market Risk    82

Item 4.

  Controls and Procedures    82

Part II.

  OTHER INFORMATION   

Item 1.

  Legal Proceedings    83

Item 1A.

  Risk Factors    83

Item 2.

  Unregistered Sales of Equity Securities and Use of Proceeds    83

Item 3.

  Defaults Upon Senior Securities    83

Item 4.

  Mine Safety Disclosures    83

Item 5.

  Other Information    83

Item 6.

  Exhibits    84

Signatures

     85

Exhibits

    


Table of Contents

NEW YORK COMMUNITY BANCORP, INC.

CONSOLIDATED STATEMENTS OF CONDITION

(in thousands, except share data)

 

    

March 31,

2012

     December 31,
2011
 
         (unaudited)                

Assets:

     

Cash and cash equivalents

       $ 2,355,784              $   2,001,737      

Securities:

     

Available-for-sale ($441,263 and $590,488 pledged, respectively)

     572,738            724,662      

Held to maturity ($3,745,210 and $3,610,172 pledged, respectively) (fair value of $4,464,401 and $3,966,185, respectively)

     4,305,071            3,815,854      
  

 

 

    

 

 

 

Total securities

     4,877,809            4,540,516      
  

 

 

    

 

 

 

Non-covered loans held for sale

     504,351            1,036,918      

Non-covered loans held for investment, net of deferred loan fees and costs

     26,559,599            25,532,818      

Less: Allowance for losses on non-covered loans

     (136,767)           (137,290)     
  

 

 

    

 

 

 

Non-covered loans held for investment, net

     26,422,832            25,395,528      

Covered loans

     3,643,801            3,753,031      

Less: Allowance for losses on covered loans

     (33,323)           (33,323)     
  

 

 

    

 

 

 

Covered loans, net

     3,610,478            3,719,708      
  

 

 

    

 

 

 

Total loans, net

     30,537,661            30,152,154      

Federal Home Loan Bank stock, at cost

     504,398            490,228      

Premises and equipment, net

     250,656            250,859      

FDIC loss share receivable

     658,409            695,179      

Goodwill

     2,436,131            2,436,131      

Core deposit intangibles, net

     46,508            51,668      

Mortgage servicing rights

     140,275            117,012      

Bank-owned life insurance

     771,508            768,996      

Other real estate owned (includes $57,679 and $71,400, respectively, covered by loss sharing agreements)

     118,569            155,967      

Other assets

     340,443            363,855      
  

 

 

    

 

 

 

Total assets

       $ 43,038,151              $ 42,024,302      
  

 

 

    

 

 

 

Liabilities and Stockholders’ Equity:

     

Deposits:

     

NOW and money market accounts

       $ 8,875,585              $ 8,757,198      

Savings accounts

     4,054,011            3,953,859      

Certificates of deposit

     7,499,822            7,373,263      

Non-interest-bearing accounts

     2,511,375            2,189,810      
  

 

 

    

 

 

 

Total deposits

     22,940,793            22,274,130      

Borrowed funds:

     

Wholesale borrowings:

     

Federal Home Loan Bank advances

     9,629,849            9,314,193      

Repurchase agreements

     4,125,000            4,125,000      
  

 

 

    

 

 

 

Total wholesale borrowings

     13,754,849            13,439,193      

Junior subordinated debentures

     426,982            426,936      

Other borrowings

     94,293            94,284      
  

 

 

    

 

 

 

Total borrowed funds

     14,276,124            13,960,413      

Other liabilities

     241,293            224,055      
  

 

 

    

 

 

 

Total liabilities

     37,458,210            36,458,598      
  

 

 

    

 

 

 

Stockholders’ equity:

     

Preferred stock at par $0.01 (5,000,000 shares authorized; none issued)

     --            --      

Common stock at par $0.01 (600,000,000 shares authorized; 439,133,951 and 437,426,665 shares issued, and 439,133,548 and 437,344,796 shares outstanding, respectively)

     4,391            4,374      

Paid-in capital in excess of par

     5,310,591            5,309,269      

Retained earnings

     333,666            324,967      

Treasury stock, at cost (403 and 81,869 shares)

     (5)           (996)     

Accumulated other comprehensive loss, net of tax:

     

Net unrealized gain on securities available for sale, net of tax

     2,969            1,321      

Net unrealized loss on the non-credit portion of other-than-temporary impairment (“OTTI”) losses on securities, net of tax

     (13,604)           (13,627)     

Net unrealized loss on pension and post-retirement obligations, net of tax

     (58,067)           (59,604)     
  

 

 

    

 

 

 

Total accumulated other comprehensive loss, net of tax

     (68,702)           (71,910)     
  

 

 

    

 

 

 

Total stockholders’ equity

     5,579,941            5,565,704      
  

 

 

    

 

 

 

Total liabilities and stockholders’ equity

       $ 43,038,151              $ 42,024,302      
  

 

 

    

 

 

 

See accompanying notes to the consolidated financial statements.

 

1


Table of Contents

NEW YORK COMMUNITY BANCORP, INC.

CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME

(in thousands, except per share data)

(unaudited)

 

      For the Three Months Ended 
March 31,
 
     2012      2011  

INTEREST INCOME:

     

Mortgage and other loans

     $398,184            $415,942      

Securities and money market investments

     48,454            54,981      
  

 

 

    

 

 

 

Total interest income

     446,638            470,923      
  

 

 

    

 

 

 

INTEREST EXPENSE:

     

NOW and money market accounts

     8,733            11,154      

Savings accounts

     3,496            4,127      

Certificates of deposit

     23,720            26,974      

Borrowed funds

     122,275            125,416      
  

 

 

    

 

 

 

Total interest expense

     158,224            167,671      
  

 

 

    

 

 

 

Net interest income

     288,414            303,252      

Provision for losses on non-covered loans

     15,000            26,000      
  

 

 

    

 

 

 

Net interest income after provision for loan losses

     273,414            277,252      
  

 

 

    

 

 

 

NON-INTEREST INCOME:

     

Fee income

     9,758            11,899      

Bank-owned life insurance

     9,585            6,889      

Net gain on sales of securities

     718            9,992      

Mortgage banking income

     35,165            19,938      

Other income

     6,770            9,892      
  

 

 

    

 

 

 

Total non-interest income

     61,996            58,610      
  

 

 

    

 

 

 

NON-INTEREST EXPENSE:

     

Operating expenses:

     

Compensation and benefits

     73,617            72,068      

Occupancy and equipment

     21,884            21,940      

General and administrative

     49,517            45,309      
  

 

 

    

 

 

 

Total operating expenses

     145,018            139,317      

Amortization of core deposit intangibles

     5,159            7,385      
  

 

 

    

 

 

 

Total non-interest expense

     150,177            146,702      
  

 

 

    

 

 

 

Income before income taxes

     185,233            189,160      

Income tax expense

     66,980            65,984      
  

 

 

    

 

 

 

Net income

     $118,253            $123,176      
  

 

 

    

 

 

 

Other comprehensive income (loss), net of tax:

     

Change in net unrealized gain/loss on securities available for sale, net of tax of $1,377 and $2,578, respectively

     2,091            (3,837)     

Amortization of the non-credit portion of OTTI losses recognized in other comprehensive income, net of tax of $15 and $14, respectively

     23            20      

Change in pension and post-retirement obligations, net of tax of $1,042 and $501, respectively

     1,537            744      

Less: Reclassification adjustment for sales of available for sale securities, net of tax of $275 and $1,178, respectively

     (443)           (1,753)     
  

 

 

    

 

 

 

Total other comprehensive income (loss), net of tax

     3,208            (4,826)     
  

 

 

    

 

 

 

Total comprehensive income, net of tax

     $121,461            $118,350      
  

 

 

    

 

 

 

Basic earnings per share

     $0.27            $0.28      
  

 

 

    

 

 

 

Diluted earnings per share

     $0.27            $0.28      
  

 

 

    

 

 

 

See accompanying notes to the consolidated financial statements.

 

2


Table of Contents

NEW YORK COMMUNITY BANCORP, INC.

CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY

(in thousands, except share data)

(unaudited)

 

     Three Months Ended
March 31, 2012

Common Stock (Par Value: $0.01):

    

Balance at beginning of year

       $ 4,374     

Shares issued for restricted stock awards (1,707,286 shares)

       17     
    

 

 

 

Balance at end of period

       4,391     
    

 

 

 

Paid-in Capital in Excess of Par:

    

Balance at beginning of year

       5,309,269     

Shares issued for restricted stock awards, net of forfeitures

       (3,395)    

Compensation expense related to restricted stock awards

       5,071     

Tax effect of stock plans

       (354)    
    

 

 

 

Balance at end of period

       5,310,591     
    

 

 

 

Retained Earnings:

    

Balance at beginning of year

       324,967     

Net income

       118,253     

Dividends paid on common stock ($0.25 per share)

       (109,554)    
    

 

 

 

Balance at end of period

       333,666     
    

 

 

 

Treasury Stock:

    

Balance at beginning of year

       (996)    

Purchase of common stock (187,609 shares)

       (2,425)    

Shares issued for restricted stock awards (269,075 shares)

       3,416     
    

 

 

 

Balance at end of period

       (5)    
    

 

 

 

Accumulated Other Comprehensive Loss, net of tax:

    

Balance at beginning of year

       (71,910)    

Other comprehensive income, net of tax

       3,208     
    

 

 

 

Balance at end of period

       (68,702)    
    

 

 

 

Total stockholders’ equity

       $ 5,579,941     
    

 

 

 

See accompanying notes to the consolidated financial statements.

