QUARTERLY REPORT PURSUANT TO SECTION13
☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 2023 |
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2017
☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
file number:
001-16577Delaware | 06-1377322 | |||||||||||||
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) | |||||||||||||
102 Duffy Avenue, | Hicksville, | New York | 11801 | |||||||||||
(Address of principal executive offices) | (Zip Code) |
615 Merrick Avenue, Westbury, New York 11590
(Address of principal executive offices)
(
Title of each class | Trading Symbol | Name of each 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 |
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Large | ☒ | Accelerated Filer | Smaller Reporting Company | ☐ | |||||||||||||||||||
Non-Accelerated Filer | ☐ | Emerging growth company | ☐ | ||||||||||||||||||||
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Quarter Ended September
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Item 1. | |||||||||||||
Consolidated Statements of Financial Condition | |||||||||||||
Consolidated Statements of Stockholders’ Equity – For the three and six months ended June 30, 2023 and 2022 (unaudited) | |||||||||||||
Note 2 - Computation of Earnings Per Common Share | |||||||||||||
Note 3 - Business Combination | |||||||||||||
Note 4 - Accumulated Other Comprehensive Income | |||||||||||||
Note 5 - Investment Securities | |||||||||||||
Note 6 - Loans and Leases | |||||||||||||
Note 7 - Allowance for Credit Losses | |||||||||||||
Note 8 - Leases | |||||||||||||
Note 9 - Mortgage Servicing Rights | |||||||||||||
Note 10 -Variable Interest Entities | |||||||||||||
Note 11 - Borrowed Funds | |||||||||||||
Note 12 - Pension and Other Post-Retirement Benefits | |||||||||||||
Note 13 - Stock-Related Benefit Plans | |||||||||||||
Note 14 - Derivative and Hedging Activities | |||||||||||||
Note 15 - Intangible Assets | |||||||||||||
Item 2. | |||||||||||||
Item 3. | |||||||||||||
Item 4. | |||||||||||||
Item 1. | |||||||||||||
Item 1A. | |||||||||||||
Item 2. | |||||||||||||
Item 3. | |||||||||||||
Item 4. | |||||||||||||
Item 5. | |||||||||||||
Item 6. | |||||||||||||
Definition | Term | Definition | ||||||||||||||||||
ACL | Allowance for Credit Losses | FHLB | Federal Home Loan Bank | |||||||||||||||||
Acquisition, development, and construction loan | FHLB-NY | Federal Home Loan Bank of New York | ||||||||||||||||||
ALCO | Asset and Liability Management Committee | FOAL | Fallout-Adjusted Locks | |||||||||||||||||
| AOCL |
NEW YORK COMMUNITY BANCORP, INC.
CONSOLIDATED STATEMENTS OF CONDITION
(in thousands, except share data)
September 30, 2017 | December 31, 2016 | |||||||
(unaudited) | ||||||||
Assets: | ||||||||
Cash and cash equivalents | $ | 3,277,427 | $ | 557,850 | ||||
Securities: | ||||||||
Available-for-sale ($1,162,014 pledged at September 30, 2017) | 3,031,026 | 104,281 | ||||||
Held-to-maturity ($1,930,533 pledged and fair value of $3,813,959 at December 31, 2016) | — | 3,712,776 | ||||||
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Total securities | 3,031,026 | 3,817,057 | ||||||
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Loans held for sale | 104,938 | 409,152 | ||||||
Non-covered loans held for investment, net of deferred loan fees and costs | 37,506,199 | 37,382,722 | ||||||
Less: Allowance for losses onnon-covered loans | (158,918 | ) | (158,290 | ) | ||||
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Non-covered loans held for investment, net | 37,347,281 | 37,224,432 | ||||||
Covered loans | — | 1,698,133 | ||||||
Less: Allowance for losses on covered loans | — | (23,701 | ) | |||||
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Covered loans, net | — | 1,674,432 | ||||||
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Total loans, net | 37,452,219 | 39,308,016 | ||||||
Federal Home Loan Bank stock, at cost | 579,474 | 590,934 | ||||||
Premises and equipment, net | 375,482 | 373,675 | ||||||
FDIC loss share receivable | — | 243,686 | ||||||
Goodwill | 2,436,131 | 2,436,131 | ||||||
Core deposit intangibles | — | 208 | ||||||
Bank-owned life insurance | 961,412 | 949,026 | ||||||
Other assets (includes $16,990 of other real estate owned covered by Loss Share Agreements at December 31, 2016) | 344,720 | 649,972 | ||||||
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Total assets | $ | 48,457,891 | $ | 48,926,555 | ||||
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Liabilities and Stockholders’ Equity: | ||||||||
Deposits: | ||||||||
Interest-bearing checking and money market accounts | $ | 12,338,949 | $ | 13,395,080 | ||||
Savings accounts | 4,996,578 | 5,280,374 | ||||||
Certificates of deposit | 8,802,573 | 7,577,170 | ||||||
Non-interest-bearing accounts | 2,755,097 | 2,635,279 | ||||||
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Total deposits | 28,893,197 | 28,887,903 | ||||||
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Borrowed funds: | ||||||||
Wholesale borrowings: | ||||||||
Federal Home Loan Bank advances | 11,554,500 | 11,664,500 | ||||||
Repurchase agreements | 450,000 | 1,500,000 | ||||||
Federal funds purchased | — | 150,000 | ||||||
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Total wholesale borrowings | 12,004,500 | 13,314,500 | ||||||
Junior subordinated debentures | 359,102 | 358,879 | ||||||
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Total borrowed funds | 12,363,602 | 13,673,379 | ||||||
Other liabilities | 441,438 | 241,282 | ||||||
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Total liabilities | 41,698,237 | 42,802,564 | ||||||
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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 489,061,848 and 487,056,676 shares outstanding, respectively) | 4,891 | 4,871 | ||||||
Paid-in capital in excess of par | 6,063,813 | 6,047,558 | ||||||
Retained earnings | 192,607 | 128,435 | ||||||
Treasury stock, at cost (10,253 and 11,213 shares, respectively) | (130 | ) | (160 | ) | ||||
Accumulated other comprehensive loss, net of tax: | ||||||||
Net unrealized gain (loss) on securities available for sale, net of tax of $34,189 and $534, respectively | 47,917 | (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 $31,744 and $34,355, respectively | (47,063 | ) | (50,719 | ) | ||||
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Total accumulated other comprehensive loss, net of tax | (4,367 | ) | (56,713 | ) | ||||
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Total stockholders’ equity | 6,759,654 | 6,123,991 | ||||||
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Total liabilities and stockholders’ equity | $ | 48,457,891 | $ | 48,926,555 | ||||
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See accompanying notes to the consolidated financial statements.
NEW YORK COMMUNITY BANCORP, INC.
