UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM10-K
Annual Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
☒ | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the fiscal year ended: December 31, 2022
☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission File Number 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
102 Duffy Avenue, Hicksville, New York11801 |
(Address of principal executive offices) (Zip code) |
(516) 683-4100
(Address of principal executive offices) (Zip code)
(516)683-4100
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class | Trading Symbol(s) | Name of exchange on which registered | ||
Common Stock, $0.01 par value per share | NYCB | New York Stock Exchange | ||
Bifurcated Option Note Unit SecuritiESSM |
| NYCB PU | New York Stock Exchange | |
Depositary Shares each representing a 1/40th interest in a share of Fixed-to-Floating Rate Series A Noncumulative Perpetual Preferred Stock | NYCB PA | New York Stock Exchange | ||
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☒ No ☐
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act. Yes ☐ No ☒
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 ☒ No ☐
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of RegulationS-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of the registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form10-K or any amendment to this Form10-K. ☐
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 RegulationS-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 ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, anon-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “accelerated“large accelerated filer,” “large accelerated“accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule12b-2 of the Exchange Act.
Large Accelerated Filer | ☒ | Accelerated Filer | ☐ | |||
Non-Accelerated Filer | ☐ | Smaller Reporting Company | ☐ | |||
Emerging Growth Company | ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act ☐
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☒
If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements. ☐
Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b). ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule12b-2 of the Act). Yes ☐ No ☒
As of June 30, 2017,2022, the aggregate market value of the shares of common stock outstanding of the registrant was $6.2$4.2 billion, excluding 13,307,9506,801,356 shares held by all directors and executive officers of the registrant. This figure is based on the closing price of the registrant’s common stock on June 30, 2017, $13.132022, $9.13 per share, as reported by the New York Stock Exchange.
The number of shares of the registrant’s common stock outstanding as of February 21, 201822, 2023 was 490,214,307682,901,266 shares.
Documents Incorporated by Reference
Portions of the definitive Proxy Statement for the Annual Meeting of Shareholders to be held on June 5, 20181, 2023 are incorporated by reference into Part III.
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Security Ownership of Certain Beneficial Owners and Management, and Related Stockholder Matters | 151 | ||||||
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Certifications |
For the purpose of this Annual Report on Form10-K, the words “we,” “us,” “our,” and the “Company” are used to refer to New York Community Bancorp, Inc. and our consolidated subsidiaries, including New York Communitysubsidiary, Flagstar Bank, and New York Commercial BankN.A. (the “Community Bank” and the “Commercial Bank,” respectively, and collectively, the “Banks”“Bank”).
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING LANGUAGE
This report, like many written and oral communications presented by New York Community Bancorp, Inc. and our authorized officers, may contain certain forward-looking statements regarding our prospective performance and strategies within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. We intend such forward-looking statements to be covered by the safe harbor provisions for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995, and are including this statement for purposes of said safe harbor provisions.
Forward-looking statements, which are based on certain assumptions and describe future plans, strategies, and expectations of the Company, are generally identified by use of the words “anticipate,” “believe,” “estimate,” “expect,” “intend,” “plan,” “project,” “seek,” “strive,” “try,” or future or conditional verbs such as “will,” “would,” “should,” “could,” “may,” or similar expressions. Although we believe that our plans, intentions, and expectations as reflected in these forward-looking statements are reasonable, we can give no assurance that they will be achieved or realized.
Our ability to predict results or the actual effects of our plans and strategies is inherently uncertain. Accordingly, actual results, performance, or achievements could differ materially from those contemplated, expressed, or implied by the forward-looking statements contained in this report.
There are a number of factors, many of which are beyond our control, that could cause actual conditions, events, or results to differ significantly from those described in our forward-looking statements. These factors include, but are not limited to:
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In addition, the timing and occurrence ornon-occurrence of events may be subject to circumstances beyond our control.
Furthermore, on an ongoing basis, we routinely evaluate opportunities to expand through mergers and acquisitions and conductopportunities for strategic combinations with other banking organizations. Our evaluation of such opportunities involves discussions with other parties, due diligence, activities in connection with such opportunities.and negotiations. As a result, acquisition discussions and, in some cases, negotiations,we may take placedecide to enter into definitive arrangements regarding such opportunities at any time,time.
In addition to the risks and acquisitions involving cashchallenges described above, these types of transactions involve a number of other risks and challenges, including:
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See Part I, Item 1A, “Risk Factors” in this annual report and in our other SEC filings for a further discussion of important risk factors that could cause actual results to differ materially from our forward-looking statements.
Readers should not place undue reliance on these forward-looking statements, which reflect our expectations only as of the date of this report. We do not assume any obligation to revise or update these forward-looking statements except as may be required by law.
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GLOSSARY
BARGAIN PURCHASE GAIN
The amount by which the fair value of assets purchased exceeds the fair value of liabilities assumed and consideration given.
BASIS POINT
Throughout this filing, the year-over-year changes that occur in certain financial measures are reported in terms of basis points. Each basis point is equal to one hundredth of a percentage point, or 0.01%.0.01 percent.
BOOK VALUE PER COMMON SHARE
Book value per common share refers to the amount of common stockholders’ equity attributable to each outstanding share of common stock, and is calculated by dividing total stockholders’ equity less preferred stock at the end of a period, by the number of shares outstanding at the same date.
BROKERED DEPOSITS
Refers to funds obtained, directly or indirectly, by or through deposit brokers that are then deposited into one or more deposit accounts at a bank.
CHARGE-OFF
Refers to the amount of a loan balance that has been written off against the allowance for losses onnon-covered loans.credit losses.
COMMERCIAL REAL ESTATE (“CRE”) LOAN
A mortgage loan secured by either an income-producing property owned by an investor and leased primarily for commercial purposes or, to a lesser extent, an owner-occupied building used for business purposes. The CRE loans in our portfolio are typically secured by either office buildings, retail shopping centers, light industrial centers with multiple tenants, ormixed-use properties.
COST OF FUNDS
The interest expense associated with interest-bearing liabilities, typically expressed as a ratio of interest expense to the average balance of interest-bearing liabilities for a given period.
COVERED LOANS AND OTHER REAL ESTATE OWNED (“OREO”)
Refers to the loans and OREO we acquired in our AmTrust Bank (“AmTrust”) and Desert Hills Bank (“Desert Hills”) acquisitions, which are “covered” by loss sharing agreements with the FDIC. See the definition of “Loss Sharing Agreements” that appears later in this glossary.
CRE CONCENTRATION RATIO
Refers to the sum of multi-family,non-owner occupied CRE, and acquisition, development, and construction (“ADC”) loans divided by total risk-based capital.
DEBT SERVICE COVERAGE RATIO (“DSCR”)
An indication of a borrower’s ability to repay a loan, the DSCR generally measures the cash flows available to a borrower over the course of a year as a percentage of the annual interest and principal payments owed during that time.
DERIVATIVE
A term used to define a broad base of financial instruments, including swaps, options, and futures contracts, whose value is based upon, or derived from, an underlying rate, price, or index (such as interest rates, foreign currency, commodities, or prices of other financial instruments such as stocks or bonds).
DIVIDEND PAYOUT RATIO5
The percentage of our earnings that is paid out to shareholders in the form of dividends. It is determined by dividing the dividend paid per share during a period by our diluted earnings per share during the same period of time.
EFFICIENCY RATIO
Measures total operating expenses as a percentage of the sum of net interest income andnon-interest income.
GOODWILL
Refers to the difference between the purchase price and the fair value of an acquired company’s assets, net of the liabilities assumed. Goodwill is reflected as an asset on the balance sheet and is tested at least annually for impairment.
GOVERNMENT-SPONSORED ENTERPRISES (“GSEs”)
Refers to a group of financial services corporations that were created by the United States Congress to enhance the availability, and reduce the cost of, credit to certain targeted borrowing sectors, including home finance. The GSEs include, but are not limited to, the Federal National Mortgage Association (“Fannie Mae”), the Federal Home Loan Mortgage Corporation (“Freddie Mac”), and the Federal Home Loan Banks (the “FHLBs”).
GSE OBLIGATIONS
Refers to GSE mortgage-related securities (both certificates and collateralized mortgage obligations) and GSE debentures.
INTEREST RATE LOCK COMMITMENTS (“IRLCs”)
Refers to commitments we had made to originate newone-to-four family loans at specific (i.e.,locked-in) interest rates.
INTEREST RATE SENSITIVITY
Refers to the likelihood that the interest earned on assets and the interest paid on liabilities will change as a result of fluctuations in market interest rates.
INTEREST RATE SPREAD
The difference between the yield earned on average interest-earning assets and the cost of average interest-bearing liabilities.
LOAN-TO-VALUE RATIO (“LTV”)
Measures the balance of a loan as a percentage of the appraised value of the underlying property.
LOSS SHARING AGREEMENTS
Refers to the agreements we entered into with the FDIC in connection with the loans and OREO we acquired in our AmTrust and Desert Hills acquisitions. The agreements called for the FDIC to reimburse us for 80% of any losses (and share in 80% of any recoveries) up to specified thresholds and to reimburse us for 95% of any losses (and share in 95% of any recoveries) beyond those thresholds with respect to the acquired assets for specified periods of time. The loss sharing agreements with respect to theone-to-four family loans and home equity loans we acquired in these transactions extended for a period of ten years from the respective dates of acquisition. Such loans are referred to as “covered loans.” As of September 30, 2017, the loss sharing agreements are no longer in effect.
MORTGAGE BANKING INCOME
Refers to the income generated through our mortgage banking business, which is recorded innon-interest income. Mortgage banking income has two components: income generated from the origination ofone-to-four family loans for sale (“income from originations”) and income generated by servicing such loans (“servicing income”).
MORTGAGE SERVICING RIGHTS (“MSRs”)
The right to service mortgage loans for others is recognized as an asset, and recorded at fair value, when our loans are sold or securitized, servicing retained.
MULTI-FAMILY LOAN
A mortgage loan secured by a rental or cooperative apartment building with more than four units.
NET INTEREST INCOME
The difference between the interest income generated by loans and securities and the interest expense produced by deposits and borrowed funds.
NET INTEREST MARGIN
Measures net interest income as a percentage of average interest-earning assets.
NON-ACCRUAL LOAN
A loan generally is classified as a“non-accrual” “non-accrual” loan when it is 90 days or more past due or when it is deemed to be impaired because we no longer expect to collect all amounts due according to the contractual terms of the loan agreement. When a loan is placed onnon-accrual status, we cease the accrual of interest owed, and previously accrued interest is reversed and charged against interest income. A loan generally is returned to accrual status when the loan is current and we have reasonable assurance that the loan will be fully collectible.
NON-COVERED6
NON-PERFORMING LOANS AND OREOASSETS
Refers to all of the loans and OREO in our portfolio that are not covered by our loss sharing agreements with the FDIC.
NON-PERFORMING LOANS AND ASSETS
Non-performing loans consist ofnon-accrual loans and loans that are 90 days or more past due and still accruing interest.Non-performing assets consist ofnon-performing loans, OREO and OREO.other repossessed assets.
OREO AND OTHER REPOSSESSED ASSETS
Includes real estate owned by the Company which was acquired either through foreclosure or default. Repossessed assets are similar, except they are not real estate-related assets.
RENT-REGULATED APARTMENTS
In New York City, where the vast majority of the properties securing our multi-family loans are located, the amount of rent that tenants may be charged on the apartments in certain buildings is restricted under certain “rent-control” and “rent-stabilization”rent-stabilization laws. Rent-control laws apply to apartments in buildings that were constructed prior to February 1947. An apartment is said to be “rent-controlled” if the tenant has been living continuously in the apartment for a period of time beginning prior to July 1971. When a rent-controlled apartment is vacated, it typically becomes “rent-stabilized.” Rent-stabilized apartments are generally located in buildings with six or more units that were built between February 1947 and January 1974. Rent-controlled and -stabilized (together, “rent-regulated”)Rent-regulated apartments tend to be more affordable to live in because of the applicable regulations, and buildings with a preponderance of such rent-regulated apartments are therefore less likely to experience vacancies in times of economic adversity.
REPURCHASE AGREEMENTSTROUBLED DEBT RESTRUCTURING
Repurchase agreements are contractsA loan for which the sale of securities owned or borrowed byterms have been modified resulting in a concession, and for which the Banks with an agreement to repurchase those securities at an agreed-upon price and date. The Banks’ repurchase agreements are primarily collateralized by GSE obligations and other mortgage-related securities, and are entered into with either the FHLBs or various brokerage firms.borrower is experiencing financial difficulties.
SYSTEMICALLY IMPORTANT FINANCIAL INSTITUTION (“SIFI”)
A bank holding company with total consolidated assets that average more than $50 billion over the four most recent quarters is designated a “Systemically Important Financial Institution” under the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”) of 2010.
WHOLESALE BORROWINGS
Refers to advances drawn by the BanksBank against their respective linesits line(s) of credit with the FHLBs, their repurchase agreements with the FHLBs and various brokerage firms, and federal funds purchased.
YIELD
The interest income associated with interest-earning assets, typically expressed as a ratio of interest income to the average balance of interest-earning assets for a given period.
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LIST OF ABBREVIATIONS AND ACRONYMS
ACL—Allowance for Credit Losses | FHLB-NY—Federal Home Loan Bank of New York | |
ADC—Acquisition, development, and construction loan | FOAL—Fallout-Adjusted Locks | |
ALCO—Asset and Liability Management Committee | FOMC—Federal Open Market Committee | |
AMT—Alternative minimum tax | FRB—Federal Reserve Board | |
AOCL—Accumulated other comprehensive loss | FRB-NY—Federal Reserve Bank of New York | |
ASC—Accounting Standards Codification | Freddie Mac—Federal Home Loan Mortgage Corporation | |
ASU—Accounting Standards Update | FTEs—Full-time equivalent employees | |
BaaS—Banking as a Service | GAAP—U.S. generally accepted accounting principles | |
BOLI—Bank-owned life insurance | GLBA—The Gramm Leach Bliley Act | |
BP—Basis point(s) | GNMA—Government National Mortgage Association | |
CARES Act – Coronavirus Aid, Relief, and Economic Security Act | GSE—Government-sponsored enterprises | |
C&I—Commercial and industrial loan | HOLA—Home Owners Loan Act | |
CDs—Certificates of deposit | HPI—Housing Price Index | |
CECL—Current Expected Credit Loss | LGG - Loans with government guarantees | |
CFPB—Consumer Financial Protection Bureau | LHFS—Loans Held-for-Sale | |
CMOs—Collateralized mortgage obligations | LIBOR—London Interbank Offered Rate | |
CMT—Constant maturity treasury rate | LTV—Loan-to-value ratio | |
CPI—Consumer Price Index | MBS—Mortgage-backed securities | |
CPR—Constant prepayment rate | MSRs—Mortgage servicing rights | |
CRA—Community Reinvestment Act | NIM—Net interest margin | |
CRE—Commercial real estate loan | NOL—Net operating loss | |
DIF—Deposit Insurance Fund | NPAs—Non-performing assets | |
DFA—Dodd-Frank Wall Street Reform and Consumer Protection Act | NPLs—Non-performing loans | |
DSCR - Debt service coverage ratio | NPV—Net Portfolio Value | |
EAR—Earnings at Risk | NYSE—New York Stock Exchange | |
EPS—Earnings per common share | OCC—Office of the Comptroller of the Currency | |
ERM—Enterprise Risk Management | OFAC—Office of Foreign Assets Control | |
ESOP—Employee Stock Ownership Plan | OREO—Other real estate owned | |
EVE—Economic Value of Equity at Risk | OTTI—Other-than-temporary impairment | |
Fannie Mae—Federal National Mortgage Association | PAA - Purchase accounting adjustments | |
FASB—Financial Accounting Standards Board | PPP—Paycheck Protection Program administered by the Small Business Administration | |
FCA—the United Kingdom's Financial Conduct Authority | ROU—Right of use asset | |
FDI Act—Federal Deposit Insurance Act | SEC—U.S. Securities and Exchange Commission | |
FDIC—Federal Deposit Insurance Corporation | SIFI—Systemically Important Financial Institution | |
FHA—Federal Housing Administration | SOFR—Secured Overnight Financing Rate | |
FHFA—Federal Housing Finance Agency | TDR—Troubled debt restructurings | |
FHLB—Federal Home Loan Bank | TILA-RESPA—Truth in Lending ACT-Real Estate Settlement Procedures Act |
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PART I
GeneralITEM 1. BUSINESS
General
New York Community Bancorp, Inc., (on a stand-alone basis, the “Parent Company” or, collectively with its subsidiaries, the “Company”) is the bank holding company for Flagstar Bank, N.A. (hereinafter referred to as the “Bank”). The Company went public in 1993 and has grown organically and through a series of accretive mergers and acquisitions, culminating in its recent acquisition of Flagstar Bancorp, Inc. (“Flagstar” or “Flagstar Bancorp”), which closed on December 1, 2022. Effective as of December 1, 2022, in connection with the Parent Company’s acquisition of Flagstar Bancorp, (i) Flagstar Bank, FSB converted to a national bank to be known as “Flagstar Bank, N.A.” and (ii) New York Community Bank was merged with and into Flagstar Bank N.A., with Flagstar Bank N.A. continuing as the surviving entity.
New York Community Bancorp, Inc. has market-leading positions in several national businesses, including multi-family lending, mortgage originations and servicing, and warehouse lending. The Company is organized under Delaware Law as a multi-bank holding company with two primary subsidiaries: New York Community Bank and New York Commercial Bank (hereinafter referred to as the “Community Bank”second-largest multi-family portfolio lender in the country and the “Commercial Bank,” respectively, and collectively as the “Banks”). The Community Bank currently has 225 branches in Metro New York, New Jersey, Ohio, Florida, and Arizona, and the Commercial Bank currently has 30 branches in Metro New York.
Customers of the Commercial Bank may transact their business at any of our Community Bank branches, and Community Bank customers may transact their business at any of the branches of the Commercial Bank. In addition, customers of the Banks have access to their accounts through our ATMs in all five states.
On September 17, 2015, the Company submitted an application to the Federal Deposit Insurance Corporation (the “FDIC”) and the New York State Department of Financial Services (the “NYSDFS”) requesting approval to merge the Commercial Bank with and into the Community Bank. The merger was approved by the NYSDFS on September 16, 2016 and, as of the date of this filing, was pending the approval of the FDIC. Upon completion of the pending merger, the 30 Commercial Bank branches will continue operations as branches of the Community Bank.
On March 17, 2017, we issued 515,000 shares of preferred stock. The offering generated capital of $502.8 million, net of underwriting and other issuance costs, for general corporate purposes, with the bulk of the proceeds being distributed to the Community Bank.
On July 28, 2017, the Company completed the previously announced sale of itsone-to-four family residential mortgage-backed assets covered under its Loss Share Agreements (“LSA”) with the FDIC, to FirstKey Mortgage, LLC, an affiliate of Cerberus Capital Management, L.P. Additionally, on September 29, 2017, the Company completed the previously announced sale of its mortgage banking business, which was acquired as part of its 2009 FDIC assisted acquisition of AmTrust Bank (“AmTrust”) to Freedom Mortgage Corporation. The sale of the mortgage banking business effectively takes us out of theone-to-four family residential wholesale lending business.
New York Community Bank
Established in 1859, the Community Bank is a New York State-chartered savings bank with 225 branches that currently operate through seven local divisions. We compete for depositors in these diverse markets by emphasizing service and convenience, with a comprehensive menu of traditional andnon-traditional products and services, and access to multiple service channels, including online banking, mobile banking, and banking by phone.
In New York, we currently serve our Community Bank customers through Roslyn Savings Bank, with 44 branches on Long Island, a suburban market east of New York City comprised of Nassau and Suffolk counties; Queens County Savings Bank, with 38 branchesleading multi-family portfolio lender in the New York City boroughmarket area, where it specializes in rent-regulated, non-luxury apartment buildings. Flagstar Mortgage is the 8th largest bank originator of Queens; Richmond County Savings Bank,residential mortgages for the 12-months ended December 31, 2022, while we are the industry’s 6th largest sub-servicer of mortgage loans nationwide, servicing 1.4 million accounts with 20 branches$346 billion in unpaid principal balances as of December 31, 2022. Additionally, the borough of Staten Island; and Roosevelt Savings Bank, with seven branches inCompany is the borough of Brooklyn. In the Bronx, we currently have two branches that operate directly under the name “New York Community Bank.”2nd largest mortgage warehouse lender nationally based on total commitments.
In New Jersey, we serve our Community Bank customers through 45 branches that operate under the name Garden State Community Bank. In Florida and Arizona, where we have 27 and 14 branches, respectively, we serve our customers through the AmTrust Bank division of the Community Bank. In Ohio, we serve our Community Bank customers through 28 branches of Ohio Savings Bank.
We also are a leading producer of multi-family loans in New York City, with an emphasis onnon-luxury residential apartment buildings with rent-regulated units that feature below-market rents. In addition to multi-family loans, which are our principal asset, we originate commercial real estate (“CRE”) loans (primarily in New York City, as well as on Long Island) and, to a much lesser extent, acquisition, development, and construction (“ADC”) loans, and commercial and industrial (“C&I”) loans. C&I loans consist of specialty finance loans and leases, and other C&I loans that are typically made to small andmid-size business in Metro New York.
New York Commercial Bank
The Commercial Bank is a New York State-chartered commercial bank with 30 branches in Manhattan, Queens, Brooklyn, Westchester County, and Long Island, including 18 that operate under the name “Atlantic Bank.”
Established in December 2005, the Commercial Bank competes for customers by emphasizing personal service and by addressing the needs of small andmid-size businesses, professional associations, and government agencies, with a comprehensive menu of business solutions, including installment loans, revolving lines of credit, and cash management services. In addition, the Commercial Bank offers online banking, mobile banking, and banking by phone.
Online Information about the Company and the BanksBank
We also serve our customers through three connected websites: www.myNYCB.com, www.NewYorkCommercialBank.com, and www.NYCBfamily.com.our website: www.myNYCB.com. In addition to providing our customers with24-hour access to their accounts, and information regarding our products and services, hours of service, and locations, these websites providethe website provides extensive information about the Company for the investment community. Earnings releases, dividend announcements, and other press releases are posted upon issuance to the Investor Relations portion of these websites.the website, which can be found at www.ir.myNYCB.com.
In addition, our filings with the U.S. Securities and Exchange Commission (the “SEC”)SEC (including our annual report on Form10-K; our quarterly reports on Form10-Q; and our current reports on Form8-K), and all amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, are available without charge, and are posted to the Investor Relations portion of our websites.website. The websiteswebsite also provideprovides information regarding our Board of Directors and management team, as well as certain Board Committee charters and our corporate governance policies. The content of our websiteswebsite shall not be deemed to be incorporated by reference into this Annual Report.
Our Market
Our current market for deposits consists of the 26 countiesFlagstar Bank, N.A. operates 395 branches across nine states, including strong footholds in the five states that are served by our branchNortheast and Midwest and has exposure to high growth markets in the Southeast and on the West Coast. Flagstar Mortgage operates nationally through a wholesale network including all five boroughs of New York City, Nassau and Suffolk Counties on Long Island, and Westchester County in New York; Essex, Hudson, Mercer, Middlesex, Monmouth, Ocean, and Union Counties in New Jersey; Maricopa and Yavapai Counties in Arizona; Cuyahoga, Lake, and Summit Counties in Ohio; and Broward, Collier, Lee, Miami-Dade, Palm Beach, and St. Lucie Counties in Florida.approximately 3,000 third-party mortgage originators.
The market for the loans we produce varies, depending on the type of loan. For example, the vast majority of our multi-family loans are collateralized by rental apartment buildings in New York City, which is also home towhile the majority of the properties collateralizing our CRE and ADC loans. In contrast, ourloans are located in the Northeast and Midwest. Our specialty finance loans and leases are generally made to large corporate obligors that participate in stable industries nationwide.nationwide and our warehouse loans are made to mortgage lenders across the country.
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Competition for Deposits
The combined population of the 26 counties whereWe compete for deposits and customers by placing an emphasis on convenience and service and, from time to time, by offering specific products at competitive rates. In addition to our 395 branches, are located is approximately 31.5 million, and the number of banks and thrifts we compete with currently exceeds 300. With total deposits of $29.1 billion at December 31, 2017, we ranked fourteenth among all bank and thrift depositories serving these 26 counties.have 524 ATM locations that operate 24 hours a day. Our customers also have 24-hour access to their accounts through our mobile banking app, online through our website, www.myNYCB.com, or through our bank-by-phone service. We also ranked third among all banksoffer certain money market accounts, certificates of deposit and thrifts in Union County, New Jersey,checking accounts through a dedicated website: www.myBankingDirect.com.
In addition to checking and third among all bankssavings accounts, retirement accounts, and thrifts in Richmond, Queens,CDs for both businesses and Nassau Counties in New York. (Market share information was provided by S&P Global Market Intelligence.)consumers, we offer a suite of cash management products to address the needs of small and mid-size businesses and professional associations. We also compete for depositsby complementing our broad selection of traditional banking products with other financial institutions, including credit unions, Internet banks,an extensive menu of non-deposit investment products and brokerage firms.insurance through a relationship with a third-party broker dealer and insurance agency.
Our ability to attract and retain deposits is not only a function of short-term interest rates and industry consolidation, but also the competitiveness of the rates being offered by other financial institutions within our marketplace.marketplace, including credit unions, on-line banks, and brokerage firms. Additionally, financial technology companies, also referred to as FinTechs, are providing nontraditional, but increasingly strong competition for deposits and customers.
Competition for deposits is also influenced by several internal factors, including the opportunity to assume or acquire deposits through business combinations; the cash flows produced through loan and securities repayments and sales; and the availability of attractively priced wholesale funds. In addition, the degree to which we seek to compete for deposits is influenced by the liquidity needed to fund our loan production and other outstanding commitments.
We compete for deposits and customers by placing an emphasis on convenience and service and, from time to time, by offering specific products at highly competitive rates. In addition to our 225 Community Bank branches and 30 Commercial Bank branches, we have 271 ATM locations, including 247 that operate 24 hours a day. Our customers also have24-hour access to their accounts through ourbank-by-phone service, through mobile banking, and online through our three websites, www.myNYCB.com, www.NewYorkCommercialBank.com, and www.NYCBfamily.com. We also offer certain money market accounts, certificates of deposit (“CDs”), and checking accounts through a dedicated website: www.myBankingDirect.com.
We also compete by complementing our broad selection of traditional banking products with an extensive menu of alternative financial services, including annuities, life and long-term care insurance, and mutual funds of various third-party service providers.
In addition to checking and savings accounts, Individual Retirement Accounts, and CDs for both businesses and consumers, we offer a suite of cash management products to address the needs of small andmid-size businesses and professional associations.
Another competitive advantage is our strong community presence, with April 14, 2017 having marked the 158th year of service of our forebear, Queens County Savings Bank. We have found that our longevity, as well as our strong capital position, are especially appealing to customers seeking a strong, stable, and service-oriented bank.
Competition for Commercial and Consumer Loans and Servicing
Our success as a lender is substantially tied to the economic health of the markets where we lend. Local economic conditions have a significant impact on loan demand, the value of the collateral securing our credits, and the ability of our borrowers to repay their loans.
The competition we face for loans also varies with the type of loan we are originating. In New York City, where the majority of the buildings collateralizing our multi-family loans are located, we compete for such loans on the basis of timely service and the expertise that stems from being a specialist in this lending niche. In addition to the money center, regional, and local banks we compete with in this market, we compete with insurance companies and other types of lenders. Certain of the banks we compete with sell the loans they produce to Fannie Mae and Freddie Mac.
Our ability to compete for CRE loans depends on the same factors that impact our ability to compete for multi-family credits, and the degree to which other CRE lenders choose to offer loan products similar to ours.
Competition for our specialty finance loans, which consist primarily of asset-based, equipment financing, and dealer floor plan loans, is driven by a variety of factors, including prevailing economic conditions and the level of interest rates. Moreover, since a majority of our customers in this category are mid-to-large size publicly traded companies, we also face competition for financing from the capital markets. In addition, the majority of specialty finance loans that we originate are sourced from larger financial institutions who have many customers for these loans. Some of these customers are larger and have more capital and liquidity than the Company.
While we continue to originate ADC and C&I loans for investment, such loans represent a small portion of our loan portfolio as compared to multi-family, CRE loans, and CREspecialty finance loans.
From a lending perspective, we compete with many institutions including commercial banks, national mortgage lenders, local savings banks, financial technology companies, credit unions and commercial lenders offering mortgage loans and other consumer loans.
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In servicing, we compete primarily against non-bank servicers. The subservicing market in which we operate is also highly competitive and we face competition related to subservicing pricing and service delivery. We compete by offering quality servicing, a robust risk and compliance infrastructure and a model where our mortgage business allows for recapture services to replenish loans for subservicing clients.
Monetary Policy
The Company and the Bank are affected by fiscal and monetary policies of the federal government, including those of the FRB which regulates the national money supply in order to mitigate recessionary and inflationary pressures. Among the techniques available to the FRB are engaging in open market transactions of U.S. Government securities, changing the discount rate and changing reserve requirements against bank deposits. These techniques are used in varying combinations to influence the overall growth of bank loans, investments, and deposits. Their use may also affect interest rates charged on loans and paid on deposits. The effect of government policies on the earnings of the Company and the Bank cannot be predicted.
Environmental Issues
We encounter certain environmental risks in our lending activities and other operations. The existence of hazardous materials may make it unattractive for a lender to foreclose on the properties securing its loans. In addition, under certain conditions, lenders may become liable for the costs of cleaning up hazardous materials found on such properties. We attempt to mitigate such environmental risks by requiring either that a borrower purchase environmental insurance or that an appropriate environmental site assessment be completed as part of our underwriting review on the initial granting of CRE and ADC loans, regardless of location, and of anyout-of-state multi-family loans we may produce. Depending on the results of an assessment, appropriate measures are taken to address the identified risks. In addition, we order an updated environmental analysis prior to foreclosing on such properties, and typically hold foreclosed multi-family, CRE, and ADC properties in subsidiaries.
Our attention to environmental risks also applies to the properties and facilities that house our bank operations. Prior to acquiring a large-scale property, a Phase 1 Environmental Property Assessment is typically performed by a licensed professional engineer to determine the integrity of, and/or the potential risk associated with, the facility and the property on which it is built. Properties and facilities of a smaller scale are evaluated by qualifiedin-house assessors, as well as by industry experts in environmental testing and remediation. Thistwo-pronged approach identifies potential risks associated with asbestos-containing material, above and underground storage tanks, radon, electrical transformers (which may contain PCBs), ground water flow, storm and sanitary discharge, and mold, among other environmental risks. These processes assist us in mitigating environmental risk by enabling us to identify and address potential issues, including by avoiding taking ownership or control of contaminated properties.
We conduct business primarily through our wholly-owned bank subsidiary, Flagstar Bank, N.A. The Community Bank has formed, or acquired through merger transactions, 2533 active subsidiary corporations. Of these, 1821 are direct subsidiaries of the Community Bank and 712 are subsidiaries of Community Bank-owned entities.
The 1821 direct subsidiaries of the Community Bank are:
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100 Duffy Realty, LLC | New York | Owns a building containing back-office |
The seven subsidiaries of Community Bank-owned entities are:
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There are 34 additional entities that are subsidiaries of a Community Bank-owned entity organized to own interests in real estate.
The Commercial Bank has three active subsidiary corporations, two of which are subsidiaries of Commercial Bank-owned entities.
The one direct subsidiary of the Commercial Bank is:
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Beta Investments, Inc. | Delaware | Holding company for Omega Commercial Mortgage Corp. and Long Island Commercial Capital Corp. | ||
BSR 1400 Corp. | New York | Organized to own interests in real estate. | ||
Ferry Development Holding Company | Delaware | Formed to hold and manage investment portfolios for the Company. | ||
NYCB Specialty Finance Company, LLC | Delaware | Originates asset-based, equipment financing, and dealer-floor plan loans. |
The two subsidiaries of Commercial Bank-owned entities are:11
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| New York | Sells non-deposit investment products. | ||
Pacific Urban Renewal, Inc. | New Jersey | Owns a branch building. | ||
Synergy Capital Investments, Inc. | New Jersey | Formed to hold and manage investment portfolios for the Company. | ||
NYCB Mortgage Company, LLC | Delaware | Holding company for Walnut Realty Holding Company, LLC. | ||
Woodhaven Investments, LLC | Delaware | Holding company for Ironbound Investment Company, LLC. and 1400 Corp. | ||
Flagstar REO, LLC | Delaware | Formed to hold real estate from foreclosed loans | ||
Flagstar Mortgage Securities, LLC | Delaware | Formed to hold mortgage loans sold into private securitizations | ||
Flagstar Real Estate Holdings, Inc. | Michigan | Holding company for REIT investment in MSRs | ||
REIT Holding Co #1, Inc. | Michigan | Holding company for REIT investments in mortgage loans | ||
REIT Holding Co #2, Inc. | Michigan | Holding company for REIT investment in commercial real estate loans | ||
Propshop Mortgage, LLC | Delaware | Joint venture mortgage company developing specialized mortgage technology | ||
Flagstar Investment, LLC | Michigan | Formed to invest in low income housing investments | ||
Flagstar Opportunities, LLC | Michigan | Formed to invest in low income housing investments | ||
Grass Lake Insurance Agency, Inc. | Michigan | Licensed insurance agency | ||
FSB-Optimum Investment Fund I LLC | Michigan | Formed to invest in businesses with New Markets Tax Credits |
The 12 subsidiaries of Bank-owned entities are:
Name | Jurisdiction of Organization | Purpose | ||
1400 Corp. | New York | Holding company for Roslyn Real Estate Asset Corp. | ||
Ironbound Investment Company, LLC. | Florida | Organized for the purpose of investing in mortgage-related assets. | ||
Long Island Commercial | New York | A REIT organized for the purpose of investing in mortgage-related | ||
| Delaware | A REIT organized for the purpose of investing in mortgage-related assets. | ||
Prospect Realty Holding Company, LLC | New York | Owns a back-office building. | ||
Rational Real Estate II, LLC | New York | Formerly Owned a back-office building. | ||
Roslyn Real Estate Asset Corp. | Delaware | A REIT organized for the purpose of investing in mortgage-related assets. | ||
Walnut Realty Holding Company, LLC | Delaware | Owns two back-office buildings. | ||
Long Lake REIT | Maryland | Formed to own excess servicing rights assets | ||
Long Lake MSR, Inc. | Maryland | Licensed to own MSRs | ||
REIT #1, Inc. | Michigan | A REIT organized for the purposes of investing in mortgage loans | ||
REIT #2, Inc. | Michigan | A REIT organized for the purposes of investing in commercial real estate loans |
There are two
NYB Realty Holding Company, LLC owns interests in 10 additional active entities that areorganized as indirect wholly-owned subsidiaries of the Commercial Bank that are organized to own interests in various real estate.estate properties.
The Parent Company owns special business trusts that were formed for the purpose of issuing capital and common securities and investing the proceeds thereof in the junior subordinated debentures issued by the Company.
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See Note 8,12, “Borrowed Funds,” in Item 8, “Financial Statements and Supplementary Data,” for a further discussion of the Company’s special business trusts.
The Parent Company also has onenon-banking subsidiary that was established in connection with the acquisition of Atlantic Bank of New York.York and two non-banking subsidiaries that were acquired in connection with the Flagstar acquisition.
PersonnelHuman Capital Management
At December 31, 2017, the number2022, our workforce included 7,497 employees. None of full-time equivalentour employees (“FTEs”) was 3,096, including 1,556 branch-related FTEs. Our employees are not represented by a collective bargaining unit,agreement and we considerbelieve our relationshipemployee relations to be in good standing.
We believe our employees are among our most significant resources and that our employees are critical to our continued success. We focus significant attention on attracting and retaining talented and experienced individuals to manage and support our operations. We pay our employees competitively and offer a broad range of benefits, both of which we believe are competitive with our industry peers and with other firms in the locations in which we do business. Our employees receive salaries that are subject to be good.
We are proud to strive to maintain a diverse and inclusive workforce that reflects the demographics of the communities in which we do business. Our company recognizes that the talents of a diverse workforce are a key competitive advantage. To increase diversity within our talent pool, we work with key stakeholders in our business locations to deepen our understanding of the local labor market and better position the organization to recruit and retain talent within under-represented communities.
We strive to create and foster a supportive environment for all of our employees, and we are proud to share our business success with individuals whose cultural and personal differences support an innovative and productive workplace. Approximately two-thirds of our workforce is female and nearly half of our workforce have diverse ethnic backgrounds. Our policies and practices reflect our commitment to diversity and inclusion in the workplace.
A diverse workforce is critical to our long-term success. We strive to build and leverage a diverse, inclusive and engaged workforce that inspires all individuals to work together towards a common goal of superior business results by embracing the unique needs and objectives of our customers and community. We strive to achieve this by hiring great people who represent the talents, experiences, background and diversity of the communities we serve. Our commitment is reflected in the policies that govern our workforce, such as our Diversity Pledge and our Diversity, Equity and Inclusion Policy, and is evidenced in our recruiting strategies, diversity and inclusion training and Employee resource groups, which are key to our efforts. Our Employee resource groups provide our associates access to coaching, mentoring and professional development. As of December 31, 2022, our efforts have been focused on the following eleven employee resource groups which we intend to expand across our recently combined Company: African American, Asian-Indian, Environmental, Hispanic/Latino, Interfaith, LGBTQ, Military Veterans, Native American, People with Disabilities, Women and Young Professionals.
Our management teams and all of our employees are expected to exhibit and promote honest, ethical and respectful conduct in the workplace. All of our employees must adhere to a code of conduct that sets standards for appropriate behavior and all employees are required to complete annual training that focuses on preventing, identifying, reporting and stopping any type of unlawful discrimination.
Federal, State, and Local Taxation
The Company is subject to federal, state, and local income taxes. See the discussion of “Income Taxes”"Income Taxes" in “CriticalNote 2, "Summary of Significant Accounting Policies” in Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” later in this annual report.Policies."
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Regulation and Supervision
GeneralThe following is a brief summary of certain statutes and regulations that significantly affect the Company and its subsidiaries. A number of other statutes and regulations may affect the Company and the Bank but are not discussed in the following paragraphs.
General
The Community Bank is a New York State-chartered savings banknational banking association, subject to federal regulation and its deposit accountsoversight by the OCC. The activities of the Bank are insuredlimited to those specifically authorized under the Deposit Insurance Fund (the “DIF”)National Bank Act and related interpretations of the FDIC upOCC. The OCC has authority to applicable legal limits. The Commercialbring an enforcement action against the Bank is a New York State-chartered commercial bank and its deposit accountsfor unsafe or unsound banking practices, which could include limiting the Bank’s ability to conduct otherwise permissible activities, or imposing corrective capital or managerial requirements on the bank. We are also are insured by the DIF up to applicable legal limits. On September 17, 2015, the Company submitted an application to the FDIC and the NYSDFS requesting approval to merge the Commercial Bank with and into the Community Bank. The merger was approved by the NYSDFS on September 16, 2016 and is currently pending the approval of the FDIC.
For the fiscal year ended December 31, 2017, the Community Bank and the Commercial Bank were subject to regulation and supervision by the NYSDFS, as their chartering agency;examination by the FDIC, as their insurerwhich insures the deposits of deposits;the Bank to the extent permitted by law and the requirements established by the Consumer Financial Protection Bureau (the “CFPB”).
Federal Reserve. The Banks are requiredBank is also subject to file reports with the NYSDFS,supervision of the CFPB, which regulates the offering and provision of consumer financial products or services under federal consumer financial laws. The OCC, FDIC and the CFPB concerning theirmay take regulatory enforcement actions if we do not operate in accordance with applicable regulations, policies and directives. Proceedings may be instituted against us, or any "institution-affiliated party", such as a director, officer, employee, agent or controlling person, who engages in unsafe and unsound practices, including violations of applicable laws and regulations. The FDIC has additional authority to terminate insurance of accounts, if after notice and hearing, we are found to have engaged in unsafe and unsound practices, including violations of applicable laws and regulations. The federal system of regulation and supervision establishes a comprehensive framework of activities in which to operate and financial condition, and are periodically examined byis primarily intended for the NYSDFS, the FDIC,protection of depositors and the CFPB to assess compliance with various regulatory requirements, including with respect to safety and soundness and consumer financial protection regulations. The regulatory structure gives the regulatory authorities extensive discretion in connection with their supervisory and enforcement activities and examination policies, including policies with respect to the classification of assets and the establishment of adequate loan loss allowances for regulatory purposes. Changes in such regulations or in banking legislation could haveFDIC's DIF rather than our shareholders.
As a material impact on the Company, the Banks, and their operations, as well as the Company’s shareholders.
The Company is subject to examination, regulation, and periodic reporting under the Bank Holding Company Act of 1956, as amended (the “BHCA”), as administered by the Board of Governors of the Federal Reserve System (the “FRB”). Furthermore, the Company would bebank holding company, we are required to obtain the prior approval of the FRB to acquire all, or substantially all, of the assets of any bank or bank holding company.
In addition, the Company is periodically examined by the Federal Reserve Bank of New York (the“FRB-NY”), and is required to file certain reports under, and otherwise comply with the rules and regulations of the SEC underFederal Reserve. We are required to file certain reports, and we are subject to examination by, and the enforcement authority of, the Federal Reserve. Under the federal securities laws. Certainlaws, we are also subject to the rules and regulations of the regulatory requirements applicableSEC.
Any change to the Community Bank, the Commercial Bank, and the Company are referred to below or elsewhere herein. However, such discussion is not meant to be a complete explanation of all laws and regulations, and is qualified in its entiretywhether by reference to the actual laws and regulations.Regulatory Agencies or Congress, could have a materially adverse impact on our operations.
The Dodd-Frank Act
Enacted in July 2010, the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”)
Enacted in July 2010, the DFA significantly changed the bank regulatory structure and will continue to affect, into the immediate future, the lending and investment activities and general operations of depository institutions and their holding companies. The Dodd-Frank ActDFA is complex and comprehensive legislation that impacts practically all aspects of a banking organization, and represents a significant overhaul of many aspects of the regulation of the financial services industry.
The New York Housing Stability and Tenant Protection Act of 2019
In 2019, the New York State Legislature passed the Housing Stability and Tenant Protection Act of 2019 impacting about one million rent-regulated apartment units. Among other things, the new legislation: (i) curtails rent increases from material capital improvements and Individual Apartment Improvements; (ii) all but eliminates the ability for apartments to exit rent regulation; (iii) does away with vacancy decontrol and high income deregulation; and (iv) repealed the 20 percent vacancy bonus. While it will take several years for its full impact to be known, the legislation generally limits a landlord’s ability to increase rents on rent-regulated apartments and makes it more difficult to convert rent regulated apartments to market rent apartments.
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Capital Requirements
In early July 2013, the Federal Reserve BoardFRB and the FDIC approved revisions to their capital adequacy guidelines and prompt corrective action rules to implement the revised standards of the Basel Committee on Banking Supervision, commonly called Basel III, and to address relevant provisions of the Dodd-Frank Act. “Basel III”DFA. Basel III generally refers to two consultative documents released by the Basel Committee on Banking Supervision in December 2009. The “BaselBasel III Rules”rules generally refer to the rules adopted by U.S. banking regulators in December 2010 to align U.S. bank capital requirements with Basel III and with the related loss absorbency rules they issued in January 2011, which include significant changes to bank capital, leverage, and liquidity requirements.
The Basel III Rulesrules include new risk-based capital and leverage ratios, which became effective January 1, 2015, and revised the definition of what constitutes “capital” for the purposes of calculating those ratios. Under the
Basel III, Rules, the Company and the BanksBank are required to maintain minimum capital in accordance with the following ratios: (i) a common equity tier 1 capital ratio of 4.5%;4.5 percent; (ii) a tier 1 capital ratio of 6%6 percent (increased from 4%)4 percent); (iii) a total capital ratio of 8%8 percent (unchanged from the prior rules); and (iv) a tier 1 leverage ratio of 4%.4 percent.
In addition, the Basel III Rulesrules assign higher risk weights to certain assets, such as the 150%150 percent risk weighting assigned to exposures that are more than 90 days past due or are onnon-accrual status, and to certain commercial real estateCRE facilities that finance the acquisition, development, or construction of real property. The Basel III Rules also eliminate the inclusion of certain instruments, such as trust preferred securities, from tier 1 capital. In addition, tier 2 capital is no longer limited to the amount of tier 1 capital included in total capital. Mortgage servicing rights, certain deferred tax assets, and investments in unconsolidated subsidiaries over designated percentages of common stock will beare required, subject to limitation, to be deducted from capital. Finally, tier 1 capital will includeincludes accumulated other comprehensive income, which includes all unrealized gains and losses onavailable-for-sale debt and equity securities.
The Basel III Rules also establishestablished a “capital conservation buffer” (consisting entirely of common equity tier 1 capital) that will be 2.5%is 2.5 percent above the new regulatory minimum capital requirements when it is fully phased in. The result will berequirements. This resulted in an increase in the minimum common equity tier 1, tier 1, and total capital ratios to 7.0%, 8.5%,7.0 percent, 8.5 percent, and 10.5%,10.5 percent, respectively. Thephase-in of the new capital conservation buffer requirement began in January 2016is now at 0.625%its fully phased-in level of risk-weighted assets and will increase by that amount each year until fully implemented in January 2019.2.5 percent. An institution can be subject to limitations on paying dividends, engaging in share repurchases, and paying discretionary bonuses if its capital levels fall below these amounts. The Basel III Rules also establish a maximum percentage of eligible retained income that can be utilized for such capital distributions.
InOn September 2017,17, 2019, the Federal Reserve Board,FRB, the FDIC, and the Office of the Comptroller of the Currency (“OCC”) proposedOCC issued a final rule intendeddesigned to reduce regulatory burden by simplifying several requirements in the agencies’ regulatory capital rule. Most aspects of the proposed rule would apply only to banking organizations that are not subject to the “advanced approaches” in the capital rule, which are generally firms with less than $250 billion in total consolidated assets and less than $10 billion in total foreign exposure. The proposal would simplifyrule simplifies and clarifyclarifies a number of the more complex aspects of the existing capital rule. Specifically, the proposed rule simplifies the capital treatment for certain ADC loans, mortgage servicing assets, certain deferred tax assets, investments in the capital instruments of unconsolidated financial institutions, and minority interest. A final rule has not yet been issued.interests.
Prompt Corrective Regulatory Action
The Federal lawDeposit Insurance Corporation Improvement Act of 1991 (“FDICIA”) requires, among other things, that federal bank regulatory authorities take “prompt corrective action” with respect to institutions that do not meet minimum capital requirements. For such purposes, the law establishes five capital tiers: well capitalized, adequately capitalized, undercapitalized, significantly undercapitalized, and critically undercapitalized. The five capital tiers are described in more detail below. Under the prompt corrective action regulations, an institution that fails to remain “well capitalized” becomes subject to a series of restrictions that increase in severity as its capital condition weakens. Such restrictions may include a prohibition on capital distributions, restrictions on asset growth, or restrictions on the ability to receive regulatory approval of applications. The FDICIA also provides for enhanced supervision authority over undercapitalized institutions, including authority for the appointment of a conservator or receiver for the institution.
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As a result of the Basel III Rules,rules, new definitions of the relevant measures for the five capital categories took effect on January 1, 2015. An institution is deemed to be “well capitalized” if it has a total risk-based capital ratio of 10%10 percent or greater, a tier 1 risk-based capital ratio of 8%8 percent or greater, a common equity tier 1 risk-based capital ratio of 6.5%6.5 percent or greater, and a tier 1 leverage ratio of 5%5 percent or greater, and is not subject to a regulatory order, agreement, or directive to meet and maintain a specific capital level for any capital measure.
An institution is deemed to be “adequately capitalized” if it has a total risk-based capital ratio of 8%8 percent or greater, a tier 1 risk-based capital ratio of 6%6 percent or greater, a common equity tier 1 risk-based capital ratio of 4.5%4.5 percent or greater, and a tier 1 leverage ratio of 4%4 percent or greater.
An institution is deemed to be “undercapitalized” if it has a total risk-based capital ratio of less than 8%,8 percent, a tier 1 risk-based capital ratio of less than 6%,6 percent, a common equity tier 1 risk-based capital ratio of less than 4.5%,4.5 percent, or a tier 1 leverage ratio of less than 4%.4 percent. An institution is deemed to be “significantly undercapitalized” if it has a total risk-based capital ratio of less than 6%,6 percent, a tier 1 risk-based capital ratio of less than 4%,4 percent, a common equity tier 1 risk-based capital ratio of less than 3%,3 percent, or a tier 1 leverage ratio of less than 3%.3 percent. An institution is deemed to be “critically undercapitalized” if it has a ratio of tangible equity (as defined in the regulations) to total assets that is equal to or less than 2%.2 percent.
“Undercapitalized” institutions are subject to growth, capital distribution (including dividend), and other limitations, and are required to submit a capital restoration plan. An institution’s compliance with such a plan is required to be guaranteed by any company that controls the undercapitalized institution in an amount equal to the
lesser of 5%5 percent of the bank’s total assets when deemed undercapitalized or the amount necessary to achieve the status of adequately capitalized. If an undercapitalized institution fails to submit an acceptable plan, it is treated as if it is “significantly undercapitalized.” Significantly undercapitalized institutions are subject to one or more additional restrictions including, but not limited to, an order by the FDIC to sell sufficient voting stock to become adequately capitalized; requirements to reduce total assets, cease receipt of deposits from correspondent banks, or dismiss directors or officers; and restrictions on interest rates paid on deposits, compensation of executive officers, and capital distributions by the parent holding company.
Beginning 60 days after becoming “critically undercapitalized,” critically undercapitalized institutions also may not make any payment of principal or interest on certain subordinated debt, extend credit for a highly leveraged transaction, or enter into any material transaction outside the ordinary course of business. In addition, subject to a narrow exception, the appointment of a receiver is required for a critically undercapitalized institution within 270 days after it obtains such status.
Failure to meet minimum capital requirements can initiate certain mandatory, and possibly additional discretionary, actions by regulators that could have a material effect on the Consolidated Financial Statements. For additional information, see the Capital section of the MD&A and Note 21 - Capital. As of December 31, 2022, each of the Bank’s capital ratios exceeded those required for an institution to be considered “well capitalized” under these regulations.
Stress Testing
Stress Testing for Category IV U.S. Banking Organizations
In 2019, the Board of Governors of the Federal Reserve System (the “Board”) finalized a framework that sorts large banking organizations into one of four categories of prudential standards based on their risk profiles (the “tailoring rule”). The most stringent prudential standards apply under Category I (defined as U.S. Global Systemically Important Banks and their depository institution subsidiaries), and the least stringent prudential standards apply under Category IV (defined as U.S. banking organizations with Assets of $10 Billion to $50 Billion
FDIC and FRB regulations require certain large insured depository institutions and bank holding companies to conduct annual capital-adequacy stress tests. The rules apply to statenon-member banks and bank holding companies with total consolidated assets of$100 billion or more but less than $10 billion (“covered institutions”).
Under the rules, each covered institution with between $10 billion and $50$250 billion in total assets isand have less than $75 billion in cross-jurisdictional activity, weighted short-term wholesale funding, nonbank assets, or off-balance sheet exposure).
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In January 2021, the Board finalized a rule to update capital planning requirements for large banks to be consistent with the tailoring rule. The Board's capital planning requirements for large banks help ensure they plan for and determine their capital needs under a range of different scenarios. The rule removes the company-run stress test requirement for banking organizations subject to Category IV standards. Therefore, banking organizations subject to Category IV standards are not required to conduct annual stress tests, usingcalculate forward-looking projections of capital under scenarios provided by the institution’s financial data as of December 31stBoard.
The rule also aligns the frequency of the preceding year, to assess the potential impact of different scenarios on the consolidated earnings and capital and certain related items over a nine-quarter, forward-looking planning horizon, taking into account all relevant exposures and activities. The Community Bank and the Company are required to report the resultscalculation of the stress tests tocapital buffer requirement with the FDIC and the FRB, respectively, on or before July 31st of each year, and to subsequently publish a summaryfrequency of the results between October 15th and October 31st. The rules prescribe the manner and form for such reports and, based on the information reported as well as other relevant information, the FDIC and FRB are expected to conduct an analysis of the quality of the respective covered institution’ssupervisory stress test processes and the related results.(that is, both would occur every other year for banking organizations subject to Category IV standards). The FDIC and FRB envision that feedback concerning such analysis would be providedrule allows a banking organization subject to each covered institution throughCategory IV standards to elect to participate in the supervisory process.
As discussed below, understress test in a year in which the FRB’s Comprehensive Capital Analysis and Review (“CCAR”) regime, additional capital stress testing requirements apply to financial institutions whose total consolidated assets average in excess of $50 billion over four consecutive quarters. At December 31, 2017, the four-quarter average of our total consolidated assets was $48.7 billion.
Stress Testing for Systemically Important Financial Institutions
Should the four-quarter average of our total consolidated assets exceed $50 billion (the current threshold for a Systemically Important Financial Institution, or “SIFI”), webanking organization would becomenot otherwise be subject to the FRB’ssupervisory stress testing regulations administered under its CCARtest, and to receive an updated stress capital planning and supervisory process. Under this regime,buffer requirement in addition to reporting the results of a SIFI’s own capital stress testing, the FRB uses its own models to evaluate whether each SIFI has the capital, on a total consolidated basis, necessary to continue operating under the economic and financial market conditions of stressed macroeconomic scenarios identified by the FRB. The FRB’s analysis includes an assessment of the projected losses, net income, and pro forma capital levels, and the regulatory capital ratio, tier 1 common ratio, and other capital ratios, for the SIFI, and uses such analytical techniques that the FRB determines to be appropriate to identify, measure, and monitor any risks of the SIFI that may affect the financial stability of the United States.year.
Boards of directors of SIFIs are required to review and approve capital plans before they are submitted to the FRB.
Standards for Safety and Soundness
Federal law requires each federal banking agency to prescribe, for the depository institutions under its jurisdiction, standards that relate to, among other things, internal controls; information and audit systems; loan documentation; credit underwriting; the monitoring of interest rate risk; asset growth; compensation; fees and benefits; and such other operational and managerial standards as the agency deems appropriate. The federal banking agencies adopted final regulations and Interagency Guidelines Establishing Standards for Safety and Soundness
(the (the “Guidelines”) to implement these safety and soundness standards. The Guidelines set forth the safety and soundness standards that the federal banking agencies use to identify and address problems at insured depository institutions before capital becomes impaired. If the appropriate federal banking agency determines that an institution fails to meet any standard prescribed by the Guidelines, the agency may require the institution to provide it with an acceptable plan to achieve compliance with the standard, as required by the Federal Deposit Insurance Act, as amended, (the “FDI Act”).
FDIC, OCC, and FRB Regulations
The discussion that follows pertains to FDIC, OCC, and FRB regulations other than those already discussed on the preceding pages.
Additional Regulations
The following pertains to regulations other than those already discussed on the preceding pages.
Real Estate Lending Standards
The FDIC and the other federal banking agencies have adopted regulations that prescribe standards for extensions of credit that (i) are secured by real estate, or (ii) are made for the purpose of financing construction or improvements on real estate. The FDIC regulations require each institution to establish and maintain written internal real estate lending standards that are consistent with safe and sound banking practices, and appropriate to the size of the institution and the nature and scope of its real estate lending activities. The standards also must be consistent with accompanying FDIC Guidelines, which includeloan-to-value limitations for the different types of real estate loans. Institutions are also permitted to make a limited amount of loans that do not conform to the proposedloan-to-value limitations as long as such exceptions are reviewed and justified appropriately. The FDIC Guidelines also list a number of lending situations in which exceptions to theloan-to-value standards are justified.
The FDIC, the OCC, and the FRB (collectively, the “Agencies”“Federal Banking Agencies”) also have issued joint guidance entitled “Concentrations in Commercial Real Estate Lending, Sound Risk Management Practices” (the “CRE Guidance”). The CRE Guidance, which addresses land development, construction, and certain multi-family loans, as well as CRE loans, does not establish specific lending limits but, rather, reinforces and enhances the Federal Banking Agencies’ existing regulations and guidelines for such lending and portfolio management. Specifically, the CRE Guidance provides that a bank has a concentration in CRE lending if (1) total reported loans for construction, land development, and other land represent 100%100 percent or more of total risk-based capital; or (2) total reported loans secured by multi-family properties,non-farmnon-residential non-farm non-residential properties (excluding those that are owner-occupied), and loans for construction, land development, and other land represent 300%300 percent or more of total risk-based capital and the bank’s CRE loan portfolio has increased 50% or more during the prior 36 months.capital. If a concentration is present, management must employ heightened risk management practices that address key
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elements, including board and management oversight and strategic planning, portfolio management, development of underwriting standards, risk assessment and monitoring through market analysis and stress testing, and maintenance of increased capital levels as needed to support the level of CRE lending.
Throughout this report and others filedOn December 13, 2019, the Federal Banking Agencies issued a final rule, which became effective on April 1, 2020, to modify the agencies’ capital rules for high volatility CRE (“HVCRE”) exposures, as required by the CompanyEGRRCPA. The final rule revises the definition of HVCRE exposure to disclose its consolidated financial conditionmake it consistent with the statutory definition of the term included in Section 214 of the EGRRCPA, which excludes any loan made before January 1, 2015. The revised HVCRE exposure definition differs from the previous definition primarily in two ways. First, the previous definition applied to loans that financed ADC activities, whereas the new definition only applies to loans that “primarily” finance ADC activities and results of operations, the Company refers to its loansthat are secured bynon-farmnon-residential properties as “commercial land or improved real estate”estate. This change excludes multipurpose credit facilities that primarily finance the purchase of equipment or “CRE” loans.other non-ADC activities. Second, the new definition permits the full appraised value of borrower-contributed land (less the total amount of any liens on the real property securing the HVCRE exposure) to count toward the 15 percent capital contribution of the real property’s appraised “as completed” value, which is one of the criteria for an exemption from the heightened risk weight. The final rule includes a grandfathering provision, which will provide banking organizations with the option to maintain their current capital treatment for ADC loans originated on or after January 1, 2015, and before April 1, 2020. Banking organizations also will have the option to reevaluate any or all of their ADC loans originated on or after January 1, 2015, using the revised HVCRE exposure definition.
Dividend Limitations
The Parent Company is a separate legal entity from the Bank and must provide for its own liquidity. In addition to operating expenses and any share repurchases, the Parent Company is responsible for paying any dividends declared to the Company’s shareholders. As a Delaware corporation, the Parent Company is able to pay dividends either from surplus or, in case there is no surplus, from net profits for the fiscal year in which the dividend is declared and/or the preceding fiscal year.
Various legal restrictions limit the extent to which the Company’s subsidiary bank can supply funds to the Parent Company and its non-bank subsidiaries. The Bank would require the approval of the OCC if the dividends it refersdeclares in any calendar year were to exceed the total of its loansrespective net profits for construction, land development, and other landthat year combined with its respective retained net profits for the preceding two calendar years, less any required transfer to paid-in capital. The term “net profits” is defined as “acquisition, development, and construction” or “ADC” loans.
Dividend Limitations
The FDIC has authoritynet income for a given period less any dividends paid during that period. As a result of our acquisition of Flagstar, we are also required to use its enforcement powers to prohibit a savings bank or commercial bankseek regulatory approval from paying dividends if, in its opinion,the OCC for the payment of any dividend to the Parent Company through at least the period ending November 1, 2024. In 2022, dividends would constitute an unsafe or unsound practice. Federal law prohibitsof $335 million were paid by the paymentBank to the Parent Company. At December 31, 2022, the Bank could have paid additional dividends of dividends$615 million to the Parent Company without regulatory approval.
Investment Activities
National bank investment activities are governed by the National Bank Act and OCC regulations which, consistent with safe and sound banking practices, prescribe standards under which national banks may purchase, sell, deal in, underwrite, and hold securities. The types of investment activities that will resultare permissible for national banks, and the calculation of limits for investments in such covered securities, are set forth in regulations promulgated by the OCC (12 CFR Part 1), as further described in the institution failingOCC’s Investment Securities Policy Statement (OCC Bulletin 1998-20). A national bank must adhere to meet applicable capital requirements on a pro forma basis. The Community Banksafe and sound banking practices and the Commercial Bank are also subject to dividend declaration restrictions imposed by, and as later discussed under, “New York State Law.”
Investment Activities
Since the enactmentspecific requirements of the Federal Deposit Insurance Corporation Improvement Act of 1991 (“FDICIA”), all state-chartered financial institutions, including savings banks, commercial banks,OCC's regulations in conducting such investment activities. A bank must consider, as appropriate, the interest rate, credit, liquidity, price, foreign exchange, transaction, compliance, strategic, and their subsidiaries, have generally been limitedreputation risks presented by a proposed activity, and the particular activities undertaken by the bank must be appropriate for that bank. If the OCC determines for safety and soundness reasons that a bank should calculate its investment limits more frequently than required by the OCC's Investment Securities regulations, the OCC may provide written notice to such activities as principalthe bank directing the bank to calculate its investment limitations at a more frequent interval, and equity investments of the type, and inbank must thereafter calculate its investment limits at that interval until further notice from the amount, authorized for national banks. OCC.
The Gramm-Leach-Bliley Act of 1999GLBA and FDIC regulations also impose certain quantitative and qualitative restrictions on such activities and on a bank’s dealings with a subsidiary that engages in specified activities.
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In 1993, the Community Bank received grandfathering authority from the FDIC, which it continues to use, to invest in listed stocks and/or registered shares subject to the maximum permissible investments of 100% of tier 1 capital, as specified by the FDIC’s regulations, or the maximum amount permitted by New York State Banking Law, whichever is less. Such grandfathering authority is subject to termination upon the FDIC’s determination that such investments pose a safety and soundness risk to the Community Bank, or in the event that the Community Bank converts its charter or undergoes a change in control.
Enforcement
The FDIC has extensive enforcement authority over insured banks, including the Community Bank and the Commercial Bank. This enforcement authority includes, among other things, the ability to assess civil money penalties, to issue cease and desist orders, and to remove directors and officers. In general, these enforcement actions may be initiated in response to violations of laws and regulations and unsafe or unsound practices.
Insurance of Deposit Accounts
The deposits of the Community Bank and the Commercial Bank are insured up to applicable limits by the DIF. The maximum deposit insurance provided by the FDIC per account owner is $250,000 for all types of accounts.
Under the FDIC’s risk-based assessment system, insured institutions are assigned to one of four risk categories based upon supervisory evaluations, regulatory capital level, and certain other factors, with less risky institutions paying lower assessments based on the assigned risk levels. An institution’s assessment rate depends upon the category to which it is assigned and certain other factors. Assessment rates range from 1.5 to 40 basis points of the institution’s assessment base, which is calculated as average total assets minus average tangible equity.
In March 2016, No institution may pay a dividend if in default of the FDIC adopted final rules to impose a surcharge on the quarterlyfederal deposit insurance assessment. Deposit insurance assessments of insured depository institutions withare based on total consolidatedaverage assets, of $10 billion or more, in orderexcluding PPP loans, less average tangible common equity. The FDIC has authority to fund the Dodd-FrankAct-mandatedincrease insurance assessments. Management cannot predict what insurance assessments rates will be in the DIF’s designated reserve ratio from 1.15% to 1.35%. The final rules became effective on July 1, 2016. The surcharge, which equals 4.5 basis points of the institution’s deposit insurance assessment base, is in effect for assessments billed after the designated reserve ratio reaches 1.15%, and will continue until the reserve ratio reaches or exceeds 1.35%, but no later than December 31, 2018.future.
Insurance of deposits may be terminated by the FDIC upon a finding that an institution has engaged in unsafe or unsound practices, is in an unsafe or unsound condition to continue operations, or has violated any applicable law, regulation, rule, order, or condition imposed by the FDIC. Management does not know of any practice, condition, or violation that would lead to termination of the deposit insurance of either offor the Banks.Bank.
Holding Company Regulations
Federal Regulation
Regulation. The Company is currently subject to examination, regulation, and periodic reporting under the BHCA, as administered by the FRB.
Acquisition, Activities and Change in Control. The Company ismay only conduct, or acquire control of companies engaged in activities permissible for a bank holding company pursuant to the BHCA. Further, we generally are required to obtain the priorFederal Reserve approval of the FRB to acquire all, or substantially all, of the assets of any bank or bank holding company. Prior FRB approval would be required for the Company to acquirebefore acquiring direct or indirect ownership or control of any voting securitiesshares of anyanother bank, or bank holding company, savings associations or savings and loan holding company if after giving effect to such acquisition, itwe would directly or indirectly, own or control more than 5%5 percent of the outstanding shares of any class of voting sharessecurities of such bankthat entity. Additionally, we are prohibited from acquiring control of a depository institution that is not federally insured or bank holding company.retaining control for more than one year after the date that institution becomes uninsured.
We may not be acquired unless the transaction is approved by the Federal Reserve. In addition, before any bank acquisition can be completed, prior approval thereof may also be required to be obtainedthe GLBA generally restricts a company from other agencies having supervisory jurisdiction over the bank to be acquired, including the NYSDFS.
FRB regulations generally prohibitacquiring us if that company is engaged directly or indirectly in activities that are not permissible for a bank holding company from engagingor financial holding company.
Capital Requirements. The Company and the Bank are currently subject to the regulatory capital framework and guidelines reached by Basel III as adopted by the OCC and Federal Reserve. The OCC and Federal Reserve have risk-based capital adequacy guidelines intended to measure capital adequacy with regard to a banking organization’s balance sheet, including off-balance sheet exposures such as unused portions of loan commitments, letters of credit and recourse arrangements. Failure to meet minimum capital requirements can initiate certain mandatory, and possibly additional discretionary, actions by regulators that could have a material effect on the Consolidated Financial Statements. For additional information, see the Capital section of the MD&A and Note 21 -Capital.
Holding Company Limitations on Capital Distributions. Our ability to make any capital distributions to our stockholders, including dividends and share repurchases, is subject to the oversight of the Federal Reserve and contingent upon their non-objection to such planned distributions which typically considers our capital adequacy, comprehensiveness and effectiveness of capital planning and the prudence of the proposed capital action.
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Acquisition of the Holding Company
Federal Restrictions
Under the Federal Change in Bank Control Act (“CIBCA”), a notice must be submitted to the FRB if any person (including a company), or acquiring, directgroup acting in concert, seeks to acquire 10 percent or indirectmore of the Company’s shares of outstanding common stock, unless the FRB has found that the acquisition will not result in a change in control of more than 5%the Company. Under the CIBCA, the FRB generally has 60 days within which to act on such notices, taking into consideration certain factors, including the financial and managerial resources of the acquirer; the convenience and needs of the communities served by the Company, the Bank; and the anti-trust effects of the acquisition. Under the BHCA, any company would be required to obtain approval from the FRB before it may obtain “control” of the Company within the meaning of the BHCA. Control generally is defined to mean the ownership or power to vote 25 percent or more of any class of voting securities of the Company, the ability to control in any company engaged innon-banking activities. Onemanner the election of a majority of the principal exceptionsCompany’s directors, or the power to this prohibition is for activities found byexercise a controlling influence over the FRB to be so closely related to bankingmanagement or managing or controlling banks as to be a proper incident thereto. Somepolicies of the principal activities thatCompany. Under the FRB has determined by regulation to be so closely related to banking are: (i) making or servicing loans; (ii) performing certain data processing services; (iii) providing discount brokerage services; (iv) acting as fiduciary, investment, or financial advisor; (v) leasing personal or real property; (vi) making investments in corporations or projects designed primarily to promote community welfare; and (vii) acquiring a savings and loan association.
The FRB has issued a policy statement regarding the payment of dividends by bank holding companies. In general, the FRB’s policies provide that dividends should be paid only out of current earnings, and only if the prospective rate of earnings retention by theBHCA, an existing bank holding company appears consistent withwould be required to obtain the organization’sFRB’s approval before acquiring more than 5 percent of the Company’s voting stock. See “Holding Company Regulation” earlier in this report.
Banking Regulation
Limitation on Capital Distributions. The OCC and FRB regulate all capital needs, asset quality, and overall financial condition. The FRB’s policies also require that a bankdistributions made by the Bank, directly or indirectly, to the holding company, serve as a source of financial strengthincluding dividend payments. An application to its subsidiary banksthe OCC by standing ready to use available resources to provide adequate capital funds to those banks during periods of financial stress or adversity, and by maintaining the financial flexibility and capital-raising capacity to obtain additional resources for assisting its subsidiary banks where necessary.
The Dodd-Frank Act codified the source of financial strength policy and required regulations to facilitate its application. Under the prompt corrective action laws, the ability of a bank holding company to pay dividendsBank may be restricted ifrequired based on a subsidiary bank becomes undercapitalized. These regulatory policies could affectnumber of factors including whether the ability of the Company to pay dividends or otherwise engage in capital distributions.
The status of the Company as a registered bank holding company under the BHCA doesBank would not exempt it from certain federal and state laws and regulations applicable to corporations generally, including, without limitation, certain provisions of the federal securities laws.
On January 30, 2017, the FRB issued a final rule that modified the CCAR capital plan and stress testing rules applicable to bank holding companies with $50 billion or more in total consolidated assets. The new rule excludes the capital plans of large and noncomplex CCAR firms from CCAR’s qualitative review and provides that the capital plans of large and noncomplex CCAR firms will no longer be subject to potential objection on qualitative grounds.
The new rule also expands the transition period for new CCAR bank holding companies by (i) moving from December 31 to September 30 the cutoff date after which a new CCAR bank holding company must submit a capital plan by April 5 of the second year after it crosses the asset threshold (i.e., April 5, 2020 if it crosses the asset threshold after September 30, 2018) and (ii) providing that a new CCAR bank holding company will become subject to the CCAR stress testing rules in the yearat least adequately capitalized following the firstdistribution or if the total amount of all capital distributions (including each proposed capital distribution) for the applicable calendar year in which it submits a capital plan (i.e., 2021 if it crossesexceeds net income for that year to date plus the asset threshold after September 30, 2018).retained net income for the preceding two years. As a result of the new rule, the Company may beour acquisition of Flagstar, we are required to expand its current capital planning beginning in 2020 and will be required to expand its current stress testing in 2021.
New York State Regulation
The Company is subject to regulation as a “multi-bank holding company” under New York State law since it controls two banking institutions. Among other requirements, this means thatseek regulatory approval from the Company must receiveOCC for the approvalpayment of the Superintendent priorany dividend to the acquisition of 10% or more ofParent Company through at least the votingperiod ending November 1, 2024, which could restrict our ability to pay the common stock of another banking institution, or to otherwise acquire a banking institution by merger or purchase.dividend.