 

3


Table of Contents

NEW YORK COMMUNITY BANCORP, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(unaudited)

 

     Three Months Ended March 31,
     2012    2011

Cash Flows from Operating Activities:

         

Net income

       $   118,253             $   123,176     

Adjustments to reconcile net income to net cash provided by (used in) operating activities:

         

Provision for loan losses

       15,000             26,000     

Depreciation and amortization

       6,005             5,891     

Amortization of premiums, net

       (216)            278     

Amortization of core deposit intangibles

       5,159             7,385     

Net gain on sale of securities

       (718)            (9,992)    

Net gain on sale of loans

       (40,014)            (15,902)    

Stock plan-related compensation

       5,109             3,612     

Changes in assets and liabilities:

         

Decrease in deferred tax asset, net

       9,360             16,625     

Decrease in other assets

       60,249             16,703     

Increase (decrease) in other liabilities

       19,818             (29,408)    

Origination of loans held for sale

       (2,487,034)            (1,500,836)    

Proceeds from sale of loans originated for sale

       3,030,905             2,211,232     
    

 

 

      

 

 

 

Net cash provided by operating activities

       741,876             854,764     
    

 

 

      

 

 

 

Cash Flows from Investing Activities:

         

Proceeds from repayment of securities held to maturity

       250,495             224,978     

Proceeds from repayment of securities available for sale

       154,624             51,551     

Proceeds from sale of securities held to maturity

       --             227,039     

Proceeds from sale of securities available for sale

       240,218             103,956     

Purchase of securities held to maturity

       (739,371)            (613,191)    

Purchase of securities available for sale

       (239,500)            --     

Net (purchase) redemption of Federal Home Loan Bank stock

       (14,170)            23,283     

Net increase in loans

       (904,364)            (193,966)    

Purchase of premises and equipment, net

       (5,802)            (19,172)    
    

 

 

      

 

 

 

Net cash used in investing activities

       (1,257,870)            (195,522)    
    

 

 

      

 

 

 

Cash Flows from Financing Activities:

         

Net increase in deposits

       666,663             389,095     

Net increase (decrease) in short-term borrowed funds

       318,000             (500,000)    

Net decrease in long-term borrowed funds

       (2,289)            (16,554)    

Tax effect of stock plans

       (354)            1,639     

Cash dividends paid on common stock

       (109,554)            (109,154)    

Treasury stock purchases

       (2,425)            (2,381)    

Net cash received from stock option exercises

       --             2,300     
    

 

 

      

 

 

 

Net cash provided by (used in) financing activities

       870,041             (235,055)    
    

 

 

      

 

 

 

Net increase in cash and cash equivalents

       354,047             424,187     

Cash and cash equivalents at beginning of period

       2,001,737             1,927,542     
    

 

 

      

 

 

 

Cash and cash equivalents at end of period

       $2,355,784             $2,351,729     
    

 

 

      

 

 

 

Supplemental information:

         

Cash paid for interest

       $161,951             $171,491     

Cash paid for (received from) income taxes

       39,746             (10,134)    

Non-cash investing and financing activities:

         

Transfers to other real estate owned from loans

       33,263             46,218     

See accompanying notes to the consolidated financial statements.

 

4


Table of Contents

NEW YORK COMMUNITY BANCORP, INC.

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

Note 1. Organization and Basis of Presentation

Organization

Formerly known as Queens County Bancorp, Inc., New York Community Bancorp, Inc. (on a stand-alone basis, the “Parent Company” or, collectively with its subsidiaries, the “Company”) was organized under Delaware law on July 20, 1993 and is the holding company for New York Community Bank and New York Commercial Bank (hereinafter referred to as the “Community Bank” and the “Commercial Bank,” respectively, and collectively as the “Banks”). In addition, for the purpose of these Consolidated Financial Statements, the “Community Bank” and the “Commercial Bank” refer not only to the respective banks but also to their respective subsidiaries.

The Community Bank is the primary banking subsidiary of the Company. Founded on April 14, 1859 and formerly known as Queens County Savings Bank, the Community Bank converted from a state-chartered mutual savings bank to the capital stock form of ownership on November 23, 1993, on which date the Company completed its initial offering of common stock (par value: $0.01 per share) at a price of $25.00 per share. The Commercial Bank was established on December 30, 2005.

Reflecting nine stock splits, the Company’s initial offering price adjusts to $0.93 per share. All share and per share data presented in this report have been adjusted to reflect the impact of the stock splits.

The Company changed its name to New York Community Bancorp, Inc. on November 21, 2000 in anticipation of completing the first of eight business combinations that expanded its footprint well beyond Queens County to encompass all five boroughs of New York City, Long Island, and Westchester County in New York, and seven counties in the northern and central parts of New Jersey. The Company expanded beyond this region to south Florida, northeast Ohio, and central Arizona through its FDIC-assisted acquisition of certain assets and assumption of certain liabilities of AmTrust Bank (“AmTrust”) in December 2009, and extended its Arizona franchise through its FDIC-assisted acquisition of certain assets and assumption of certain liabilities of Desert Hills Bank (“Desert Hills”) in March 2010.

Reflecting this strategy of growth through acquisitions, the Community Bank currently operates 242 branches, four of which operate directly under the Community Bank name. The remaining 238 branches operate through seven divisional banks—Queens County Savings Bank, Roslyn Savings Bank, Richmond County Savings Bank, and Roosevelt Savings Bank (in New York), Garden State Community Bank in New Jersey, AmTrust Bank in Florida and Arizona, and Ohio Savings Bank in Ohio.

The Commercial Bank currently operates 34 branches in Manhattan, Queens, Brooklyn, Westchester County, and Long Island (all in New York), including 17 branches that operate under the name “Atlantic Bank.”

Basis of Presentation

The following is a description of the significant accounting and reporting policies that the Company and its wholly-owned subsidiaries follow in preparing and presenting their consolidated financial statements, which conform to U.S. generally accepted accounting principles (“GAAP”) and to general practices within the banking industry. The preparation of financial statements in conformity with GAAP requires the Company to make estimates and judgments that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the consolidated financial statements, and the reported amounts of revenues and expenses during the reporting period. Estimates that are particularly susceptible to change in the near term are used in connection with the determination of the allowances for loan losses; the valuation of loans held for sale; the evaluation of goodwill for impairment; the evaluation of other-than-temporary impairment (“OTTI”) on securities; and the evaluation of the need for a valuation allowance on the Company’s deferred tax assets. The current economic environment has increased the degree of uncertainty inherent in these material estimates.

The unaudited consolidated financial statements include the accounts of the Company and other entities in which the Company has a controlling financial interest. All inter-company accounts and transactions are eliminated

 

5


Table of Contents

in consolidation. These unaudited consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in the Company’s 2011 Annual Report on Form 10-K. The Company currently has unconsolidated subsidiaries in the form of nine wholly-owned statutory business trusts, which were formed to issue guaranteed capital debentures (“capital securities”). Please see Note 6, “Borrowed Funds,” for additional information regarding these trusts.

When necessary, certain reclassifications have been made to prior-year amounts to conform to the current-year presentation.

Note 2. Computation of Earnings per Share

Basic earnings per share (“EPS”) is computed by dividing net income by the weighted average number of common shares outstanding during the period. Diluted EPS is computed using the same method as basic EPS, however, the computation reflects the potential dilution that would occur if outstanding in-the-money stock options were exercised and converted into common stock.

Unvested stock-based compensation awards containing non-forfeitable rights to dividends are considered participating securities and therefore are included in the two-class method for calculating EPS. Under the two-class method, all earnings (distributed and undistributed) are allocated to common shares and participating securities based on their respective rights to receive dividends. The Company grants restricted stock to certain employees under its stock-based compensation plans. Recipients receive cash dividends during the vesting periods of these awards (i.e., including on the unvested portion of such awards). Since these dividends are non-forfeitable, the unvested awards are considered participating securities and have earnings allocated to them.

The following table presents the Company’s computation of basic and diluted EPS for the periods indicated:

 

     Three Months Ended March 31,  
(in thousands, except share and per share amounts)    2012        2011  

Net income

     $118,253             $123,176     

Less: Dividends paid on, and earnings allocated to, participating securities

     (1,089)            (890)    
  

 

 

      

 

 

 

Earnings applicable to common stock

     $117,164             $122,286     
  

 

 

      

 

 

 

Weighted average common shares outstanding

     437,467,859             435,563,415     
  

 

 

      

 

 

 

Basic earnings per common share

     $0.27             $0.28     
  

 

 

      

 

 

 

Earnings applicable to common stock

     $117,164             $122,286     
  

 

 

      

 

 

 

Weighted average common shares outstanding

     437,467,859             435,563,415     

Potential dilutive common shares(1)

     5,330             849,934     
  

 

 

      

 

 

 

Total shares for diluted earnings per share computation

     437,473,189             436,413,349     
  

 

 

      

 

 

 

Diluted earnings per common share and common share equivalents

     $0.27             $0.28     
  

 

 

      

 

 

 

 

(1) Options to purchase 5,247,328 and 2,617,993 shares, respectively, of the Company’s common stock that were outstanding as of March 31, 2012 and 2011, at respective weighted average exercise prices of $15.70 and $19.29, were excluded from the respective computations of diluted EPS because their inclusion would have had an antidilutive effect.

 

6


Table of Contents

Note 3. Securities

The following table summarizes the Company’s portfolio of securities available for sale at March 31, 2012:

 

     March 31, 2012
(in thousands)    Amortized
Cost
   Gross
Unrealized
Gain
   Gross
Unrealized
Loss
   Fair Value

Mortgage-Related Securities:

                   

GSE(1) certificates

       $  94,897          $  5,532          $       1          $100,428  

GSE CMOs(2)

       62,338          2,540          --          64,878  

Private label CMOs

       23,652          6          --          23,658   
    

 

 

      

 

 

      

 

 

      

 

 

 

Total mortgage-related securities

       $180,887          $  8,078          $       1          $188,964  
    

 

 

      

 

 

      

 

 

      

 

 

 

Other Securities:

                   

GSE debentures

       $306,964          $  1,102          $   664          $307,402  

State, county, and municipal

       1,190          104          --          1,294  

Capital trust notes

       36,490          1,793          5,065          33,218  

Preferred stock

       --          188          --          188  

Common stock

       42,852          867          2,047          41,672  
    

 

 

      

 

 

      

 

 

      

 

 

 

Total other securities

       $387,496          $  4,054          $7,776          $383,774  
    

 

 

      

 

 

      

 

 

      

 

 

 

Total securities available for sale(3)

       $568,383          $12,132          $7,777          $572,738  
    

 

 

      

 

 

      

 

 

      

 

 

 

 

(1) Government-sponsored enterprises
(2) Collateralized mortgage obligations
(3) The non-credit portion of OTTI recorded in Accumulated Other Comprehensive Loss (“AOCL”) was $570,000 (before taxes).

As of March 31, 2012, the fair value of marketable equity securities included common stock of $41.7 million and Freddie Mac preferred stock of $188,000. Common stock primarily consisted of an investment in a large cap equity fund and certain other funds that are Community Reinvestment Act (“CRA”) eligible. The Freddie Mac preferred stock was recognized by the Company as other-than-temporarily impaired in the fourth quarter of 2008.