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
(in thousands, except per share data)
(unaudited)
For the Three Months Ended September 30, | For the Nine Months Ended September 30, | |||||||||||||||
2017 | 2016 | 2017 | 2016 | |||||||||||||
Interest Income: | ||||||||||||||||
Mortgage and other loans | $ | 350,990 | $ | 367,932 | $ | 1,070,722 | $ | 1,099,137 | ||||||||
Securities and money market investments | 42,685 | 48,164 | 121,147 | 160,384 | ||||||||||||
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Total interest income | 393,675 | 416,096 | 1,191,869 | 1,259,521 | ||||||||||||
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Interest Expense: | ||||||||||||||||
Interest-bearing checking and money market accounts | 27,620 | 15,866 | 71,413 | 45,771 | ||||||||||||
Savings accounts | 7,109 | 7,439 | 21,069 | 25,001 | ||||||||||||
Certificates of deposit | 27,649 | 20,501 | 73,786 | 55,129 | ||||||||||||
Borrowed funds | 54,954 | 53,867 | 166,572 | 161,758 | ||||||||||||
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Total interest expense | 117,332 | 97,673 | 332,840 | 287,659 | ||||||||||||
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Net interest income | 276,343 | 318,423 | 859,029 | 971,862 | ||||||||||||
Provision for losses on non-covered loans | 44,585 | 1,234 | 58,017 | 6,699 | ||||||||||||
Recovery of losses on covered loans | — | (1,289 | ) | (23,701 | ) | (6,035 | ) | |||||||||
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Net interest income after provision for (recovery of) loan losses | 231,758 | 318,478 | 824,713 | 971,198 | ||||||||||||
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Non-Interest Income: | ||||||||||||||||
Mortgage banking income | 1,486 | 12,925 | 19,446 | 24,020 | ||||||||||||
Fee income | 7,972 | 8,640 | 23,983 | 24,480 | ||||||||||||
Bank-owned life insurance | 8,314 | 7,029 | 21,170 | 23,208 | ||||||||||||
Net (loss) gain on sales of loans | (76 | ) | 3,465 | 1,055 | 15,118 | |||||||||||
Net gain on sales of securities | — | 237 | 28,915 | 413 | ||||||||||||
FDIC indemnification expense | — | (1,031 | ) | (18,961 | ) | (4,828 | ) | |||||||||
Gain on sale of covered loans and mortgage banking operations | 82,026 | — | 82,026 | — | ||||||||||||
Other | 9,206 | 9,330 | 33,903 | 30,787 | ||||||||||||
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Total non-interest income | 108,928 | 40,595 | 191,537 | 113,198 | ||||||||||||
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Non-Interest Expense: | ||||||||||||||||
Operating expenses: | ||||||||||||||||
Compensation and benefits | 91,594 | 86,079 | 280,008 | 261,230 | ||||||||||||
Occupancy and equipment | 25,133 | 24,347 | 73,595 | 73,837 | ||||||||||||
General and administrative | 45,483 | 48,506 | 139,131 | 139,309 | ||||||||||||
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Total operating expenses | 162,210 | 158,932 | 492,734 | 474,376 | ||||||||||||
Amortization of core deposit intangibles | 24 | 542 | 208 | 1,994 | ||||||||||||
Merger-related expenses | — | 2,211 | — | 4,674 | ||||||||||||
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Total non-interest expense | 162,234 | 161,685 | 492,942 | 481,044 | ||||||||||||
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Income before income taxes | 178,452 | 197,388 | 523,308 | 603,352 | ||||||||||||
Income tax expense | 67,984 | 72,089 | 193,628 | 221,684 | ||||||||||||
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Net income | $ | 110,468 | $ | 125,299 | $ | 329,680 | $ | 381,668 | ||||||||
Preferred stock dividends | 8,207 | — | 16,414 | — | ||||||||||||
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Net income available to common shareholders | $ | 102,261 | $ | 125,299 | $ | 313,266 | $ | 381,668 | ||||||||
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Basic earnings per common share | $0.21 | $0.26 | $0.64 | $0.78 | ||||||||||||
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Diluted earnings per common share | $0.21 | $0.26 | $0.64 | $0.78 | ||||||||||||
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Net income | $ | 110,468 | $ | 125,299 | $ | 329,680 | $ | 381,668 | ||||||||
Other comprehensive (loss) income, net of tax: | ||||||||||||||||
Change in net unrealized gain/loss on securities available for sale, net of tax of $3,049; $396; $35,493; and $1,186, respectively | (4,285 | ) | (558 | ) | 49,748 | 1,684 | ||||||||||
Change in the non-credit portion of OTTI losses recognized in other comprehensive income, net of tax of $0; $12; $13; and $36, respectively | — | 19 | 20 | 57 | ||||||||||||
Change in pension and post-retirement obligations, net of tax of $870; $946; $2,611 and $2,837, respectively | 1,219 | 1,336 | 3,656 | 4,007 | ||||||||||||
Less: Reclassification adjustment for sales of available-for-sale securities, net of tax of $770 | — | — | (1,078 | ) | — | |||||||||||
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Total other comprehensive (loss) income, net of tax | (3,066 | ) | 797 | 52,346 | 5,748 | |||||||||||
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Total comprehensive income, net of tax | $ | 107,402 | $ | 126,096 | $ | 382,026 | $ | 387,416 | ||||||||
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See accompanying notes to the consolidated financial statements.
NEW YORK COMMUNITY BANCORP, INC.
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY
(in thousands, except share data)
(unaudited)
For the Nine Months Ended September 30, 2017 | ||||
Preferred Stock (Par Value: $0.01): | ||||
Balance at beginning of year | $ | — | ||
Issuance of preferred stock (515,000 shares) | 502,840 | |||
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Balance at end of period | 502,840 | |||
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Common Stock (Par Value: $0.01): | ||||
Balance at beginning of year | 4,871 | |||
Shares issued for restricted stock awards (2,004,212 shares) | 20 | |||
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Balance at end of period | 4,891 | |||
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Paid-in Capital in Excess of Par: | ||||
Balance at beginning of year | 6,047,558 | |||
Shares issued for restricted stock awards, net of forfeitures | (11,028 | ) | ||
Compensation expense related to restricted stock awards | 27,283 | |||
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Balance at end of period | 6,063,813 | |||
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Retained Earnings: | ||||
Balance at beginning of year | 128,435 | |||
Net income | 329,680 | |||
Dividends paid on common stock ($0.51 per share) | (249,094 | ) | ||
Dividends paid on preferred stock ($31.88 per share) | (16,414 | ) | ||
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Balance at end of period | 192,607 | |||
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Treasury Stock: | ||||
Balance at beginning of year | (160 | ) | ||
Purchase of common stock (712,877 shares) | (10,978 | ) | ||
Shares issued for restricted stock awards (713,837 shares) | 11,008 | |||
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Balance at end of period | (130 | ) | ||
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Accumulated Other Comprehensive Loss, Net of Tax: | ||||
Balance at beginning of year | (56,713 | ) | ||
Other comprehensive income, net of tax | 52,346 | |||
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Balance at end of period | (4,367 | ) | ||
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Total stockholders’ equity | $ | 6,759,654 | ||
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See accompanying notes to the consolidated financial statements.