Transactions with Affiliates
Under current federal law, transactions between depository institutions and their affiliates are governed by Sections 23A and 23B of the Federal Reserve Act and the FRB’s Regulation W promulgated thereunder. Generally, Section 23A limits the extent to which the institution or its subsidiaries may engage in “covered transactions” with any one affiliate to an amount equal to 10%10 percent of the institution’s capital stock and surplus, and contains an aggregate limit on all such transactions with all affiliates to an amount equal to 20%20 percent of such capital stock and surplus. Section 23A also establishes specific collateral requirements for loans or extensions of credit to, or guarantees or acceptances on letters of credit issued on behalf of, an affiliate. Section 23B requires that covered transactions and a broad list of other specified transactions be on terms substantially the same as, or at least as favorable to, the institution or its subsidiaries as similar transactions withnon-affiliates.
The Sarbanes-Oxley Act of 2002 generally prohibits loans by the Company to its executive officers and directors. However, the Sarbanes-Oxley Act contains a specific exemption for loans made by an institution to its executive officers and directors in compliance with other federal banking laws. Section 22(h) of the Federal Reserve Act, and FRB Regulation O adopted thereunder, govern loans by a savings bank or commercial bank to directors, executive officers, and principal shareholders.
Community Reinvestment Act
Federal Regulation
Under the Community Reinvestment Act (“CRA”),CRA, as implemented by FDICOCC regulations, an institution has a continuing and affirmative obligation consistent with its safe and sound operation to help meet the credit needs of its entire community, including low and moderate income neighborhoods. The CRA generally does not establish specific lending requirements or programs for financial institutions, nor does it limit an institution’s discretion to develop the types of products and services that it believes are best suited to its particular community, consistent with the CRA. InHowever, institutions are rated on their performance in meeting the needs of their communities. Performance is tested in three areas: (1) lending, to
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evaluate the institution’s record of making loans in its most recent FDICassessment areas; (2) investment, to evaluate the institution’s record of investing in community development projects, affordable housing, and programs benefiting low- or moderate-income individuals and businesses; and (3) service, to evaluate the institution’s delivery of services through its branches, ATMs and other offices. The CRA performance evaluation,requires each federal banking agency, in connection with its examination of a financial institution, to assess and assign one of four ratings to the Community Bank received overall state ratingsinstitution’s record of “Satisfactory” for Ohio, Florida, Arizona, and New Jersey, as well as for the New York/New Jersey multi-state region. Furthermore, the most recent overall FDIC CRA ratings for the Community Bank and the Commercial Bank were “Satisfactory.”
New York State Regulation
The Community Bank and the Commercial Bank also are subject to provisions of the New York State Banking Law that impose continuing and affirmative obligations upon a banking institution organized in New York State to servemeeting the credit needs of the community and to take such record into account in its local community. Such obligations are substantially similar to those imposedevaluation of certain applications by the CRA.institution, including applications for charters, branches and other deposit facilities, relocations, mergers, consolidations, acquisitions of assets or assumptions of liabilities, and bank holding company and savings and loan holding company acquisitions. The latest New York State CRA ratings received byalso requires that all institutions make public disclosure of their CRA ratings.
Community Pledge Agreement with the National Community BankReinvestment Coalition
On January 24, 2022, the Company and the Commercial Bank were “Outstanding”National Community Reinvestment Coalition ("NCRC") announced the Company's commitment to provide $28 billion in loans, investments, and “Satisfactory,” respectively.other financial support to communities and people of color, low- and moderate-income ("LMI") families and communities, and small businesses. The Company's Community Pledge Agreement was developed with NCRC and its members in conjunction with the Company's merger with Flagstar Bancorp, Inc. The agreement includes $22 billion in community lending and affordable housing commitments and $6 billion of residential mortgage originations to underserved and LMI borrowers, and in LMI and majority-minority neighborhoods over a five-year period. NYCB will also provide $542 million in loans to small businesses with less than $1 million in revenues and in LMI and majority-minority communities; $16.5 million in philanthropic support to nonprofit organizations that meet the needs of LMI and majority-minority communities and individuals; greater access to banking products and services; and the continuation of NYCB's responsible multi-family lending practices.
Bank Secrecy and Anti-Money Laundering
FederalThe Bank is subject to the Bank Secrecy Act (“BSA”) and other anti-money laundering laws and regulations, impose obligations on U.S.including the Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act, commonly referred to as the “USA PATRIOT Act” or the “Patriot Act”. The BSA requires all financial institutions including banks and broker/dealer subsidiaries, to, implement and maintain appropriate policies, procedures, andamong other things, establish a risk-based system of internal controls that are reasonably designed to prevent detect, and report instances of money laundering and the financing of terrorism,terrorism. The BSA includes various record keeping and reporting requirements such as cash transaction and suspicious activity reporting as well as due diligence requirements. The Bank is also required to verifycomply with the identityU.S. Treasury’s Office of their customers. In addition, these provisions requireForeign Assets Control imposed economic sanctions that affect transactions with designated foreign countries, nationals, individuals, entities and others. The USA PATRIOT Act contains prohibitions against specified financial transactions and account relationships, as well as enhanced due diligence standards intended to prevent the federaluse of the United States financial institution regulatory agencies to consider the effectiveness of a financial institution’s anti-money laundering activities when reviewing bank mergers and bank holding company acquisitions. Failure of a financial institution to maintain and implement adequate programs to combatsystem for money laundering and terrorist financing couldactivities. The Patriot Act requires banks and other depository institutions, brokers, dealers and certain other businesses involved in the transfer of money to establish anti-money laundering programs, including employee training and independent audit requirements meeting minimum standards specified by the Patriot Act, to follow standards for customer identification and maintenance of customer identification records, and to compare customer lists against lists of suspected terrorists, terrorist organizations and money launderers. The Patriot Act also requires federal bank regulators to evaluate the effectiveness of an applicant in combating money laundering in determining whether to approve a proposed bank acquisition.
We have seriousdeveloped and operate an enterprise-wide anti-money laundering program designed to enable us to comply with all applicable anti-money laundering and anti-terrorism financing laws and regulations. Our anti-money laundering program is also designed to prevent our products from being used to facilitate business in certain countries or territories, or with certain individuals or entities, including those on designated lists promulgated by the U.S. Department of the Treasury’s Office of Foreign Assets Controls and other U.S. and non-U.S. sanctions authorities. Our anti-money laundering and sanctions compliance programs include policies, procedures, reporting protocols, and internal controls designed to identify, monitor, manage, and mitigate the risk of money laundering and terrorist financing. These controls include procedures and processes to detect and report potentially suspicious transactions, perform consumer due diligence, respond to requests from law enforcement, and meet all recordkeeping and reporting requirements related to particular transactions involving currency or monetary instruments. Our programs are designed to address these legal and reputational consequences for the institution.regulatory requirements and to assist in managing risk associated with money laundering and terrorist financing.
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Office of Foreign Assets Control Regulation
The United States has imposed economic sanctions that affect transactions with designated foreign countries, foreign nationals, and others. These are typically known as the “OFAC” rules, based on their administration by the U.S. Treasury Department Office of Foreign Assets Control (“OFAC”).Control. The OFAC-administered sanctions targeting countries take many different forms. Generally, however, they contain one or more of the following elements: (i) restrictions on trade with, or investment in, a sanctioned country, including prohibitions against direct or indirect imports from, and exports to, a sanctioned country and prohibitions on “U.S. persons” engaging in financial transactions relating to making investments in, or providing investment-related advice or assistance to, a sanctioned country; and (ii) a blocking of assets in which the government or specially designated nationals of the sanctioned country have an interest, by prohibiting transfers of property subject to U.S. jurisdiction (including property in the possession or control of U.S. persons). Blocked assets (e.g., property and bank deposits) cannot be paid out, withdrawn, set off, or transferred in any manner without a license from OFAC. Failure to comply with these sanctions could have serious legal and reputational consequences.
Data Privacy
Federal Reserve System
Under FRB regulations,and state law contains extensive consumer privacy protection provisions. The GLBA requires financial institutions to periodically disclose their privacy practices and policies relating to sharing such information and enable retail customers to opt out of the Community BankCompany’s ability to share certain information with affiliates and non-affiliates for marketing and/or non-marketing purposes, or to contact customers with marketing offers. The GLBA also requires financial institutions to implement a comprehensive information security program that includes administrative, technical, and physical safeguards to ensure the security and confidentiality of customer records and information, and imposes certain limitations on the ability to share consumers’ nonpublic personal information with non-affiliated third-parties. Privacy requirements, including notice and opt out requirements, under the GLBA and the Commercial BankFCRA are enforced by the FTC and by the CFPB through UDAAP laws and regulations, and are a standard component of CFPB examinations. State entities also may initiate actions for alleged violations of privacy or security requirements under state law.
Furthermore, an increasing number of state, federal, and international jurisdictions have enacted, or are considering enacting, privacy laws, such as the California Consumer Privacy Act (“CCPA”), which became effective on January 1, 2020, and the EU General Data Protection Regulation (“GDPR”), which regulates the collection, control, sharing, disclosure and use and other processing of personal information of data subjects in the EU and the European Economic Area. The CCPA gives residents of California expanded rights to access and delete their personal information, opt out of certain personal information sharing, and receive detailed information about how their personal information is used, and also provides for civil penalties for violations and private rights of action for data breaches. Meanwhile, the GDPR provides data subjects with greater control over the collection and use of their personal information (such as the “right to be forgotten”) and has specific requirements relating to cross-border transfers of personal information to certain jurisdictions, including to the United States, with fines for noncompliance of up to the greater of 20 million euros or up to 4 percent of the annual global revenue of the noncompliant company. In addition, California approved a new privacy law in 2020, the California Privacy Rights Act (“CPRA”), which significantly modifies the CCPA, including by expanding consumers’ rights with respect to certain personal information and creating a new state agency to oversee implementation and enforcement efforts.
Cybersecurity
The Cybersecurity Information Sharing Act (the “CISA”) is intended to improve cybersecurity in the U.S. through sharing of information about security threats between the U.S. government and private sector organizations, including financial institutions such as the Company. The CISA also authorizes companies to monitor their own systems, notwithstanding any other provision of law, and allows companies to carry out defensive measures on their own systems from potential cyber-attacks.
Sarbanes-Oxley Act of 2002
The Sarbanes-Oxley Act of 2002 was enacted to address, among other things, corporate governance, auditing and accounting, executive compensation, and enhanced and timely disclosure of corporate information. As directed by the Sarbanes-Oxley Act, our Chief Executive Officer and Chief Financial Officer are required to maintain reserves against their transaction accounts (primarily NOWcertify that our quarterly and regular checking accounts). Beginning January 2018,annual reports do not contain any untrue statement of a material fact. The rules adopted by the BanksSEC
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under the Sarbanes-Oxley Act have several requirements, including having those Officers certify that they are requiredresponsible for establishing, maintaining and regularly evaluating the effectiveness of our internal controls over financial reporting; that they have made certain disclosures to maintain average daily reserves equal to 3% on aggregate transaction accounts of up to $122.3 million, plus 10% on the remainder,our auditors and the first $16.0 millionAudit Committee of otherwise reservable balances, will both be exempt. These reserve requirements are subject to adjustment by the FRB. The Community BankBoard of Directors about our internal control over financial reporting; and the Commercial Bank currently arethey have included information in compliance with the foregoing requirements.our quarterly and annual reports about their evaluation and whether there have been changes in our internal control over financial reporting or in other factors that could materially affect internal control over financial reporting.
Federal Home Loan Bank System
The Community Bank and the Commercial Bank are membersis a member of the Federal Home LoanFHLB-NY. As a member of the FHLB-NY, the Bank of New York (the“FHLB-NY”). As members of theFHLB-NY, the Community Bank and the Commercial Bank areis required to acquire and hold shares ofFHLB-NY capital stock. At December 31, 2017,2022 the Community Bank held $588.7$762 million ofFHLB-NY stock and, as a result of the Commercial Bank held $15.1Flagstar acquisition, $329 million ofFHLB-NY stock.
New York State Law
The Community Bank and the Commercial Bank derive their lending, investment, and other authority primarily from the applicable provisions of New York State Banking Law and the regulations of the NYSDFS, as limited by FDIC regulations. Under these laws and regulations, banks, including the Community Bank and the Commercial Bank, may invest in real estate mortgages, consumer and commercial loans, certain types of debt securities (including certain corporate debt securities, and obligations of federal, state, and local governments and agencies), certain types of corporate equity securities, and certain other assets.
Under New York State Banking Law, New York State-chartered stock-form savings banks and commercial banks may declare and pay dividends out of their net profits, unless there is an impairment of capital. Approval of the Superintendent is required if the total of all dividends declared by the bank in a calendar year would exceed the total of its net profits for that year combined with its retained net profits for the preceding two years, less prior dividends paid.
New York State Banking Law gives the Superintendent authority to issue an order to a New York State-chartered banking institution to appear and explain an apparent violation of law, to discontinue unauthorized or unsafe practices, and to keep prescribed books and accounts. Upon a finding by the NYSDFS that any director, trustee, or officer of any banking organization has violated any law, or has continued unauthorized or unsafe practices in conducting the business of the banking organization after having been notified by the Superintendent to discontinue such practices, such director, trustee, or officer may be removed from office after notice and an opportunity to be heard. The Superintendent also has authority to appoint a conservator or a receiver for a savings or commercial bank under certain circumstances.
Interstate Branching
Federal law allows the FDIC, and New York State Banking Law allows the Superintendent, to approve an application by a state banking institution to acquire interstate branches by merger, unless, in the case of the FDIC, the state of the target institution has opted out of interstate branching. New York State Banking Law authorizes savings banks and commercial banks to open and occupy de novo branches outside the state of New York. Pursuant to the Dodd-Frank Act, the FDIC is authorized to approve a state bank’s establishment of a de novo interstate branch if the intended host state allows de novo branching by banks chartered by that state. The Community Bank currently maintains 45 branches in New Jersey, 27 branches in Florida, 28 branches in Ohio, and 14 branches in Arizona, in addition to its 111 branches in New York State.
Acquisition of the Holding Company
Federal Restrictions
Under the Federal Change in Bank Control Act (“CIBCA”), a notice must be submitted to the FRB if any person (including a company), or group acting in concert, seeks to acquire 10% or more of the Company’s shares of outstanding common stock, unless the FRB has found that the acquisition will not result in a change in control of the Company. Under the CIBCA, the FRB generally has 60 days within which to act on such notices, taking into consideration certain factors, including the financial and managerial resources of the acquirer; the convenience and needs of the communities served by the Company, the Community Bank, and the Commercial Bank; and the anti-trust effects of the acquisition. Under the BHCA, any company would be required to obtain approval from the FRB before it may obtain “control” of the Company within the meaning of the BHCA. Control generally is defined to mean the ownership or power to vote 25% or more of any class of voting securities of the Company, the ability to control in any manner the election of a majority of the Company’s directors, or the power to exercise a controlling influence over the management or policies of the Company. Under the BHCA, an existing bank holding company would be required to obtain the FRB’s approval before acquiring more than 5% of the Company’s voting stock. See “Holding Company Regulation” earlier in this report.
New York State Change in Control Restrictions
New York State Banking Law generally requires prior approval of the New York State Banking Board before any action is taken that causes any company to acquire direct or indirect control of a banking institution which is organized in New York.
Federal Securities Law
The Company’s common stock and certain other securities listed on the cover page of this report are registered with the SEC under the Securities Exchange Act of 1934, as amended (the “Exchange Act”). The Company is subject to the information and proxy solicitation requirements, insider trading restrictions, and other requirements under the Exchange Act.
Consumer Protection Regulations
The activities of the Company’s banking subsidiaries,subsidiary, including theirits lending and deposit gathering activities, areis subject to a variety of consumer laws and regulations designed to protect consumers. These laws and regulations mandate certain disclosure requirements, and regulate the manner in which financial institutions must deal with clients and monitor account activity when taking deposits from, making loans to, or engaging in other types of transactions with, such clients. Failure to comply with these laws and regulations could lead to substantial penalties, operating restrictions, and reputational damage to the financial institution.
Applicable consumer protection laws, and their implementing regulations, include, but may not be limited to, the Dodd-Frank Act,DFA, Truth in Lending Act (Regulation Z), Truth in Savings Act (Regulation DD), Equal Credit Opportunity Act (Regulation B), Electronic Funds Transfer Act (Regulation E), Fair Housing Act, Home Mortgage Disclosure Act (Regulation C), Fair Debt Collection Practices Act (Regulation F), Fair Credit Reporting Act (Regulation V), as amended by the Fair and Accurate Credit Transactions Act, Expedited Funds Availability (Regulation CC), Reserve Requirements (Regulation D), Insider Transactions (Regulation O), Privacy of Consumer Information (Regulation P), Margin Stock Loans (Regulation U), Right To Financial Privacy Act, Flood Disaster Protection Act, Homeowners Protection Act, Servicemembers Civil Relief Act, Real Estate Settlement Procedures Act (Regulation X), Telephone Consumer Protection Act,CAN-SPAM Act, Children’s Online Privacy Protection Act, the Military Lending Act, and the John Warner National Defense AuthorizationHomeownership Counseling Act. Additionally, we are subject to Section 5 of the Federal Trade Commission Act, which prohibits unfair and deceptive acts or practices in or affecting commerce, and Section 1031 of the Dodd-Frank Act, which prohibits unfair, deceptive, or abusive acts or practices (“UDAAP”) in connection with any consumer financial product or service
In addition, the BanksBank and theirits subsidiaries are subject to certain state laws and regulations designed to protect consumers. Many states have consumer protection laws analogous to, or in addition to, the federal laws listed above, such as usury laws, state debt collection practices laws, and requirements regarding loan disclosures and terms, credit discrimination, credit reporting, money transmission, recordkeeping, and unfair or deceptive business practices.
Certain states have adopted laws regulating and requiring licensing, registration, notice filing, or other approval for parties that engage in certain activity regarding consumer finance transactions. Furthermore, certain states and localities have adopted laws requiring licensing, registration, notice filing, or other approval for consumer debt collection or servicing, and/or purchasing or selling consumer loans. The licensing statutes vary from state to state and prescribe different requirements, including but not limited to: restrictions on loan origination and servicing practices (including limits on the type, amount, and manner of our fees), interest rate limits, disclosure requirements, periodic examination requirements, surety bond and minimum specified net worth requirements, periodic financial reporting requirements, notification requirements for changes in principal officers, stock ownership or corporate control, restrictions on advertising, and requirements that loan forms be submitted for review. We may also be subject
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to supervision and examination by applicable state regulatory authorities in the jurisdictions in which we may offer consumer financial products or services.
Consumer Financial Protection Bureau
The Banks areBank is subject to oversight by the CFPB within the Federal Reserve System. The CFPB was established under the Dodd-Frank ActDFA to implement and enforce rules and regulations under certain federal consumer protection laws with respect to the conduct of providers of certain consumer financial products and services. The CFPB has broad rulemaking authority for a wide range of consumer financial laws that apply to all banks, including, among other things, the authority to prohibit acts and practices that are deemed to be unfair, deceptive, or abusive. Abusive acts or practices are defined as those that (1) materially interfere with a consumer’s ability to understand a term or condition of a consumer financial product or service, or (2) take unreasonable advantage of a consumer’s (a) lack of financial savvy,understanding on the part of the consumer of the material risks, costs, or conditions of the product or service; (b) the inability of the consumer to protect himselfhis/her own interest in the selectionselecting or use of consumerusing a financial productsproduct or services,service; or (c) the reasonable reliance by the consumer on a covered entityfinancial institution to act in the consumer’s interests.interests of the consumer.
The CFPB has exclusive examination and primary enforcement authority with respect to compliance with federal consumer financial protection laws and regulations by institutions under its supervision and is authorized, individually or jointly with the federal banking agencies, to conduct investigations to determine whether any person is, or has, engaged in conduct that violates such laws or regulations. The CFPB has the authority to investigate possible violations of federal consumer financial law, hold hearings, and commence civil litigation. The CFPB can issuecease-and-desist orders against banks and other entities that violate consumer financial laws. The CFPB also may institute a civil action against an entity in violation of federal consumer financial law in order to impose a civil penalty or an injunction. The CFPB has examination and enforcement authority over all banks with more than $10 billion in assets, as well as certain of their affiliates.
The CFPB is also authorized to collect fines and provide consumer restitution in the event of violations, engage in consumer financial education, track consumer complaints, request data and promote the availability of financial services to underserved consumers and communities. The CFPB is authorized to pursue administrative proceedings or litigation for violations of federal consumer financial laws. In these proceedings, the CFPB can obtain cease and desist orders (which can include orders for restitution or rescission of contracts, as well as other kinds of affirmative relief) and monetary penalties which, for 2022, range from $6,323 per day for minor violations of federal consumer financial laws (including the CFPB’s own rules) to $31,616 per day for reckless violations and $1,264,622 per day for knowing violations. The CFPB monetary penalty amounts are adjusted annually for inflation. Also, where a company has violated Title X of the Dodd-Frank Act or CFPB regulations under Title X, the Dodd-Frank Act empowers state attorneys general and state regulators to bring civil actions for the kind of cease and desist orders available to the CFPB (but not for civil penalties).
In May 2022, the CFPB issued an Interpretive Rule to clarify the authority of states to enforce federal consumer financial protections laws under the Consumer Financial Protection Act of 2010 (“CFPA”). Specifically, the CFPB confirmed that (1) states can enforce the CFPA, including the provision making it unlawful for covered persons or service providers to violate any provision of federal consumer financial protection law; (2) the enforcement authority of states under section 1042 of the CFPA is generally not subject to certain limits applicable to the CFPB’s enforcement authority, such that States may be able to bring actions against a broader cross-section of companies than the CFPB; and (3) state attorneys general and regulators may bring (or continue to pursue) actions under their CFPA authority even if the CFPB is pursuing a concurrent action against the same entity. See CFPB Interpretive Rule regarding Section 1042 of the Consumer Financial Protection Act of 2010 (87 FR 31940, May 26, 2022).
Supervision and Regulation of Mortgage Banking Operations
Our mortgage banking business is subject to the rules and regulations of the U.S. Department of Housing and Urban Development (“HUD”), the Federal Housing Administration, the Veterans’ Administration (“VA”) and Fannie Mae with respect to originating, processing, selling and servicing mortgage loans. Those rules and regulations, among other things, prohibit discrimination and establish underwriting guidelines, which include provisions for inspections and appraisals, require credit reports on prospective borrowers, and fix maximum loan amounts. Lenders are required annually to submit audited financial statements to Fannie Mae, FHA and VA. Each of these regulatory entities has its
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own financial requirements. We are also subject to examination by Fannie Mae, FHA and VA to assure compliance with the applicable regulations, policies and procedures. Mortgage origination activities are subject to, among others, the Equal Credit Opportunity Act, the Federal Truth-in-Lending Act, the Fair Housing Act, the Fair Credit Report Act, the National Flood Insurance Act and the Real Estate Settlement Procedures Act and related regulations that prohibit discrimination and require the disclosure of certain basic information to mortgagors concerning credit terms and settlement costs. Our mortgage banking operations are also affected by various state and local laws and regulations and the requirements of various private mortgage investors.
Enterprise Risk Management
The Company’s and the Banks’Bank’s Boards of Directors are actively engaged in the process of overseeing the efforts made by the Enterprise Risk Management (“ERM”) department to identify, measure, monitor, mitigate, and report risk. The Company has established an ERM program that reinforces a strong risk culture to support sound risk management practices. The Board is responsible for the approval and oversight of the ERM program and framework. Our risk management framework is designed to conform with the principles set forth in the Internal Control-Integrated Framework (2013) established by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”).
ERM is responsible for setting and aligning the Company’s Risk Appetite StatementPolicy with the goals and objectives set forth in the Strategicbudget, and Capital Plans.the strategic and capital plans. Internal controls and ongoing monitoring processes capture and address heightened risks that threaten the Company’s ability to achieve our goals and objectives, including the recognition of safety and soundness concerns and consumer protection. Additionally, ERM monitors and reports on key risk indicators against the established risk warning levels and limits, as well as elevated risks identified by the Chief Risk Officer.
Recent Events
Declaration of Dividend on Common Shares
On January 24, 2023, our Board of Directors declared a quarterly cash dividend on the Company’s common stock of $0.17 per share. The dividend was payable on February 16, 2023 to common stockholders of record as of February 6, 2023.
Mortgage Restructuring
Legacy Flagstar proactively rightsized its mortgage operation throughout 2022 to adjust for market conditions. The mortgage business is cyclical by nature and challenging conditions are expected to continue throughout 2023. To better reflect demand and align to where our brand strength and familiarity lies, the distributed retail channel will reduce coverage by 69% and shift to a branch footprint only-model.
We expect that these actions will optimize our mortgage business and improve profitability during the current mortgage down cycle, while still allowing us to participate in the upside once the interest rate cycle becomes favorable. This allows us to maintain a retail presence within our nine-state footprint, leverages our marketing and branding spend, and reduces risk. More importantly, it leaves our position within the mortgage industry intact. We remain one of the largest bank originators, the 6th largest sub-servicer in the country, and the 2nd largest warehouse lender. Moreover, it allows us to continue to lend in all six channels and maintain our commitment to the correspondent and broker business.
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ITEM 1A. RISK FACTORS
There are various risks and uncertainties that are inherent to our business. Primary among these are (1) interest rate risk, which arises from movements in interest rates; (2) credit risk, which arises from an obligor’s failure to
meet the terms of any contract with a bank or to otherwise perform as agreed; (3) risks related to our financial statements; (4) liquidity risk, which arises from a bank’s inability to meet its obligations when they come due without incurring unacceptable losses; (4)(5) legal/compliance risk, which arises from violations of, ornon-conformance with, laws, rules, regulations, prescribed practices, or ethical standards; (5)(6) market risk, which arises from changes in the value of portfolios of financial instruments; (6)(7) strategic risk, which arisesis the risk of loss arising from adversethe execution of our strategic initiatives and business decisionsstrategies, including our acquisition and integration of other companies we acquire, as well as inadequate or improper implementation of those business decisions; (7)failed internal processes, people, and systems; (8) operational risk, which arises from problems with service or product delivery; and (8)(9) reputational risk, which arises from negative public opinion.opinion resulting in a significant decline in stockholder value.
Following is a discussion of the material risks and uncertainties that could have a material adverse impact on our financial condition, results of operations, and the value of our shares. The failure to properly identify, monitor, and mitigate any of the below referenced risks, could result in increased regulatory risk and could potentially have an adverse impact on the Company. Additional risks that are not currently known to us, or that we currently believe to be immaterial, also may have a material effect on our financial condition and results of operations. This report is qualified in its entirety by those risk factors.
Interest Rate Risks
Changes in interest rates could reduce our net interest income and negatively impact the value of our loans, securities, and other assets. This could have a material adverse effect on our cash flows, financial condition, results of operations, and capital.
Our primary source of income is net interest income, which is the difference between the interest income generated byour interest-earning assets (consisting primarily of loans and, to a lesser extent, securities) and the interest expense produced by our interest-bearing liabilities (consisting primarily of deposits and wholesale borrowings).
The cost of our deposits and short-term wholesale borrowings is largely based on short-term interest rates, the level of which is driven by the Federal Open Market CommitteeFOMC of the FRB. However, the yields generated by our loans and securities are typically driven by intermediate-term (e.g., five-year) interest rates, which are set by the bond market and generally vary from day to day. The level of our net interest income is therefore influenced by movements in such interest rates, and the pace at which such movements occur. If the interest rates on our interest-bearing liabilities increase at a faster pace than the interest rates on our interest-earning assets, the result could be a reduction in net interest income and, with it, a reduction in our earnings. Our net interest income and earnings would be similarly impacted were the interest rates on our interest-earning assets to decline more quickly than the interest rates on ourinterest-bearing liabilities.
In addition, such changes in interest rates could affect our ability to originate loans and attract and retain deposits; the fair values of our securities and other financial assets; the fair values of our liabilities; and the average lives of our loan and securities portfolios.
Changes in interest rates also could have an effect on loan refinancing activity, which, in turn, would impact the amount of prepayment income we receive on our multi-family and CRE loans. Because prepayment income is recorded as interest income, the extent to which it increases or decreases during any given period could have a significant impact on the level of net interest income and net income we generate during that time.
Also, changes in interest rates could have an effect on the slope of the yield curve. If the yield curve were to invert or become flat, our net interest income and net interest margin could contract, adversely affecting our net income and cash flows, and the value of our assets.
Credit Risks
A decline Moreover, higher inflation could lead to fluctuations in the qualityvalue of our assets and liabilities and off-balance sheet exposures, and could result in higher losseslower equity market valuations of financial services companies.
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Changes to and replacement of the needLIBOR Benchmark Interest Rate may adversely affect our business, financial condition, and results of operations.
The Company has certain loans, interest rate swap agreements, investment securities, and debt obligations whose interest rate is indexed to set aside higherLIBOR. In 2017, the FCA, which is responsible for regulating LIBOR, announced that the publication of LIBOR is not guaranteed beyond 2021. In December 2020, the administrator of LIBOR announced its intention to (i) cease the publication of the one-week and two-month U.S. dollar LIBOR after December 31, 2021, and (ii) cease the publication of all other tenors of U.S. dollar LIBOR (one, three, six, and 12-month LIBOR) after June 30, 2023, and on March 15, 2021, announced that it will permanently cease to publish most LIBOR settings beginning on January 1, 2022 and cease to publish the overnight, one-month, three-month, six-month, and 12-month U.S. dollar LIBOR settings on July 1, 2023. Accordingly, the FCA has stated that it does not intend to persuade or compel banks to submit to LIBOR after such respective dates. Until such time, however, FCA panel banks have agreed to continue to support LIBOR. In October 2021, the Federal bank regulatory agencies issued a Joint Statement on Managing the LIBOR Transition that offered their regulatory expectations and outlined potential supervisory and enforcement consequences for banks that fail to adequately plan for and implement the transition away from LIBOR. The failure to properly transition away from LIBOR may result in increased supervisory scrutiny. The implementation of a substitute index for the calculation of interest rates under the Company's loan loss provisions, thus reducing our earnings and our stockholders’ equity.
The inabilityagreements may result in disputes or litigation with counterparties over the appropriateness or comparability to LIBOR of our borrowers to repay their loans in accordance with their termsthe substitute index, which would likely necessitatehave an increase in our provision for loan losses, and therefore reduce our earnings.
The loans we originate for investment are primarily multi-family loans and, to a lesser extent, CRE loans. Such loans are generally larger, and have higher risk-adjusted returns and shorter maturities, than the other loans we produce for investment. Our credit risk would ordinarily be expected to increase with the growth of our multi-family and CRE loan portfolios.
Payments on multi-family and CRE loans generally dependadverse effect on the income generated by the underlying properties which, in turn, depends on their successful operation and management. The abilityCompany's results of our borrowers to repay these loans may be impacted by adverse conditions in the local real estate market and the local economy. While we seek to minimize these risks through our underwriting policies, which generally require that such loans be qualified on the basis of the collateral property’s cash flows, appraised value, and debt service coverage ratio, among other factors,operations. Even when robust fallback language is included, there can be no assuranceassurances that the replacement rate plus any spread adjustment will be economically equivalent to LIBOR, which could result in a lower interest rate being paid to the Company on such assets.
The Alternative Reference Rates Committee (a group of private-market participants convened by the FRB and the FRB-NY) has identified SOFR as the recommended alternative to LIBOR. The use of SOFR as a substitute for LIBOR is voluntary and may not be suitable for all market participants. SOFR is calculated and observed differently than LIBOR. Given the manner in which SOFR is calculated, it is likely to be lower than LIBOR and is less likely to correlate with the funding costs of financial institutions. Market practices related to SOFR calculation conventions continue to develop and may vary. Inconsistent calculation conventions among financial products may expose is to increased basic rate and resultant costs. Other alternatives to LIBOR also exist, but, because of the difference in how those alternatives are constructed, they may diverge significantly from LIBOR in a range of situations and market conditions.
Credit Risk
Our allowance for credit losses might not be sufficient to cover our actual losses, which would adversely impact our financial condition and results of operations.
In addition to mitigating credit risk through our underwriting policies will protectprocesses, we attempt to mitigate such risk through the establishment of an allowance for credit losses. The process of determining whether or not the allowance is sufficient to cover potential credit losses is based on the current expected credit loss model or CECL. This methodology is described in detail under “Critical Accounting Estimates” in Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in this report. CECL may result in greater volatility in the level of the ACL, depending on various assumptions and factors used in this model. If the judgments and assumptions we make with regard to the allowance are incorrect, our allowance for losses on such loans might not be sufficient, and an additional provision for credit losses might need to be made. Depending on the amount of such loan loss provisions, the adverse impact on our earnings could be material. In addition, growth in our loan portfolio may require us from credit-relatedto increase the allowance for credit losses on such loans by making additional provisions, which would reduce our net income. Furthermore, bank regulators have the authority to require us to make provisions for credit losses or delinquencies.
We also originate ADCotherwise recognize loan charge-offs following their periodic review of our loan portfolio, our underwriting procedures, and C&I loansour allowance for investment, although to a far lesser degree than we originate multi-family and CRElosses on such loans. ADC financing typically involves a greater degree of credit risk than longer-term financing on multi-family and CRE properties. Risk of loss on an ADC loan largely depends upon the accuracy of the initial estimate of the property’s value at completion of construction or development, compared to the estimated costs (including interest) of construction. If the estimate of value proves to be inaccurate,Any increase in the loan may be under-secured. While we seek to minimize these risksloss allowance or in loan charge-offs as required by maintaining consistent lending policies and procedures, and rigorous underwriting standards, an error in such estimates, among other factors,regulatory authorities could have a material adverse effect on the qualityour financial condition and results of operations.
Our concentration in multi-family loans and CRE loans could expose us to increased lending risks and related loan losses.
At December 31, 2022, $38.1 billion or 55 percent of our ADCtotal loans and leases, held for investment portfolio consisted of multi-family loans and $8.5 billion or 12 percent consisted of CRE loans. These types of loans generally expose a lender to greater risk of non-payment and loss than one-to-four family residential mortgage loans because
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repayment of the loans often depends on the successful operation of the properties and the sale of such properties securing the loans. Such loans typically involve larger loan portfolio, thereby resulting in lossesbalances to single borrowers or delinquencies.
To minimize the risks involved ingroups of related borrowers compared to one-to-four family residential loans. Also, many of our specialty finance lending and leasing, we participate in syndicatedborrowers have more than one of these types of loans outstanding. Consequently, an adverse development with respect to one loan or one credit relationship can expose us to a significantly greater risk of loss compared to an adverse development with respect to a one-to-four family residential real estate loan. In addition, if loans that are brought to us,collateralized by real estate become troubled and equipment loans and leases that are assigned to us, by a select group of nationally recognized sources, and generally are made to large corporate obligors, many of which are publicly traded, carry investment grade or near-investment grade ratings, and participate in stable industries nationwide. Each of our credits is secured with a perfected first security interest in the underlying collateral and structured as senior debt or as anon-cancelable lease.
We seek to minimize the risks involved in our other C&I lending by underwriting such loans on the basisvalue 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 such a C&I loan is substantially dependent on the degree to which his or her business is successful. In addition, the collateral underlying other C&I loans may depreciate over time,real estate has been significantly impaired, then we may not be conduciveable to appraisal, or may fluctuate in value, based uponrecover the full contractual amount of principal and interest that we anticipated at the time we originated the loan, which could cause us to increase our provision for loan losses and adversely affect our operating results of operations of the business.and financial condition.
Although losses on theheld-for-investment loans we produce have been comparatively limited, even during periods of economic weakness in our markets, we cannot guarantee that this will be our experience in future periods. The ability of our borrowers to repay their loansOur New York State multi-family loan portfolio could be adversely impacted by changes in legislation or regulation which, in turn, could have a decline in real estate values and/or an increase in unemployment, which not only could result in our experiencing losses, but also could necessitate our recording a provision for losses on loans. Either of these events would have anmaterial adverse impacteffect on our financial condition and results of operations.
On June 14, 2019, the New York State legislature passed the New York Housing Stability and Tenant Protection Act of 2019. This legislation represents the most extensive reform of New York State’s rent laws in several decades and generally limits a landlord’s ability to increase rents on rent regulated apartments and makes it more difficult to convert rent regulated apartments to market rate apartments. As a result, the value of the collateral located in New York State securing the Company’s multi-family loans or the future net income.operating income of such properties could potentially become impaired which, in turn, could have a material adverse effect on our financial condition and results of operations. To date, the Company has not experienced any material negative impacts as a result of this legislation.
Economic weakness in the New York City metropolitan region, where the majority of the properties collateralizing our multi-family, CRE, and ADC loans, and the majority of the businesses collateralizing our other C&I loans, are located could have an adverse impact on our financial condition and results of operations.
Unlike larger national or superregional banks that serve a broader and more diverse geographic region, ourOur business depends significantly on general economic conditions in the New York City metropolitan region, where the majority of the buildings and properties securing the multi-family, CRE, and ADC loans we originate for investment and the businesses of the customers to whom we make our other C&I loans are located.
Accordingly, the ability of our borrowers to repay their loans, and the value of the collateral securing such loans, may be significantly affected by economic conditions in this region, including changes in the local real estate market. A significant decline in general economic conditions caused by inflation, recession, unemployment, acts of terrorism, extreme weather, or other factors beyond our control, could therefore have an adverse effect on our financial condition and results of operations. In addition, because multi-family and CRE loans represent the majority of the loans in our portfolio, a decline in tenant occupancy or rents due to such factors, or for other reasons, such as new legislation, could adversely impact the ability of our borrowers to repay their loans on a timely basis, which could have a negative impact on our net income.
Furthermore, economic or market turmoil could occur in the near or long term. This could negatively affect our business, our financial condition, and our results of operations, as well as our ability to maintain or increase the level of cash dividends we currently pay to our shareholders.
Financial Statements Risk
Our accounting estimates and risk management processes rely on analytical and forecasting models.
The processes we use to estimate expected losses and to measure the fair value of financial instruments, as well as the processes used to estimate the effects of changing interest rates and other market measures on our financial condition and results of operations, depends upon the use of analytical and forecasting models. These models reflect assumptions that may not be accurate, particularly in times of market stress or other unforeseen circumstances. Even if these assumptions are adequate, the models may prove to be inadequate or inaccurate because of other flaws in their design or their implementation. If the models that we use for interest rate risk and asset-liability management are inadequate, we may incur increased or unexpected losses upon changes in market interest rates or other market measures. If the models that we use for determining our expected losses are inadequate, the allowance for loan losses on loans mightmay not be sufficient to coversupport future charge-offs. If the models that we use to measure the fair value of financial instruments are inadequate, the fair value of such financial instruments may fluctuate unexpectedly or may not accurately reflect what we could realize upon sale or settlement of such financial instruments. Any such failure in our actual losses, which would adverselyanalytical or forecasting models could have a material adverse effect on our business, financial condition and results of operations.
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Impairment in the carrying value of goodwill and other intangible assets could negatively impact our financial condition and results of operations.
In addition to mitigating credit risk throughAt December 31, 2022, goodwill and other intangible assets totaled $2.7 billion. Goodwill and our underwriting processes, we attempt to mitigate such risk throughother intangible assets are reviewed for impairment at least annually or more frequently if events or changes in circumstances indicate that the establishmentcarrying value may not be recoverable. A significant decline in expected future cash flows, a material change in interest rates, a significant adverse change in the business climate, slower growth rates, or a significant or sustained decline in the price of an allowance for losses on loans. The process of determining whether or not this allowance is sufficient to cover potential loan losses is based onour common stock may necessitate taking charges in the methodology described in detail under “Critical Accounting Policies” in Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in this report.
If the judgments and assumptions we make with regardfuture related to the allowance are incorrect, our allowance for losses on such loans might not be sufficient,impairment of goodwill and additional loan loss provisions might need to be made. Depending on theother intangible assets. The amount of such loan loss provisions, the adverse impact on our earningsany impairment charge could be material.
In addition, growth in our portfolio of loans held for investment may require us to increase the allowance for losses on such loans by making additional provisions, which would reduce our net income. Furthermore, bank regulators have the authority to require us to make provisions for loan losses or otherwise recognize loan charge-offs following their periodic review of ourheld-for-investment loan portfolio, our underwriting procedures,significant and our allowance for losses on such loans. Any increase in the loan loss allowance or in loan charge-offs as required by such regulatory authorities could have a material adverse effectimpact on our financial condition and results of operations.
Liquidity Risks
Failure to maintain an adequate level of liquidity could result in an inability to fulfill our financial obligations and also could subject us to material reputational and compliance risk.
“Liquidity” refers to our ability to generate sufficient cash flows to support our operations and to fulfill our obligations, including commitments to originate loans, to repay our wholesale borrowings and other liabilities, and to satisfy the withdrawal of deposits by our customers.
Our primary sources of liquidity are the retail and institutional deposits we gather or acquire in connection with acquisitions, and the brokered deposits we accept; borrowed funds, primarily in the form of wholesale borrowings from theFHLB-NY and various Wall Street brokerage firms; cash flows generated through the repayment and sale of loans; and cash flows generated through the repayment and sale of securities. In addition, and depending on current market conditions, we have the ability to access the capital markets from time to time to generate additional liquidity.
Deposit flows, calls of investment securities and wholesale borrowings, and the prepayment of loans and mortgage-related securities are strongly influenced by such external factors as the direction of interest rates, whether actual or perceived; local and national economic conditions; and competition for deposits and loans in the markets we serve. The withdrawal of more deposits than we anticipate could have an adverse impact on our profitability as this source of funding, if not replaced by similar deposit funding, would need to be replaced with wholesale funding, the sale of interest-earning assets, or a combination of the two. The replacement of deposit funding with wholesale funding could cause our overall cost of funds to increase, which would reduce our net interest income and results of operations. A decline in interest-earning assets would also lower our net interest income and results of operations.
In addition, large-scale withdrawals of brokered or institutional deposits could require us to pay significantly higher interest rates on our retail deposits or on other wholesale funding sources, which would have an adverse impact on our net interest income and net income. Furthermore, changes to the FHLB-NY’s underwriting guidelines for wholesale borrowings or lending policies may limit or restrict our ability to borrow, and therefore could have a significant adverse impact on our liquidity. A decline in available funding could adversely impact our ability to originate loans, invest in securities, and meet our expenses, or to fulfill such obligations as repaying our borrowings or meeting deposit withdrawal demands.
A downgrade of the credit ratings of the Company and the BanksBank could also adversely affect our access to liquidity and capital, and could significantly increase our cost of funds, trigger additional collateral or funding requirements, and decrease the number of investors and counterparties willing to lend to us or to purchase our securities. This could affect our growth, profitability, and financial condition, including our liquidity.
Inability to fulfill minimum liquidity requirements could limit our ability to conduct or expand our business, pay a dividend, or result in termination of our FDIC deposit insurance, and thus impact our financial condition, our results of operations, and the market value of our stock.
On September 3, 2014, the FRB and other banking regulators adopted final rules implementing a U.S. version of the Basel Committee’s Liquidity Coverage Ratio (the “LCR”) requirement. The LCR requirement, including the modified version applicable to bank holding companies with $50 billion or more in total consolidated assets that have not opted to use the “advanced approaches” risk-based capital rule, requires a banking organization to maintain an amount of unencumbered “high-quality liquid assets” (“HQLAs”) to be at least equal to the amount of its total projected net cash outflows over a hypothetical30-day stress period. Under the rule, only specific classes of assets qualify as HQLAs (the numerator of the LCR), with riskier classes of assets subject to haircuts and caps.
The total net cash outflow amount (the denominator of the LCR) is determined under the rule by applying outflow and inflow rates that reflect certain standardized assumptions against the balance of the banking organization’s funding sources, obligations, transactions, and assets over the hypothetical30-day stress period. Inflows that can be included to offset outflows are limited to 75% of outflows (which effectively means that banking organizations must hold HQLAs equal to 25% of outflows even if outflows perfectly match inflows over the stress period).
On November 20, 2015, the FRB issued a proposed rule that would provide companies that become subject to the modified LCR rule after the rule’s effective date, a full year to comply with the rule. The proposed rule was finalized on December 19, 2016.
The modified LCR is a minimum requirement, and the FRB can impose additional liquidity requirements as a supervisory matter.
If we were to defer payments on our trust preferred capital debt securities or were in default under the related indentures, we would be prohibited from paying dividends or distributions on our common stock.
The terms of our outstanding trust preferred capital debt securities prohibit us from (1) declaring or paying any dividends or distributions on our capital stock, including our common stock; or (2) purchasing, acquiring, or making a liquidation payment on such stock, under the following circumstances: (a) if an event of default has occurred and is continuing under the applicable indenture; (b) if we are in default with respect to a payment under the guarantee of the related trust preferred securities; or (c) if we have given notice of our election to defer interest payments but the related deferral period has not yet commenced, or a deferral period is continuing. In addition, without notice to, or consent from, the holders of our common stock, we may issue additional series of trust preferred capital debt securities with similar terms, or enter into other financing agreements, that limit our ability to pay dividends on our common stock.
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Dividends on the Series A Preferred Stock are discretionary and noncumulative, and may not be paid if such payment will result in our failure to comply with all applicable laws and regulations, or if we fail to obtain thenon-objection of the FRB with respect to the declaration of dividends.regulations.
Dividends on the Series A Preferred Stock are discretionary and noncumulative. If our Board of Directors (or any duly authorized committee of the Board) does not authorize and declare a dividend on the Series A Preferred Stock for any dividend period, holders of the depositary shares will not be entitled to receive any dividend for that dividend period, and the unpaid dividend will cease to accrue and be payable. We have no obligation to pay dividends accrued for a dividend period after the dividend payment date for that period if our Board of Directors (or any duly authorized committee thereof) has not declared a dividend before the related dividend payment date, whether or not dividends on the Series A Preferred Stock or any other series of our preferred stock or our common stock are declared for any future dividend period. Additionally, under the FRB’s capital rules, dividends on the Series A Preferred Stock may only be paid out of our net income, retained earnings, or surplus related to other additional tier 1 capital instruments.
In addition, throughout 2017, If the Company was required to receive anon-objection from the FRB to pay cash dividends on its outstanding common stock, and the FRB has advised the Company to continue the exchange of written documentation to obtain theirnon-objection to the declaration of any dividends, including any dividends on the Series A Preferred Stock. There can be no guarantee that the FRB will approve any requested dividends on the Series A Preferred Stock. Further, if paymentnon-payment of dividends on Series A Preferred Stock for any dividend period would cause the Company to fail to comply with any applicable law or regulation, or any agreement we may enter into with our regulators from time to time, then we willwould not be able to declare or pay a dividend for such dividend period. In such a case, holders of the depositary shares will not be entitled to receive any dividend for that dividend period, and the unpaid dividend will cease to accrue and be payable.
In addition, if the Company were to become a SIFI, as defined in the current regulations, we would become subject to regulations under the Dodd-Frank Act that may limit the amount of capital that can be distributed by the Company from time to time. These would include a requirement to submit an annual capital plan to the FRB describing proposed capital distributions and obtaining anon-objection from the FRB. At December 31, 2017, the four-quarter average of our total consolidated assets was $48.7 billion. Based on the current regulations, the Company will become a SIFI if our total consolidated assets average, meets or exceeds $50 billion over four consecutive quarters.
Legal/Compliance Risks
Inability to fulfill minimum capital requirements could limit our ability to conduct or expand our business, pay a dividend, or result in termination of our FDIC deposit insurance, and thus impact our financial condition, our results of operations, and the market value of our stock.
We are subject to the comprehensive, consolidated supervision and regulation set forth by the FRB. Such regulation includes, among other matters, the level of leverage and risk-based capital ratios we are required to maintain. Depending on general economic conditions, changes in our capital position could have a materially adverse impact on our financial condition and risk profile, and also could limit our ability to grow through acquisitions or otherwise. Compliance with regulatory capital requirements may limit our ability to engage in operations that require the intensive use of capital and therefore could adversely affect our ability to maintain our current level of business or expand.
Furthermore, it is possible that future regulatory changes could result in more stringent capital or liquidity requirements, including increases in the levels of regulatory capital we are required to maintain and changes in the way capital or liquidity is measured for regulatory purposes, either of which could adversely affect our business and our ability to expand. For example, federal banking regulations adopted under Basel III standards require bank holding companies and banks to undertake significant activities to demonstrate compliance with higher capital requirements. Any additional requirements to increase our capital ratios or liquidity could necessitate our liquidating certain assets, perhaps on terms that are unfavorable to us or that are contrary to our business plans. In addition, such requirements could also compel us to issue additional securities, thus diluting the value of our common stock.
In addition, failure to meet established capital requirements could result in the FRB placing limitations or conditions on our activities and further restricting the commencement of new activities. The failure to meet applicable capital guidelines could subject us to a variety of enforcement remedies available to the federal regulatory authorities, including limiting our ability to pay dividends; issuing a directive to increase our capital; and terminating our FDIC deposit insurance.
Should the average of our total consolidated assets over four consecutive quarters pass the current SIFI threshold of $50 billion, we would expect to be subject to stricter prudential standards required by the Dodd-Frank Act for large bank holding companies.
Pursuant to the current requirements of the Dodd-Frank Act, a bank holding company whose total consolidated assets average more than $50 billion over the four most recent quarters is determined to be a SIFI, and therefore is subject to stricter prudential standards. In addition to capital and liquidity requirements, these standards primarily include risk-management requirements, dividend limits, and early remediation regimes.
On December 18, 2017, the Senate Banking Committee passed a bipartisan regulatory reform bill, the Economic Growth, Regulatory Relief, and Consumer Protection Act (S.2155). Among many other provisions, the bill would raise the designation as a SIFI to $250 billion in assets from $50 billion, end company run stress tests for banks under $250 billion in assets, and simplify capital calculations for community banks. There is no guarantee that the bill will pass or that it will pass in its current form.
Our results of operations could be materially affected by further changes in bank regulation, or by our ability to comply with certain existing laws, rules, and regulations governing our industry.
We are subject to regulation, supervision, and examination by the following entities: (1) the NYSDFS, the chartering authority for both the Community Bank and the Commercial Bank;OCC; (2) the FDIC, asFDIC; (3) the insurer of the Banks’ deposits; (3) theFRB-NY, in accordance with objectives and standards of the U.S. Federal Reserve System;FRB-NY; and (4) the CFPB, which was established in 2011 under the Dodd-Frank Actas well as state licensing restrictions and given broad authority to regulate financial service providers and financiallimitations regarding certain consumer finance products.
Such regulation and supervision governsgovern the activities in which a bank holding company and its banking subsidiaries may engage, and are intended primarily for the protection of the Deposit Insurance Fund (“DIF”),DIF, the banking system in general, and bank customers, rather than for the benefit of a company’s stockholders. These regulatory authorities have extensive discretion in connection with their supervisory and enforcement activities, including with respect to the imposition of restrictions on the operation of a bank or a bank holding company, the imposition of significant fines, the ability to delay or deny merger or other regulatory applications, the classification of assets by a bank, and the adequacy of a bank’s allowance for loan losses, among other matters. Failure to comply (or to ensure that our agents and third-party service providers comply) with laws, regulations, or policies, including our failure to obtain any necessary state or local licenses, could result in enforcement actions or sanctions by regulatory agencies, civil money penalties, and/or reputational damage, which could have a material adverse effect on our business, financial
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condition, or results of operations. Penalties for such violations may also include: revocation of licenses; fines and other monetary penalties; civil and criminal liability; substantially reduced payments by borrowers; modification of the original terms of loans, permanent forgiveness of debt, or inability to, directly or indirectly, collect all or a part of the principal of or interest on loans provided by the Bank. Changes in such regulation and supervision, or changes in regulation or enforcement by such authorities, whether in the form of policy, regulations, legislation, rules, orders, enforcement actions, ratings, or decisions, could have a material impact on the Company, our subsidiary banksbank and other affiliates, and our operations. In addition, failure of the Company or the BanksBank to comply with such regulations could have a material adverse effect on our earnings and capital.
See “Regulation and Supervision” in Part I, Item 1, “Business” earlier in this filing for a detailed description of the federal, state, and local regulations to which the Company and the BanksBank are subject.
Noncompliance with the Bank Secrecy Act and other anti-money laundering statutes and regulations could result in material financial loss.
The BSA and the USA Patriot Act contain anti-money laundering and financial transparency provisions intended to detect and prevent the use of the U.S. financial system for money laundering and terrorist financing activities. The BSA, as amended by the USA Patriot Act, requires depository institutions to undertake activities including maintaining an anti-money laundering program, verifying the identity of clients, monitoring for and reporting suspicious transactions, reporting on cash transactions above a certain threshold, and responding to requests for information by regulatory authorities and law enforcement agencies. FINCEN, a unit of the U.S. Treasury Department that administers the BSA, is authorized to impose significant civil monetary penalties for violations of these requirements. If our BSA policies, procedures and systems are deemed to be deficient, or the BSA policies, procedures and systems of the financial institutions that we acquire in the future are deficient, we would be subject to reputational risk and potential liability, including fines and regulatory actions such as restrictions on our ability to pay dividends and the necessity to obtain regulatory approvals to proceed with certain aspects of our business plan, including our acquisition plans, which would negatively impact our business, financial condition and results of operations.
Failure to comply with OFAC regulations could result in legal and reputational risks.
The United States has imposed economic sanctions that affect transactions with designated foreign countries, foreign nationals, and other potentially exposed persons. These are typically referred to as the "OFAC" rules, given their administration by the United States Treasury Department Office of Foreign Assets Control. Failure to comply with these sanctions could have serious legal and reputational consequences.
Our enterprise risk management framework may not be effective in mitigating the risks to which we are subject, based upon the size, scope, and complexity of the Company.
As a financial institution, we are subject to a number of risks, including interest rate, credit, liquidity, legal/compliance, market, strategic, operational, and reputational. Our ERM framework is designed to minimize the risks to which we are subject, as well as any losses stemming from such risks. Although we seek to identify, measure, monitor, report, and control our exposure to such risks, and employ a broad and diverse set of risk monitoring and mitigation techniques in the process, those techniques are inherently limited because they cannot anticipate the existence or development of risks that are currently unknown and unanticipated.
For example, economic and market conditions, heightened legislative and regulatory scrutiny of the financial services industry, and increases in the overall complexity of our operations, among other developments, have resulted in the creation of a variety of risks that were previously unknown and unanticipated, highlighting the intrinsic limitations of our risk monitoring and mitigation techniques. As a result, the further development of previously unknown or unanticipated risks may result in our incurring losses in the future that could adversely impact our financial condition and results of operations. Furthermore, an ineffective ERM framework, as well as other risk factors, could result in a material increase in our FDIC insurance premiums.
If federal, state, or local tax authorities were to determine that we did not adequately provide for our taxes, our income tax expense could be increased, adversely affecting our earnings.
The amount of income taxes we are required to pay on our earnings is based on federal, state, and local legislation and regulations. We provide for current and deferred taxes in our financial statements, based on our results of operations, business activity, legal structure, interpretation of tax statutes, assessment of risk of adjustment upon audit, and application of financial accounting standards. We may take tax return filing positions for which the final determination of tax is uncertain, and our net income and earnings per share could be reduced if a federal, state, or local authority were to assess additional taxes that have not been provided for in our consolidated financial statements.
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In addition, there can be no assurance that we will achieve our anticipated effective tax rate. Unanticipated changes in tax laws or related regulatory or judicial guidance, or an audit assessment that denies previously recognized tax benefits, could result in our recording tax expenses that materially reduce our net income.
We are subject to numerous laws designed to protect consumers, including the Community Reinvestment Act fair lending laws, and failure to comply with these laws could lead to a wide variety of sanctions.
The CRA requires the Federal Reserve to assess our performance in meeting the credit needs of the communities we serve, including low- and moderate-income neighborhoods. If the Federal Reserve determines that we need to improve our performance or are in substantial non-compliance with CRA requirements, various adverse regulatory consequences may ensue. In addition, the Equal Credit Opportunity Act, the Fair Housing Act and other fair lending laws and regulations impose nondiscriminatory lending requirements on financial institutions. The CFPB, the U.S. Department of Justice and other federal agencies are responsible for enforcing these laws and regulations. The CFPB is also authorized to prescribe rules applicable to any covered person or service provider, identifying and prohibiting acts or practices that are “unfair, deceptive, or abusive” in connection with any transaction with a consumer for a consumer financial product or service, or the offering of a consumer financial product or service. A successful regulatory challenge to an institution’s performance under the CRA, fair lending laws or regulations, or consumer lending laws and regulations could result in a wide variety of sanctions, including damages and civil money penalties, injunctive relief, restrictions on mergers and acquisitions activity, restrictions on expansion, and restrictions on entering new business lines. Private parties may also have the ability to challenge an institution’s performance under fair lending laws in private class action litigation. Such actions could have a material adverse effect on our business, financial condition and results of operations. Additionally, state attorneys general have indicated that they intend to take a more active role in enforcing consumer protection laws, including through use of Dodd-Frank Act provisions that authorize state attorneys general to enforce certain provisions of federal consumer financial laws and obtain civil money penalties and other relief available to the CFPB. If we become subject to such investigation, the required response could result in substantial costs and a diversion of the attention and resources of our management.
Market Risks
A decline in economic conditions could adversely affect the value of the loans we originate and the securities in which we invest.
Although we take steps to reduce our exposure to the risks that stem from adverse changes in economic conditions, such changes nevertheless could adversely impact the value of the loans we originate, the securities we invest in, and our loan portfolios.
Declines in real estate values and home sales, and an increase in the financial stress on borrowers stemming from high unemployment or other adverse economic conditions, could negatively affect our borrowers and, in turn, the repayment of the loans in our portfolio. Deterioration in economic conditions also could subject us and our industry to increased regulatory scrutiny, and could result in an increase in loan delinquencies, an increase in problem assets and foreclosures, and a decline in the value of the collateral for our loans, which could reduce our customers’ borrowing power. Deterioration in local economic conditions could drive the level of loan losses beyond the level we have provided for in our loan loss allowances;allowance; this, in turn, could necessitate an increase in our provisions for loan losses, which would reduce our earnings and capital. Furthermore, declines in the value of our investment securities could result in our having to record losses based on the other-than-temporary impairment of securities, which would reduce our earnings and also could reduce our capital. In addition, continued economic weakness could reduce the demand for our products and services, which would adversely impact our liquidity and the revenues we produce.
Higher inflation could have a negative impact on our financial results and operations.
TheInflation can negatively impact the Company by increasing our labor costs, through higher wages and higher interest rates, which may negatively affect the market pricevalue of securities on our balance sheet, higher interest expenses on our deposits, especially CDs, and liquiditya higher cost of our common stockborrowings. Additionally, higher inflation levels could be adversely affected iflead to higher oil and gas prices, which may negatively impact the economy werenet operating income on the properties which we lend on and could impair a borrower's ability to weaken or the capital markets were to experience volatility.repay their mortgage.
Rising mortgage rates and adverse changes in mortgage market conditions could reduce mortgage revenue.
The market price of our common stock could be subject to significant fluctuations dueresidential real estate mortgage lending business is sensitive to changes in interest rates, especially long-term interest rates. Lower interest rates generally increase the volume of mortgage originations, while higher interest rates generally cause that volume to decrease. Therefore, our mortgage performance is typically correlated to fluctuations in interest rates, primarily the 10-year U.S. Treasury rate. Historically, mortgage origination volume and
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sales for the Bank and for other financial institutions have risen and fallen in response to these and other factors. An increase in interest rates and/or a decrease in our mortgage production volume could have a materially adverse effect on our operating results. The 10-year U.S. Treasury rate was 3.88 percent at December 31, 2022, and averaged 2.95 percent during 2022, 151 basis points higher than average rates experienced during 2021. The sustained higher rates experienced throughout 2022 negatively impacted the mortgage market including our loan origination volume and refinancing activity. In addition to being affected by interest rates, the secondary mortgage markets are also subject to investor sentiment regarding our operationsdemand for residential mortgage loans and investor yield requirements for these loans. These conditions may fluctuate or business prospects. Among other factors, these risksworsen in the future. Adverse market conditions, including increased volatility, changes in interest rates and mortgage spreads and reduced market demand, could result in greater risk in retaining mortgage loans pending their sale to investors. A prolonged period of secondary market illiquidity may be affected by:
Economic or market turmoil could occur in the near or long term, which could negatively affect our business,have a materially adverse effect on our financial condition and results of operations.
Our mortgage origination business is also subject to the cyclical and seasonal trends of the real estate market. The cyclical nature of our industry could lead to periods of growth in the mortgage and real estate markets followed by periods of declines and losses in such markets. Seasonal trends have historically reflected the general patterns of residential and commercial real estate sales, which typically peak in the spring and summer seasons. One of the primary influences on our mortgage business is the aggregate demand for mortgage loans, which is affected by prevailing interest rates, housing supply and demand, residential construction trends, and overall economic conditions. If we are unable to respond to the cyclical nature of our industry by appropriately adjusting our operations or relying on the strength of our other product offerings during cyclical downturns, our business, financial condition, and results of operations could be adversely affected. Additionally, the fair value of our MSRs is highly sensitive to changes in interest rates and changes in market implied interest rate volatility. Decreases in interest rates can trigger an increase in actual repayments and market expectation for higher levels of repayments in the future which have a negative impact on MSR fair value. Conversely, higher rates typically drive lower repayments which results in an increase in the MSR fair value. We utilize derivatives to manage the impact of changes in the fair value of the MSRs. We may have basis risk and our risk management strategies, which rely on assumptions or projections, may not adequately mitigate the impact of changes in interest rates, interest rate volatility, convexity, credit spreads, or prepayment speeds, and, as a result, the change in the fair value of MSRs may negatively impact earnings.
We are highly dependent on the Agencies to buy mortgage loans that we originate. Changes in these entities and changes in the manner or volume of loans they purchase or their current roles could adversely affect our business, financial condition and results of operations.
We generate mortgage revenues primarily from gains on the sale of single-family residential loans pursuant to programs currently offered by Fannie Mae, Freddie Mac, Ginnie Mae and other investors. These entities account for a substantial portion of the secondary market in residential mortgage loans. Any future changes in these programs, our eligibility to participate in such programs, their concentration limits with respect to loans purchased from us, the criteria for loans to be accepted or laws that significantly affect the activity of such entities could, in turn, result in a lower volume of corresponding loan originations or other administrative costs which may have a materially adverse effect on our results of operations or could cause us to take other actions that would be materially detrimental. Fannie Mae and Freddie Mac remain in conservatorship and a path forward for them to emerge from conservatorship is unclear. Their roles could be reduced, modified or eliminated as well as volatilitya result of regulatory actions and the nature of their guarantees could be limited or eliminated relative to historical measurements. The elimination or modification of the traditional roles of Fannie Mae or Freddie Mac could create additional competition in the pricemarket and trading volumesignificantly and adversely affect our business, financial condition and results of operations.
Changes in the servicing, origination, or underwriting guidelines or criteria required by the Agencies could adversely affect our common stock.business, financial condition and results of operations.
We are required to follow specific guidelines or criteria that impact the way we originate, underwrite or service loans. Guidelines include credit standards for mortgage loans, our staffing levels and other servicing practices, the servicing and ancillary fees that we may charge, modification standards and procedures, and the amount of non-reimbursable advances. We cannot negotiate these terms, which are subject to change at any time, with the Agencies. A significant change in these guidelines, which decreases the fees we charge or requires us to expend additional resources in providing mortgage services, could decrease our revenues or increase our costs, adversely affecting our business, financial condition, and results of operations. In addition, changes in the nature or extent of the guarantees
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provided by Fannie Mae and Freddie Mac or the insurance provided by the FHA could also have broad adverse market implications. The fees that we are required to pay to the Agencies for these guarantees have changed significantly over time and any future increases in these fees would adversely affect our business, financial condition and results of operations.
Strategic Risks
Extensive competition for loans and deposits could adversely affect our ability to expand our business, as well as our financial condition and results of operations.
We face significant competition for loans and deposits from other banks and financial institutions, both within and beyond our local markets. We also compete with companies that solicit loans and deposits over the Internet.
Because our profitability stems from our ability to attract deposits and originate loans, our continued ability to compete for depositors and borrowers is critical to our success. Our success as a competitor depends on a number of factors, including our ability to develop, maintain, and build long-term relationships with our customers by providing them with convenience, in the form of multiple branch locations, extended hours of service, and access through alternative delivery channels; a broad and diverse selection of products and services; interest rates and service fees that compare favorably with those of our competitors; and skilled and knowledgeable personnel to assist our customers by addressing their financial needs. External factors that may impact our ability to compete include, among others, the entry of new lenders and depository institutions in our current markets and, with regard to lending, an increased focus on multi-family and CRE lending by existing competitors.
Limitations on our ability to grow our loan portfolios of multi-family and CRE loans could adversely affect our ability to generate interest income, as well our financial condition and results of operations, perhaps materially.
Although we also originate ADC and C&I loans, and invest in securities, ourOur portfolios of multi-family and CRE loans represent the largest portion of our asset mix (92.2%(68 percent of total loans held for investment as of December 31, 2017)2022). Our leadership position in these markets has been instrumental to our production of solid earnings and our consistent record of exceptional asset quality. In view of the heightened regulatory focus on CRE concentration, weWe monitor the ratio of our multi-family, CRE, and ADC loans (as defined in the CRE Guidance) to our total risk-based capital to ensure that it remains within the 850% limit we have agreedare in compliance with regulatory guidance. Any inability to with our regulators. Were the ratio to exceed that limit, we would act to rectify it, either by reducinggrow our multi-family and CRE and ADC loan production and/or by raising additional capital. Either of these actionsportfolios, could have an adversenegatively impact on our net interest income andability to grow our earnings capacity, as would any further regulatory limitations on our CRE lending. (See the discussion on CRE Guidance that appears in “FDIC Regulations – Real Estate Lending Standards” under “Regulation and Supervision” earlier in this report.)per share.
The inability to engage in merger transactions, or to realize the anticipated benefits of acquisitions in which we might engage, could adversely affect our ability to compete with other financial institutions and weaken our financial performance.
Mergers and acquisitions have contributed significantly to our growth and it is possible that we will look to acquire other financial institutions, financial service providers, or branches of banks in the future.
Our ability to engage in future mergers and acquisitions would depend on our ability to identify suitable merger partners and acquisition opportunities, our ability to finance and complete negotiated transactions at acceptable prices and on acceptable terms, and our ability to obtain the necessary shareholderstockholder and regulatory approvals.
If we are unable to engage in or complete a desired acquisition or merger transaction, our financial condition and results of operations could be adversely impacted. As acquisitions have been a significant source of deposits, the inability to complete a business combination could require that we increase the interest rates we pay on deposits in order to attract such funding through our current branch network, or that we increase our use of wholesale funds. Increasing our cost of funds could adversely impact our net interest income and our net income. Furthermore, the absence of acquisitions could impact our ability to fulfill our loan demand.
Mergers and acquisitions involve a number of risks and challenges, including:
In addition, mergers and acquisitions can lead to uncertainties about the future on the part of customers and employees. Such uncertainties could cause customers and others to consider changing their existing business relationships with the company to be acquired, and could cause its employees to accept positions with other companies before the merger occurs. As a result, the ability of a company to attract and retain customers, and to attract, retain, and motivate key personnel, prior to a merger’s completion could be impaired.
Furthermore, no assurance can be given that acquired operations would not adversely affect our existing profitability; that we would be able to achieve results in the future similar to those achieved by our existing banking business; that we would be able to compete effectively in the market areas served by acquired branches; or that we would be able to manage any growth resulting from a transaction effectively. In particular, our ability to compete effectively in new markets would be dependent on our ability to understand those markets and their competitive dynamics, and our ability to retain certain key employees from the acquired institution who know those markets better than we do.
If
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We may be exposed to challenges in combining the operations of acquired or merged businesses, including our goodwill were determinedrecent Flagstar acquisition, into our operations, which may prevent us from achieving the expected benefits from our merger and acquisition activities.
We may not be able to be impaired, it would result in a charge against earningsfully achieve the strategic objectives and thus a reductionoperating efficiencies that we anticipate in our stockholders’ equity.
merger and acquisition activities. Inherent uncertainties exist in integrating the operations of an acquired business. We test goodwill for impairment on an annual basis,may lose our customers or more frequently, if necessary. If we were to determine that the carrying amountcustomers of our goodwill exceeded its implied fair value, we would be required to write down the valueacquired entities as a result of the goodwillacquisition. We may also lose key personnel from the acquired entity as a result of an acquisition. We may not discover all known and unknown factors when examining a company for acquisition or merger during the due diligence period. These factors could produce unintended and unexpected consequences for us including, but not limited to, increased compliance and legal risks, including increased litigation or regulatory actions such as fines or restrictions related to the business practices or operations of the combined business. Undiscovered factors as a result of an acquisition or merger could bring civil, criminal, and financial liabilities against us, our management, and the management of those entities we acquire or merge with. In addition, if difficulties arise with respect to the integration process, we may incur higher integration expenses than anticipated and the economic benefits expected to result from the acquisition, including revenue growth and cost savings, might not occur or might not occur to the extent we expected. Failure to successfully integrate businesses that we acquire or merge with could have an adverse effect on our balance sheet, adversely affectingprofitability, return on equity, return on assets, or our earnings as well asability to implement our capital.strategy, any of which in turn could have a material adverse effect on our business, financial condition and results of operations.
The inability to receive dividends from our subsidiary banksbank could have a material adverse effect on our financial condition or results of operations, as well as our ability to maintain or increase the current level of cash dividends we pay to our shareholders.stockholders.
The Parent Company (i.e., the company on an unconsolidated basis) is a separate and distinct legal entity from the Banks,Bank, and a substantial portion of the revenues the Parent Company receives consists of dividends from the Banks.Bank. These dividends are the primary funding source for the dividends we pay on our common stock and the interest and principal payments on our debt. Various federal and state laws and regulations limit the amount of
dividends that a bank may pay to its parent company. In addition, our right to participate in a distribution of assets upon the liquidation or reorganization of a subsidiary may be subject to the prior claims of the subsidiary’s creditors. As a result of our acquisition of Flagstar, we are required to seek regulatory approval from the OCC for the payment of any dividend to the Bancorp through at least the period ending November 1, 2024. If the Banks areBank is unable to pay dividends to the Parent Company, we might not be able to service our debt, pay our obligations, or pay dividends on our common stock.
Reduction or elimination of our quarterly cash dividend could have an adverse impact on the market price of our common stock.