The following table summarizes the Company’s portfolio of securities available for sale at December 31, 2011:

 

     December 31, 2011
(in thousands)    Amortized
Cost
   Gross
Unrealized
Gain
   Gross
Unrealized
Loss
   Fair Value

Mortgage-Related Securities:

                   

GSE certificates

       $  97,642          $  5,013          $       10          $102,645  

GSE CMOs

       62,373          2,903          --          65,276  

Private label CMOs

       25,306          --          1,265          24,041   
    

 

 

      

 

 

      

 

 

      

 

 

 

Total mortgage-related securities

       $185,321          $  7,916          $  1,275          $191,962  
    

 

 

      

 

 

      

 

 

      

 

 

 

Other Securities:

                   

GSE debentures

       $456,969          $  1,797          $        --          $458,766  

State, county, and municipal

       1,188          97          --          1,285  

Capital trust notes

       36,754          141          4,692          32,203  

Preferred stock

       --          195          --          195  

Common stock

       42,863          1,604          4,216          40,251  
    

 

 

      

 

 

      

 

 

      

 

 

 

Total other securities

       $537,774          $  3,834          $  8,908          $532,700  
    

 

 

      

 

 

      

 

 

      

 

 

 

Total securities available for sale(1)

       $723,095          $11,750          $10,183          $724,662  
    

 

 

      

 

 

      

 

 

      

 

 

 

 

(1) The non-credit portion of OTTI recorded in AOCL was $570,000 (before taxes).

 

7


Table of Contents

The following tables summarize the Company’s portfolio of securities held to maturity at March 31, 2012 and December 31, 2011:

 

     March 31, 2012
(in thousands)     Amortized 
Cost
       Carrying    
Amount
   Gross
    Unrealized    
Gain
   Gross
    Unrealized    
Loss
    Fair Value 

Mortgage-Related Securities:

                        

GSE certificates

       $   694,550          $   694,550          $  49,358          $        --          $   743,908  

GSE CMOs

       2,381,285          2,381,285          89,195          686          2,469,794  

Other mortgage-related securities

       3,341          3,341          --          --          3,341  
    

 

 

      

 

 

      

 

 

      

 

 

      

 

 

 

Total mortgage-related securities

       $3,079,176          $3,079,176          $138,553          $     686          $3,217,043  
    

 

 

      

 

 

      

 

 

      

 

 

      

 

 

 

Other Securities:

                        

GSE debentures

       $1,039,580          $1,039,580          $  12,751          $       73          $1,052,258  

Corporate bonds

       54,779          54,779          7,667          11          62,435  

Capital trust notes

       153,234          131,536          17,374          16,245          132,665  
    

 

 

      

 

 

      

 

 

      

 

 

      

 

 

 

Total other securities

       $1,247,593          $1,225,895          $  37,792          $16,329          $1,247,358  
    

 

 

      

 

 

      

 

 

      

 

 

      

 

 

 

Total securities held to maturity(1)

       $4,326,769          $4,305,071          $176,345          $17,015          $4,464,401  
    

 

 

      

 

 

      

 

 

      

 

 

      

 

 

 

 

(1) Held-to-maturity securities are reported at a carrying amount equal to amortized cost less the non-credit portion of OTTI recorded in AOCL. The non-credit portion of OTTI recorded in AOCL was $21.7 million (before taxes).

 

     December 31, 2011
(in thousands)     Amortized 
Cost
       Carrying    
Amount
   Gross
    Unrealized    
Gain
   Gross
    Unrealized    
Loss
    Fair Value 

Mortgage-Related Securities:

                        

GSE certificates

       $   660,945          $   660,945          $  47,064          $        --          $   708,009  

GSE CMOs

       2,331,916          2,331,916          93,216          --          2,425,132  

Other mortgage-related securities

       3,379          3,379          --          --          3,379  
    

 

 

      

 

 

      

 

 

      

 

 

      

 

 

 

Total mortgage-related securities

       $2,996,240          $2,996,240          $140,280          $        --          $3,136,520  
    

 

 

      

 

 

      

 

 

      

 

 

      

 

 

 

Other Securities:

                        

GSE debentures

       $   633,258          $   633,258          $  14,878          $     146          $   647,990  

Corporate bonds

       54,759          54,759          2,826          12          57,573  

Capital trust notes

       153,334          131,597          12,362          19,857          124,102  
    

 

 

      

 

 

      

 

 

      

 

 

      

 

 

 

Total other securities

       $   841,351          $   819,614          $  30,066          $20,015          $   829,665  
    

 

 

      

 

 

      

 

 

      

 

 

      

 

 

 

Total securities held to maturity(1)

       $3,837,591          $3,815,854          $170,346          $20,015          $3,966,185  
    

 

 

      

 

 

      

 

 

      

 

 

      

 

 

 

 

(1) The non-credit portion of OTTI recorded in AOCL was $21.7 million (before taxes).

The Company had $504.4 million and $490.2 million of Federal Home Loan Bank (“FHLB”) stock, at cost, at March 31, 2012 and December 31, 2011, respectively. The Company is required to maintain this investment in order to have access to funding resources provided by the FHLB.

The following table summarizes the gross proceeds, gross realized gains, and gross realized losses from the sale of available-for-sale securities during the three months ended March 31, 2012 and 2011:

 

         For the Three Months Ended    
March 31,
(in thousands)       2012          2011   

Gross proceeds

   $240,218    $103,956

Gross realized gains

            718          2,931

Gross realized losses

               --               11

In addition, during the three months ended March 31, 2011, the Company sold held-to-maturity securities with gross proceeds of $227.0 million and gross realized gains of $7.1 million. These sales occurred because the Company had either collected a substantial portion (at least 85%) of the initial principal balance or because there was evidence of significant deterioration in the issuers’ creditworthiness.

 

8


Table of Contents

The $165.9 million market value of the capital trust note portfolio at March 31, 2012 included three pooled trust preferred securities. The following table details the pooled trust preferred securities that had at least one credit rating below investment grade as of March 31, 2012:

 

     INCAPS
Funding I
  Alesco Preferred
Funding VII Ltd.
  Preferred Term
Securities II
(dollars in thousands)     Class B-2 Notes     Class C-1 Notes     Mezzanine Notes 

Book value

       $14,964         $ 553         $579  

Fair value

       16,598         210         638  

Unrealized gain (loss)

       1,634         (343 )       59  

Lowest credit rating assigned to security

       CCC-         C         C  

Number of banks/insurance companies currently performing

       24         58         24  

Actual deferrals and defaults as a percentage of original collateral

       11 %       35 %       36 %

Expected deferrals and defaults as a percentage of remaining performing collateral

       24         25         19  

Expected recoveries as a percentage of remaining performing collateral

       --         --         2  

Excess subordination as a percentage of remaining performing collateral

       12         --         --  

As of March 31, 2012, after taking into account the Company’s best estimates of future deferrals, defaults, and recoveries, two of its pooled trust preferred securities had no excess subordination in the classes it owns and one had excess subordination of 12%. Excess subordination is calculated after taking into account the deferrals, defaults, and recoveries noted in the table above, and indicates whether there is sufficient additional collateral to cover the outstanding principal balance of the class owned, after taking into account these projected deferrals, defaults, and recoveries.

As the following table indicates, there was no activity from December 31, 2011 through March 31, 2012 in the credit loss component of OTTI on debt securities for which a non-credit component of OTTI was recognized in AOCL. The beginning balance represents the credit loss component for debt securities for which OTTI occurred prior to January 1, 2012. For credit-impaired debt securities, OTTI recognized in earnings after that date is presented as an addition in two components, based upon whether the current period is the first time a debt security was credit-impaired (initial credit impairment) or is not the first time a debt security was credit-impaired (subsequent credit impairment).

 

(in thousands)

     For the Three Months Ended  
March 31, 2012

Beginning credit loss amount as of December 31, 2011

       $219,978  

Add:  Initial other-than-temporary credit losses

       --  

          Subsequent other-than-temporary credit losses

       --  

          Amount previously recognized in AOCL

       --  

Less: Realized losses for securities sold

       --  

          Securities intended or required to be sold

       --  

          Increases in expected cash flows on debt securities

       --  
    

 

 

 

Ending credit loss amount as of March 31, 2012

       $219,978  
    

 

 

 

 

9


Table of Contents

The following table summarizes the carrying amounts and estimated fair values of held-to-maturity debt securities, and the amortized costs and estimated fair values of available-for-sale debt securities, at March 31, 2012 by contractual maturity. Mortgage-related securities held to maturity and available for sale, all of which have prepayment provisions, are distributed to a maturity category based on the ends of the estimated average lives of such securities. Principal and amortization prepayments are not shown in maturity categories as they occur, but are considered in the determination of estimated average life.

 

     Carrying Amount at March 31, 2012     
(dollars in
thousands)
   Mortgage-
Related
 Securities 
    Average 
Yield
   U.S. Treasury
and GSE
  Obligations  
   Average
Yield
   State, County,
  and Municipal  
    Average 
Yield
(1)
   Other Debt
  Securities
(2)  
    Average 
Yield
     Fair Value  

Held-to-Maturity Securities:

                                            

Due within one year

       $             --          --%            $             --          --%             $      --              --%            $  23,992              5.80%           $     24,301   

Due from one to five years

       --          --                --          --                --              --               --          --              --   

Due from five to ten years

       1,045,522          3.59                989,580          3.39                --              --               --          --              2,113,638   

Due after ten years

       2,033,654            3.81                50,000           3.00                --              --               162,323          7.00              2,326,462   
    

 

 

      

 

 

      

 

 

      

 

 

      

 

 

      

 

 

      

 

 

      

 

 

      

 

 

 

Total debt securities held to maturity

       $3,079,176          3.74%            $1,039,850          3.37%             $      --              --%            $186,315              6.85%           $4,464,401   
    

 

 

      

 

 

      

 

 

      

 

 

      

 

 

      

 

 

      

 

 

      

 

 

      

 

 

 

Available-for-Sale Securities: (3)

                                            

Due within one year

       $             --          --%            $             --          --%             $   125          5.63%           $          --          --%           $           128   

Due from one to five years

       8,799          7.22                --          --                509          6.21              --          --              9,882   

Due from five to ten years

       73,306          3.55                306,380          3.35                556          6.56              --          --              385,292   

Due after ten years

       98,782          4.06                584          2.75                --          --              36,490          4.74              135,576   
    

 

 

      

 

 

      

 

 

      

 

 

      

 

 

      

 

 

      

 

 

      

 

 

      

 

 

 

Total debt securities available for sale

       $   180,887          4.01%            $   306,964          3.35%             $1,190          6.31%           $  36,490          4.74%           $    530,878   
    

 

 

      

 

 

      

 

 

      

 

 

      

 

 

      

 

 

      

 

 

      

 

 

      

 

 

 

 

(1) Not presented on a tax-equivalent basis.
(2) Includes corporate bonds and capital trust notes. Included in capital trust notes are $15.5 million and $579,000 of pooled trust preferred securities available for sale and held to maturity, respectively, all of which are due after ten years. The remaining capital trust notes consist of single-issue trust preferred securities.
(3) As equity securities have no contractual maturity, they have been excluded from this table.