NEW YORK COMMUNITY BANCORP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
For the Nine Months Ended September 30, | ||||||||
2017 | 2016 | |||||||
Cash Flows from Operating Activities: |
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Net income | $ | 329,680 | $ | 381,668 | ||||
Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||
Provision for loan losses | 34,316 | 664 | ||||||
Depreciation and amortization | 24,915 | 24,603 | ||||||
Amortization of discounts and premiums, net | (3,381 | ) | (25,114 | ) | ||||
Amortization of core deposit intangibles | 208 | 1,994 | ||||||
Net gain on sales of securities | (28,915 | ) | (413 | ) | ||||
Net gain on sales of loans | (87,200 | ) | (49,809 | ) | ||||
Stock-based compensation | 27,283 | 24,611 | ||||||
Deferred tax (benefit) expense | (12,324 | ) | 37,569 | |||||
Changes in operating assets and liabilities: |
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Decrease in other assets | 536,552 | 353,403 | ||||||
Increase (decrease) in other liabilities | 181,400 | (11,608 | ) | |||||
Origination of loans held for sale | (1,623,848 | ) | (3,579,435 | ) | ||||
Proceeds from sales of loans originated for sale | 1,936,162 | 3,237,704 | ||||||
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Net cash provided by operating activities | 1,314,848 | 395,837 | ||||||
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Cash Flows from Investing Activities: | ||||||||
Proceeds from repayment of securities held to maturity | 175,375 | 2,356,766 | ||||||
Proceeds from repayment of securities available for sale | 336,429 | 50,010 | ||||||
Proceeds from sales of securities held to maturity | 547,925 | — | ||||||
Proceeds from sales of securities available for sale | 246,209 | 264,413 | ||||||
Purchases of securities held to maturity | (13,030 | ) | (10,086 | ) | ||||
Purchase of securities available for sale | (390,932 | ) | (271,836 | ) | ||||
Redemption of Federal Home Loan Bank stock | 79,254 | 463,623 | ||||||
Purchase of Federal Home Loan Bank stock | (67,794 | ) | (386,007 | ) | ||||
Proceeds from sales of loans | 2,260,687 | 1,354,796 | ||||||
Other changes in loans, net | (664,320 | ) | (2,623,161 | ) | ||||
Purchase of premises and equipment, net | (26,722 | ) | (69,665 | ) | ||||
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Net cash provided by investing activities | 2,483,081 | 1,128,853 | ||||||
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Cash Flows from Financing Activities: | ||||||||
Net increase in deposits | 5,294 | 712,841 | ||||||
Net decrease in short-term borrowed funds | (460,000 | ) | (1,927,800 | ) | ||||
(Repayments of) proceeds from long-term borrowed funds | (850,000 | ) | 181,000 | |||||
Net proceeds from issuance of preferred stock | 502,840 | — | ||||||
Cash dividends paid on common stock | (249,094 | ) | (248,081 | ) | ||||
Cash dividends paid on preferred stock | (16,414 | ) | — | |||||
Payments relating to treasury shares received for restricted stock award tax payments | (10,978 | ) | (8,542 | ) | ||||
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Net cash used in financing activities | (1,078,352 | ) | (1,290,582 | ) | ||||
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Net increase in cash and cash equivalents | 2,719,577 | 234,108 | ||||||
Cash and cash equivalents at beginning of period | 557,850 | 537,674 | ||||||
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Cash and cash equivalents at end of period | $ | 3,277,427 | $ | 771,782 | ||||
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Supplemental information: |
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Cash paid for interest | $ | 330,182 | $ | 283,418 | ||||
Cash paid for income taxes | 110,651 | 135,192 | ||||||
Non-cash investing and financing activities: | ||||||||
Transfers to other real estate owned from loans | $ | 9,558 | $ | 18,691 | ||||
Transfer of loans from held for investment to held for sale | 1,881,532 | 1,339,679 | ||||||
Shares issued for restricted stock awards | 11,028 | 8,985 | ||||||
Securities transferred from held to maturity to available for sale | 3,040,305 | — |
See accompanying notes to the consolidated financial statements.
NEW YORK COMMUNITY BANCORP, INC.
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
Note 1. Organization and Basis of Presentation
Organization
New York Community Bancorp, Inc. (on a stand-alone basis, the “Parent Company” or, collectively with its subsidiaries, the “Company”) was organized under Delaware law on July 20, 1993 and is the holding company for New York Community Bank and New York Commercial Bank (hereinafter referred to as the “Community Bank” and the “Commercial Bank,” respectively, and collectively as the “Banks”). For the purpose of these Consolidated Financial Statements, the “Community Bank” and the “Commercial Bank” refer not only to the respective banks but also to their respective subsidiaries.
The Community Bank is the primary banking subsidiary of the Company, 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 on November 23, 1993, at which date the Company issued its initial offering of common stock (par value: $0.01 per share) at a price of $25.00 per share ($0.93 per share on a split-adjusted basis, reflecting the impact of nine stock splits between 1994 and 2004). The Commercial Bank was established on December 30, 2005.
Reflecting its growth through acquisitions, the Community Bank currently operates 225 branches, two of which operate directly under the Community Bank name. The remaining 223 Community Bank branches operate through seven divisional banks: Queens County Savings Bank, Roslyn Savings Bank, Richmond County Savings Bank, and Roosevelt Savings Bank in New York; Garden State Community Bank in New Jersey; AmTrust Bank in Florida and Arizona; and Ohio Savings Bank in Ohio.
The Commercial Bank currently operates 30 branches in Manhattan, Queens, Brooklyn, Westchester County, and Long Island (all in New York), including 18 branches that operate under the name “Atlantic Bank.”
Basis of Presentation
The following is a description of the significant accounting and reporting policies that the Company and its subsidiaries follow in preparing and presenting their consolidated financial statements, which conform to U.S. generally accepted accounting principles (“GAAP”) and to general practices within the banking industry. The preparation of financial statements in conformity with GAAP requires the Company to make estimates and judgments that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the consolidated financial statements, and the reported amounts of revenues and expenses during the reporting period. Estimates that are particularly susceptible to change in the near term are used in connection with the determination of the allowances for loan losses; the evaluation of goodwill for impairment; and the evaluation of the need for a valuation allowance on the Company’s deferred tax assets.
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”). See Note 7, “Borrowed Funds,” for additional information regarding these trusts.
Note 2. Computation of Earnings per Common Share
Basic earnings per common share (“EPS”) is computed by dividing the net income 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.