Holders of our common stock are only entitled to receive such dividends as our Board of Directors may declare out of funds available for such payments under applicable law and regulatory guidance, and although we have historically declared cash dividends on our common stock, we are not required to do so. Furthermore, the payment of dividends falls under federal regulations that have grown more stringent in recent years. Throughout 2017, the Company was required to receive anon-objection from the FRB to pay cash dividends on its outstanding common stock, and the FRB has advised the Company to continue the exchange of written documentation to obtain theirnon-objection to the declaration of dividends. While we pay our quarterly cash dividend in compliance with current regulations, such regulations could change in the future. In addition, ifAs a result of our acquisition of Flagstar, we are required to seek regulatory approval from the OCC for the payment of any dividend to the Parent Company werethrough at least the period ending November 1, 2024, which could restrict our ability to become a SIFI institution, as defined inpay the current regulations, we would become subject to regulations under the Dodd-Frank Act that limit the amount of capital that can be distributed by the Company from time to time.common stock dividend. Any reduction or elimination of our common stock dividend in the future could adversely affect the market price of our common stock.
Operational Risks
Our stress testing processes rely on analytical and forecasting models that may prove to be inadequate or inaccurate, which could adversely affect the effectiveness of our strategic planning and our ability to pursue certain corporate goals.
In accordance with the Dodd-Frank Act, banking organizations with $10 billion to $50 billion in assets currently are required to perform annual capital stress tests and to report the results of such tests. The results of our capital stress tests and the application of certain capital rules may result in constraints being placed on our capital distributions or require that we increase our regulatory capital under certain circumstances.
In addition, the processes we use to estimate the effects of changing interest rates, real estate values, and economic indicators such as unemployment on our financial condition and results of operations depend upon the use of analytical and forecasting models. These models reflect assumptions that may not be accurate, particularly in times of market stress or other unforeseen circumstances. Furthermore, even if our assumptions are accurate predictors of future
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performance, the models they are based on may prove to be inadequate or inaccurate because of other flaws in their design or implementation. If the models we use in the process of managing our interest rate and other risks prove to be inadequate or inaccurate, we could incur increased or unexpected losses which, in turn, could adversely affect our earnings and capital. Additionally, failure by the Company to maintain compliance with strict capital, liquidity, and other stress test requirements under banking regulations could subject us to regulatory sanctions, including limitations on our ability to pay dividends.
The occurrence of any
Any failure, breach, or interruption in service involving our systems or those of our service providers could damage our reputation, cause losses, increase our expenses, and result in a loss of customers, an increase in regulatory scrutiny, heightened cyber risk, or expose us to civil litigation and possibly financial liability, any of which could adversely impact our financial condition, results of operations, and the market price of our stock.
Communication and information systems are essential to the conduct of our business, as we use such systems, and those maintained and provided to us by third partythird-party service providers, to manage our customer relationships, our general ledger, our deposits, and our loans. In addition, our operations rely on the secure processing, storage, and transmission of confidential and other information in our computer systems and networks. Although we take protective measures and endeavor to modify them as circumstances warrant, the security of our computer systems, software, and networks may be vulnerable to breaches, unauthorized access, misuse, computer viruses, or other malicious code and cyber-attacks that could have an impact on information security. With the rise and permeation of online and mobile banking, the financial services industry in particular faces substantial cybersecurity risk due to the type of sensitive information provided by customers. Our systems and those of our third-party service providers and customers are under constant threat, and it is possible that we or they could experience a significant event in the future that could adversely affect our business or operations.
In addition, breaches of security may occur through intentional or unintentional acts by those having authorized or unauthorized access to our confidential or other information, or that of our customers, clients, or counterparties. If one or more of such events were to occur, the confidential and other information processed and stored in, and transmitted through, our computer systems and networks could potentially be jeopardized, or could otherwise cause interruptions or malfunctions in our operations or the operations of our customers, clients, or counterparties. This could cause us significant reputational damage or result in our experiencing significant losses.
While we diligently assess applicable regulatory and legislative developments affecting our business, laws and regulations relating to cybersecurity have been frequently changing, imposing new requirements on us, such as the recently adopted New York State Department of Financial Services’ Cybersecurity Requirements for Financial Services Companies regulation.us. In light of these conditions, we face the potential for additional regulatory scrutiny that will lead to increasing compliance and technology expenses and, in some cases, possible limitations on the achievement of our plans for growth and other strategic objectives.
Furthermore, we We may also be required to expend significant additional resources to modify our protective measures or investigate and remediate vulnerabilities or other exposures arising from operational and security risks. Additional expenditures may be requiredrisks, including expenses for third-party expert consultants or outside counsel.
We also may be subject to litigation and financial losses that either are not insured against or not fully covered through any insurance we maintain. We believe that the impact of any previously identified cyber incidents will not have a material financial impact and we have cyber insurance in place.
In addition, we routinely transmit and receive personal, confidential, and proprietary information by e-mail and other electronic means. We have discussed, and worked with our customers, clients, and counterparties to develop secure transmission capabilities, but we do not have, and may be unable to put in place, secure capabilities with all of these constituents, and we may not be able to ensure that these third parties have appropriate controls in place to protect the confidentiality of such information. We maintain disclosure controls and procedures to ensure we will timely and sufficiently notify our investors of material cybersecurity risks and incidents, including the associated financial, legal, or reputational consequence of such an event, as well as reviewing and updating any prior disclosures relating to the risk or event.
While we have established information security policies and procedures, including an Incident Response Plan, to prevent or limit the impact of systems failures and interruptions, we may not be able to anticipate all possible security breaches that could affect our systems or information and there can be no assurance that such events will not occur or will be adequately prevented or mitigated if they do.
We maintain policies and procedures to prevent directors, certain officers, and corporate insiders from trading stock after being made aware of a material cybersecurity incident and to control the distribution of information about cybersecurity events that could constitute material information to the Company; however, we cannot be certain that a corporate insider who becomes aware of a Company material cybersecurity incident does not undertake to buy or sell Company stock before information about the incident becomes publicly available.
The Company and the BanksBank rely on third parties to perform certain key business functions, which may expose us to further operational risk.
We outsource certain key aspects of our data processing to certain third-party providers. While we have selected these third-party providers carefully, we cannot control their actions. Our ability to deliver products and services to
36
our customers, to adequately process and account for our customers’ transactions, or otherwise conduct our business could be adversely impacted by any disruption in the services provided by these third parties; their failure to handle current or higher volumes of usage; or any difficulties we may encounter in communicating with them. Replacing these third-party providers also could entail significant delay and expense.
Our third-party providers may be vulnerable to unauthorized access, computer viruses, phishing schemes, and other security breaches. Threats to information security also exist in the processing of customer information through various other third-party providers and their personnel. We may be required to expend significant additional resources to protect against the threat of such security breaches and computer viruses, or to alleviate problems caused by such security breaches or viruses. To the extent that the activities of our third-party providers or the activities of our customers involve the storage and transmission of confidential information, security breaches and viruses could expose us to claims, regulatory scrutiny, litigation, and other possible liabilities.
These types of third-party relationships are subject to increasingly demanding regulatory requirements and oversight by federal bank regulators (such as the Federal Reserve Board, the Office of the Comptroller of the Currency, and the Federal Deposit Insurance Corporation) and the CFPB. As a result, if our regulators conclude that we have not exercised adequate oversight and control over vendors and subcontractors or other ongoing third-party business relationships or that such third-parties have not performed appropriately, we could be subject to enforcement actions, including civil money penalties or other administrative or judicial penalties or fines, as well as requirements for consumer remediation. In addition, the Company may not be adequately insured against all types of losses resulting from third-party failures, and our insurance coverage may be inadequate to cover all losses resulting from systems failures or other disruptions to our banking services.
Failure to keep pace with technological changes could have a material adverse impact on our ability to compete for loans and deposits, and therefore on our financial condition and results of operations.
Financial products and services have become increasingly technology-driven. To some degree, ourOur ability to meet the needs of our customers competitively, and in a cost-efficient manner, is dependent on our ability to keep pace with technological advances and to invest in new technology as it becomes available. Many of our competitors have greater resources to invest in technology than we do and may be better equipped to invest in and market new technology-driven products and services.
If federal, state, or local tax authorities were to determine that we did not adequately provide for our taxes, our income tax expense could be increased, adversely affecting our earnings.
The amount of income taxes we are required to pay on our earnings is based on federal, state, and local legislation and regulations. We provide for current and deferred taxes in our financial statements, based on our results of operations, business activity, legal structure, interpretation of tax statutes, assessment of risk of adjustment upon audit, and application of financial accounting standards. We may take tax return filing positions for which the final determination of tax is uncertain, and our net income and earnings per share could be reduced if a federal, state, or local authority were to assess additional taxes that have not been provided for in our consolidated financial statements. In addition, there can be no assurance that we will achieve our anticipated effective tax rate. Unanticipated changes in tax laws or related regulatory or judicial guidance, or an audit assessment that denies previously recognized tax benefits, could result in our recording tax expenses that materially reduce our net income.
The inability to attract and retain key personnel could adversely impact our financial condition and results of operations.
To a large degree, our success depends on our ability to attract and retain key personnel whose expertise, knowledge of our markets, and years of industry experience would make them difficult to replace. Competition for skilled leaders in our industry can be intense, and we may not be able to hire or retain the people we would like to have working for us. The unexpected loss of services of one or more of our key personnel could have a material adverse impact on our business, given the specialized knowledge of such personnel and the difficulty of finding qualified replacements on a timely basis. Furthermore, our ability to attract and retain personnel with the skills and knowledge to support our business may require that we offer additional compensation and benefits that would reduce our earnings.
Many aspects of our operations are dependent upon the soundness of other financial intermediaries and thus could expose us to systemic risk.
The soundness of many financial institutions may be closely interrelated as a result of relationships between them involving credit, trading, execution of transactions, and the like. As a result, concerns about, or a default or threatened default by, one institution could lead to significant market-wide liquidity and credit problems, losses, or defaults by other institutions. As such “systemic risk” may adversely affect the financial intermediaries with which we interact on a daily basis (such as clearing agencies, clearing houses, banks, and securities firms and exchanges), we could be adversely impacted as well.
We may be terminated as a servicer or subservicer or incur costs, liabilities, fines and other sanctions if we fail to satisfy our servicing obligations, including our obligations with respect to mortgage loan foreclosure actions.
At December 31, 2022, we had relationships with 12 owners of MSRs, excluding ourselves, for which we act as subservicer for the mortgage loans they own. Due to the limited number of relationships, discontinuation of existing agreements with those third parties or adverse changes in contractual terms could have a significant negative impact to our mortgage servicing revenue. The terms and conditions in which a master servicer may terminate subservicing contracts are broad and could be exercised at the discretion of the master servicer without requiring cause. Additionally, the master servicer directs the oversight of custodial deposits associated with serviced loans and, to the extent allowable, could choose to transfer the oversight of the Bank's custodial deposits to another depository
37
institution. Further, as servicer or subservicer of loans, we have certain contractual obligations, including foreclosing on defaulted mortgage loans or, to the extent applicable, considering alternatives to foreclosure. If we commit a material breach of our obligations as servicer, we may be subject to termination if the breach is not cured within a specified period of time following notice, causing us to lose servicing income.
We may be required to repurchase mortgage loans, pay fees or indemnify buyers against losses.
When mortgage loans are sold by us, we make customary representations and warranties to purchasers, guarantors and insurers, including the Agencies, about the mortgage loans and the manner in which they were originated. Whole loan sale agreements may require us to repurchase or substitute mortgage loans, or indemnify buyers against losses, in the event we breach these representations or warranties. In addition, we may be required to repurchase mortgage loans as a result of early payment default of the borrower or we may be required to pay fees. We may also be subject to litigation relating to these representations and warranties which may result in significant costs. With respect to loans that are originated through our broker or correspondent channels, the remedies we have available against the originating broker or correspondent, if any, may not be as broad as the remedies available to purchasers, guarantors and insurers of mortgage loans against us. We also face further risk that the originating broker or correspondent, if any, may not have the financial capacity to perform remedies that otherwise may be available. Therefore, if a purchaser, guarantor or insurer enforces its remedies against us, we may not be able to recover losses from the originating broker or correspondent. If repurchase and indemnity demands increase and such demands are valid claims, our liquidity, results of operations and financial condition may also be adversely affected. For certain investors and/or certain transactions, we may be contractually obligated to repurchase a mortgage loan or reimburse the investor for credit or other losses incurred on the loan as a remedy for servicing errors with respect to the loan. If we have increased repurchase obligations because of claims for which we did not satisfy our obligations, or increased loss severity on such repurchases, we may have a significant reduction to noninterest income or an increase to noninterest expense. We may incur significant costs if we are required to, or if we elect to, re-execute or re-file documents or take other action in our capacity as a servicer in connection with pending or completed foreclosures. We may incur litigation costs if the validity of a foreclosure action is challenged by a borrower. Any of these actions may harm our reputation or negatively affect our servicing business and, as a result, our profitability.
The pipeline represents the UPB for loans the Agencies identified as potentially needing to be repurchased, and the estimated probable loss associated with these loans is included in our representation and warranty reserve. While we believe the level of the reserve to be appropriate, the reserve may not be adequate to cover losses for loans that we have sold or securitized for which we may be subsequently required to repurchase, pay fines or fees, or indemnify purchasers and insurers because of violations of customary representations and warranties. Additionally, the pipeline could increase substantially without warning. Our regulators, as part of their supervisory function, may review our representation and warranty reserve for losses and may recommend or require us to increase our reserve, based upon their judgment, which may differ from that of Management.
We utilize third-party mortgage originators which subjects us to strategic, reputation, compliance, and operational risk.
We utilize third-party mortgage originators, i.e. mortgage brokers and correspondent lenders, who are not our employees. These third parties originate mortgages or provide services to many different banks and other entities. Accordingly, they may have relationships with, or loyalties to, such banks and other parties that are different from those they have with or to us. Failure to maintain good relations with such third-party mortgage originators could have a negative impact on our market share which would negatively impact our results of operations. We rely on third-party mortgage originators to originate and document the mortgage loans we purchase or originate. While we perform due diligence on the mortgage companies with whom we do business as well as review the loan files and loan documents we purchase to attempt to detect any irregularities or legal noncompliance, we have less control over these originators than employees of the Bank. Due to regulatory scrutiny, our third-party mortgage originators could choose or be required to either reduce the scope of their business or exit the mortgage origination business altogether. The TILA-RESPA Integrated Disclosure Rule issued by the CFPB establishes comprehensive mortgage disclosure requirements for lenders and settlement agents in connection with most closed-end consumer credit transactions secured by real property. The rule requires certain disclosures to be provided to consumers in connection with applying for and closing on a mortgage loan. The rule also mandates the use of specific disclosure forms, timing of communicating information to borrowers, and certain record keeping requirements. The ongoing administrative
38
burden and the system requirements associated with complying with these rules or potential changes to these rules could impact our mortgage volume and increase costs. These arrangements with third-party mortgage originators and the fees payable by us to such third parties could also be subject to future regulatory scrutiny and restrictions.
The Equal Credit Opportunity Act, The Consumer Protection Act and the Fair Housing Act prohibit discriminatory and other lending practices by lenders, including financial institutions. Mortgage and consumer lending practices raise compliance risks resulting from the detailed and complex nature of mortgage and consumer lending laws and regulations imposed by federal Regulatory Agencies as well as the relatively independent and diverse operating channels in which loans are originated. As we originate loans through various channels, we, and our third-party originators, are especially impacted by these laws and regulations and are required to implement appropriate policies and procedures to help ensure compliance with fair lending laws and regulations and to avoid lending practices that result in the disparate treatment of, or disparate impact to, borrowers across our various locations under multiple channels. Failure to comply with these laws and regulations, by us, or our third-party originators, could result in the Bank being liable for damages to individual borrowers, changes in business practices, or other imposed penalties.
We are subject to various legal or regulatory investigations and proceedings.
At any given time, we are involved with a number of legal and regulatory examinations as a part of the routine reviews conducted by regulators and other parties, which may involve consumer protection, employment, tort, and numerous other laws and regulations. Proceedings or actions brought against us may result in judgments, settlements, fines, penalties, injunctions, business improvement orders, consent orders, supervisory agreements, restrictions on our business activities, or other results adverse to us, which could materially and negatively affect our business. If such claims and other matters are not resolved in a manner favorable to us, they may result in significant financial liability and/or adversely affect the market perception of us and our products and services as well as impact customer demand for those products and services. Some of the laws and regulations to which we are subject may provide a private right of action that a consumer or class of consumers may pursue to enforce these laws and regulations. We have been, and may be in the future, subject to stockholder class and derivative actions, which could seek significant damages or other relief. Any financial liability or reputational damage could have a materially adverse effect on our business, which could have a materially adverse effect on our financial condition and results of operations. Claims asserted against us can be highly complicated and slow to develop, making the outcome of such proceedings difficult to predict or estimate early in the process. As a participant in the financial services industry, it is likely that we will be exposed to a high level of litigation and regulatory scrutiny relating to our business and operations. Although we establish accruals for legal or regulatory proceedings when information related to the loss contingencies represented by those matters indicates both that a loss is probable and that the amount of loss can be reasonably estimated, we do not have accruals for all legal or regulatory proceedings where we face a risk of loss. Due to the inherent subjectivity of the assessments and unpredictability of the outcome of legal and regulatory proceedings, amounts accrued may not represent the ultimate loss to us from the legal and regulatory proceedings in question. As a result, our ultimate losses may be significantly higher than the amounts accrued for legal loss contingencies. For further information, see Note 15 - Contingencies and Commitments.
We may be required to pay interest on certain mortgage escrow accounts in accordance with certain state laws despite the Federal preemption under the National Bank Act.
In 2018, the Ninth Circuit Federal Court of Appeals held that California state law requiring mortgage servicers to pay interest on certain mortgage escrow accounts was not, as a matter of law, preempted by the National Bank Act (Lusnak v. Bank of America). This ruling goes against the position that regulators, national banks, and other federally-chartered financial institutions have taken regarding the preemption of state-law mortgage escrow interest requirements. The opinion issued by the Ninth Circuit Federal Court of Appeals is legal precedent only in certain parts of the western United States. We are defending similar litigation in California, and are currently appealing a federal district court judgment against us in that case to the Ninth Circuit. We are arguing that the Lusnak case was wrongly decided; we believe our situation can be distinguished from Lusnak as a matter of law and California’s interest on escrow law should be preempted as a matter of fact. If the Ninth Circuit’s holding is more broadly adopted by other Federal Circuits, including those covering states that currently have enacted, or in the future may enact, statutes
39
requiring the payment of interest on escrow balances or if we would be required to retroactively credit interest on escrow funds, the Company’s earnings could be adversely affected.
Reputational Risk
Damage to our reputation could significantly harm the businesses we engage in, as well as our competitive position and prospects for growth.
Our ability to attract and retain investors, customers, clients, and employees could be adversely affected by damage to our reputation resulting from various sources, including employee misconduct, litigation, or regulatory outcomes; failure to deliver minimum standards of service and quality; compliance failures; unintentional disproportionate assessment of fees to customers of protected classes; unethical behavior; unintended disclosure of confidential information; and the activities of our clients, customers, and/or counterparties. Actions by the financial services industry in general, or by certain entities or individuals within it, also could have a significantly adverse impact on our reputation.
Our actual or perceived failure to identify and address various issues also could give rise to reputational risk that could significantly harm us and our business prospects, including failure to properly address operational risks. These issues include legal and regulatory requirements; consumer protection, fair lending, and privacy issues; properly maintaining customer and associated personal information; record keeping; protecting against money laundering; sales and trading practices; and ethical issues.
Increasing scrutiny and evolving expectations from customers, regulators, investors, and other stakeholders with respect to our environmental, social, and governance practices may impose additional costs on us or expose us to new or additional risks.
Companies are facing increasing scrutiny from customers, regulators, investors, and other stakeholders related to their environmental, social, and governance ("ESG") practices and disclosure. Investor advocacy groups, investment funds, and influential investors are also increasingly focused on these practices, especially as they relate to the environment, health and safety, diversity, labor conditions, and human rights. Increased ESG-related compliance costs could result in increases to our overall operational costs. Failure to adapt to or comply with regulatory requirements or investor or stakeholder expectations and standards could negatively impact our reputation, ability to do business with certain partners, and our stock price. New government regulations could also result in new or more stringent forms of ESG oversight and expanding mandatory and voluntary reporting, diligence, and disclosure. Additionally, concerns over the long-term impacts of climate change have led and will continue to lead to governmental efforts around the world to mitigate those impacts. Investors, consumers, and businesses also may change their behavior on their own as a result of these concerns. The Company and its customers will need to respond to new laws and regulations as well as investor, consumer and business preferences resulting from climate change concerns. The Company and its customers may face cost increases, asset value reductions, and operating process changes, among other impacts. The impact on the Company’s customers will likely vary depending on their specific attributes, including reliance on or role in carbon intensive activities. In addition, the Company would face reductions in credit worthiness on the part of some customers or in the value of assets securing loans. Investors could determine not to invest in the Company’s securities due to various climate change related considerations. The Company’s efforts to take these risks into account in making lending and other decisions may not be effective in protecting the Company from the negative impact of new laws and regulations or changes in investor, consumer or business behavior.
None.ITEM 1B. UNRESOLVED STAFF COMMENTS
None.
ITEM 2. PROPERTIES
We own certain of our branch offices, as well as our headquarters on Long Island and certain other back-office buildings in New York, Ohio, Florida and Florida.Michigan. We also utilize other branch and back-office locations in those states, and in New Jersey, Arizona, California, Indiana, and Arizona,Wisconsin under various lease and license agreements that expire at various times. (See Note 10, “Commitments and Contingencies: Lease Commitments”8, “Leases” in Item 8, “Financial Statements and Supplementary Data.”) We believe that our facilities are adequate to meet our present and immediately foreseeable needs.
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ITEM 3. LEGAL PROCEEDINGS
The Company is involved in various legal actions arising in the ordinary course of its business. All such actions in the aggregate involve amounts that are believed by management to be immaterial to the financial condition and results of operations of the Company.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
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PART II
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS, AND ISSUER PURCHASES OF EQUITY SECURITIES
The common stock of New York Community Bancorp, Inc. trades on the New York Stock Exchange (the “NYSE”) under the symbol “NYCB.”
At December 31, 2017,2022, the number of outstanding shares was 488,490,352681,217,334 and the number of registered owners was approximately 11,868.11,746. The latter figure does not include those investors whose shares were held for them by a bank or broker at that date.
Dividends Declared per Common Share and Market Price of Common Stock
The following table sets forth the dividends declared per common share, and theintra-day high/low price range and closing prices for the Company’s common stock, as reported by the NYSE, in each of the four quarters of 2017 and 2016:
Market Price | ||||||||||||||||
Dividends Declared per Common Share | High | Low | Close | |||||||||||||
2017 | ||||||||||||||||
1st Quarter | $0.17 | $ | 16.26 | $ | 13.67 | $ | 13.97 | |||||||||
2nd Quarter | 0.17 | 14.12 | 12.61 | 13.13 | ||||||||||||
3rd Quarter | 0.17 | 13.48 | 11.67 | 12.89 | ||||||||||||
4th Quarter | 0.17 | 13.76 | 11.94 | 13.02 | ||||||||||||
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2016 | ||||||||||||||||
1st Quarter | $0.17 | $ | 16.17 | $ | 14.32 | $ | 15.90 | |||||||||
2nd Quarter | 0.17 | 15.97 | 14.25 | 14.99 | ||||||||||||
3rd Quarter | 0.17 | 15.49 | 14.05 | 14.23 | ||||||||||||
4th Quarter | 0.17 | 17.67 | 13.74 | 15.91 | ||||||||||||
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See the discussion of “Liquidity” in Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” for information regarding restrictions on the Company’s ability to pay dividends.
On June 16, 2017, our President and Chief Executive Officer, Joseph R. Ficalora, submitted to the NYSE his Annual CEO certification confirming our compliance with the NYSE’s corporate governance listing standards, as required by Section 303A.12(a) of the NYSE Listed Company Manual.
Stock Performance Graph
Notwithstanding anything to the contrary set forth in any of the Company’s previous filings under the Securities Act of 1933 or the Securities Exchange Act of 1934 that might incorporate future filings, including this Form10-K, in whole or in part, the following stock performance graph shall not be incorporated by reference into any such filings.
The following graph compares the cumulative total return on the Company’s stock in the five years ended December 31, 20172022 with the cumulative total returns on a broad market index (the S&PMid-Cap 400 Index) and a peer group index (the SNLS&P U.S. Bank and ThriftBMI Banks Index) during the same time. The S&PMid-Cap 400 Index was chosen as the broad market index in connection with the Company’s trading activity on the NYSE; the SNLS&P U.S. Bank and ThriftBMI Banks Index currently is comprised of 395302 bank and thrift institutions, including the Company. S&P Global Market Intelligence provided us with the data for both indices.
The performance graph is being furnished solely to accompany this report pursuant to Item 201(e) of Regulation S-K, and is not being filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and is not to be incorporated by reference into any filing of the Company, whether made before or after the date hereof, regardless of any general incorporation language in such filing.
The cumulative total returns are based on the assumption that $100.00 was invested in each of the three investments on December 31, 20122017 and that all dividends paid since that date were reinvested. Such returns are based on historical results and are not intended to suggest future performance.
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Comparison of5-Year Cumulative Total Return
Among New York Community Bancorp, Inc.,
S&PMid-Cap 400 Index, and SNLS&P U.S. Bank and Thrift IndexBMI Banks Index*
r
ASSUMES $100 INVESTED ON DECEMBER 31, 2012
ASSUMES2017 AND DIVIDEND REINVESTED
FISCAL YEAR ENDING DECEMBER 31, 2017
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| 12/31/2017 |
| 12/31/2018 |
| 12/31/2019 |
| 12/31/2020 |
| 12/31/2021 |
| 12/31/2022 |
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New York Community Bancorp, Inc. |
| $ | 100.00 |
| $ | 76.76 |
| $ | 103.92 |
| $ | 97.88 |
| $ | 120.07 |
| $ | 90.61 |
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S&P Mid-Cap 400 Index |
| $ | 100.00 |
| $ | 88.92 |
| $ | 112.21 |
| $ | 127.54 |
| $ | 159.12 |
| $ | 138.34 |
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S&P U.S. BMI Banks Index |
| $ | 100.00 |
| $ | 83.54 |
| $ | 114.74 |
| $ | 100.10 |
| $ | 136.10 |
| $ | 112.89 |
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12/31/2012 | 12/31/2013 | 12/31/2014 | 12/31/2015 | 12/31/2016 | 12/31/2017 | |||||||||||||||||||
New York Community Bancorp, Inc. | $ | 100.00 | $ | 137.85 | $ | 139.58 | $ | 151.05 | $ | 154.30 | $ | 132.87 | ||||||||||||
S&PMid-Cap 400 Index | $ | 100.00 | $ | 133.50 | $ | 146.54 | $ | 143.35 | $ | 173.08 | $ | 201.20 | ||||||||||||
SNL U.S. Bank and Thrift Index | $ | 100.00 | $ | 136.92 | $ | 152.85 | $ | 155.94 | $ | 196.86 | $ | 231.49 |
Share Repurchases
Shares Repurchased Pursuant to the Company’s Stock-Based Incentive Plans
Participants in the Company’s stock-based incentive plans may have shares of common stock withheld to fulfill the income tax obligations that arise in connection with their recent event exercise of stock options and the vesting of their stock awards. Shares that are withheld for this purpose are repurchased pursuant to the terms of the applicable stock-based incentive plan, rather than pursuant to the share repurchase program authorized by the Board of Directors described below.
During the twelve months ended December 31, 2017, the Company allocated $18.5 million toward the repurchase of shares of its common stock, including $7.5 million in the fourth quarter, as indicated in the following table:
(dollars in thousands, except per share data) | ||||||||||||
Period | Total Shares of Common Stock Repurchased | Average Price Paid per Common Share | Total Allocation | |||||||||
First Quarter 2017 | 648,793 | $15.62 | $ | 10,132 | ||||||||
Second Quarter 2017 | 37,414 | 13.43 | 502 | |||||||||
Third Quarter 2017 | 26,670 | 12.89 | 344 | |||||||||
Fourth Quarter 2017: | ||||||||||||
October | 7,399 | 12.88 | 95 | |||||||||
November | 2,686 | 12.86 | 35 | |||||||||
December | 561,411 | 13.10 | 7,355 | |||||||||
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Total Fourth Quarter 2017 | 571,496 | 13.10 | 7,485 | |||||||||
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2017 Total | 1,284,373 | $14.37 | $ | 18,463 | ||||||||
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Shares Repurchased Pursuant to the Board of Directors’ Share Repurchase Authorization
On April 20, 2004,October 23, 2018, the Board of Directors authorized the repurchase of up to five$300 million shares of the Company’s common stock. Of this amount, 1,659,816 shares were still available for repurchase at December 31, 2017. Under said authorization, shares may be repurchased on the open market or in privately negotiated transactions. No shares have been repurchasedAs of December 31, 2022, the Company has approximately $9 million remaining under this authorization since August 2006.repurchase authorization.
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Shares that are repurchased pursuant to the Board of Directors’ authorization, and those that are repurchased pursuant to the Company’s stock-based incentive plans, are held in our Treasury account and may be used for various corporate purposes, including, but not limited to, merger transactions and the vesting of restricted stock awards.
At or For the Years Ended December 31, | ||||||||||||||||||||
(dollars in thousands, except share data) | 2017 | 2016 | 2015 | 2014 | 2013 | |||||||||||||||
EARNINGS SUMMARY: | ||||||||||||||||||||
Net interest income(1) | $ | 1,130,003 | $ | 1,287,382 | $ | 408,075 | $ | 1,140,353 | $ | 1,166,616 | ||||||||||
Provision for (recovery of) losses onnon-covered loans | 60,943 | 11,874 | (3,334 | ) | — | 18,000 | ||||||||||||||
(Recovery of) provision for losses on covered loans | (23,701 | ) | (7,694 | ) | (11,670 | ) | (18,587 | ) | 12,758 | |||||||||||
Non-interest income | 216,880 | 145,572 | 210,763 | 201,593 | 218,830 | |||||||||||||||
Non-interest expense: | ||||||||||||||||||||
Operating expenses(2) | 641,218 | 638,109 | 615,600 | 579,170 | 591,778 | |||||||||||||||
Amortization of core deposit intangibles | 208 | 2,391 | 5,344 | 8,297 | 15,784 | |||||||||||||||
Debt repositioning charge | — | — | 141,209 | — | — | |||||||||||||||
Merger-related expenses | — | 11,146 | 3,702 | — | — | |||||||||||||||
Totalnon-interest expense | 641,426 | 651,646 | 765,855 | 587,467 | 607,562 | |||||||||||||||
Income tax expense (benefit) | 202,014 | 281,727 | (84,857 | ) | 287,669 | 271,579 | ||||||||||||||
Net income (loss)(3) | 466,201 | 495,401 | (47,156 | ) | 485,397 | 475,547 | ||||||||||||||
Preferred stock dividends | 24,621 | — | — | — | — | |||||||||||||||
Net income available to common shareholders | 441,580 | 495,401 | (47,156 | ) | 485,397 | 475,547 | ||||||||||||||
Basic earnings (loss) per common share(3) | $0.90 | $1.01 | $(0.11 | ) | $1.09 | $1.08 | ||||||||||||||
Diluted earnings (loss) per common share(3) | 0.90 | 1.01 | (0.11 | ) | 1.09 | 1.08 | ||||||||||||||
Dividends paid per common share | 0.68 | 0.68 | 1.00 | 1.00 | 1.00 | |||||||||||||||
SELECTED RATIOS: | ||||||||||||||||||||
Return on average assets(3) | 0.96 | % | 1.00 | % | (0.10 | )% | 1.01 | % | 1.07 | % | ||||||||||
Return on average common stockholders’ equity(3) | 7.12 | 8.19 | (0.81 | ) | 8.41 | 8.46 | ||||||||||||||
Average common stockholders’ equity to average assets | 12.76 | 12.28 | 11.90 | 12.01 | 12.66 | |||||||||||||||
Operating expenses to average assets(2) | 1.32 | 1.29 | 1.26 | 1.21 | 1.33 | |||||||||||||||
Efficiency ratio(1)(2) | 47.61 | 44.53 | 99.48 | 43.16 | 42.71 | |||||||||||||||
Net interest rate spread(1) | 2.47 | 2.85 | 0.69 | 2.57 | 2.90 | |||||||||||||||
Net interest margin(1) | 2.59 | 2.93 | 0.94 | 2.67 | 3.01 | |||||||||||||||
Common dividend payout ratio | 75.56 | 67.33 | — | 91.74 | 92.59 | |||||||||||||||
BALANCE SHEET SUMMARY: | ||||||||||||||||||||
Total assets | $ | 49,124,195 | $ | 48,926,555 | $ | 50,317,796 | $ | 48,559,217 | $ | 46,688,287 | ||||||||||
Loans, net of allowances for loan losses | 38,265,183 | 39,308,016 | 38,011,995 | 35,647,639 | 32,727,507 | |||||||||||||||
Allowance for losses onnon-covered loans | 158,046 | 158,290 | 147,124 | 139,857 | 141,946 | |||||||||||||||
Allowance for losses on covered loans | — | 23,701 | 31,395 | 45,481 | 64,069 | |||||||||||||||
Securities | 3,531,427 | 3,817,057 | 6,173,645 | 7,096,450 | 7,951,020 | |||||||||||||||
Deposits | 29,102,163 | 28,887,903 | 28,426,758 | 28,328,734 | 25,660,992 | |||||||||||||||
Borrowed funds | 12,913,679 | 13,673,379 | 15,748,405 | 14,226,487 | 15,105,002 | |||||||||||||||
Common stockholders’ equity | 6,292,536 | 6,123,991 | 5,934,696 | 5,781,815 | 5,735,662 | |||||||||||||||
Common shares outstanding | 488,490,352 | 487,056,676 | 484,943,308 | 442,587,190 | 440,809,365 | |||||||||||||||
Book value per common share | $12.88 | $12.57 | $12.24 | $13.06 | $13.01 | |||||||||||||||
Common stockholders’ equity to total assets | 12.81 | % | 12.52 | % | 11.79 | % | 11.91 | % | 12.29 | % | ||||||||||
ASSET QUALITY RATIOS (excluding covered assets andnon-covered purchased credit-impaired loans): | ||||||||||||||||||||
Non-performingnon-covered loans to totalnon-covered loans | 0.19 | % | 0.15 | % | 0.13 | % | 0.23 | % | 0.35 | % | ||||||||||
Non-performingnon-covered assets to totalnon-covered assets | 0.18 | 0.14 | 0.13 | 0.30 | 0.40 | |||||||||||||||
Allowance for losses onnon-covered loans tonon-performingnon-covered loans | 214.50 | 277.19 | 310.08 | 181.75 | 137.10 | |||||||||||||||
Allowance for losses onnon-covered loans to totalnon-covered loans | 0.41 | 0.42 | 0.41 | 0.42 | 0.48 | |||||||||||||||
Net charge-offs (recoveries) to average loans(4) | 0.16 | 0.00 | (0.02 | ) | 0.01 | 0.05 | ||||||||||||||
ASSET QUALITY RATIOS (including covered assets andnon-covered purchased credit-impaired loans): (5) | ||||||||||||||||||||
Totalnon-performing loans to total loans | 0.19 | % | 0.48 | % | 0.49 | % | 0.66 | % | 0.97 | % | ||||||||||
Totalnon-performing assets to total assets | 0.18 | 0.44 | 0.45 | 0.68 | 0.91 | |||||||||||||||
Allowances for loan losses to totalnon-performing loans | 214.50 | 96.39 | 96.51 | 78.92 | 65.40 | |||||||||||||||
Allowances for loan losses to total loans | 0.41 | 0.47 | 0.47 | 0.52 | 0.63 |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
(dollars in millions, except per share data) |
| Total Shares |
|
| Average Price |
|
| Total |
|
| Total Shares of Common Stock Purchased as Part of Publicly Announced Plans or Programs |
| ||||
First Quarter 2022 |
|
| 901,934 |
| $ |
| 12.93 |
| $ |
| 11 |
|
|
| — |
|
Second Quarter 2022 |
|
| 809,996 |
|
|
| 8.88 |
|
|
| 7 |
|
|
| 791,101 |
|
Third Quarter 2022 |
|
| 107,022 |
|
|
| 9.16 |
|
|
| 1 |
|
|
| 80,609 |
|
Fourth Quarter 2022 |
|
|
|
|
|
|
|
|
|
|
|
| ||||
October 1-31, 2022 |
|
| 236 |
|
|
| 8.54 |
|
|
| — |
|
|
| — |
|
November 1-30, 2022 |
|
| 2,173 |
|
|
| 9.90 |
|
|
| — |
|
|
| — |
|
December 1-31, 2022 |
|
| 515,574 |
|
|
| 8.72 |
|
|
| 5 |
|
|
| — |
|
Total Fourth Quarter 2022 |
|
| 517,983 |
|
|
| 8.72 |
|
|
| 5 |
|
|
| — |
|
2022 Total |
|
| 2,336,935 |
|
|
| 10.42 |
| $ |
| 24 |
|
|
| 871,710 |
|
ITEM 6. RESERVED
44
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
For the purpose of this discussion and analysis, the words “we,” “us,” “our,” and the “Company” are used to refer to New York Community Bancorp, Inc. and our consolidated subsidiaries, including New York CommunityFlagstar Bank N.A. (the “Community Bank”) and New York Commercial Bank (the “Commercial Bank”) (collectively, the “Banks”).
Executive Summary
New York Community Bancorp, Inc. is the holding company for New York Community Bank, with 225 branches in Metro New York, New Jersey, Ohio, Florida, and Arizona, and New York Commercial Bank, with 30 branches in Metro New York. At December 31, 2017, we had total assets of $49.1 billion, including total loans of $38.4 billion, total deposits of $29.1 billion, and total stockholders’ equity of $6.8 billion.
Chartered in the State of New York, the Community Bank and the Commercial Bank are subject to regulation by the Federal Deposit Insurance Corporation (the “FDIC”), the Consumer Financial Protection Bureau, and the New York State Department of Financial Services (the “NYSDFS”“Bank”). In addition, the holding company is subject to regulation by the Board of Governors of the Federal Reserve System (the “FRB”), the U.S. Securities and Exchange Commission (the “SEC”), and to the requirements of the New York Stock Exchange, where shares of our common stock are traded under the symbol “NYCB.”45.755.3
As a publicly traded company, our mission is to provide our shareholders with a solid return on their investment by producing a strong financial performance, maintaining a solid capital position, and engaging in corporate strategies that enhance the value of their shares.
EXECUTIVE SUMMARY
For the twelve months ended December 31, 2017,2022, net income was $650 million, an increase of $54 million or 9 percent compared to the $596 million the Company reported for the twelve months ended December 31, 2021. Net income available to common stockholders for the twelve months ended December 31, 2022 was $617 million, also up $54 million and 10 percent compared to the twelve months ended December 31, 2021. On a per share basis, this translates into diluted earnings per share of $1.26 in full-year 2022, up 5 percent compared to the $1.20 we reported in full-year 2021. In terms of profitability, our full-year 2022 results reflect a return on average assets of 1.01 percent compared to 1.04 percent in full-year 2021 and a return on average common stockholders' equity of 9.38 percent for the full-year 2022 versus 8.75 percent for the full-year 2021.
Loan Portfolio
At December 31, 2022, total loans and leases held for investment were $69.0 billion, up $23.3 billion or 51 percent compared to $45.7 billion at December 31, 2021. Of the $23.3 billion in growth this year, the Flagstar acquisition contributed $17.2 billion in loans, net of PAA. During the year, multi-family loans increased $3.5 billion or 10 percent to $38.1 billion, while the CRE portfolio increased $3.6 billion or 52 percent to $10.5 billion. The increase in the CRE portfolio was due to the Flagstar acquisition, while the increase in multi-family loans was primarily the result of organic growth.
Our specialty finance portfolio increased $912 million or 26 percent to $4.4 billion at December 31, 2022. Total commitments for the specialty finance portfolio stood at $7.4 billion at December 31, 2022. The remaining C&I portfolio, excluding specialty finance, totaled $7.9 billion at year-end 2022 compared to $526 million at year-end 2021 due primarily to the Flagstar acquisition.
One-to-four family residential loans held for investment totaled $5.8 billion at December 31, 2022. The vast majority of these loans were acquired in the Flagstar acquisition. Other loans totaled $2.3 billion at December 31, 2022 compared to only $6 million at year-end 2021. The increase was due to the Flagstar acquisition and is mostly comprised of consumer loans.
Loans held for sale were $1.1 billion at December 31, 2022, resulting from the Flagstar acquisition. These loans consisted of one-to-four family residential mortgage loans pending sale for which we have elected the fair value option.
At December 31, 2022, multi-family loans represented 55 percent of total loans, compared to 76 percent at December 31, 2021, commercial loans (including specialty finance and CRE loans) represented 33 percent compared to less than 25 percent at December 31, 2021, while residential loans represented 8 percent.
Deposit Base
Total deposits at December 31, 2022 were $58.7 billion, up $23.7 billion or 67 percent compared to $35.1 billion at December 31, 2021. Deposit growth was driven by the addition of $16.0 billion of deposits from the Flagstar acquisition and $7.6 billion growth in loan-related deposits and BaaS deposits. Non-interest-bearing deposits were $12.1 billion at December 31, 2022 and represented 21 percent of total deposits, compared to $4.5 billion, or 13 percent as of December 31, 2021. Excluding the impact of the Flagstar acquisition, deposits increased $7.6 billion or 22 percent during 2022. Loan-related deposits totaled $4.4 billion at December 31, 2022 up $389 million or 10 percent as compared to $4.0 billion at December 31, 2021.
45
In addition, our BaaS deposits totaled $11.5 billion at December 31, 2022, up $10.5 billion compared to $1.0 billion at December 31, 2021. Our BaaS deposits fall into three verticals: traditional BaaS, banking as a service for government agencies and states, which includes the U.S. Treasury's prepaid debit card program, and mortgage as a service, which caters to mortgage companies and consists primarily of escrow deposit accounts for principal, interest, and tax payments. The majority of the year-over-year growth was in the government banking as a service vertical and related to certain prepaid debit card programs.
Net Interest Income
During the twelve months ended December 31, 2022, our net interest income grew driven by our higher asset base. Net interest income for full-year 2022 was $1.4 billion, up $107 million or 8 percent compared to $1.3 billion for the twelve months ended December 31, 2021. Average interest-earning assets increased $7.0 billion or 13 percent over the course of $466.2the year to $59.3 billion primarily due to organic loan growth and the Flagstar acquisition. The average yield increased 30 basis points to 3.53 percent. Average interest-bearing liabilities totaled $51.4 billion, up $6.2 billion or 14 percent, while the average cost of funds rose 47 basis points to 1.35 percent.
For the twelve months ended December 31, 2022, the NIM declined 12 basis points to 2.35 percent compared to 2.47 percent for the twelve months ended December 31, 2021 primarily driven by the impact of higher interest rates on the liability sensitive balance sheet through November 30, 2022. With the Flagstar acquisition we remain slightly liability sensitive. See Item 7A, “Quantitative and Qualitative Disclosures About Market Risk,”. Prepayment income contributed eight basis points to the full-year NIM compared to 15 basis points during full-year 2021 as prepayments slowed due to rising interest rates.
Asset Quality
Asset quality remained strong during 2022 as increases in NPAs were substantially due to changes in asset mix related to the Flagstar acquisition and centered on non-performing one-to-four family residential and home equity loans. Total NPAs at December 31, 2022 were $153 million compared to $495.4$41 million at December 31, 2021, primarily driven by NPLs and assets acquired in the Flagstar acquisition. At December 31, 2022, NPAs to total assets equaled 0.17 percent and NPLs to total loans were 0.20 percent, compared to 0.07 percent for both metrics at December 31, 2021.
RESULTS OF OPERATIONS: 2022 AS COMPARED TO 2021
Net Interest Income
Net interest income is our primary source of income. Its level is a function of the average balance of our interest-earning assets, the average balance of our interest-bearing liabilities, and the spread between the yield on such assets and the cost of such liabilities. These factors are influenced by both the pricing and mix of our interest-earning assets and our interest-bearing liabilities which, in turn, are impacted by various external factors, including the local economy, competition for loans and deposits, the monetary policy of the FOMC, and market interest rates.
The cost of our deposits and borrowed funds is largely based on short-term rates of interest, the level of which is partially impacted by the actions of the FOMC. The FOMC reduces, maintains, or increases the target federal funds rate (the rate at which banks borrow funds overnight from one another) as it deems necessary.
While the target federal funds rate generally impacts the cost of our short-term borrowings and deposits, the yields on our held-for-investment loans and other interest-earning assets are not as sensitive to intermediate-term market interest rates.
Another factor that impacts the yields on our interest-earning assets—and our net interest income—is the income generated by our multi-family and CRE loans and securities when they prepay. Since prepayment income is recorded as interest income, an increase or decrease in its level will also be reflected in the average yields (as applicable) on our loans, securities, and interest-earning assets, and therefore in our net interest income, our net interest rate spread, and our net interest margin.
46
It should be noted that the level of prepayment income on loans recorded in any given period depends on the volume of loans that refinance or prepay during that time. Such activity is largely dependent on such external factors as current market conditions, including real estate values, and the perceived or actual direction of market interest rates. In addition, while a decline in market interest rates may trigger an increase in refinancing and, therefore, prepayment income, so too may an increase in market interest rates. It is not unusual for borrowers to lock in lower interest rates when they expect, or see, that market interest rates are rising rather than risk refinancing later at a still higher interest rate.
For the twelve months ended December 31, 2022, net interest income totaled $1.4 billion, up $107 million or 8 percent compared to the twelve months ended December 31, 2021. The year-over-year improvement was driven by an increase in interest income partially offset by higher interest expense due to the rising rate environment.
Year-Over-Year Comparison
The following factors contributed to the year-over-year increase in net interest income:
Net Interest Margin
The Company’s net interest margin declined 12 basis points for the twelve months ended December 31, 2022, to 2.35 percent compared to 2.47 percent for the twelve months ended December 31, 2021. This decline was driven by our liability sensitive balance sheet in the rising rate environment. Prepayment income contributed eight basis points to the full-year net interest margin compared to 15 basis points during full-year 2021.
The following table sets forth certain information regarding our average balance sheet for the years indicated, including the average yields on our interest-earning assets and the average costs of our interest-bearing liabilities. Average yields are calculated by dividing the interest income produced by the average balance of interest-earning assets. Average costs are calculated by dividing the interest expense produced by the average balance of interest-bearing liabilities. The average balances for the year are derived from average balances that are calculated daily. The average yields and costs include fees, as well as premiums and discounts (including mark-to-market adjustments from acquisitions), that are considered adjustments to such average yields and costs.
47
Net Interest Income Analysis
|
| For the Years Ended December 31, |
| |||||||||||||||||||||||||||||||||||
|
| 2022 |
|
|
| 2021 |
|
| 2020 |
| ||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
| Average |
|
|
|
|
|
|
|
|
| Average |
|
|
|
|
|
|
|
| Average |
| |||||||||
|
| Average |
|
|
|
|
|
| Yield/ |
|
|
| Average |
|
|
|
|
| Yield/ |
|
| Average |
|
|
|
|
| Yield/ |
| |||||||||
(dollars in millions) |
| Balance |
|
|
| Interest |
|
| Cost |
|
|
| Balance |
|
| Interest |
|
| Cost |
|
| Balance |
|
| Interest |
|
| Cost |
| |||||||||
ASSETS: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
Interest-earning assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
Mortgage and other loans and leases, net (1) | $ |
| 49,376 |
|
| $ |
| 1,848 |
|
|
| 3.74 |
| % |
| $ | 43,200 |
|
| $ | 1,525 |
|
|
| 3.53 | % |
| $ | 42,028 |
|
| $ | 1,542 |
|
|
| 3.67 | % |
Securities (2)(3) |
|
| 7,448 |
|
|
|
| 200 |
|
|
| 2.69 |
|
|
|
| 6,625 |
|
|
| 156 |
|
|
| 2.35 |
|
|
| 5,965 |
|
|
| 163 |
|
|
| 2.73 |
|
Reverse repurchase agreements |
|
| 460 |
|
|
|
| 15 |
|
|
| 3.24 |
|
|
|
| 430 |
|
|
| 4 |
|
|
| 1.05 |
|
|
| 20 |
|
|
| — |
|
|
| 0.32 |
|
Interest-earning cash and cash equivalents |
|
| 1,988 |
|
|
|
| 29 |
|
|
| 1.47 |
|
|
|
| 2,016 |
|
|
| 4 |
|
|
| 0.17 |
|
|
| 1,088 |
|
|
| 3 |
|
|
| 0.27 |
|
Total interest-earning assets |
|
| 59,272 |
|
|
|
| 2,092 |
|
|
| 3.53 |
|
|
|
| 52,271 |
|
|
| 1,689 |
|
|
| 3.23 |
|
|
| 49,101 |
|
|
| 1,708 |
|
|
| 3.48 |
|
Non-interest-earning assets |
|
| 5,130 |
|
|
|
|
|
|
|
|
|
|
| 5,275 |
|
|
|
|
|
|
|
|
| 5,008 |
|
|
|
|
|
|
| ||||||
Total assets | $ |
| 64,402 |
|
|
|
|
|
|
|
|
|
| $ | 57,546 |
|
|
|
|
|
|
|
| $ | 54,109 |
|
|
|
|
|
|
| ||||||
LIABILITIES AND STOCKHOLDERS’ EQUITY: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
Interest-bearing deposits: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
Interest-bearing checking and money market | $ |
| 17,910 |
|
| $ |
| 226 |
|
|
| 1.26 |
| % |
| $ | 12,829 |
|
| $ | 31 |
|
|
| 0.24 | % |
| $ | 10,965 |
|
| $ | 57 |
|
|
| 0.52 | % |
Savings accounts |
|
| 9,336 |
|
|
|
| 60 |
|
|
| 0.64 |
|
|
|
| 7,612 |
|
|
| 28 |
|
|
| 0.36 |
|
|
| 5,520 |
|
|
| 32 |
|
|
| 0.57 |
|
Certificates of deposit |
|
| 8,772 |
|
|
|
| 97 |
|
|
| 1.11 |
|
|
|
| 9,094 |
|
|
| 55 |
|
|
| 0.60 |
|
|
| 12,412 |
|
|
| 217 |
|
|
| 1.75 |
|
Total interest-bearing deposits |
|
| 36,018 |
|
|
|
| 383 |
|
|
| 1.06 |
|
|
|
| 29,535 |
|
|
| 114 |
|
|
| 0.38 |
|
|
| 28,897 |
|
|
| 306 |
|
|
| 1.06 |
|
Short term borrowed funds |
|
| 2,408 |
|
|
|
| 56 |
|
|
| 2.32 |
|
|
|
| 2,343 |
|
|
| 8 |
|
|
| 0.34 |
|
|
| 2,319 |
|
|
| 16 |
|
|
| 0.70 |
|
Other borrowed funds |
|
| 12,982 |
|
|
|
| 257 |
|
|
| 1.99 |
|
|
|
| 13,366 |
|
|
| 278 |
|
|
| 2.08 |
|
|
| 12,514 |
|
|
| 286 |
|
|
| 2.28 |
|
Total Borrowed funds |
|
| 15,390 |
|
|
|
| 313 |
|
|
| 2.04 |
|
|
|
| 15,709 |
|
|
| 286 |
|
|
| 1.82 |
|
|
| 14,833 |
|
|
| 302 |
|
|
| 2.03 |
|
Total interest-bearing liabilities |
|
| 51,408 |
|
|
|
| 696 |
|
|
| 1.35 |
|
|
|
| 45,244 |
|
|
| 400 |
|
|
| 0.88 |
|
|
| 43,730 |
|
|
| 608 |
|
|
| 1.39 |
|
Non-interest-bearing deposits |
|
| 5,124 |
|
|
|
|
|
|
|
|
|
|
| 4,578 |
|
|
|
|
|
|
|
|
| 2,957 |
|
|
|
|
|
|
| ||||||
Other liabilities |
|
| 787 |
|
|
|
|
|
|
|
|
|
|
| 790 |
|
|
|
|
|
|
|
|
| 714 |
|
|
|
|
|
|
| ||||||
Total liabilities |
|
| 57,319 |
|
|
|
|
|
|
|
|
|
|
| 50,612 |
|
|
|
|
|
|
|
|
| 47,401 |
|
|
|
|
|
|
| ||||||
Stockholders’ equity |
|
| 7,083 |
|
|
|
|
|
|
|
|
|
|
| 6,934 |
|
|
|
|
|
|
|
|
| 6,708 |
|
|
|
|
|
|
| ||||||
Total liabilities and stockholders’ equity | $ |
| 64,402 |
|
|
|
|
|
|
|
|
|
| $ | 57,546 |
|
|
|
|
|
|
|
| $ | 54,109 |
|
|
|
|
|
|
| ||||||
Net interest income/interest rate spread |
|
|
|
| $ |
| 1,396 |
|
|
| 2.17 |
| % |
|
|
| $ |
| 1,289 |
|
|
| 2.35 | % |
|
|
| $ |
| 1,100 |
|
|
| 2.09 | % | |||
Net interest margin |
|
|
|
|
|
|
|
|
| 2.35 |
| % |
|
|
|
|
|
|
|
| 2.47 | % |
|
|
|
|
|
|
|
| 2.24 | % | ||||||
Ratio of interest-earning assets to interest-bearing |
|
|
|
|
|
|
|
| 1.15x |
|
|
|
|
|
|
|
|
| 1.16x |
|
|
|
|
|
|
|
| 1.12x |
|
The following table presents the extent to which changes in interest rates and changes in the volume of interest-earning assets and interest-bearing liabilities affected our interest income and interest expense during the periods indicated. Information is provided in each category with respect to (i) the changes attributable to changes in volume (changes in volume multiplied by prior rate); (ii) the changes attributable to changes in rate (changes in rate multiplied by prior volume); and (iii) the net change. The changes attributable to the combined impact of volume and rate have been allocated proportionately to the changes due to volume and the changes due to rate.
48
Rate/Volume Analysis
|
| Year Ended |
|
|
| Year Ended |
| ||||||||||||||||||
|
| December 31, 2022 |
|
|
| December 31, 2021 |
| ||||||||||||||||||
|
| Compared to Year Ended |
|
|
| Compared to Year Ended |
| ||||||||||||||||||
|
| December 31, 2021 |
|
|
| December 31, 2020 |
| ||||||||||||||||||
|
| Increase/(Decrease) |
|
|
| Increase/(Decrease) |
| ||||||||||||||||||
|
| Due to |
|
|
|
|
|
| Due to |
|
|
|
| ||||||||||||
(in millions) |
| Volume |
|
| Rate |
|
| Net |
|
|
| Volume |
|
| Rate |
|
| Net |
| ||||||
INTEREST-EARNING ASSETS: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Mortgage and other loans and leases, net |
| $ | 227 |
|
| $ | 96 |
|
| $ | 323 |
|
|
| $ | 48 |
|
| $ | (65 | ) |
| $ | (17 | ) |
Securities |
|
| 21 |
|
|
| 23 |
|
|
| 44 |
|
|
|
| 28 |
|
|
| (35 | ) |
|
| (7 | ) |
Reverse repurchase agreements |
|
| — |
|
|
| 11 |
|
|
| 11 |
|
|
|
| 4 |
|
|
| — |
|
|
| 4 |
|
Interest Earning Cash & Cash Equivalent |
|
| — |
|
|
| 25 |
|
|
| 25 |
|
|
|
| 1 |
|
|
| — |
|
|
| 1 |
|
Total |
|
| 248 |
|
|
| 155 |
|
|
| 403 |
|
|
|
| 81 |
|
|
| (100 | ) |
|
| (19 | ) |
INTEREST-BEARING LIABILITIES: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Interest-bearing checking and money |
| $ | 17 |
|
| $ | 178 |
|
| $ | 195 |
|
|
| $ | 12 |
|
| $ | (38 | ) |
| $ | (26 | ) |
Savings accounts |
|
| 7 |
|
|
| 25 |
|
|
| 32 |
|
|
|
| (148 | ) |
|
| 144 |
|
|
| (4 | ) |
Certificates of deposit |
|
| (2 | ) |
|
| 44 |
|
|
| 42 |
|
|
|
| (47 | ) |
|
| (115 | ) |
|
| (162 | ) |
Short Term Borrowed Funds |
|
| — |
|
|
| 48 |
|
|
| 48 |
|
|
|
| — |
|
|
| (8 | ) |
|
| (8 | ) |
Other Borrowed Funds |
|
| (8 | ) |
|
| (13 | ) |
|
| (21 | ) |
|
|
| 25 |
|
|
| (33 | ) |
|
| (8 | ) |
Totals |
|
| 14 |
|
|
| 282 |
|
|
| 296 |
|
|
|
| (158 | ) |
|
| (50 | ) |
|
| (208 | ) |
Change in net interest income |
| $ | 234 |
|
| $ | (127 | ) |
| $ | 107 |
|
|
| $ | 239 |
|
| $ | (50 | ) |
| $ | 189 |
|
In connection with the Flagstar acquisition we have recorded certain assets and liabilities at fair value. The following table provides information regarding the discounts and premiums that are estimated to accrete or amortize into earnings in future periods using the estimated effective duration and methods shown below.
(dollars in millions) | Remaining fair value adjustment at December 31, 2022 |
| Estimated effective duration | Amortization method | |
One-to-four family first mortgage | $ | (295 | ) | 4 years | Interest method |
Commercial real estate |
| (5 | ) | 2 years | Interest method |
Commercial and industrial |
| (25 | ) | 2 years | Interest method |
Consumer and other |
| (136 | ) | 3 years | Interest method |
Core deposit and other intangibles |
| 287 |
| 9 years | Sum of years digits and straight-line |
Deposits |
| 36 |
| 2 years | Interest method |
Other borrowings |
| 40 |
| 7 years | Interest method |
Provision for Credit Losses
For the twelve months ended December 31, 2022, the provision for credit losses totaled $133 million compared to $3 million for the twelve months ended December 31, 2016, down 6%. Net2021. The fourth-quarter and full-year provision for credit losses was impacted by the provision for credit losses related to the initial ACL measurement of non-PCD Flagstar acquired loans totaling $117 million. For additional information about our methodologies for recording recoveries of, and provisions for, loan losses, see the discussion of the loan loss allowance under “Critical Accounting Policies” and the discussion of “Asset Quality” that appear earlier in this report.
Non-Interest Income
We generate non-interest income availablethrough a variety of sources, including—among others—fee income (in the form of retail deposit fees and charges on loans); income from our investment in BOLI; net return on our MSR asset; gains on sales of securities; and “other” sources, including the revenues produced through the sale of third-party investment products and loan subservicing.
49
For the twelve months ended December 31, 2022, non-interest income totaled $247 million, which includes a bargain purchase gain of $159 million related to common shareholders totaled $441.6the Flagstar acquisition. Non-interest income increased an additional $27 million down 11% from the $495.4year-ended December 31, 2021, to $88 million reportedfor the year-ended December 31, 2022, a 44 percent increase due primarily to fee income generated in December from the Flagstar acquisition.
Non-Interest Income Analysis
The following table summarizes our sources of non-interest income:
|
| For the Years Ended December 31, |
| |||||||||
(in millions) |
| 2022 |
|
| 2021 |
|
| 2020 |
| |||
Fee income |
| $ | 27 |
|
| $ | 23 |
|
| $ | 22 |
|
BOLI income |
|
| 32 |
|
|
| 29 |
|
|
| 32 |
|
Net (loss) gain on securities |
|
| (2 | ) |
|
| — |
|
|
| 1 |
|
Net return on mortgage servicing rights |
|
| 6 |
|
|
| — |
|
|
| — |
|
Net gain on loan sales |
|
| 5 |
|
|
| — |
|
|
| — |
|
Loan administration income |
|
| 3 |
|
|
| — |
|
|
| — |
|
Bargain purchase gain |
|
| 159 |
|
|
| — |
|
|
| — |
|
Other income: |
|
|
|
|
|
|
|
|
| |||
Third-party investment product sales |
|
| 6 |
|
|
| 5 |
|
|
| 4 |
|
Other |
|
| 11 |
|
|
| 4 |
|
|
| 2 |
|
Total other income |
|
| 17 |
|
|
| 9 |
|
|
| 6 |
|
Total non-interest income |
| $ | 247 |
|
| $ | 61 |
|
| $ | 61 |
|
Non-Interest Expense
For the twelve months ended December 31, 2022, total non-interest expenses were $684 million, up $143 million or 26 percent compared to the twelve months ended December 31, 2021. Excluding the impact of merger-related expenses totaling $75 million and intangible asset amortization of $5 million, total operating expenses were $604 million compared to $518 million last year, up $86 million or 17 percent. The increase was primarily due to one month of Flagstar in our results. The efficiency ratio for full-year 2022 was 40.72 percent compared to 38.36 percent for full-year 2021.
Income Tax Expense
Income tax expense includes federal, New York State, and New York City income taxes, as well as non-material income taxes from other jurisdictions where we operate our branches and/or conduct our mortgage banking business.
For the twelve months ended December 31, 2022, total income tax expense was $176 million and the effective tax rate was 21.36 percent compared to income tax expense of $210 million and an effective tax rate of 26.09 percent for the twelve months ended December 31, 2016. Diluted earnings per common share were $0.902021. The year-over-year decline in the effective tax rate primarily reflects the non-taxability of certain merger-related items including the bargain purchase gain. In addition, the effective tax rate in 2021 was negatively impacted by $2 million of income tax expense related to the revaluation of deferred taxes related to a change in the New York State tax rate.
RESULTS OF OPERATIONS: 2021 AS COMPARED TO 2020
The results of operations comparison of 2021 compared to 2020 can be found in the Company’s previously filed Annual Report on Form 10-K for the twelve months endedyear-ended December 31, 2017, as2021 under Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations”- Results of Operations: 2021 As Compared to 2020.”
50
FINANCIAL CONDITION
Balance Sheet Summary
At December 31, 2022, total assets were $90.1 billion, up $30.6 billion or 51 percent compared to $1.01 per diluted common share for the twelve months ended December 31, 2016, down 11%.
Additionally, we maintained our status as a well-capitalized institution with regulatory capital ratios that rose year-over-year. We also engaged in strategies that were consistent with our business model, as further described below:
We Resumed Our Balance Sheet Growth
After not growing our balance sheet over2021. The growth compared the past three years, the Company resumed its organic balance sheet strategy in the fourth quarter of 2017. Comparedprior period was primarily due to the third quarterFlagstar acquisition which added $25.8 billion of 2017, total assets, grew at an annualized ratenet of 5.5% to $49.1 billion. ThisPAA, while the remaining growth was achieved through a combinationdriven by growth in our lending portfolios.
Total loans and leases held for investment were $69.0 billion at December 31, 2022 compared to $45.7 billion at December 31, 2021. The Flagstar acquisition added $18.0 billion of securities and loan growth. Total securities increased by $500.4 million or 16.5% (not annualized) to $3.5 billion, while totalnon-covered loans held for investment, increased by $881.8 million, or 9.4% annualized. At the same time, we significantly curtailed the practicenet of sellingPAA. Total loans to other financial institutions. While we recorded strong growth to end the year, we still managed to stay below the Systemically Important Financial Institution (“SIFI”) threshold of $50 billion. For the four quarters endedheld for sale were $1.3 billion at December 31, 2017,2022, all of which were the Company’sresult of the Flagstar acquisition.
At December 31, 2022, total consolidated assets averaged $48.7 billion.
We Maintained a Strong Presencedeposits were $58.7 billion compared to $35.1 billion at December 31, 2021. The acquisition of Flagstar added $16.0 billion in our Multi-Family Lending Niche
In 2017, we originated $8.9deposits, net of PAA. Wholesale borrowings at December 31, 2022 totaled $20.3 billion compared to $15.9 billion at December 31, 2021. The acquisition of Flagstar added $6.4 billion of loans for investment, including $5.4wholesale borrowings.
Borrowed funds totaled $21.3 billion as of year-end 2022, up $4.8 billion or 29 percent compared to year-end 2021. The acquisition of Flagstar added $6.7 billion of our core multi-family product, $1.0 billionborrowings, net of commercial real estate (“CRE”) loans, and $1.8 billion of specialty finance loans.PAA. The increase occurred in the latter half of the year, with most of it arising in the fourth quarter of 2017, as total originations of held-for-investment loans increased 52% as comparednet decline was due to the fourth quarter of 2016. This includes origination growth of 76% for our multi-family loans, 21% for our CRE loans, and 53% for our specialty finance loans.lower cost deposit growth.
Strategic Asset Sale
On June 27, 2017, the Company announced that it had entered into an agreement to sell its mortgage banking business, which was acquired as part of its 2009 FDIC-assisted acquisition of AmTrust Bank (“AmTrust”), to Freedom Mortgage Corporation. This sale included both our origination and servicing platforms, as well as our mortgage servicing rights portfolio. Additionally, the Company received approval from the FDIC to sell the assets covered under our Loss Share Agreements (“LSA”) and entered into an agreement to sell the majority of ourone-to-four family residential mortgage-related assets, including those covered under the LSA, to an affiliate of Cerberus Capital Management, L.P. (“Cerberus”). Both transactions were completed during the third quarter.
We Maintained our Record of Exceptional Asset Quality
Non-performingnon-covered assets represented $90.1 million, or 0.18%, of totalnon-covered assets at the end of this December, andnon-performingnon-covered loans represented $73.7 million, or 0.19%, of totalnon-covered loans. While our level ofnon-performing assets was modestly higher than the year-earlier level, the increase stemmed from the transfer tonon-accrual status of certain taxi medallion-related loans. The performance of our multi-family and CRE loans, which are our principal assets, continued to be exceptional over the course of the year.
Also reflecting the quality of our assets was the level of net charge-offs we recorded in the twelve months ended December 31, 2017. Net charge-offs represented $61.2 million, or 0.16% of average loans, and largely consisted of taxi medallion-related loans.
External Factors
The following is a discussion of certain external factors that tend to influence our financial performance and the strategic actions we take.
Interest Rates
Among the external factors that tend to influence our performance, the interest rate environment is key. Just as short-term interest rates affect the cost of our deposits and that of the funds we borrow, market interest rates affect the yields on the loans we produce for investment and the securities in which we invest.
As further discussed under “LoansLoans Held for Investment” later on in this discussion, the interest rates on our multi-family loans and CRE credits generally are based on the five-year Constant Maturity Treasury Rate (the “CMT”). Investment
The following table summarizes the high, low, and average five- andten-year CMT rates in 2017 and 2016:
Constant Maturity Treasury Rates | ||||||||||||||||
Five-Year | Ten-Year | |||||||||||||||
2017 | 2016 | 2017 | 2016 | |||||||||||||
High | 2.26 | % | 2.10 | % | 2.62 | % | 2.60 | % | ||||||||
Low | 1.63 | 0.94 | 2.05 | 1.37 | ||||||||||||
Average | 1.91 | 1.33 | 2.33 | 1.84 |
Because the multi-family and CRE loans we produce generate income when they prepay (which is recorded as interest income), the impact of repayment activity can be especially meaningful. In 2017, prepayment income from loans contributed $47.0 million to interest income; in the prior year, the contribution was $60.9 million.
Economic Indicators
While we attribute our asset quality to the nature of the loans we produce and our conservative underwriting standards, the qualitycomposition of our assets can also be impacted by economic conditions in our local markets and throughout the United States. The information that follows consists of recent economic data that we consider to be germane to our performance and the markets we serve.loan portfolio:
| At December 31, |
| ||||||||||
| 2022 |
| 2021 |
| ||||||||
(dollars in millions) | Amount |
| Percent of |
| Amount |
| Percent of |
| ||||
Mortgage Loans: |
|
|
|
|
|
|
|
| ||||
Multi-family | $ | 38,130 |
|
| 55.3 | % | $ | 34,628 |
|
| 75.7 | % |
Commercial real estate |
| 8,526 |
|
| 12.4 |
|
| 6,701 |
|
| 14.7 |
|
One-to-four family first mortgage |
| 5,821 |
|
| 8.4 |
|
| 160 |
|
| 0.3 |
|
Acquisition, development, and |
| 1,996 |
|
| 2.8 |
|
| 209 |
|
| 0.5 |
|
Total mortgage loans |
| 54,473 |
|
| 78.9 |
|
| 41,698 |
|
| 91.2 |
|
Other Loans: |
|
|
|
|
|
|
|
| ||||
Commercial and industrial |
| 12,276 |
|
| 17.8 |
|
| 4,034 |
|
| 8.8 |
|
Other loans |
| 2,252 |
|
| 3.3 |
|
| 6 |
|
| 0.0 |
|
Total other loans held for investment |
| 14,528 |
|
| 21.1 |
|
| 4,040 |
|
| 8.8 |
|
Total loans and leases held for investment | $ | 69,001 |
|
| 100.0 |
| $ | 45,738 |
|
| 100.0 |
|
Allowance for credit losses on loans and leases |
| (393 | ) |
|
|
| (199 | ) |
|
| ||
Total loans and leases held for investment, net | $ | 68,608 |
|
|
| $ | 45,539 |
|
|
| ||
Loans held for sale, at fair value |
| 1,115 |
|
|
|
| — |
|
|
| ||
Total loans and leases, net | $ | 69,723 |
|
|
| $ | 45,539 |
|
|
| ||
|
|
|
|
|
|
|
|
| ||||
|
|
|
|
|
|
|
|
|
51
The following table presents the generally downward trend in unemployment rates, as reported by the U.S. Department of Labor, both nationally and in the various markets that comprisesummarizes our footprint, for the months indicated:
December | ||||||||
2017 | 2016 | |||||||
Unemployment rate: |
| |||||||
United States | 3.9 | % | 4.5 | % | ||||
New York City | 3.9 | 4.4 | ||||||
Arizona | 4.6 | 4.7 | ||||||
Florida | 3.7 | 4.7 | ||||||
New Jersey | 4.1 | 4.2 | ||||||
New York | 4.4 | 4.5 | ||||||
Ohio | 4.5 | 4.8 |
The Consumer Price Index (the “CPI”) measures the average change over time in the prices paid by urban consumers for a market basket of consumer goods and services. The following table indicates the change in the CPI for the twelve months ended at each of the indicated dates:
For the Twelve Months Ended December | ||||||||
2017 | 2016 | |||||||
Change in prices: | 2.1 | % | 2.1 | % |
Economic activity also is indicated by the Consumer Confidence Index®, which moved up to 122.1 in December 2017 from 113.7 in December 2016. An index level of 90 or more is considered indicative of a strong economy.
The residential rental vacancy rate in New York, as reported by the U.S. Department of Commerce, and the office vacancy rate in Manhattan, as reported by a leading commercial real estate broker (Jones Lang LaSalle), are important in view of the fact that 63.6% of our multi-family loans and 69.3% of our CRE loans are secured by properties in New York City, with Manhattan accounting for 26.4% and 50.7% of our multi-family and CRE loans, respectively.