At March 31, 2012, the Company had commitments to purchase $282.0 million of securities, all of which were GSE securities.

 

10


Table of Contents

The following tables present held-to-maturity and available-for-sale securities having a continuous unrealized loss position for less than twelve months and for twelve months or longer as of March 31, 2012:

 

At March 31, 2012    Less than Twelve Months    Twelve Months or Longer    Total
(in thousands)        Fair Value         Unrealized Loss         Fair Value        Unrealized Loss        Fair Value        Unrealized Loss

Temporarily Impaired Held-to-Maturity Debt Securities:

                             

GSE debentures

       $  65,867          $     73          $        --          $        --          $  65,867          $         73  

GSE CMOs

       91,737          686          --          --          91,737          686  

Corporate bonds

       4,989          11          --          --          4,989          11  

Capital trust notes

       --          --          72,086          16,245          72,086          16,245  
    

 

 

      

 

 

      

 

 

      

 

 

      

 

 

      

 

 

 

Total temporarily impaired held-to-maturity debt securities

       $162,593          $   770          $72,086          $16,245          $234,679          $  17,015  
    

 

 

      

 

 

      

 

 

      

 

 

      

 

 

      

 

 

 

Temporarily Impaired Available-for-Sale Securities:

                             

Debt Securities:

                             

GSE certificates

       $         96          $       1          $        --          $        --          $         96          $           1  

GSE debentures

       59,336          664          --          --          59,336          664  

Capital trust notes

       1,237          370          9,445          4,695          10,682          5,065  
    

 

 

      

 

 

      

 

 

      

 

 

      

 

 

      

 

 

 

Total temporarily impaired available-for-sale debt securities

       $  60,669          $1,035          $  9,445          $  4,695          $  70,114          $    5,730  

Equity securities

       --          --          28,867          2,047          28,867          2,047  
    

 

 

      

 

 

      

 

 

      

 

 

      

 

 

      

 

 

 

Total temporarily impaired available-for-sale securities

       $  60,669          $1,035          $38,312          $  6,742          $  98,981          $    7,777  
    

 

 

      

 

 

      

 

 

      

 

 

      

 

 

      

 

 

 

The twelve months or longer unrealized losses on equity securities of $2.0 million at March 31, 2012 relate to available-for-sale equity securities that primarily consisted of a large cap equity fund at that date. The twelve months or longer unrealized loss on this large cap equity fund was $1.6 million.

 

11


Table of Contents

The following tables present held-to-maturity and available-for-sale securities having a continuous unrealized loss position for less than twelve months and for twelve months or longer as of December 31, 2011:

 

At December 31, 2011   Less than Twelve Months   Twelve Months or Longer   Total
(in thousands)    Fair Value    Unrealized Loss    Fair Value    Unrealized Loss    Fair Value    Unrealized Loss

Temporarily Impaired Held-to-Maturity Debt Securities:

                       

GSE debentures

      $62,601         $   146         $         --         $        --         $  62,601         $     146  

GSE certificates

      --         --         --         --         --         --  

GSE CMOs

      --         --         --         --         --         --  

Corporate bonds

      4,987         12         --         --         4,987         12  

Capital trust notes

      971         43         68,570         19,814         69,541         19,857  
   

 

 

     

 

 

     

 

 

     

 

 

     

 

 

     

 

 

 

Total temporarily impaired held-to-maturity debt securities

      $68,559         $   201         $68,570         $19,814         $137,129         $20,015  
   

 

 

     

 

 

     

 

 

     

 

 

     

 

 

     

 

 

 

Temporarily Impaired Available-for-Sale Securities:

                       

Debt Securities:

                       

GSE certificates

      $     181         $       9         $       13         $       1         $       194         $       10  

Private label CMOs

      24,041         1,265         --         --         24,041         1,265  

Corporate bonds

      --         --         --         --         --         --  

State, county, and municipal

      --         --         --         --         --         --  

Capital trust notes

      15,154         363         9,810         4,329         24,964         4,692  
   

 

 

     

 

 

     

 

 

     

 

 

     

 

 

     

 

 

 

Total temporarily impaired available-for-sale debt securities

      $39,376         $1,637         $  9,823         $  4,330         $  49,199         $  5,967  

Equity securities

      784         40         26,651         4,176         27,435         4,216  
   

 

 

     

 

 

     

 

 

     

 

 

     

 

 

     

 

 

 

Total temporarily impaired available-for-sale securities

      $40,160         $1,677         $36,474         $  8,506         $  76,634         $10,183  
   

 

 

     

 

 

     

 

 

     

 

 

     

 

 

     

 

 

 

 

12


Table of Contents

An OTTI loss on impaired securities must be fully recognized in earnings if an investor has the intent to sell the debt security or if it is more likely than not that the investor will be required to sell the debt security before recovery of its amortized cost. However, even if an investor does not expect to sell a debt security, it must evaluate the expected cash flows to be received and determine if a credit loss has occurred. In the event that a credit loss occurs, only the amount of impairment associated with the credit loss is recognized in earnings. Amounts relating to factors other than credit losses are recorded in AOCL. Financial Accounting Standards Board (“FASB”) guidance also requires additional disclosures regarding the calculation of credit losses, as well as factors considered by the investor in reaching a conclusion that an investment is not other-than-temporarily impaired.

Available-for-sale securities in unrealized loss positions are analyzed as part of the Company’s ongoing assessment of OTTI. When the Company intends to sell such available-for-sale securities, the Company recognizes an impairment loss equal to the full difference between the amortized cost basis and the fair value of those securities. When the Company does not intend to sell available-for-sale equity or debt securities in an unrealized loss position, potential OTTI is considered based on a variety of factors, including the length of time and extent to which the fair value has been less than the cost; adverse conditions specifically related to the industry, the geographic area, or financial condition of the issuer, or the underlying collateral of a security; the payment structure of the security; changes to the rating of the security by a rating agency; the volatility of the fair value changes; and changes in fair value of the security after the balance sheet date. For debt securities, the Company estimates cash flows over the remaining life of the underlying collateral to assess whether credit losses exist and, where applicable, to determine if any adverse changes in cash flows have occurred. The Company’s cash flow estimates take into account expectations of relevant market and economic data as of the end of the reporting period. As of March 31, 2012, the Company did not intend to sell the securities with an unrealized loss position in AOCL, and it was more likely than not that the Company would not be required to sell these securities before recovery of their amortized cost basis. The Company believes that the securities with an unrealized loss position in AOCL were not other-than-temporarily impaired as of March 31, 2012.

Other factors considered in determining whether a loss is temporary include the length of time and the extent to which fair value has been below cost; the severity of the impairment; the cause of the impairment; the financial condition and near-term prospects of the issuer; activity in the market of the issuer that may indicate adverse credit conditions; and the forecasted recovery period using current estimates of volatility in market interest rates (including liquidity and risk premiums).

Management’s assertion regarding its intent not to sell, or that it is not more likely than not that the Company will be required to sell the security before its anticipated recovery, is based on a number of factors, including a quantitative estimate of the expected recovery period (which may extend to maturity) and management’s intended strategy with respect to the identified security or portfolio. If management does have the intent to sell, or believes it is more likely than not that the Company will be required to sell the security before its anticipated recovery, the unrealized loss is charged directly to earnings in the Consolidated Statement of Income and Comprehensive Income.

The unrealized losses on the Company’s GSE debentures at March 31, 2012 were primarily caused by movements in market interest rates and spread volatility, rather than credit risk. The Company purchased these investments either at par or at a discount relative to their face amount, and the contractual cash flows of these investments are guaranteed by the GSEs. Accordingly, it is expected that these securities will not be settled at a price that is less than the amortized cost of the Company’s investment. Because the Company does not have the intent to sell the investments and it is not more likely than not that the Company will be required to sell them before anticipated recovery of fair value, which may be at maturity, the Company did not consider these investments to be other-than-temporarily impaired at March 31, 2012.

The Company reviews quarterly financial information related to its investments in capital trust notes as well as other information that is released by each financial institution to determine the continued creditworthiness of the issuer of the securities. The contractual terms of these investments do not permit settling the securities at prices that are less than the amortized costs of the investments; therefore, the Company expects that these investments will not be settled at prices that are less than their amortized costs. The Company continues to monitor these investments and currently estimates that the present value of expected cash flows is not less than the amortized cost of the securities. Because the Company does not have the intent to sell the investments, and it is not more likely than not

 

13


Table of Contents

that the Company will be required to sell them before the anticipated recovery of fair value, which may be at maturity, it did not consider these investments to be other-than-temporarily impaired at March 31, 2012. It is possible that these securities will perform worse than is currently expected, which could lead to adverse changes in cash flows from these securities and potential OTTI losses in the future. Events that may occur in the future at the financial institutions that issued these securities could trigger material unrecoverable declines in the fair values of the Company’s investments and therefore could result in future potential OTTI losses. Such events include, but are not limited to, government intervention, deteriorating asset quality and credit metrics, significantly higher levels of default and loan loss provisions, losses in value on the underlying collateral, deteriorating credit enhancement, net operating losses, and further illiquidity in the financial markets.

At March 31, 2012, the Company’s equity securities portfolio consisted of perpetual preferred and common stock, and mutual funds. The Company considers a decline in the fair value of available-for-sale equity securities to be other than temporary if the Company does not expect to recover the entire amortized cost basis of the security. The unrealized losses on the Company’s equity securities were primarily caused by market volatility. The Company evaluated the near-term prospects of a recovery of fair value for each security in the portfolio, together with the severity and duration of impairment to date. Based on this evaluation, and the Company’s ability and intent to hold these investments for a period of time reasonably sufficient to realize a near-term forecasted recovery of fair value, the Company did not consider these investments to be other-than-temporarily impaired at March 31, 2012. Nonetheless, it is possible that these equity securities will perform worse than is currently expected, which could lead to adverse changes in their fair values, or the failure of the securities to fully recover in value as presently forecasted by management, causing the Company to potentially record OTTI losses in future periods. Events that could trigger material declines in the fair values of these securities include, but are not limited to, deterioration in the equity markets; a decline in the quality of the loan portfolios of the issuers in which the Company has invested; and the recording of higher loan loss provisions and net operating losses by such issuers.