The following table presents the Company’s computation of basic and diluted EPS for the periods indicated:
Three Months Ended | Nine Months Ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
(in thousands, except share and per share data) | 2017 | 2016 | 2017 | 2016 | ||||||||||||
Net income available to common shareholders | $ | 102,261 | $ | 125,299 | $ | 313,266 | $ | 381,668 | ||||||||
Less: Dividends paid on and earnings allocated to participating securities | (823 | ) | (973 | ) | (2,512 | ) | (2,928 | ) | ||||||||
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Earnings applicable to common stock | $ | 101,438 | $ | 124,326 | $ | 310,754 | $ | 378,740 | ||||||||
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Weighted average common shares outstanding | 487,274,303 | 485,352,998 | 487,025,614 | 485,087,197 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Basic earnings per common share | $ | 0.21 | $ | 0.26 | $ | 0.64 | $ | 0.78 | ||||||||
|
|
|
|
|
|
|
| |||||||||
Earnings applicable to common stock | $ | 101,438 | $ | 124,326 | $ | 310,754 | $ | 378,740 | ||||||||
|
|
|
|
|
|
|
| |||||||||
Weighted average common shares outstanding | 487,274,303 | 485,352,998 | 487,025,614 | 485,087,197 | ||||||||||||
Potential dilutive common shares(1) | — | — | — | — | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Total shares for diluted earnings per share computation | 487,274,303 | 485,352,998 | 487,025,614 | 485,087,197 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Diluted earnings per common share and common share equivalents | $ | 0.21 | $ | 0.26 | $ | 0.64 | $ | 0.78 | ||||||||
|
|
|
|
|
|
|
|
Note 3. Reclassifications Out of Accumulated Other Comprehensive Loss
(in thousands) | For the Nine Months Ended September 30, 2017 | |||||
Details about Accumulated Other Comprehensive Loss | Amount Reclassified from Accumulated Other Comprehensive Loss(1) | Affected Line Item in the and Comprehensive Income | ||||
Unrealized gains onavailable-for-sale securities | $ | 1,848 | Net gain on sales of securities | |||
(770 | ) | Income tax expense | ||||
|
| |||||
$ | 1,078 | Net gain on sales of securities, net of tax | ||||
|
| |||||
Amortization of defined benefit pension plan items: | ||||||
Past service liability | $ | 187 | Included in the computation of net periodic (credit) expense(2) | |||
Actuarial losses | (6,363 | ) | Included in the computation of net periodic (credit) expense(2) | |||
|
| |||||
(6,176 | ) | Total before tax | ||||
2,574 | Tax benefit | |||||
|
| |||||
$ | (3,602 | ) | Amortization of defined benefit pension plan items, net of tax | |||
|
| |||||
Total reclassifications for the period | $ | (2,524 | ) | |||
|
|
Note 4. Securities
The following tables summarize the Company’s portfolio of securities available for sale at the dates indicated:
September 30, 2017 | ||||||||||||||||
(in thousands) | Amortized Cost | Gross Unrealized Gain | Gross Unrealized Loss | Fair Value | ||||||||||||
Mortgage-Related Securities: | ||||||||||||||||
GSE(1) certificates | $ | 1,904,431 | $ | 57,138 | $ | 1,217 | $ | 1,960,352 | ||||||||
GSE CMOs(2) | 530,365 | 19,812 | — | 550,177 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Total mortgage-related securities | $ | 2,434,796 | $ | 76,950 | $ | 1,217 | $ | 2,510,529 | ||||||||
|
|
|
|
|
|
|
| |||||||||
Other Securities: | ||||||||||||||||
U. S. Treasury obligations | $ | 199,838 | $ | 37 | $ | — | $ | 199,875 | ||||||||
GSE debentures | 88,242 | 2,592 | — | 90,834 | ||||||||||||
Corporate bonds | 74,580 | 11,557 | — | 86,137 | ||||||||||||
Municipal bonds | 71,079 | 137 | 849 | 70,367 | ||||||||||||
Capital trust notes | 48,217 | 3,489 | 10,939 | 40,767 | ||||||||||||
Preferred stock | 15,293 | 46 | — | 15,339 | ||||||||||||
Mutual funds and common stock(3) | 16,874 | 488 | 184 | 17,178 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Total other securities | $ | 514,123 | $ | 18,346 | $ | 11,972 | $ | 520,497 | ||||||||
|
|
|
|
|
|
|
| |||||||||
Total securities available for sale(4) | $ | 2,948,919 | $ | 95,296 | $ | 13,189 | $ | 3,031,026 | ||||||||
|
|
|
|
|
|
|
|
FOMC | Federal Open Market Committee | |||||||||||||||||||
ASC | Accounting Standards Codification | FRB | Federal Reserve Board | |||||||||||||||||
ASU | Accounting Standards Update | FRB-NY | Federal Reserve Bank of New York | |||||||||||||||||
BaaS | Banking as a Service | Freddie Mac | Federal Home Loan Mortgage Corporation | |||||||||||||||||
BOLI | Bank-owned life insurance | FTEs | Full-time equivalent employees | |||||||||||||||||
BP | Basis point(s) | GAAP | U.S. generally accepted accounting principles | |||||||||||||||||
C&I | Commercial and industrial loan | GLBA | The Gramm Leach Bliley Act | |||||||||||||||||
CDs | Certificates of deposit | GNMA | Government National Mortgage Association | |||||||||||||||||
CECL | Current Expected Credit Loss | GSE | Government-sponsored enterprises | |||||||||||||||||
CFPB | Consumer Financial Protection Bureau | HPI | Housing Price Index | |||||||||||||||||
CMOs | Collateralized mortgage obligations | LGG | Loans with government guarantees | |||||||||||||||||
CMT | Constant maturity treasury rate | LHFS | Loans Held-for-Sale | |||||||||||||||||
CPI | Consumer Price Index | LIBOR | London Interbank Offered Rate | |||||||||||||||||
CPR | Constant prepayment rate | LTV | Loan-to-value ratio | |||||||||||||||||
CRA | Community Reinvestment Act | MBS | Mortgage-backed securities | |||||||||||||||||