As reflected in the following table, the residential rental vacancy rate in New York and the office vacancy rate in Manhattan were both lower in the three months ended December 31, 2017 than they were in the three months ended December 31, 2016:
For the Three Months Ended December 31, | ||||||||
2017 | 2016 | |||||||
Residential rental vacancy rate in New York | 4.9 | % | 5.4 | % | ||||
Manhattan office vacancy rate | 10.1 | 10.4 |
Recent Events
Dividend Declaration
On January 30, 2018, the Board of Directors declared a quarterly cash dividend on the Company’s common stock of $0.17 per share, payable on February 27, 2018 to common shareholders of record at the close of business on February 13, 2018.
Critical Accounting Policies
We consider certain accounting policies to be critically important to the portrayal of our financial condition and results of operations, since they require management to make complex or subjective judgments, some of which may relate to matters that are inherently uncertain. The inherent sensitivity of our consolidated financial statements to these critical accounting policies, and the judgments, estimates, and assumptions used therein, could have a material impact on our financial condition or results of operations.
We have identified the following to be critical accounting policies: the determination of the allowances for loan losses; the determination of the amount, if any, of goodwill impairment; and the determination of the valuation allowance, if any, for deferred tax assets.
The judgments used by management in applying these critical accounting policies may be influenced by adverse changes in the economic environment, which may result in changes to future financial results.
Allowances for Loan Losses
Allowance for Losses onNon-Covered Loans
The allowance for losses onnon-covered loans represents our estimate of probable and estimable losses inherent in thenon-covered loan portfolio as of the date of the balance sheet. Losses onnon-covered loans are charged against, and recoveries of losses onnon-covered loans are credited back to, the allowance for losses onnon-covered loans.
Althoughnon-covered loans are held by either the Community Bank or the Commercial Bank, and a separate loan loss allowance is established for each, the total of the two allowances is available to cover all losses incurred. In addition, except as otherwise noted in the following discussion, the process for establishing the allowance for losses onnon-covered loans is largely the same for each of the Community Bank and the Commercial Bank.
The methodology used for the allocation of the allowance fornon-covered loan losses at December 31, 2017 and December 31, 2016 was generally comparable, whereby the Community Bank and the Commercial Bank segregated their loss factors (used for both criticized andnon-criticized loans) into a component that was primarily based on historical loss rates and a component that was primarily based on other qualitative factors that are probable to affect loan collectability. In determining the respective allowances fornon-covered loan losses, management considers the Community Bank’s and the Commercial Bank’s current business strategies and credit processes, including compliance with applicable regulatory guidelines and with guidelines approved by the respective Boards of Directors with regard to credit limitations, loan approvals, underwriting criteria, and loan workout procedures.
The allowance for losses onnon-covered loans is established based on management’s evaluation of incurred losses in the portfolio in accordance with U.S. generally accepted accounting principles (“GAAP”), and is comprised of both specific valuation allowances and general valuation allowances.
Specific valuation allowances are established based on management’s analyses of individual loans that are considered impaired. If anon-covered loan is deemed to be impaired, management measures the extent of the impairment and establishes a specific valuation allowance for that amount. Anon-covered loan is classified as “impaired” when, based on current information and/or events, it is probable that we will be unable to collect all amounts due under the contractual terms of the loan agreement. We apply this classification as necessary tonon-covered loans individually evaluated for impairment in our portfolios. Smaller-balance homogenous loans and loans carried at the lower of cost or fair value are evaluated for impairment on a collective, rather than individual, basis. Loans to certain borrowers who have experienced financial difficulty and for which the terms have been modified, resulting in a concession, are considered troubled debt restructurings (“TDRs”) and are classified as impaired.
We generally measure impairment on an individual loan and determine the extent to which a specific valuation allowance is necessary by comparing the loan’s outstanding balance to either the fair value of the collateral, less the estimated cost to sell, or the present value of expected cash flows, discounted at the loan’s effective interest rate. Generally, when the fair value of the collateral, net of the estimated cost to sell, or the present value of the expected cash flows is less than the recorded investment in the loan, any shortfall is promptly charged off.
We also follow a process to assign general valuation allowances tonon-covered loan categories. General valuation allowances are established by applying our loan loss provisioning methodology, and reflect the inherent risk in outstandingheld-for-investment loans. This loan loss provisioning methodology considers various factors in determining the appropriate quantified risk factors to use to determine the general valuation allowances. The factors assessed begin with the historical loan loss experience for each major loan category. We also take into account an estimated historical loss emergence period (which is the period of time between the event that triggers a loss and the confirmation and/orcharge-off of that loss) for each loan portfolio segment.
The allocation methodology consists of the following components: First, we determine an allowance for loan losses based on a quantitative loss factor for loans evaluated collectively for impairment. This quantitative loss factor is based primarily on historical loss rates, after considering loan type, historical loss and delinquency experience, and loss emergence periods. The quantitative loss factors applied in the methodology are periodicallyre-evaluated and adjusted to reflect changes in historical loss levels, loss emergence periods, or other risks. Lastly, we allocate an allowance for loan losses based on qualitative loss factors. These qualitative loss factors are designed to account for losses that may not be provided for by the quantitative loss component due to other factors evaluated by management, which include, but are not limited to:
By considering the factors discussed above, we determine an allowance fornon-covered loan losses that is applied to each significant loan portfolio segment to determine the total allowance for losses onnon-covered loans.
The historical loss period we use to determine the allowance for loan losses onnon-covered loans is a rolling 28-quarter look-back period, as we believe this produces an appropriate reflection of our historical loss experience.
The process of establishing the allowance for losses onnon-covered loans also involves:
In order to determine their overall adequacy, each of the respectivenon-covered loan loss allowances is reviewed quarterly by management and the Board of Directors of the Community Bank or the Commercial Bank, as applicable.
We charge off loans, or portions of loans, in the period that such loans, or portions thereof, are deemed uncollectible. The collectability of individual loans is determined through an assessment of the financial condition and repayment capacity of the borrower and/or through an estimate of the fair value of any underlying collateral. Fornon-real estate-related consumer credits, the followingpast-due time periods determine when charge-offs are typically recorded:(1) Closed-end credits are charged off in the quarter that the loan becomes 120 days past due;(2) Open-end credits are charged off in the quarter that the loan becomes 180 days past due; and (3) Bothclosed-end andopen-end credits are typically charged off in the quarter that the credit is 60 days past the date we received notification that the borrower has filed for bankruptcy.
The level of future additions to the respectivenon-covered loan loss allowances is based on many factors, including certain factors that are beyond management’s control, such as changes in economic and local market conditions, including declines in real estate values, and increases in vacancy rates and unemployment. Management uses the best available information to recognize losses on loans or to make additions to the loan loss allowances; however, the Community Bank and/or the Commercial Bank may be required to take certain charge-offs and/or recognize further additions to their loan loss allowances, based on the judgment of regulatory agencies with regard to information provided to them during their examinations of the Banks.
An allowance for unfunded commitments is maintained separate from the allowances fornon-covered loan losses and is included in “Other liabilities” in the Consolidated Statements of Condition.
See Note 6, “Allowances for Loan Losses” for a further discussion of our allowance for losses on covered loans, as well as additional information about our allowance for losses onnon-covered loans.
Goodwill Impairment
We have significant intangible assets related to goodwill. In connection with our acquisitions, assets acquired and liabilities assumed are recorded at their estimated fair values. Goodwill represents the excess of the purchase price
of our acquisitions over the fair value of identifiable net assets acquired, including other identified intangible assets. Our goodwill is evaluated for impairment annually as ofyear-end or more frequently if conditions exist that indicate that the value may be impaired. Our determination of whether or not goodwill is impaired requires us to make significant judgments and requires us to use significant estimates and assumptions regarding estimated future cash flows. If we change our strategy or if market conditions shift, our judgments may change, which may result in adjustments to the recorded goodwill balance.
We test our goodwill for impairment at the reporting unit level. These impairment evaluations are performed by comparing the carrying value of the goodwill of a reporting unit to its estimated fair value. We allocate goodwill to reporting units based on the reporting unit expected to benefit from the business combination. We had previously identified two reporting units: our Banking Operations reporting unit, and our Residential Mortgage Banking reporting unit. On September 29, 2017, the Company sold the Residential Mortgage Banking reporting unit. Our reporting units are the same as our operating segments and reportable segments.
For annual goodwill impairment testing, we have the option to first perform a qualitative assessment to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount, including goodwill and other intangible assets. If we conclude that this is the case, we must perform thetwo-step test described below. If we conclude based on the qualitative assessment that it is notmore likely than not that the fair value of a reporting unit is less than its carrying amount, we have completed our goodwill impairment test and do not need to perform thetwo-step test.
Step one requires the fair value of each reporting unit is compared to its carrying value in order to identify potential impairment. If the fair value of a reporting unit exceeds the carrying value of its net assets, goodwill is not considered impaired and no further testing is required. If the carrying value of the net assets exceeds the fair value of a reporting unit, potential impairment is indicated at the reporting unit level and step two of the impairment test is performed.
Step two requires that when potential impairment is indicated in step one, we compare the implied fair value of goodwill with the carrying amount of that goodwill. Determining the implied fair value of goodwill requires a valuation of the reporting unit’s tangible and(non-goodwill) intangible assets and liabilities in a manner similar to the allocation of the purchase price in a business combination. Any excess in the value of a reporting unit over the amounts assigned to its assets and liabilities is referred to as the implied fair value of goodwill. If the carrying amount of the reporting unit goodwill exceeds the implied fair value of that goodwill, an impairment loss is recognized in an amount equal to that excess.
As of December 31, 2017, we had goodwill of $2.4 billion. During the year ended December 31, 2017, no triggering events were identified that indicated that the value of goodwill may be impaired. The Company performed its annual goodwill impairment assessment as of December 31, 2017 using step one of the quantitative test and found no indication of goodwill impairment at that date.
Income Taxes
In estimating income taxes, management assesses the relative merits and risks of the tax treatment of transactions, taking into account statutory, judicial, and regulatory guidance in the context of our tax position. In this process, management also relies on tax opinions, recent audits, and historical experience. Although we use the best available information to record income taxes, underlying estimates and assumptions can change over time as a result of unanticipated events or circumstances such as changes in tax laws and judicial guidance influencing our overall or transaction-specific tax position.
On December 22, 2017 the federal Tax Cuts and Jobs Act, (the “Tax Reform Act”) was enacted into law. The Tax Reform Act significantly revised the U.S. corporate income tax regime by, among other things, lowering of the U.S. corporate tax rate from 35% to 21% effective January 1, 2018. U.S. GAAP requires that the impact of tax legislation be recognized in the period in which the law was enacted. As a result of the Tax Reform Act, the Company recorded a tax benefit of $42 million due to the net impact of remeasurement of tax attributes affected by the Tax Reform Act.
We recognize deferred tax assets and liabilities for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases, and the carryforward of certain tax attributes such as net operating losses. A valuation allowance is maintained for deferred tax assets that we estimate are more likely than not to be unrealizable, based on available evidence at the time the estimate is made. In assessing the need for a valuation allowance, we estimate future taxable income, considering the prudence and feasibility of tax planning strategies and the realizability of tax loss carryforwards.
Valuation allowances related to deferred tax assets can be affected by changes to tax laws, statutory tax rates, and future taxable income levels. In the event we were to determine that we would not be able to realize all or a portion of our net deferred tax assets in the future, we would reduce such amounts through a charge to income tax expense in the period in which that determination was made. Conversely, if we were to determine that we would be able to realize our deferred tax assets in the future in excess of the net carrying amounts, we would decrease the recorded valuation allowance through a decrease in income tax expense in the period in which that determination was made. Subsequently recognized tax benefits associated with valuation allowances recorded in a business combination would be recorded as an adjustment to goodwill.
FINANCIAL CONDITION
Balance Sheet Summary
At December 31, 2017, we recorded total assets of $49.1 billion, a $197.6 million increase from the balance at December 31, 2016. Loans, net, and securities represented $38.3 billion and $3.5 billion, respectively, of the December 31st balance and were down $1.0 billion and $285.6 million, respectively, from the prioryear-end balances. The main reason for the decline in loan balances was due to the sale, during the year, of our covered loan portfolio, which totaled $1.7 billion at December 31, 2016. Excluding this sale, totalnon-covered loans, net, were $38.3 billion at the current year-end, up $631.6 million or 1.7% from the prioryear-end.
Total deposits and borrowed funds were $29.1 billion and $12.9 billion, respectively, at December 31, 2017. Deposits increased $214.3 million, or 0.7%, as compared to the prioryear-end, while wholesale borrowings declined 5.7% or $760.0 million versus the balance at December 31, 2016.
Total stockholders’ equity rose $671.4 million from theyear-end 2016 balance, due primarily to a $502.8 million preferred stock offering in March of 2017. Common stockholders’ equity represented 12.81% of total assets at December 31, 2017 compared to 12.52% at December 31, 2016. Book value per common share was $12.88 at December 31, 2017 compared to $12.57 at December 31, 2016.
Loans
Total loans declined $1.0 billion year-over-year to $38.4 billion, representing 78.2% of total assets at December 31, 2017. Included in the 2016year-end amount were covered loans of $1.7 billion. Given the sale of those loans during 2017, the Company did not have any covered loans as of December 31, 2017 and only $35.3 million ofnon-covered loans held for sale compared tonon-covered loans held for sale of $409.2 million at December 31, 2016.
Covered Loans
As previously discussed, the Company sold its covered loan portfolio during the third quarter of 2017; therefore, the Company does not have any covered loans outstanding as of December 31, 2017. Covered loans at December 31, 2016 were $1.7 billion.
Non-Covered Loans Held for Investment
The majority of the loans we produce are loans held for investment and most of theheld-for-investment loans we produce are multi-family loans. Our production of multi-family loans began several decades ago in the five boroughs of New York City, where the majority of the rental units currently consist of rent-regulated apartments featuring below-market rents.
In addition to multi-family loans, our portfolio of loans held for investment contains a large number of CRE credits, most of which are secured by income-producing properties located in New York City and on Long Island.investment:
In addition to multi-family loans and CRE loans, our portfolio includes substantially smaller balances ofone-to-four family loans, ADC loans, and other loans held for investment, with commercial and industrial (“C&I”) loans comprising the bulk of the other loan portfolio. Specialty finance loans and leases account for most of our C&I credits, with the remainder consisting primarily of loans to small andmid-size businesses, referred to as other C&I loans.
|
|
| For the Years Ended December 31, |
|
| ||||||||||||||
|
|
| 2022 |
|
|
| 2021 |
|
| ||||||||||
(dollars in millions) |
|
| Amount |
|
| Percent |
|
|
| Amount |
|
| Percent |
|
| ||||
Mortgage Loan Originated for Investment: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Multi-family |
| $ |
| 8,387 |
|
|
| 49.2 |
| % |
| $ | 8,256 |
|
|
| 62.9 |
| % |
Commercial real estate |
|
|
| 1,086 |
|
|
| 6.4 |
|
|
|
| 893 |
|
|
| 6.8 |
|
|
One-to-four family first mortgage |
|
|
| 328 |
|
|
| 1.9 |
|
|
|
| 168 |
|
|
| 1.3 |
|
|
Acquisition, development, and construction |
|
|
| 149 |
|
|
| 0.9 |
|
|
|
| 119 |
|
|
| 0.9 |
|
|
Total mortgage loans originated for investment |
|
|
| 9,950 |
|
|
| 58.4 |
|
|
|
| 9,436 |
|
|
| 71.9 |
|
|
Other Loans Originated for Investment: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Specialty finance |
|
|
| 6,001 |
|
|
| 35.2 |
|
|
|
| 3,153 |
|
|
| 24.0 |
|
|
Commercial and industrial |
|
|
| 1,016 |
|
|
| 6.0 |
|
|
|
| 536 |
|
|
| 4.1 |
|
|
Other |
|
|
| 83 |
|
|
| 0.4 |
|
|
|
| 6 |
|
|
| 0.0 |
|
|
Total other loans originated for investment |
|
|
| 7,100 |
|
|
| 41.6 |
|
|
|
| 3,695 |
|
|
| 28.1 |
|
|
Total loans originated for investment |
| $ |
| 17,050 |
|
|
| 100.0 |
| % |
| $ | 13,131 |
|
|
| 100.0 |
| % |
At December 31, 2017, loans secured by multi-family,non-owner occupied CRE, and ADC properties represented 742.1% of the consolidated Banks’ total risk-based capital, within our limit of 850%.
In 2017, we originated $8.9 billion ofheld-for-investment loans, a $264.0 million decrease from the prior year. A major reason for this decline was related to a drop inone-to-four family originations, as we exited that business in the third quarter of the year. During 2017, we sold $429.4 million ofheld-for-investment loans, largely through participations, as compared to $1.7 billion in 2016. The decline in loan sales is consistent with the Company’s strategy of resuming growth in the second half of 2017. In 2017, sales of such loans produced net gains of $1.2 million as compared to $15.8 million in 2016.
Multi-Family Loans
Multi-family loans are our principal asset. The loans we produce are primarily secured bynon-luxury residential apartment buildings in New York City that feature rent-regulated units and below-market rents—a market we refer to as our “primary lending niche.” Consistent with our emphasis on multi-family lending, multi-family loan originations represented $5.4$8.4 billion, or 60.3%,49 percent, of the loans we produced for investment in 2017. The latter amount was $307.2 million, or 5%, lower than the prior year’s volume.2022.
At December 31, 2017,2022, multi-family loans represented $28.1$38.1 billion, or 73.2%,55 percent, of totalnon-covered loans held for investment, reflecting a year-over-year increase of $1.1$3.5 billion, or 4.2%.10 percent.
At December 31, 2017 and 2016, respectively, the average multi-family loan had a principal balance of $5.8 million and $5.5 million; the expected weighted average life of the portfolio was 2.6 years and 2.9 years at the respective dates.
The majority of our multi-family loans are made to long-term ownerswere secured by rental apartment buildings.
At December 31, 2022, $22.2 billion or 58 percent of buildings with apartments thatthe Company’s total multi-family loan portfolio is secured by properties in New York State and, therefore, are subject to the new rent regulation and feature below-market rents. Our borrowers typically uselaws. The weighted average LTV of the funds we provideNYS rent regulated multi-family portfolio was 57.15 percent as of December 31, 2022, compared to make building-wide improvements and renovations to certain apartments, as a resultweighted average LTV of which they are able to increase60.48 percent for the rents their tenants pay. In doing so, the borrower creates more cash flows to borrow against in future years.entire multi-family loan portfolio at that date.
In addition to underwriting multi-family loans on the basis of the buildings’ income and condition, we consider the borrowers’ credit history, profitability, and building management expertise. Borrowers are required to present evidence of their ability to repay the loan from the buildings’ current rent rolls, their financial statements, and related documents.
While a small percentage of our multi-family loans areten-year fixed rate credits, the vast majority of our multi-family loans feature a term of ten or twelve years, with a fixed rate of interest for the first five or seven years of the loan, and an alternative rate of interest in years six through ten or eight through twelve. The rate charged in the first five or seven years is generally based on intermediate-term interest rates plus a spread.
During the remaining years, the loan resets to an annually adjustable rate that is tiedindexed to the prime rate of interest,CME Term SOFR , plus a spread. Alternately, the borrower may opt for a fixed rate that is tied to the five-year fixed advance rate of the Federal Home Loan Bank of New York (the“FHLB-NY”),FHLB-NY, plus a spread. The fixed-rate option also requires the payment of one percentage point of the then-outstanding loan balance. In either case, the minimum rate at repricing is equivalent to the rate in the initialfive-or seven-year term. As the rent roll increases, the typical property owner seeks to refinance the mortgage, and generally does so before the loan reprices in year six or eight.
Multi-family loans that refinance within the first five or seven years are typically subject to an established prepayment penalty schedule. Depending on the remaining term of the loan at the time of prepayment, the penalties normally range from five percentage points to one percentage point of the then-current loan balance. If a loan extends past the fifth or seventh year and the borrower selects the fixed-rate option, the prepayment penalties typically reset
52
to a range of five points to one point over years six through ten or eight through twelve. For example, aten-year multi-family loan that prepays in year three would generally be expected to pay a prepayment penalty equal to three percentage points of the remaining principal balance. A twelve-year multi-family loan that prepays in year one or two would generally be expected to pay a penalty equal to five percentage points.
Because prepayment penalties are recorded as interest income, they are reflected in the average yields on our loans and interest-earning assets, our net interest rate spread and net interest margin, and the level of net interest income we record. No assumptions are involved in the recognition of prepayment income, as such income is only recorded when the cash is received.
Our success as a multi-family lender partly reflects the solid relationships we have developed with the market’s leading mortgage brokers, who are familiar with our lending practices, our underwriting standards, and our long-standing practice of basing our loans on the cash flows produced by the properties. The process of producing such loans is generally four to six weeks in duration and, because the multi-family market is largely broker-driven, the expense incurred in sourcing such loans is substantially reduced.
At December 31, 2017, the majorityWe believe our underwriting quality of our multi-family loans were secured by rental apartment buildings. In addition, 63.6% of our multi-family loans were secured by buildings in New York City and 5.3% were secured by buildings elsewhere in New York State. The remaining multi-family loans were secured by buildings outside these markets, including in the four other states served by our retail branch offices.
Our emphasis on multi-family loans is driven by several factors, including their structure, which reduces our exposure to interest rate volatility to some degree. Another factor driving our focus on multi-family lending has been the comparative quality of the loans we produce. Reflectingis distinctive. This reflects the nature of the buildings securing our loans, our underwriting process and standards, and the generally conservativeloan-to-value LTV ratios (“LTVs”) our multi-family loans feature at origination,origination. Historically, a relatively small percentage of the multi-family loans that have transitioned tonon-performing status have actually resulted in actual losses, even when the credit cycle has taken a downward turn.
We primarily underwrite our multi-family loans based on the current cash flows produced by the collateral property, with a reliance on the “income” approach to appraising the properties, rather than the “sales” approach. The sales approach is subject to fluctuations in the real estate market, as well as general economic conditions, and is therefore likely to be more risky in the event of a downward credit cycle turn. We also consider a variety of other factors, including the physical condition of the underlying property; the net operating income of the mortgaged premises prior to debt service; the debt service coverage ratio (“DSCR”),DSCR, which is the ratio of the property’s net operating income to its debt service; and the ratio of the loan amount to the appraised value (i.e., the LTV) of the property.
In addition to requiring a minimum DSCR of 120%120 percent on multi-family buildings, we obtain a security interest in the personal property located on the premises, and an assignment of rents and leases. Our multi-family loans generally represent no more than 75%75 percent of the lower of the appraised value or the sales price of the underlying property, and typically feature an amortization period of 30 years. In addition, our multi-family loans may contain an initial interest-only period which typically does not exceed two years; however, these loans are underwritten on a fully amortizing basis.
Accordingly, while our multi-family lending niche has not been immune to downturns in the credit cycle, the limited number of losses we have recorded, even in adverse credit cycles, suggests that the multi-family loans we produce involve less credit risk than certain other types of loans. In general, buildings that are subject to rent regulation have tended to be stable, with occupancy levels remaining more or less constant over time. Because the rents are typically below market and the buildings securing our loans are generally maintained in good condition, they have been more likely to retain their tenants in adverse economic times. In addition, we exclude any short-term property tax exemptions and abatement benefits the property owners receive when we underwrite our multi-family loans.
53
The following table presents a geographical analysis of the multi-family loans in our held-for-investment loan portfolio:
| At December 31, 2022 | |||||||
|
| Multi-Family Loans |
|
| ||||
(dollars in millions) |
| Amount |
| Percent |
|
| ||
New York City: |
|
|
|
|
| |||
Manhattan | $ |
| 7,330 |
|
| 19.23 |
| % |
Brooklyn |
|
| 6,385 |
|
| 16.75 |
|
|
Bronx |
|
| 3,715 |
|
| 9.74 |
|
|
Queens |
|
| 2,889 |
|
| 7.58 |
|
|
Staten Island |
|
| 126 |
|
| 0.33 |
|
|
Total New York City | $ |
| 20,445 |
|
| 53.63 |
| % |
New Jersey |
|
| 5,107 |
|
| 13.39 |
|
|
Long Island |
|
| 574 |
|
| 1.51 |
|
|
Total Metro New York | $ |
| 26,126 |
|
| 68.53 |
| % |
Other New York State |
|
| 1,157 |
|
| 3.02 |
|
|
Pennsylvania |
|
| 3,760 |
|
| 9.86 |
|
|
Florida |
|
| 1,690 |
|
| 4.43 |
|
|
Ohio |
|
| 1,006 |
|
| 2.64 |
|
|
Arizona |
|
| 442 |
|
| 1.16 |
|
|
All other states |
|
| 3,949 |
|
| 10.36 |
|
|
Total | $ |
| 38,130 |
|
| 100.00 |
| % |
Commercial Real Estate Loans
At December 31, 2017,2022, CRE loans represented $7.3$8.5 billion, or 19.1%,12 percent, of total loans held for investment, asreflecting a year-over-year increase of $1.8 billion compared to $7.7 billion, or 20.7%, at December 31, 2016. The growth of2021 primarily driven by the portfolio was tempered by prepayment activity during the year. The average CRE loan had a principal balance of $5.7 million at the end of this December, as compared to $5.6 million at the prioryear-end. In addition, the portfolio had an expected weighted average life of 3.0 years and 3.4 years at the corresponding dates.Flagstar acquisition.
CRE loans represented $1.0$1.1 billion, or 11.7%,6 percent, of the loans we producedoriginated in 2017 for investment,2022, as compared to $1.2 billion,$893 million, or 12.9%,7 percent, in the prior year.
The CRE loans we produce are secured by income-producing properties such as office buildings, retail centers,mixed-use buildings, and multi-tenanted light industrial properties. At December 31, 2017, 69.3%2022, the largest concentration of our CRE loans were secured by properties in the metro New York City while properties on Long Island accountedarea, refer to the Geographical Analysis table included above for 11.8%. Other partsadditional details.
The terms of New York State accounted for 2.6% of the properties securing our CRE credits, while all other states accounted for 16.3%, combined.
The termsmore than half of our CRE loans are similar to the terms of our multi-family credits. While a small percentage of our CRE loans featureten-year fixed-rate terms, theycredits which primarily feature a fixed rate of interest for the first five or seven years of the loan that is generally based on intermediate-term interest rates plus a spread. During years six through tenIn addition to customary fixed rate terms, we now also offer floating rates advances indexed to CME Term SOFR. These products are generally offered in combination with interest rate cap or eight through twelve,swaps that provide borrowers with additional optionality to manage their interest rate risk. Following the initial fixed rate period, the loan resets to an annually adjustable interest rate that is tiedindexed to the prime rate of
interest,CME Term SOFR, plus a spread.spread. Alternately, the borrower may opt for a fixed rate that is tied to the five-year fixed advance rate of theFHLB-NY plus a spread. The fixed-rate option also requires the payment of an amount equal to one percentage point of the then-outstanding loan balance. In either case, the minimum rate at repricing is equivalent to the rate in the initial five- or seven-year term.
Prepayment penalties apply to certain of our CRE loans, as they do our multi-family credits. Depending on the remaining term of the loan at the time of prepayment, the penalties normally range from five percentage points to one percentage point of the then-current loan balance. If a loan extends past the fifth or seventh year and the borrower selects the fixed rate option, the prepayment penalties typically reset to a range of five points to one point over years six through ten or eight through twelve. Our CRE loans tend to refinance within three to four years of origination, as reflected in the expected weighted average life of the CRE portfolio noted above.
54
The repayment of loans secured by commercial real estate is often dependent on the successful operation and management of the underlying properties. To minimize our credit risk, we originate CRE loans in adherence with conservative underwriting standards, and require that such loans qualify on the basis of the property’s current income stream and DSCR. The approval of a loan also depends on the borrower’s credit history, profitability, and expertise in property management, and generally requires a minimum DSCR of 130%130 percent and a maximum LTV of 65%.65 percent. In addition, the origination of CRE loans typically requires a security interest in the fixtures, equipment, and other personal property of the borrower and/or an assignment of the rents and/or leases. In addition, our CRE loans may contain an interest-only period which typically does not exceed three years; however, these loans are underwritten on a fully amortizing basis.
One-to-Four FamilyThe following table presents a geographical analysis of the CRE loans in our held-for-investment loan portfolio:
| At December 31, 2022 | |||||||
| Commercial Real Estate Loans |
|
| |||||
(dollars in millions) | Amount |
| Percent |
|
| |||
New York | $ |
| 5,081 |
|
| 59.59 |
| % |
Michigan |
|
| 1,039 |
|
| 12.19 |
|
|
New Jersey |
|
| 560 |
|
| 6.57 |
|
|
Pennsylvania |
|
| 328 |
|
| 3.85 |
|
|
Florida |
|
| 255 |
|
| 2.99 |
|
|
Ohio |
|
| 149 |
|
| 1.75 |
|
|
Arizona |
|
| 73 |
|
| 0.86 |
|
|
All other states |
|
| 1,041 |
|
| 12.20 |
|
|
Total | $ |
| 8,526 |
|
| 100.00 |
| % |
Acquisition, Development, and Construction Loans
At December 31, 2017,one-to-four family2022, our ADC loans represented $477.2 million,$2.0 billion or 1.2%,3 percent, of total loans held for investment, asreflecting a year-over-year increase of $1.8 billion compared to $381.1 million, or 1.0%, at the prioryear-end. The year-over-year increase was due to certain mixed use CRE loans with less than five residential units being classified asone-to-four family loans. Other than these types of loans, we do not currently expect to originateone-to-four family loans.
The majority of theone-to-four family loans we produced for investment were prime jumbo adjustable-rate mortgage loans made at conservative LTVs to borrowers with high credit ratings. Originations ofone-to-four family loans dropped $179.1 million year-over-year to $124.8 million, as we exited this line of business. Such loans continued to represent a small portion (1.4%) of theheld-for-investment loans we produced in 2017.
Acquisition, Development, and Construction Loans
At December 31, 2017, ADC loans represented $435.8 million, or 1.1%, of total loans held for investment, as compared to $381.2 million, or 1.0%, at2021 primarily driven by the prioryear-end. Originations of ADC loans totaled $77.2 million in 2017, down $73.0 million from the year-earlier amount.Flagstar acquisition.
At December 31, 2017, 43.1% of the loans in our ADC portfolio were for land acquisition and development; the remaining 56.9% consisted of loans that were provided for the construction of commercial properties and owner-occupied homes. Loan terms vary based upon the scope of the construction, and generally range from 18 months to two years. They also feature a floating rate of interest tied to prime, with a floor. At December 31, 2017, 77.4% of our ADC loans were for properties in New York City.
Because ADC loans are generally considered to have a higher degree of credit risk, especially during a downturn in the credit cycle, borrowers are required to provide a guarantee of repayment and completion. In the twelve months ended December 31, 20172022 and 2016,2021, we recovereddid not recover any losses against guarantees of $601,000 and $337,000, respectively.guarantees. 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; the developer’s experience; the estimated cost of construction, including interest; and the estimated time to complete and/or sell or lease such property.
When applicable, as a condition to closing an ADC loan, it is our practice to require that properties meetpre-sale orpre-lease requirements prior to funding.
C&I Loans
OurAt December 31, 2022 C&I loans totaled $12.3 billion or 18 percent of total loans held-for-investment. Included in this portfolio is $3.5 billion in warehouse loans that allow mortgage lenders to fund the closing of residential mortgage loans.
The non-warehouse C&I loans we produce are primarily made to small and mid-size businesses and finance companies. Such loans are tailored to meet the specific needs of our borrowers, and include term loans, demand loans, revolving lines of credit, and, to a much lesser extent, loans that are partly guaranteed by the Small Business Administration.
A broad range of C&I loans, both collateralized and unsecured, are made available to businesses for working capital (including inventory and accounts receivable), business expansion, the purchase of machinery and equipment,
55
and other general corporate needs. In determining the term and structure of C&I loans, several factors are considered, including the purpose, the collateral, and the anticipated sources of repayment. C&I loans are divided into two categories:typically secured by business assets and personal guarantees of the borrower, and include financial covenants to monitor the borrower’s financial stability.
Also included in our C&I portfolio is our national warehouse lending platform with relationship managers across the country. We offer warehouse lines of credit to other mortgage lenders which allow the lender to fund the closing of residential mortgage loans. Each extension, advance, or draw-down on the line is fully collateralized by residential mortgage loans and is paid off when the lender sells the loan to an outside investor or, in some instances, to the Bank.
Underlying mortgage loans are predominantly originated using the Agencies' underwriting standards. The guideline for debt to tangible net worth is 15 to 1. We have $3.5 billion outstanding warehouse loans to other mortgage lenders and have relationships in place to lend up to $11.6 billion at our discretion.
The interest rates on our C&I loans can be fixed or floating, with floating-rate loans being tied SOFR, prime or some other market index, plus an applicable spread. Our floating-rate loans may or may not feature a floor rate of interest. The decision to require a floor on C&I loans depends on the level of competition we face for such loans from other institutions, the direction of market interest rates, and the profitability of our relationship with the borrower.
At December 31, 2022, specialty finance loans and leases and other C&I loans, as further described below.
Specialty Finance Loans and Leases
At December 31, 2017 and 2016, specialty finance loans and leases represented $1.5totaled $4.4 billion and $1.3 billion, respectively,or 7 percent of total loans held for investment, and $1.8 billion and $1.3 billion, respectively, of the C&I loans produced over the course of those years.up $912 million or 26 percent compared to December 31, 2021.
We produce our specialty finance loans and leases through a subsidiary that is staffed by a group of industry veterans with expertise in originating and underwriting senior securitized debt and equipment loans and leases. The subsidiary participates in syndicated loans that are brought to them, and equipment loans and leases that are assigned to them, by a select group of nationally recognized sources, and are generally made to large corporate obligors, many of which are publicly traded, carry investment grade or near-investment grade ratings, and participate in stable industries nationwide.
The specialty finance loans and leases we fund fall into three categories: asset-based lending, dealer floor-plan lending, and equipment loan and lease financing. Each of these credits is secured with a perfected first security interest in, or outright ownership of, the underlying collateral, and structured as senior debt or as anon-cancelable lease. Asset-basedAs of December 31, 2022, 78 percent of specialty finance loan commitments outstanding are structured as floating rate obligations which will benefit in a rising rate environment. All floating rate obligations are being transitioned from LIBOR to an appropriate LIBOR replacement index in accordance with the regulatory guidance provided around LIBOR cessation.
During 2022, the Company originated $6.0 billion of specialty finance loans and dealer floor-plan loans are priced at floating rates predominately tiedleases, representing 35 percent of total originations compared to LIBOR, while our equipment financing credits are priced at fixed rates at a spread over Treasuries.$3.2 billion during 2021, representing 24 percent of total originations.
Since launching our specialty finance business in the third quarter of 2013, no losses have been recorded on any of the loans or leases in this portfolio.
Other C&I
One-to-Four Family Loans
In the twelve months endedAt December 31, 2017, other C&I loans declined $132.1 million to $500.8 million, and represented $511.4 million of theheld-for-investment loans we produced. Included in the balance atyear-end 2017 were taxi medallion-related loans of $99.1 million. The portfolio of taxi medallion-related2022, one-to-four family loans represented 0.26%$5.8 billion, including $1.1 billion of LGG or 8 percent, of totalheld-for-investment loans atheld for investment. As of December 31, 2017.
In contrast2021 total one-to-four family loans totaled $160 million, with the increase being driven by the Flagstar acquisition. These loans include various types of conforming and non-conforming fixed and adjustable rate loans underwritten using Fannie Mae and Freddie Mac guidelines for the purpose of purchasing or refinancing owner occupied and second home properties. We typically hold certain mortgage loans in LHFI that do not qualify for sale to the Agencies and that have an acceptable yield and risk profile. The LTV requirements on our residential first mortgage loans produced by our specialty finance subsidiary, the other C&Ivary depending on occupancy, property type, loan amount, and FICO scores. Loans with LTVs exceeding 80 percent are required to obtain mortgage insurance. As of December 31, 2022, non-government guaranteed loans we producein this portfolio had an average current FICO score of 743 and an average LTV of 58 percent.
56
Substantially all LGG are primarily made to small andmid-size businesses in the five boroughs of New York City and on Long Island. Such loans are tailored to meet the specific needs of our borrowers, and include term loans, demand loans, revolving lines of credit, and, to a much lesser extent, loans that are partlyinsured or guaranteed by the Small Business Administration.
A broad rangeFHA or the U.S. Department of other C&IVeterans Affairs. Nonperforming repurchased loans both collateralizedin this portfolio earn interest at a rate based upon the 10-year U.S. Treasury note rate from the time the underlying loan becomes 60 days delinquent until the loan is conveyed to HUD (if foreclosure timelines are met), which is not paid by the FHA until claimed. The Bank has a unilateral option to repurchase loans sold to GNMA if the loan is due, but unpaid, for three consecutive months (typically referred to as 90 days past due) and unsecured,can recover losses through a claims process from the guarantor. These loans are made available to businessesrecorded in loans held for working capital (including inventory and accounts receivable), business expansion, the purchase of machinery and equipment, and other general corporate needs. In determining the term and structure of other C&I loans, several factors are considered, including the purpose, the collateral,investment and the anticipated sourcesliability to repurchase the loans is recorded in other liabilities on the Consolidated Statements of repayment. Other C&ICondition. Certain loans are typically secured by businesswithin our portfolio may be subject to indemnifications and insurance limits which expose us to limited credit risk. We have reserved for these risks within other assets and personal guaranteesas a component of the borrower, and include financial covenants to monitor the borrower’s financial stability.our ACL on residential first mortgages.
The interest rates on our other C&I
As of December 31, 2022, LGG loans can be fixed or floating, with floating-rate loans being tied to prime or some other market index, plus an applicable spread. Our floating-rate loans may or may not feature a floor rate of interest. The decision to require a floor on other C&I loans depends on the level of competition we face for such loans from other institutions, the direction of market interest rates,totaled $1.2 billion and the profitability of our relationship with the borrower.repurchase liability was $0.3 billion.
Other Loans
At December 31, 2017,2022, other loans totaled $8.5 million$2.3 billion and consisted primarily of a varietyhome equity lines of credit, boat and recreational vehicle indirect lending, point of sale consumer loans most of which wereand other consumer loans, including overdraft loans.
Our home equity portfolio includes HELOANs, second mortgage loans, and HELOCs. These loans are underwritten and priced in an effort to non-profit organizations.ensure credit quality and loan profitability. Our debt-to-income ratio on HELOANs and HELOCs is capped at 43 percent and 45 percent, respectively. We currently do not offerlimit the maximum CLTV to 89.99 percent and FICO scores to a minimum of 700. Second mortgage loans and HELOANs are fixed rate loans and are available with terms up to 20 years. HELOC loans are primarily variable-rate loans that contain a 10-year interest only draw period followed by a 20-year amortizing period. As of December 31, 2022, loans in this portfolio had an average current FICO score of 752.
As of December 31, 2022, loans in our indirect portfolio had an average current FICO score of 750. Point of sale loans consist of unsecured consumer installment loans originated primarily for home equityimprovement purposes through a third-party financial technology company who also provides us a level of credit loss protection.
Loans Held for Sale
At December 31, 2022, loans or lines of credit.
Lending Authority
Theheld for sale were $1.1 billion compared to zero at December 31, 2021 with the increase driven by the Flagstar acquisition. We classify loans as held for sale when we originate or purchase loans that we intend to sell. We have elected the fair value option for nearly all of this portfolio. We estimate the fair value of mortgage loans based on quoted market prices for securities backed by similar types of loans, where available, or by discounting estimated cash flows using observable inputs inclusive of interest rates, prepayment speeds and loss assumptions for similar collateral.
Loan Maturity and Repricing Analysis: Loans Held for Investment
The following table sets forth the maturity or period to repricing of our portfolio of loans held for investment at December 31, 2022. Loans that have adjustable rates are shown as being due in the period during which their interest rates are next subject to federalchange.
(in millions) |
| Multi- |
|
| Commercial |
|
| One-to- |
|
| Acquisition, |
|
| Other |
|
| Total |
| ||||||||||||
Amount due: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
Within one year |
| $ |
| 4,399 |
|
| $ |
| 1,878 |
|
| $ |
| 122 |
|
| $ |
| 1,363 |
|
| $ |
| 8,960 |
|
| $ |
| 16,722 |
|
After one year: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
One to five years |
|
|
| 22,746 |
|
|
|
| 5,394 |
|
|
|
| 523 |
|
|
|
| 620 |
|
|
|
| 3,563 |
|
|
|
| 32,846 |
|
Over five years to fifteen years |
|
|
| 10,961 |
|
|
|
| 1,254 |
|
|
|
| 1,639 |
|
|
|
| 13 |
|
|
|
| 1,386 |
|
|
|
| 15,253 |
|
Over fifteen years |
|
|
| 24 |
|
|
|
| — |
|
|
|
| 3,537 |
|
|
|
| — |
|
|
|
| 619 |
|
|
|
| 4,180 |
|
Total due or repricing after one year |
|
|
| 33,731 |
|
|
|
| 6,648 |
|
|
|
| 5,699 |
|
|
|
| 633 |
|
|
|
| 5,568 |
|
|
|
| 52,279 |
|
Total amounts due or repricing, gross |
| $ |
| 38,130 |
|
| $ |
| 8,526 |
|
| $ |
| 5,821 |
|
| $ |
| 1,996 |
|
| $ |
| 14,528 |
|
| $ |
| 69,001 |
|
57
The following table sets forth, as of December 31, 2022, the dollar amount of all loans held for investment that are due after December 31, 2023, and state lawsindicates whether such loans have fixed or adjustable rates of interest:
|
|
| Due after December 31, 2023 |
| |||||||||||
(in millions) |
|
| Fixed |
|
| Adjustable |
|
| Total |
| |||||
Mortgage Loans: |
|
|
|
|
|
|
|
|
|
|
|
| |||
Multi-family |
| $ |
| 8,564 |
|
| $ |
| 25,167 |
|
| $ |
| 33,731 |
|
Commercial real estate |
|
|
| 2,040 |
|
|
|
| 4,608 |
|
|
|
| 6,648 |
|
One-to-four family first mortgage |
|
|
| 2,402 |
|
|
|
| 3,297 |
|
|
|
| 5,699 |
|
Acquisition, development, and construction |
|
|
| 21 |
|
|
|
| 612 |
|
|
|
| 633 |
|
Total mortgage loans |
|
|
| 13,027 |
|
|
|
| 33,684 |
|
|
|
| 46,711 |
|
Other loans |
|
|
| 2,534 |
|
|
|
| 3,034 |
|
|
|
| 5,568 |
|
Total loans |
| $ |
| 15,561 |
|
| $ |
| 36,718 |
|
| $ |
| 52,279 |
|
Lending Authority
We maintain credit limits in compliance with regulatory requirements. Under regulatory guidance, the Bank may not make a loan or extend credit to a single or related group of borrowers in excess of 15 percent of Tier 1 plus Tier 2 capital and regulations,any portion of the ACL not included in Tier 2 capital. We have a tracking and are underwritten in accordance with loan underwriting policiesreporting process to monitor lending concentration levels, and all new commercial real estate credit exposures to relationships that exceed $200 million and all other commercial credit exposures to relationships that exceed $100 million must be approved by the Management Credit Committee, the Mortgage and Real Estate Committee of the Community Bank (the “Mortgage Committee”), theBoard Credit Committee of the Commercial Bank (the “Credit Committee”), andBoard. Exceptions to these levels are made to strong borrowers on a case by case basis, with the respective Boards of Directorsapproval of the Banks.
Prior to 2017, all loans originatedBoard Credit Committee of the Board. Relationships less than the aforementioned limits are approved by the Banks were presented to the Mortgage Committee or thejoint authority of credit officers and lending officers. The Board Credit Committee as applicable. Furthermore, all loans of $20.0 million or more originated by the Community Bank, and all loans of $10.0 million or more originated by the Commercial Bank, were reported to the applicable Board of Directors.
Effective January 27, 2017, all loans other than C&I loans less than or equal to $3.0 million are required to be presented to the Management Credit Committee for approval. All multi-family, CRE, and other C&I loans in excess of $5.0 million, and specialty finance loans in excess of $15.0 million, are also required to be presented to the Mortgage Committee or the Credit Committee, as applicable, so that the Committees can review the loans’ associated risks. The Committees havehas authority to direct changes in lending practices as they deem necessary or appropriate in order to address individual or aggregate risks and credit exposures in accordance with the Bank’s strategic objectives and risk appetites.
All mortgage loans in excess of $50.0 million and all other C&I loans in excess of $5.0 million require approval by the Mortgage Committee or the Credit Committee. Credit Committee approval also is required for specialty finance loans in excess of $15.0 million.
In addition, all loans of $20.0 million or more originated by the Community Bank, and all loans of $10.0 million or more originated by the Commercial Bank, continue to be reported to the applicable Board of Directors, and all C&I loans less than or equal to $3.0 million continue to be approved byline-of-business personnel.
In 2017, 172 loans of $10.0 million or more were originated by the Banks, with an aggregate loan balance of $4.2 billion at origination. In 2016, by comparison, 176 loans of $10.0 million or more were originated, with an aggregate loan balance at origination of $5.1 billion.
At December 31, 20172022 and 2016,2021, the largest mortgage loan in our portfolio was a $329 million multi-family loan, originatedwhich is collateralized by the Community Bank on June 28, 2013 to the owner of a commercial office buildingsix properties located in Manhattan.Brooklyn, New York. As of the date of this report, the loan has been current since origination. The balance of the loan was $287.5 million at both year-ends.
Geographical Analysis of the Portfolio ofNon-Covered Loans Held for Investment
The following table presents a geographical analysis of the multi-family and CRE loans in ourheld-for-investment loan portfolio at December 31, 2017:
At December 31, 2017 | ||||||||||||||||
Multi-Family Loans | Commercial Real Estate Loans | |||||||||||||||
(dollars in thousands) | Amount | Percent of Total | Amount | Percent of Total | ||||||||||||
New York City: | ||||||||||||||||
Manhattan | $ | 7,399,409 | 26.36 | % | $ | 3,712,116 | 50.70 | % | ||||||||
Brooklyn | 4,340,472 | 15.46 | 563,867 | 7.70 | ||||||||||||
Bronx | 3,783,194 | 13.48 | 95,758 | 1.31 | ||||||||||||
Queens | 2,252,315 | 8.02 | 647,774 | 8.84 | ||||||||||||
Staten Island | 78,513 | 0.28 | 55,721 | 0.76 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Total New York City | $ | 17,853,903 | 63.60 | % | $ | 5,075,236 | 69.31 | % | ||||||||
|
|
|
|
|
|
|
| |||||||||
Long Island | 517,651 | 1.84 | 862,888 | 11.79 | ||||||||||||
Other New York State | 971,697 | 3.46 | 191,797 | 2.62 | ||||||||||||
All other states | 8,731,458 | 31.10 | 1,192,305 | 16.28 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Total | $ | 28,074,709 | 100.00 | % | $ | 7,322,226 | 100.00 | % | ||||||||
|
|
|
|
|
|
|
|
At December 31, 2017,2022 and 2021, the largest concentration of ADC loans held for investmentmortgage loan in our portfolio was in New York City, with a total of $337.4$329 million at that date. The majority of our other C&I loans held for investment were securedmulti-family loan, which is collateralized by six properties and/or businesses located in MetroBrooklyn, New York.
Loan Maturity and Repricing Analysis:Non-Covered Loans Held for InvestmentAsset Quality
The following table sets forth the maturity or period to repricing of our portfolio ofnon-covered loans held for investment at December 31, 2017. Loans that have adjustable rates are shown as being due in the period during which their interest rates are next subject to change.
Non-Covered Loans Held for Investment at December 31, 2017 | ||||||||||||||||||||||||
(in thousands) | Multi-Family | Commercial Real Estate | One-to-Four Family | Acquisition, Development, and Construction | Other | Total Loans | ||||||||||||||||||
Amount due: |
| |||||||||||||||||||||||
Within one year | $ | 1,170,796 | $ | 858,534 | $ | 8,985 | $ | 374,369 | $ | 1,071,480 | $ | 3,484,164 | ||||||||||||
After one year: | ||||||||||||||||||||||||
One to five years | 18,470,347 | 4,567,130 | 119,823 | 52,414 | 536,467 | 23,746,181 | ||||||||||||||||||
Over five years | 8,433,566 | 1,896,562 | 348,420 | 9,042 | 441,087 | 11,128,677 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Total due or repricing after one year | 26,903,913 | 6,463,692 | 468,243 | 61,456 | 977,554 | 34,874,858 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Total amounts due or repricing, gross | $ | 28,074,709 | $ | 7,322,226 | $ | 477,228 | $ | 435,825 | $ | 2,049,034 | $ | 38,359,022 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
The following table sets forth, as of December 31, 2017, the dollar amount of allnon-covered loans held for investmentAll asset quality information excludes LGG that are due after December 31, 2018,insured by U.S government agencies.
58
Delinquent and indicates whether such loans have fixed or adjustable rates of interest:
Due after December 31, 2018 | ||||||||||||
(in thousands) | Fixed | Adjustable | Total | |||||||||
Mortgage Loans: |
| |||||||||||
Multi-family | $ | 2,817,144 | $ | 24,086,769 | $ | 26,903,913 | ||||||
Commercial real estate | 506,207 | 5,957,485 | 6,463,692 | |||||||||
One-to-four family | 20,337 | 447,906 | 468,243 | |||||||||
Acquisition, development, and construction | 666 | 60,790 | 61,456 | |||||||||
|
|
|
|
|
| |||||||
Total mortgage loans | 3,344,354 | 30,552,950 | 33,897,304 | |||||||||
Other loans | 26,788 | 950,766 | 977,554 | |||||||||
|
|
|
|
|
| |||||||
Total loans | $ | 3,371,142 | $ | 31,503,716 | $ | 34,874,858 | ||||||
|
|
|
|
|
|
Non-Covered Loans Held for Sale
At December 31, 2017,non-covered loans held for sale were $35.3 million, down $373.9 million from the amounts at December 31, 2016. The decline is largely attributable to our exit from the residential mortgage banking business, earlier in the year.
Loan Origination Analysis
The following table summarizes our production ofnon-performing loans held for investment and loans held for sale in the years ended December 31, 2017 and 2016:
For the Years Ended December 31, | ||||||||||||||||
2017 | 2016 | |||||||||||||||
(dollars in thousands) | Amount | Percent of Total | Amount | Percent of Total | ||||||||||||
Mortgage Loans Originated for Investment: | ||||||||||||||||
Multi-family | $ | 5,377,600 | 50.77 | % | $ | 5,684,838 | 41.10 | % | ||||||||
Commercial real estate | 1,039,105 | 9.81 | 1,180,430 | 8.54 | ||||||||||||
One-to-four family residential | 124,763 | 1.18 | 303,877 | 2.20 | ||||||||||||
Acquisition, development, and construction | 77,153 | 0.73 | 150,177 | 1.09 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Total mortgage loans originated for investment | 6,618,621 | 62.49 | 7,319,322 | 52.93 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Other Loans Originated for Investment: | ||||||||||||||||
Specialty finance | 1,784,549 | 16.85 | 1,266,362 | 9.16 | ||||||||||||
Other commercial and industrial | 511,416 | 4.83 | 592,250 | 4.28 | ||||||||||||
Other | 3,159 | 0.03 | 3,856 | 0.03 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Total other loans originated for investment | 2,299,124 | 21.71 | 1,862,468 | 13.47 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Total loans originated for investment | $ | 8,917,745 | 84.20 | % | $ | 9,181,790 | 66.40 | % | ||||||||
Loans originated for sale | 1,674,123 | 15.80 | 4,646,773 | 33.60 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Total loans originated | $ | 10,591,868 | 100.00 | % | $ | 13,828,563 | 100.00 | % | ||||||||
|
|
|
|
|
|
|
|
Loan Portfolio Analysis
The following table summarizes the composition of our loan portfolio at eachyear-end for the five years ended December 31, 2017:
At December 31, | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
2017 | 2016 | 2015 | 2014 | 2013 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
(dollars in thousands) | Amount | Percent of Total Loans | Percent ofNon- Covered Loans | Amount | Percent of Total Loans | Percent ofNon- Covered Loans | Amount | Percent of Total Loans | Percent ofNon- Covered Loans | Amount | Percent of Total Loans | Percent ofNon- Covered Loans | Amount | Percent of Total Loans | Percent ofNon- Covered Loans | |||||||||||||||||||||||||||||||||||||||||||||
Non-Covered Mortgage Loans: | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Multi-family | $ | 28,074,709 | 73.12 | % | 73.12 | % | $ | 26,945,052 | 68.28 | % | 71.35 | % | $ | 25,971,629 | 68.04 | % | 71.93 | % | $ | 23,831,846 | 66.54 | % | 71.39 | % | $ | 20,699,927 | 62.89 | % | 68.71 | % | ||||||||||||||||||||||||||||||
Commercial real estate | 7,322,226 | 19.07 | 19.07 | 7,724,362 | 19.57 | 20.45 | 7,857,204 | 20.58 | 21.76 | 7,634,320 | 21.32 | 22.87 | 7,364,231 | 22.37 | 24.44 | |||||||||||||||||||||||||||||||||||||||||||||
One-to-four family | 477,228 | 1.24 | 1.24 | 381,081 | 0.97 | 1.01 | 116,841 | 0.31 | 0.32 | 138,915 | 0.39 | 0.41 | 560,730 | 1.70 | 1.86 | |||||||||||||||||||||||||||||||||||||||||||||
Acquisition, development, and construction | 435,825 | 1.14 | 1.14 | 381,194 | 0.97 | 1.01 | 311,676 | 0.82 | 0.86 | 258,116 | 0.72 | 0.77 | 344,100 | 1.05 | 1.14 | |||||||||||||||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||
Totalnon-covered mortgage loans | 36,309,988 | 94.57 | 94.57 | 35,431,689 | 89.79 | 93.82 | 34,257,350 | 89.75 | 94.87 | 31,863,197 | 88.97 | 95.44 | 28,968,988 | 88.01 | 96.15 | |||||||||||||||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||
Non-Covered Other Loans: | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Specialty finance | 1,539,733 | 4.01 | 4.01 | 1,267,530 | 3.21 | 3.36 | 880,673 | 2.31 | 2.44 | 632,827 | 1.77 | 1.89 | 172,698 | 0.52 | 0.57 | |||||||||||||||||||||||||||||||||||||||||||||
Other commercial and industrial | 500,841 | 1.31 | 1.31 | 632,915 | 1.60 | 1.68 | 569,883 | 1.49 | 1.58 | 476,394 | 1.33 | 1.43 | 640,993 | 1.95 | 2.13 | |||||||||||||||||||||||||||||||||||||||||||||
Other loans | 8,460 | 0.02 | 0.02 | 24,067 | 0.06 | 0.06 | 32,583 | 0.09 | 0.09 | 31,943 | 0.09 | 0.10 | 39,036 | 0.12 | 0.13 | |||||||||||||||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||
Totalnon-covered other loans | 2,049,034 | 5.34 | 5.34 | 1,924,512 | 4.87 | 5.10 | 1,483,139 | 3.89 | 4.11 | 1,141,164 | 3.19 | 3.42 | 852,727 | 2.59 | 2.83 | |||||||||||||||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||
Totalnon-covered loans held for investment | $ | 38,359,022 | 99.91 | 99.91 | $ | 37,356,201 | 94.66 | 98.92 | $ | 35,740,489 | 93.64 | 98.98 | $ | 33,004,361 | 92.16 | 98.86 | $ | 29,821,715 | 90.60 | 98.98 | ||||||||||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||
Loans held for sale | 35,258 | 0.09 | 0.09 | 409,152 | 1.04 | 1.08 | 367,221 | 0.96 | 1.02 | 379,399 | 1.06 | 1.14 | 306,915 | 0.93 | 1.02 | |||||||||||||||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||
Totalnon-covered loans | $ | 38,394,280 | 100.00 | 100.00 | % | $ | 37,765,353 | 95.70 | 100.00 | % | $ | 36,107,710 | 94.60 | 100.00 | % | $ | 33,383,760 | 93.22 | 100.00 | % | $ | 30,128,630 | 91.53 | 100.00 | % | |||||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||||||||||||||||||||||
Covered loans | — | — | 1,698,133 | 4.30 | 2,060,089 | 5.40 | 2,428,622 | 6.78 | 2,788,618 | 8.47 | ||||||||||||||||||||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||||||||||||
Total loans | $ | 38,394,280 | 100.00 | % | $ | 39,463,486 | 100.00 | % | $ | 38,167,799 | 100.00 | % | $ | 35,812,382 | 100.00 | % | $ | 32,917,248 | 100.00 | % | ||||||||||||||||||||||||||||||||||||||||
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Net deferred loan origination costs | 28,949 | 26,521 | 22,715 | 20,595 | 16,274 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
Allowance for losses onnon-covered loans | (158,046 | ) | (158,290 | ) | (147,124 | ) | (139,857 | ) | (141,946 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||
Allowance for losses on covered loans | — | (23,701 | ) | (31,395 | ) | (45,481 | ) | (64,069 | ) | |||||||||||||||||||||||||||||||||||||||||||||||||||
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Total loans, net | $ | 38,265,183 | $ | 39,308,016 | $ | 38,011,995 | $ | 35,647,639 | $ | 32,727,507 | ||||||||||||||||||||||||||||||||||||||||||||||||||
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Outstanding Loan Commitments
At December 31, 2017 and 2016, we had outstanding loan commitments of $1.9 billion and $2.1 billion, respectively. Loans held for investment represented $1.9 billion of theyear-end 2017 amount and $1.8 billion of theyear-end 2016 amount. We had no commitments for loans held for sale at the end of this December, as compared to $242.5 million at the prioryear-end.
We also had commitments to issue letters of credit totaling $339.4 million and $324.3 million at December 31, 2017 and 2016, respectively. The fees we collect in connection with the issuance of letters of credit are included in “Fee income” in the Consolidated Statements of Operations and Comprehensive Income (Loss).
The letters of credit we issue consist of performancestand-by, financialstand-by, and commercial letters of credit. Financialstand-by letters of credit primarily are issued for the benefit of other financial institutions, municipalities, or landlords on behalf of certain of our current borrowers, and obligate us to guarantee payment of a specified financial obligation. Performancestand-by letters of credit are primarily issued for the benefit of local municipalities on behalf of certain of our borrowers. These borrowers are mainly developers of residential subdivisions with whom we currently have a lending relationship. Performance letters of credit obligate us to make payments in the event that a specified third party fails to perform undernon-financial contractual obligations. Commercial letters of credit act as a means of ensuring payment to a seller upon shipment of goods to a buyer. Although commercial letters of credit are used to effect payment for domestic transactions, the majority are used to settle payments in international trade. Typically, such letters of credit require the presentation of documents that describe the commercial transaction, and provide evidence of shipment and the transfer of title.
For more information about our outstanding loan commitments and commitments to issue letters of credit at the end of this December, see the discussion of “Liquidity” later in this discussion and analysis of our financial condition and results of operations.
Asset Quality
Non-Covered Loans Held for Investment andNon-CoveredRepossessed Assets
Non-performingnon-covered assets represented $90.1 million, or 0.18%, of totalnon-covered assets at the end of this December, as compared to $68.1 million, representing 0.14% of totalnon-covered assets, at December 31, 2016. Total non-accrualnon-covered loans increased $17.2 million driven by a $30.0 million increase innon-accrualnon-covered other loans due to a $31.5 million increase innon-accrual taxi medallion-related loans. This was partially offset by a $12.8 million decline in non-accrualnon-covered mortgage loans.
Non-covered repossessed assets increased $4.8 million to $16.4 million atyear-end 2017. This increase was also largely driven by an increase in taxi medallion-related loans.
The following table presents ournon-performingnon-covered loans, 30 to 89 days past due by loan type and the changes in the respective balances from December 31, 2016 to December 31, 2017:balances:
|
|
|
|
|
|
|
| Change from |
|
| |||||||
(dollars in millions) |
| December 31, |
|
| December 31, |
|
| Amount |
|
| Percent |
|
| ||||
Loans 30-89 Days Past Due: |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Multi-family |
| $ | 34 |
|
| $ | 57 |
|
| $ | (23 | ) |
|
| -40 | % |
|
Commercial real estate |
|
| 2 |
|
|
| 2 |
|
|
| — |
|
|
| 0 |
|
|
One-to-four family first mortgage |
|
| 21 |
|
|
| 8 |
|
|
| 13 |
|
|
| 163 |
|
|
Acquisition, development, and construction |
|
| — |
|
|
| — |
|
|
| — |
|
| NM |
|
| |
Other loans |
|
| 13 |
|
|
| — |
|
|
| 13 |
|
| NM |
|
| |
Total loans 30-89 days past due |
| $ | 70 |
|
| $ | 67 |
|
| $ | 3 |
|
|
| 4 | % |
|
December 31, | Change from December 31, 2016 to December 31, 2017 | |||||||||||||||
(dollars in thousands) | 2017 | 2016 | Amount | Percent | ||||||||||||
Non-PerformingNon-Covered Loans: | ||||||||||||||||
Non-accrualnon-covered mortgage loans: | ||||||||||||||||
Multi-family | $ | 11,078 | $ | 13,558 | $ | (2,480 | ) | (18.29 | )% | |||||||
Commercial real estate | 6,659 | 9,297 | (2,638 | ) | (28.37 | ) | ||||||||||
One-to-four family residential | 1,966 | 9,679 | (7,713 | ) | (79.69 | ) | ||||||||||
Acquisition, development, and construction | 6,200 | 6,200 | — | — | ||||||||||||
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| |||||||||||
Totalnon-accrualnon-covered mortgage loans | 25,903 | 38,734 | (12,831 | ) | (33.13 | ) | ||||||||||
Non-accrualnon-covered other loans (1) | 47,779 | 17,735 | 30,044 | 169.41 | ||||||||||||
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|
| |||||||||||
Totalnon-performingnon-covered loans | $ | 73,682 | $ | 56,469 | $ | 17,213 | 30.48 | |||||||||
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|
At the end of this December, taxi medallion-related loans totaled $99.1 million, representing 0.26% of our totalheld-for-investment loan portfolio. Last December, taxi medallion-related loans totaled $150.7 million, representing 0.40% of our totalheld-for-investment loan portfolio
The following table sets forth the changes innon-performingnon-covered loans over the twelve months ended December 31, 2017:
(in thousands) | ||||
Balance at December 31, 2016 | $ | 56,469 | ||
Newnon-accrual | 78,743 | |||
Charge-offs | (24,971 | ) | ||
Transferred to other real estate owned | (8,233 | ) | ||
Loan payoffs, including dispositions and principalpay-downs | (28,236 | ) | ||
Restored to performing status | (90 | ) | ||
|
| |||
Balance at December 31, 2017 | $ | 73,682 | ||
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|
A loan generally is classified as a“non-accrual” “non-accrual” loan when it is 90 days or more past due or when it is deemed to be impaired because we no longer expect to collect all amounts due according to the contractual terms of the loan agreement. When a loan is placed onnon-accrual status, we cease the accrual of interest owed, and previously accrued interest is reversed and charged against interest income. At December 31, 20172022 and 2016,2021, all of ournon-performing loans werenon-accrual loans. A loan is generally returned to accrual status when the loan is current and we have reasonable assurance that the loan will be fully collectible.
We monitornon-accrual loans both within and beyond our primary lending area in the same manner. Monitoring loans generally involves inspecting andre-appraising the collateral properties; holding discussions with the principals and managing agents of the borrowing entities and/or retainedand retain legal counsel, as applicable; requesting financial, operating, and rent roll information; confirming that hazard insurance is in place or force-placing such insurance; monitoring tax payment status andstatus. advancing funds as needed; and appointingseeking approval from the courts to appoint a receiver, whenever possible,when necessary to protect the Bank’s interests, including to collect rents, manage theproperty operations, provide information, and maintainensure maintenance of the collateral properties.
It is our policy to order updated appraisals for allnon-performing loans 90 days or more past due, irrespective of loan type, that are collateralized by multi-family buildings, CRE properties, or land, in the event that such a loan is 90 days or more past due, and if the most recent appraisal on file for the property is more than one year old. Appraisals are ordered annually until such time as the loan becomes performing and is returned to accrual status. It is not our policy to obtain updated appraisals for performing loans. However, appraisals may be ordered for performing loans when a borrower requests an increase in the loan amount, a modification in loan terms, or an extension of a maturing loan. We do not analyze current LTVs on a portfolio-wide basis.
59
The following table presents our non-performing loans by loan type and the changes in the respective balances:
|
|
|
|
|
|
|
|
| Change from |
|
| |||||||
(dollars in millions) |
| December 31, |
|
| December 31, |
|
|
| Amount |
|
| Percent |
|
| ||||
Non-Performing Loans: |
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|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Non-accrual mortgage loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Multi-family | $ |
| 13 |
|
| $ | 10 |
|
| $ |
| 3 |
|
|
| 30 |
| % |
Commercial real estate |
|
| 20 |
|
|
| 16 |
|
|
|
| 4 |
|
|
| 25 |
|
|
One-to-four family first mortgage |
|
| 92 |
|
|
| 1 |
|
|
|
| 91 |
|
|
| 9,100 |
|
|
Acquisition, development, and construction |
|
| — |
|
|
| — |
|
|
|
| — |
|
|
| — |
|
|
Total non-accrual mortgage loans |
|
| 125 |
|
|
| 27 |
|
|
|
| 98 |
|
|
| 363 |
|
|
Non-accrual other loans (1) |
|
| 16 |
|
|
| 6 |
|
|
|
| 10 |
|
|
| 167 |
|
|
Total non-performing loans | $ |
| 141 |
|
| $ | 33 |
|
| $ |
| 108 |
|
|
| 327 |
|
|
The following table sets forth the changes in non-performing loans over the twelve months ended December 31, 2022:
(in millions) | |||||
Balance at December 31, 2021 | $ | 33 | |||
New non-accrual | 39 | ||||
Non-accrual acquired from acquisition | 104 | ||||
Charge-offs | (1 | ) | |||
Transferred to repossessed assets | — | ||||
Loan payoffs, including dispositions and principal | (32 | ) | |||
Restored to performing status | (2 | ) | |||
Balance at December 31, 2022 | $ | 141 |
Total non-accrual mortgage loans increased $98 million to $125 million, while other non-accrual loans increased $10 million to $16 million compared to $6 million at December 31, 2021. Included the December 31, 2022 amount were non-accrual home equity loans of $9 million acquired in the Flagstar acquisition.
Total NPAs were $153 million or 0.17 percent of total assets at December 31, 2022, up 273 percent or $112 million compared to $41 million or 0.07 percent of total assets at December 31, 2021, primarily driven by the Flagstar acquisition. Repossessed assets totaled $12 million, up $4 million compared to the balance at December 31, 2021. The Company’s repossessed assets includes repossessed taxi medallions of $4 million at December 31, 2022 compared to $5 million at December 31, 2021.
Non-performing loans are reviewed regularly by management and discussed on a monthly basis with the Mortgage Committee, theBoard Credit Committee, and the BoardsBoard of Directors of the respective Banks,Bank, as applicable. In accordance with ourcharge-off policy, collateral-dependentnon-performing loans are written down to their current appraised values, less certain transaction costs. Workout specialists from our Loan Workout Unit actively pursue borrowers who are delinquent in repaying their loans in an effort to collect payment. In addition, outside counsel with experience in foreclosure proceedings are retained to institute such action with regard to such borrowers.
Properties and other assets that are acquired through foreclosure are classified as repossessed assets, and are recorded at fair value at the date of acquisition, less the estimated cost of selling the property. Subsequent declines in
60
the fair value of the assets are charged to earnings and are included innon-interest expense. It is our policy to require an appraisal and an environmental assessment of properties classified as OREO before foreclosure, and tore-appraise the properties on anas-needed basis, and not less than annually, until they are sold. We dispose of such properties as quickly and prudently as possible, given current market conditions and the property’s condition.
To mitigate the potential for credit losses, we underwrite our loans in accordance with credit standards that we consider to be prudent. In the case of multi-family and CRE loans, we look first at the consistency of the cash flows being generated by the property to determine its economic value using the “income approach,” and then at the market value of the property that collateralizes the loan. The amount of the loan is then based on the lower of the two values, with the economic value more typically used.
The condition of the collateral property is another critical factor. Multi-family buildings and CRE properties are inspected from rooftop to basement as a prerequisite to approval, with a member of the Mortgage or Credit
Committee participating in inspections on multi-family loans to be originated in excess of $7.5 million, and a member of the Mortgage or Credit Committee participating in inspections on CRE loans to be originated in excess of $4.0 million.approval. Furthermore, independent appraisers, whose appraisals are carefully reviewed by our experiencedin-house appraisal officers and staff, perform appraisals on collateral properties. In many cases, a second independent appraisal review is performed.
In addition, we work with a select group of mortgage brokers who are familiar with our credit standards and whose track record with our lending officers is typically greater than ten years. Furthermore, in New York City, where the majority of the buildings securing our multi-family loans are located, the rents that tenants may be charged on certain apartments are typically restricted under certain rent-control or rent-stabilization laws. As a result, the rents that tenants pay for such apartments are generally lower than current market rents. Buildings with a preponderance of such rent-regulated apartments are less likely to experience vacancies in times of economic adversity.
Reflecting the strength of the underlying collateral for these loans and the collateral structure, a relatively small percentage of ournon-performing multi-family loans have resulted in losses over time.
To further manage our credit risk, our lending policies limit the amount of credit granted to any one borrower, and typically require minimum DSCRs of 120%120 percent for multi-family loans and 130%130 percent for CRE loans. Although we typically lend up to 75%75 percent of the appraised value on multi-family buildings and up to 65%65 percent on commercial properties, the average LTVs of such credits at origination were below those amounts at December 31, 2017.2022. Exceptions to these LTV limitations are minimal and are reviewed on acase-by-case basis.
The repayment of loans secured by commercial real estate is often dependent on the successful operation and management of the underlying properties. To minimize our credit risk, we originate CRE loans in adherence with conservative underwriting standards, and require that such loans qualify on the basis of the property���sproperty’s current income stream and DSCR. The approval of a CRE loan also depends on the borrower’s credit history, profitability, and expertise in property management. Given that our CRE loans are underwritten in accordance with underwriting standards that are similar to those applicable to our multi-family credits, the percentage of ournon-performing CRE loans that have resulted in losses has been comparatively small over time.
Multi-family and CRE loans are generally originated at conservative LTVs and DSCRs, as previously stated. Low LTVs provide a greater likelihood of full recovery and reduce the possibility of incurring a severe loss on a credit; in many cases, they reduce the likelihood of the borrower “walking away” from the property. Although borrowers may default on loan payments, they have a greater incentive to protect their equity in the collateral property and to return their loans to performing status. Furthermore, in the case of multi-family loans, the cash flows generated by the properties are generally below-market and have significant value.