The investment securities designated as having a continuous loss position for twelve months or more at March 31, 2012 consisted of 11 capital trust notes, and six equity securities. At December 31, 2011, the investment securities designated as having a continuous loss position for twelve months or more consisted of one mortgage-related security, eleven capital trust notes, and six equity securities. At March 31, 2012 and December 31, 2011, the combined market value of the respective securities represented unrealized losses of $23.0 million and $28.3 million. At March 31, 2012, the fair value of securities having a continuous loss position for twelve months or more was 17.3% below the collective amortized cost of $132.8 million. At December 31, 2011, the fair value of such securities was 21.2% below the collective amortized cost of $133.4 million.

 

14


Table of Contents

Note 4. Loans

The following table sets forth the composition of the loan portfolio at March 31, 2012 and December 31, 2011:

 

     March 31, 2012    December 31, 2011
(dollars in thousands)    Amount    Percent of
Non-Covered
Loans Held for
Investment
        Amount         Percent of
Non-Covered
Loans Held for
Investment

Non-Covered Loans Held for Investment:

                   

Mortgage Loans:

                   

Multi-family

       $17,765,872            66.90%          $17,430,628            68.28%  

Commercial real estate

       7,577,256            28.54              6,855,244            26.85      

Acquisition, development, and construction

       441,753            1.66              445,671            1.75      

One-to-four family

       116,402            0.44              127,361            0.50      
    

 

 

      

 

 

      

 

 

      

 

 

 

Total mortgage loans held for investment

       $25,901,283            97.54              $24,858,904            97.38      
    

 

 

      

 

 

      

 

 

      

 

 

 

Other Loans:

                   

Commercial and industrial

       592,221            2.23              599,986            2.35      

Other

       60,629            0.23              69,907            0.27      
    

 

 

      

 

 

      

 

 

      

 

 

 

Total other loans held for investment

       652,850            2.46              669,893            2.62      
    

 

 

      

 

 

      

 

 

      

 

 

 

Total non-covered loans held for investment

       26,554,133            100.00%          $25,528,797            100.00%  
         

 

 

           

 

 

 

Net deferred loan origination costs

       5,466                 4,021         

Allowance for losses on non-covered loans

       (136,767)                (137,290)        
    

 

 

           

 

 

      

Non-covered loans held for investment, net

       26,422,832                 $25,395,528         

Covered loans

       3,643,801                 3,753,031         

Allowance for losses on covered loans

       (33,323)                (33,323)        
    

 

 

           

 

 

      

Total covered loans, net

       $  3,610,478                 $  3,719,708         

Loans held for sale

       504,351                 1,036,918         
    

 

 

           

 

 

      

Total loans, net

       $30,537,661                 $30,152,154         
    

 

 

           

 

 

      

Non-Covered Loans

Non-Covered Loans Held for Investment

The vast majority of the loans the Company originates for investment are multi-family loans, most of which are collateralized by non-luxury apartment buildings in New York City that feature below-market rents. In addition, the Company originates commercial real estate (“CRE”) loans, most of which are collateralized by properties located in New York City and, to a lesser extent, on Long Island and in New Jersey.

To a lesser extent, the Company also originates acquisition, development, and construction (“ADC”) loans and commercial and industrial (“C&I”) loans. ADC loans are primarily originated for multi-family and residential tract projects in New York City and on Long Island, while C&I loans are made to small and mid-size businesses in New York City, Long Island, New Jersey, and, to a lesser extent, Arizona, on both a secured and unsecured basis, for working capital, business expansion, and the purchase of machinery and equipment.

Payments on multi-family and CRE loans generally depend on the income produced by the underlying properties which, in turn, depends on their successful operation and management. Accordingly, the ability of the Company’s borrowers to repay these loans may be impacted by adverse conditions in the local real estate market and the local economy. While the Company generally requires that such loans be qualified on the basis of the collateral property’s current cash flows, appraised value, and debt service coverage ratio, among other factors, there can be no assurance that its underwriting policies will protect the Company from credit-related losses or delinquencies.

ADC loans typically involve a higher degree of credit risk than loans secured by improved or owner-occupied real estate. The risk of loss on an ADC loan is largely dependent upon the accuracy of the initial appraisal of the property’s value upon completion of construction or development; the estimated cost of construction, including interest; and the estimated time to complete and/or sell or lease such property. The Company seeks to minimize these risks by maintaining consistent lending policies and rigorous underwriting standards. However, if the estimate

 

15


Table of Contents

of value proves to be inaccurate, the cost of completion is greater than expected, the length of time to complete and/or sell or lease the collateral property is greater than anticipated, or if there is a downturn in the local economy or real estate market, the property could have a value upon completion that is insufficient to assure full repayment of the loan. This could have a material adverse effect on the quality of the ADC loan portfolio, and could result in significant losses or delinquencies.

The Company seeks to minimize the risks involved in C&I lending by underwriting such loans on the basis of the cash flows produced by the business; by requiring that such loans be collateralized by various business assets, including inventory, equipment, and accounts receivable, among others; and by requiring personal guarantees. However, the capacity of a borrower to repay a C&I loan is substantially dependent on the degree to which his or her business is successful. In addition, the collateral underlying such loans may depreciate over time, may not be conducive to appraisal, or may fluctuate in value, based upon the results of operations of the business.

The ability of the Company’s borrowers to repay their loans, and the value of the collateral securing such loans, could be adversely impacted by continued or more significant economic weakness in its local markets as a result of increased unemployment, declining real estate values, or increased residential and office vacancies. This not only could result in the Company experiencing an increase in charge-offs and/or non-performing assets, but also could necessitate an increase in the provision for loan losses. These events, if they were to occur, would have an adverse impact on the Company’s results of operations and its capital.

One-to-Four Family Loans Originated for Sale

The Community Bank’s mortgage banking subsidiary, NYCB Mortgage Company, LLC, is one of the largest aggregators of one-to-four family loans for sale to GSEs in the nation. Community banks, credit unions, mortgage companies, and mortgage brokers use the subsidiary’s proprietary web-accessible mortgage banking platform to originate and close one-to-four family loans in all 50 states. The Company sells these loans, primarily servicing retained.

Prior to December 2010, the Company would originate one-to-four family loans in its branches and on its website on a pass-through, or conduit, basis, and would sell the loans to the third-party conduit shortly after they closed. Since December 2010, the Company has been originating one-to-four family loans through several selected clients of its mortgage banking operation, rather than through the single third-party conduit with which it previously worked. The one-to-four family loans produced for the Company’s customers are aggregated with loans produced by its mortgage banking clients throughout the nation, and then sold.

The Company also services mortgage loans for various third parties. At March 31, 2012, the unpaid principal balance of serviced loans amounted to $14.7 billion. At December 31, 2011, the unpaid principal balance of loans serviced for others amounted to $13.1 billion.

Asset Quality

The following table presents information regarding the quality of the Company’s non-covered loans at March 31, 2012:

 

(in thousands)    30-89 Days
Past Due
   Non-
Accrual
   90 Days or More
Delinquent and
Still Accruing
Interest
   Total Past
Due
   Current    Total Loans
Receivable

Multi-family

       $ 15,161         $ 188,778         $ --          $ 203,939         $ 17,561,933          $ 17,765,872  

Commercial real estate

       35,193          63,347          --          98,540          7,478,716          7,577,256  

Acquisition, development, and construction

       6,884          36,599          --          43,483          398,270          441,753  

One-to-four family

       2,326          9,851          --          12,177          104,225          116,402  

Commercial and industrial

       1,105          6,369          --          7,474          584,747          592,221  

Other

       233          1,180          --          1,413          59,216          60,629  
    

 

 

      

 

 

      

 

 

      

 

 

      

 

 

      

 

 

 

Total

       $ 60,902         $ 306,124         $ --          $ 367,026         $ 26,187,107          $ 26,554,133  
    

 

 

      

 

 

      

 

 

      

 

 

      

 

 

      

 

 

 

 

16


Table of Contents

The following table presents information regarding the quality of the Company’s non-covered loans at December 31, 2011:

 

(in thousands)    30-89 Days
Past Due
   Non-
Accrual
   90 Days or More
Delinquent and
Still Accruing
Interest
   Total Past
Due
   Current    Total Loans
Receivable

Multi-family

       $  46,702          $205,064          $--           $251,766          $17,178,862           $17,430,628  

Commercial real estate

            53,798              68,032            --             121,830               6,733,414          6,855,244  

Acquisition, development, and construction

              6,520              29,886            --               36,406                 409,265          445,671  

One-to-four family

              2,712              11,907            --               14,619                 112,742          127,361  

Commercial and industrial

              1,223                8,827            --               10,050                 589,936          599,986  

Other

                 702                2,099             --                 2,801                   67,106                    69,907  

Total

        $111,657           $325,815           $--           $437,472          $25,091,325           $25,528,797  

The following table summarizes the Company’s non-covered loan portfolio by credit quality indicator at March 31, 2012:

 

(in thousands)      Multi-Family        Commercial  
Real Estate
   Acquisition,
Development, and
Construction
   One-to-Four
Family
   Total
Mortgage
Segment
   Commercial
and
Industrial
   Other    Total Other
Loan Segment

Credit Quality Indicator:

                                       

Pass

       $17,528,521          $7,454,279            $396,600            $109,377           $25,488,777           $570,942           $ 59,448            $630,390  

Special mention

       6,679          41,273          7,018          --          54,970          6,018          --          6,018  

Substandard

       230,672          81,704          38,135          7,025          357,536          15,261          1,181          16,442  

Doubtful

       --          --          --          --          --          --          --          --  
    

 

 

      

 

 

      

 

 

      

 

 

      

 

 

      

 

 

      

 

 

      

 

 

 

Total

       $17,765,872          $7,577,256            $441,753            $116,402           $25,901,283           $592,221           $ 60,629            $652,850  
    

 

 

      

 

 

      

 

 

      

 

 

      

 

 

      

 

 

      

 

 

      

 

 

 

The following table summarizes the Company’s non-covered loan portfolio by credit quality indicator at December 31, 2011:

 

(in thousands)    Multi-Family    Commercial
Real Estate
   Acquisition,
Development, and
Construction
   One-to-Four
Family
   Total
Mortgage
Segment
   Commercial
and
Industrial
   Other    Total Other
Loan Segment

Credit Quality Indicator:

                                       

Pass

         $ 17,135,461          $ 6,704,824          $ 399,811          $ 118,293          $ 24,358,389          $ 570,442          $ 67,808          $ 638,250  

Special mention

       58,134          64,802          6,489          --          129,425          13,234          --          13,234  

Substandard

       237,033          85,618          39,371          9,068          371,090          15,928          2,099          18,027  

Doubtful

       --          --          --          --          --          382          --          382  
    

 

 

      

 

 

      

 

 

      

 

 

      

 

 

      

 

 

      

 

 

      

 

 

 

Total

         $ 17,430,628          $ 6,855,244          $ 445,671          $ 127,361          $ 24,858,904          $ 599,986          $ 69,907          $ 669,893  
    

 

 

      

 

 

      

 

 

      

 

 

      

 

 

      

 

 

      

 

 

      

 

 

 

The preceding classifications follow regulatory guidelines and can be generally described as follows: pass loans are of satisfactory quality; special mention loans have a potential weakness or risk that may result in the deterioration of future repayment; substandard loans are inadequately protected by the current net worth and paying capacity of the borrower or of the collateral pledged (these loans have a well-defined weakness and there is a distinct possibility that the Company will sustain some loss); and doubtful loans, based on existing circumstances, have weaknesses that make collection or liquidation in full highly questionable and improbable. In addition, one-to-four family residential loans are classified utilizing an inter-regulatory agency methodology that incorporates the extent of delinquency and the loan-to-value ratios. These classifications are the most current available and have been generally updated within the last twelve months.