CRE | Commercial real estate loan | MSRs | Mortgage servicing rights | |||||||||||||||||
DIF | Deposit Insurance Fund | NIM | Net interest margin | |||||||||||||||||
DFA | Dodd-Frank Wall Street Reform and Consumer Protection Act | NOL | Net operating loss | |||||||||||||||||
DSCR | Debt service coverage ratio | NPAs | Non-performing assets | |||||||||||||||||
EAR | Earnings at Risk | NPLs | Non-performing loans | |||||||||||||||||
EPS | Earnings per common share | NPV | Net Portfolio Value | |||||||||||||||||
ERM | Enterprise Risk Management | NYSE | New York Stock Exchange | |||||||||||||||||
ESOP | Employee Stock Ownership Plan | OCC | Office of the | |||||||||||||||||
EVE | Economic Value of Equity at Risk | OREO | Other real estate owned | |||||||||||||||||
Fannie Mae | Federal National Mortgage Association | PAA | Purchase accounting adjustments | |||||||||||||||||
FASB | Financial Accounting Standards Board | ROU | Right of use asset | |||||||||||||||||
FCA | the United Kingdom's Financial Conduct Authority | SBA | Small Business Administration | |||||||||||||||||
FDI Act | Federal Deposit Insurance Act | Signature | Signature Bridge Bank, N.A. | |||||||||||||||||
FDIC | Federal Deposit Insurance Corporation | SEC | U.S. Securities and Exchange Commission | |||||||||||||||||
FHA | Federal Housing Administration | SOFR | Secured Overnight Financing Rate | |||||||||||||||||
FHFA | Federal Housing Finance Agency | TDR | Troubled debt restructurings |
December 31, 2016 | ||||||||||||||||
(in thousands) | Amortized Cost | Gross Unrealized Gain | Gross Unrealized Loss | Fair Value | ||||||||||||
Mortgage-Related Securities: | ||||||||||||||||
GSE certificates | $ | 7,786 | $ | — | $ | 460 | $ | 7,326 | ||||||||
|
|
|
|
|
|
|
| |||||||||
Other Securities: | ||||||||||||||||
Municipal bonds | $ | 583 | $ | 48 | $ | — | $ | 631 | ||||||||
Capital trust notes | 9,458 | 2 | 2,217 | 7,243 | ||||||||||||
Preferred stock | 70,866 | 1,446 | 328 | 71,984 | ||||||||||||
Mutual funds and common stock | 16,874 | 484 | 261 | 17,097 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Total other securities | $ | 97,781 | $ | 1,980 | $ | 2,806 | $ | 96,955 | ||||||||
|
|
|
|
|
|
|
| |||||||||
Total securities available for sale | $ | 105,567 | $ | 1,980 | $ | 3,266 | $ | 104,281 | ||||||||
|
|
|
|
|
|
|
|
(in thousands) | Amortized Cost | Carrying Amount | Gross Unrealized Gain | Gross Unrealized Loss | Fair Value | |||||||||||||||
Mortgage-Related Securities: | ||||||||||||||||||||
GSEcertificates | $ | 2,193,489 | $ | 2,193,489 | $ | 64,431 | $ | 2,399 | $ | 2,255,521 | ||||||||||
GSE CMOs | 1,019,074 | 1,019,074 | 36,895 | 57 | 1,055,912 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Total mortgage-related securities | $ | 3,212,563 | $ | 3,212,563 | $ | 101,326 | $ | 2,456 | $ | 3,311,433 | ||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Other Securities: | ||||||||||||||||||||
U. S. Treasury obligations | $ | 200,293 | $ | 200,293 | $ | — | $ | 73 | $ | 200,220 | ||||||||||
GSE debentures | 88,457 | 88,457 | 3,836 | — | 92,293 | |||||||||||||||
Corporate bonds | 74,217 | 74,217 | 9,549 | — | 83,766 | |||||||||||||||
Municipal bonds | 71,554 | 71,554 | — | 1,789 | 69,765 | |||||||||||||||
Capital trust notes | 74,284 | 65,692 | 2,662 | 11,872 | 56,482 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Total other securities | $ | 508,805 | $ | 500,213 | $ | 16,047 | $ | 13,734 | $ | 502,526 | ||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Total securities held to maturity(1) | $ | 3,721,368 | $ | 3,712,776 | $ | 117,373 | $ | 16,190 | $ | 3,813,959 | ||||||||||
|
|
|
|
|
|
|
|
|
|
At September 30, 2017 and December 31, 2016, respectively, the Company had $579.5 million and $590.9 million ofFHLB-NY stock, at cost. The Company is required to maintain an investment inFHLB-NY stock in order to have access to the funding it provides.
The following table summarizes the gross proceeds and gross realized gains from the sale ofavailable-for-sale securities during the periods indicated:
For the Nine Months Ended September 30, | ||||||||
(in thousands) | 2017 | 2016 | ||||||
Gross proceeds | $ | 246,209 | $ | 264,413 | ||||
Gross realized gains | 1,986 | 413 |
In addition, during the nine months ended September 30, 2017, the Company sought to take advantage of favorable bond market conditions and soldheld-to-maturity securities with an amortized cost of $521.0 million resulting in gross proceeds of $547.9 million including a gross realized gain of $26.9 million. Accordingly, the Company transferred the remaining $3.0 billion ofheld-to-maturity securities toavailable-for-sale with a net unrealized gain of $82.8 million classified in other comprehensive loss in the Consolidated Statements of Condition. Having our securities portfolio classified asavailable-for-sale improves the Company’s interest rate risk sensitivity and liquidity measures and provides the Company with more options in meeting the expected future Liquidity Coverage Ratio (“LCR”) requirements.
In the following table, the beginning balance represents the credit loss component for debt securities onamount by which OTTI occurred prior to January 1, 2017. For credit-impaired debt securities, OTTI recognized in earnings after that date is presented as an addition in two components, based upon whether the current period is the first time a debt security was credit-impaired (initial credit impairment) or is not the first time a debt security was credit-impaired (subsequent credit impairment).