With regard to ADC loans, we typically lend up to 75%75 percent of the estimatedas-completed market value of multi-family and residential tract projects; however, in the case of home construction loans to individuals, the limit is 80%.80 percent. With respect to commercial construction loans, we typically lend up to 65%65 percent of the estimatedas-completed market value of the property. Credit risk is also managed through the loan disbursement process. Loan proceeds are disbursed periodically in increments as construction progresses, and as warranted by inspection reports provided to us by our own lending officers and/or consulting engineers.
61
To minimize the risk involved in specialty finance lending and leasing, each of our credits is secured with a perfected first security interest or outright ownership in the underlying collateral, and structured as senior debt or as anon-cancellable lease. To further minimize the risk involved in specialty finance lending and leasing, were-underwrite each transaction. In addition, we retain outside counsel to conduct a further review of the underlying documentation.
Other C&I loans generally represent loans to commercial businesses which meet certain desired client characteristics and credit standards. The credit standards for commercial borrowers are typically underwrittenbased on the basisnumerous criteria, including historical and projected financial information, strength of the cash flows produced bymanagement, acceptable collateral, and market conditions and trends in the borrower’s business, andindustry. These loans are generally collateralized by various business assets, including, but not limited to, inventory, equipment, and accounts receivable. As a result, the capacity of the borrower to repay is substantially dependent on the degree tovariable rate loans in which the business is successful. Furthermore, the collateral underlying the loan may depreciate over time, may not be conducive to appraisal, and may fluctuate in value, based upon the operating results of the business. Accordingly, personal guarantees are alsointerest rate fluctuates with a normal requirement for other C&I loans.specified index rate.
In addition, at December 31, 2017,one-to-four family loans, ADC loans, and other loans represented 1.2%, 1.1%, and 5.3%, of totalnon-covered loans held for investment, as compared to 1.0%, 1.0%, and 5.1%, respectively, at December 31, 2016. Furthermore, while 2.3% of our other loans werenon-performing at the end of this December, 1.4% of our ADC loans and 0.41% of ourone-to-four family loans werenon-performing at that date.
The procedures we follow with respect to delinquent loans are generally consistent across all categories, with late charges assessed, and notices mailed to the borrower, at specified dates. We attempt to reach the borrower by telephone to ascertain the reasons for delinquency and the prospects for repayment. When contact is made with a borrower at any time prior to foreclosure or recovery against collateral property, we attempt to obtain full payment, and will consider a repayment schedule to avoid taking such action. Delinquencies are addressed by our Loan Workout Unit and every effort is made to collect rather than initiate foreclosure proceedings.
The following table presents ournon-covered loans 30 to 89 days past due by loan type and the changes in the respective balances from December 31, 2016 to December 31, 2017:
December 31, | Change from December 31, 2016 to December 31, 2017 | |||||||||||||||
(dollars in thousands) | 2017 | 2016 | Amount | Percent | ||||||||||||
Non-Covered Loans30-89 Days Past Due: | ||||||||||||||||
Multi-family | $ | 1,258 | $ | 28 | $ | 1,230 | 4,392.86 | % | ||||||||
Commercial real estate | 13,227 | — | 13,227 | — | ||||||||||||
One-to-four family residential | 585 | 2,844 | (2,259 | ) | (79.43 | ) | ||||||||||
Other loans(1) | 2,719 | 7,511 | (4,792 | ) | (63.80 | ) | ||||||||||
|
|
|
|
|
| |||||||||||
Totalnon-covered loans30-89 days past due | $ | 17,789 | $ | 10,383 | $ | 7,406 | 71.33 | |||||||||
|
|
|
|
|
|
Fair values for all multi-family buildings, CRE properties, and land are determined based on the appraised value. If an appraisal is more than one year old and the loan is classified as eithernon-performing or as an accruing TDR, then an updated appraisal is required to determine fair value. Estimated disposition costs are deducted from the fair value of the property to determine estimated net realizable value. In the instance of an outdated appraisal on an impaired loan, we adjust the original appraisal by using a third-party index value to determine the extent of impairment until an updated appraisal is received.
While we strive to originate loans that will perform fully, adverse economic and market conditions, among other factors, can negatively impact a borrower’s ability to repay. Historically, our level of charge-offs has been relatively low in downward credit cycles, even when the volume ofnon-performing loans has increased. In 2017,2022, we recorded a net charge-offsrecovery of $61.2$4 million, as compared to net charge-offsrecovery of $708,000$2 million in the priorprevious year. Taxi medallion-related net charge-offs accounted for $59.6 million of this year’s amount and $2.5 million of last year’s amount.
Partially reflecting the net charge-offsrecoveries noted above, and the provision of $60.9$133 million for the allowance fornon-covered loan losses, the allowance for credit losses onnon-covered loans remained relatively unchanged,increased $194 million, equaling $158.0 million at the end of this December from $158.3$393 million at December 31, 2016. Reflecting2022 from $199 million at December 31, 2021. The majority of the increase innon-performingnon-coveredis related to the initial provision for credit losses of $117 million and the adjustment for PCD loans cited earlieracquired in this discussion, the Flagstar acquisition. The allowance for credit losses onnon-covered loans and leases represented 214.50%278.87 percent ofnon-performingnon-covered non-performing loans at December 31, 2017,2022, as compared to 277.19%611.79 percent at the prioryear-end.
Based upon all relevant and available information at the end of this December, management believes that the allowance for losses onnon-covered loans was appropriate at that date.
The following table presents information about our five largestnon-performing loans at December 31, 2017, all of which arenon-coveredheld-for-investment loans:
Loan No. 1(2) | Loan No. 2 | Loan No. 3 | Loan No. 4 | Loan No. 5 | ||||||
Type of Loan | C&I | Multi-Family | ADC | CRE | Multi-Family | |||||
Origination date | 4/29/14 | 1/05/06 | 7/07/04 | 1/19/07 | 4/24/07 | |||||
Origination balance | $13,325,000 | $12,640,000 | $6,200,000 | $3,000,000 | $2,000,000 | |||||
Full commitment balance(1) | $13,325,000 | $12,640,000 | $6,200,000 | $3,000,000 | $2,000,000 | |||||
Balance at December 31, 2017 | $7,677,946 | $7,434,196 | $6,200,000 | $2,513,830 | $1,780,488 | |||||
Associated allowance | None | None | None | None | None | |||||
Non-accrual date | June 2017 | March 2014 | October 2016 | December 2017 | July 2017 | |||||
Origination LTV | N/A | 79% | 57% | 63% | 54% | |||||
Current LTV | N/A | 57% | 67% | 50% | 68% | |||||
Last appraisal | N/A | February 2017 | April 2017 | December 2017 | September 2017 |
The following is a description of the five loans identified in the preceding table. It should be noted that no allocation for thenon-covered loan loss allowance was needed for any of these loans, as determined by using the fair value of collateral method defined in ASC310-10 and-35.
Troubled Debt Restructurings
In an effort to proactively manage delinquent loans, we have selectively extended such concessions as rate reductions and extensions of maturity dates, as well as forbearance agreements, to certain borrowers who have experienced financial difficulty. In accordance with GAAP, we are required to account for such loan modifications or restructurings as TDRs.
The eligibility of a borrower forwork-out concessions of any nature depends upon the facts and circumstances of each transaction, which may change from period to period, and involve management’s judgment regarding the likelihood that the concession will result in the maximum recovery for the Company.
Loans modified as TDRs are placed onnon-accrual status until we determine that future collection of principal and interest is reasonably assured. This generally requires that the borrower demonstrate performance according to the restructured terms for at least six consecutive months.
62
At December 31, 2017,2022, loans modified as TDRs totaled $45.6$44 million, including accruing loans of $9.7$16 million andnon-accrual loans of $35.9$28 million. At the prioryear-end, loans modified as TDRs totaled $19.9$29 million, including accruing loans of $3.5$16 million andnon-accrual loans of $16.5$13 million.
Analysis of Troubled Debt Restructurings
The following table sets forth the changes in our TDRs over the twelve months ended December 31, 2017:2022:
(in thousands) | Accruing | Non-Accrual | Total | |||||||||
Balance at December 31, 2016 | $ | 3,466 | $ | 16,454 | $ | 19,920 | ||||||
New TDRs | 8,960 | 38,433 | 47,393 | |||||||||
Transferred to other real estate owned | — | (877 | ) | (877 | ) | |||||||
Charge-offs | — | (11,956 | ) | (11,956 | ) | |||||||
Transferred from accruing tonon-accrual | (1,881 | ) | 1,881 | — | ||||||||
Loan payoffs, including dispositions and principalpay-downs | (892 | ) | (8,032 | ) | (8,924 | ) | ||||||
|
|
|
|
|
| |||||||
Balance at December 31, 2017 | $ | 9,653 | $ | 35,903 | $ | 45,556 | ||||||
|
|
|
|
|
|
(in millions) |
| Accruing |
|
|
| Non- |
|
|
| Total |
| |||
Balance at December 31, 2021 | $ |
| 16 |
|
| $ |
| 13 |
|
| $ |
| 29 |
|
New TDRs |
|
| — |
|
|
|
| 19 |
|
|
|
| 19 |
|
Charge-offs |
|
| — |
|
|
|
| — |
|
|
|
| — |
|
Transferred from performing |
|
| — |
|
|
|
| — |
|
|
|
| — |
|
Loan payoffs, including dispositions and |
|
| — |
|
|
|
| (4 | ) |
|
|
| (4 | ) |
Balance at December 31, 2022 | $ |
| 16 |
|
| $ |
| 28 |
|
| $ |
| 44 |
|
Loans on which concessions were made with respect to rate reductions and/or extensions of maturity dates totaled $44.6$38 million and $17.1$29 million, respectively, at December 31, 20172022 and 2016;2021; loans in connection with which forbearance agreements were reached amounted to $1.0$6 million and $2.8$0 million at the respective dates.
Multi-family and CRE loans accounted for $8.9 million and $368,000 of TDRs at the end of this December, as compared to $10.7 million and $1.9 million, respectively, at the prioryear-end.Based on the number of loans performing in accordance with their revised terms, at December 31, 2022, our success rate for restructured multi-familyCRE loans was 67%;100 percent, our success rate for CREone-to-four loans was 100 percent and ADC loans it was100%, and forone-to-four loans it was 50% at the end of this December; our success rate for other loans was 87%, at that date.35 percent.
On a limited basis, we may provide additional credit to a borrower after the loan has been placed onnon-accrual status or modified as a TDR if, in management’s judgment, the value of the property after the additional loan funding is greater than the initial value of the property plus the additional loan funding amount. In 2017,2022, no such additional credit was provided. Furthermore, the terms of our restructured loans typically would not restrict us from cancelling outstanding commitments for other credit facilities to a borrower in the event ofnon-payment of a restructured loan.
For additional information about our TDRs at December 31, 20172022 and 2016,2021, see the discussion of “Asset Quality” in Note 5, “Loans”6, “Loans and Leases” in Item 8, “Financial Statements and Supplementary Data.”
Except for thenon-accrual loans and TDRs disclosed in this filing, we did not have any potential problem loans at December 31, 20172022 that would have caused management to have serious doubts as to the ability of a borrower to comply with present loan repayment terms and that would have resulted in such disclosure if that were the case.
Asset Quality Analysis (Excluding Covered Loans, Covered OREO,Non-Covered Purchased Credit-Impaired Loans, andNon-Covered Loans Held for Sale)
The following table presents information regarding our consolidated allowance for lossesasset quality measures:
|
| At or for the Years Ended December 31, |
| |||||||||
|
| 2022 |
|
| 2021 |
|
| 2020 |
| |||
Non-performing loans to total loans |
|
| 0.20 |
| % |
| 0.07 |
| % |
| 0.09 |
|
Non-performing assets to total assets |
|
| 0.17 |
|
|
| 0.07 |
|
|
| 0.08 |
|
Allowance for losses on loans to non-performing loans |
|
| 278.87 |
|
|
| 611.79 |
|
|
| 513.55 |
|
Allowance for losses on loans to total loans |
|
| 0.57 |
|
|
| 0.44 |
|
|
| 0.45 |
|
63
The following table presents information onnon-covered the Company's net charge-offs as compared to average loans ournon-performingnon-covered assets, and ournon-covered loans 30 to 89 days past due at eachyear-end in the five years ended December 31, 2017. Covered loans andnon-covered purchased credit-impaired (“PCI”) loans are considered to be performing due to the application of the yield accretion method, as discussed elsewhere in this report. Therefore, covered loans andnon-covered PCI loans are not reflected in the amounts or ratios provided in this table.outstanding:
At or for the Years Ended December 31, | ||||||||||||||||||||
(dollars in thousands) | 2017 | 2016 | 2015 | 2014 | 2013 | |||||||||||||||
Allowance for Losses onNon-Covered Loans: | ||||||||||||||||||||
Balance at beginning of year | $ | 156,524 | $ | 145,196 | $ | 139,857 | $ | 141,946 | $ | 140,948 | ||||||||||
Provision for (recovery of) losses onnon-covered loans | 60,943 | 12,036 | (2,846 | ) | — | 18,000 | ||||||||||||||
Recovery from allowance on PCI loans | 1,766 | — | — | — | — | |||||||||||||||
Charge-offs: | ||||||||||||||||||||
Multi-family | (279 | ) | — | (167 | ) | (755 | ) | (12,922 | ) | |||||||||||
Commercial real estate | — | — | (273 | ) | (1,615 | ) | (3,489 | ) | ||||||||||||
One-to-four family residential | (96 | ) | (170 | ) | (875 | ) | (410 | ) | (351 | ) | ||||||||||
Acquisition, development, and construction | — | — | — | — | (1,503 | ) | ||||||||||||||
Other loans | (62,975 | ) | (3,413 | ) | (1,273 | ) | (5,296 | ) | (7,092 | ) | ||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Total charge-offs | (63,350 | ) | (3,583 | ) | (2,588 | ) | (8,076 | ) | (25,357 | ) | ||||||||||
Recoveries | 2,163 | 2,875 | 10,773 | 5,987 | 8,355 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Net (charge-offs) recoveries | (61,187 | ) | (708 | ) | 8,185 | (2,089 | ) | (17,002 | ) | |||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Balance at end of year | $ | 158,046 | $ | 156,524 | $ | 145,196 | $ | 139,857 | $ | 141,946 | ||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Non-PerformingNon-Covered Assets: | ||||||||||||||||||||
Non-accrualnon-covered mortgage loans: | ||||||||||||||||||||
Multi-family | $ | 11,078 | $ | 13,558 | $ | 13,904 | $ | 31,089 | $ | 58,395 | ||||||||||
Commercial real estate | 6,659 | 9,297 | 14,920 | 24,824 | 24,550 | |||||||||||||||
One-to-four family residential | 1,966 | 9,679 | 12,259 | 11,032 | 10,937 | |||||||||||||||
Acquisition, development, and construction | 6,200 | 6,200 | 27 | 654 | 2,571 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Totalnon-accrualnon-covered mortgage loans | 25,903 | 38,734 | 41,110 | 67,599 | 96,453 | |||||||||||||||
Non-accrualnon-covered other loans | 47,779 | 17,735 | 5,715 | 9,351 | 7,084 | |||||||||||||||
Loans 90 days or more past due and still accruing interest | — | — | — | — | — | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Totalnon-performingnon-covered loans(1) | $ | 73,682 | $ | 56,469 | $ | 46,825 | $ | 76,950 | $ | 103,537 | ||||||||||
Non-covered repossessed assets(2) | 16,400 | 11,607 | 14,065 | 61,956 | 71,392 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Totalnon-performingnon-covered assets | $ | 90,082 | $ | 68,076 | $ | 60,890 | $ | 138,906 | $ | 174,929 | ||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Asset Quality Measures: | ||||||||||||||||||||
Non-performingnon-covered loans to totalnon-covered loans | 0.19 | % | 0.15 | % | 0.13 | % | 0.23 | % | 0.35 | % | ||||||||||
Non-performingnon-covered assets to totalnon-covered assets | 0.18 | 0.14 | 0.13 | 0.30 | 0.40 | |||||||||||||||
Allowance for losses onnon-covered loans tonon-performingnon-covered loans | 214.50 | 277.19 | 310.08 | 181.75 | 137.10 | |||||||||||||||
Allowance for losses onnon-covered loans to totalnon-covered loans | 0.41 | 0.42 | 0.41 | 0.42 | 0.48 | |||||||||||||||
Net charge-offs (recoveries) during the period to average loans outstanding during the period(3) | 0.16 | 0.00 | (0.02 | ) | 0.01 | 0.05 | ||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Non-Covered Loans30-89 Days Past Due: | ||||||||||||||||||||
Multi-family | $ | 1,258 | $ | 28 | $ | 4,818 | $ | 464 | $ | 33,678 | ||||||||||
Commercial real estate | 13,227 | — | 178 | 1,464 | 1,854 | |||||||||||||||
One-to-four family residential | 585 | 2,844 | 1,117 | 3,086 | 1,076 | |||||||||||||||
Acquisition, development, and construction | — | — | — | — | — | |||||||||||||||
Other loans | 2,719 | 7,511 | 492 | 1,178 | 481 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Total loans30-89 days past due(4) | $ | 17,789 | $ | 10,383 | $ | 6,605 | $ | 6,192 | $ | 37,089 | ||||||||||
|
|
|
|
|
|
|
|
|
|
| For the Year Ended |
| |||||||
| December 31, |
| |||||||
(dollars in millions) | 2022 |
| 2021 |
| 2020 |
| |||
Multi-family |
|
|
|
|
|
| |||
Net charge-offs (recoveries) during the period | $ | 1 |
| $ | 1 |
| $ | (1 | ) |
Average amount outstanding | $ | 36,292 |
| $ | 32,424 |
| $ | 31,322 |
|
Net charge-offs (recoveries) as a percentage of average loans |
| 0.00 | % |
| 0.00 | % |
| 0.00 | % |
|
|
|
|
|
|
| |||
Commercial real estate |
|
|
|
|
|
| |||
Net charge-offs (recoveries) during the period | $ | - |
| $ | 2 |
| $ | 2 |
|
Average amount outstanding | $ | 6,964 |
| $ | 5,489 |
| $ | 6,009 |
|
Net charge-offs (recoveries) as a percentage of average loans |
| 0.00 | % |
| 0.04 | % |
| 0.03 | % |
|
|
|
|
|
|
| |||
One-to-Four Family first mortgage |
|
|
|
|
|
| |||
Net charge-offs (recoveries) during the period | $ | - |
| $ | 1 |
| $ | - |
|
Average amount outstanding | $ | 516 |
| $ | 191 |
| $ | 314 |
|
Net charge-offs (recoveries) as a percentage of average loans |
| 0.00 | % |
| 0.52 | % |
| 0.00 | % |
|
|
|
|
|
|
| |||
Acquisition, Development and Construction |
|
|
|
|
|
| |||
Net charge-offs (recoveries) during the period | $ | - |
| $ | - |
| $ | - |
|
Average amount outstanding | $ | 203 |
| $ | 152 |
| $ | 116 |
|
Net charge-offs (recoveries) as a percentage of average loans |
| 0.00 | % |
| 0.00 | % |
| 0.00 | % |
|
|
|
|
|
|
| |||
Other Loans |
|
|
|
|
|
| |||
Net charge-offs (recoveries) during the period | $ | (5 | ) | $ | (6 | ) | $ | 18 |
|
Average amount outstanding | $ | 5,401 |
| $ | 4,944 |
| $ | 4,267 |
|
Net charge-offs (recoveries) as a percentage of average loans |
| -0.09 | % |
| -0.12 | % |
| 0.42 | % |
|
|
|
|
|
|
| |||
Total loans |
|
|
|
|
|
| |||
Net charge-offs (recoveries) during the period | $ | (4 | ) | $ | (2 | ) | $ | 19 |
|
Average amount outstanding | $ | 49,376 |
| $ | 43,200 |
| $ | 42,028 |
|
Net charge-offs (recoveries) as a percentage of average loans |
| -0.01 | % |
| 0.00 | % |
| 0.04 | % |
The following table sets forth the allocation of the consolidated allowance for losses onnon-covered loans, excluding the allowance for losses onnon-covered PCI loans, at eachyear-end for the five years ended December 31, 2017: year-end:
2017 | 2016 | 2015 | 2014 | 2013 | 2022 |
|
| 2021 |
|
| 2020 |
| |||||||||||||||||||||||||||||||||||||||||||||||||||||
(dollars in thousands) | Amount | Percent of Loans in Each Category to Total Non-Covered Loans Held for Investment | Amount | Percent of Loans in Each Category to Total Non-Covered Loans Held for Investment | Amount | Percent of Loans in Each Category to Total Non-Covered Loans Held for Investment | Amount | Percent of Loans in Each Category to Total Non-Covered Loans Held for Investment | Amount | Percent of Loans in Each Category to Total Non-Covered Loans Held for Investment | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
(dollars in millions) | Amount |
|
| Percent of |
|
| Amount |
|
| Percent of |
|
| Amount |
|
| Percent of |
| ||||||||||||||||||||||||||||||||||||||||||||||||
Multi-family loans | Multi-family loans | $ | 93,651 | 73.19 | % | $ | 91,590 | 72.13 | % | $ | 93,977 | 72.67 | % | $ | 96,212 | 72.21 | % | $ | 79,745 | 69.41 | % | $ | 178 |
|
|
| 55.26 | % |
| $ | 159 |
|
|
| 75.71 | % |
| $ | 150 |
|
|
| 75 | % | |||||||||||||||||||||
Commercial real estate loans | Commercial real estate loans | 20,572 | 19.09 | 20,943 | 20.68 | 19,721 | 21.98 | 19,546 | 23.13 | 34,702 | 24.70 |
| 46 |
|
|
| 12.36 |
|
|
| 17 |
|
|
| 14.65 |
|
|
| 24 |
|
|
| 15.96 |
| |||||||||||||||||||||||||||||||
One-to-four family loans | 1,360 | 1.24 | 1,484 | 1.02 | 612 | 0.33 | 562 | 0.42 | 1,755 | 1.88 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
One-to-four family first mortgage loans |
| 46 |
|
|
| 8.44 |
|
|
| 1 |
|
|
| 0.35 |
|
|
| 1 |
|
|
| 0.55 |
| ||||||||||||||||||||||||||||||||||||||||||
Acquisition, development, and | Acquisition, development, and | 12,692 | 1.14 | 9,908 | 1.02 | 8,402 | 0.87 | 6,296 | 0.78 | 7,789 | 1.15 |
| 20 |
|
|
| 2.79 |
|
|
| 2 |
|
|
| 0.46 |
|
|
| 1 |
|
|
| 0.21 |
| |||||||||||||||||||||||||||||||
Other loans | Other loans | 29,771 | 5.34 | 32,599 | 5.15 | 22,484 | 4.15 | 17,241 | 3.46 | 17,955 | 2.86 |
| 103 |
|
|
| 21.05 |
|
|
| 20 |
|
|
| 8.83 |
|
|
| 18 |
|
|
| 8.00 |
| |||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Total loans | Total loans | $ | 158,046 | 100.00 | % | $ | 156,524 | 100.00 | % | $ | 145,196 | 100.00 | % | $ | 139,857 | 100.00 | % | $ | 141,946 | 100.00 | % | $ | 393 |
|
|
| 100.00 | % |
| $ | 199 |
|
|
| 100.00 | % |
| $ | 194 |
|
|
| 100.00 | % | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
Each of the preceding allocations was based upon an estimate of various factors, as discussed in “Critical Accounting Policies” earlier in this report,Estimates”, and a different allocation methodology may be deemed to be more appropriate in the future. In addition, it should be noted that the portion of the allowance for losses onnon-covered loans allocated to eachnon-covered loan category does not represent the total amount available to absorb losses that may occur within that category, since the total loan loss allowance is available for the entirenon-covered loan portfolio.
64
Asset Quality Analysis (Including Covered Loans, Covered OREO, andNon-Covered PCI Loans)
As previously discussed, we sold the covered loan portfolio during the third quarter of 2017, accordingly, the following table presents information regarding ournon-performing assets and loans past due at December 31, 2016 only, including covered loans and covered OREO (collectively, “covered assets”), andnon-covered PCI loans:
(dollars in thousands) | At or For the Year Ended December 31, 2016 | ||||
Covered Loans andNon-Covered PCI Loans 90 Days or More Past Due: | |||||
Multi-family | $ | — | |||
Commercial real estate | 612 | ||||
One-to-four family | 125,076 | ||||
Acquisition, development, and construction | — | ||||
Other | 6,646 | ||||
|
| ||||
Total covered loans andnon-covered PCI loans 90 days or more | $ | 132,334 | |||
Covered other real estate owned | 16,990 | ||||
|
| ||||
Total covered assets andnon-covered PCI loans | $ | 149,324 | |||
|
| ||||
TotalNon-Performing Assets: | |||||
Non-performing loans: | |||||
Multi-family | $ | 13,558 | |||
Commercial real estate | 9,909 | ||||
One-to-four family | 134,755 | ||||
Acquisition, development, and construction | 6,200 | ||||
Othernon-performing loans | 24,381 | ||||
|
| ||||
Totalnon-performing loans | $ | 188,803 | |||
Other real estate owned | 28,598 | ||||
|
| ||||
Totalnon-performing assets | $ | 217,401 | |||
|
| ||||
Asset Quality Ratios (including the allowance for losses oncovered loans andnon-covered PCI loans): | |||||
Totalnon-performing loans to total loans | 0.48 | % | |||
Totalnon-performing assets to total assets | 0.44 | ||||
Allowance for loan losses to totalnon-performing loans | 96.39 | ||||
Allowance for loan losses to total loans | 0.47 | ||||
Covered Loans andNon-Covered PCI Loans30-89 Days Past Due: | |||||
Multi-family | $ | — | |||
Commercial real estate | — | ||||
One-to-four family | 21,112 | ||||
Acquisition, development, and construction | — | ||||
Other loans | 1,542 | ||||
|
| ||||
Total covered loans andnon-covered PCI loans30-89 days past due | $ | 22,654 | |||
|
| ||||
Total Loans30-89 Days Past Due: | |||||
Multi-family | $ | 28 | |||
Commercial real estate | — | ||||
One-to-four family | 23,956 | ||||
Acquisition, development, and construction | — | ||||
Other loans | 9,053 | ||||
|
| ||||
Total loans30-89 days past due | $ | 33,037 | |||
|
|
The following table presents a geographical analysis of ournon-performing loans at December 31, 2017:
(in thousands) | ||||
New York | $ | 52,705 | ||
New Jersey | 10,976 | |||
Maryland | 6,200 | |||
Connecticut | 1,781 | |||
Arizona | 1,174 | |||
All other states | 846 | |||
|
| |||
Totalnon-performing loans | $ | 73,682 | ||
|
|
Securities
Securities represented $3.5Total securities were $9.1 billion, or 7.2%, of total assets at the end of this December, as compared to $3.8 billion, or 7.8%,10 percent, of total assets at December 31, 2016. During the second quarter2022, compared to $5.8 billion, or 10 percent of 2017, the Company repositioned its“Held-to-Maturity” securities portfolio by designating the entire portfolio as“Available-for-Sale.” In addition, it took advantage of favorable bond market conditions and sold approximately $521.0 million of securities, resulting in apre-tax gain on sale of $26.9 million. We do not foresee designating securities purchases as“Held-to-Maturity” in the near future.
total assets at December 31, 2021. At December 31, 2017,available-for-sale2022 and December 31, 2021, all of our securities represented $3.5were designated as “Available-for-Sale”. At December 31, 2022, 15 percent of our portfolio are floating rate securities.
At December 31, 2022, available-for-sale securities had an estimated weighted average life of 6 years. Included in the year-end amount were mortgage-related securities of $4.8 billion and other debt securities of $4.3 billion.
At the prior year-end, available-for-sale securities were $5.8 billion, and had an estimated weighted average life of 5.2 years. Included in theyear-end amount were mortgage-related securities of $2.6 billion and other securities of $912.7 million.
At the prioryear-end,available-for-sale securities represented $104.3 million, or 2.7%, of total securities, and had an estimated weighted average life of 13.16.9 years. Mortgage-related securities accounted for $7.3 million$2.8 billion of theyear-end balance, with other debt securities accounting for the remaining $97.0 million.$3.0 billion.
The investment policies of the Company and the BanksBank are established by the respective BoardsBoard of Directors and implemented by their respective Investment Committees, in concert with the respective Asset and Liability Management Committees. The Investment Committees generally meet quarterlyALCO. ALCO meets monthly or on anas-needed basis to review the portfolios and specific capital market transactions. In addition, the securities portfolios and investment activities are reviewed monthly by the BoardsBoard of Directors as a whole.Directors. Furthermore, the policies guidingpolicy governing the Company’s and the Banks’ investments areinvestment portfolio activities is reviewed at least annually by the respective Investment Committees, as well asALCO and ratified by the respective Boards. While the policies permit investment in various typesBoard of liquid assets, neither the Company nor the Banks currently maintains a trading portfolio.Directors.
Our general investment strategy is to purchase liquid investments with various maturities to ensure that our overall interest rate risk position stays within the required limits of our investment policies. We generally limit our investments to GSE obligations (defined as GSE certificates; GSE collateralized mortgage obligations, or “CMOs”; and GSE debentures) and U.S. Treasury obligations. At December 31, 20172022 and 2016,2021, GSE obligations and U.S. Treasury obligations together represented 94.4%86 percent and 93.0%83 percent of total securities, respectively. The remainder of the portfolio at those dates was comprised of asset-backed securities, corporate bonds, foreign notes, capital trust preferred securities,notes, and municipal obligations. None
The following table summarizes the weighted average yields of ourdebt securities investmentsfor the maturities indicated at December 31, 2022:
| Mortgage- |
|
| U.S. |
|
| State, |
|
| Other |
|
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Available-for-Sale Debt |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Due within one year |
| 4.46 |
| % |
| 3.12 |
| % |
| 4.89 |
| % |
| 4.29 |
| % |
Due from one to five years |
| 3.27 |
|
|
| 3.14 |
|
|
| — |
|
|
| 5.58 |
|
|
Due from five to ten years |
| 3.05 |
|
|
| 1.53 |
|
|
| 3.72 |
|
|
| 5.09 |
|
|
Due after ten years |
| 3.61 |
|
|
| 1.88 |
|
|
| 4.07 |
|
|
| 5.35 |
|
|
Total debt securities available for sale |
| 3.58 |
|
|
| 2.42 |
|
|
| 3.91 |
|
|
| 5.32 |
|
|
Dependingmultiplying each carrying value by its yield and dividing the sum of these results by the total carrying values and are not presented on management’s intent at the time of purchase, securities are classified as either “held to maturity” or “available for sale.”Held-to-maturity securities are securities that management has the positive intent to hold to maturity. In addition to generating cash flows from repayments, securities held to maturity are a source of earningstax-equivalent basis.
During the second quarter of 2017, the Company designated its entire securities portfolio asavailable-for-sale.Available-for-sale securities are securities that management intends to hold for an indefinite period of time. In addition to generating cash flows from salesFederal Reserve and from repayments of principal and interest, such securities serve as a source of liquidity for future loan production, the reduction of higher-cost funding, and general operating activities. A decision to purchase or sellavailable-for-sale securities is based on economic conditions, including changes in interest rates, liquidity, and our asset and liability management strategy.
Federal Home Loan Bank Stock
As members of theFHLB-NY, the Community Bank and the Commercial Bank are required to acquire and hold shares of its capital stock. At December 31, 2017,2022, the Community Bank heldCompany had $762 million and $329 million of FHLB-NY stock, in the amount of $588.7 million; the Commercial Bank heldFHLB-NYat cost and FHLB-Indianapolis stock, of $15.1 million at that date.
cost, respectively. At December 31, 2016,2021, the Community BankCompany had $734 million of FHLB-NY stock, at cost. The Company maintains an investment in FHLB-NY stock and, as a result of the Commercial Bank heldFHLB-NYFlagstar acquisition, FHLB-Indianapolis stock, partly in conjunction with its membership in the amount of $574.5 millionFHLB and $16.4 million, respectively.
Dividends from theFHLB-NYpartly related to its access to the CommunityFHLB funding it utilizes. In addition, at December 31, 2022, the Company had $176 million of Federal Reserve Bank totaled $31.4 million and $26.2 million, respectively, in 2017 and 2016; dividends from theFHLB-NY to the Commercialstock, at cost. The Company had no Federal Reserve Bank totaled $933,000 and $1.4 million in the corresponding years.stock, at December 31, 2021.
65
Bank-Owned Life Insurance
Bank-owned life insurance (“BOLI”)BOLI is recorded at the total cash surrender value of the policies in the Consolidated Statements of Condition, and the income generated by the increase in the cash surrender value of the policies is recorded in“Non-interest “Non-interest income” in the Consolidated Statements of OperationsIncome and Comprehensive Income (Loss).
Income. Reflecting an increase in the cash surrender value of the underlying policies, and $373 million acquired in the Flagstar acquisition our investment in BOLI rose $18.1$377 million year-over-year to $967.2 million$1.6 billion at December 31, 2017.2022.
Goodwill and Core Deposit Intangibles
We record goodwill and core deposit intangibles (“CDI”) in our consolidated statements of condition in connection with certain of our business combinations.
Goodwill, which is tested at least annually for impairment, refers to the difference between the purchase price and the fair value of an acquired company’s assets, net of the liabilities assumed. CDI refers to the fair value of the core deposits acquired in a business combination, and is typically amortized over a period of ten years from the acquisition date.
While goodwill totaled $2.4 billion at both December 31, 2017 and 2016, the balance of CDI declined from $208,000 to zero as a result of amortization over the twelve-month period.
For more information about the Company’s goodwill, see the discussion of “Critical“Summary of Significant Accounting Policies” earlier in this report.the Footnote 2 of these consolidated statements.
Sources of Funds
The Parent Company (i.e., the Company on an unconsolidated basis) has four primary funding sources for the payment of dividends, share repurchases, and other corporate uses: dividends paid to the Parent Company by the Banks;Bank; capital raised through the issuance of securities; funding raised through the issuance of debt instruments; and repayments of, and income from, investment securities.
On a consolidated basis, our funding primarily stems from a combination of the following sources: retail, institutional, and brokered deposits; borrowed funds, primarily in the form of wholesale borrowings; cash flows generated through the repayment and sale of loans; and cash flows generated through the repayment and sale of securities.
In 2017,2022, loan repayments and sales generated cash flows of $11.7$10.7 billion, as compared to $12.5$10.4 billion in 2016. Cash flows from repayments accounted for $7.8 billion and $6.4 billion of the respective totals and cash flows from sales accounted for $3.9 billion and $6.2 billion, of the respective totals.2021.
In 2017,2022, cash flows from the repayment and sale of securities respectively totaled $563.1$732 million, and $1.0 billion, while the purchase of securities amounted to $1.2$2.2 billion for the year. By comparison, cash flows from the repayment and sale of securities totaled $2.5$1.7 billion, and $323.3 million, respectively, in 2016,2021, and were offset by the purchase of securities totaling $492.6 million.$1.7 billion.
In 2017,2022, the cash flows from loans and securities were primarily deployed into the production of multi-family loans held for investment, as well asheld-for-investment CRE loans and specialty finance loans and leases.
Deposits
Deposits totaled $29.1 billionOur ability to retain and $28.9 billion,attract deposits depends on numerous factors, including customer satisfaction, the rates of interest we pay, the types of products we offer, and represented 59.2%the attractiveness of their terms. From time to time, we have chosen not to compete actively for deposits, depending on our access to deposits through acquisitions, the availability of lower-cost funding sources, the impact of competition on pricing, and 59.0% of total assets, at December 31, 2017 and 2016, respectively. On a year-over-year basis, the deposit mix shifted as interest-bearing checking and money market accounts declined 3.4%, savings accounts declined 1.3%, andnon-interest-bearing accounts dropped 12.3%. This was offset by growth inneed to fund our certificates of deposit (“CDs”), which increased 14.1% fromyear-end 2016.
While theloan demand. The vast majority of our deposits are retail in nature (i.e., they are deposits we have gathered through our branches or through business combinations),.
Total deposits increased $23.7 billion or 67 percent on a year-over-year basis to $58.7 billion. Deposit growth was driven by the addition of $16.0 billion of deposits from the Flagstar acquisition and $7.6 billion growth in loan-related deposits and BaaS deposits. Loan-related deposits totaled $4.4 billion at December 31, 2022 up $389 million or 10 percent relative to $4.0 billion at December 31, 2021. Our BaaS deposits totaled $11.5 billion at December 31, 2022, as compared to $1.0 billion at December 31, 2021. In addition, the Company has institutional deposits and municipal deposits. Institutional deposits are also part of our deposit mix. Retail deposits rose $383.6 million year-over-year to $21.9 billion, while institutional deposits declined $567.2 million to $2.2 billionremained unchanged from the prior year end atyear-end. $1.4 billion. Municipal deposits represented $999.4$488 million of total deposits at the end of this December, a $361.7$263 million increasedecrease from the balance at December 31, 2016.2021.
66
Depending on their availability and pricing relative to other funding sources, we also include brokered deposits in our deposit mix. Brokered deposits accounted for $4.0$5.1 billion of our deposits at the end of this December, as compared to $3.9$5.7 billion at December 31, 2016.2021. Brokered money market accounts represented $2.6$2.8 billion of total brokered deposits at December 31, 20172022 and $2.5$2.9 billion at December 31, 2016;2021; brokered interest-bearing checking accounts represented $793.7 million$1.0 billion and $1.4$1.6 billion, respectively, at the corresponding dates. At December 31, 2017,2022, we had $567.8 million$1.3 billion of brokered CDs. We had no brokered CDs, compared to $1.2 billion at December 31, 2016.2021.
The following table indicates the amount of time deposits, by account, that are in excess of the FDIC insurance limit (currently $250,000) by time remaining until maturity:
|
| December 31, |
| |
(in millions) |
| 2022 |
| |
Portion of U.S. time deposits in excess of insurance limit |
| $ | 3,749 |
|
Time deposits otherwise uninsured with a maturity of: |
|
|
| |
3 months or less |
| $ | 969 |
|
Over 3 months through 6 months |
|
| 604 |
|
Over 6 months through 12 months |
|
| 1,269 |
|
Over 12 months |
|
| 907 |
|
Total time deposits otherwise uninsured |
| $ | 3,749 |
|
Our uninsured deposits, on an unconsolidated basis, are the portion of deposit accounts that exceed the FDIC insurance limit (currently $250,000), and were approximately $19.6 billion and $10.1 billion at December 31, 2022 and 2021, respectively. These amounts were estimated based on the same methodologies and assumptions used for regulatory reporting purposes.
Borrowed Funds
The majority of our borrowed funds are wholesale borrowings (FHLB-NY and consist ofFHLB-NY advances, repurchase agreements, and federal funds purchased,FHLB-Indianapolis advances) and, to a far lesser extent, junior subordinated debentures. Reflecting a $760.0 million decline in wholesale borrowings to $12.6 billion, thedebentures and subordinated notes. At December 31, 2022, total balance of borrowed funds were $12.9increased $4.8 billion or 29 percent to $21.3 billion compared to the balance at December 31, 2017.2021. The year-over-year increase was primarily driven by the amounts assumed in the Flagstar acquisition of $6.7 billion
Wholesale Borrowings
Wholesale borrowings totaled $12.6$20.3 billion and $13.3$15.9 billion, respectively, at December 31, 20172022 and 2016,2021, representing 25.6% and 27.2%23 percent of total assets at the respectiveboth dates.FHLB-NY and FHLB-Indianapolis advances accounted for $12.1$20.3 billion of theyear-end 2017 2022 balance, as compared to $11.7$15.1 billion at the prioryear-end. Pursuant to blanket collateral agreements with the Banks,Bank, ourFHLB-NY, FHLB-Indianapolis advances and overnight advances are secured by pledges of certain eligible collateral in the form of loans and securities. (For more information regarding ourFHLB-NY FHLB advances, see the discussion that appears earlier in this report regarding our membership and our ownership of stock in theFHLB-NY.) None FHLB-NY). At December 31, 2022 and 2021, $6.8 billion and $7.5 billion of our wholesale borrowings had callable features, respectively.
Included in wholesale borrowings at December 31, 2017 or 2016.
Also included in wholesale borrowings2021, was $800 million of repurchase agreements. There were no repurchase agreements of $450.0 millionoutstanding at December 31, 2017 compared to $1.5 billion at December 31, 2016.2022. Repurchase agreements are contracts for the sale of securities owned or borrowed by the BanksBank with an agreement to repurchase those securities at agreed-upon prices and dates.
Our repurchase agreements arewere primarily collateralized by GSE obligations, and may be entered into with theFHLB-NY or certain brokerage firms. The brokerage firms we utilize are subject to an ongoing internal financial review to ensure that we borrow funds only from those dealers whose financial strength will minimize the risk of loss due to default. In addition, a master repurchase agreement must be executed and on file for each of the brokerage firms we use.
We had no federal funds purchased at both December 31, 2017. Federal funds purchased represented $150.0 million of wholesale borrowings at December 31, 2016.2022 and 2021.
67
Junior Subordinated Debentures
Junior subordinated debentures totaled $359.2$575 million, including $214 million assumed from the Flagstar acquisition, net of purchase accounting adjustments at December 31, 2017, slightly higher than2022.
Subordinated Notes
At December 31, 2022, the balance atof subordinated notes was $432 million, including $135 million assumed from the prioryear-end.Flagstar acquisition, net of purchase accounting adjustments.
See Note 8,12, “Borrowed Funds,” in Item 8, “Financial Statements and Supplementary Data” for a further discussion of our wholesale borrowings, and our junior subordinated debentures.
Liquidity, Contractual Obligations andOff-Balance Sheet Commitments, and Capital Position
Liquidity
We manage our liquidity to ensure that our cash flows are sufficient to support our operations, and to compensate for any temporary mismatches between sources and uses of funds caused by variable loan and deposit demand.
We monitor our liquidity daily to ensure that sufficient funds are available to meet our financial obligations. Our most liquid assets are cash and cash equivalents, which totaled $2.5$2.0 billion and $557.9 million,$2.2 billion, respectively, at December 31, 20172022 and 2016.2021. As in the past, our loan and securities portfolios provided meaningful liquidity in 2017,2022, with cash flows from the repayment and sale of loans totaling $11.7$10.7 billion and cash flows from the repayment and sale of securities totaling $1.6 billion.$960 million.
Additional liquidity stems from deposits and from our use of wholesale funding sources, including brokered deposits and wholesale borrowings. In addition, we have access to the Banks’Bank’s approved lines of credit with various counterparties, including theFHLB-NY. The availability of these wholesale funding sources is generally based on the amount of mortgage loan collateral available under a blanket lien we have pledged to the respective institutions and, to a lesser extent, the amount of available securities that may be pledged to collateralize our borrowings. At December 31, 2017,2022, our available borrowing capacity with theFHLB-NY was $7.1$11.3 billion. In addition, the Community Bank and the Commercial Bank hadavailable-for-sale securities of $3.5$9.1 billion, of which, $2.3$8.6 billion is unpledged.
Furthermore, the Banks both haveBank has agreements with the Federal Reserve Bank of New York (the“FRB-NY”)FRB-NY that enable themit to access the discount window as a further means of enhancing their liquidity. In connection with these agreements, the Banks haveBank has pledged certain loans and securities to collateralize any funds they may borrow. At December 31, 2017, theThe maximum amount the Community Bank could borrow from theFRB-NY was $1.3 billion; the maximum amount the Commercial Bank could borrow at that date was $79.5 million.$1.0 billion. There were no borrowings against either linethese lines of credit at December 31, 2017.2022.
Our primary investing activity is loan production, and the volume of loans we originated for sale and for investment totaled $10.6$17.1 billion in 2017.2022. During this time, the net cash provided byused in investing activities totaled $1.1$6.3 billion; the net cash provided by our operating activities totaled $1.3 million.$1.0 billion. Our financing activities usedprovided net cash of $418.1 million.$5.2 billion.
CDs due to mature or reprice in one year or less from December 31, 20172022 totaled $6.8$9.2 billion, representing 78.8%74 percent of total CDs at that date. Our ability to attract and retain retail deposits, including CDs, depends on numerous factors, including, among others, the convenience of our branches and our other banking channels; our customers’ satisfaction with the service they receive; the rates of interest we offer; the types of products we feature; and the attractiveness of their terms.
Our decision to compete for deposits also depends on numerous factors, including, among others, our access to deposits through acquisitions, the availability of lower-cost funding sources, the impact of competition on pricing, and the need to fund our loan demand.
The Parent Company is a separate legal entity from each of the BanksBank and must provide for its own liquidity. In addition to operating expenses and any share repurchases, the Parent Company is responsible for paying any dividends declared to our stockholders. As a Delaware corporation, the Parent Company is able to pay dividends either from surplus or, in case there is no surplus, from net profits for the fiscal year in which the dividend is declared and/or the preceding fiscal year.
68
The Parent Company is a separate legal entity from the Bank and must provide for its own liquidity. In addition to operating expenses and any share repurchases, the Parent Company is responsible for paying any dividends declared to the Company’s shareholders. As a Delaware corporation, the Parent Company is able to pay dividends either from surplus or, in case there is no surplus, from net profits for the fiscal year in which the dividend is declared and/or the preceding fiscal year.
In each ofVarious legal restrictions limit the four quarters of 2017,extent to which the Company was required to receive anon-objection from the FRB to pay all dividends;non-objections were received from the FRB in all four quarters of the year. The Company expects to continue the exchange of written documentation to obtain the FRB’snon-objection to the declaration of dividends in 2018. The Company has received all necessarynon-objections from the FRB for the dividends declared as of the date of this report.
The Parent Company’s ability to pay dividends may also depend, in part, upon dividends it receives from the Banks. The ability of the Community Bank and the Commercial Bank to pay dividends and other capital distributionssubsidiary bank can supply funds to the Parent Company is generally limited by New York State Banking Law and regulations, and by certain regulations of the FDIC. In addition, the Superintendent of the New York State Department of Financial Services (the “Superintendent”), the FDIC, and the FRB, for reasons of safety and soundness, may prohibit the payment of dividends that are otherwise permissible by regulations.
Under New York State Banking Law, a New York State-chartered stock-form savings bank or commercial bank may declare and pay dividends out of its net profits, unless there is an impairment of capital. However,non-bank subsidiaries. The Bank would require the approval of the Superintendent is requiredOCC if the total of all dividends declaredit declares in aany calendar year wouldwere to exceed the total of a bank’sits respective net profits for that year combined with its respective retained net profits for the preceding two years. In 2017,calendar years, less any required transfer to paid-in capital. The term “net profits” is defined as net income for a given period less any dividends paid during that period. As a result of our acquisition of Flagstar, we are also required to seek regulatory approval from the Banks paid dividends totaling $336.0 millionOCC for the payment of any dividend to the Parent Company leaving $379.5through at least the period ending November 1, 2024. In 2022, dividends of $335 million that theywere paid by the Bank to the Parent Company. At December 31, 2022, the Bank could dividendhave paid additional dividends of $615 million to the Parent Company without regulatory approval atyear-end. Additional sources of liquidity available to the Parent Company at December 31, 2017 included $90.5 million in cash and cash equivalents. If either of the Banks were to apply to the Superintendent for approval to make a dividend or capital distribution in excess of the dividend amounts permitted under the regulations, there can be no assurance that such application would be approved.approval.
Contractual Obligations andOff-Balance Sheet Commitments
In the normal course of business, we enter into a variety of contractual obligations in order to manage our assets and liabilities, fund loan growth, operate our branch network, and address our capital needs.
For example, we offer CDs with contractual terms to our customers, and borrow funds under contract from theFHLB-NY and various brokerage firms. These contractual obligations are reflected in the Consolidated Statements of Condition under “Deposits” and “Borrowed funds,” respectively. At December 31, 2017,2022, we had CDs of $8.6$12.5 billion and long-term debt (defined as borrowed funds with an original maturity in excessone year or more) of one year) of $12.9$13.8 billion.
We also are obligated under certainnon-cancelable operating leases on the buildings and land we use in operating our branch network and in performing our back-office responsibilities. These obligations are not included in the Consolidated Statements of Condition and totaled $159.5$122 million at December 31, 2017.2022.
Contractual Obligations
The following table sets forth the maturity profile of the aforementioned contractual obligations as of December 31, 2017:
(in thousands) | Certificates of Deposit | Long-Term Debt (1) | Operating Leases | Total | ||||||||||||
One year or less | $ | 5,897,172 | $ 4,173,500 | $ | 29,786 | $ | 10,100,458 | |||||||||
One to three years | 2,671,236 | 7,781,000 | 46,636 | 10,498,872 | ||||||||||||
Three to five years | 64,392 | 600,000 | 16,523 | 680,915 | ||||||||||||
More than five years | 10,846 | 359,179 | 66,555 | 436,580 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Total | $ | 8,643,646 | $12,913,679 | $ | 159,500 | $ | 21,716,825 | |||||||||
|
|
|
|
|
|
|
|
At December 31, 2017,2022, we also had commitments to extend credit in the form of mortgage and other loan originations, as well as commercial, performancestand-by, and financialstand-by letters of credit, totaling $2.3$22.4 billion. Theseoff-balance sheet commitments consist of agreements to extend credit, as long as there is no violation of any condition established in the contract under which the loan is made. Commitments generally have fixed expiration dates or other termination clauses and may require the payment of a fee.
The following table summarizes ouroff-balance sheet commitments to extend credit in the form of loans and letters of credit at December 31, 2017:
(in thousands) | ||||
Mortgage Loan Commitments: | ||||
Multi-family and commercial real estate | $ | 377,782 | ||
One-to-four family | 3,819 | |||
Acquisition, development, and construction | 239,504 | |||
|
| |||
Total mortgage loan commitments | $ | 621,105 | ||
Other loan commitments(1) | 1,314,170 | |||
|
| |||
Total loan commitments | $ | 1,935,275 | ||
Commercial, performancestand-by, and financialstand-by letters of credit | 339,403 | |||
|
| |||
Total commitments | $ | 2,274,678 | ||
|
|
Ofwe issue consist of performance stand-by, financial stand-by, and commercial letters of credit. Financial stand-by letters of credit primarily are issued for the total loan commitments notedbenefit of other financial institutions, municipalities, or landlords on behalf of certain of our current borrowers, and obligate us to guarantee payment of a specified financial obligation. Performance stand-by letters of credit are primarily issued for the benefit of local municipalities on behalf of certain of our borrowers. Performance letters of credit obligate us to make payments in the preceding table, all $1.9 billion wereevent that a specified third party fails to perform under non-financial contractual obligations. Commercial letters of credit act as a means of ensuring payment to a seller upon shipment of goods to a buyer. Although commercial letters of credit are used to effect payment for loans held for investment.domestic transactions, the majority are used to settle payments in international trade. Typically, such letters of credit require the presentation of documents that describe the commercial transaction, and provide evidence of shipment and the transfer of title. The fees we collect in connection with the issuance of letters of credit are included in “Fee income” in the Consolidated Statements of Income and Comprehensive Income.
Based upon our current liquidity position, we expect that our funding will be sufficient to fulfill these cash obligations and commitments when they are due.due both in the short term and long term.
For the year ended December 31, 2022, we did not engage in any off-balance sheet transactions reasonably likely to have a material effect on our financial condition, results of operations or cash flows.
At December 31, 2017,2022, we had no commitments to purchase GNMA securities of $29.4 million.securities.
Derivative Financial Instruments69
We used various financial instruments, including derivatives, in connection with our strategies to mitigate or reduce our exposure to losses from adverse changes in interest rates. Our derivative financial instruments consisted of financial forward and futures contracts, interest rate lock commitments (“IRLCs”), swaps, and options, and related to our mortgage banking operations, MSRs, and other related risk management activities. These activities will vary in scope based on the level and volatility of interest rates, the types of assets held, and other changing market conditions. At December 31, 2017, we held no derivative financial instruments. (See Note 15, “Derivative Financial Instruments,” in Item 8, “Financial Statements and Supplementary Data” for a further discussion of our use of such financial instruments.)
Capital Position
On March 17, 2017, we issued 515,000 shares of preferred stock. The offering generated capital of $502.8 million, net of underwriting and other issuance costs, for general corporate purposes, with the bulk of the proceeds being distributed to the Community Bank.
Total stockholders’ equity rose $671.4 million, or 11.0%, year-over-year to $6.8 billion; common stockholders’ equity represented 12.81% of total assets and a book value per common share of $12.88 at December 31, 2017. At the prioryear-end, total stockholders’ equity totaled $6.1 billion, and common stockholders’ equity represented 12.52% of total assets and a book value per common share of $12.57.
Tangible common stockholders’ equity rose $168.8 million year-over-year to $3.9 billion, after the distribution of four quarterly cash dividends totaling $332.1 million. Theyear-end 2017 balance represented 8.26% of tangible common assets and a tangible common book value per common share of $7.89. At the prioryear-end, tangible common stockholders’ equity totaled $3.7 billion, representing 7.93% of tangible common assets and a tangible common book value per common share of $7.57.
We calculate tangible common stockholders’ equity by subtracting the amount of goodwill, CDI, and preferred stock recorded at the end of a period from the amount of stockholders’ equity recorded at the same date. While goodwill totaled $2.4 billion at December 31, 2017 and 2016, CDI was zero and $208,000 at the corresponding dates. Preferred stock was $502.8 million at the end of 2017. The Company had no preferred stock in 2016. (See the discussion and reconciliations of stockholders’ equity and tangible common stockholders’ equity, total assets and tangible assets, and the related financial measures that appear on the last page of this discussion and analysis of our financial condition and results of operations.)
Stockholders’ equity and tangible common stockholders’ equity both include accumulated other comprehensive loss (“AOCL”), which is comprised of the net unrealized gain or loss onavailable-for-sale securities; the net unrealized loss on thenon-credit portion of OTTI securities; and the Company’s pension and post-retirement obligations at the end of a period. In the twelve months ended December 31, 2017 and 2016, AOCL totaled $15.2 million and $56.7 million, respectively. The decline in AOCL was largely the net effect of a $1.6 million decrease in net pension and post-retirement obligations to $49.1 million and the $39.9 million difference between the net unrealized loss on securities available for sale recorded at the end of this December and the net unrealized gain on securities available for sale recorded at December 31, 2016.
As reflected in the following table, our capital measures continued to exceed the minimum federal requirements for a bank holding company at December 31, 2017 and 2016:company:
At December 31, 2017 | Actual | Minimum Required Ratio | ||||||||||||||||||||||||
(dollars in thousands) | Amount | Ratio | ||||||||||||||||||||||||
At December 31, 2022 |
|
| Actual |
|
|
| Minimum |
| ||||||||||||||||||
(dollars in millions) |
|
| Amount |
|
| Ratio |
|
|
| Required |
| |||||||||||||||
Common equity tier 1 capital | $ | 3,869,129 | 11.36 | % | 4.50 | % |
| $ |
| 6,335 |
|
|
| 9.06 |
| % |
|
| 4.50 | % | ||||||
Tier 1 risk-based capital | 4,371,969 | 12.84 | 6.00 |
|
|
| 6,838 |
|
|
| 9.78 |
|
|
| 6.00 |
| ||||||||||
Total risk-based capital | 4,877,208 | 14.32 | 8.00 |
|
|
| 8,154 |
|
|
| 11.66 |
|
|
| 8.00 |
| ||||||||||
Leverage capital | 4,371,969 | 9.58 | 4.00 |
|
|
| 6,838 |
|
|
| 9.70 |
|
|
| 4.00 |
| ||||||||||
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|
|
|
|
|
|
|
| |||||||||||||||||
At December 31, 2016 | Actual | Minimum Required Ratio | ||||||||||||||||||||||||
(dollars in thousands) | Amount | Ratio | ||||||||||||||||||||||||
At December 31, 2021 |
|
| Actual |
|
|
| Minimum |
| ||||||||||||||||||
(dollars in millions) |
|
| Amount |
|
| Ratio |
|
|
| Required |
| |||||||||||||||
Common equity tier 1 capital | $ | 3,748,231 | 10.62 | % | 4.50 | % |
| $ |
| 4,226 |
|
|
| 9.68 |
| % |
|
| 4.50 | % | ||||||
Tier 1 risk-based capital | 3,748,231 | 10.62 | 6.00 |
|
|
| 4,729 |
|
|
| 10.83 |
|
|
| 6.00 |
| ||||||||||
Total risk-based capital | 4,277,759 | 12.12 | 8.00 |
|
|
| 5,558 |
|
|
| 12.73 |
|
|
| 8.00 |
| ||||||||||
Leverage capital | 3,748,231 | 8.00 | 4.00 |
|
|
| 4,729 |
|
|
| 8.46 |
|
|
| 4.00 |
|
At December 31, 2017,2022, the capital ratios for the Company the Community Bank, and the Commercial Bank continued to exceed the levels required for classification as “well capitalized” institutions, as defined under the Federal Deposit Insurance Corporation Improvement Act of 1991, and as further discussed in Note 18,21, “Capital,” in Item 8, “Financial Statements and Supplementary Data.”
RESULTS OF OPERATIONS: 2017 AS COMPARED TO 2016
Earnings Summary
For the twelve months ended December 31, 2017, the Company reported diluted earnings per common share of $0.90, as compared to diluted earnings per common share of $1.01 for the twelve months ended December 31, 2016, a decrease of 11%. Net income available to common shareholders totaled $441.6 million in 2017 as compared to $495.4 million in 2016, also down 11%. Net income for 2017 was $466.2 million, down 6% from 2016.
Net Interest Income
Net interest income is our primary source of income. Its level is a function of the average balance of our interest-earning assets, the average balance of our interest-bearing liabilities, and the spread between the yield on such assets and the cost of such liabilities. These factors are influenced by both the pricing and mix of our interest-earning assets and our interest-bearing liabilities which, in turn, are impacted by various external factors, including the local economy, competition for loans and deposits, the monetary policy of the Federal Open Market Committee of the Federal Reserve Board of Governors (the “FOMC”), and market interest rates.
The cost of our deposits and borrowed funds is largely based on short-term rates of interest, the level of which is partially impacted by the actions of the FOMC. The FOMC reduces, maintains, or increases the target federal funds rate (the rate at which banks borrow funds overnight from one another) as it deems necessary. In 2017, the FOMC increased the target federal funds rate three times for a total of 75 basis points, to a target range of 1.25% to 1.50%.
While the target federal funds rate generally impacts the cost of our short-term borrowings and deposits, the yields on ourheld-for-investment loans and other interest-earning assets are typically impacted by intermediate-term market interest rates. In 2017, the five-year CMT ranged from a low of 1.63% to a high of 2.26% with an average rate of 1.91% for the year. In 2016, the five-year CMT ranged from a low of 0.94% to a high of 2.40% with an average rate of 1.33% for the year.
Another factor that impacts the yields on our interest-earning assets—and our net interest income—is the income generated by our multi-family and CRE loans and securities when they prepay. Since prepayment income is recorded as interest income, an increase or decrease in its level will also be reflected in the average yields (as applicable) on our loans, securities, and interest-earning assets, and therefore in our net interest income, our net interest rate spread, and our net interest margin.
It should be noted that the level of prepayment income on loans recorded in any given period depends on the volume of loans that refinance or prepay during that time. Such activity is largely dependent on such external factors as current market conditions, including real estate values, and the perceived or actual direction of market interest rates. In addition, while a decline in market interest rates may trigger an increase in refinancing and, therefore, prepayment income, so too may an increase in market interest rates. It is not unusual for borrowers to lock in lower interest rates when they expect, or see, that market interest rates are rising rather than risk refinancing later at a still higher interest rate.
In 2017, net interest income decreased 12% to $1.1 billion as compared to $1.3 billion in 2016. Similar to the fourth quarter 2017 trends, the decline in the full-year 2017 net interest income was driven by a 17% increase in interest expense due to higher funding costs.
Year-Over-Year Comparison
The following factors contributed to the year-over-year reduction in net interest income:
Net Interest Margin
The direction of the Company’s net interest margin was consistent with that of its net interest income, and generally was driven by the same factors as those described above. At 2.59%, the margin was 34-basis points narrower than the margin recorded for full-year 2016. The reduction was due, in part, to a decline in prepayment income from the levels recorded in the prior year, as reflected in the table below. Adjusted net interest margin is anon-GAAP financial measure, as more fully discussed below.
For the Twelve Months Ended | ||||||||||||
Dec. 31, 2017 | Dec. 31, 2016 | Change (%) | ||||||||||
(dollars in thousands) | ||||||||||||
Total Interest Income | $ | 1,582,239 | $ | 1,674,869 | -6 | % | ||||||
Prepayment Income: | ||||||||||||
Loans | $ | 47,004 | $ | 60,891 | -23 | % | ||||||
Securities | 8,130 | 33,509 | -76 | % | ||||||||
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|
| |||||||||
Total prepayment income | $ | 55,134 | $ | 94,400 | -42 | % | ||||||
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GAAP Net Interest Margin | 2.59 | % | 2.93 | % | -34 | bp | ||||||
Less: | ||||||||||||
Prepayment income from loans | 11 | bp | 14 | bp | -3 | bp | ||||||
Prepayment income from securities | 2 | 8 | -6 | bp | ||||||||
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Total prepayment income contribution to net interest margin | 13 | bp | 22 | bp | -9 | bp | ||||||
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Adjusted Net Interest Margin(non-GAAP) | 2.46 | % | 2.71 | % | -25 | bp |
RECONCILIATION OF NET INTEREST MARGIN AND ADJUSTED NET INTEREST MARGIN
While our net interest margin, including the contribution of prepayment income, is recorded in accordance with GAAP, adjusted net interest margin, which excludes the contribution of prepayment income, is not. Nevertheless, management uses thisnon-GAAP measure in its analysis of our performance, and believes that thisnon-GAAP measure should be disclosed in this report and other investor communications for the following reasons:
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Adjusted net interest margin should not be considered in isolation or as a substitute for net interest margin, which is calculated in accordance with GAAP. Moreover, the manner in which we calculate thisnon-GAAP measure may differ from that of other companies reporting anon-GAAP measure with a similar name.
The following table sets forth certain information regarding our average balance sheet for the years indicated, including the average yields on our interest-earning assets and the average costs of our interest-bearing liabilities. Average yields are calculated by dividing the interest income produced by the average balance of interest-earning assets. Average costs are calculated by dividing the interest expense produced by the average balance of interest-bearing liabilities. The average balances for the year are derived from average balances that are calculated daily. The average yields and costs include fees, as well as premiums and discounts (includingmark-to-market adjustments from acquisitions), that are considered adjustments to such average yields and costs.
Net Interest Income Analysis
For the Years Ended December 31, | ||||||||||||||||||||||||||||||||||||
2017 | 2016 | 2015 | ||||||||||||||||||||||||||||||||||
(dollars in thousands) | Average Balance | Interest | Average Yield/ Cost | Average Balance | Interest | Average Yield/ Cost | Average Balance | Interest | Average Yield/ Cost | |||||||||||||||||||||||||||
ASSETS: | ||||||||||||||||||||||||||||||||||||
Interest-earning assets: | ||||||||||||||||||||||||||||||||||||
Mortgage and other loans, net (1) | $ | 38,400,003 | $ | 1,417,237 | 3.69 | % | $ | 39,076,298 | $ | 1,472,020 | 3.77 | % | $ | 36,343,407 | $ | 1,441,462 | 3.97 | % | ||||||||||||||||||
Securities and money market investments (2)(3) | 5,213,859 | 165,002 | 3.16 | 4,934,058 | 202,849 | 4.11 | 7,278,562 | 250,122 | 3.44 | |||||||||||||||||||||||||||
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Total interest-earning assets | 43,613,862 | 1,582,239 | 3.63 | 44,010,356 | 1,674,869 | 3.81 | 43,621,969 | 1,691,584 | 3.88 | |||||||||||||||||||||||||||
Non-interest-earning assets | 5,011,020 | 5,289,245 | 5,248,236 | |||||||||||||||||||||||||||||||||
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Total assets | $ | 48,624,882 | $ | 49,299,601 | $ | 48,870,205 | ||||||||||||||||||||||||||||||
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LIABILITIES AND STOCKHOLDERS’ EQUITY: |
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Interest-bearing liabilities: | ||||||||||||||||||||||||||||||||||||
Interest-bearing checking and money market accounts | $ | 12,787,703 | $ | 98,980 | 0.77 | % | $ | 13,322,346 | $ | 62,166 | 0.47 | % | $ | 12,674,236 | $ | 46,467 | 0.37 | % | ||||||||||||||||||
Savings accounts | 5,170,342 | 28,447 | 0.55 | 5,915,020 | 31,982 | 0.54 | 7,546,417 | 50,776 | 0.67 | |||||||||||||||||||||||||||
Certificates of deposit | 8,164,518 | 102,355 | 1.25 | 6,899,706 | 76,875 | 1.11 | 5,698,437 | 62,906 | 1.10 | |||||||||||||||||||||||||||
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Total interest-bearing deposits | 26,122,563 | 229,782 | 0.88 | 26,137,072 | 171,023 | 0.65 | 25,919,090 | 160,149 | 0.62 | |||||||||||||||||||||||||||
Borrowed funds | 12,836,919 | 222,454 | 1.73 | 14,059,543 | 216,464 | 1.54 | 14,275,818 | 1,123,360 | (4) | 7.87 | (4) | |||||||||||||||||||||||||
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Total interest-bearing liabilities | 38,959,482 | 452,236 | 1.16 | 40,196,615 | 387,487 | 0.96 | 40,194,908 | 1,283,509 | (5) | 3.19 | (5) | |||||||||||||||||||||||||
Non-interest-bearing deposits | 2,782,155 | 2,860,532 | 2,660,220 | |||||||||||||||||||||||||||||||||
Other liabilities | 279,466 | 190,403 | 201,441 | |||||||||||||||||||||||||||||||||
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Total liabilities | 42,021,103 | 43,247,550 | 43,056,569 | |||||||||||||||||||||||||||||||||
Stockholders’ equity | 6,603,779 | 6,052,051 | 5,813,636 | |||||||||||||||||||||||||||||||||
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Total liabilities and stockholders’ equity | $ | 48,624,882 | $ | 49,299,601 | $ | 48,870,205 | ||||||||||||||||||||||||||||||
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Net interest income/interest rate spread | $ | 1,130,003 | 2.47 | % | $ | 1,287,382 | 2.85 | % | $ | 408,075 | (6) | 0.69 | %(6) | |||||||||||||||||||||||
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Net interest margin | 2.59 | % | 2.93 | % | 0.94 | %(7) | ||||||||||||||||||||||||||||||
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Ratio of interest-earning assets to interest-bearing liabilities | 1.12 x | 1.09x | 1.09x | |||||||||||||||||||||||||||||||||
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The following table presents the extent to which changes in interest rates and changes in the volume of interest-earning assets and interest-bearing liabilities affected our interest income and interest expense during the periods indicated. Information is provided in each category with respect to (i) the changes attributable to changes in volume (changes in volume multiplied by prior rate); (ii) the changes attributable to changes in rate (changes in rate multiplied by prior volume); and (iii) the net change. The changes attributable to the combined impact of volume and rate have been allocated proportionately to the changes due to volume and the changes due to rate.
Rate/Volume Analysis
Year Ended December 31, 2017 Compared to Year Ended December 31, 2016 | Year Ended December 31, 2016 Compared to Year Ended December 31, 2015 | |||||||||||||||||||||||
Increase/(Decrease) | Increase/(Decrease) | |||||||||||||||||||||||
Due to | Due to | |||||||||||||||||||||||
(in thousands) | Volume | Rate | Net | Volume | Rate | Net | ||||||||||||||||||
INTEREST-EARNING ASSETS: | ||||||||||||||||||||||||
Mortgage and other loans, net | $ | (25,239 | ) | $ | (29,544 | ) | $ | (54,783 | ) | $ | 92,003 | $ | (61,445 | ) | $ | 30,558 | ||||||||
Securities and money market investments | 12,369 | (50,216 | ) | (37,847 | ) | (121,091 | ) | 73,818 | (47,273 | ) | ||||||||||||||
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Total | (12,870 | ) | (79,760 | ) | (92,630 | ) | (29,088 | ) | 12,373 | (16,715 | ) | |||||||||||||
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INTEREST-BEARING LIABILITIES: | ||||||||||||||||||||||||
Interest-bearing checking and money market accounts | $ | (2,388 | ) | $ | 39,202 | $ | 36,814 | $ | 2,478 | $ | 13,221 | $ | 15,699 | |||||||||||
Savings accounts | (4,109 | ) | 574 | (3,535 | ) | (9,847 | ) | (8,947 | ) | (18,794 | ) | |||||||||||||
Certificates of deposit | 15,141 | 10,339 | 25,480 | 13,379 | 590 | 13,969 | ||||||||||||||||||
Borrowed funds | (13,498 | ) | 19,488 | 5,990 | (16,766 | ) | (890,130 | ) | (906,896 | ) | ||||||||||||||
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Total | (4,854 | ) | 69,603 | 64,749 | (10,756 | ) | (885,266 | ) | (896,022 | ) | ||||||||||||||
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Change in net interest income | $ | (8,016 | ) | $ | (149,363 | ) | $ | (157,379 | ) | $ | (18,332 | ) | $ | 897,639 | $ | 879,307 | ||||||||
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Provision for (Recoveries of) Loan Losses
Provision for (Recovery of) Losses onNon-Covered Loans
The provision for losses onnon-covered loans, like the recovery ofnon-covered loan losses, is based on the methodology used by management in calculating the allowance for losses on such loans. Reflecting this methodology, which is discussed in detail under “Critical Accounting Policies” earlier in this report. For the twelve months ended December 31, 2017, the Company reported a $60.9 million provision for losses onnon-covered loans as compared to $11.9 million for the twelve months ended December 31, 2016. The year-over-year increase was related to the aforementioned taxi medallion-related charge-offs during the third quarter of 2017.
Reflecting the 2017 provision and twelve-month net charge-offs of $61.2 million, the allowance for losses onnon-covered loans of $158.0 million was relatively unchanged at the end of this December compared to $158.3 million at the prioryear-end.
Recovery of Losses on Covered Loans
For full-year 2017, the Company recovered $23.7 million on certain pools of acquired loans covered by FDIC loss-sharing agreements, as compared to $7.7 million for full-year 2016. The recoveries recorded in the respective years were largely offset by FDIC indemnification expense of $19.0 million and $6.2 million recorded in“Non-interest income.”
On July 28, 2017, the Company completed the sale of its covered loans to an affiliate of Cerberus. Accordingly, at December 31, 2017, the Company no longer had any covered loans and related FDIC loss share receivable on its balance sheet.