Troubled Debt Restructurings

In accordance with GAAP, the Company is required to account for certain loan modifications or restructurings as Troubled Debt Restructurings (“TDRs”). In general, a modification or restructuring of a loan constitutes a TDR if the Company grants a concession to a borrower experiencing financial difficulty. Loans modified as TDRs are placed on non-accrual status until the Company determines that future collection of principal and interest is reasonably assured, which generally requires that the borrower demonstrate performance according to the restructured terms for a period of at least six months.

 

17


Table of Contents

The following table presents information regarding the Company’s TDRs as of March 31, 2012 and December 31, 2011:

 

     March 31, 2012    December 31, 2011
(in thousands)     Accruing     Non-Accrual    Total     Accruing     Non-Accrual    Total

Loan Category:

                             

Multi-family

       $68,674          $151,608          $220,282          $60,454          $166,248          $226,702  

Commercial real estate

       2,320          40,650          42,970          3,389          39,054          42,443  

Acquisition, development, and construction

       --          12,992          12,992          --          15,886          15,886  

Commercial and industrial

       --          --          --          --          667          667  

One-to-four family

       --          1,126          1,126          --          1,411          1,411  
    

 

 

      

 

 

      

 

 

      

 

 

      

 

 

      

 

 

 

Total

       $70,994          $206,376          $277,370          $63,843          $223,266          $287,109  
    

 

 

      

 

 

      

 

 

      

 

 

      

 

 

      

 

 

 

In an effort to proactively manage delinquent loans, the Company has selectively extended to certain borrowers concessions such as rate reductions, extension of maturity dates, and forbearance agreements. As of March 31, 2012, loans on which concessions were made with respect to rate reductions and/or extension of maturity dates amounted to $244.3 million and loans on which forbearance agreements were reached amounted to $33.1 million.

The eligibility of a borrower for work-out concessions of any nature depends upon the facts and circumstances of each transaction, which may change from period to period, and involve judgment by Company personnel regarding the likelihood that the concession will result in the maximum recovery for the Company.

As of March 31, 2012, the financial effects of TDRs granted in the three months ended at that date were as follows:

 

    For the Three Months Ended March 31, 2012
    Weighted Average Interest Rate     
(dollars in thousands)   Number
 of Loans 
  Pre-
 Modification 
  Post-
 Modification 
    Charge-off 
Amount

Loan Category:

                

Commercial real estate

      1         7.00         5.00         $ --  
   

 

 

              

 

 

 

Total

      1         7.00         5.00         $ --  
   

 

 

              

 

 

 

As of March 31, 2012, there were no payment defaults on any loans that had been modified as TDRs during the preceding twelve months. A loan is considered to be in payment default once it is 30 days contractually past due under the modified terms.

Covered Loans

The following table presents the balance of covered loans acquired in the AmTrust and Desert Hills acquisitions as of March 31, 2012:

 

(dollars in thousands)   Amount   Percent of
Covered Loans

Loan Category:

       

One-to-four family

    $ 3,275,065         89.9%  

All other loans

      368,736         10.1     
   

 

 

     

 

 

 

Total covered loans

    $ 3,643,801         100.0%  
   

 

 

     

 

 

 

The Company refers to the loans acquired in the AmTrust and Desert Hills acquisitions as “covered loans” because the Company is being reimbursed for a substantial portion of losses on these loans under the terms of the FDIC loss sharing agreements. Covered loans are accounted for under Accounting Standards Codification (“ASC”) Topic 310-30, “Loans and Debt Securities Acquired with Deteriorated Credit Quality” (“ASC 310-30”), and initially measured at fair value, which includes estimated future credit losses expected to be incurred over the lives of the loans. Under ASC 310-30, purchasers are permitted to aggregate acquired loans into one or more pools, provided that the loans have common risk characteristics. A pool is then accounted for as a single asset with a single composite interest rate and an aggregate expectation of cash flows.

 

18


Table of Contents

At March 31, 2012 and December 31, 2011, the outstanding balances of covered loans (representing amounts owed to the Company) were $4.4 billion and $4.5 billion, respectively. The carrying values of such loans were $3.6 billion and $3.8 billion, respectively, at March 31, 2012 and December 31, 2011.

At the respective acquisition dates, the Company estimated the fair values of the AmTrust and Desert Hills loan portfolios, which represented the expected cash flows from the portfolios discounted at market-based rates. In estimating such fair value, the Company (a) calculated the contractual amount and timing of undiscounted principal and interest payments (the “undiscounted contractual cash flows”); and (b) estimated the expected amount and timing of undiscounted principal and interest payments (the “undiscounted expected cash flows”). The amount by which the undiscounted expected cash flows exceed the estimated fair value (the “accretable yield”) is accreted into interest income over the lives of the loans. The difference between the undiscounted contractual cash flows and the undiscounted expected cash flows is referred to as the “non-accretable difference.” The non-accretable difference represents an estimate of the credit risk in the loan portfolios at the acquisition date.

The accretable yield is affected by changes in interest rate indices for variable rate loans, changes in prepayment assumptions, and changes in expected principal and interest payments over the estimated lives of the loans. Changes in interest rate indices for variable rate loans increase or decrease the amount of interest income expected to be collected, depending on the direction of interest rates. Prepayments affect the estimated lives of covered loans and could change the amount of interest income and principal expected to be collected. Changes in expected principal and interest payments over the estimated lives of covered loans are driven by the credit outlook and actions that may be taken with borrowers.

The Company periodically evaluates the estimates of the cash flows it expects to collect. Expected future cash flows from interest payments are based on the variable rates at the time of the periodic evaluation. Estimates of expected cash flows that are impacted by changes in interest rate indices for variable rate loans and prepayment assumptions are treated as prospective yield adjustments and included in interest income.

Changes in the accretable yield for covered loans were as follows for the three months ended March 31, 2012:

 

(in thousands)    Accretable Yield

Balance at beginning of period

       $1,365,978    

Reclassification to non-accretable difference

       (63,393)   

Accretion

       (45,946)   
    

 

 

 

Balance at end of period

       $1,256,639    
    

 

 

 

The line item in the preceding table titled “reclassification to non-accretable difference” includes changes in cash flows the Company expects to collect due to changes in prepayment assumptions and changes in interest rates on variable rate loans. As of the Company’s last periodic evaluation, prepayment assumptions increased and, accordingly, future expected interest cash flows decreased. This resulted in a decrease in the accretable yield. In addition, these decreases were coupled with additional reductions in the expected cash flows from interest payments, as interest rates continued to be very low. As a result, a large percentage of the Company’s covered variable rate loans continue to reset at lower interest rates. Partially offsetting these decreases were increases in the expected principal and interest payments driven by better expectations relating to credit.

In connection with the AmTrust and Desert Hills transactions, the Company has acquired other real estate owned (“OREO”), all of which is covered under FDIC loss sharing agreements. Covered OREO is initially recorded at its estimated fair value on the acquisition date, based on independent appraisals less the estimated selling costs. Any subsequent write-downs due to declines in fair value are charged to non-interest expense, and partially offset by loss reimbursements under the FDIC loss sharing agreements. Any recoveries of previous write-downs are credited to non-interest expense and partially offset by the portion of the recovery that is due to the FDIC.

The FDIC loss share receivable represents the present value of the estimated losses on covered loans to be reimbursed by the FDIC. The estimated losses were based on the same cash flow estimates used in determining the fair value of the covered loans. The FDIC loss share receivable is reduced as losses on covered loans are recognized

 

19


Table of Contents

and as loss sharing payments are received from the FDIC. Realized losses in excess of acquisition-date estimates will result in an increase in the FDIC loss share receivable. Conversely, if realized losses are less than the acquisition-date estimates, the FDIC loss share receivable will be reduced.

The following table presents information regarding the Company’s covered loans 90 days or more past due at March 31, 2012 and December 31, 2011:

 

(in thousands)        March 31,    
2012
   December 31,
2011

Covered Loans 90 Days or More Past Due:

         

One-to-four family

       $314,392          $314,821  

Other loans

       28,751          32,621  
    

 

 

      

 

 

 

Total covered loans 90 days or more past due

         $343,143            $347,442  
    

 

 

      

 

 

 

The following table presents information regarding the Company’s covered loans that were 30 to 89 days past due at March 31, 2012 and December 31, 2011:

 

(in thousands)        March 31,    
2012
   December 31,
2011

Covered Loans 30-89 Days Past Due:

         

One-to-four family

       $84,080          $103,495  

Other loans

       7,104          8,494  
    

 

 

      

 

 

 

Total covered loans 30-89 days past due

           $91,184            $111,989  
    

 

 

      

 

 

 

At March 31, 2012, the Company had $91.2 million of covered loans that were 30 to 89 days past due, and covered loans of $343.1 million that were 90 days or more past due but considered to be performing due to the application of the yield accretion method under ASC 310-30. The remaining portion of the Company’s covered loan portfolio totaled $3.2 billion at March 31, 2012 and was considered current as of that date. ASC 310-30 allows the Company to aggregate credit-impaired loans acquired in the same fiscal quarter into one or more pools, provided that the loans have common risk characteristics. A pool is then accounted for as a single asset with a single composite interest rate and an aggregate expectation of cash flows. Accordingly, loans that may have been classified as non-performing loans by AmTrust or Desert Hills are no longer classified as non-performing because, at the respective dates of acquisition, the Company believed that it would fully collect the new carrying value of these loans. The new carrying value represents the contractual balance, reduced by the portion that is expected to be uncollectible (referred to as the “non-accretable difference”) and by an accretable yield (discount) that is recognized as interest income. It is important to note that management’s judgment is required in reclassifying loans subject to ASC 310-30 as performing loans, and its judgment is dependent on having a reasonable expectation about the timing and amount of the cash flows to be collected, even if the loan is contractually past due.