(in thousands) | For the Nine Months Ended September 30, 2017 | |||||
Beginning credit loss amount as of December 31, 2016 | $ | 197,552 | ||||
Add: | Initial other-than-temporary credit losses | — | ||||
Subsequent other-than-temporary credit losses | — | |||||
Amount previously recognized in AOCL | — | |||||
Less: | Realized losses for securities sold | — | ||||
Securities intended or required to be sold | — | |||||
Increase in cash flows on debt securities | 126 | |||||
|
| |||||
Ending credit loss amount as of September 30, 2017 | $ | 197,426 | ||||
|
|
The following table summarizes, by contractual maturity, the amortized cost ofavailable-for-sale securities at September 30, 2017:
(dollars in thousands) | Mortgage- Related Securities | Average Yield | U.S. Treasury and GSE Obligations | Average Yield | State, County, and Municipal | Average Yield(1) | Other Debt Securities (2) | Average Yield | Fair Value | |||||||||||||||||||||||||||
Available-for-Sale Securities:(3) | ||||||||||||||||||||||||||||||||||||
Due within one year | $ | — | % | $ | 259,207 | 1.82 | % | $ | 150 | 6.47 | % | $ | — | — | % | $ | 260,064 | |||||||||||||||||||
Due from one to five years | 1,101,945 | 3.13 | 6,950 | 3.84 | 438 | 6.59 | 48,351 | 3.51 | 1,192,831 | |||||||||||||||||||||||||||
Due from five to ten years | 1,152,156 | 3.33 | 21,923 | 3.52 | — | — | 26,228 | 9.06 | 1,251,712 | |||||||||||||||||||||||||||
Due after ten years | 180,695 | 3.01 | — | — | 70,491 | 2.88 | 48,218 | 3.70 | 293,902 | |||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||
Total securities available for sale | $ | 2,434,796 | 3.21 | % | $ | 288,080 | 2.00 | % | $ | 71,079 | 2.91 | % | $ | 122,797 | 4.77 | % | $ | 2,998,509 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table presentsavailable-for-sale securities having a continuous unrealized loss position for less than twelve months and for twelve months or longer as of September 30, 2017:
Less than Twelve Months | Twelve Months or Longer | Total | ||||||||||||||||||||||
(in thousands) | Fair Value | Unrealized Loss | Fair Value | Unrealized Loss | Fair Value | Unrealized Loss | ||||||||||||||||||
Temporarily ImpairedAvailable-for-Sale Securities: | ||||||||||||||||||||||||
GSE certificates | $ | 197,953 | $ | 662 | $ | 18,195 | $ | 555 | $ | 216,148 | $ | 1,217 | ||||||||||||
U. S. Treasury obligations | — | — | — | — | — | — | ||||||||||||||||||
Municipal bonds | 52,715 | 849 | — | — | 52,715 | 849 | ||||||||||||||||||
Capital trust notes | — | — | 32,787 | 10,939 | 32,787 | 10,939 | ||||||||||||||||||
Equity securities | 11,621 | 184 | — | — | 11,621 | 184 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Total temporarily impairedavailable-for-sale securities | $ | 262,289 | $ | 1,695 | $ | 50,982 | $ | 11,494 | $ | 313,271 | $ | 13,189 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
The following table presentsheld-to-maturity andavailable-for-sale securities having a continuous unrealized loss position for less than twelve months and for twelve months or longer as of December 31, 2016:
Less than Twelve Months | Twelve Months or Longer | Total | ||||||||||||||||||||||
(in thousands) | Fair Value | Unrealized Loss | Fair Value | Unrealized Loss | Fair Value | Unrealized Loss | ||||||||||||||||||
Temporarily ImpairedHeld-to-Maturity Securities: | ||||||||||||||||||||||||
GSE certificates | $ | 268,891 | $ | 2,399 | $ | — | $ | — | $ | 268,891 | $ | 2,399 | ||||||||||||
GSE CMOs | 42,980 | 57 | — | — | 42,980 | 57 | ||||||||||||||||||
U. S. Treasury obligations | 200,220 | 73 | — | — | 200,220 | 73 | ||||||||||||||||||
Municipal bonds | 69,765 | 1,789 | — | — | 69,765 | 1,789 | ||||||||||||||||||
Capital trust notes | — | — | 24,364 | 11,872 | 24,364 | 11,872 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Total temporarily impairedheld-to-maturity securities | $ | 581,856 | $ | 4,318 | $ | 24,364 | $ | 11,872 | $ | 606,220 | $ | 16,190 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Temporarily ImpairedAvailable-for-Sale Securities: | ||||||||||||||||||||||||
GSE certificates | $ | 7,326 | $ | 460 | $ | — | $ | — | $ | 7,326 | $ | 460 | ||||||||||||
Capital trust notes | — | — | 5,241 | 2,217 | 5,241 | 2,217 | ||||||||||||||||||
Equity securities | 29,059 | 589 | — | — | 29,059 | 589 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Total temporarily impairedavailable-for-sale securities | $ | 36,385 | $ | 1,049 | $ | 5,241 | $ | 2,217 | $ | 41,626 | $ | 3,266 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
An OTTI loss on impaired debt securities must be fully recognized in earnings if an investor has the intent to sell the debt security, or if it is more likely than not that the investor will be required to sell the debt security before recovery of its amortized cost. However, even if an investor does not expect to sell a debt security, it must evaluate the expected cash flows to be received and determine if a credit loss has occurred. In the event that a credit loss occurs, only the amount of impairment associated with the credit loss is recognized in earnings. Amounts of impairment relating to factors other than credit losses are recorded in AOCL.
At September 30, 2017, the Company had unrealized losses on certain GSE mortgage-related securities, municipal bonds, capital trust notes, and equity securities. The unrealized losses on the Company’s GSE mortgage-related securities, municipal bonds, and capital trust notes at September 30, 2017 were primarily caused by movements in market interest rates and spread volatility, rather than credit risk. These securities are not expected to be settled at a price that is less than the amortized cost of the Company’s investment.
The Company reviews quarterly financial information related to its investments in capital trust notes, as well as other information that is released by each of the issuers of such notes, to determine their continued creditworthiness. The Company continues to monitor these investments and currently estimates that the present value of expected cash flows is not less than the amortized cost of the securities. It is possible that these securities will perform worse than is currently expected, which could lead to adverse changes in cash flows from these securities and potential OTTI losses in the future. Future events that could trigger material unrecoverable declines in the fair values of the Company’s investments, and thus result in potential OTTI losses, include, but are not limited to, government intervention; deteriorating asset quality and credit metrics; significantly higher levels of default and loan loss provisions; losses in value on the underlying collateral; net operating losses; and illiquidity in the financial markets.
The Company considers a decline in the fair value of equity securities to be other than temporary if the Company does not expect to recover the entire amortized cost basis of the security. The unrealized losses on the Company’s equity securities at September 30, 2017 were caused by market volatility. The Company evaluated the near-term prospects of recoveringassets purchased exceeds the fair value of these securities, together withliabilities assumed and consideration given.
The investment securities designated as having a continuous loss position for twelve months or more at September 30, 2017 consisted of five capital trust notes and five agency mortgage-related securities. At December 31, 2016 securities designated as having a continuous loss position for twelve months or more consisted of five capital trust notes. At September 30, 2017, the fair value of securities having a continuous loss position for twelve months or more was 18.4% below the collective amortized cost of $62.5 million. At December 31, 2016, the fair value of such securities was 32.2% below the collective amortized cost of $43.7 million. At September 30, 2017 and December 31, 2016, the combined market value of the respective securities represented unrealized losses of $11.5 million and $14.1 million, respectively.