For additional information about our methodologies for recording recoveries of, and provisions for, loan losses, see the discussion of the respective loan loss allowances under “Critical Accounting Policies” and the discussion of “Asset Quality” that appear earlier in this report.
Non-Interest Income
We generatenon-interest income through a variety of sources, including—among others—fee income (in the form of retail deposit fees and charges on loans); income from our investment in BOLI; gains on sales of securities; and “other” sources, including the revenues produced through the sale of third-party investment products and those produced through our subsidiary, Peter B. Cannell & Co., Inc. (“PBC”), an investment advisory firm.
Non-interest income increased $71.3 million year-over-year to $216.9 million in the twelve months ended December 31, 2017. The increase was primarily attributable to the following factors:
Non-Interest Income Analysis
The following table summarizes our sources ofnon-interest income in the twelve months ended December 31, 2017, 2016, and 2015:
For the Years Ended December 31, | ||||||||||||
(in thousands) | 2017 | 2016 | 2015 | |||||||||
Mortgage banking income | $ | 19,337 | $ | 27,281 | $ | 54,113 | ||||||
Fee income | 31,759 | 32,665 | 34,058 | |||||||||
BOLI income | 27,133 | 31,015 | 27,541 | |||||||||
Net gain on sales of loans | 1,156 | 15,806 | 26,133 | |||||||||
Net gain on sales of securities | 29,924 | 3,347 | 4,054 | |||||||||
FDIC indemnification expense | (18,961 | ) | (6,155 | ) | (9,336 | ) | ||||||
Gain on sale of covered loans and mortgage banking operations | 82,026 | — | — | |||||||||
Other income: | ||||||||||||
Peter B. Cannell & Co., Inc. | 22,026 | 22,537 | 26,771 | |||||||||
Third-party investment product sales | 12,771 | 11,658 | 13,292 | |||||||||
Recovery of OTTI securities | 1,120 | 1,214 | 242 | |||||||||
Other | 8,589 | 6,204 | 33,895 | |||||||||
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Total other income | 44,506 | 41,613 | 74,200 | |||||||||
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Totalnon-interest income | $ | 216,880 | $ | 145,572 | $ | 210,763 | ||||||
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Non-Interest Expense
Non-interest expense has two primary components: operating expenses, which include compensation and benefits, occupancy and equipment, and general and administrative (“G&A”) expenses; and the amortization of the CDI stemming from certain of our business combinations.
Non-interest expense totaled $641.4 million in the twelve months ended December 31, 2017, as compared to $651.6 million in the year-earlier twelve-month period. Whilenon-interest expense declined year-over-year, operating expenses increased modestly to $641.2 million from $638.1 million in 2016.
Compensation and benefits expense accounted for $9.5 million of the year-over-year increase, having grown to $361.0 million in 2017. The increase was driven by a combination of factors, including an increase in stock-based compensation expense, normal salary increases, and the addition of senior level staff in various departments. This was offset by a $6.9 million decline in G&A expense to $181.3 million, primarily reflecting a $3.8 million decrease in FDIC deposit insurance premiums to $57.3 million.
Income Tax Expense
Income tax expense includes federal, New York State, and New York City income taxes, as well asnon-material income taxes from other jurisdictions where we operate our branches and/or conduct our mortgage banking business.
In the twelve months ended December 31, 2017, we recorded income tax expense of $202.0 million, reflectingpre-tax income of $668.2 million and an effective tax rate of 30.2%. The decrease in both the effective tax rate and income tax expense was due to the recently enacted Tax Cuts and Jobs Act. This resulted in the Company recording aone-time net benefit during the fourth quarter of the year, to income tax expense of $42 million, including that portion related to there-measurement of our net deferred tax liabilities. Our effective income tax rate in 2018 is expected to be approximately 26.5%.
RESULTS OF OPERATIONS: 2016 AS COMPARED TO 2015
Earnings Summary
In the twelve months ended December 31, 2016, we generated earnings of $495.4 million, or $1.01 per diluted share, representing a 1.00% return on average assets and an 8.19% return on average stockholders’ equity.
In the twelve months ended December 31, 2015, we recorded a net loss of $47.2 million, or $0.11 per diluted share. The net loss was attributable to a debt repositioning charge incurred in the fourth quarter in connection with the prepayment of $10.4 billion of wholesale borrowings. On apre-tax basis, the charge was $915.0 million; on anafter-tax basis, the charge was $546.8 million, or $1.17 per diluted share. In accordance with ASC470-50, $773.8 million of thepre-tax charge was recorded as interest expense and $141.2 million was recorded asnon-interest expense.
The benefit of the debt repositioning is reflected in our 2016 Consolidated Results of Operations, including the interest expense on, and average cost of, borrowed funds; the interest expense on, and average cost of, interest-bearing liabilities; our net interest income; our net interest rate spread; and our net interest margin.
Our 2016 and 2015 results also reflect certain expenses incurred in connection with the Astoria Financial merger agreement, which was announced on October 29, 2015 and terminated effective January 1, 2017 by mutual agreement of the companies’ Boards. In 2016, merger-related expenses totaled $11.1 million, as compared to $3.7 million in the prior year.
Net Interest Income
As the debt repositioning charge had no impact on our interest income or the interest expense stemming from our interest-bearing deposits in 2015, a comparison of the 2016 and 2015 amounts and measures is provided below:
Interest Income
Interest Expense
(Recoveries of) Provision for Losses on Loans
Provision for (Recovery of) Losses onNon-Covered Loans
The provision for losses onnon-covered loans, like the recovery ofnon-covered loan losses, is based on the methodology used by management in calculating the allowance for losses on such loans. Reflecting this methodology, which is discussed in detail under “Critical Accounting Policies” earlier in this report, we recorded an $11.9 million provision fornon-covered loan losses in the twelve months ended December 31, 2016 as compared to a $3.3 million recovery ofnon-covered loan losses in the twelve months ended December 31, 2015.
Reflecting the 2016 provision and twelve-month net charge-offs of $708,000, the allowance for losses onnon-covered loans rose to $158.3 million at the end of this December from $147.1 million at the prioryear-end.
Recovery of Losses on Covered Loans
When an improvement in the credit quality of certain loan portfolios acquired in our FDIC-assisted transactions leads us to believe that the cash flows from those portfolios will exceed our expectations, we reverse the previously established covered loan loss allowance by recording a recovery. In accordance with this methodology, we recovered $7.7 million and $11.7 million, respectively, from the covered loan loss allowance in the twelve months ended December 31, 2016 and 2015.
Reflecting the recoveries recorded in 2016, the allowance for losses on covered loans fell to $23.7 million from $31.4 million in the twelve months ended December 31, 2015.
Non-Interest Income
Non-interest income fell $65.2 million year-over-year to $145.6 million in the twelve months ended December 31, 2016. The reduction was primarily attributable to the following factors:
Non-Interest Expense
Non-interest expense totaled $651.6 million in the twelve months ended December 31, 2016, as compared to $765.9 million in the year-earlier twelve-month period. Included in the 2015 amount was $141.2 million of the debt repositioning charge recorded in the fourth quarter; no comparable charge was recorded in 2016.
In addition, merger-related charges accounted for $11.1 million ofnon-interest expense in 2016, as compared to $3.7 million in the prior year.
Whilenon-interest expense declined year-over-year, operating expenses rose $22.5 million to $638.1 million from the level recorded in 2015. Compensation and benefits expense accounted for $8.8 million of the year-over-year increase, having grown to $351.4 million in 2016. The increase was driven by a combination of factors, including an increase in medical benefits expense, back-office staff expansion, normal salary increases, and the granting of stock awards. In addition, G&A expense rose $17.6 million year-over-year to $188.1 million, primarily reflecting a $14.8 million increase in FDIC deposit insurance premiums to $61.1 million, as well as an increase in legal and professional fees. These increases, which included fees incurred in connection with our preparations for SIFI status, were only partly offset by a $3.9 million decrease in occupancy and equipment expense to $98.5 million, primarily representing an increase in rental income.
Income Tax Expense
In the twelve months ended December 31, 2016, we recorded income tax expense of $281.7 million, reflectingpre-tax income of $777.1 million and an effective tax rate of 36.25%. In the prior year, we recorded an income tax benefit of $84.9 million as a result of having recorded a $132.0 millionpre-tax loss.
QUARTERLY FINANCIAL DATA
The following table sets forth selected unaudited quarterly financial data for the years ended December 31, 2017 and 2016:
(in thousands, except per share data) | 2017 | 2016 | ||||||||||||||||||||||||||||||
4th | 3rd | 2nd | 1st | 4th | 3rd | 2nd | 1st | |||||||||||||||||||||||||
Net interest income | $ | 270,974 | $ | 276,343 | $ | 287,769 | $ | 294,917 | $ | 315,520 | $ | 318,423 | $ | 325,573 | $ | 327,866 | ||||||||||||||||
Provision for (recoveries of) loan losses | 2,926 | 44,585 | (6,261 | ) | (4,008 | ) | 3,516 | (55 | ) | 895 | (176 | ) | ||||||||||||||||||||
Non-interest income | 25,343 | 108,928 | 50,437 | 32,172 | 32,374 | 40,595 | 37,366 | 35,237 | ||||||||||||||||||||||||
Non-interest expense | 148,484 | 162,234 | 163,765 | 166,943 | 170,602 | 161,685 | 160,911 | 158,448 | ||||||||||||||||||||||||
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Income before income taxes | 144,907 | 178,452 | 180,702 | 164,154 | 173,776 | 197,388 | 201,133 | 204,831 | ||||||||||||||||||||||||
Income tax expense | 8,386 | 67,984 | 65,447 | 60,197 | 60,043 | 72,089 | 74,673 | 74,922 | ||||||||||||||||||||||||
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Net income | $ | 136,521 | $ | 110,468 | $ | 115,255 | $ | 103,957 | $ | 113,733 | $ | 125,299 | $ | 126,460 | $ | 129,909 | ||||||||||||||||
Preferred stock dividends | 8,207 | 8,207 | 8,207 | — | — | — | — | — | ||||||||||||||||||||||||
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Net income available to common shareholders | $ | 128,314 | $ | 102,261 | $ | 107,048 | $ | 103,957 | $ | 113,733 | $ | 125,299 | $ | 126,460 | $ | 129,909 | ||||||||||||||||
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Basic earnings per common share | $0.26 | $0.21 | $0.22 | $0.21 | $0.23 | $0.26 | $0.26 | $0.27 | ||||||||||||||||||||||||
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Diluted earnings per common share | $0.26 | $0.21 | $0.22 | $0.21 | $0.23 | $0.26 | $0.26 | $0.27 | ||||||||||||||||||||||||
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IMPACT OF INFLATION
The consolidated financial statements and notes thereto presented in this report have been prepared in accordance with GAAP, which requires that we measure our financial condition and operating results in terms of historical dollars, without considering changes in the relative purchasing power of money over time due to inflation. The impact of inflation is reflected in the increased cost of our operations. Unlike industrial companies, nearly all of a bank’s assets and liabilities are monetary in nature. As a result, the impact of interest rates on our performance is greater than the impact of general levels of inflation. Interest rates do not necessarily move in the same direction, or to the same extent, as the prices of goods and services.
IMPACT OF RECENT ACCOUNTING PRONOUNCEMENTS
ReferRecently Issued Accounting Standards
In March 2022, the FASB issued ASU No. 2022-02 - Financial Instruments - Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures. The amendments in this ASU eliminate TDR accounting for entities that have adopted ASU No. 2016-13, while enhancing disclosure requirements for certain loan modifications when a borrower is experiencing financial difficulty. The ASU also requires disclosure of current period gross write-offs by year of origination for financing receivables and net investment in leases. The adoption of this ASU is not expected to Note 2, “Summaryhave a material impact on the Company’s Consolidated Statements of Significant Accounting Policies,” in Item 8, “Financial Statements and Supplementary Data,” for a discussion of the impact of recent accounting pronouncements on our financial condition andCondition, results of operations.
RECONCILIATIONS OF STOCKHOLDERS’SHAREHOLDERS’ EQUITY, COMMON STOCKHOLDERS’ EQUITY, AND TANGIBLE COMMON STOCKHOLDERS’SHAREHOLDERS’ EQUITY; TOTAL ASSETS AND TANGIBLE ASSETS; AND THE RELATED MEASURES
While stockholders’ equity, common stockholders’ equity, total assets, and book value per common share are financial measures that are recorded in accordance with U.S. generally accepted accounting principles (“GAAP”),GAAP, tangible common stockholders’ equity, tangible
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assets, and tangible book value per common share are not. It is management’s belief that thesenon-GAAP measures should be disclosed in this report and others we issue for the following reasons:
Tangible common stockholders’ equity, tangible assets, and the relatednon-GAAP measures should not be considered in isolation or as a substitute for stockholders’ equity, common stockholders’ equity, total assets, or any other measure calculated in accordance with GAAP. Moreover, the manner in which we calculate thesenon-GAAP measures may differ from that of other companies reportingnon-GAAP measures with similar names.
Reconciliations of our stockholders’ equity, common stockholders’ equity, and tangible common stockholders’ equity; our total assets and tangible assets; and the related financial measures for the respective periods follow:
At or for the Twelve Months Ended December 31, |
| At or for the |
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(dollars in thousands) | 2017 | 2016 | ||||||||||||||||||
(dollars in millions) |
| 2022 |
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| 2021 |
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Stockholders’ Equity | Stockholders’ Equity | $ | 6,795,376 | $ | 6,123,991 |
| $ | 8,824 |
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| $ | 7,044 |
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Less: Goodwill | (2,436,131 | ) | (2,436,131 | ) | ||||||||||||||||
Core deposit intangibles | — | (208 | ) | |||||||||||||||||
Less: Goodwill and other intangible assets |
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| (2,713 | ) |
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| (2,426 | ) | ||||||||||||
Preferred stock | Preferred stock | (502,840 | ) | — |
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| (503 | ) |
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| (503 | ) | ||||||||
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Tangible common stockholders’ equity | Tangible common stockholders’ equity | $ | 3,856,405 | $ | 3,687,652 |
| $ | 5,608 |
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| $ | 4,115 |
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Total Assets | Total Assets | $ | 49,124,195 | $ | 48,926,555 |
| $ | 90,144 |
|
| $ | 59,527 |
| |||||||
Less: Goodwill | (2,436,131 | ) | (2,436,131 | ) | ||||||||||||||||
Core deposit intangibles | — | (208 | ) | |||||||||||||||||
|
| |||||||||||||||||||
Less: Goodwill and other intangible assets |
|
| (2,713 | ) |
|
| (2,426 | ) | ||||||||||||
Tangible assets | Tangible assets | $ | 46,688,064 | $ | 46,490,216 |
| $ | 87,431 |
|
| $ | 57,101 |
| |||||||
Common stockholders’ equity to total assets | Common stockholders’ equity to total assets | 12.81 | % | 12.52 | % |
|
| 9.23 | % |
|
| 10.99 | % | |||||||
Tangible common stockholders’ equity to tangible assets | Tangible common stockholders’ equity to tangible assets | 8.26 | 7.93 |
|
| 6.41 |
|
|
| 7.21 |
| |||||||||
Book value per common share | Book value per common share | $12.88 | $12.57 |
| $ | 12.21 |
|
| $ | 14.07 |
| |||||||||
Tangible book value per common share | Tangible book value per common share | 7.89 | 7.57 |
|
| 8.23 |
|
|
| 8.85 |
|
71
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We manage our assets and liabilities to reduce our exposure to changes in market interest rates. The asset and liability management process has three primary objectives: to evaluate the interest rate risk inherent in certain balance sheet accounts; to determine the appropriate level of risk, given our business strategy, operating environment, capital and liquidity requirements, and performance objectives; and to manage that risk in a manner consistent with guidelines approved by the Boards of Directors of the Company the Community Bank, and the Commercial Bank.
Market Risk
As a financial institution, we are focused on reducing our exposure to interest rate volatility, which represents our primary market risk. Changes in market interest rates represent the greatest challenge to our financial performance, as such changes can have a significant impact on the level of income and expense recorded on a large portion of our interest-earning assets and interest-bearing liabilities, and on the market value of all interest-earning assets, other than those possessing a short term to maturity. To reduce our exposure to changing rates, the BoardsBoard of Directors and management monitor interest rate sensitivity on a regular or as needed basis so that adjustments to the asset and liability mix can be made when deemed appropriate.
The actual duration ofheld-for-investment mortgage loans and mortgage-related securities can be significantly impacted by changes in prepayment levels and market interest rates. The level of prepayments may, in turn, be impacted by a variety of factors, including the economy in the region where the underlying mortgages were originated; seasonal factors; demographic variables; and the assumability of the underlying mortgages. However, the factors with the most significant impact on prepayments are market interest rates and the availability of refinancing opportunities.
In 2017, weWe managed our interest rate risk by taking the following actions: (1) We have continued to emphasize the origination and retention of intermediate-term assets, primarily in the form of multi-family and CRE loans; (2) We increased our portfoliohave continued the origination of certain C&I loans whichthat feature floating interest rates; (3) Increased the focus on retaining low costs deposits; and (3) We extended(4) Obtained new low cost deposits as part of the maturitiesbanking-as-a-service initiative (5) The use of certain short-term wholesale borrowings.
Interest Rate Sensitivity Analysis
The matching of assets and liabilities may be analyzed by examining the extentderivatives to which such assets and liabilities are “interest rate sensitive” and by monitoring a bank’smanage our interest rate sensitivity “gap.” An asset or liability is said to beposition.
LIBOR Transition Process and Phase Out
The Company has certain loans, interest rate sensitive within a specific time frame ifswap agreements, investment securities, and debt obligations whose interest rate is indexed to LIBOR. In 2017, the FCA, which is responsible for regulating LIBOR, announced that the publication of LIBOR is not guaranteed beyond 2021. In December 2020, the administrator of LIBOR announced its intention to (i) cease the publication of the one-week and two-month U.S. dollar LIBOR after December 31, 2021, and (ii) cease the publication of all other tenors of U.S. dollar LIBOR (one, three, six, and 12-month LIBOR) after June 30, 2023, and on March 15, 2021, announced that it will maturepermanently cease to publish most LIBOR settings beginning on January 1, 2022 and cease to publish the overnight, one-month, three-month, six-month, and 12-month U.S. dollar LIBOR settings on July 1, 2023. Accordingly, the FCA has stated that it does not intend to persuade or reprice withincompel banks to submit to LIBOR after such respective dates. Until such time, however, FCA panel banks have agreed to continue to support LIBOR. In October 2021, the Federal bank regulatory agencies issued a Joint Statement on Managing the LIBOR Transition that periodoffered their regulatory expectations and outlined potential supervisory and enforcement consequences for banks that fail to adequately plan for and implement the transition away from LIBOR. The failure to properly transition away from LIBOR may result in increased supervisory scrutiny. The implementation of time. Thea substitute index for the calculation of interest rate sensitivity gap is defined asrates under the difference betweenCompany's loan agreements may result in disputes or litigation with counterparties over the amount of interest-earning assets maturingappropriateness or repricing within a specific time frame and the amount of interest-bearing liabilities maturing or repricing within that same period of time.
In a rising interest rate environment, an institution with a negative gap would generally be expected, absent the effects of other factors,comparability to experience a greater increase in the cost of its interest-bearing liabilities than it would in the yield on its interest-earning assets, thus producing a decline in its net interest income. Conversely, in a declining rate environment, an institution with a negative gap would generally be expected to experience a lesser reduction in the yield on its interest-earning assets than it would in the cost of its interest-bearing liabilities, thus producing an increase in its net interest income.
In a rising interest rate environment, an institution with a positive gap would generally be expected to experience a greater increase in the yield on its interest-earning assets than it would in the cost of its interest-bearing liabilities, thus producing an increase in its net interest income. Conversely, in a declining rate environment, an institution with a positive gap would generally be expected to experience a lesser reduction in the cost of its interest-bearing liabilities than it would in the yield on its interest-earning assets, thus producing a decline in its net interest income.
At December 31, 2017, ourone-year gap was a negative 19.57%, as compared to a negative 21.37% at December 31, 2016. The 180-basis point change was primarily due to an increase in cash balances as a resultLIBOR of the sale of the mortgage banking operations,substitute index, which was partially offset by a decrease in loans maturing or repricing in one year andwould have an increase in borrowings maturing in one year.
The tableadverse effect on the following page sets forth the amounts of interest-earning assets and interest-bearing liabilities outstanding at December 31, 2017 which, based on certain assumptions stemming from our historical experience,
are expected to reprice or mature in each of the future time periods shown. Except as stated below, the amounts of assets and liabilities shown as repricing or maturing during a particular time period were determined in accordance with the earlier of (1) the term to repricing, or (2) the contractual terms of the asset or liability.
The table provides an approximation of the projected repricing of assets and liabilities at December 31, 2017 on the basis of contractual maturities, anticipated prepayments, and scheduled rate adjustments within a three-month period and subsequent selected time intervals. For residential mortgage-related securities, prepayment rates are forecasted at a weighted average constant prepayment rate (“CPR”) of 5% per annum; for multi-family and CRE loans, prepayment rates are forecasted at weighted average CPRs of 15% and 8% per annum, respectively. Borrowed funds were not assumed to prepay. Savings, NOW, and money market accounts were assumed to decay based on a comprehensive statistical analysis that incorporated our historical deposit experience.
Based on theCompany's results of this analysis, savings accounts were assumed to decay at a rate of 48% for the first five years and 52% for years six through ten. Interest-bearing checking accounts were assumed to decay at a rate of 70% for the first five years and 30% for years six through ten. The decay assumptions reflect the prolonged low interest rate environment and the uncertainty regarding future depositor behavior. Including those accounts having specified repricing dates, money market accounts were assumed to decay at a rate of 89% for the first five years and 11% for years six through ten.
Prepayment and deposit decay rates can have a significant impact on our estimated gap. While we believe our assumptions to be reasonable,operations. Even when robust fallback language is included, there can be no assuranceassurances that the assumed prepaymentreplacement rate plus any spread adjustment will be economically equivalent to LIBOR, which could result in a lower interest rate being paid to the Company on such assets.
The Alternative Reference Rates Committee (a group of private-market participants convened by the FRB and decay rates noted above will approximate actual futurethe FRB-NY) has identified SOFR as the recommended alternative to LIBOR. The use of SOFR as a substitute for LIBOR is voluntary and may not be suitable for all market participants. SOFR is calculated and observed differently than LIBOR. Given the manner in which SOFR is calculated, it is likely to be lower than LIBOR and is less likely to correlate with the funding costs of financial institutions. Market practices related to SOFR calculation conventions
72
continue to develop and may vary. Inconsistent calculation conventions among financial products may expose is to increased basic rate and resultant costs.
Other alternatives to LIBOR also exist, but, because of the difference in how those alternatives are constructed, they may diverge significantly from LIBOR in a range of situations and market conditions.
The Bank established a sub-committee of ALCO to address issues related to the phase out and transition from LIBOR. This sub-committee consists of personnel from various departments through the Bank including lending, loan administration, credit risk management, finance/treasury, including interest rate risk and securities prepaymentsliquidity management, information technology, and deposit withdrawal activity.operations. The Company has LIBOR-based contracts that extend beyond June 30, 2023. The sub-committee has monitored the Bank’s LIBOR transition progress and substantially all contracts have been updated. In complying with industry requirements, the Bank has not offered new LIBOR-based products since December 31, 2021.
To validate our prepayment assumptions for our multi-family and CRE loan portfolios, we perform a monthly analysis, during which we review our historical prepayment rates and compare them to our projected prepayment rates. We continually review the actual prepayment rates to ensure that our projections are as accurate as possible, since prepayments on these types of loans are not as closely correlated to changes in interest rates as prepayments onone-to-four family loans tend to be. In addition, we review the call provisions in our borrowings and investment portfolios and, on a monthly basis, compare the actual calls to our projected calls to ensure that our projections are reasonable.
Interest Rate Sensitivity Analysis
At December 31, 2017 | ||||||||||||||||||||||||||||
(dollars in thousands) | Three Months or Less | Four to Twelve Months | More Than One Year to Three Years | More Than Three Years to Five Years | More Than Five Years to 10 Years | More Than 10 Years | Total | |||||||||||||||||||||
INTEREST-EARNING ASSETS: |
| |||||||||||||||||||||||||||
Mortgage and other loans (1) | $ | 3,182,859 | $ | 4,729,234 | $ | 16,579,975 | $ | 10,898,656 | $ | 2,845,843 | $ | 112,980 | $ | 38,349,547 | ||||||||||||||
Mortgage-related securities (2)(3) | 21,268 | 58,354 | 385,627 | 681,573 | 1,226,274 | 245,650 | 2,618,746 | |||||||||||||||||||||
Other securities(2) | 978,343 | 1,421 | 3,869 | 15,802 | 323,106 | 193,959 | 1,516,500 | |||||||||||||||||||||
Interest-earning cash and cash equivalents | 2,373,803 | — | — | — | — | — | 2,373,803 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Total interest-earning assets | 6,556,273 | 4,789,009 | 16,969,471 | 11,596,031 | 4,395,223 | 552,589 | 44,858,596 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
INTEREST-BEARING LIABILITIES: |
| |||||||||||||||||||||||||||
Interest-bearing checking and money market accounts | 7,313,506 | 348,915 | 673,669 | 1,980,433 | 2,619,778 | — | 12,936,301 | |||||||||||||||||||||
Savings accounts | 1,145,791 | 947,315 | 234,823 | 192,785 | 2,689,287 | — | 5,210,001 | |||||||||||||||||||||
Certificates of deposit | 2,002,350 | 4,812,757 | 1,759,923 | 59,319 | 9,297 | — | 8,643,646 | |||||||||||||||||||||
Borrowed funds | 1,733,926 | 2,653,500 | 7,781,000 | 600,000 | — | 145,253 | 12,913,679 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Total interest-bearing liabilities | 12,195,573 | 8,762,487 | 10,449,415 | 2,832,537 | 5,318,362 | 145,253 | 39,703,627 | |||||||||||||||||||||
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|
|
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|
|
|
|
|
| |||||||||||||||
Interest rate sensitivity gap per period(4) | $ | (5,639,300 | ) | $ | (3,973,478 | ) | $ | 6,520,056 | $ | 8,763,494 | $ | (923,139 | ) | $ | 407,336 | $ | 5,154,969 | |||||||||||
|
|
|
|
|
|
|
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|
|
|
| |||||||||||||||
Cumulative interest rate sensitivity gap | $ | (5,639,300 | ) | $ | (9,612,778 | ) | $ | (3,092,722 | ) | $ | 5,670,772 | $ | 4,747,633 | $ | 5,154,969 | |||||||||||||
|
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|
|
|
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|
|
|
|
|
| |||||||||||||||||
Cumulative interest rate sensitivity gap as a percentage of total assets | (11.48 | )% | (19.57 | )% | (6.30 | )% | 11.54 | % | 9.66 | % | 10.49 | % | ||||||||||||||||
Cumulative net interest-earning assets as a percentage of net interest-bearing liabilities | 53.76 | % | 54.13 | % | 90.15 | % | 116.56 | % | 112.00 | % | 112.98 | % | ||||||||||||||||
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|
|
|
|
|
|
|
|
As of December 31, 2017, the impact of a100-basis point decline in market interest rates would have increased our projected prepayment rates for multi-family and CRE loans by a constant prepayment rate of 14.39% per annum. Conversely, the impact of a100-basis point increase in market interest rates would have decreased our projected prepayment rates for multi-family and CRE loans by a constant prepayment rate of 6.03% per annum.
Certain shortcomings are inherent in the method of analysis presented in the preceding Interest Rate Sensitivity Analysis. For example, although certain assets and liabilities may have similar maturities or periods to repricing, they may react in different degrees to changes in market interest rates. The interest rates on certain types of assets and liabilities may fluctuate in advance of the market, while interest rates on other types may lag behind changes in market interest rates. Additionally, certain assets, such as adjustable-rate loans, have features that restrict changes in interest rates both on a short-term basis and over the life of the asset. Furthermore, in the event of a change in interest rates, prepayment and early withdrawal levels would likely deviate from those assumed in calculating the table. Also, the ability of some borrowers to repay their adjustable-rate loans may be adversely impacted by an increase in market interest rates.
Interest rate sensitivity is also monitored through the use of a model that generates estimates of the change in our net portfolio value (“NPV”)Economic Value of Equity over a range of interest rate scenarios. NPVEVE is defined as the net present value of expected cash flows from assets, liabilities, andoff-balance sheet contracts. The NPVEVE ratio, under any interest rate scenario, is defined as the NPVEVE in that scenario divided by the market value of assets in the same scenario. The model assumes estimated loan prepayment rates, reinvestment rates, and deposit decay rates similar to those utilized in formulating the preceding Interest Rate Sensitivity Analysis.rates.
The following table sets forth our NPV at December 31, 2017, basedBased on the information and assumptions in effect at that date, andDecember 31, 2022, the following table sets forth our EVE, assuming the changes in interest rates noted:
(dollars in thousands)
Change in Interest Rates (in basis points) (1) | Market Value of Assets | Market Value of Liabilities | Net Portfolio Value | Net Change | Portfolio Market to Base | |||||||||||||||||
— | $ | 49,590,202 | $ | 42,154,288 | $ | 7,435,914 | $ | — | — | % | ||||||||||||
+100 | 48,897,628 | 41,901,656 | 6,995,972 | (439,942 | ) | (5.92 | ) | |||||||||||||||
+200 | 48,172,944 | 41,666,960 | 6,505,984 | (929,930 | ) | (12.51 | ) |
(dollars in millions) | ||||||||||||||||||||||||||
Change in |
|
| Market Value |
|
|
| Market Value |
|
|
| Economic |
|
|
| Net Change |
|
|
| Estimated |
|
| |||||
-200 |
| $ |
| 90,388 |
|
| $ |
| 79,644 |
|
| $ |
| 10,744 |
|
| $ |
| 95 |
|
|
|
| 0.89 |
| % |
-100 |
|
|
| 88,570 |
|
|
|
| 77,719 |
|
|
|
| 10,851 |
|
|
|
| 202 |
|
|
|
| 1.90 |
| % |
- |
|
|
| 86,770 |
|
|
|
| 76,121 |
|
|
|
| 10,649 |
|
|
|
| — |
|
|
|
| — |
|
|
+100 |
|
|
| 85,050 |
|
|
|
| 74,725 |
|
|
|
| 10,325 |
|
|
|
| (324 | ) |
|
|
| (3.04 | ) | % |
+200 |
|
|
| 83,398 |
|
|
|
| 73,466 |
|
|
|
| 9,932 |
|
|
|
| (717 | ) |
|
|
| (6.73 | ) | % |
The net changes in NPVEVE presented in the preceding table are within the limitsparameters approved by the Boards of Directors of the Company and the Banks.Bank.
As with the Interest Rate Sensitivity Analysis, certain shortcomings are inherent in the methodology used in the preceding interest rate risk measurements. Modeling changes in NPVEVE requires that certain assumptions be made which may or may not reflect the manner in which actual yields and costs respond to changes in market interest rates. In this regard, the NPV AnalysisEVE analysis presented above assumes that the composition of our interest rate sensitive assets and liabilities existing at the beginning of a period remains constant over the period being measured, and also assumes that a particular change in interest rates is reflected uniformly across the yield curve, regardless of the duration to maturity or repricing of specific assets and liabilities. Furthermore, the model does not take into account the benefit of any strategic actions we may take to further reduce our exposure to interest rate risk. Accordingly, while the NPV AnalysisEVE analysis provides an indication of our interest rate risk exposure at a particular point in time, such measurements are not intended to, and do not, provide a precise forecast of the effect of changes in market interest rates on our net interest income, and may very well differ from actual results.
We also utilize an internal net interest income simulation to manage our sensitivity to interest rate risk. The
simulation incorporates various market-based assumptions regarding the impact of changing interest rates on future levels of our financial assets and liabilities. The assumptions used in the net interest income simulation are inherently uncertain. Actual results may differ significantly from those presented in the following table, due to the frequency,
73
timing, and magnitude of changes in interest rates; changes in spreads between maturity and repricing categories; and prepayments, among other factors, coupled with any actions taken to counter the effects of any such changes. changes
Based on the information and assumptions in effect at December 31, 2017,2022, the following table reflects the estimated percentage change in future net interest income for the next twelve months, assuming the changes in interest rates noted:
Change in Interest Rates
| Estimated Percentage Change in | ||||
-200 over one year | 3.14 | % | |||
-100 over one year | 1.70 | % | |||
+100 over one year | ( | ) | % | ||
+200 over one year | ( | ) | % |
Future changes in our mix of assets and liabilities may result in othergreater changes to our gap, NPV, and/or net interest income simulation.
In the event that our EVE and net interest income and NPV sensitivities were to breach our internal policy limits, we would undertake the following actions to ensure that appropriate remedial measures were put in place:
Where temporary changes in market conditions or volume levels result in significant increases in interest rate risk, strategies may involve reducing open positions or employing synthetic hedging techniquesother balance sheet management activities including the potential use of derivatives to more immediately reduce the risk exposure. Where variance from policy tolerances is triggered by more fundamental imbalances in the risk profiles of core loan and deposit products, a remedial strategy may involve restoring balance through natural hedges to the extent possible before employing synthetic hedging techniques. Other strategies might include:
In connection with our net interest income simulation modeling, we also evaluate the impact of changes in the slope of the yield curve. At December 31, 2017,2022, our analysis indicated that an immediatea further inversion of the yield curve would be expected to result in a 2.54%4.80% decrease in net interest income; conversely, an immediate steepening of the yield curve would be expected to result in a 2.99% increase.1.21% increase in net interest income.
Critical Accounting Estimates
The preparation of these financial statements requires management to make estimates that affect the reported amounts of assets and liabilities and the reported amounts of income and expenses during the reporting periods. Actual results may differ from these estimates under varying conditions. On a quarterly basis, management evaluate its
74
estimates, particularly those that involve the most difficult, subjective or complex judgments and are often about matters that are inherently uncertain.
The judgments used by management in applying these critical accounting estimates may be influenced by adverse changes in the economic environment, which may result in changes to future financial results.
Allowance for Credit Losses
The Company’s January 1, 2020, adoption of ASU No. 2016-13, “Measurement of Credit Losses on Financial Instruments,” resulted in a significant change to our methodology for estimating the allowance since December 31, 2019. ASU No. 2016-13 replaced the incurred loss methodology with an expected loss methodology that is referred to as the CECL methodology. The measurement of expected credit losses under CECL is applicable to financial assets measured at amortized cost, including loan receivables. It also applies to off-balance sheet exposures not accounted for as insurance and net investments in leases accounted for under ASC Topic 842. At December 31, 2019, the allowance for credit losses on loans and leases totaled $148 million. On January 1, 2020, the Company adopted the CECL methodology under ASU Topic 326 and recognized an increase in the allowance for credit losses on loans and leases of $2 million as a “Day 1” transition adjustment from changes in methodology, with a corresponding decrease in retained earnings. Separately, at December 31, 2019, the Company had an allowance for unfunded commitments of $1 million. Upon adoption, the Company recognized an increase in the allowance for unfunded commitments of $13 million as a “Day 1” transition adjustment with a corresponding decrease in retained earnings.
The allowance for credit losses on loans and leases is deducted from the amortized cost basis of a financial asset or a group of financial assets so that the balance sheet reflects the net amount the Company expects to collect. Amortized cost is the unpaid loan balance, net of deferred fees and expenses, and includes negative escrow. Subsequent changes (favorable and unfavorable) in expected credit losses are recognized immediately in net income as a credit loss expense or a reversal of credit loss expense. Management estimates the allowance by projecting and multiplying together the probability-of-default, loss-given-default and exposure-at-default depending on economic parameters for each month of the remaining contractual term. Economic parameters are developed using available information relating to past events, current conditions, and economic forecasts. The Company’s economic forecast period is 24 months, and afterwards reverts to a historical average loss rate on a straight line basis over a 12 month period. Historical credit experience provides the basis for the estimation of expected credit losses, with qualitative adjustments made for differences in current loan-specific risk characteristics such as differences in underwriting standards, portfolio mix, delinquency levels and terms, as well as for changes in environmental conditions, such as changes in legislation, regulation, policies, administrative practices or other relevant factors. Expected credit losses are estimated over the contractual term of the loans, adjusted for forecasted prepayments when appropriate. The contractual term excludes potential extensions or renewals. The methodology used in the estimation of the allowance for loan and lease losses, which is performed at least quarterly, is designed to be dynamic and responsive to changes in portfolio credit quality and forecasted economic conditions. Each quarter the Company reassesses the appropriateness of the economic forecasting period, the reversion period and historical mean at the portfolio segment level, considering any required adjustments for differences in underwriting standards, portfolio mix, and other relevant data shifts over time.
The allowance for credit losses on loans and leases is measured on a collective (pool) basis when similar risk characteristics exist. The portfolio segment represents the level at which a systematic methodology is applied to estimate credit losses. Management believes the products within each of the entity’s portfolio segments exhibit similar risk characteristics. Smaller pools of homogenous financing receivables with homogeneous risk characteristics were modeled using the methodology selected for the portfolio segment. The macroeconomic data used in the quantitative models are based on a reasonable and supportable forecast period of 24 months. The Company leverages economic projections including property market and prepayment forecasts from established independent third parties to inform its loss drivers in the forecast. Beyond this forecast period, the Company reverts to a historical average loss rate. This reversion to the historical average loss rate is performed on a straight-line basis over 12 months.
Loans that do not share risk characteristics are evaluated on an individual basis. These include loans that are in nonaccrual status with balances above management determined materiality thresholds depending on loan class and also loans that are designated as TDR or “reasonably expected TDR” (criticized, classified, or maturing loans that will have a modification processed within the next three months). If a loan is determined to be collateral dependent, or
75
meets the criteria to apply the collateral dependent practical expedient, expected credit losses are determined based on the fair value of the collateral at the reporting date, less costs to sell as appropriate.
The Company maintains an allowance for credit losses on off-balance sheet credit exposures. The Company estimates expected credit losses over the contractual period in which the Company is exposed to credit risk via a contractual obligation to extend credit, unless that obligation is unconditionally cancellable by the Company. The allowance for credit losses on off-balance sheet credit exposures is adjusted as a provision for credit losses expense. The estimate includes consideration of the likelihood that funding will occur and an estimate of expected credit losses on commitments expected to be funded over their estimated life. The Company examined historical credit conversion factor (“CCF”) trends to estimate utilization rates, and chose an appropriate mean CCF based on both management judgment and quantitative analysis. Quantitative analysis involved examination of CCFs over a range of fund-up windows (between 12 and 36 months) and comparison of the mean CCF for each fund-up window with management judgment determining whether the highest mean CCF across fund-up windows made business sense. The Company applies the same standards and estimated loss rates to the credit exposures as to the related class of loans.
When applying this critical accounting estimate we incorporate several inputs and judgments that may be influenced by changes period to period. These include, but are not limited to changes in the economic environment and forecasts, changes in the credit profile and characteristics of the loan portfolio, and changes in prepayment assumptions which will result in provisions to or recoveries from the balance of the allowance for credit losses.
While changes to the economic environment forecasts, and portfolio characteristics will change from period to period, portfolio prepayments are an integral assumption in estimating the allowance for credit losses on our commercial real estate portfolio (multi -family, CRE and ADC) which comprises 70.5% of the loan portfolio at December 31, 2022. Portfolio prepayments are subject to estimation uncertainty and changes in this assumption could have a material impact to our estimation process. Prepayment assumptions are sensitive to interest rates and existing loan terms and determine the weighted average life of the commercial mortgage loan portfolio. Excluding other factors, as the weighted average life of the portfolio increases or decreases, so will the required amount of the allowance for credit losses on commercial real estate.
Valuation of Mortgage Servicing Rights
We purchase and originate mortgage loans for sale to the secondary market and often retain the right to service the loan at the time of sale upon which, a mortgage servicing right (MSR) is created. We have elected to report our MSR assets at fair value which is determined using an internal valuation model that utilizes an option-adjusted spread, constant prepayment rates, costs to service, and other assumptions. The assumptions used in the MSR valuation are unobservable in nature, involve a higher degree of judgment and are estimated based on our judgment regarding the value that market participants would assign to the asset. To corroborate this estimate, we obtain third-party valuations of the MSR portfolio on a quarterly basis from independent valuation services to assess the reasonableness of the fair value calculated by the internal valuation model.
For further information and sensitivity analysis regarding the valuation of the MSR asset, see Note 19, “Fair Value Measurements,” in Item 8, “Financial Statements and Supplementary Data."
Acquisition Method of Accounting
The acquisition method of accounting requires that acquired assets and liabilities in a business combination be recorded at their fair values as of the acquisition date. This method often involves estimates, all of which are inherently subjective. We have elected to hold the measurement period open to allow for potential adjustments for up to one year after the acquisition date, for new information that existed at the acquisition date but may not have been known or available at that time. For further information, refer to Note 3, "Business Combination" in Item 8, "Financial Statements and Supplementary Data".
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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Our Consolidated Financial Statements and Notes thereto and other supplementary data begin on the following page.
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NEW YORK COMMUNITY BANCORP, INC.
CONSOLIDATED STATEMENTS OF CONDITION
December 31, |
| December 31, |
| |||||||||||||
(in thousands, except share data) | 2017 | 2016 | ||||||||||||||
(in millions, except share data) |
| 2022 |
|
| 2021 |
| ||||||||||
ASSETS: |
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|
|
|
|
| ||||||||||
Cash and cash equivalents | $ | 2,528,169 | $ | 557,850 |
| $ | 2,032 |
|
| $ | 2,211 |
| ||||
Securities: |
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|
| ||||||||||
Available for sale ($1,263,227 pledged at December 31, 2017) | 3,531,427 | 104,281 | ||||||||||||||
Held-to-maturity ($1,930,533 pledged at December 31, 2016) (fair value of $3,813,959 at December 31, 2016) | — | 3,712,776 | ||||||||||||||
|
| |||||||||||||||
Debt securities available-for-sale ($434 and $1,168 pledged at |
|
| 9,060 |
|
|
| 5,780 |
| ||||||||
Equity investments with readily determinable fair values, at fair value |
|
| 14 |
|
|
| 16 |
| ||||||||
Total securities | 3,531,427 | 3,817,057 |
|
| 9,074 |
|
|
| 5,796 |
| ||||||
|
| |||||||||||||||
Non-covered loans held for sale | 35,258 | 409,152 | ||||||||||||||
Non-covered loans held for investment, net of deferred loan fees and costs | 38,387,971 | 37,382,722 | ||||||||||||||
Less: Allowance for losses onnon-covered loans | (158,046 | ) | (158,290 | ) | ||||||||||||
|
| |||||||||||||||
Non-covered loans held for investment, net | 38,229,925 | 37,224,432 | ||||||||||||||
Covered loans | — | 1,698,133 | ||||||||||||||
Less: Allowance for losses on covered loans | — | (23,701 | ) | |||||||||||||
|
| |||||||||||||||
Covered loans, net | — | 1,674,432 | ||||||||||||||
|
| |||||||||||||||
Total loans, net | 38,265,183 | 39,308,016 | ||||||||||||||
Federal Home Loan Bank stock, at cost | 603,819 | 590,934 | ||||||||||||||
Loans held for sale, at fair value |
|
| 1,115 |
|
|
| — |
| ||||||||
Loans and leases held for investment, net of deferred loan fees and costs |
|
| 69,001 |
|
|
| 45,738 |
| ||||||||
Less: Allowance for credit losses on loans and leases |
|
| (393 | ) |
|
| (199 | ) | ||||||||
Total loans and leases held for investment, net |
|
| 68,608 |
|
|
| 45,539 |
| ||||||||
Federal Home Loan Bank and Federal Reserve Bank stock, at cost |
|
| 1,267 |
|
|
| 734 |
| ||||||||
Premises and equipment, net | 368,655 | 373,675 |
|
| 491 |
|
|
| 270 |
| ||||||
FDIC loss share receivable | — | 243,686 | ||||||||||||||
Core deposit and other intangibles |
|
| 287 |
|
|
| — |
| ||||||||
Goodwill | 2,436,131 | 2,436,131 |
|
| 2,426 |
|
|
| 2,426 |
| ||||||
Core deposit intangibles | — | 208 | ||||||||||||||
Mortgage servicing rights ($2,729 and $228,099 measured at fair value at December 31, 2017 and 2016, respectively) | 6,100 | 233,961 | ||||||||||||||
Mortgage servicing rights |
|
| 1,033 |
|
|
| — |
| ||||||||
Bank-owned life insurance | 967,173 | 949,026 |
|
| 1,561 |
|
|
| 1,184 |
| ||||||
Other real estate owned and other repossessed assets ($16,990 covered by loss sharing agreements at December 31, 2016) | 16,400 | 28,598 | ||||||||||||||
Other assets | 401,138 | 387,413 |
|
| 2,250 |
|
|
| 1,367 |
| ||||||
|
| |||||||||||||||
Total assets | $ | 49,124,195 | $ | 48,926,555 |
| $ | 90,144 |
|
| $ | 59,527 |
| ||||
|
| |||||||||||||||
LIABILITIES AND STOCKHOLDERS’ EQUITY: |
|
|
|
|
|
| ||||||||||
Deposits: |
|
|
|
|
|
| ||||||||||
Interest-bearing checking and money market accounts | $ | 12,936,301 | $ | 13,395,080 |
| $ | 22,511 |
|
| $ | 13,209 |
| ||||
Savings accounts | 5,210,001 | 5,280,374 |
|
| 11,645 |
|
|
| 8,892 |
| ||||||
Certificates of deposit | 8,643,646 | 7,577,170 |
|
| 12,510 |
|
|
| 8,424 |
| ||||||
Non-interest-bearing accounts | 2,312,215 | 2,635,279 |
|
| 12,055 |
|
|
| 4,534 |
| ||||||
|
| |||||||||||||||
Total deposits | 29,102,163 | 28,887,903 |
|
| 58,721 |
|
|
| 35,059 |
| ||||||
Borrowed funds: |
|
|
|
|
|
| ||||||||||
Wholesale borrowings: |
|
|
|
|
|
| ||||||||||
Federal Home Loan Bank advances | 12,104,500 | 11,664,500 |
|
| 20,325 |
|
|
| 15,105 |
| ||||||
Repurchase agreements | 450,000 | 1,500,000 |
|
| — |
|
|
| 800 |
| ||||||
Federal funds purchased | — | 150,000 | ||||||||||||||
|
| |||||||||||||||
Total wholesale borrowings | 12,554,500 | 13,314,500 |
|
| 20,325 |
|
|
| 15,905 |
| ||||||
Junior subordinated debentures | 359,179 | 358,879 |
|
| 575 |
|
|
| 361 |
| ||||||
|
| |||||||||||||||
Subordinated notes |
|
| 432 |
|
|
| 296 |
| ||||||||
Total borrowed funds | 12,913,679 | 13,673,379 |
|
| 21,332 |
|
|
| 16,562 |
| ||||||
Other liabilities | 312,977 | 241,282 |
|
| 1,267 |
|
|
| 862 |
| ||||||
|
| |||||||||||||||
Total liabilities | 42,328,819 | 42,802,564 |
|
| 81,320 |
|
|
| 52,483 |
| ||||||
|
| |||||||||||||||
Stockholders’ equity: |
|
|
|
|
|
| ||||||||||
Preferred stock at par $0.01 (5,000,000 shares authorized): Series A (515,000 shares issued and outstanding) | 502,840 | — | ||||||||||||||
Common stock at par $0.01 (900,000,000 shares authorized; 489,072,101 and 487,067,889 shares issued, and 488,490,352 and 487,056,676 shares outstanding, respectively) | 4,891 | 4,871 | ||||||||||||||
Preferred stock at par $0.01 (5,000,000 shares authorized): Series A (515,000 shares |
|
| 503 |
|
|
| 503 |
| ||||||||
Common stock at par $0.01 (900,000,000 shares authorized; 705,429,386 and 490,439,070 |
|
| 7 |
|
|
| 5 |
| ||||||||
Paid-in capital in excess of par | 6,072,559 | 6,047,558 |
|
| 8,130 |
|
|
| 6,126 |
| ||||||
Retained earnings | 237,868 | 128,435 |
|
| 1,041 |
|
|
| 741 |
| ||||||
Treasury stock, at cost (581,749 and 11,213 shares, respectively) | (7,615 | ) | (160 | ) | ||||||||||||
Treasury stock, at cost (24,212,052 and 25,423,427 shares, respectively) |
|
| (237 | ) |
|
| (246 | ) | ||||||||
Accumulated other comprehensive loss, net of tax: |
|
|
|
|
|
| ||||||||||
Net unrealized gain (loss) on securities available for sale, net of tax of $(27,961) and $534, respectively | 39,188 | (753 | ) | |||||||||||||
Net unrealized loss on thenon-credit portion of other-than-temporary impairment (“OTTI”) losses on securities, net of tax of $3,338 and $3,351, respectively | (5,221 | ) | (5,241 | ) | ||||||||||||
Net unrealized loss on pension and post-retirement obligations, net of tax of $32,121 and $34,355, respectively | (49,134 | ) | (50,719 | ) | ||||||||||||
|
| |||||||||||||||
Net unrealized (loss) gain on securities available for sale, net of tax of $240 and |
|
| (626 | ) |
|
| (45 | ) | ||||||||
Net unrealized loss on pension and post-retirement obligations, net of tax of $18 |
|
| (46 | ) |
|
| (31 | ) | ||||||||
Net unrealized gain (loss) on cash flow hedges, net of tax of $(20) and $3, respectively |
|
| 52 |
|
|
| (9 | ) | ||||||||
Total accumulated other comprehensive loss, net of tax | (15,167 | ) | (56,713 | ) |
|
| (620 | ) |
|
| (85 | ) | ||||
|
| |||||||||||||||
Total stockholders’ equity | 6,795,376 | 6,123,991 |
|
| 8,824 |
|
|
| 7,044 |
| ||||||
|
| |||||||||||||||
Total liabilities and stockholders’ equity | $ | 49,124,195 | $ | 48,926,555 |
| $ | 90,144 |
|
| $ | 59,527 |
| ||||
|
|
See accompanying notes to the consolidated financial statements.
78
NEW YORK COMMUNITY BANCORP, INC.
CONSOLIDATED STATEMENTS OF OPERATIONSINCOME AND COMPREHENSIVE INCOME (LOSS)
Years Ended December 31, | ||||||||||||
(in thousands, except per share data) | 2017 | 2016 | 2015 | |||||||||
INTEREST INCOME: |
| |||||||||||
Mortgage and other loans | $ | 1,417,237 | $ | 1,472,020 | $ | 1,441,462 | ||||||
Securities and money market investments | 165,002 | 202,849 | 250,122 | |||||||||
|
|
|
|
|
| |||||||
Total interest income | 1,582,239 | 1,674,869 | 1,691,584 | |||||||||
|
|
|
|
|
| |||||||
INTEREST EXPENSE: |
| |||||||||||
Interest-bearing checking and money market accounts | 98,980 | 62,166 | 46,467 | |||||||||
Savings accounts | 28,447 | 31,982 | 50,776 | |||||||||
Certificates of deposit | 102,355 | 76,875 | 62,906 | |||||||||
Borrowed funds | 222,454 | 216,464 | 1,123,360 | |||||||||
|
|
|
|
|
| |||||||
Total interest expense | 452,236 | 387,487 | 1,283,509 | |||||||||
|
|
|
|
|
| |||||||
Net interest income | 1,130,003 | 1,287,382 | 408,075 | |||||||||
Provision for (recovery of) losses onnon-covered loans | 60,943 | 11,874 | (3,334 | ) | ||||||||
Recovery of losses on covered loans | (23,701 | ) | (7,694 | ) | (11,670 | ) | ||||||
|
|
|
|
|
| |||||||
Net interest income after provision for (recovery of) loan losses | 1,092,761 | 1,283,202 | 423,079 | |||||||||
|
|
|
|
|
| |||||||
NON-INTEREST INCOME: |
| |||||||||||
Fee income | 31,759 | 32,665 | 34,058 | |||||||||
Bank-owned life insurance | 27,133 | 31,015 | 27,541 | |||||||||
Mortgage banking income | 19,337 | 27,281 | 54,113 | |||||||||
Net gain on sales of loans | 1,156 | 15,806 | 26,133 | |||||||||
Net gain on sales of securities | 29,924 | 3,347 | 4,054 | |||||||||
FDIC indemnification expense | (18,961 | ) | (6,155 | ) | (9,336 | ) | ||||||
Gain on sale of covered loans and mortgage banking operations | 82,026 | — | — | |||||||||
Other | 44,506 | 41,613 | 74,200 | |||||||||
|
|
|
|
|
| |||||||
Totalnon-interest income | 216,880 | 145,572 | 210,763 | |||||||||
|
|
|
|
|
| |||||||
NON-INTEREST EXPENSE: |
| |||||||||||
Operating expenses: |
| |||||||||||
Compensation and benefits | 360,985 | 351,436 | 342,624 | |||||||||
Occupancy and equipment | 98,963 | 98,543 | 102,435 | |||||||||
General and administrative | 181,270 | 188,130 | 170,541 | |||||||||
|
|
|
|
|
| |||||||
Total operating expenses | 641,218 | 638,109 | 615,600 | |||||||||
Amortization of core deposit intangibles | 208 | 2,391 | 5,344 | |||||||||
Debt repositioning charge | — | — | 141,209 | |||||||||
Merger-related expenses | — | 11,146 | 3,702 | |||||||||
|
|
|
|
|
| |||||||
Totalnon-interest expense | 641,426 | 651,646 | 765,855 | |||||||||
|
|
|
|
|
| |||||||
Income (loss) before income taxes | 668,215 | 777,128 | (132,013 | ) | ||||||||
Income tax expense (benefit) | 202,014 | 281,727 | (84,857 | ) | ||||||||
|
|
|
|
|
| |||||||
Net income (loss) | $ | 466,201 | $ | 495,401 | $ | (47,156 | ) | |||||
Preferred stock dividends | 24,621 | — | — | |||||||||
|
|
|
|
|
| |||||||
Net income (loss) available to common shareholders | $ | 441,580 | $ | 495,401 | $ | (47,156 | ) | |||||
|
|
|
|
|
| |||||||
Basic earnings (loss) per common share | $0.90 | $1.01 | $(0.11 | ) | ||||||||
|
|
|
|
|
| |||||||
Diluted earnings (loss) per common share | $0.90 | $1.01 | $(0.11 | ) | ||||||||
|
|
|
|
|
| |||||||
Net income (loss) | $ | 466,201 | $ | 495,401 | $ | (47,156 | ) | |||||
Other comprehensive income (loss), net of tax: |
| |||||||||||
Change in net unrealized gain (loss) on securities available for sale, net of tax of $29,740; $1,560; and $437, respectively | 41,684 | (2,207 | ) | 475 | ||||||||
Change in thenon-credit portion of OTTI losses recognized in other comprehensive income (loss), net of tax of $13; $49; and $44, respectively | 20 | 77 | 69 | |||||||||
Change in pension and post-retirement obligations, net of tax of $2,234; $2,924; and $1,161, respectively | 1,585 | 4,015 | (1,445 | ) | ||||||||
Less: Reclassification adjustment for sales ofavailable-for-sale securities, net of tax of $1,245; $1,127; and $306, respectively | (1,743 | ) | (1,577 | ) | (434 | ) | ||||||
|
|
|
|
|
| |||||||
Total other comprehensive income (loss), net of tax | 41,546 | 308 | (1,335 | ) | ||||||||
|
|
|
|
|
| |||||||
Total comprehensive income (loss), net of tax | $ | 507,747 | $ | 495,709 | $ | (48,491 | ) | |||||
|
|
|
|
|
|
|
| Years Ended December 31, |
| |||||||||
(in millions, except per share data) |
| 2022 |
|
| 2021 |
|
| 2020 |
| |||
INTEREST INCOME: |
|
|
|
|
|
|
|
|
| |||
Loans and leases |
| $ | 1,848 |
|
| $ | 1,525 |
|
| $ | 1,542 |
|
Securities and money market investments |
|
| 244 |
|
|
| 164 |
|
|
| 166 |
|
Total interest income |
|
| 2,092 |
|
|
| 1,689 |
|
|
| 1,708 |
|
|
|
|
|
|
|
|
|
|
| |||
INTEREST EXPENSE: |
|
|
|
|
|
|
|
|
| |||
Interest-bearing checking and money market accounts |
|
| 226 |
|
|
| 31 |
|
|
| 57 |
|
Savings accounts |
|
| 60 |
|
|
| 28 |
|
|
| 32 |
|
Certificates of deposit |
|
| 97 |
|
|
| 55 |
|
|
| 217 |
|
Borrowed funds |
|
| 313 |
|
|
| 286 |
|
|
| 302 |
|
Total interest expense |
|
| 696 |
|
|
| 400 |
|
|
| 608 |
|
Net interest income |
|
| 1,396 |
|
|
| 1,289 |
|
|
| 1,100 |
|
Provision for credit losses |
|
| 133 |
|
|
| 3 |
|
|
| 62 |
|
Net interest income after provision for credit loan losses |
|
| 1,263 |
|
|
| 1,286 |
|
|
| 1,038 |
|
|
|
|
|
|
|
|
|
|
| |||
NON-INTEREST INCOME: |
|
|
|
|
|
|
|
|
| |||
Fee income |
|
| 27 |
|
|
| 23 |
|
|
| 22 |
|
Bank-owned life insurance |
|
| 32 |
|
|
| 29 |
|
|
| 32 |
|
Net (loss) gain on securities |
|
| (2 | ) |
|
| — |
|
|
| 1 |
|
Net return on mortgage servicing rights |
|
| 6 |
|
|
| — |
|
|
| — |
|
Net gain on loan sales |
|
| 5 |
|
|
| — |
|
|
| — |
|
Loan administration income |
|
| 3 |
|
|
| — |
|
|
| — |
|
Bargain purchase gain |
|
| 159 |
|
|
| — |
|
|
| — |
|
Other |
|
| 17 |
|
|
| 9 |
|
|
| 6 |
|
Total non-interest income |
|
| 247 |
|
|
| 61 |
|
|
| 61 |
|
|
|
|
|
|
|
|
|
|
| |||
NON-INTEREST EXPENSE: |
|
|
|
|
|
|
|
|
| |||
Operating expenses: |
|
|
|
|
|
|
|
|
| |||
Compensation and benefits |
|
| 354 |
|
|
| 303 |
|
|
| 301 |
|
Occupancy and equipment |
|
| 92 |
|
|
| 88 |
|
|
| 86 |
|
General and administrative |
|
| 158 |
|
|
| 127 |
|
|
| 124 |
|
Total operating expense |
|
| 604 |
|
|
| 518 |
|
|
| 511 |
|
Intangible asset amortization |
|
| 5 |
|
|
| — |
|
|
| — |
|
Merger-related expenses |
|
| 75 |
|
|
| 23 |
|
|
| — |
|
Total non-interest expense |
|
| 684 |
|
|
| 541 |
|
|
| 511 |
|
Income before income taxes |
|
| 826 |
|
|
| 806 |
|
|
| 588 |
|
Income tax expense |
|
| 176 |
|
|
| 210 |
|
|
| 77 |
|
Net income |
| $ | 650 |
|
| $ | 596 |
|
| $ | 511 |
|
Preferred stock dividends |
|
| 33 |
|
|
| 33 |
|
|
| 33 |
|
Net income available to common stockholders |
| $ | 617 |
|
| $ | 563 |
|
| $ | 478 |
|
Basic earnings per common share |
| $ | 1.26 |
|
| $ | 1.20 |
|
| $ | 1.02 |
|
Diluted earnings per common share |
| $ | 1.26 |
|
| $ | 1.20 |
|
| $ | 1.02 |
|
|
|
|
|
|
|
|
|
|
| |||
Net income |
| $ | 650 |
|
| $ | 596 |
|
| $ | 511 |
|
Other comprehensive (loss) income, net of tax: |
|
|
|
|
|
|
|
|
| |||
Change in net unrealized (loss) gain on securities available for sale, |
|
| (581 | ) |
|
| (112 | ) |
|
| 42 |
|
Change in pension and post-retirement obligations, net of tax of |
|
| (17 | ) |
|
| 23 |
|
|
| (5 | ) |
Change in net unrealized gain (loss) on cash flow hedges, net of tax |
|
| 64 |
|
|
| 6 |
|
|
| (42 | ) |
Less: Reclassification adjustment for sales of available-for-sale |
|
| — |
|
|
| — |
|
|
| (1 | ) |
Reclassification adjustment for defined benefit pension plan, |
|
| 2 |
|
|
| 5 |
|
|
| 5 |
|
Reclassification adjustment for net gain on cash flow hedges |
|
| (3 | ) |
|
| 18 |
|
|
| 8 |
|
Total other comprehensive (loss) income, net of tax |
|
| (535 | ) |
|
| (60 | ) |
|
| 7 |
|
Total comprehensive income, net of tax |
| $ | 115 |
|
| $ | 536 |
|
| $ | 518 |
|
79
See accompanying notes to the consolidated financial statements.
80
NEW YORK COMMUNITY BANCORP, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
Years Ended December 31, | ||||||||||||
(in thousands, except share data) | 2017 | 2016 | 2015 | |||||||||
PREFERRED STOCK (Par Value: $0.01): | ||||||||||||
Balance at beginning of year | $ | — | $ | — | $ | — | ||||||
Issuance of preferred stock (515,000 shares) | 502,840 | — | — | |||||||||
|
|
|
|
|
| |||||||
Balance at end of year | 502,840 | — | — | |||||||||
|
|
|
|
|
| |||||||
COMMON STOCK (Par Value: $0.01): | ||||||||||||
Balance at beginning of year | 4,871 | 4,850 | 4, 427 | |||||||||
Shares issued for restricted stock awards (2,004,212; 2,099,865; and 1,683,564, respectively) | 20 | 21 | 17 | |||||||||
Shares issued infollow-on common stock offering (40,625,000 shares) | — | — | 406 | |||||||||
|
|
|
|
|
| |||||||
Balance at end of year | 4,891 | 4,871 | 4,850 | |||||||||
|
|
|
|
|
| |||||||
PAID-IN CAPITAL IN EXCESS OF PAR: | ||||||||||||
Balance at beginning of year | 6,047,558 | 6,023,882 | 5,369,623 | |||||||||
Shares issued for restricted stock awards, net of forfeitures | (11,028 | ) | (8,985 | ) | (7,708 | ) | ||||||
Compensation expense related to restricted stock awards | 36,029 | 32,661 | 30,205 | |||||||||
Proceeds fromfollow-on common stock offering, net | — | — | 629,276 | |||||||||
Tax effect of stock plans | — | — | 2,486 | |||||||||
|
|
|
|
|
| |||||||
Balance at end of year | 6,072,559 | 6,047,558 | 6,023,882 | |||||||||
|
|
|
|
|
| |||||||
RETAINED EARNINGS (ACCUMULATED DEFICIT): | ||||||||||||
Balance at beginning of year | 128,435 | (36,568 | ) | 464,569 | ||||||||
Net income (loss) | 466,201 | 495,401 | (47,156 | ) | ||||||||
Dividends paid on common stock ($0.68; $0.68; and $1.00 per share) | (332,147 | ) | (330,810 | ) | (453,981 | ) | ||||||
Dividends paid on preferred stock ($47.81 per share) | (24,621 | ) | — | — | ||||||||
Effect of adopting Accounting Standards Update (“ASU”)No. 2016-09(1) | — | 412 | — | |||||||||
|
|
|
|
|
| |||||||
Balance at end of year | 237,868 | 128,435 | (36,568 | ) | ||||||||
|
|
|
|
|
| |||||||
TREASURY STOCK: | ||||||||||||
Balance at beginning of year | (160 | ) | (447 | ) | (1,118 | ) | ||||||
Purchase of common stock (1,284,373; 566,584; and 448,223 shares, respectively) | (18,463 | ) | (8,677 | ) | (7,020 | ) | ||||||
Shares issued for restricted stock awards (713,837; 580,087; and 495,777 shares, respectively) | 11,008 | 8,964 | 7,691 | |||||||||
|
|
|
|
|
| |||||||
Balance at end of year | (7,615 | ) | (160 | ) | (447 | ) | ||||||
|
|
|
|
|
| |||||||
ACCUMULATED OTHER COMPREHENSIVE LOSS, NET OF TAX: | ||||||||||||
Balance at beginning of year | (56,713 | ) | (57,021 | ) | (55,686 | ) | ||||||
Other comprehensive income (loss), net of tax | 41,546 | 308 | (1,335 | ) | ||||||||
|
|
|
|
|
| |||||||
Balance at end of year | (15,167 | ) | (56,713 | ) | (57,021 | ) | ||||||
|
|
|
|
|
| |||||||
Total stockholders’ equity | $ | 6,795,376 | $ | 6,123,991 | $ | 5,934,696 | ||||||
|
|
|
|
|
|
(in millions, except share data) |
| Shares |
|
| Preferred |
|
| Common |
|
| Paid-in |
|
| Retained |
|
| Treasury |
|
| Accumulated |
|
| Total |
| ||||||||
Twelve Months Ended December 31, 2022 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Balance at December 31, 2021 |
|
| 465,015,643 |
|
| $ | 503 |
|
| $ | 5 |
|
| $ | 6,126 |
|
| $ | 741 |
|
| $ | (246 | ) |
| $ | (85 | ) |
| $ | 7,044 |
|
Issuance of common stock for business combination |
|
| 214,990,316 |
|
|
| — |
|
|
| 2 |
|
|
| 2,008 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 2,010 |
|
Shares issued for restricted stock, net of forfeitures |
|
| 3,548,310 |
|
|
| — |
|
|
| — |
|
|
| (33 | ) |
|
| — |
|
|
| 33 |
|
|
| — |
|
|
| — |
|
Compensation expense related to restricted stock awards |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 29 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 29 |
|
Net income |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 650 |
|
|
| — |
|
|
| — |
|
|
| 650 |
|
Dividends paid on common stock ($0.68) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (317 | ) |
|
| — |
|
|
| — |
|
|
| (317 | ) |
Dividends paid on preferred stock ($63.76) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (33 | ) |
|
| — |
|
|
| — |
|
|
| (33 | ) |
Purchase of common stock |
|
| (2,336,935 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (24 | ) |
|
| — |
|
|
| (24 | ) |
Other comprehensive income, net of tax |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (535 | ) |
|
| (535 | ) |
Balance at December 31, 2022 |
|
| 681,217,334 |
|
| $ | 503 |
|
| $ | 7 |
|
| $ | 8,130 |
|
| $ | 1,041 |
|
| $ | (237 | ) |
| $ | (620 | ) |
| $ | 8,824 |
|
Twelve Months Ended December 31, 2021 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Balance at December 31, 2020 |
|
| 463,901,808 |
|
| $ | 503 |
|
| $ | 5 |
|
| $ | 6,123 |
|
| $ | 494 |
|
| $ | (258 | ) |
| $ | (25 | ) |
| $ | 6,842 |
|
Shares issued for restricted stock, net of forfeitures |
|
| 2,515,942 |
|
|
| — |
|
|
| — |
|
|
| (28 | ) |
|
| — |
|
|
| 28 |
|
|
| — |
|
|
| — |
|
Compensation expense related to restricted stock awards |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 31 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 31 |
|
Net income |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 596 |
|
|
| — |
|
|
| — |
|
|
| 596 |
|
Dividends paid on common stock ($0.68) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (316 | ) |
|
| — |
|
|
| — |
|
|
| (316 | ) |
Dividends paid on preferred stock ($63.76) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (33 | ) |
|
| — |
|
|
| — |
|
|
| (33 | ) |
Purchase of common stock |
|
| (1,402,107 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (16 | ) |
|
| — |
|
|
| (16 | ) |
Other comprehensive loss, net of tax |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (60 | ) |
|
| (60 | ) |
Balance at December 31, 2021 |
|
| 465,015,643 |
|
| $ | 503 |
|
| $ | 5 |
|
| $ | 6,126 |
|
| $ | 741 |
|
| $ | (246 | ) |
| $ | (85 | ) |
| $ | 7,044 |
|
Twelve Months Ended December 31, 2020 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Balance at December 31, 2019 |
|
| 467,346,781 |
|
| $ | 503 |
|
| $ | 5 |
|
| $ | 6,115 |
|
| $ | 342 |
|
| $ | (220 | ) |
| $ | (33 | ) |
| $ | 6,712 |
|
Opening retained earnings adjustment (1) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (10 | ) |
|
| — |
|
|
| — |
|
|
| (10 | ) |
Adjusted balance, beginning of period |
|
|
|
|
|
|
|
|
|
|
|
|
|
| 332 |
|
|
|
|
|
|
|
|
| 6,702 |
| ||||||
Shares issued for restricted stock, net of forfeitures |
|
| 2,321,105 |
|
|
| — |
|
|
| — |
|
|
| (22 | ) |
|
| — |
|
|
| 22 |
|
|
| — |
|
|
| — |
|
Compensation expense related to restricted stock awards |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 30 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 30 |
|
Net income |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 511 |
|
|
| — |
|
|
| — |
|
|
| 511 |
|
Dividends paid on common stock ($0.68) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (316 | ) |
|
| — |
|
|
| — |
|
|
| (316 | ) |
Dividends paid on preferred stock ($63.76) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (33 | ) |
|
| — |
|
|
| — |
|
|
| (33 | ) |
Purchase of common stock |
|
| (5,766,078 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 0 |
|
|
| (60 | ) |
|
| — |
|
|
| (60 | ) |
Other comprehensive loss, net of tax |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 8 |
|
|
| 8 |
|
Balance at December 31, 2020 |
|
| 463,901,808 |
|
| $ | 503 |
|
| $ | 5 |
|
| $ | 6,123 |
|
| $ | 494 |
|
| $ | (258 | ) |
| $ | (25 | ) |
| $ | 6,842 |
|
See accompanying notes to the consolidated financial statements.