The primary credit quality indicator for covered loans is the expectation of underlying cash flows. There was no provision for, or recovery on, losses on covered loans during the three months ended March 31, 2012. The Company determined that there was no change in the expected underlying cash flows that was attributable to credit deterioration or impairment. At December 31, 2011, the balance of pools with an adverse change in expected cash flows was $497.4 million. These pools consisted of one-to-four family loans of $184.9 million and other loans of $312.5 million.

 

20


Table of Contents

Note 5. Allowance for Loan Losses

The following tables provide additional information regarding the Company’s allowance for loan losses, based upon the method of evaluating loan impairment:

 

(in thousands)   Mortgage   Other   Total

Allowance for Loan Losses at March 31, 2012:

           

Individually evaluated for impairment

     $ 1,433        $ --        $ 1,433  

Collectively evaluated for impairment

      121,193         14,141         135,334  

Loans acquired with deteriorated credit quality

      14,227         19,096         33,323  
   

 

 

     

 

 

     

 

 

 

Total

     $ 136,853        $ 33,237        $ 170,090  
   

 

 

     

 

 

     

 

 

 
(in thousands)   Mortgage   Other   Total

Allowance for Loan Losses at December 31, 2011:

           

Individually evaluated for impairment

     $ 490        $ --        $ 490  

Collectively evaluated for impairment

      121,505         15,295         136,800  

Acquired loans with deteriorated credit quality

      14,227         19,096         33,323  
   

 

 

     

 

 

     

 

 

 

Total

     $ 136,222        $ 34,391        $ 170,613  
   

 

 

     

 

 

     

 

 

 

The following tables provide additional information regarding the methods used to evaluate the Company’s loan portfolio for impairment:

 

(in thousands)   Mortgage   Other   Total

Loans Receivable at March 31, 2012:

           

Individually evaluated for impairment

     $ 331,523        $ 5,445        $ 336,968  

Collectively evaluated for impairment

      25,569,760         647,405         26,217,165  

Loans acquired with deteriorated credit quality

      3,275,065         368,736         3,643,801  
   

 

 

     

 

 

     

 

 

 

Total

     $ 29,176,348        $ 1,021,586        $ 30,197,934  
   

 

 

     

 

 

     

 

 

 
(in thousands)   Mortgage   Other   Total

Loans Receivable at December 31, 2011:

           

Individually evaluated for impairment

     $ 324,427        $ 5,995        $ 330,422  

Collectively evaluated for impairment

      24,534,477         663,898         25,198,375  

Loans acquired with deteriorated credit quality

      3,366,456         386,575         3,753,031  
   

 

 

     

 

 

     

 

 

 

Total

     $ 28,225,360        $ 1,056,468        $ 29,281,828  
   

 

 

     

 

 

     

 

 

 

Non-Covered Loans

The following table summarizes activity in the allowance for losses on non-covered loans for the three months ended March 31, 2012 and 2011:

 

     March 31,  
     2012      2011  
(in thousands)    Mortgage      Other      Total      Mortgage      Other      Total  

Balance, beginning of period

     $121,995           $15,295              $137,290            $140,834              $18,108            $158,942      

Charge-offs

     (14,531)          (2,508)             (17,039)           (34,091)             (4,845)           (38,936)     

Recoveries

     317           1,199              1,516            287              13            300      

Provision for loan losses

     14,845           155              15,000            21,287              4,713            26,000      
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Balance, end of period

     $122,626           $14,141              $136,767            $128,317              $17,989            $146,306      
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Non-accrual loans amounted to $306.1 million and $325.8 million, respectively, at March 31, 2012 and December 31, 2011. There were no loans over 90 days past due and still accruing interest at either of these dates.

 

21


Table of Contents

The following table presents additional information regarding the Company’s impaired loans at or for the three months ended March 31, 2012:

 

(in thousands)    Recorded
 Investment 
   Unpaid
Principal
Balance
   Related
 Allowance 
   Average
Recorded
 Investment 
   Interest
Income
Recognized

Impaired loans with no related allowance:

                        

Multi-family

     $ 231,853         $ 245,833         $ --         $ 204,431          $1,263  

Commercial real estate

       50,227          53,843          --          49,742          211  

Acquisition, development, and construction

       29,361          31,891          --          28,020          236  

One-to-four family

       1,127          1,147          --          1,269          --  

Commercial and industrial

       5,445          10,120          --          5,720          --  
    

 

 

      

 

 

      

 

 

      

 

 

      

 

 

 

Total impaired loans with no related allowance

      $ 318,013         $ 342,834         $ --         $ 289,182          $1,710  
    

 

 

      

 

 

      

 

 

      

 

 

      

 

 

 

Impaired loans with an allowance recorded:

                        

Multi-family

      $ 8,239         $ 9,620          $ 820         $ 7,284          $    27  

Commercial real estate

       5,639          5,850          79          5,644          8  

Acquisition, development, and construction

       5,077          5,077          534          2,539          --  

One-to-four family

       --          --          --          142          --  

Commercial and industrial

       --          --          --          --          --  
    

 

 

      

 

 

      

 

 

      

 

 

      

 

 

 

Total impaired loans with an allowance recorded

      $ 18,955         $ 20,547          $ 1,433         $ 15,609          $    35  
    

 

 

      

 

 

      

 

 

      

 

 

      

 

 

 

Total Impaired Loans:

                        

Multi-family

      $ 240,092         $ 255,453          $ 820         $ 211,715          $1,290  

Commercial real estate

       55,866          59,693          79          55,386          219  

Acquisition, development, and construction

       34,438          36,968          534          30,559          236  

One-to-four family

       1,127          1,147          --          1,411          --  

Commercial and industrial

       5,445          10,120          --          5,720          --  
    

 

 

      

 

 

      

 

 

      

 

 

      

 

 

 

Total impaired loans

      $ 336,968         $ 363,381          $ 1,433         $ 304,791          $1,745  
    

 

 

      

 

 

      

 

 

      

 

 

      

 

 

 

The following table presents additional information regarding the Company’s impaired loans at December 31, 2011:

 

(in thousands)    Recorded
 Investment 
   Unpaid
Principal
Balance
   Related
 Allowance 
   Average
Recorded
 Investment 
   Interest
Income
Recognized

Impaired Loans with No Related Allowance:

                        

Multi-family

      $ 235,100         $ 244,684         $ --         $ 321,994        $ 3,435  

Commercial real estate

       49,258          52,152          --          63,032          1,397  

Acquisition, development, and construction

       26,680          27,143          --          42,600          1,141  

One-to-four family

       1,127          1,520          --          2,649          10  

Commercial and industrial

       5,995          10,240          --          6,442          60  
    

 

 

      

 

 

      

 

 

      

 

 

      

 

 

 

Total impaired loans with no related allowance

      $ 318,160         $ 335,739         $ --         $ 436,717        $ 6,043  
    

 

 

      

 

 

      

 

 

      

 

 

      

 

 

 

Impaired Loans with An Allowance Recorded:

                        

Multi-family

      $ 6,329         $ 6,899         $ 408         $ 10,893        $ 187  

Commercial real estate

       5,648          5,857          53          10,297          --  

Acquisition, development, and construction

       --          --          --          14,495          --  

One-to-four family

       285          373          29          71          --  

Commercial and industrial

       --          --          --          1,837          --  
    

 

 

      

 

 

      

 

 

      

 

 

      

 

 

 

Total impaired loans with an allowance recorded

      $ 12,262         $ 13,129         $ 490         $ 37,593        $ 187  
    

 

 

      

 

 

      

 

 

      

 

 

      

 

 

 

Total Impaired Loans:

                        

Multi-family

      $ 241,429         $ 251,583         $ 408         $ 332,887        $ 3,622  

Commercial real estate

       54,906          58,009          53          73,329          1,397  

Acquisition, development, and construction

       26,680          27,143          --          57,095          1,141  

One-to-four family

       1,412          1,893          29          2,720          10  

Commercial and industrial

       5,995          10,240          --          8,279          60  
    

 

 

      

 

 

      

 

 

      

 

 

      

 

 

 

Total impaired loans

      $ 330,422         $ 348,868         $ 490         $ 474,310        $ 6,230  
    

 

 

      

 

 

      

 

 

      

 

 

      

 

 

 

 

22


Table of Contents

The interest income recorded on these loans was not materially different from cash-basis interest income.

Covered Loans

Under the loss sharing agreements with the FDIC, covered loans are reported exclusive of the FDIC loss share receivable. The covered loans acquired in the AmTrust and Desert Hills acquisitions are, and will continue to be, reviewed for collectability based on the expectations of cash flows from these loans. Covered loans have been aggregated into pools of loans with common characteristics. In determining the allowance for losses on covered loans, the Company periodically performs an analysis to estimate the expected cash flows for each of the loan pools. The Company records a provision for loan losses on covered loans to the extent that the expected cash flows from a loan pool have decreased since the acquisition date. Accordingly, if there is a decrease in expected cash flows due to an increase in estimated credit losses compared to the estimates made at the respective acquisition dates, the decrease in the present value of expected cash flows is recorded as a provision for covered loan losses charged to earnings, and an allowance for covered loan losses is established. A related credit to non-interest income and an increase in the FDIC loss share receivable is recognized at the same time, and measured based on the loss sharing agreement percentages.

The following table summarizes activity in the allowance for losses on covered loans for the three months ended March 31, 2012 and 2011:

 

(in thousands)         March 31,     
2012
       March 31,    
2011

Balance, beginning of period

      $ 33,323         $ 11,903  

Provision for loan losses

       --          --  
    

 

 

      

 

 

 

Balance, end of period

      $ 33,323         $ 11,903  
    

 

 

      

 

 

 

Note 6. Borrowed Funds

The following table summarizes the Company’s borrowed funds at March 31, 2012 and December 31, 2011:

 

(in thousands)         March 31,     
2012
   December 31,
2011

FHLB advances

        $  9,629,849           $  9,314,193  

Repurchase agreements

       4,125,000          4,125,000  

Junior subordinated debentures

       426,982          426,936  

Senior notes

       89,993          89,984  

Preferred stock of subsidiaries

       4,300          4,300  
    

 

 

      

 

 

 

Total borrowed funds

        $14,276,124           $13,960,413  
    

 

 

      

 

 

 

At March 31, 2012, the Company had $427.0 million of outstanding junior subordinated deferrable interest debentures (“junior subordinated debentures”) held by nine statutory business trusts (the “Trusts”) that issued guaranteed capital securities. The capital securities qualified as Tier 1 capital of the Company at that date. However, with the passage of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (the “Dodd-Frank Act”) in July 2010, the qualification of capital securities as Tier 1 capital is expected to be phased out over a three-year period beginning January 1, 2013 and ending January 1, 2016.