81
NEW YORK COMMUNITY BANCORP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended December 31, | ||||||||||||
(in thousands) | 2017 | 2016 | 2015 | |||||||||
CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||||||
Net income (loss) | $ | 466,201 | $ | 495,401 | $ | (47,156 | ) | |||||
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: | ||||||||||||
Provision for (recoveries of) loan losses | 37,242 | 4,180 | (15,004 | ) | ||||||||
Depreciation and amortization | 32,803 | 32,811 | 31,497 | |||||||||
Amortization of discounts and premiums, net | (4,555 | ) | (26,258 | ) | (8,069 | ) | ||||||
Amortization of core deposit intangibles | 208 | 2,391 | 5,344 | |||||||||
Net gain on sales of securities | (29,924 | ) | (3,347 | ) | (4,054 | ) | ||||||
Gain on trading securities activity | (316 | ) | — | — | ||||||||
Net gain on sales of loans | (87,301 | ) | (57,398 | ) | (65,649 | ) | ||||||
Stock-based compensation | 36,029 | 32,661 | 30,205 | |||||||||
Deferred tax expense (benefit) | 21,444 | 44,746 | (31,289 | ) | ||||||||
Changes in operating assets and liabilities: | ||||||||||||
Decrease (increase) in other assets | 451,873 | 326,790 | (196,899 | ) | ||||||||
Increase (decrease) in other liabilities | 23,329 | (4,336 | ) | 15,425 | ||||||||
Purchases of securities held for trading | (202,450 | ) | — | — | ||||||||
Proceeds from sales of securities held for trading | 202,766 | — | — | |||||||||
Origination of loans held for sale | (1,674,123 | ) | (4,646,773 | ) | (4,680,243 | ) | ||||||
Proceeds from sales of loans originated for sale | 2,053,484 | 4,554,785 | 4,545,466 | |||||||||
|
|
|
|
|
| |||||||
Net cash provided by (used in) operating activities | 1,326,710 | 755,653 | (420,426 | ) | ||||||||
|
|
|
|
|
| |||||||
CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||||||
Proceeds from repayment of securities held to maturity | 175,375 | 2,499,205 | 940,580 | |||||||||
Proceeds from repayment of securities available for sale | 387,772 | 50,192 | 9,889 | |||||||||
Proceeds from sales of securities held to maturity | 547,925 | 1,297 | 44,104 | |||||||||
Proceeds from sales of securities available for sale | 453,878 | 322,038 | 278,689 | |||||||||
Purchases of securities held to maturity | (13,030 | ) | (213,208 | ) | (20,021 | ) | ||||||
Purchases of securities available for sale | (1,163,043 | ) | (279,402 | ) | (318,027 | ) | ||||||
Redemption of Federal Home Loan Bank stock | 90,909 | 601,941 | 623,189 | |||||||||
Purchases of Federal Home Loan Bank stock | (103,794 | ) | (528,904 | ) | (771,833 | ) | ||||||
Proceeds from sales of loans | 2,289,377 | 1,675,550 | 1,923,208 | |||||||||
Other changes in loans, net | (1,575,846 | ) | (2,826,365 | ) | (4,072,135 | ) | ||||||
Purchase of premises and equipment, net | (27,783 | ) | (84,179 | ) | (34,802 | ) | ||||||
|
|
|
|
|
| |||||||
Net cash provided by (used in) investing activities | 1,061,740 | 1,218,165 | (1,397,159 | ) | ||||||||
|
|
|
|
|
| |||||||
CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||||||
Net increase in deposits | 214,260 | 461,145 | 98,024 | |||||||||
Net (decrease) increase in short-term borrowed funds | (460,000 | ) | (3,256,300 | ) | 768,100 | |||||||
Proceeds from long-term borrowed funds | 3,000,000 | 1,181,000 | 11,243,500 | |||||||||
Repayments of long-term borrowed funds | (3,300,000 | ) | — | (10,489,682 | ) | |||||||
Tax effect of stock plans(1) | — | — | 2,486 | |||||||||
Net proceeds from issuance of preferred stock | 502,840 | — | — | |||||||||
Proceeds received fromfollow-on common stock offering, net | — | — | 629,682 | |||||||||
Cash dividends paid on common stock | (332,147 | ) | (330,810 | ) | (453,981 | ) | ||||||
Cash dividends paid on preferred stock | (24,621 | ) | — | — | ||||||||
Payments relating to treasury shares received for restricted stock award tax payments(1) | (18,463 | ) | (8,677 | ) | (7,020 | ) | ||||||
|
|
|
|
|
| |||||||
Net cash (used in) provided by financing activities | (418,131 | ) | (1,953,642 | ) | 1,791,109 | |||||||
|
|
|
|
|
| |||||||
Net increase (decrease) in cash and cash equivalents | 1,970,319 | 20,176 | (26,476 | ) | ||||||||
Cash and cash equivalents at beginning of year | 557,850 | 537,674 | 564,150 | |||||||||
|
|
|
|
|
| |||||||
Cash and cash equivalents at end of year | $ | 2,528,169 | $ | 557,850 | $ | 537,674 | ||||||
|
|
|
|
|
| |||||||
Supplemental information: | ||||||||||||
Cash paid for interest | $ | 447,476 | $ | 382,135 | $ | 540,818 | ||||||
Cash paid for income taxes | 217,682 | 180,238 | 187,608 | |||||||||
Cash paid for prepayment penalties on borrowings | — | — | 914,965 | |||||||||
Non-cash investing and financing activities: | ||||||||||||
Transfers to other real estate owned from loans | $ | 9,973 | $ | 20,099 | $ | 47,096 | ||||||
Transfer of loans from held for investment to held for sale | 1,910,121 | 1,659,743 | 1,897,075 | |||||||||
Transfer of loans from held for sale to held for investment | — | — | 153,578 | |||||||||
Shares issued for restricted stock awards | 11,028 | 8,985 | 7,708 | |||||||||
Securities transferred from held to maturity to available for sale | 3,040,305 | — | — |
|
| Years Ended December 31, |
| |||||||||
(in millions) |
| 2022 |
|
| 2021 |
|
| 2020 |
| |||
CASH FLOWS FROM OPERATING ACTIVITIES: |
|
|
|
|
|
|
|
|
| |||
Net income |
| $ | 650 |
|
| $ | 596 |
|
| $ | 511 |
|
Adjustments to reconcile net income to net cash provided by operating activities: |
|
|
|
|
|
|
|
|
| |||
Provision for loan losses |
|
| 133 |
|
|
| 3 |
|
|
| 62 |
|
Amortization of core deposit intangible |
|
| 5 |
|
|
| — |
|
|
| — |
|
Depreciation |
|
| 18 |
|
|
| 21 |
|
|
| 24 |
|
Amortization of discounts and premiums, net |
|
| (37 | ) |
|
| (5 | ) |
|
| 11 |
|
Net (gain) loss on securities |
|
| 2 |
|
|
| — |
|
|
| (2 | ) |
Net (gain) loss on sales of loans |
|
| (5 | ) |
|
| (1 | ) |
|
| — |
|
Net gain on sales of fixed assets |
|
| (2 | ) |
|
| — |
|
|
| — |
|
Gain on business acquisition |
|
| (159 | ) |
|
| — |
|
|
| — |
|
Stock-based compensation |
|
| 29 |
|
|
| 31 |
|
|
| 29 |
|
Deferred tax expense |
|
| (3 | ) |
|
| (13 | ) |
|
| 219 |
|
Changes in operating assets and liabilities: |
|
|
|
|
|
|
|
|
| |||
Decrease (increase) in other assets |
|
| 348 |
|
|
| (284 | ) |
|
| (411 | ) |
(Decrease) increase in other liabilities |
|
| (100 | ) |
|
| (6 | ) |
|
| 9 |
|
Purchases of securities held for trading |
|
| (75 | ) |
|
| (110 | ) |
|
| (15 | ) |
Proceeds from sales of securities held for trading |
|
| 75 |
|
|
| 110 |
|
|
| 15 |
|
Change in loans held for sale, net |
|
| 147 |
|
|
| (52 | ) |
|
| (119 | ) |
Net cash provided by operating activities |
|
| 1,026 |
|
|
| 290 |
|
|
| 334 |
|
CASH FLOWS FROM INVESTING ACTIVITIES: |
|
|
|
|
|
|
|
|
| |||
Proceeds from repayment of securities available for sale |
|
| 732 |
|
|
| 1,728 |
|
|
| 2,062 |
|
Proceeds from sales of securities available for sale |
|
| 228 |
|
|
| — |
|
|
| 484 |
|
Purchase of securities available for sale |
|
| (2,242 | ) |
|
| (1,796 | ) |
|
| (2,514 | ) |
Redemption of Federal Home Loan Bank stock |
|
| 635 |
|
|
| 92 |
|
|
| 173 |
|
Purchases of Federal Home Loan Bank and Federal Reserve Bank stock |
|
| (839 | ) |
|
| (112 | ) |
|
| (239 | ) |
Proceeds from bank-owned life insurance, net |
|
| 16 |
|
|
| 12 |
|
|
| 12 |
|
Proceeds from sales of loans |
|
| — |
|
|
| 37 |
|
|
| 3 |
|
Purchases of loans |
|
| (162 | ) |
|
| (161 | ) |
|
| (95 | ) |
Other changes in loans, net |
|
| (5,019 | ) |
|
| (2,558 | ) |
|
| (912 | ) |
(Purchases) dispositions of premises and equipment, net |
|
| (3 | ) |
|
| (4 | ) |
|
| 1 |
|
Cash acquired in business acquisition |
|
| 331 |
|
|
| — |
|
|
| — |
|
Net cash used in investing activities |
|
| (6,323 | ) |
|
| (2,762 | ) |
|
| (1,025 | ) |
CASH FLOWS FROM FINANCING ACTIVITIES: |
|
|
|
|
|
|
|
|
| |||
Net increase in deposits |
|
| 7,662 |
|
|
| 2,622 |
|
|
| 780 |
|
Net increase in short-term borrowed funds |
|
| 2,550 |
|
|
| 950 |
|
|
| 1,150 |
|
Proceeds from long-term borrowed funds |
|
| 9,479 |
|
|
| 2,072 |
|
|
| 6,925 |
|
Repayments of long-term borrowed funds |
|
| (13,960 | ) |
|
| (2,544 | ) |
|
| (6,550 | ) |
Net receipt of payments of loans serviced for others |
|
| (189 | ) |
|
| — |
|
|
| — |
|
Cash dividends paid on common stock |
|
| (317 | ) |
|
| (316 | ) |
|
| (316 | ) |
Cash dividends paid on preferred stock |
|
| (33 | ) |
|
| (33 | ) |
|
| (33 | ) |
Treasury stock repurchased |
|
| (7 | ) |
|
| — |
|
|
| (50 | ) |
Payments relating to treasury shares received for restricted stock award tax payments |
|
| (17 | ) |
|
| (16 | ) |
|
| (9 | ) |
Net cash provided by financing activities |
|
| 5,168 |
|
|
| 2,735 |
|
|
| 1,897 |
|
Net (decrease) increase in cash, cash equivalents, and restricted cash (3) |
|
| (129 | ) |
|
| 263 |
|
|
| 1,206 |
|
Cash, cash equivalents, and restricted cash at beginning of year (3) |
|
| 2,211 |
|
|
| 1,948 |
|
|
| 742 |
|
Cash, cash equivalents, and restricted cash at end of year (3) |
| $ | 2,082 |
|
| $ | 2,211 |
|
| $ | 1,948 |
|
Supplemental information: |
|
|
|
|
|
|
|
|
| |||
Cash paid for interest |
| $ | 657 |
|
| $ | 402 |
|
| $ | 633 |
|
Cash paid for income taxes |
|
| 17 |
|
|
| 471 |
|
|
| 118 |
|
Non-cash investing and financing activities: |
|
|
|
|
|
|
|
|
| |||
Transfers to repossessed assets from loans |
| $ | — |
|
| $ | 1 |
|
| $ | 1 |
|
Securitization of residential mortgage loans to mortgage-backed securities |
|
| 162 |
|
|
| 161 |
|
|
| 53 |
|
Transfer of loans from held for investment to held for sale |
|
| — |
|
|
| 52 |
|
|
| — |
|
Transfer of loans from held for sale to held for investment |
|
| — |
|
|
| 94 |
|
|
| — |
|
MSRs resulting from sale or securitization of loans |
|
| 19 |
|
|
| — |
|
|
| — |
|
Shares issued for restricted stock awards |
|
| 33 |
|
|
| 28 |
|
|
| 22 |
|
Business Combination: |
|
|
|
|
|
|
|
|
| |||
Fair value of tangible assets acquired |
|
| 24,449 |
|
|
| — |
|
|
| — |
|
Intangible assets |
|
| 292 |
|
|
| — |
|
|
| — |
|
Mortgage Servicing Rights |
|
| 1,012 |
|
|
| — |
|
|
| — |
|
Liabilities assumed |
|
| 23,584 |
|
|
| — |
|
|
| — |
|
Common Stock issued in business combination |
|
| 2,010 |
|
|
| — |
|
|
| — |
|
See accompanying notes to the consolidated financial statements.
82
NEW YORK COMMUNITY BANCORP, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1: ORGANIZATION AND BASIS OF PRESENTATION
Organization
Organization
New York Community Bancorp, Inc. (on a stand-alone basis, the “Parent Company” or, collectively with its subsidiaries, the “Company” or "we") was organized under Delaware law on July 20, 1993 and is the holding company for New York CommunityFlagstar Bank and New York Commercial BankN.A. (hereinafter referred to as the “Community Bank”“Bank”). The Company is headquartered in Hicksville, New York with regional headquarters in Troy, Michigan.
The Company is subject to regulation, examination and supervision by the “Commercial Bank,” respectively, and collectively as the “Banks”). 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.
Federal Reserve. The Community Bank is a National Association, subject to federal regulation and oversight by the primary banking subsidiary of the Company, which was formerly known as Queens County Bancorp, Inc. 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 onOCC.
On November 23, 1993, at which date the Company issued its initial offering of common stock (par value: $0.01$0.01 per share) at a price of $25.00$25.00 per share ($($0.93 per share on a split-adjusted basis, reflecting the impact of nine stock splits between 1994 and 2004)2004). The Commercial Bank was establishedCompany has grown organically and through a series of accretive mergers and acquisitions, culminating in its acquisition of Flagstar Bancorp, Inc., which closed on December 30, 2005.1, 2022.
Reflecting its growth through acquisitions, the CommunityFlagstar Bank, N.A. currently operates 225395 branches twoacross nine states, including strong footholds in the Northeast and Midwest and exposure to markets in the Southeast and West Coast. Flagstar Mortgage operates nationally through a wholesale network of which operate directly under the Communityapproximately 3000 third-party mortgage originators. Flagstar Bank name. The remaining 223 Community Bank branches operateN.A. also operates through seven divisional banks:eight local divisions, each with a history of service and strength: Queens County Savings Bank, Roslyn Savings Bank, Richmond County Savings Bank, and Roosevelt Savings Bank, and Atlantic Bank in New York; Garden State Community Bank in New Jersey; AmTrust Bank in Florida and Arizona; and Ohio Savings Bank in Ohio.
The CommercialOhio; and AmTrust Bank currently operates 30 branches in Manhattan, Queens, Brooklyn, Westchester County,Arizona and Long Island (all in New York), including 18 branches that operate under the name “Atlantic Bank.”Florida.
Basis of Presentation
The following is a description of the significant accounting and reporting policies that the Company and its 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 allowancesallowance for loan losses; the evaluation of goodwill for impairment;credit losses, mortgage servicing rights, and the evaluation of the need for a valuation allowance on the Company’s deferred tax assets.Flagstar acquisition.
The accompanying 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 in consolidation. The Company currently has certain unconsolidated subsidiaries in the form of wholly-owned statutory business trusts, which were formed to issue guaranteed capital securities (“capital securities”).securities. See Note 8,12 “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.
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NOTE 2: SUMMARY OF SIGNIFICANTSIGNIFICANT ACCOUNTING POLICIES
Cash and Cash Equivalents and Restricted Cash
For cash flow reporting purposes, cash and cash equivalents include cash on hand, amounts due from banks, and money market investments, which include federal funds sold and reverse repurchase agreements. At December 31, 20172022 and 2016,2021, the Company’s cash and cash equivalents totaled $2.5$2.0 billion and $557.9 million,$2.2 billion, respectively. Included in cash and cash equivalents at those dates were $2.1$837 million and $1.7 billion, and $138.6 million, respectively, of interest-bearing deposits in other financial institutions, primarily consisting of balances due from the Federal Reserve Bank of New York. Also included in cash and cash equivalentsFRB-NY. There were no federal funds sold outstanding at December 31, 2017 and 2016 were federal funds sold2022 or December 31, 2021. There was $793 million of $3.1 million and $6.8 million, respectively. In addition, the Company had $250.0 million in pledged reverse repurchase agreements outstanding at December 31, 2017 and 2016.
In accordance with the monetary policy of the Board of Governors of the Federal Reserve System (the “FRB”), the Company2022. There was required to maintain total reserves with the Federal Reserve Bank of New York of $763.4$406 million and $162.1 million, respectively,reverse repurchase agreements outstanding at December 31, 20172021. Restricted cash totaled $50 million at December 31, 2022, and 2016,includes cash that the Bank pledges as maintenance margin on centrally cleared derivatives and is included in other assets on the formConsolidated Statements of depositsCondition.
Debt Securities and vault cash. The Company was in complianceEquity Investments with this requirement at both dates.Readily Determinable Fair Values
Securities Available for Sale and Held to Maturity
The securities portfolio primarily consists of mortgage-related securities and, to a lesser extent, debt and equity (together, “other”) securities. Securities that are classified as “available for sale” are carried at their estimated fair value, with any
unrealized gains or losses, net of taxes, reported as accumulated other comprehensive income or loss in stockholders’ equity. Securities that the Company has the intent and ability to hold to maturity are classified as “held to maturity” and carried at amortized cost, less thenon-credit portion of other-than-temporary impairment (“OTTI”) recorded in accumulated other comprehensive loss (“AOCL”), net of tax.cost.
The fair values of our securities—and particularly our fixed-rate securities—are affected by changes in market interest rates and credit spreads. In general, as interest rates rise and/or credit spreads widen, the fair value of fixed-rate securities will decline. As interest rates fall and/or credit spreads tighten, the fair value of fixed-rate securities will rise. We regularly conduct a review and evaluation of our
The Company evaluates available-for-sale debt securities portfolioin unrealized loss positions at least quarterly to determine if an allowance for credit losses is required. Based on an evaluation of available information about past events, current conditions, and reasonable and supportable forecasts that are relevant to collectability, the declineCompany has concluded that it expects to receive all contractual cash flows from each security held in the fair value of any security below its carrying amount is other than temporary. If we deem any such decline in value to be other than temporary, the security is written down to its current fair value, creating a new cost basis, and the resultant loss (other than the OTTI of debtavailable-for-sale securities attributable tonon-credit factors) is charged against earnings and recorded in“Non-interest income.” Our assessment of a decline in fair value requires judgment as to the financial position and future prospects of the entity that issued the investment security, as well as a review of the security’s underlying collateral. Broad changes in the overall market or interest rate environment generally will not lead to a write-down.portfolio.
In accordance with OTTI accounting guidance, unless we have the intentThe Company first assesses whether (i) it intends to sell, or (ii) it is more likely than not that we may be required to sell a security before recovery, OTTI is recognized as a realized loss in earnings to the extent that the decline in fair value is credit-related. If there is a decline in fair value of a security below its carrying amount and we have the intent to sell it, or it is more likely than not that we mayCompany will be required to sell the security before recovery of its amortized cost basis. If either of these criteria is met, any previously recognized allowances are charged off and the entire amountsecurity’s amortized cost basis is written down to fair value through income. If neither of the aforementioned criteria are met, the Company evaluates whether the decline in fair value has resulted from credit losses or other factors. If this assessment indicates that a credit loss exists, the present value of cash flows expected to be collected from the security are compared to the amortized cost basis of the security. If the present value of cash flows expected to be collected is chargedless than the amortized cost basis, a credit loss exists and an allowance for credit losses is recorded for the credit loss, limited by the amount that the fair value is less than the amortized cost basis. Any impairment that has not been recorded through an allowance for credit losses is recognized in other comprehensive income.
Management has made the accounting policy election to earnings.exclude accrued interest receivable on available-for-sale securities from the estimate of credit losses. Available-for-sale debt securities are placed on non-accrual status when the Company no longer expects to receive all contractual amounts due, which is generally at 90 days past due. Accrued interest receivable is reversed against interest income when a security is placed on non-accrual status.
Equity investments with readily determinable fair values are measured at fair value with changes in fair value recognized in net income.
Premiums and discounts on securities are amortized to expense and accreted to income over the remaining period to contractual maturity using a method that approximates the interest method, and are adjusted for anticipated prepayments. Dividend and interest income are recognized when earned. The cost of securities sold is based on the specific identification method.
84
Federal Home Loan Bank Stock
As a member of the FHLB of New York (the“FHLB-NY”),FHLB-NY, the Company is required to hold shares ofFHLB-NY stock, which is carried at cost. In addition, in connection with the Flagstar acquisition, the Company also holds shares of FHLB-Indianapolis stock, which is carried at cost. The Company’s holding requirement varies based on certain factors, including its outstanding borrowings from theFHLB-NY. FHLB-NY and FHLB-Indianapolis.
The Company conducts a periodic review and evaluation of its FHLB-NY stock to determine if any impairment exists. The factors considered in this process include, among others, significant deterioration in FHLB-NY earnings performance, credit rating, or asset quality; significant adverse changes in the regulatory or economic environment; and other factors that could raise significant concerns about the creditworthiness and the ability of the FHLB-NY to continue as a going concern.
Loans Held-for-Sale
LoansThe Company classifies loans as LHFS when we originate or purchase loans that we intend to sell. We have elected the fair value option for the majority of our LHFS. The Company estimates the fair value of mortgage loans based on quoted market prices for securities backed by similar types of loans, where available, or by discounting estimated cash flows using observable inputs inclusive of interest rates, prepayment speeds and loss assumptions for similar collateral. Changes in fair value are recorded to other noninterest income on the Consolidated Statements of Income and Comprehensive Income. LHFS that are recorded at the lower of cost or fair value may be carried at fair value on a nonrecurring basis when the fair value is less than cost. For further information, see Note 19 - Fair Value Measurements.
Loans that are transferred into the LHFS portfolio from the LHFI portfolio, due to a change in intent, are recorded at the lower of cost or fair value. Gains or losses recognized upon the sale of loans are determined using the specific identification method.
Loans Held for Investment
Loans and leases, net, are carried at unpaid principal balances, including unearned discounts, purchase accounting (i.e., acquisition-date fair value) adjustments, net deferred loan origination costs or fees, and the allowancesallowance for loan losses.credit losses on loans and leases.
On June 27, 2017, the Company entered into an agreement to sell its mortgage banking business, which was acquired as part of its 2009 FDIC-assisted acquisition of AmTrust Bank (“AmTrust”) and is reported under the Company’s Residential Mortgage Banking segment, to Freedom Mortgage Corporation (“Freedom”). On September 29, 2017, the sale was completed with proceeds received in the amount of $226.6 million, resulting in a gain of $7.4 million, which is included in“Non-Interest Income” in the accompanying Consolidated Statements of Operations and Comprehensive Income (Loss). Freedom acquired both the Company’s origination and servicing platforms, as well as its mortgage servicing loan portfolio of $20.5 billion and related mortgage servicing rights (“MSRs”) asset of $208.8 million.
Accordingly, all of the loans held for sale that were outstanding at December 31, 2017, were originated by the Community Bank through its previous mortgage banking operation, and are to be sold to Freedom. Such loans are carried at fair value, which is primarily based on quoted market prices for securities backed by similar types of loans. The changes in fair value of these assets are largely driven by changes in mortgage interest rates subsequent to loan funding. In addition, loans originated as “held for investment” and subsequently designated as “held for sale” are transferred to held for sale at fair value.
Additionally, the Company received approval from the FDIC to sell assets covered under its Loss Share Agreements (“LSA”), early terminate the LSA, and entered into an agreement to sell the majority of itsone-to-four family residential mortgage-related assets, including those covered under the LSA, to an affiliate of Cerberus Capital Management, L.P. (“Cerberus”). On July 28, 2017, the Company completed the sale, resulting in the receipt of proceeds of $1.9 billion from Cerberus and the FDIC and settled the related FDIC loss share receivable, resulting in a gain of $74.6 million which is included in“Non-Interest Income” in the accompanying Consolidated Statements of Operations and Comprehensive Income (Loss). As a result of this sale the Company has no covered loans at December 31, 2017.
The Company recognizes interest income onnon-covered loans held for investment and held for sale using the interest method over the life of the loan. Accordingly, the Company defers certain loan origination and commitment fees, and certain loan origination costs, and amortizes the net fee or cost as an adjustment to the loan yield over the term of the related loan. When a loan is sold or repaid, the remaining net unamortized fee or cost is recognized in interest income.
Prepayment income on loans is recorded in interest income and only when cash is received. Accordingly, there are no assumptions involved in the recognition of prepayment income.
Two factors are considered in determining the amount of prepayment income: the prepayment penalty percentage set forth in the loan documents, and the principal balance of the loan at the time of prepayment. The volume of loans prepaying may vary from one period to another, often in connection with actual or perceived changes in the direction of market interest rates. When interest rates are declining, rising precipitously, or perceived to be on the verge of rising, prepayment income may increase as more borrowers opt to refinance and lock in current rates prior to further increases taking place.
A loan generally is classified as a“non-accrual” “non-accrual” loan when it is 90 days or more past due or when it is deemed to be impaired because the Company no longer expects to collect all amounts due according to the contractual terms of the loan agreement. When a loan is placed onnon-accrual status, management ceases the accrual of interest owed, and previously accrued interest is charged against interest income. A loan is generally returned to accrual status when the loan is current and management has reasonable assurance that the loan will be fully collectible. Interest income onnon-accrual loans is recorded when received in cash.
Allowances85
Loans with Government Guarantees
The Company originates government guaranteed loans which are pooled and sold as Ginnie Mae MBS. Pursuant to Ginnie Mae servicing guidelines, the Company has the unilateral right to repurchase loans securitized in Ginnie Mae pools that are due, but unpaid, for Loan Lossesthree consecutive months. As a result, once the delinquency criteria have been met, and regardless of whether the repurchase option has been exercised, the Company accounts for the loans as if they had been repurchased. The Company recognizes the loans and corresponding liability as loans with government guarantees and loans with government guarantees repurchase options, respectively, in the Consolidated Statements of Condition. If the loan is repurchased, the liability is cash settled and the loan with government guarantee remains. Once repurchased, the Company works to cure the outstanding loans such that they are re-eligible for sale or may begin foreclosure and recover losses through a claims process with the government agency, as an approved lender.
Allowance for Credit Losses onNon-Covered Loans and Leases
The Company’s January 1, 2020, adoption of ASU No. 2016-13, “Measurement of Credit Losses on Financial Instruments,” resulted in a significant change to our methodology for estimating the allowance since December 31, 2019. ASU No. 2016-13 replaced the incurred loss methodology with an expected loss methodology that is referred to as the CECL methodology. The measurement of expected credit losses under CECL is applicable to financial assets measured at amortized cost, including loan receivables. It also applies to off-balance sheet exposures not accounted for as insurance and net investments in leases accounted for under ASC Topic 842.
The allowance for credit losses onnon-covered loans represents our estimateand leases is deducted from the amortized cost basis of probablea financial asset or a group of financial assets so that the balance sheet reflects the net amount the Company expects to collect. Amortized cost is the unpaid loan balance, net of deferred fees and estimableexpenses, and includes negative escrow. Subsequent changes (favorable and unfavorable) in expected credit losses inherentare recognized immediately in net income as a credit loss expense or a reversal of credit loss expense. Management estimates thenon-covered loan portfolio as allowance by projecting and multiplying together the probability-of-default, loss-given-default and exposure-at-default depending on economic parameters for each month of the dateremaining contractual term. Economic parameters are developed using available information relating to past events, current conditions, and economic forecasts. The Company’s economic forecast period is 24 months, and afterwards reverts to a historical average loss rate on a straight-line basis over a 12-month period. Historical credit experience provides the basis for the estimation of expected credit losses, with qualitative adjustments made for differences in current loan-specific risk characteristics such as differences in underwriting standards, portfolio mix, delinquency levels and terms, as well as for changes in environmental conditions, such as changes in legislation, regulation, policies, administrative practices or other relevant factors. Expected credit losses are estimated over the contractual term of the balance sheet. Losses onnon-coveredloans, are charged against, and recoveries of losses onnon-covered loans are credited back to, the allowanceadjusted for losses onnon-covered loans.
Althoughnon-covered loans are held by either the Community Bankforecasted prepayments when appropriate. The contractual term excludes potential extensions or the Commercial Bank, and a separate loan loss allowance is established for each, the total of the two allowances is available to cover all losses incurred. In addition, except as otherwise noted in the following discussion, the process for establishing the allowance for losses onnon-covered loans is largely the same for each of the Community Bank and the Commercial Bank.
renewals. The methodology used forin the allocationestimation of the allowance fornon-covered loan and lease losses, which is performed at December 31, 2017least quarterly, is designed to be dynamic and December 31, 2016 was generally comparable, wherebyresponsive to changes in portfolio credit quality and forecasted economic conditions. Each quarter the Community BankCompany reassesses the appropriateness of the economic forecasting period, the reversion period and historical mean at the Commercial Bank segregated their loss factors (usedportfolio segment level, considering any required adjustments for both criticizeddifferences in underwriting standards, portfolio mix, andnon-criticized loans) into a component that was primarily based on historical loss rates and a component that was primarily based on other qualitative factors that are probable to affect loan collectability. In determining the respective allowances fornon-covered loan losses, management considers the Community Bank’s and the Commercial Bank’s current business strategies and credit processes, including compliance with applicable regulatory guidelines and with guidelines approved by the respective Boards of Directors with regard to credit limitations, loan approvals, underwriting criteria, and loan workout procedures.relevant data shifts over time.
The allowance for credit losses onnon-covered loans and leases is establishedmeasured on a collective (pool) basis when similar risk characteristics exist. The portfolio segment represents the level at which a systematic methodology is applied to estimate credit losses. Management believes the products within each of the entity’s portfolio segments exhibit similar risk characteristics. Smaller pools of homogenous financing receivables with homogeneous risk characteristics were modeled using the methodology selected for the portfolio segment. The macroeconomic data used in the quantitative models are based on management’s evaluationa reasonable and supportable forecast period of incurred losses24 months. The Company leverages economic projections including property market and prepayment forecasts from established independent third parties to inform its loss drivers in the portfolio in accordance with GAAP, andforecast. Beyond this forecast period, the Company reverts to a historical average loss rate. This reversion to the historical average loss rate is comprised of both specific valuation allowances and general valuation allowances.performed on a straight-line basis over 12 months.
Specific valuation allowancesLoans that do not share risk characteristics are established basedevaluated on management’s analyses ofan individual basis. These include loans that are considered impaired.in nonaccrual status with balances above management determined materiality thresholds depending on loan class and also loans that are designated as TDR or “reasonably expected TDR” (criticized, classified, or maturing loans that will have a modification processed within the next three months). If anon-covered loan is deemeddetermined to be impaired, management measurescollateral dependent, or meets the extent ofcriteria to apply the impairment and establishes a specific valuation allowance for that amount. Anon-covered loan is classified as “impaired” when,collateral dependent practical expedient, expected credit losses are determined based on current information and/or events, it is probable that the Company will be unable to collect all amounts due under the contractual terms of the loan agreement. The Company applies this classification as necessary tonon-covered loans individually evaluated for impairment in its portfolios. Smaller-balance homogenous loans and loans carried at the lower of cost or fair value are evaluated for impairment on a collective, rather than individual, basis. Loans to certain borrowers who have experienced financial difficulty and for which the terms have been modified, resulting in a concession, are considered troubled debt restructurings (“TDRs”) and are classified as impaired.
The Company generally measures impairment on an individual loan and determines the extent to which a specific valuation allowance is necessary by comparing the loan’s outstanding balance to either the fair value of the collateral at the reporting date, less the estimated costcosts to sell or the present value of expected cash flows, discounted at the loan’s effective interest rate. Generally, when the fair value of the collateral, net of the estimated cost to sell, or the present value of the expected cash flows is less than the recorded investment in the loan, any shortfall is promptly charged off.
The Company also follows a process to assign general valuation allowances tonon-covered loan categories. General valuation allowances are established by applying our loan loss provisioning methodology, and reflect the inherent risk in outstandingheld-for-investment loans. This loan loss provisioning methodology considers various factors in determining the appropriate quantified risk factors to use to determine the general valuation allowances. The factors assessed begin with the historical loan loss experience for each major loan category. The Company also takes into account an estimated historical loss emergence period (which is the period of time between the event that triggers a loss and the confirmation and/orcharge-off of that loss) for each loan portfolio segment.
The allocation methodology consists of the following components: First, the Company determinesmaintains an allowance for loancredit losses on off-balance sheet credit exposures. At December 31, 2022 and December 31, 2021, the allowance for credit losses on off-balance sheet exposures was $23 million and $12 million, respectively. The Company estimates expected credit losses over the contractual period in which the Company is exposed to credit risk via a contractual obligation to extend credit, unless that obligation is unconditionally cancellable by the Company. The allowance for credit losses on
86
off-balance sheet credit exposures is adjusted as a provision for credit losses expense. The estimate includes consideration of the likelihood that funding will occur and an estimate of expected credit losses on commitments expected to be funded over their estimated life. The Company examined historical CCF trends to estimate utilization rates, and chose an appropriate mean CCF based on both management judgment and quantitative analysis. Quantitative analysis involved examination of CCFs over a quantitative loss factorrange of fund-up windows (between 12 and 36 months) and comparison of the mean CCF for loans evaluated collectively for impairment. This quantitative loss factor is based primarily on historicaleach fund-up window with management judgment determining whether the highest mean CCF across fund-up windows made business sense. The Company applies the same standards and estimated loss rates after considering loan type, historical lossto the credit exposures as to the related class of loans.
When applying this critical accounting estimate, we incorporate several inputs and delinquency experience, and loss emergence periods. The quantitative loss factors applied in the methodology are periodicallyre-evaluated and adjusted to reflect changes in historical loss levels, loss emergence periods, or other risks. Lastly, the Company allocates an allowance for loan losses based on qualitative loss factors. These qualitative loss factors are designed to account for lossesjudgments that may not be provided forinfluenced by the quantitative loss component duechanges period to other factors evaluated by management, whichperiod. These include, but are not limited to:
While changes to the economic environment forecasts and local economicportfolio characteristics will change from period to period, portfolio prepayments are an integral assumption in estimating the allowance for credit losses on our commercial real estate (multi-family, CRE and business conditionsADC) portfolio which comprises 70.5% of the loan portfolio at December 31, 2022. Portfolio prepayments are subject to estimation uncertainty and developments that affectchanges in this assumption could have a material impact to our estimation process. Prepayment assumptions are sensitive to interest rates and existing loan terms and determine the collectabilityweighted average life of the commercial mortgage loan portfolio. Excluding other factors, as the weighted average life of the portfolio includingincreases or decreases, so will the conditionrequired amount of various market segments;
By considering the factors discussed above, the Company determines an allowance fornon-covered loan losses that is applied to each significant loan portfolio segment to determine the total allowance for losses onnon-covered loans.
The historical loss period the Company uses to determine the allowance for loancredit losses onnon-covered loans is a rolling 28-quarter look-back period, as the Company believes this produces an appropriate reflection of our historical loss experience. commercial real estate.
Goodwill
The process of establishing the allowance for losses onnon-covered loans also involves:
In order to determine their overall adequacy, each of the respectivenon-covered loan loss allowances is reviewed quarterly by management and the Board of Directors of the Community Bank or the Commercial Bank, as applicable.
The Company charges off loans, or portions of loans, inadopted, on a prospective basis, ASU No. 2017-04, Intangibles—Goodwill and Other (Topic 350): Simplifying the period that such loans, or portions thereof, are deemed uncollectible. The collectability of individual loans is determined through an assessment of the financial condition and repayment capacity of the borrower and/or through an estimate of the fair value of any underlying collateral. Fornon-real estate-related consumer credits, the followingpast-due time periods determine when charge-offs are typically recorded:(1) Closed-end credits are charged off in the quarter that the loan becomes 120 days past due;(2) Open-end credits are charged off in the quarter that the loan becomes 180 days past due; and (3) Bothclosed-end andopen-end credits are typically charged off in the quarter that the credit is 60 days past the date notification was received that the borrower has filedTest for bankruptcy.
The level of future additions to the respectivenon-covered loan loss allowances is basedGoodwill Impairment on many factors, including certain factors that are beyond management’s control, such as changes in economic and local market conditions, including declines in real estate values, and increases in vacancy rates and unemployment. Management uses the best available information to recognize losses on loans or to make additions to the loan loss allowances; however, the Community Bank and/or the Commercial Bank may be required to take certain charge-offs and/or recognize further additions to their loan loss allowances, based on the judgment of regulatory agencies with regard to information provided to them during their examinations of the Banks.
An allowance for unfunded commitments is maintained separate from the allowances fornon-covered loan losses and is included in “Other liabilities” in the Consolidated Statements of Condition.
See Note 6, “Allowances for Loan Losses” for a further discussion of our allowance for losses on covered loans, as well as additional information about our allowance for losses onnon-covered loans.
Allowance for Losses on Covered Loans
January 1, 2020. The Company sold its covered loan portfolio during the third quarter of 2017; therefore, the Company had no allowance for losses on covered loanshas significant intangible assets related to goodwill and as of December 31, 2017. The2022, the Company had elected to account for the loans acquired in the AmTrust and Desert Hills acquisitions (the “covered loans”) based on expected cash flows. This election was in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic310-30, “Loans and Debt Securities Acquired with Deteriorated Credit Quality” (“ASC310-30”). In accordance with ASC310-30, the Company maintained the integritygoodwill of a pool of multiple loans accounted for as a single asset with a single composite interest rate and an aggregate expectation of cash flows.
Covered loans were reported exclusive of the FDIC loss share receivable. The covered loans acquired in the AmTrust and Desert Hills Bank (“Desert Hills”) acquisitions were reviewed for collectability based on the expectations of cash flows from these loans. Covered loans were aggregated into pools of loans with common characteristics. In determining the allowance for losses on covered loans, the Company periodically performed an analysis to estimate the expected cash flows for each of the loan pools. A provision for losses on covered loans was recorded to the extent that the expected cash flows from a loan pool have decreased for credit-related items since the acquisition date. Accordingly, during the loss share recovery period, 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 was recorded as a provision for covered loan losses charged to earnings, and the allowance for covered loan losses will be increased. During the loss share recovery period, a related credit tonon-interest income and an increase in the FDIC loss share receivable was recognized at the same time, and was measured based on the applicable loss sharing agreement percentage.
See Note 6, “Allowances for Loan Losses” for a further discussion of the allowances for losses onnon-covered and covered loans.
Goodwill
$2.4 billion. In connection with its acquisitions, the Company’s acquisitions, assets that are acquired and liabilities that are assumed are recorded at their estimated fair values. Goodwill represents the excess of the purchase price of its acquisitions over the fair value of the identifiable net assets acquired, including other identified intangible assets. The determination of whether or notCompany tests goodwill for impairment at the reporting unit level. The Company has identified one reporting unit which is impaired could require the Company to make significant judgmentssame as its operating segment and could require the use of significant estimates and assumptions regarding estimated future cash flows.reportable segment. If the Company changes its strategy or if market conditions shift, its judgments may change, which may result in adjustments to the recorded goodwill balance. Any resulting impairment loss could have a material adverse impact on our financial condition and results of operations.
The Company testsperforms its goodwill for impairment attest in the reporting unit level. Thesefourth quarter of each year, or more often if events or circumstances warrant. For annual goodwill impairment evaluations are performed by comparing the carrying value of the goodwill of a reporting unit to its estimated fair value. Goodwill is allocated to the reporting units based on the reporting unit expected to benefit from the business combination. Previously, the Company had identified two reporting units, which were also our segments: our Banking Operations reporting unit and the Residential Mortgage Banking reporting unit. On September 29, 2017, the Company sold the Residential Mortgage Banking reporting unit; accordingly,testing, the Company has one remaining reporting unit.
Goodwill is evaluated for impairment annually at December 31st, or more frequently if conditions exist that indicate that the carrying value may be impaired. ASC 350 provides for an optionaloption to first perform a qualitative assessment for testing goodwill for impairment that may allow companies to skip the annual two-step test described below. The qualitative assessment permits companies to assess
determine whether it is more likely than not (i.e., a likelihood of greater than 50%) that the fair value of a reporting unit is less than its carrying amount. If the Company concludes based on the qualitative assessment that it is more likely than not that the fair value of a reporting unit is less than its carrying amount, the Company is required to perform the two-step test.including goodwill and other intangible assets. If the Company concludes basedthat this is the case, it would compare the fair value the reporting unit with its carrying amount and recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value. The loss recognized, however, would not exceed the total amount of goodwill allocated to that reporting unit. Additionally, the Company would consider income tax effects from any tax deductible goodwill on the qualitative assessmentcarrying amount of the reporting unit when measuring the goodwill impairment loss, if applicable. As of December 31, 2022, the Company’s goodwill was not impaired.
Mortgage Servicing Rights
The Company purchases and originates mortgage loans for sale to the secondary market and sell the loans on either a servicing-retained or servicing-released basis. If the Company retains the right to service the loan, an MSR is created at the time of sale which is recorded at fair value. The Company uses an internal valuation model that it is not more likely than not thatutilizes an option-adjusted spread, constant prepayment speeds, costs to service and other assumptions to determine the fair value of a reporting unit is less than its carrying amount, it has completed its goodwill impairment test and does not need to perform the two-step test.MSRs.
Under step oneManagement obtains third-party valuations of the two-step test,MSR portfolio on a quarterly basis from independent valuation services to assess the reasonableness of the fair value calculated by our internal valuation model. Changes in the fair value of a reporting unit is compared with its carrying value (including goodwill). Ifour MSRs are reported on the fair valueConsolidated Statements of a reporting unit is less than its carrying value, an indication of goodwill impairment exists for that reporting unitIncome and the entity must perform step two of the impairment test (measurement). Under step two, an impairment loss is recognized for any excess of the carrying amount of a reporting unit’s goodwill over the implied fair value of that goodwill. The implied fair value of goodwill is determined by allocating the fair value of the reporting unitComprehensive Income in a manner similar to a purchase price allocationnet return on mortgage servicing. For further information, see Note 9 - Mortgage Servicing Rights and the residual fair value after this allocation is the implied fair value of the reporting unit’s goodwill. If the fair value of the reporting unit exceeds its carrying value, step two does not need to be performed.Note 19 - Fair Value Measurements.
At December 31, 2017, the Company utilized a quantitative assessment to test goodwill for impairment and determined that the fair value of its single reporting unit exceeded its carrying value thereby concluding that goodwill was not impaired.
Premises and Equipment, Net
Premises, furniture, fixtures, and equipment are carried at cost, less the accumulated depreciation computed on a straight-line basis over the estimated useful lives of the respective assets (generally 20 years for premises and three to ten years for furniture, fixtures,
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and equipment). Leasehold improvements are carried at cost less the accumulated amortization computed on a straight-line basis over the shorter of the related lease term or the estimated useful life of the improvement.
Depreciation and amortization areis included in “Occupancy and equipment expense” in the Consolidated Statements of OperationsIncome and Comprehensive Income, (Loss), and amounted to $32.8$18 million, $32.8$21 million, and $31.5$24 million, respectively, in the years ended December 31, 2017, 2016,2022, 2021, and 2015.2020.
Bank-Owned Life Insurance
The Company has purchased life insurance policies on certain employees. These bank-owned life insurance (“BOLI”)BOLI policies are recorded in the Consolidated Statements of Condition at their cash surrender value. Income from these policies and changes in the cash surrender value are recorded in“Non-interest “Non-interest income” in the Consolidated Statements of OperationsIncome and Comprehensive Income (Loss).Income. At December 31, 20172022 and 2016,2021, the Company’s investment in BOLI was $967.2 million$1.6 billion and $949.0 million,$1.2 billion, respectively. There were no additional purchases of BOLI during the years endedThe December 31, 2017 or 2016.2022 amount includes $373 million acquired in the Flagstar merger. The Company’s investment in BOLI generated income of $27.1$32 million, $31.0$29 million, and $27.5$32 million, respectively, during the years ended December 31, 2017, 2016,2022, 2021, and 2015.2020.
Variable Interest Entities
An entity that has a controlling financial interest in a VIE is referred to as the primary beneficiary and consolidates the VIE. An entity is deemed to have a controlling financial interest and is the primary beneficiary of a VIE if it has both the power to direct the activities of the VIE that most significantly impact the VIE’s economic performance and an obligation to absorb losses or the right to receive benefits that could potentially be significant to the VIE. For further information, see Note 10 - Variable Interest Entities.
Repossessed Assets and OREO
Repossessed assets consist of any property (“other real estate owned” or “OREO”) or other assets acquired through, or in lieu of, foreclosure are sold or rented, and are recorded at fair value, less the estimated selling costs, at the date of acquisition. Following foreclosure, management periodically performs a valuation of the asset, and the assets are carried at the lower of the carrying amount or fair value, less the estimated selling costs. Expenses and revenues from operations and changes in valuation, if any, are included in “General and administrative” expenseadministrative expense” in the Consolidated Statements of OperationsIncome and Comprehensive Income (Loss).Income. At December 31, 2017,2022, the Company had $8.2$8 million of OREO and $8.2$4 million of taxi medallions. The balance atAt December 31, 2016 was $28.62021, the Company had $3 million of OREO and $5 million of taxi medallions.
Servicing Fee Income
Servicing fee income, late fees and ancillary fees received on loans for which the Company owns the MSR are included OREOin net return on mortgage servicing rights on the Consolidated Statements of $17.0 million that was covered underIncome and Comprehensive Income. The fees are based on the Company’s FDIC LSA. There were no repossessed taxi medallions at December 31, 2016.outstanding principal and are recorded as income when earned. Subservicing fees, which are included in loan administration income on the Consolidated Statements of Income and Comprehensive Income, are based on a contractual monthly amount per loan including late fees and other ancillary income.
Income Taxes
Income tax expense consists of income taxes that are currently payable and deferred income taxes. Deferred income tax expense is determined by recognizing deferred tax assets and liabilities for future tax consequences attributable to temporary differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates that are expected to apply to taxable income in years in which those temporary differences are expected to be recovered or settled. The Company assesses the deferred tax assets and establishes a valuation allowance when realization of a deferred asset is not considered to be “more likely than not.” The Company considers its expectation of future taxable income in evaluating the need for a valuation allowance.
The Company estimates income taxes payable based on the amount it expects to owe the various tax authorities (i.e., federal, state, and local). Income taxes represent the net estimated amount due to, or to be received from, such tax authorities. In estimating income taxes, management assesses the relative merits and risks of the appropriate tax treatment of transactions, taking into account statutory, judicial, and regulatory guidance in the context of the Company’s tax position. In this process, management also relies on tax opinions, recent audits, and historical experience. Although the Company uses the best available information to record income taxes, underlying estimates and assumptions can change over time as a result of unanticipated events or circumstances such as changes in tax laws and judicial guidance influencing its overall tax position.
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Derivative Instruments and Hedging Activities
The Company records all derivatives on the balance sheet at fair value. The accounting for changes in the fair value of derivatives depends on the intended use of the derivative, whether the Company has elected to designate a derivative in a hedging relationship and apply hedge accounting and whether the hedging relationship has satisfied the criteria necessary to apply hedge accounting. Derivatives designated and qualifying as a hedge of the exposure to changes in the fair value of an asset, liability, or firm commitment attributable to a particular risk, such as interest rate risk, are considered fair value hedges. Derivatives designated and qualifying as a hedge of the exposure to variability in expected future cash flows, or other types of forecasted transactions, are considered cash flow hedges. Hedge accounting generally provides for the matching of the timing of gain or loss recognition on the hedging instrument with the recognition of the changes in the fair value of the hedged asset or liability that are attributable to the hedged risk in a fair value hedge or the earnings effect of the hedged forecasted transactions in a cash flow hedge. The Company may enter into derivative contracts that are intended to economically hedge certain of its risks, even though hedge accounting does not apply or the Company elects not to apply hedge accounting.
The Company utilizes derivative instruments to manage the fair value changes in our MSRs, interest rate lock commitments and LHFS portfolio which are exposed to price and interest rate risk; facilitate asset/liability management; minimize the variability of future cash flows on long-term debt; and to meet the needs of our customers. All derivatives are recognized on the Consolidated Statements of Condition as other assets and liabilities, as applicable, at their estimated fair value.
The Company uses interest rate swaps, swaptions, futures and forward loan sale commitments to mitigate the impact of fluctuations in interest rates and interest rate volatility on the fair value of the MSRs. Changes in their fair value are reflected in current period earnings under the net return on mortgage servicing asset. These derivatives are valued based on quoted prices for similar assets in an active market with inputs that are observable.
The Company also enters into various derivative agreements with customers and correspondents in the form of interest rate lock commitments and forward purchase contracts which are commitments to originate or purchase mortgage loans whereby the interest rate on the loan is determined prior to funding and the customers have locked into that interest rate. The derivatives are valued using internal models that utilize market interest rates and other unobservable inputs. Changes in the fair value of these commitments due to fluctuations in interest rates are economically hedged through the use of forward loan sale commitments of MBS. The gains and losses arising from this derivative activity are reflected in current period earnings under the net gain on loan sales.
To assist customers in meeting their needs to manage interest rate risk, the Company enters into interest rate swap derivative contracts. To economically hedge this risk, the Company enters into offsetting derivative contracts to effectively eliminate the interest rate risk associated with these contracts.
For additional information regarding the accounting for derivatives, see Note 14 - Derivatives and Hedging Activities and for additional information on recurring fair value disclosures, see Note 19 - Fair Value Measurements.
Representation and Warranty Reserve
When the Company sells mortgage loans into the secondary mortgage market, it makes customary representations and warranties to the purchasers about various characteristics of each loan. Upon the sale of a loan, the Company recognizes a liability for that guarantee at its fair value as a reduction of our net gain on loan sales. Subsequent to the sale, the liability is re-measured at fair value on an ongoing basis based upon an estimate of probable future losses. An estimate of the fair value of the guarantee associated with the mortgage loans is recorded in other liabilities in the Consolidated Statements of Condition, and was $10 million at December 31, 2022, as compared to $2 million at December 31, 2021.
Stock-Based Compensation
Under the New York Community Bancorp, Inc. 2012 Stock2020 Omnibus Incentive Plan (the “2012 Stock“2020 Incentive Plan”), which was approved by the Company’s shareholders at its Annual Meeting on June 7, 2012,3, 2020, shares are available for grant as restricted stock or other forms of related rights. At December 31, 2017,2022, the Company had 7,135,0715,774,229 shares available for grant under the 2012 Stock2020 Incentive Plan, including 1,030,673Plan. In addition, the Company had 4,025,636 shares that were transferred fromavailable for grant under the New York CommunityFlagstar Bancorp, Inc. 20062016 Stock Award and Incentive Plan (the “2006 Stock Incentive Plan”), which was approved by the Company’s shareholders at its Annual Meeting on June 7, 2006 and reapproved at its Annual Meeting on June 2, 2011.Plan. Compensation cost related to restricted stock grants is recognized on a straight-line basis over the vesting period. For a more detailed discussion of the Company’s stock-based compensation, see Note 13,18, “Stock-Related Benefit Plans.”
Retirement Plans
The Company’s pension benefit obligations and post-retirement health and welfare benefit obligations, and the related costs, are calculated using actuarial concepts in accordance with GAAP. The measurement of such obligations and expenses requires that certain
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assumptions be made regarding several factors, most notably including the discount rate and the expected rate of return on plan assets. The Company evaluates these assumptions on an annual basis. Other factors considered by the Company in its evaluation include retirement patterns and mortality rates, turnover, and the rate of compensation increase.rates.
Under GAAP, actuarial gains and losses, prior service costs or credits, and any remaining transition assets or obligations that have not been recognized under previous accounting standards must be recognized in AOCL until they are amortized as a component of net periodic benefit cost.
Earnings (Loss) per Common Share (Basic and Diluted)
Basic earnings (loss) per common share (“EPS”)EPS is computed by dividing the net income (loss) available to common shareholders 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 outstandingin-the-money stock options were exercised and converted into common stock.
Unvested stock-based compensation awards containingnon-forfeitable rights to dividends paid on the Company’s common stock are considered participating securities, and therefore are included in thetwo-class method for calculating EPS. Under thetwo-class method, all earnings (distributed and undistributed) are allocated to common shares and participating securities based on their respective rights to receive dividends on the common stock. The Company grants restricted stock to certain employees under its stock-based compensation plan. Recipients receive cash dividends during the vesting periods of these awards, including on the unvested portion of such awards. Since these dividends arenon-forfeitable, the unvested awards are considered participating securities and therefore have earnings allocated to them.
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The following table presents the Company’s computation of basic and diluted earnings (loss) per common share for the years ended December 31, 2017, 2016, and 2015:share:
Years Ended December 31, | ||||||||||||
(in thousands, except share and per share amounts) | 2017 | 2016 | 2015 | |||||||||
Net income (loss) available to common shareholders | $ | 441,580 | $ | 495,401 | $ | (47,156 | ) | |||||
Less: Dividends paid on and earnings/(loss) allocated to participating securities | (3,554 | ) | (3,795 | ) | (3,357 | ) | ||||||
|
|
|
|
|
| |||||||
Earnings/(loss) applicable to common stock | $ | 438,026 | $ | 491,606 | $ | (50,513 | ) | |||||
|
|
|
|
|
| |||||||
Weighted average common shares outstanding | 487,073,951 | 485,150,173 | 448,982,223 | |||||||||
|
|
|
|
|
| |||||||
Basic earnings (loss) per common share | $ | 0.90 | $ | 1.01 | $ | (0.11 | ) | |||||
|
|
|
|
|
| |||||||
Earnings (loss) applicable to common stock | $ | 438,026 | $ | 491,606 | $ | (50,513 | ) | |||||
|
|
|
|
|
| |||||||
Weighted average common shares outstanding | 487,073,951 | 485,150,173 | 448,982,223 | |||||||||
Potential dilutive common shares | — | — | — | |||||||||
|
|
|
|
|
| |||||||
Total shares for diluted earnings (loss) per common share computation | 487,073,951 | 485,150,173 | 448,982,223 | |||||||||
|
|
|
|
|
| |||||||
Diluted earnings (loss) per common share and common share equivalents | $0.90 | $1.01 | $(0.11 | ) | ||||||||
|
|
|
|
|
|
|
| Years Ended December 31, |
| |||||||||
(in millions, except share and per share amounts) |
| 2022 |
|
| 2021 |
|
| 2020 |
| |||
Net income available to common stockholders |
| $ | 617 |
|
| $ | 563 |
|
| $ | 478 |
|
Less: Dividends paid on and earnings allocated |
|
| (8 | ) |
|
| (7 | ) |
|
| (6 | ) |
Earnings applicable to common stock |
| $ | 609 |
|
| $ | 556 |
|
| $ | 472 |
|
Weighted average common shares outstanding |
|
| 483,603,395 |
|
|
| 463,865,661 |
|
|
| 462,605,341 |
|
Basic earnings per common share |
| $ | 1.26 |
|
| $ | 1.20 |
|
| $ | 1.02 |
|
Earnings applicable to common stock |
| $ | 609 |
|
| $ | 556 |
|
| $ | 472 |
|
Weighted average common shares outstanding |
|
| 483,603,395 |
|
|
| 463,865,661 |
|
|
| 462,605,341 |
|
Potential dilutive common shares |
|
| 1,530,950 |
|
|
| 767,058 |
|
|
| 676,061 |
|
Total shares for diluted earnings per common |
|
| 485,134,345 |
|
|
| 464,632,719 |
|
|
| 463,281,402 |
|
Diluted earnings per common share and |
| $ | 1.26 |
|
| $ | 1.20 |
|
| $ | 1.02 |
|
Impact of Recent Accounting Pronouncements
Recently Adopted Accounting Standards
In March 2016, the FASB issued ASUNo. 2016-09, “Compensation—Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting.” ASUNo. 2016-09 simplifies several aspects of the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, classification on the Statements of Cash Flows, and accounting for forfeitures. The Company adopted ASUNo. 2016-09 prospectively, effective for the first quarter of 2016. Upon adoption, the Company recorded an immaterial cumulative-effect adjustment to the opening balance of retained earnings. In addition, ASUNo. 2016-09 requires that excess tax benefits2022-01—Derivatives and shortfalls be recorded as income tax benefit or expense in the income statement, rather than as equity. This resulted in an immaterial benefit to income tax expenseHedging (Topic 815): Fair Value Hedging-Portfolio Layer Method in the first quarter of 2016. Relative2022 upon issuance. The amendments expand the current last-of-layer method of hedge accounting that permits only one hedged layer to forfeitures, ASUNo. 2016-09 allows an entity’s accounting policy electionallow multiple hedged layers of a single closed portfolio. To reflect that expansion, the last-of-layer method is renamed the portfolio layer method. In addition, the amendments expand the scope of the portfolio layer method to either continue to estimate the number of awards that are expected to vest, as under previousinclude non-prepayable assets; specify eligible hedging instruments in a single-layer hedge; provide additional guidance or account for forfeitures when they occur. The Company elected to continue its practice of estimating the number of awards that will be forfeited. The income tax effects of ASUNo. 2016-09 on the Statementsaccounting for and disclosure of Cash Flows are now classified as cash flows from operating activities, rather than cash flows from financing activities. The Company elected to apply this cash flow classification guidance prospectively and, therefore, prior periods were not adjusted. ASUNo. 2016-09 also requireshedge basis adjustments; specify how hedge basis adjustments should be considered when determining credit losses for the presentation of certain employee withholding taxes as a financing activity on the Consolidated Statements of Cash Flows; this is consistent with the manner in which the Company has presented such employee withholding taxesassets included in the past. Accordingly, no reclassification for prior periods was required.
In December 2016, the FASB issued ASUNo. 2016-19, “Technical Corrections and Improvements,” which includes various clarifications or corrections to the ASC that are not intended to have a significant effect on current accounting practice or create significant administrative costs for most entities. ASUNo. 2016-19 includes an amendment that clarifies the difference between a valuationapproach and a valuationtechnique when applyingclosed portfolio. To date, the guidance in ASC Topic 820, Fair Value Measurement. The amendment also requires a company to disclose when there has been a change in either or both a valuation approach or valuation technique. During 2017, the Company changed its valuation technique for its investment securities from the use of ayield-to-price calculation to using quoted prices from brokers or pricing services to measure fair value. The Company believes that the use of quoted prices from brokers or pricing services is an appropriate technique given the characteristics of its current investment securities holdings.
Recently Issued Accounting Standards
In February 2018, the FASB issued ASUNo. 2018-02, “Income Statement-Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income.” ASUNo. 2018-02 was issued to address a narrow-scope financial reporting issue that arose as a consequence of the enactment of the Tax Cuts and Jobs Act of 2017. ASUNo. 2018-02 permits an election to reclassify from accumulated other comprehensive income (loss) to retained earnings the stranded tax effects resulting from the difference between the historical federal corporate income tax rate of 35% and the newly enacted 21% federal corporate income tax rate. ASUNo. 2018-02 is effective for all entities for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years with early adoption permitted, including adoption innot had any interim period, for public business entities for reporting periods for which financial statements have not yet been issued. The Company plans to early adopt ASUNo. 2018-02 effective January 1, 2018. The adoption of ASUNo. 2018-02, is not expected to have a material effectimpact on the Company’s Consolidated Statements of Condition, results of operations, or cash flows.
NOTE 3: BUSINESS COMBINATION
In May 2017,
On December 1, 2022, the FASB issued ASUNo. 2017-09, “Compensation—Stock Compensation (Topic 718).” ASUNo. 2017-09 clarifies when to account forCompany closed the acquisition of Flagstar Bancorp, Inc. (“Flagstar Bancorp”) in an all-stock transaction. Flagstar was a changesavings and loan holding company headquartered in Troy, MI.
Pursuant to the terms or conditions of the Merger Agreement, each share of Flagstar Bancorp. common stock was converted into 4.0151 shares of the Company’s common shares at the effective time of the merger. In addition, the Company received approval from the Office of the Comptroller of the Currency (the “OCC”) to convert Flagstar Bank, FSB to a share-based payment awardnational bank to be known as Flagstar Bank, N.A., and to merge New York Community Bank into Flagstar Bank, N.A. with Flagstar Bank, N.A. being the surviving entity. Flagstar Bank, FSB, provided commercial, small business, and consumer banking services through 158 branches in Michigan, Indiana, California, Wisconsin, and Ohio. It also provided home loans through a wholesale network of brokers and correspondents in all 50 states. The acquisition of Flagstar added significant scale, geographic diversification, improved funding profile, and a broader product mix to the Company.
The acquisition of Flagstar has been accounted for as a modification. Under ASUNo. 2017-09, modification accounting is applied only ifbusiness combination. The Company recorded the estimate of fair value based on initial valuations at December 1, 2022. Due to the timing of the transaction closing date and the Company’s annual report on Form 10-K, these estimated fair values are considered preliminary as of December 31, 2022, and subject to adjustment for up to one year after December 1, 2022. While the Company believes that the information available on December 1, 2022 provided a reasonable basis for estimating fair value, the Company expects that it may obtain additional information and evidence during the measurement
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period that would result in changes to the estimated fair value amounts. Valuations subject to change include, but are not limited to, loans and leases, certain deposits, intangibles, deferred tax assets and liabilities and certain other assets and other liabilities.
The Company’s results of operations for the year-ended December 31, 2022, include the results of operations of Flagstar on and after December 1, 2022. Results for periods prior to December 1, 2022, do not include the results of operations of Flagstar.
The following table provides a preliminary allocation of consideration paid for the fair value of assets acquired and liabilities and equity assumed from Flagstar as of December 1, 2022.
(in millions) | ||||
Purchase price consideration | $ | 2,010 | ||
Fair value of assets acquired: | ||||
Cash & cash equivalents | 331 | |||
Securities | 2,695 | |||
Loans held for sale | 1,257 | |||
Loans held for investment: | ||||
One-to-four family first mortgage | 5,438 | |||
Commercial real estate | 3,891 | |||
Commercial and industrial | 6,523 | |||
Consumer and other | 2,156 | |||
Total loans held for investment | 18,008 | |||
CDI and other intangible assets | 292 | |||
Mortgage servicing rights | 1,012 | |||
Other assets | 2,158 | |||
Total assets acquired | 25,753 | |||
Fair value of liabilities assumed: | ||||
Deposits | 15,995 | |||
Borrowings | 6,700 | |||
Other liabilities | 889 | |||
Total liabilities assumed | 23,584 | |||
Fair value of net identifiable assets | 2,169 | |||
Bargain purchase gain | $ | 159 |
In connection with the vestingacquisition, the Company recorded a bargain purchase gain of approximately $159 million.
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Fair Value of Assets Acquired and Liabilities Assumed
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date, reflecting assumptions that a market participant would use when pricing an asset or liability. In some cases, the estimation of fair values requires management to make estimates about discount rates, future expected cash flows, market conditions, and other future events that are highly subjective in nature and are subject to change. Described below are the classificationmethods used to determine the fair values of the award (as an equitysignificant assets acquired and liabilities assumed in the Flagstar acquisition.
Cash and Cash Equivalents
The estimated fair values of cash and cash equivalents approximate their stated face amounts, as these financial instruments are either due on demand or liability instrument) changehave short-term maturities.
Investment Securities and Federal Home Loan Bank Stock
Quoted market prices for the securities acquired were used to determine their fair values. If quoted market prices were not available for a specific security, then quoted prices for similar securities in active markets were used to estimate the fair value. The fair value of FHLB-Indianapolis stock is equivalent to the redemption amount.
Loans
Fair values for loans were based on a discounted cash flow methodology that considered credit loss expectations, market interest rates and other market factors such as liquidity from the perspective of a market participant. Loans were grouped together according to similar characteristics and were treated in the aggregate when applying various valuation techniques. The probability of default, loss given default and prepayment assumptions were the key factors driving credit losses which were embedded into the estimated cash flows. These assumptions were informed by internal data on loan characteristics, historical loss experience, and current and forecasted economic conditions. The interest and liquidity component of the estimate was determined by discounting interest and principal cash flows through the expected life of each loan. The discount rates used for loans are based on current market rates for new originations of comparable loans and include adjustments for liquidity. The discount rates do not include a factor for credit losses as that has been included as a result of the change in terms or conditions. The Company plans to adopt ASUNo. 2017-09 as of January 1, 2018. ASUNo. 2017-09 amendments will be applied prospectively to awards modified on or after the effective date. The adoption of ASU No. 2017-09 is not expected to have a material effect on the Company’s Consolidated Statements of Condition, results of operations, or cash flows.
In March 2017, the FASB issued ASUNo. 2017-08, “Receivables—Nonrefundable Fees and Other Costs (Subtopic310-20): Premium Amortization on Purchased Callable Debt Securities.” ASUNo. 2017-08 specifies that the premium amortization period ends at the earliest call date, rather than the contractual maturity date, for purchasednon-contingently callable debt securities. Shortening the amortization period is generally expected to more closely align the interest income recognition with the expectations incorporated in the market pricing on the underlying securities. The shorter amortization period means that interest income would generally be lower in the periods before the earliest call date and higher thereafter (if the security is not called) compared to current GAAP. Currently, the premium is amortizedreduction to the contractual maturity date under GAAP. Because the premium will be amortizedestimated cash flows. Acquired loans were marked to the earliest call date, the holder will not recognize a loss in earningsfair value and adjusted for the unamortized premium when the call is exercised. This ASUNo. 2017-08 is effective for annual and interim periods in fiscal years beginning after December 15, 2018. The ASUNo. 2017-08 specifies that the transition approach to the standard be accounted for on a modified retrospective basis with a cumulative effect adjustment in retained earningsany PCD gross up as of the beginningmerger date.
Core Deposit Intangible
CDI is a measure of the periodvalue of adoption.non-interest-bearing and interest-bearing checking accounts, savings accounts, and money market accounts that are acquired in a business combination. The Company plans to adopt ASUNo. 2017-08 effective January 1, 2019 and the adoption is not expected to have a material effect on the Company’s Consolidated Statements of Condition, results of operations, or cash flows.
In March 2017, the FASB issued ASUNo. 2017-07, “Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost,” which requires companies to present the service cost component of net benefit cost in the income statement line items where they report compensation cost, and all other components of net benefit cost in the income statement separately from the service cost component and outside of operating income, if this subtotal is presented. Additionally, the service cost component will be the only component that can be capitalized. ASUNo. 2017-07 is effective for annual and interim periods in fiscal years beginning after December 15, 2018. The standard requires retrospective application for the amendments related to the presentation of the service cost component and other components of net benefit cost, and prospective application for the amendments related to the capitalization requirements for the service cost components of net benefit cost. The adoption of ASUNo. 2017-07 on January 1, 2018, is not expected to have a material effect on the Company’s Consolidated Statements of Condition, results of operations, or cash flows.
In January 2017, the FASB issued ASUNo. 2017-04, “Intangibles—Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment.” ASUNo. 2017-04 eliminates the second step of the goodwill impairment test which requires an entity to determine the implied fair value of the reporting unit’s goodwill. Instead, an entity will recognize an impairment loss if the carrying value of the net assets assigned to the reporting unit exceeds the fair value of the reporting unit, with the impairment loss not to exceed the amount of goodwill recorded. ASUNo. 2017-04 does not amend the optional qualitative assessment of goodwill impairment. ASUNo. 2017-04CDI stemming from any given business combination is effective for annual and interim periods in fiscal years beginning after December 15, 2019, with early adoption permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. The Company plans to adopt ASUNo. 2017-04 prospectively beginning January 1, 2020 and the impact of its adoption on the Company’s Consolidated Statements of Condition, results of operations, or cash flows will be dependent upon goodwill impairment determinations made after that date.
In November 2016, the FASB issued ASUNo. 2016-18, “Restricted Cash.” ASUNo. 2016-18 will amend the guidance in ASC Topic 230, Statement of Cash Flows, and is intended to reduce the diversity in the classification and presentation of changes in restricted cash on the statement of cash flows. ASUNo. 2016-18 will require that the reconciliation of thebeginning-of-period andend-of-period cash and cash equivalents amounts shown on the statement of cash flows include restricted cash and restricted cash equivalents. If restricted cash and restricted cash equivalents are presented separately from cash and cash equivalents on the balance sheet, an entity will be required to reconcile the amounts presented on the statement of cash flows to the amounts on the balance sheet. An entity will also be required to disclose information regarding the nature of the restrictions. ASUNo. 2016-18 requires retrospective application and is effective for fiscal years beginning after December 15, 2017 and interim periods within those fiscal years. Early adoption is permitted, including adoption in an interim period. If an entity early adopts the amendments in an interim period, any adjustments should be reflected as of the beginning of the fiscal year that includes that interim period. The Company plans to adopt ASUNo. 2016-18 as of January 1, 2018. The adoption of ASUNo. 2016-18 is not expected to have a material impact on the Company’s financial position or results of operations in future filings.
In August 2016, the FASB issued ASUNo. 2016-15, “Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments.” ASUNo. 2016-15 addresses the following cash flow issues: debt prepayment or debt extinguishment costs; settlement ofzero-coupon debt instruments or other debt instruments with coupon interest rates that are insignificant in relation to the effective interest rate of the borrowing; contingent consideration payments made after a business combination; proceeds from the settlement of insurance claims; proceeds from the settlement of corporate-owned life insurance policies (including bank-owned life insurance policies); distributions received from equity method investees; beneficial interests in securitization transactions; and separately identifiable cash flows and application of the predominance principle. The amendments in ASU No. 2016-15 are effective for public business entities for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. Early adoption is permitted, including adoption in an interim period. If an entity early adopts the amendments in an interim period, any adjustments should be reflected as of the beginning of the fiscal year that includes that interim period. An entity that elects early adoption must adopt all of the amendments in the same period. The amendments in ASUNo. 2016-15 should be applied using a retrospective transition method to each period presented. If it is impracticable to apply the amendments retrospectively for some of the issues, the amendments for those issues would be applied prospectively as of the earliest date practicable. The Company plans to adopt ASUNo. 2016-15 beginning January 1, 2018 and its adoption is not expected to have a material effect on the Company’s Consolidated Statements of Condition, results of operations, or cash flows.
In June 2016, the FASB issued ASUNo. 2016-13, “Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments.” ASUNo. 2016-13 amends guidance on reporting credit losses for assets held on an amortized cost basis andavailable-for-sale debt securities. For assets held at amortized cost, ASUNo. 2016-13 eliminates the probable initial recognition threshold in current GAAP and, instead, requires an entity to reflect its current estimate of all expected credit losses. Current GAAP requires an “incurred loss” methodology for recognizing credit losses that delays recognition until it is probable a loss has been incurred. The amendments in ASUNo. 2016-13 replace the incurred loss impairment methodology in current GAAP with a methodology that reflects the measurement of expected credit losses based on relevant information about past events, including historical loss experience, current conditions, and reasonable and supportable forecasts that affect the collectability of the reported amounts. The allowance for credit losses is a valuation account that is deducted from the amortized cost basis of the financial assets to present the net amount expected to be collected. Foravailable-for-sale debt securities, credit losses should be measured in a manner similar to current GAAP, however ASUNo. 2016-13 will require that credit losses be presented as an allowance rather than as a write-down. The amendments affect loans, debt securities, trade receivables, net investments in leases,off-balance sheet credit exposures, reinsurance receivables, and any other financial assets not excluded from the scope that have the contractual right to receive cash. For public business entities that are SEC filers, the amendments in ASUNo. 2016-13 are effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. An entity will apply the amendments in ASUNo. 2016-13 through a cumulative-effect adjustment to retained earnings as of January 1, 2020 (that is, a modified-retrospective approach). A prospective transition approach is required for debt securities for which an other-than-temporary impairment had been recognized before the effective date. The effect of a prospective transition approach is to maintain the same amortized cost basis before and after the effective date of ASUNo. 2016-13. Amounts previously recognized in accumulated other comprehensive income (loss) as of the date of adoption that relate to improvements in cash flows expected to be collected should continue to be accreted into income over the remaining life of the asset. Recoveries of amounts previously written off relating to improvements in cash flows after the date of adoption should be recorded in earnings when received. Financial assets for which the guidance in Subtopic310-30, “Receivables—Loans and Debt Securities Acquired with Deteriorated Credit Quality (“PCD assets”),” has previously been applied should prospectively apply the guidance in ASUNo. 2016-13 for PCD assets. A prospective transition approach should be used for PCD assets where upon adoption, the amortized cost basis should be adjusted to reflect the addition of the allowance for credit losses. This transition relief will avoid the need for a reporting entity to reassess its purchased financial assets that exist as of the date of adoption to determine whether they would have met at acquisition the new criteria of more-than insignificant credit deterioration since origination. The transition relief also will allow an entity to accrete the remaining noncredit discount (based on the revised amortized cost basis) into interest income at the effective interest rate at the adoption date of ASUNo. 2016-13. The same transition requirements should be applied to beneficial interests that previously applied Subtopic310-30 or have a significant difference between contractual cash flows and expected cash flows. The Company is evaluating ASUNo. 2016-13, has initiated a working group with multiple members from applicable departments to evaluate the requirements of the new standard, planning for loss modeling requirements consistent with lifetime expected loss estimates, and assessing the impact it will have on current processes. This evaluation includes a review of existing credit models to identify areas where existing credit models used to comply with other regulatory requirements may be leveraged and areas where new models may be required. The adoption of ASUNo. 2016-13 could have a material effect on the Company’s Consolidated Statements of Condition and results of operations. The extent of the impact upon adoption will likely depend on the characteristics of the Company’s loan portfolio and economic conditions at that date, as well as forecasted conditions thereafter.
In February 2016, the FASB issued ASUNo. 2016-02, “Leases (Topic 842).” ASUNo. 2016-02 will require entities that lease assets to recognize as assets and liabilities on the balance sheet the respective rights and obligations created by those leases. ASUNo. 2016-02 also will require disclosures that include qualitative and quantitative requirements, providing additional information about the amounts recorded in the financial statements. The amendments in this update are effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years, with early application permitted. In transition, lessees and lessors are required to recognize and measure leases at the beginning of the earliest period presented using a modified retrospective approach. The modified retrospective approach includes a number of optional practical expedients that entities we may elect to apply. These practical expedients relate to the identification and classification of leases that commenced before the effective date, initial direct costs for leases that commenced before the effective date, and the ability to use hindsight in evaluating lessee options to extend or terminate a lease or to purchase the underlying asset. An entity that elects to apply the practical expedients will, in effect, continue to account for leases that commence before the effective date in accordance with previous GAAP unless the lease is modified, except that lessees are required to recognize aright-of-use asset and a lease liability for all operating leases at each reporting date based on the present value of the remaining minimum rental payments that were tracked and disclosed under previous GAAP.expected cost savings attributable to the core deposit funding, relative to an alternative source of funding. The transition guidance in Topic 842 also provides specific guidance for sale and leaseback transactions,build-to-suit leases, leveraged leases, and amounts previously recognized in accordance withCDI relating to the business combinations guidance for leases.Flagstar acquisition will be amortized over an estimated useful life of 10 years using the sum of years digits depreciation method. The Company plans to adopt ASUNo. 2016-02 effective January 1, 2019 using the required modified retrospective approach, which includes presenting the cumulative effectevaluates such identifiable intangibles for impairment when an indication of initial application alongimpairment exists.
Deposit Liabilities
The fair values of deposit liabilities with supplementary disclosures. As a lessorno stated maturity (i.e., money market accounts, savings accounts, and lessee, we do not anticipate the classification of our leases to change, but we expect to recognizeright-of-use assetsnon-interest-bearing and lease liabilities for substantially virtually all of our operating lease commitments leases for which weinterest-bearing checking accounts) are the lessee as a lease liability and correspondingright-of-use asset on our Consolidated Statements of Condition. The Company has assembled a project management team, formed a working group comprised of associates from different disciplines, such as Vendor Risk Management, Real Estate, and Technology, including working with associates engaged in the procurement of goods and services used in the Company’s operations. We have made substantial progress in reviewing contractual arrangements for embedded leases in an effort to identify the Company’s full lease population and is presently evaluating all of its leases, as well as contracts that may contain embedded leases, for compliance with the new lease accounting rules.
In January 2016, the FASB issued ASUNo. 2016-01, “Financial Instruments—Overall (Subtopic825-10): Recognition and Measurement of Financial Assets and Financial Liabilities.” ASUNo. 2016-01 amends guidance on classification and measurement of financial instruments, including revisions in accounting relatedequal to the classificationcarrying amounts payable on demand. The fair values of certificates of deposit represent contractual cash flows, discounted using interest rates currently offered on deposits with similar characteristics and measurement of investments in equity securities and presentation of certain fair value changes for financial liabilities when the fair value option is elected. As it relates to the Company, it will require equity investments (except those accounted for under the equity method of accounting or those that result in consolidation of the investee) to be measured at fair value with changes in fair value recognized in net income, thus eliminating eligibility for the currentavailable-for-sale category. However, FHLB stock is not in the scope of ASUNo. 2016-01 and will continue to be presented at cost. remaining maturities.
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Borrowed Funds
The amendments in ASUNo. 2016-01 are effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. Except for the early application guidance for liabilities at fair value in accordance with the fair value option for financial instruments, and certainestimated fair value of financial instruments disclosures, early adoptionborrowed funds is based on bid quotations received from securities dealers or the discounted value of contractual cash flows with interest rates currently in effect for borrowed funds with similar maturities.
PCD loans
Purchased loans that reflect a more-than-insignificant deterioration of credit from origination are considered PCD. For PCD loans and leases, the ASUinitial estimate of expected credit losses is not permitted. An entity should applyrecognized in the amendments by means of a cumulative-effect adjustment to the balance sheet as of the beginning of the fiscal year of adoption. The amendments related to equity securities without readily determinable fair values (including disclosure requirements) should be applied prospectively to equity investments that exist as ofACL on the date of adoptionacquisition using the same methodology as other loans and leases held-for-investment. The following table provides a summary of ASUNo. 2016-01.loans and leases purchased as part of the Flagstar acquisition with credit deterioration and associated credit loss reserve at acquisition:
(in millions) | Total | |||
Par value (UPB) | $ | 1,950 | ||
ACL at acquisition | (51 | ) | ||
Non-credit (discount) | (33 | ) | ||
Fair value | $ | 1,866 |
Pro Forma Combined Results of Operations
The following pro forma financial information presents the unaudited consolidated results of operations of the Company plans to adopt ASUNo. 2016-01and Flagstar as if the Merger occurred as of January 1, 2018. Upon initial adoption, an immaterial amount2021 with pro forma adjustments. The pro forma adjustments give effect to any change in interest income due to the accretion of unrealized losses relatedthe net discounts from the fair value adjustments of acquired loans, any change in interest expense due to thein-scope equity securities will be reclassified estimated net premium from the fair value adjustments to acquired time deposits and other comprehensive income to retained earnings.
In May 2014,debt, and the FASB issued ASUNo. 2014-09, “Revenue from Contracts with Customers,” which requires an entity to recognize revenue to depictamortization of intangibles had the transferdeposits been acquired as of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The provisions ASUNo. 2014-09 and related amendments are effective for annual reporting periods beginning after December 15, 2017, and interim reporting periods within that annual period, with early adoption permitted for annual reporting periods beginning after December 15, 2016, and interim reporting periods within that annual period. The Company will adopt ASUNo. 2014-09 and its amendments which established ASC Topic 606, “Revenue from Contracts with Customers” on January 1, 2018. In summary,2021. The pro forma amounts for the core principletwelve months ended December 31, 2022 and 2021 do not reflect the anticipated cost savings that have not yet been realized. Merger related expenses incurred by the Company during the twelve months ended December 31, 2022 and 2021 are reflected in the pro forma amounts. The pro forma information does not necessarily reflect the results of ASC Topic 606 isoperations that an entity recognizes revenue to depictwould have occurred had the transferCompany merged with Flagstar at the beginning of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The Company’s revenue streams that are covered by ASC Topic 606 are primarily fees earned in connection with performing services for our customers such as investment advisor fees, wire transfer fees, and bounced check fees. Such fees are either satisfied over time if the service is performed over a period of time (as with investment advisor fees or safe deposit box rental fees), or satisfied at a point in time (as with wire transfer fees and bounced check fees). The Company recognizes fees for services performed over time over the time period to which the fees relate. The Company recognizes fees earned at a point in time on the day the fee is earned. The Company will adopt ASUNo. 2014-09 using the modified retrospective approach which includes presenting the cumulative effect of initial application, if any, along with supplementary disclosures. The Company will not record a cumulative effect adjustment upon adoption of ASUNo. 2014-09.2021.
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| Twelve Months Ended |
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| December 31, |
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| (unaudited) |
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(in millions) |
| 2022 |
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| 2021 |
| ||
Net interest income | $ |
| 2,278 |
| $ |
| 2,208 |
|
Non-interest income |
|
| 650 |
|
|
| 1,105 |
|
Net income |
|
| 804 |
|
|
| 1,207 |
|
Net income available to common stockholders |
|
| 771 |
|
|
| 1,174 |
|
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NOTE 3:4: RECLASSIFICATIONS OUT OF ACCUMULATED OTHER COMPREHENSIVE LOSS
(in thousands) | For the Twelve Months Ended December 31, 2017 | |||||
Details about Accumulated Other Comprehensive Loss | Amount Reclassified from Accumulated Other Comprehensive Loss(1) | Affected Line Item in the Consolidated Statements of Operations | ||||
Unrealized gains onavailable-for-sale securities | $ | 2,988 | Net gain on sales of securities | |||
(1,245 | ) | Income tax expense | ||||
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| |||||
$ | 1,743 | Net gain on sales of securities, net of tax | ||||
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Amortization of defined benefit pension plan items: | ||||||
Past service liability | $ | 249 | Included in the computation of net periodic (credit) expense(2) | |||
Actuarial losses | (8,484 | ) | Included in the computation of net periodic (credit) expense(2) | |||
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| |||||
(8,235 | ) | Total before tax | ||||
3,432 | Tax benefit | |||||
|
| |||||
$ | (4,803 | ) | Amortization of defined benefit pension plan items, net of tax | |||
|
| |||||
Total reclassifications for the period | $ | (3,060 | ) | |||
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(in millions) | For the Twelve Months Ended December 31, 2022 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Details about | Amount | Affected Line Item in the | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Unrealized gains on available-for-sale | $ |
(1) Amounts in parentheses indicate expense items. (2) See Note 17, “Employee Benefits,” for additional information. 95 NOTE The following tables summarize the Company’s portfolio of debt securities available for sale
(1) The underlying assets of the asset-backed securities are substantially guaranteed by the U.S. Government. (2) Excludes accrued interest receivable of $31 million included in other assets in the Consolidated Statements of Condition. 96 Mortgage-Related Securities: GSE certificates Other Securities: Municipal bonds Capital trust notes Preferred stock Mutual funds and common stock Total other securities Total securities available for sale
(1) The (2) Excludes accrued interest receivable of
At December 31, The following table summarizes the gross proceeds, gross realized gains, and gross realized losses from the sale ofavailable-for-sale securities during the years-ended:
Net unrealized (loss) gains on equity securities recognized in earnings for the years ended December 31,
The following table summarizes, by contractual maturity, the amortized cost of
(1) Includes corporate bonds, capital trust notes, foreign notes, and asset-backed securities. The following table presents
98 The following table presents
The investment securities designated as having a continuous loss position for twelve months or more at December 31, The Company evaluates available-for-sale debt securities in unrealized loss positions at least quarterly to determine if an allowance for credit losses is required. Based on an evaluation of available information about past events, current conditions, and reasonable and supportable forecasts that are relevant to collectability, the Company has concluded that it expects to receive all contractual cash flows from each security held in its available-for-sale securities portfolio. We first assess whether (i) we intend to sell, or (ii) it is more likely than not that we will be required to sell the security before recovery of its amortized cost basis. If either of these criteria is met, any previously recognized allowances are charged off and the security’s amortized cost basis is written down to fair value through income. If neither of the aforementioned criteria are met, we evaluate whether the decline in fair value has resulted from credit losses or other factors. If this assessment indicates that a credit loss exists, the present value of cash flows expected to be collected from the security are compared to the amortized cost basis of the security. If the present value of cash flows expected to be collected is less than the amortized cost basis, a credit loss exists and an allowance for credit losses is recorded for the credit loss, limited by the amount that the fair value is less than the amortized cost basis. Any impairment that has not been recorded through an allowance for credit losses is recognized in other comprehensive income. None of the unrealized losses identified as of December 31, 2022 or December 31, 2021 relates to the marketability of the securities 99 NOTE The following table sets forth, at the dates indicated, the composition of the loan and lease portfolio held for investment, at their amortized cost, which includes the outstanding principal balance adjusted for any unamortized premiums, discounts, deferred fees and costs:
(1) Excludes accrued interest receivable of $292 million and $199 million at December 31, (2) Includes specialty finance loans and leases of $4.4 billion and $3.5 billion, respectively, at December 31, 2022 and December 31, 2021. Loans and Leases
The majority of the loans the Company originates for investment are multi-family loans, most of which are collateralized bynon-luxury apartment buildings in New York City with rent-regulated units and below-market rents. In addition, the Company originates To a lesser extent, the Company also originates ADC loans are primarily originated for multi-family and residential tract projects in New York City and on Long Island. C&I loans consist of asset-based loans, equipment loans and leases, and dealer floor-plan loans (together, 100 The repayment of multi-family and CRE loans generally depends on the income produced by the underlying properties which, in turn, depends on their successful operation and management. To mitigate the potential for credit losses, the Company underwrites its loans in accordance with credit standards it considers to be prudent, looking first at the consistency of the cash flows being produced by the underlying property. In addition, multi-family buildings, CRE properties, and ADC projects are inspected as a prerequisite to approval, and independent appraisers, whose appraisals are carefully reviewed by the Company’sin-house appraisers, perform appraisals on the collateral properties. In many cases, a second independent appraisal review is performed. To further manage its credit risk, the Company’s lending policies limit the amount of credit granted to any one borrower and typically require conservative debt service coverage ratios andloan-to-value ratios. Nonetheless, the ability of the Company’s borrowers to repay these loans may be impacted by adverse conditions in the local real estate market, ADC loans typically involve a higher degree of credit risk than loans secured by improved or owner-occupied real estate. Accordingly, borrowers are required to provide a guarantee of repayment and completion, and loan proceeds are disbursed as construction progresses, as certified byin-house inspectors or third-party engineers. The Company seeks to minimize the credit risk on ADC loans by maintaining conservative lending policies and rigorous underwriting standards. However, if the estimate of value proves to be inaccurate, the cost of completion is greater than expected, or the length of time to complete and/or sell or lease the collateral property is greater than anticipated, 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 losses or delinquencies. In addition, the Company utilizes the same stringent appraisal process for ADC loans as it does for its multi-family and CRE loans. To minimize the risk involved in specialty finance lending and leasing, the Company participates in syndicated loans that are brought to it, and equipment loans and leases that are assigned to it, by a select group of nationally recognized sources who have had long-term relationships with its experienced lending officers. Each of these credits is secured with a perfected first security interest or outright ownership in the underlying collateral, and structured as senior debt or as anon-cancelable lease. To further minimize the risk involved in specialty finance lending and leasing, each transaction isre-underwritten. In addition, outside counsel is retained to conduct a further review of the underlying documentation. To minimize the risks involved in other C&I lending, the Company underwrites such loans on the basis of the cash flows produced by the business; requires that such loans be collateralized by various business assets, including inventory, equipment, and accounts receivable, among others; and typically requires personal guarantees. However, the capacity of a borrower to repay such a C&I loan is substantially dependent on the degree to which the 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. At December 31, 2022, one-to-four family loans represented $5.8 billion and as of December 31, 2021 one-to-four family loans totaled $160 million, with the increase being driven by the Flagstar acquisition. These loans include various types of conforming and non-conforming fixed and adjustable rate loans underwritten using Fannie Mae and Freddie Mac guidelines for the purpose of purchasing or refinancing owner occupied and second home properties. At December 31, 2022, other loans totaled $2.3 billion and consisted primarily of home equity lines of credit, boat and recreational vehicle indirect lending, point of sale consumer loans and other consumer loans, including overdraft loans acquired in the Flagstar acquisition. Included in Loans with Government Guarantees Substantially all LGG are insured or guaranteed by the FHA or the U.S. Department of Veterans Affairs. Nonperforming repurchased loans in this portfolio earn interest at a rate based upon the 10-year U.S. Treasury note rate from the time the underlying loan becomes 60 days delinquent until the loan is conveyed to HUD (if foreclosure timelines are met), which is not paid by the FHA until claimed. The Bank has a unilateral option to repurchase loans sold to GNMA if the loan is due, but unpaid, for three consecutive months (typically referred to as 90 days past due) and can recover losses through a claims process from the guarantor. These loans are recorded in loans held for investment and the liability to repurchase the loans is recorded in other liabilities on the Consolidated Statements of Condition. Certain loans within our portfolio may be subject to indemnifications and insurance limits which expose us to limited credit risk. As of December 31, 2022, LGG loans totaled $1.2 billion and the repurchase liability was $0.3 billion. 101 Repossessed assets and the associated net claims related to government guaranteed loans are recorded in other assets and was $14 million at December 31, 2022. Loans Held-for-Sale At December 31,
Asset Quality All asset quality information excludes LGG that are insured by U.S government agencies. A loan generally is classified as a non-accrual loan when it is 90 days or more past due or when it is deemed to be impaired because the Company no longer expects to collect all amounts due according to the contractual terms of
The following table presents information regarding the quality of the Company’s
(1) Includes lease financing receivables, all of which were current. 102 The following table presents information regarding the quality of the Company’s
(1) Includes lease financing receivables, all of which were current. The following table summarizes the Company’s portfolio of
(1) Includes lease financing receivables, all of which were classified as Pass. The following table summarizes the Company’s portfolio of
(1) Includes lease financing receivables, all of which were classified as Pass. The preceding classifications are the most current ones available and generally have been updated within the last twelve months. In addition, they follow regulatory guidelines and can generally be described as follows: pass loans are of satisfactory quality; special mention loans have potential weaknesses that deserve management’s close attention; 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 103 there is a 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 loans are classified based on the duration of the delinquency. The following table presents, by credit quality indicator, loan class, and year of origination, the amortized cost basis of the Company’s loans and leases as of December 31, 2022:
When management determines that foreclosure is probable, for loans that are individually evaluated the expected credit losses are based on the fair value of the collateral adjusted for selling costs. When the borrower is experiencing financial difficulty at the reporting date and repayment is expected to be provided substantially through the operation or sale of the collateral, the collateral-dependent practical expedient has been elected and expected credit losses are based on the fair value of the collateral at the reporting date, adjusted for selling costs as appropriate. For CRE loans, collateral properties include office buildings, warehouse/distribution buildings, shopping centers, apartment buildings, residential and commercial tract development. The primary source of repayment on these loans is expected to come from the sale, permanent financing or lease of the real property collateral. CRE loans are impacted by fluctuations in collateral values, as well as the ability of the borrower to obtain permanent financing. The following table summarizes the extent to which collateral secures the Company’s collateral-dependent loans held for investment by collateral type as of December 31, 2022:
Other collateral type consists of taxi medallions, cash, accounts receivable and inventory. There were no significant changes in the extent to which collateral secures the Company’s collateral-dependent financial assets during the twelve months ended December 31, 2022. At December 31, 2022 and December 31, 2021, the Company had $121 million residential mortgage loans in the process of foreclosure and no residential mortgage loans in the process of foreclosure, respectively. 104 The interest income that would have been recorded under the original terms ofnon-accrual loans at the respective year-ends, and the interest income actually recorded on these loans in the respective years, is summarized below:
Troubled Debt Restructurings The Company is required to account for certain 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 December 31, The following table presents information regarding the Company’s
The eligibility of a borrower forwork-out concessions of any nature depends upon the facts and circumstances of each loan, which may change from period to period, and involves judgment by Company personnel regarding the likelihood that the concession will result in the maximum recovery for the Company. 105 The financial effects of the Company’s TDRs
At December 31, 2022 and December 31, 2021, no loans have been modified as TDR's that were in payment default during the twelve months ended
Loan Category: Multi-family One-to-four family Commercial and industrial Total Loan Category: One-to-four family Commercial and industrial Other Total at that date. At December 31, The Company does not consider a payment to be in default when the loan is in forbearance, or otherwise granted a delay of payment, when the agreement to forebear or allow a delay of payment is part of a modification. Subsequent to the modification, the loan is not considered to be in default until payment is contractually past due in accordance with the modified terms. However, the Company does consider a loan with multiple modifications or forbearance periods to be in default, and would also consider a loan to be in default if the borrower were in bankruptcy or if the loan were partially charged off subsequent to modification. 106 NOTE 7: ALLOWANCE FOR CREDIT LOSSES ON LOANS AND LEASES
Covered Loans 90 Days or More Past Due: One-to-four family Other loans Total covered loans 90 days or more past due
Allowance for Credit Losses on The following table summarizes activity in the allowance for loan and lease losses
At December 31, 2022, the allowance for credit losses on loans and leases totaled $393 million, up $194 million compared to December 31, 2021, driven primarily by the initial provision for credit losses and the adjustment for PCD loans acquired in the Flagstar acquisition. In addition, the increase was also driven by net recoveries of $4 million during the year 2022. At December 31, 2022 and 2021, the allowance for unfunded commitments totaled $23 million and $12 million, respectively. For the year ended December 31,
The Company charges off loans, or portions of loans, in the period that such loans, or portions thereof, are deemed uncollectible. The collectability of individual loans is determined through an assessment of the financial condition and repayment capacity of the borrower and/or through an estimate of the fair value of any underlying collateral. For non-real estate-related consumer credits, the following past-due time periods determine when charge-offs are typically recorded: (1) closed-end credits are charged off in the quarter that the loan becomes 120 days past due; (2) open-end credits are charged off in the quarter that the loan becomes 180 days past due; and (3) both closed-end and open-end credits are typically charged off in the quarter that the credit is 60 days past the date the Company received notification that the borrower has filed for bankruptcy. 107 The following table presents additional information about the Company’s
108 The following table presents additional information about the Company’s
NOTE 8. LEASES
The Company is a lessor in the equipment finance business where it has executed direct financing leases (“lease finance receivables”). The Company produces lease finance receivables through a specialty finance subsidiary that participates in syndicated loans The The residual value component of a lease financing receivable represents the estimated fair value of the leased equipment at the end of the lease term. In establishing residual value estimates, the Company may rely on industry data, historical experience, and independent appraisals and, where appropriate, information regarding product life cycle, product upgrades and competing products. Upon expiration of a lease, residual assets are remarketed, resulting in either an extension of the lease by the lessee, a lease to a new customer or purchase of the residual asset by the lessee or another party. Impairment of residual values arises if the expected fair value is less than the carrying amount. The Company assesses its net investment in lease financing receivables (including residual values) for impairment on an annual basis with any impairment losses recognized in accordance with the impairment guidance for financial instruments. As such, net investment in lease financing receivables may be reduced by an allowance for credit losses with changes 109 recognized as provision expense. On certain lease financings, the Company obtains residual value insurance from third parties to manage and reduce the risk associated with the residual value of the leased assets. At December 31, 2022 and December 31, 2021, the carrying value of residual assets with third-party residual value insurance for at least a portion of the asset value was $32 million and $61 million, respectively. The Company uses the interest rate implicit in the lease to determine the present value of its lease financing receivables. The components of lease income were as follows:
(1) Included in Interest Income – Loans and leases in the Consolidated Statements of Income and Comprehensive Income. At December 31, 2022 and December 31, 2021, the carrying value of net investment in leases was $1.7 billion and $1.9 billion, respectively. The components of net investment in direct financing leases, including the carrying amount of the lease receivables, as well as the unguaranteed residual asset were as follows:
The following table presents the remaining maturity analysis of the undiscounted lease receivables, as well as the reconciliation to the total amount of receivables recognized in the Consolidated Statements of Condition:
Lessee Arrangements The Company has operating leases for corporate offices, branch locations, and certain equipment. These leases generally have terms of 20 years or less, determined based on the contractual maturity of the lease, and include periods covered by options to extend or terminate the lease when the Company is reasonably certain that it will exercise those options. For the vast majority of the Company’s leases, we are not reasonably certain we will exercise our options to renew to the end of all renewal option periods. The Company determines if an arrangement is a lease at inception. Operating leases are included in operating lease right-of-use assets and operating lease liabilities in the Consolidated Statements of Condition. 110 ROU assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent the obligation to make lease payments arising from the lease. Operating lease ROU assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term. As the vast majority of the leases do not provide an implicit rate, the incremental borrowing rate (FHLB borrowing rate) is used based on the information available at commencement date in determining the present value of lease payments. The implicit rate is used when readily determinable. The operating lease ROU asset is measured at cost, which includes the initial measurement of the lease liability, prepaid rent and initial direct costs incurred by the Company, less incentives received. Variable costs such as the proportionate share of actual costs for utilities, common area maintenance, property taxes and insurance are not included in the lease liability and are recognized in the period in which they are incurred. The components of lease expense were as follows:
Supplemental cash
Supplemental balance sheet information related to the leases for the following periods:
(1) Included in Other assets in the Consolidated Statements of Condition. (2) Included in Other liabilities in the Consolidated Statements of Condition. 111
NOTE 9: MORTGAGE SERVICING RIGHTS The Company has investments in MSRs that result from
Changes in the
(1) Changes in
(2) Represents estimated The following table summarizes
The sensitivity calculations above are hypothetical and should not be considered to be predictive of future performance. Changes in fair value based on adverse changes in assumptions generally cannot be extrapolated because the relationship of the change in 112 assumption to the change in fair value may not be linear. To isolate the effect of the specified change, the fair value shock analysis is consistent with the identified adverse change, while holding all other assumptions constant. In practice, a change in one assumption generally impacts other assumptions, which may either magnify or counteract the effect of the change. For further information on the fair value of MSRs. Contractual servicing and subservicing fees, including late fees and other ancillary income are presented below. Contractual servicing fees are included within net return on mortgage servicing rights on the Consolidated Statements of Income and Comprehensive Income. Contractual subservicing fees including late fees and other ancillary income are included within loan administration income on the Consolidated Statements of Income and Comprehensive Income . Subservicing fee income is recorded for fees earned on subserviced loans, net of third-party subservicing costs. The following table summarizes income and fees associated with owned MSRs:
(1) Servicing fees are recorded on an accrual basis. Ancillary income and late fees are recorded on a cash basis. (2) Changes in the The following table summarizes income and fees associated with our mortgage loans subserviced for
(1) Servicing fees are recorded on (2) Charges on subserviced custodial balances represent interest due to MSR owner. NOTE 10: VARIABLE INTEREST ENTITIES We have no consolidated VIEs as of December 31, In connection with our non-qualified mortgage securitization activities, we have retained a five percent interest in the investment securities of certain trusts ("other MBS") and are contracted as the subservicer of the underlying loans, compensated based on market rates, which constitutes a continuing involvement in these trusts. Although we have a variable interest in these securitization trusts, we are not their primary beneficiary due to the relative size of our investment in comparison to the total amount of securities issued by the VIE and our inability to direct activities that most significantly impact the VIE’s economic performance. As a result, we have not consolidated the assets and liabilities of the VIE in our Consolidated Statements of Condition. The Bank’s maximum exposure to loss is limited to our five percent retained interest in the investment securities that had a fair value of $191 million as of December 31, 2022 as well as the standard representations and warranties made in conjunction with the loan transfers.
113 NOTE The following table sets forth the weighted average interest rates for each type of deposit at December 31,
At The scheduled maturities of certificates of deposit
(1) Excludes PAA.
Included in total deposits at both December 31, NOTE The following table summarizes the Company’s borrowed funds at December 31,
Accrued interest on borrowed funds is included in “Other liabilities” in the Consolidated Statements of Condition and amounted to 114 FHLB Advances The
(1) Does not included the FHLB advances include both straight fixed-rate advances and advances under the FHLB convertible advance program, which gives the FHLB the option of either calling the advance after an initial lock-out period of up to five years and quarterly thereafter until maturity, or a one-time call at the initial call date. At December 31, 2022 and 2021, respectively, the Bank had unused lines of available credit with the FHLB-NY of up to $11.3 billion and $8.4 billion. The Company had $2.8 billion of overnight advances at December 31,
Total FHLB advances generated interest expense of Repurchase Agreements The
The Company had no short-term repurchase agreements outstanding at December 31, At December 31, Federal Funds Purchased There were no federal funds purchased outstanding at December 31, In 115 Junior Subordinated Debentures At December 31, 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. The following table presents contractual terms of the junior subordinated debentures
(1) Callable subject to certain conditions as described in the prospectus filed with the SEC on November 4, 2002. (2) Callable at any time. The Bifurcated Option Note Unit SecuritiESSM (“BONUSES units”) included in the preceding table were issued by the Company on November 4, 2002 at a public offering price of The gross proceeds of the BONUSES units totaled The other 116 Interest expense on junior subordinated debentures was Subordinated Notes At December 31, 2022 and 2021, the Company had a total of $432 million and $296 million subordinated notes outstanding; respectively, of fixed-to-floating rate subordinated notes outstanding:
(1) From and including the date of original issuance to, but excluding November 6, 2023, the Notes will bear interest at an initial rate of 5.90 percent per annum payable semi-annually. Unless redeemed, from and including November 6, 2023 to but excluding the maturity date, the interest rate will reset quarterly to an annual interest rate equal to the then-current three-month LIBOR rate plus 278 basis point payable quarterly. (2) From and including the date of original issuance, the Notes will bear interest at a fixed rate of 4.125 percent through October 31, 2025, and a variable rate tied to SOFR thereafter until maturity. The Company has the option to redeem all or a part of the Notes beginning on November 1, 2025, and on any subsequent interest payment date. The interest expense on subordinated notes amounted to $19 million for the year ended December 31, 2022 and $18 million for the years ended December 31, 2021, and 2020. NOTE The following table summarizes the components of the Company’s net deferred tax asset (liability) at December 31,
117 The deferred tax liability represents the anticipated federal, state, and local tax expenses or benefits that are expected to be realized in future years upon the utilization of the underlying tax attributes comprising said balances. The Company evaluates the
At December 31, 2022, the Company had a state deferred tax asset for net operating losses (“NOL”) of $15 million, (net of federal tax impact) which includes total state net operating loss carryforwards of $303 million at December 31, 2022, that expire if unused in calendar years through 2033. In connection with our ongoing assessment of deferred taxes, we analyzed each state net operating loss separately, determined the amount of net operating loss available and estimated the amount which we expected to expire unused. Based on that assessment, we recorded a valuation allowance of $5 million to reduce the DTA to the amount which is more likely than not to be realized. The following table summarizes the Company’s income tax expense
The following table presents a reconciliation of statutory federal income tax expense (benefit) to combined actual income tax expense (benefit) reported in net income for the years ended December 31,
118
The Company invests in affordable housing projects through limited partnerships that generate federal Low Income Housing Tax Credits. The balances of these investments, which are included in “Other assets” in the Consolidated Statements of Condition, were GAAP prescribes a recognition threshold and measurement attribute for use in connection with the obligation of a company to recognize, measure, present, and disclose in its financial statements uncertain tax positions that the Company has taken or expects to take on a tax return. As of December 31, Interest and penalties (if any) related to the underpayment of income taxes are classified as a component of income tax expense in the Consolidated Statements of The following table summarizes changes in the liability for unrecognized gross tax benefits for the years ended December 31, Uncertain tax positions at beginning of year Additions for tax positions relating to current-year operations Additions for tax positions relating to prior tax years Subtractions for tax positions relating to prior tax years Reductions in balance due to settlements Uncertain tax positions at end of year
The Company and its subsidiaries have filed tax returns in many states. The following are the more significant tax filings that are open for examination: • Federal tax filings for tax years • New York State tax filings for tax years 2010 through the present; • New York City tax filings for tax years 2011 through the present; and • New Jersey tax filings for tax years In addition to other state audits, the Company is currently under examination by the following taxing jurisdictions of significance to the Company: • Federal 2019 • New York State for the tax years 2010 through • New York City for the tax years 2011 and It is reasonably possible that there will be developments within the next twelve months that would necessitate an adjustment to the balance of unrecognized tax benefits, including decreases of up to 119 As a savings institution, the NOTE 14. DERIVATIVE AND HEDGING ACTIVITIES The Company is exposed to certain risks arising from both its business operations and economic conditions. The Company principally manages its exposure to a wide variety of business and operational risks through management of its core business activities. The Company manages economic risks, including interest rate and liquidity risks, primarily by managing the amount, sources, and duration of its assets and liabilities and, the use of derivative financial instruments. Specifically, the Company enters into derivative financial instruments to manage exposures that arise from business activities that result in the payment of future known and uncertain cash amounts, the value of which are determined by interest rates. Derivative financial instruments are recorded at fair value in other assets and other liabilities on the Consolidated Statements of Condition. The Company's policy is to present our derivative assets and derivative liabilities on the Consolidated Statement of Condition on a gross basis, even when provisions allowing for set-off are in place. However, for derivative contracts cleared through certain central clearing parties, variation margin payments are recognized as settlements. We are exposed to non-performance risk by the counterparties to our various derivative financial instruments. A majority of our derivatives are centrally cleared through a Central Counterparty Clearing House or consist of residential mortgage interest rate lock commitments further limiting our exposure to non-performance risk. We believe that the non-performance risk inherent in our remaining derivative contracts is minimal based on credit standards and the collateral provisions of the derivative agreements. Derivatives not designated as hedging instruments. The Company maintains a derivative portfolio of interest rate swaps, futures and forward commitments used to manage exposure to changes in interest rates and MSR asset values and to meet the needs of customers. The Company also enters into interest rate lock commitments, which are commitments to originate mortgage loans whereby the interest rate on the loan is determined prior to funding and the customers have locked into that interest rate. Market risk on interest rate lock commitments and mortgage LHFS is managed using corresponding forward sale commitments and US Treasury futures. Changes in the fair value of derivatives not designated as hedging instruments are recognized on the Consolidated Statements of Income and Comprehensive Income. Derivatives designated as hedging instruments. The Company has designated certain interest rate swaps as cash flow hedges on LIBOR and overnight SOFR-based variable interest payments on federal home loan bank advances. Changes in the fair value of derivatives designated as cash flow hedges are recorded in other comprehensive income on the Consolidated Statements of Condition and reclassified into interest expense in the same period in which the hedge transaction is recognized in earnings. At December 31, 2022, the Company had $52 million (net-of-tax) of unrealized gains on derivatives classified as cash flow hedges recorded in accumulated other comprehensive loss. The Company had $9 million (net-of-tax) of unrealized losses on derivatives classified as cash flow hedges at December 31, 2021. Derivatives that are designated in hedging relationships are assessed for effectiveness using regression analysis at inception and qualitatively thereafter, unless regression analysis is deemed necessary. All designated hedge relationships were, and are expected to be, highly effective as of December 31, 2022. Fair Value of Hedges of Interest Rate Risk The Company is exposed to changes in the fair value of certain of its fixed-rate assets due to changes in interest rates. The Company uses interest rate swaps to manage its exposure to changes in fair value on these instruments attributable to changes in the designated benchmark interest rate. Interest rate swaps designated as fair value hedges involve the payment of fixed-rate amounts to a counterparty in exchange for the Company receiving variable-rate payments over the life of the agreements without the exchange of the underlying notional amount. Such derivatives were used to hedge the changes in fair value of certain of its pools of prepayable fixed rate assets. For derivatives designated and that qualify as fair value hedges, the gain or loss on the derivative as well as the offsetting loss or gain on the hedged item attributable to the hedged risk are recognized in interest income. The Company had entered into an interest rate swap with a notional amount of $2.0 billion to hedge certain real estate loans. Interest income from loans and lease receivables decreased by $6 million and $49 million for the twelve months ended December 31, 120 2022 and 2021, respectively, related to a $2.0 billion of interest swaps designated in a fair value relationship related to certain real estate loans which matured in February 2022. As of December 31, 2022 and 2021, the following amounts were recorded on the balance sheet related to cumulative basis adjustment for fair value hedges.
(1) These amounts include the amortized cost basis of closed portfolios used to designate hedging relationships in which the hedged item is the last layer expected to be remaining at the end of the hedging relationship. Since the swap expired in February 2022, at December 31, 2022, the amortized cost basis of the closed portfolios used in these hedging relationships, the cumulative basis adjustments associated with these hedging relationships, and the amount of the designated hedged items, were zero. The following table sets forth the effect of derivative instruments on the Consolidated Statements of Income and Comprehensive Income for the periods indicated.
121 The following table sets forth information regarding the Company’s derivative financial instruments at December 31, 2022.
The following table presents the derivative subject to a master netting agreement, including the cash pledged as collateral:
(1) Notional value of cash flow hedging instruments at December 31, 2021 $2.3 billion. Securities pledged at December 31, 2021 was $9 million. (2) Variation margin pledged to, or received from, a Central Counterparty Clearing House to cover the prior days fair value of open positions is considered settlement of the derivative position for accounting purposes. 122 Cash Flow Hedges of Interest Rate Risk The Company’s objectives in using interest rate derivatives are to add stability to interest expense and to manage its exposure to interest rate movements. Interest rate swaps designated as cash flow hedges involve the receipt of amounts subject to variability caused by changes in interest rates from a counterparty in exchange for the Company making fixed-rate payments over the life of the agreements without exchange of the underlying notional amount. Changes in the fair value of derivatives designated and that qualify as cash flow hedges are initially recorded in other comprehensive income and are subsequently reclassified into earnings in the period that the hedged transaction affects income. Interest rate swaps with notional amounts totaling $3.8 billion and $2.3 billion as of December 31, 2022 and December 31, 2021, were designated as cash flow hedges of certain FHLB borrowings. The following table presents the effect of the Company’s cash flow derivative instruments on AOCL for the year ending December 31, 2022 and 2021:
Amounts reported in AOCL related to derivatives will be reclassified to interest expense as interest payments are made on the Company’s variable-rate borrowings. During the next twelve months, the Company estimates that an additional $51 million will be reclassified to interest expense. The following table presents the net gain (loss) recognized in income on derivative instruments, net of the impact of offsetting positions:
(1) Includes customer-initiated commercial interest rate swaps. NOTE Pledged Assets The Company pledges securities to serve as collateral for its repurchase agreements, among other purposes. At December 31, 123 Loan Commitments and Letters of Credit At December 31, The following table summarizes the Company’soff-balance sheet commitments to originate loans and letters of credit at December 31,
Total mortgage loan commitments Other loan commitments Total loan commitments Commercial, performancestand-by, and financialstand-by letters of credit Total commitments
Financial Guarantees The Company provides guarantees and indemnifications to its customers to enable them to complete a variety of business transactions and to enhance their credit standings. These guarantees are recorded at their respective fair values in “Other liabilities” in the Consolidated Statements of Condition. The Company deems the fair value of the guarantees to equal the consideration received. The following table summarizes the Company’s guarantees and indemnifications at December 31,
The maximum potential amount of future payments represents the notional amounts that could be funded under the guarantees and indemnifications if there were a total default by the guaranteed parties or if indemnification provisions were triggered, as applicable, without consideration of possible recoveries under recourse provisions or from collateral held or pledged. The Company collects fees upon the issuance of commercial andstand-by letters of credit. At December 31, Legal Proceedings The Company is involved in various legal actions arising in the ordinary course of its business. All such actions in the aggregate involve amounts that are believed by management to be immaterial to the financial condition and results of operations of the Company. 124 NOTE
Goodwill is presumed to have an indefinite useful life and is tested for impairment
At December 31, 2022, other intangible assets consisted of the following:
The estimated amortization
NOTE Retirement Plan
125 The following table sets forth certain information regarding the Retirement Plan as of the dates indicated:
In The discount rate reflects rates at which the benefit obligation could be effectively settled. To determine this rate, the Company considers rates of return on high-quality fixed-income investments that are currently available and are expected to be available during the period until the pension benefits are paid. The expected future payments are discounted based on a portfolio of high-quality rated bonds The components of net periodic pension
126 The following table indicates the weighted average assumptions used in determining the net periodic benefit cost for the years indicated:
As of December 31, The Company (in this context, the “Plan Sponsor”) chooses the specific asset allocation for the Retirement Plan within the parameters set forth in the Trust’s Investment Policy Statement. The long-term investment objectives are to maintain the Retirement Plan’s assets at a level that will sufficiently cover the Plan Sponsor’s long-term obligations, and to generate a return on those assets that will meet or exceed the rate at which the Plan Sponsor’s long-term obligations will grow. The Retirement Plan allocates its assets in accordance with the following targets: • To hold • To hold • To hold In addition, the Retirement Plan holds Company shares, the value of which is approximately equal to The LTGE and LTGFI portfolios are designed to provide long-term growth of equity and fixed-income assets with the objective of achieving an investment return in excess of the cost of funding the active life, deferred vesting, and all30-year term and longer obligations of retired lives in the Trust. Risk and volatility are further managed in accordance with the distinct investment objectives of the Trust’s respective portfolios. 127 The following table presents information about the fair value measurements of the investments held by the Retirement Plan as of December 31,
* Includes cash equivalent investments in equity and fixed income strategies. (1) This category contains large-cap stocks with above-average yield. The portfolio typically holds between 60 and 70 stocks. (2) This category seeks long-term capital appreciation by investing primarily in large growth companies based in the U.S. (3) This fund tracks the performance of the S&P 500 Index by purchasing the securities represented in the Index in approximately the same weightings as the Index. (4) This category employs an indexing investment approach designed to track the performance of the CRSP US Mid-Cap Value Index. (5) This category employs an indexing investment approach designed to track the performance of the CRSP US Mid-Cap Growth Index. (6) This category seeks to track the performance of the S&P Midcap 400 Index. (7) This category consists of a selection of investments based on the Russell 2000 Value Index. (8) This category consists of a mutual fund invested in small cap growth companies along with a fund invested in a selection of investments based on the Russell 2000 Growth Index. (9) This category consists of a mutual fund investing in readily marketable securities of U.S. companies with market capitalizations within the smallest 10 percent of the market universe, or smaller than the 1000th largest US company. (10) This category invests primarily in medium to large non-US companies in developed and emerging markets. Under normal circumstances, at least 80 percent of total assets will be invested in equity securities, including common stocks, preferred stocks, and convertible securities. 128 (11) This category currently includes equal investments in three mutual funds, two of which usually hold at least 80 percent of fund assets in investment grade fixed income securities, seeking to outperform the Barclays US Aggregate Bond Index while maintaining a similar duration to that index. The third fund targets investments of 50 percent or more in mortgage-backed securities guaranteed by the US government and its agencies. (12) This category consists of a mutual fund which invest in a diversified portfolio of high-quality bonds and other fixed income securities, including U.S. Government obligations, mortgage-related and asset backed securities, corporate and municipal bonds, CMOs, and other securities mostly rated A or better. Current Asset Allocation The asset allocations for the Retirement Plan
Determination of Long-Term Rate of Return The long-term rate of return on Retirement Plan assets assumption was based on historical returns earned by equities and fixed income securities, and adjusted to reflect expectations of future returns as applied to the Retirement Plan’s target allocation of asset classes. Equities and fixed income securities were assumed to earn long-term rates of return in the ranges of Expected Contributions The Company does not expect to contribute to the Retirement Plan in Expected Future Annuity Payments The following annuity payments, which reflect expected future service, as appropriate, are expected to be paid by the Retirement Plan during the years indicated:
Qualified Savings Plan (401(k) Plan) The Company maintains a defined contribution qualified savings plan in the form of a 401(k) plan in which all 129 Post-Retirement Health and Welfare Benefits The Company offers certain post-retirement benefits, including medical, dental, and life insurance (the “Health & Welfare Plan”) to retired employees, depending on age and years of service at the time of retirement. The costs of such benefits are accrued during the years that an employee renders the necessary service. The Health & Welfare Plan is an unfunded plan and is not expected to hold assets for investment at any time. Any contributions made to the Health & Welfare Plan are used to immediately pay plan premiums and claims as they come due. The following table sets forth certain information regarding the Health & Welfare Plan as of the dates indicated:
The discount rates used in the preceding table were The estimated net actuarial loss and the prior service liability that will be amortized from AOCL into net periodic benefit cost in The
The following table presents the weighted average assumptions used in determining the net periodic benefit cost for the years indicated:
130
Expected Contributions The Company expects to contribute Expected Future Payments for Premiums and Claims The following amounts are currently expected to be paid for premiums and claims during the years indicated under the Health & Welfare Plan:
NOTE
At December 31, During The following table provides a summary of activity with regard to restricted stock
As of December 31, The following table provides a summary of activity with regard to Performance-Based Restricted Stock Units ("PSUs") in the twelve months ended December 31, 2022: 131
PSUs are subject to adjustment or forfeiture, based upon the achievement by the Company of certain performance standards. Compensation and benefits expense related to PSUs is recognized using the fair value as of the date the units were approved, on a straight-line basis over the vesting period and totaled $3 million, $5 million and $1 million for the twelve months ended December 31, 2022, 2021, and 2020, respectively. As of December 31, 2022, unrecognized compensation cost relating to unvested restricted stock totaled $4 million. This amount will be recognized over a remaining weighted average period of 1.6 years. As of December 31, 2022, the Company believes it is probable that the performance conditions will be met. New York Community Bank Employee Stock Ownership Plan On December 6, 2021, the ESOP was terminated with the assets in the ESOP merged into the employee’s 401(k) plan. After the merger of the ESOP into the 401(k) plan, the Company allocated $4 million into eligible participant’s accounts. For of the years ended December 31, 2021 and 2020, the Company recorded expense of $4 million. Supplemental Executive Retirement Plan The Bank had established a Supplemental Executive Retirement Plan (“SERP”), which provided additional unfunded, non-qualified benefits to certain participants in the ESOP in the form of Company common stock. The SERP was frozen in 1999 and subsequently fully distributed during the year ended December 31, 2022. Trust-held assets, consisting entirely of Company common stock, amounted to 1,006,186 at December 31, 2021, including shares purchased through dividend reinvestment. The cost of these shares was reflected as a reduction of paid-in capital in excess of par in the Consolidated Statements of Condition. 132 NOTE GAAP sets forth a definition of fair value, establishes a consistent framework for measuring fair value, and requires disclosure for each major asset and liability category measured at fair value on either a recurring ornon-recurring basis. GAAP also clarifies that fair value is an “exit” price, representing the amount that would be received when selling an asset, or paid when transferring a liability, in an orderly transaction between market participants. Fair value is thus a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or liability. As a basis for considering such assumptions, GAAP establishes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value as follows: • Level 1 – Inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets. • Level 2 – Inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, and inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument. • Level 3 – Inputs to the valuation methodology are significant unobservable inputs that reflect a company’s own assumptions about the assumptions that market participants use in pricing an asset or liability. A financial instrument’s categorization within this valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement. 133 The following tables present assets and liabilities that were measured at fair value on a recurring basis as of December 31,
Municipal bonds Capital trust notes Preferred stock Mutual funds and common stock Total other securities Total securities available for sale Other Assets: Loans held for sale Mortgage servicing rights
The Company reviews and updates the fair value hierarchy classifications for its assets on a quarterly basis. Changes from one quarter to the next that are related to the observability of inputs for a fair value measurement may result in a reclassification from one hierarchy level to another. A description of the methods and significant assumptions utilized in estimating the fair values of Where quoted prices are available in an active market, securities are classified within Level 1 of the valuation hierarchy. Level 1 securities include highly liquid government securities and exchange-traded If quoted market prices are not available for a specific security, then fair values are estimated by using pricing models. These pricing models primarily use market-based or independently sourced market parameters as inputs, including, but not limited to, yield curves, interest rates, equity or debt prices, and credit spreads. In addition to observable market information, models incorporate transaction details such as maturity and cash flow assumptions. Securities valued in this manner would generally be classified within Level 2 of the valuation hierarchy, and primarily include such instruments as mortgage-related and corporate debt securities. Periodically, the Company uses fair values supplied by independent pricing services to corroborate the fair values derived from the pricing models. In addition, the Company reviews the fair values supplied by independent pricing services, as well as their underlying pricing methodologies, for reasonableness. The Company challenges pricing service valuations that appear to be unusual or unexpected.
While the Company believes its valuation methods are appropriate, and consistent with those of other market participants, the use of different methodologies or assumptions to determine the fair values of certain financial instruments could result in different estimates of fair values at a reporting date.
Loans held for sale
The following tables
1. We utilized swaptions, futures, forward agency and loan sales and interest rate swaps to 2. Rate lock commitments are reported on a fallout-adjusted basis. Transfers out of The following tables present the
(1) Unobservable inputs
136 Assets Measured at Fair Value on aNon-Recurring Basis Certain assets are measured at fair value on anon-recurring basis. Such instruments are subject to fair value adjustments under certain circumstances (e.g., when there is evidence of impairment). The following tables present assets
(1) Represents the fair value of certain loans individually assessed for impairment, based on the value of the collateral. (2) Represents the fair value of repossessed assets, based on the appraised value of the collateral subsequent to its initial classification as repossessed assets and equity securities without readily determinable fair values. These equity securities are classified as Level 3 due to the infrequency of the observable prices and/or the restrictions on the shares.
(1) Represents the fair value of impaired loans, based on the value of the collateral. (2) Represents the fair value of repossessed assets, based on the appraised value of the collateral subsequent to its initial classification as repossessed assets. The fair values of collateral-dependent impaired loans are determined using various valuation techniques, including consideration of appraised values and other pertinent real estate and other market data. Other Fair Value Disclosures
Because assumptions are inherently subjective in nature, estimated fair values cannot be substantiated by comparison to independent market quotes. Furthermore, in many cases, the estimated fair values provided would not necessarily be realized in an immediate sale or settlement of such instruments. 137 The following tables summarize the carrying values, estimated fair values, and fair value measurement levels of financial instruments that were not carried at fair value on the Company’s Consolidated Statements of Condition at December 31,
(1) Carrying value and estimated fair value are at cost. (2) Interest-bearing checking and money market accounts, savings accounts, and non-interest-bearing accounts. (3) Certificates of deposit.
(1) Carrying value and estimated fair value are at cost. (2) Interest-bearing checking and money market accounts, savings accounts, and non-interest-bearing accounts. (3) Certificates of deposit. The methods and significant assumptions used to estimate fair values for the Company’s financial instruments follow: Cash and Cash Equivalents Cash and cash equivalents include cash and due from banks and federal funds sold. The estimated fair values of cash and cash equivalents are assumed to equal their carrying values, as these financial instruments are either due on demand or have short-term maturities. Securities If quoted market prices are not available for a specific security, then fair values are estimated by using pricing models, quoted prices of securities with similar characteristics, or discounted cash flows. These pricing models primarily use market-based or independently sourced market parameters as inputs, including, but not limited to, yield curves, interest rates, equity or debt prices, and credit spreads. In addition to observable market information, pricing models also incorporate transaction details such as maturities and cash flow assumptions. 138 Federal Home Loan Bank Stock Ownership in equity securities of the FHLB is generally restricted and there is no established liquid market for their resale. The carrying amount approximates the fair value. Loans The Company discloses the fair value of loans measured at amortized cost using an exit price notion. The Company determined the fair value on substantially all of its loans for disclosure purposes, on an individual loan
MSRs The significant unobservable inputs used in
Rate lock commitments The significant unobservable input used in the fair value measurement of the rate lock commitments is the pull through rate. The pull through rate is a statistical analysis of our actual rate lock fallout history to determine the sensitivity of the residential mortgage Deposits The fair values of deposit liabilities with no stated maturity (i.e., interest-bearing checking and money market accounts, savings accounts, andnon-interest-bearing accounts) are equal to the carrying amounts payable on demand. The fair values of CDs represent contractual cash flows, discounted using interest rates currently offered on deposits with similar characteristics and remaining maturities. These estimated fair values do not include the intangible value of core deposit relationships, which comprise a Borrowed Funds The estimated fair value of borrowed funds is based either on bid quotations received from securities dealers or the discounted value of contractual cash flows with interest rates currently in effect for borrowed funds with similar maturities and structures. Off-Balance Sheet Financial Instruments The fair values of commitments to extend credit and unadvanced lines of credit are estimated based on an analysis of the interest rates and fees currently charged to enter into similar transactions, considering the remaining terms of the commitments and the creditworthiness of the potential borrowers. The estimated fair values of suchoff-balance sheet financial instruments were insignificant at December 31,
139 The following table reflects the change in
The following table
NOTE The following tables present the condensed financial statements for New York Community Bancorp, Inc. Condensed Statements of Condition
Condensed Statements of Income
141 Condensed Statements of Cash Flows
142 NOTE The Company is subject to examination, regulation, and periodic reporting under the Bank Holding Company Act of 1956, as amended, which is administered by the FRB. The FRB has adopted capital adequacy guidelines for bank holding companies (on a consolidated basis) that are substantially similar to those of the FDIC for the The following tables present the regulatory capital ratios for the Company at December 31,
The The quantitative measures established to ensure capital adequacy require that banks maintain minimum amounts and ratios of leverage capital to average assets and of common equity tier 1 capital, tier 1 capital, and total capital to risk-weighted assets (as such measures are defined in the regulations). At December 31, As of December 31, 143 The following tables present the actual capital amounts and ratios for the
Total capital Minimum for capital adequacy purposes Excess On March 17, 2017, the Company issued 20,600,000 depositary shares, each representing a 1/40th interest in a share of the Company’sFixed-to-Floating Rate Series A Noncumulative Perpetual Preferred Stock, par value
Net interest income Provision for loan losses Non-Interest Income: Third party(1) Gain on sale of mortgage banking operation Inter-segment Totalnon-interest income Non-interest expense(2) Income before income tax expense Income tax expense Net income Identifiable segment assets(period-end)
Report of Independent Registered Public Accounting Firm To the Stockholders and Board of Directors New York Community Bancorp, Inc.: Opinion on the Consolidated Financial Statements We have audited the accompanying consolidated statements of condition of New York Community Bancorp, Inc. and subsidiaries (the Company) as of December 31, We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of December 31, Basis for Opinion These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion. Critical Audit Matters
Allowance for credit losses on loans and leases evaluated on a collective basis As discussed in Notes 6 and 7 to the consolidated financial statements, the Company’s total allowance for credit losses (ACL) on loans and leases as of December 31, 2022 was $393 million, a substantial portion of which related to the legacy New York Community Bancorp, Inc. multi-family and commercial real estate portfolio segments (legacy NYCB portfolios), and the acquired Flagstar Bancorp, Inc. one-to-four family first mortgage, commercial real estate, commercial and industrial, and acquisition, development and construction portfolio segments (acquired Flagstar portfolios). The allowance for credit losses on loans and leases for the legacy NYCB portfolios and acquired Flagstar portfolios is measured on a collective basis when similar risk characteristics exist (collective ACL). Management estimates the collective ACL by projecting and multiplying together the probability-of-default (PD), loss-given-default (LGD) and exposure-at-default depending on economic parameters for each month of the remaining contractual term. The Company estimates the exposure-at-default using prepayment methods and models which project prepayments over the life of the loans. Economic parameters are developed using available information relating to past events, current conditions, economic forecasts, and macroeconomic assumptions. Economic parameters are forecast over a reasonable and supportable period. After the reasonable and supportable period, the Company reverts to a historical average loss rate on a straight line basis. Historical credit experience over the observation period provides the basis for the estimation of expected credit losses, 145 with qualitative adjustments made for differences in current loan-specific risk characteristics as well as for changes in environmental conditions. We identified the assessment of the collective ACL for the legacy NYCB portfolios and the acquired Flagstar portfolios as a critical audit matter. A high degree of audit effort, including specialized skills and knowledge, and subjective and complex auditor judgment was involved in the assessment due to significant measurement uncertainty. Specifically, the assessment encompassed the evaluation of the collective ACL methodology, including the methods and models used to estimate the PD, LGD, and prepayments and their significant assumptions. Such significant assumptions included portfolio segmentation, the selection of the economic forecasts and macroeconomic assumptions, including related weightings, the reasonable and supportable forecast period, the reversion period and the historical observation periods. The assessment also included the evaluation of the qualitative adjustments and their significant assumptions for differences in loan-specific risk characteristics and changes in environmental factors. The assessment also included an evaluation of the conceptual soundness and performance of the PD, LGD, and prepayments models. In addition, auditor judgment was required to evaluate the sufficiency of audit evidence obtained. The following are the primary procedures we performed to address this critical audit matter. We evaluated the design and tested the operating effectiveness of certain internal controls related to the Company’s measurement of the collective ACL estimate for the legacy NYCB portfolios, including controls over the: • development of the collective ACL methodology • continued use and appropriateness of changes made to PD, LGD, and prepayment models • identification and determination of the significant assumptions used in the PD, LGD, and prepayment models • development of the qualitative adjustments, including the significant assumptions used in the measurement of the qualitative factors • performance monitoring of the PD, LGD, and prepayment models and • analysis of the collective ACL results, trends, and ratios. We evaluated the Company’s process to develop the collective ACL estimate for both the legacy NYCB portfolios and the acquired Flagstar portfolios by testing certain sources of data, factors, and assumptions that the Company used, and considered the relevance and reliability of such data, factors, and assumptions. In addition, we involved credit risk professionals with specialized skills and knowledge, who assisted in: • evaluating the Company’s collective ACL methodology for compliance with U.S. generally accepted accounting principles • evaluating judgments made by the Company relative to the assessment and performance testing of the PD, LGD, and prepayment models by comparing them to relevant Company-specific metrics and trends and the applicable industry and regulatory practices • assessing the conceptual soundness and performance of the PD, LGD, and prepayment models by inspecting the model documentation to determine whether the models are suitable for their intended use • evaluating the selection of the economic forecasts, including the weighting of the scenarios, and underlying macroeconomic assumptions by comparing it to the Company’s business environment and relevant industry practices • evaluating the length of the reasonable and supportable period, the reversion period and the historical observation periods by comparing them to specific portfolio risk characteristics and trends • determining whether the loan portfolio is segmented by similar risk characteristics by comparing to the Company’s business environment and relevant industry practices and • evaluating the methodology used to develop the qualitative factors and their significant assumptions and the effect of those factors on the allowance for credit losses on loans and leases compared with relevant credit risk factors and consistency with credit trends and identified limitations of the underlying quantitative models. We also assessed the sufficiency of the audit evidence obtained related to the collective ACL estimate for both the legacy NYCB portfolios and the acquired Flagstar portfolios by evaluating the: • determination of cumulative results of the audit procedures 146 • qualitative aspects of the Company’s accounting practices • potential bias in the accounting estimate. Fair value measurements of acquired loans and mortgage servicing rights in the acquisition of Flagstar Bancorp, Inc. As discussed in Notes 3 and 9 to the consolidated financial statements, the Company acquired Flagstar Bancorp, Inc. on December 1, 2022. The Company accounted for this transaction as a business combination with the assets acquired and liabilities assumed being measured based on their estimated fair values. As part of the acquisition, the Company acquired loans and mortgage servicing rights (MSRs) with a fair value of $18.0 billion and $1.0 billion, respectively. As of December 31, 2022, the fair value of the MSRs was $1.0 billion with any changes in fair value recognized in earnings. The fair value of acquired loans was based on a discounted cash flow methodology which incorporated discount rates, prepayment rates, probability of default and loss given default rates, and other market assumptions. The fair value of MSRs was measured using a discounted cash flow methodology which utilized option-adjusted spreads, constant prepayment speeds, costs to service, and other market assumptions. We identified the assessment of the fair value measurements of acquired loans and MSRs at the acquisition date and the MSRs as of December 31, 2022 as a critical audit matter. A high degree of audit effort, including specialized skills and knowledge, and subjective and complex auditor judgment was involved in the assessment of the fair value measurements due to significant measurement uncertainty. Specifically, the assessment of the fair value measurements involved an evaluation of the valuation methodologies and certain subjective assumptions, including discount rates, prepayment rates, probability of default and loss given default rates for acquired loans and option-adjusted spreads, constant prepayment rates, and cost to service for MSRs. The following are the primary procedures we performed to address this critical audit matter. We evaluated the design and tested the operating effectiveness of certain internal controls related to the Company’s fair value measurements of acquired loans and MSRs at the date of acquisition. This included controls related to the (1) determination of certain subjective assumptions used in the discounted cash flow methodology for acquired loans and MSRs, (2) assessment of the overall fair value measurement for acquired loans, and (3) assessment of the overall fair value measurement, including comparisons of the fair value to independent appraisals, for MSRs. We evaluated the Company’s process to determine the estimated fair value of acquired loans and MSRs at the acquisition date, and the fair value of MSRs as of December 31, 2022, by testing certain sources of data and subjective assumptions that the Company used and considered the relevance and reliability of such data and subjective assumptions. In addition, we involved valuation professionals with specialized skills and knowledge, who assisted in: • evaluating the Company’s valuation methodologies for compliance with U.S. generally accepted accounting principles • assessing the Company’s estimate of fair value of acquired loans by developing independent ranges of fair values, using market participant derived discount rates, prepayment rates, and probability of default and loss given default rates, and comparing them to the Company’s estimate of fair value and • assessing option-adjusted spreads, constant prepayment rates, and cost to service assumptions related to the MSRs fair value estimate by comparing to external market and industry data as well as available data from independent appraisals.
We have served as the Company’s auditor since 1993.
Report of Independent Registered Public Accounting Firm To the Stockholders and Board of Directors New York Community Bancorp, Inc.: Opinion on Internal Control We have audited New York Community Bancorp, Inc. and We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated statements of condition of the Company as of December 31, The Company acquired Flagstar Bancorp, Inc. during 2022, and management excluded from its assessment of the effectiveness of the Company’s internal control over financial reporting as of December 31, 2022, Flagstar Bancorp, Inc.’s internal control over financial reporting associated with total acquired assets of approximately $25.8 billion and total revenues associated with the acquired assets and liabilities assumed of approximately $132 million included in the consolidated financial statements of the Company as of and for the year ended December 31, 2022. Our audit of internal control over financial reporting of the Company also excluded an evaluation of the internal control over financial reporting of Flagstar Bancorp, Inc. Basis for Opinion The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion. Definition and Limitations of Internal Control A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. ITEM 9A. CONTROLS AND PROCEDURES (a) Evaluation of Disclosure Controls and Procedures Under the supervision, and with the participation, of our Chief Executive Officer and Chief Financial Officer, our management evaluated the effectiveness of the design and operation of the Company’s disclosure controls and procedures pursuant to Rule13a-15(b), as adopted by the Securities and Exchange Commission (the “SEC”) under the Securities Exchange Act of 1934 (the “Exchange Act”). Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures were effective as of the end of the period covered by this annual report. Disclosure controls and procedures are the controls and other procedures that are designed to ensure that information required to be disclosed in the reports that the Company files or submits under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in the reports that the Company files or submits under the Exchange Act is accumulated and communicated to management, including the Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. (b) Management’s Report on Internal Control over Financial Reporting Management of the Company is responsible for establishing and maintaining adequate internal control over financial reporting. Our system of internal control is designed under the supervision of management, including our Chief Executive Officer and Chief Financial Officer, to provide reasonable assurance regarding the reliability of our financial reporting and the preparation of the Company’s financial statements for external reporting purposes in accordance with U.S. generally accepted accounting principles (“GAAP”). Our internal control over financial reporting includes policies and procedures that pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect transactions and dispositions of assets; provide reasonable assurances that transactions are recorded as necessary to permit preparation of financial statements in accordance with GAAP, and that receipts and expenditures are made only in accordance with the authorization of management and the Boards of Directors of the Company and the Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Projections of any evaluation of effectiveness to future periods are subject to the risk that the controls may become inadequate because of changes in conditions or that the degree of compliance with policies and procedures may deteriorate. The Company acquired certain assets and assumed certain liabilities of Flagstar Bancorp on December 1, 2022. The scope of management’s assessment of the effectiveness of the Company’s internal controls over financial reporting as of December 31, 2022, excludes the internal control over financial reporting associated with total acquired assets of approximately $25.8 billion and total revenues associated with the acquired assets and liabilities assumed of approximately $132 million included in the consolidated financial statements of the Company as of and for the year ended December 31, 2022. As of December 31, The effectiveness of the Company’s internal control over financial reporting as of December 31, 149 (c) Changes in Internal Control over Financial Reporting
None. ITEM 9C. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS Not applicable 150 PART III ITEM 10. DIRECTORS, EXECUTIVE OFFICERS, AND CORPORATE GOVERNANCE Information regarding our directors, executive officers, and corporate governance appears in our Proxy Statement for the Annual Meeting of Shareholders to be held on June A copy of our Code of Business Conduct and Ethics, which applies to our Chief Executive Officer, Chief Operating Officer, Chief Financial Officer, and Chief Accounting Officer as officers of the Company, and all other senior financial officers of the Company designated by the Chief Executive Officer from time to time, is available on the Investor Relations portion of our ITEM 11. EXECUTIVE COMPENSATION Information regarding executive compensation appears in our ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT, AND RELATED STOCKHOLDER MATTERS The following table provides information regarding the Company’s equity compensation plans at December 31,
Information relating to the security ownership of certain beneficial owners and management appears in our 151 Information regarding certain relationships and related transactions, and director independence, appears in our ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES Our independent registered public accounting firm is KPMG LLP, New York, New York, Auditor Firm ID: 185. Information regarding principal 152
PART IV ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES (a) Documents Filed 1. Financial Statements The following are incorporated by reference from Item 8 hereof: • Reports of Independent Registered Public Accounting Firm; • Consolidated Statements of Condition at December 31, • Consolidated Statements of • Consolidated Statements of Changes in Stockholders’ Equity for each of the years in the three-year period ended December 31, • Consolidated Statements of Cash Flows for each of the years in the three-year period ended December 31, • Notes to the Consolidated Financial Statements. The following are incorporated by reference from Item 9A hereof: • Management’s Report on Internal Control over Financial Reporting; and • Changes in Internal Control over Financial Reporting. 2. Financial Statement Schedules Financial statement schedules have been omitted because they are not applicable or because the required information is provided in the Consolidated Financial Statements or Notes thereto. 3. Exhibits Required by Securities and Exchange Commission RegulationS-K The following exhibits are filed as part of this Form10-K, and this list includes the Exhibit Index. 153
** Management plan or compensation plan arrangement. 154 (1) Incorporated by reference to Exhibits to the Company's Form 8-K filed with the Securities and Exchange Commission on April 27, 2021 (File No. 1-31565) (2) Incorporated by reference to Exhibits to the Company's Form 8-K filed with the Securities and Exchange Commission on April 27, 2022 (File No. 1-31565) (3) Incorporated by reference to Exhibits to the Company’s Form 8-K filed with the Securities and Exchange Commission on October 28, 2022 (File No. 1-31565) (4) Incorporated by reference to Exhibits filed with the Company’s Form 10-Q for the quarterly period ended March 31, 2001 (File No. 0-22278) (5) Incorporated by reference to Exhibits filed with the Company’s Form 10-K for the year ended December 31, 2003 (File No. 1-31565) (6) Incorporated by reference to Exhibits to the Company’s Form 8-K filed with the Securities and Exchange Commission on April 27, 2016 (File No. 1-31565) (7) Incorporated herein by reference to Exhibit 3.4 of the Registrant’s Registration Statement on Form 8-A (File No. 333-210919), as filed with the Securities and Exchange Commission on March 16, 2017 (8) Incorporated by reference to Exhibit 3.2 filed with the Company’s Form 8-K filed with the Securities and Exchange Commission on December 1, 2022 (File No. 1-31565) (9) Incorporated by reference to Exhibits filed with the Company’s Form 10-Q for the quarterly period ended September 30, 2017 (File No. 1-31565) (10) Incorporated by reference to Exhibits filed with the Company’s Form 8-K filed with the Securities and Exchange Commission on March 17, 2017 (File No. 1-31565) (11) Incorporated by reference to Exhibits filed with the Company’s Form 10-K for the year ended December 31, 2019 (File No. 1-31565) (12) Incorporated by reference to Exhibits filed with the Company’s Form 8-K filed with the Securities and Exchange Commission on March 9, 2006 (File No. 1-31565) (13) Incorporated by reference to Exhibits filed with the Company’s Registration Statement filed on Form S-1, Registration No. 33-66852 (14) Incorporated by reference to Exhibits filed with the 1995 Proxy Statement for the Annual Meeting of Shareholders held on April 19, 1995 (File No. 0-22278) (15) Incorporated by reference to Exhibits filed with the 2006 Proxy Statement for the Annual Meeting of Shareholders held on June 7, 2006 (File No. 1-31565) (16) Incorporated by reference to Exhibits filed with the 2012 Proxy Statement for the Annual Meeting of Shareholders held on June 7, 2012 (File No. 1-31565) (17) Incorporated by reference to Exhibits filed with the Company’s Form 8-K filed with the Securities and Exchange Commission on November 6, 2018 (File No. 1-31565) (18) Incorporated by reference to Exhibits filed with the Company’s Registration Statement filed on Form S-8 filed, Registration No. 333-241023 (19) Incorporated by reference to Exhibits filed with the Company’s Form 10-Q for the quarterly period ended March 31, 2022 (File No. 001-31565) (20) Incorporated by reference to Exhibits filed with the Company’s Form 8-K filed with the Securities and Exchange Commission on December 1, 2022 (File No. 1-31565) (21) Incorporated by reference to Exhibit 10.1 to Flagstar Bancorp, Inc.’s Form 10-Q filed with the Securities and Exchange Commission on November 6, 2015 (File No. 1-16577) (22) Incorporated by reference to Exhibits filed with the Company’s Form 10-K for the year ended December 31, 2021 (File No. 1-31565) ITEM 16. FORM 10-K SUMMARY None. 155 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
156
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