The Trusts are accounted for as unconsolidated subsidiaries in accordance with GAAP. The proceeds of each issuance were invested in a series of junior subordinated debentures of the Company and the underlying assets of each statutory business trust are the relevant debentures. The Company has fully and unconditionally guaranteed the obligations under each trust’s capital securities to the extent set forth in a guarantee by the Company to each trust. The Trusts’ capital securities are each subject to mandatory redemption, in whole or in part, upon repayment of the debentures at their stated maturity or earlier redemption.

 

23


Table of Contents

The following table provides a summary of the outstanding capital securities issued by each trust and the carrying amounts of the junior subordinated debentures issued by the Company to each trust as of March 31, 2012:

 

Issuer    Interest Rate of
Capital Securities
and Debentures
 

Junior
Subordinated

Debenture

Carrying

Amount

   Capital
Securities
Amount
Outstanding
  

Date of

Original Issue

   Stated Maturity    First Optional
Redemption Date

 

         (dollars in thousands)               

 

Haven Capital Trust II

      10.250%    $  23,333    $  22,550    May 26, 1999    June 30, 2029    June 30, 2009(1)

Queens County Capital Trust I

   11.045        10,309        10,000    July 26, 2000    July 19, 2030    July 19, 2010(2)

Queens Statutory Trust I

   10.600        15,464        15,000    September 7, 2000    September 7, 2030    September 7, 2010(1)

New York Community Capital Trust V

     6.000      143,846      137,495    November 4, 2002    November 1, 2051    November 4, 2007(2)

New York Community Capital Trust X

     2.074      123,712      120,000    December 14, 2006    December 15, 2036    December 15, 2011(3)

LIF Statutory Trust I

   10.600          7,732          7,500    September 7, 2000    September 7, 2030    September 7, 2010(1)

PennFed Capital Trust II

   10.180        12,372        12,000    March 28, 2001    June 8, 2031    June 8, 2011(1)

PennFed Capital Trust III

     3.724        30,928        30,000    June 2, 2003    June 15, 2033    June 15, 2008(3)

New York Community Capital Trust XI

     2.120        59,286        57,500    April 16, 2007    June 30, 2037    June 30, 2012(3)
      $426,982    $412,045         

 

(1) Callable at a premium from this date forward.
(2) Callable subject to certain conditions as described in the prospectus filed with the SEC on November 4, 2002.
(3) Callable from this date forward.

Other borrowings totaled $94.3 million at March 31, 2012, comparable to the balance at December 31, 2011. Included in the respective amounts were $90.0 million of fixed rate senior notes, due June 22, 2012, that were issued under the FDIC’s Temporary Liquidity Guarantee Program in December 2008.

Note 7. Mortgage Servicing Rights

The Company had mortgage servicing rights (“MSRs”) of $140.3 million and $117.0 million, respectively, at March 31, 2012 and December 31, 2011. The Company has two classes of MSRs for which it separately manages the economic risk: residential and securitized.

Residential MSRs are carried at fair value, with changes in fair value recorded as a component of non-interest income in each period. The Company uses various derivative instruments to mitigate the income statement-effect of changes in fair value due to changes in valuation inputs and assumptions regarding its residential MSRs. MSRs do not trade in an active open market with readily observable prices. Accordingly, the Company bases the fair value of its MSRs on the present value of estimated future net servicing income cash flows utilizing an internal valuation model. The Company estimates future net servicing income cash flows with assumptions that market participants would use to estimate fair value, including estimates of prepayment speeds, discount rates, default rates, refinance rates, servicing costs, escrow account earnings, contractual servicing fee income, and ancillary income. The Company reassesses and periodically adjusts the underlying inputs and assumptions in the model to reflect market conditions and assumptions that a market participant would consider in valuing the MSR asset.

The value of MSRs is significantly affected by mortgage interest rates then currently available in the marketplace, which influence mortgage loan prepayment speeds. During periods of declining interest rates, the value of MSRs generally declines due to increasing prepayments attributable to increased mortgage refinancing activity. Conversely, during periods of rising interest rates, the value of MSRs generally increases as mortgage refinancing activity declines.

Securitized MSRs are carried at the lower of the initial carrying value, adjusted for amortization or fair value, and are amortized in proportion to, and over the period of, estimated net servicing income. Such MSRs are periodically evaluated for impairment, based on the difference between their carrying amount and their current fair value. If it is determined that impairment exists, the resultant loss is charged against earnings.

 

24


Table of Contents

The following table sets forth the changes in residential and securitized MSRs for the three months ended March 31, 2012 and the year ended December 31, 2011:

 

     For the Three Months
  Ended March 31, 2012  
       For the Year Ended    
December 31, 2011
(in thousands)    Residential   Securitized    Residential   Securitized

Carrying value, beginning of year

    $116,416       $  596       $106,186      $1,192  

Additions

        34,853              --           82,060               --  

Increase (decrease) in fair value:

         

Due to changes in valuation assumptions

          4,254              --          (24,537)              --  

Due to other changes(1)

       (15,731)             --          (47,293)              --  

Amortization

                --          (113)                  --          (596) 

Carrying value, end of period

    $139,792       $  483       $116,416      $   596  

 

(1) Includes net servicing cash flows and the passage of time.

The following table presents the key assumptions used in calculating the fair value of the Company’s residential MSRs at the dates indicated:

 

         March 31, 2012           December 31, 2011    

Weighted Average Expected Life

       75 months         69 months  

Constant Prepayment Speed

       12.9 %       14.2 %

Discount Rate

       10.0         10.0  

Primary Mortgage Rate to Refinance

       4.1         4.1  

Cost to Service (per loan per year):

        

Current

       $  53         $  53  

30-59 days or less delinquent

       103         103  

60-89 days delinquent

       203         203  

90-119 days delinquent

       303         303  

Over 120 days delinquent

       553         553  

As of March 31, 2012, there were no changes in assumed future servicing costs.

Note 8. Pension and Other Post-Retirement Benefits

The following tables set forth certain disclosures for the Company’s pension and post-retirement plans for the periods indicated:

 

     For the Three Months Ended March 31,
     2012    2011
(in thousands)    Pension
 Benefits 
    Post-Retirement 
Benefits
   Pension
Benefits
    Post-Retirement 
Benefits

Components of net periodic expense (credit):

           

Interest cost

   $1,471       $160      $ 1,491      $180  

Service cost

             --             2               --            1  

Expected return on plan assets

   (3,314)           --        (3,133)         --  

Unrecognized past service liability

             --         (62)              --        (62) 

Amortization of unrecognized loss

       2,434         126         1,190        103  

Net periodic expense (credit)

    $    591       $226      $   (452)     $222  

As discussed in the notes to the consolidated financial statements presented in the Company’s 2011 Annual Report on Form 10-K, the Company expects to contribute $1.3 million to its post-retirement plan to pay premiums and claims for the fiscal year ending December 31, 2012. The Company does not expect to contribute to its pension plan in 2012.

Note 9. Stock-Based Compensation

At March 31, 2012, the Company had 1,024,633 shares available for grant as options, restricted stock, or other forms of related rights under the New York Community Bancorp, Inc. 2006 Stock Incentive Plan (the “2006 Stock Incentive Plan”), which was approved by the Company’s shareholders at its Annual Meeting on June 7, 2006 and

 

25


Table of Contents

reapproved at its Annual Meeting on June 2, 2011. Under the 2006 Stock Incentive Plan, the Company granted 2,040,425 shares of restricted stock in the three months ended March 31, 2012, with an average fair value of $12.78 per share on the date of grant and a vesting period of five years. Compensation and benefits expense related to restricted stock grants is recognized on a straight-line basis over the vesting period, and totaled $5.1 million and $3.6 million, respectively, in the three months ended March 31, 2012 and 2011.

A summary of activity with regard to restricted stock awards in the three months ended March 31, 2012 is presented in the following table:

 

     For the Three Months Ended
March 31, 2012
      Number of Shares     Weighted Average
 Grant Date Fair Value 

Unvested at beginning of year

   3,429,440      $16.11

Granted

   2,040,425        12.78

Vested

     (542,220)       17.07

Cancelled

       (49,500)       14.08

Unvested at end of period

   4,878,145        14.63

As of March 31, 2012, unrecognized compensation cost relating to unvested restricted stock totaled $65.6 million. This amount will be recognized over a remaining weighted average period of 3.7 years.

In addition, the Company had eight stock option plans at March 31, 2012: the 1993 and 1997 New York Community Bancorp, Inc. Stock Option Plans; the 1993 Haven Bancorp, Inc. Stock Option Plan; the 1998 Richmond County Financial Corp. Stock Compensation Plan; the 2001 Roslyn Bancorp, Inc. Stock-based Incentive Plan; the 1998 Long Island Financial Corp. Stock Option Plan; and the 2003 and 2004 Synergy Financial Group Stock Option Plans (all eight plans collectively referred to as the “Stock Option Plans”). All stock options granted under the Stock Option Plans expire ten years from the date of grant.

The Company uses the modified prospective approach to recognize compensation costs related to share-based payments at fair value on the date of grant, and recognizes such costs in the financial statements over the vesting period during which the employee provides service in exchange for the award. As there were no unvested options at any time during the three months ended March 31, 2012 or the year ended December 31, 2011, the Company did not record any compensation and benefits expense relating to stock options during those periods.

Currently, the Company issues new shares of common stock to satisfy the exercise of options. The Company may also use common stock held in Treasury to satisfy the exercise of options. In such event, the difference between the average cost of Treasury shares and the exercise price is recorded as an adjustment to retained earnings or paid-in capital on the date of exercise. At March 31, 2012, there were 5,346,445 stock options outstanding. The number of shares available for future issuance under the Stock Option Plans was 11,040 at March 31, 2012.

The status of the Stock Option Plans at March 31, 2012 and changes that occurred during the three months ended at that date are summarized below:

 

     For the Three Months Ended
March 31, 2012
       Number of Stock  
Options
    Weighted Average 
Exercise Price

Stock options outstanding, beginning of year

     9,006,944       $15.60

Exercised

                  --               --