Note 5: Loans
The following table sets forth the composition of the loan portfolio at the dates indicated:
September 30, 2017 | December 31, 2016 | |||||||||||||||
Amount | Percent of Non-Covered Loans Held for Investment | Amount | Percent of Non-Covered Loans Held for Investment | |||||||||||||
(dollars in thousands) | ||||||||||||||||
Non-Covered Loans Held for Investment: | ||||||||||||||||
Mortgage Loans: | ||||||||||||||||
Multi-family | $ | 27,145,397 | 72.43 | % | $ | 26,945,052 | 72.13 | % | ||||||||
Commercial real estate | 7,550,387 | 20.14 | 7,724,362 | 20.68 | ||||||||||||
One-to-four family | 413,235 | 1.10 | 381,081 | 1.02 | ||||||||||||
Acquisition, development, and construction | 385,876 | 1.03 | 381,194 | 1.02 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Total mortgage loans held for investment | $ | 35,494,895 | 94.70 | $ | 35,431,689 | 94.85 | ||||||||||
|
|
|
|
|
|
|
| |||||||||
Other Loans: | ||||||||||||||||
Commercial and industrial | 1,404,278 | 3.75 | 1,341,216 | 3.59 | ||||||||||||
Lease financing, net of unearned income of $58,870 and $60,278, respectively | 577,865 | 1.54 | 559,229 | 1.50 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Total commercial and industrial loans(1) | 1,982,143 | 5.29 | 1,900,445 | 5.09 | ||||||||||||
Purchased credit-impaired loans | — | — | 5,762 | 0.01 | ||||||||||||
Other | 3,666 | 0.01 | 18,305 | 0.05 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Total other loans held for investment | 1,985,809 | 5.30 | 1,924,512 | 5.15 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Totalnon-covered loans held for investment | $ | 37,480,704 | 100.00 | % | $ | 37,356,201 | 100.00 | % | ||||||||
|
|
|
| |||||||||||||
Net deferred loan origination costs | 25,495 | 26,521 | ||||||||||||||
Allowance for losses onnon-covered loans | (158,918 | ) | (158,290 | ) | ||||||||||||
|
|
|
| |||||||||||||
Non-covered loans held for investment, net | $ | 37,347,281 | $ | 37,224,432 | ||||||||||||
|
|
|
| |||||||||||||
Covered loans | — | 1,698,133 | ||||||||||||||
Allowance for losses on covered loans | — | (23,701 | ) | |||||||||||||
|
|
|
| |||||||||||||
Covered loans, net | $ | — | $ | 1,674,432 | ||||||||||||
Loans held for sale | 104,938 | 409,152 | ||||||||||||||
|
|
|
| |||||||||||||
Total loans, net | $ | 37,452,219 | $ | 39,308,016 | ||||||||||||
|
|
|
|
Non-Covered Loans
Non-Covered Loans Held for Investment
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 commercial real estate (“CRE”) loans, most of which are collateralized by income-producing properties such aseither office buildings, retail shopping centers,mixed-use buildings, and multi-tenanted light industrial properties that are located in New York Citycenters with multiple tenants, or mixed-use properties.
To a lesser extent, the Company also originatesone-to-four family loans, acquisition, development, and construction (“ADC”) loans and commercial and industrial (“C&I”) loans, for investment.One-to-four family loans held for investment were originated throughdivided by total risk-based capital.
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 ofmeasures the cash flows being producedavailable to a borrower over the course of a year as a percentage of the annual interest and principal payments owed during that time.
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 and the local economy. Accordingly, there can be no assurance that its underwriting policies will protect the Company from credit-related losses or delinquencies.
ADC loans typically involve a higher degree of credit risk than loans secured by improved or owner-occupied real estate. 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,reduce the cost of, completion is greater than expected, orcredit to certain targeted borrowing sectors, including home finance. The GSEs include, but are not limited to, the length of time to complete and/or sell or leaseFederal National Mortgage Association (“Fannie Mae”), 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.
Included innon-covered loans held for investment at September 30, 2017 and December 31, 2016, respectively, were loans of $58.7 million and $91.8 million to officers, directors, and their related interests and parties. There were no loans to principal shareholders at either of those dates.
At December 31, 2016, the Company hadnon-covered purchased credit-impaired (“PCI”) loans, with a carrying value of $5.8 million and an unpaid principal balance of $7.0 million at that date. PCI loans had been covered under Loss Share Agreements (“LSA”) with the FDIC that expired in March 2015 and had been included innon-covered loans. Such loans were accounted for under Accounting Standards Codification (“ASC”)310-30 and were initially measured at fair value, which included estimated future credit losses expected to be incurred over the lives of the loans. Under ASC310-30, purchasers are permitted to aggregate acquired loans into one or more pools, provided that the loans have common risk characteristics. A pool is then accounted for as a single asset with a single composite interest rate and an aggregate expectation of cash flows. There were no such loans accounted for under ASC310-30 at September 30, 2017.
Loans Held for Sale
As previously disclosed, 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 FreedomFederal Home Loan Mortgage Corporation (“Freedom”Freddie Mac”). Accordingly, 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 Statement of Income and Comprehensive Income. 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.
Additionally, as previously disclosed, the Company received approval from the FDIC to sell assets covered under our LSA, early terminate the LSA, and enter 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”). On July 28, 2017, the Company completed the sale, resulting in the receipt of proceeds of $1.9 billion from Cerberus, and the FDICFederal Home Loan Banks (the “FHLBs”).
The Community Bank’s mortgage banking operations originated, aggregated, sold, and servicedone-to-four family loans. Community banks, credit unions, mortgage companies, and mortgage brokers used its proprietaryweb-accessible mortgage banking platformGSE debentures.
Asset Quality
The following table presents information regarding the quality of the Company’snon-covered loans held for investment at September 30, 2017:
(in thousands) | Loans 30-89 Days Past Due | Non-Accrual Loans | Loans 90 Days or More Delinquent and Still Accruing Interest | Total Past Due Loans | Current Loans | Total Loans Receivable | ||||||||||||||||||
Multi-family | $ | 602 | $ | 11,018 | $ | — | $ | 11,620 | $ | 27,133,777 | $ | 27,145,397 | ||||||||||||
Commercial real estate | 450 | 4,923 | — | 5,373 | 7,545,014 | 7,550,387 | ||||||||||||||||||
One-to-four family | 676 | 2,179 | — | 2,855 | 410,380 | 413,235 | ||||||||||||||||||
Acquisition, development, and construction | — | 6,200 | — | 6,200 | 379,676 | 385,876 | ||||||||||||||||||
Commercial and industrial(1) (2) | 3,419 | 44,640 | — | 48,059 | 1,934,084 | 1,982,143 | ||||||||||||||||||
Other | 6 | 10 | — | 16 | 3,650 | 3,666 | ||||||||||||||||||
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Total | $ | 5,153 | $ | 68,970 | $ | — | $ | 74,123 | $ | 37,406,581 | $ | 37,480,704 | ||||||||||||
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The following table presents information regarding the quality of the Company’snon-covered loans held for investment (excludingnon-covered PCI loans) at December 31, 2016:
(in thousands) | Loans 30-89 Days Past Due(1) | Non-Accrual Loans(1) | Loans 90 Days or More Delinquent and Still Accruing Interest | Total Past Due Loans | Current Loans | Total Loans Receivable | ||||||||||||||||||
Multi-family | $ | 28 | $ | 13,558 | $ | — | $ | 13,586 | $ | 26,931,466 | $ | 26,945,052 | ||||||||||||
Commercial real estate | — | 9,297 | — | 9,297 | 7,715,065 | 7,724,362 | ||||||||||||||||||
One-to-four family | 2,844 | 9,679 | — | 12,523 | 368,558 | 381,081 | ||||||||||||||||||
Acquisition, development, and construction | — | 6,200 | — | 6,200 | 374,994 | 381,194 | ||||||||||||||||||
Commercial and industrial(2) (3) | 7,263 | 16,422 | — | 23,685 | 1,876,760 | 1,900,445 | ||||||||||||||||||
Other | 248 | 1,313 | — | 1,561 | 16,744 | 18,305 | ||||||||||||||||||
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Total | $ | 10,383 | $ | 56,469 | $ | — | $ | 66,852 | $ | 37,283,587 | $ | 37,350,439 | ||||||||||||
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The following table summarizes the Company’s portfolio ofnon-covered loans held for investment by credit quality indicator at September 30, 2017:
Mortgage Loans | Other Loans | |||||||||||||||||||||||||||||||
(in thousands) | Multi-Family | Commercial Real Estate | One-to-Four Family | Acquisition, Development, and Construction | Total Mortgage Loans | Commercial and Industrial(1) | Other | Total Other Loans | ||||||||||||||||||||||||
Credit Quality Indicator: | ||||||||||||||||||||||||||||||||
Pass | $ | 27,059,736 | $ | 7,521,387 | $ | 411,056 | $ | 320,081 | $ | 35,312,260 | $ | 1,882,662 | $ | 3,656 | $ | 1,886,318 | ||||||||||||||||
Special mention | 27,884 | 10,724 | — | 50,043 | 88,651 | 47,628 | — | 47,628 | ||||||||||||||||||||||||
Substandard | 57,777 | 18,276 | 2,179 | 15,752 | 93,984 | 51,853 | 10 | 51,863 | ||||||||||||||||||||||||
Doubtful | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||
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Total | $ | 27,145,397 | $ | 7,550,387 | $ | 413,235 | $ | 385,876 | $ | 35,494,895 | $ | 1,982,143 | $ | 3,666 | $ | 1,985,809 | ||||||||||||||||
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The following table summarizes the Company’s portfolio ofnon-covered loans held for investment (excludingnon-covered PCI loans) by credit quality indicator at December 31, 2016:
Mortgage Loans | Other Loans | |||||||||||||||||||||||||||||||
(in thousands) | Multi-Family | Commercial Real Estate | One-to-Four Family | Acquisition, Development, and Construction | Total Mortgage Loans | Commercial and Industrial(1) | Other | Total Other Loans | ||||||||||||||||||||||||
Credit Quality Indicator: | ||||||||||||||||||||||||||||||||
Pass | $ | 26,754,622 | $ | 7,701,773 | $ | 371,179 | $ | 341,784 | $ | 35,169,358 | $ | 1,771,975 | $ | 16,992 | $ | 1,788,967 | ||||||||||||||||
Special mention | 164,325 | 12,604 | — | 33,210 | 210,139 | 54,979 | — | 54,979 | ||||||||||||||||||||||||
Substandard | 26,105 | 9,985 | 9,902 | 6,200 | 52,192 | 73,491 | 1,313 | 74,804 | ||||||||||||||||||||||||
Doubtful | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||
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Total | $ | 26,945,052 | $ | 7,724,362 | $ | 381,081 | $ | 381,194 | $ | 35,431,689 | $ | 1,900,445 | $ | 18,305 | $ | 1,918,750 | ||||||||||||||||
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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 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.
Troubled Debt Restructurings
The Company is required to account for certainheld-for-investment loan modifications and restructurings as troubled debt restructurings (“TDRs”). In general, a modification or restructuring of a loan constitutes a TDR if the Company grants a concession to a borrower experiencing financial difficulty. A loan modified as a TDR generally is placed onnon-accrual status until the Company determines that future collection of principal and interest is reasonably assured, which requires, among other things, that the borrower demonstrate performance according to the restructured terms for a period of at least six consecutive months.
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 September 30, 2017, loans on which concessions were made with respect to rate reductions and/or extension of maturity dates amounted to $41.5 million; loans on which forbearance agreements were reached amounted to $1.8 million.
The following table presents information regarding the Company’s TDRs as of the dates indicated:
September 30, 2017 | December 31, 2016 | |||||||||||||||||||||||
(in thousands) | Accruing | Non-Accrual | Total | Accruing | Non-Accrual | Total | ||||||||||||||||||
Loan Category: | ||||||||||||||||||||||||
Multi-family | $ | 1,457 | $ | 7,608 | $ | 9,065 | $ | 1,981 | $ | 8,755 | $ | 10,736 | ||||||||||||
Commercial real estate | — | 373 | 373 | — | 1,861 | 1,861 | ||||||||||||||||||
One-to-four family | — | 1,076 | 1,076 | 222 | 1,749 | 1,971 | ||||||||||||||||||
Commercial and industrial | 177 | 23,974 | 24,151 | 1,263 | 3,887 | 5,150 | ||||||||||||||||||
Acquisition, development, and construction | 8,652 | — | 8,652 | |||||||||||||||||||||
Other | — | — | — | — | 202 | 202 | ||||||||||||||||||
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Total | $ | 10,286 | $ | 33,031 | $ | 43,317 | $ | 3,466 | $ | 16,454 | $ | 19,920 | ||||||||||||
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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 concessioninterest earned on assets and the interest paid on liabilities will change as a result of fluctuations in market interest rates.
The financial effectscost of average interest-bearing liabilities.
For the Three Months Ended September 30, 2017 | ||||||||||||||||||||||||||||
Weighted Average Interest Rate | ||||||||||||||||||||||||||||
(dollars in thousands) | Number of Loans | Pre-Modification Recorded Investment | Post-Modification Recorded Investment | Pre-Modification | Post- Modification | Charge-off Amount | Capitalized Interest | |||||||||||||||||||||
Loan Category: | ||||||||||||||||||||||||||||
Acquisition, development, and construction | 2 | $ | 8,652 | $ | 8,652 | 5.50 | % | 5.50 | % | $ | — | $ | — | |||||||||||||||
Commercial and industrial | 22 | 18,002 | 7,620 | 3.18 | 2.91 | 6,350 | — | |||||||||||||||||||||
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Total | 24 | $ | 26,654 | $ | 16,272 | $ | 6,350 | $ | — | |||||||||||||||||||
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For the Three Months Ended September 30, 2016 | ||||||||||||||||||||||||||||
Weighted Average Interest Rate | ||||||||||||||||||||||||||||
(dollars in thousands) | Number of Loans | Pre-Modification Recorded Investment | Post-Modification Recorded Investment | Pre-Modification | Post- Modification | Charge-off Amount | Capitalized Interest | |||||||||||||||||||||
Loan Category: | ||||||||||||||||||||||||||||
One-to-four family | — | $ | — | $ | — | — | % | — | % | $ | — | $ | — | |||||||||||||||
Commercial and industrial | 2 | 1,314 | 1,273 | 3.22 | 3.22 | 41 | — | |||||||||||||||||||||
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Total | 2 | $ | 1,314 | $ | 1,273 | $ | 41 | $ | — | |||||||||||||||||||
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The financial effects of the Company’s TDRs for the periods indicated are summarized as follows:
For the Nine Months Ended September 30, 2017 | ||||||||||||||||||||||||||||
Weighted Average Interest Rate | ||||||||||||||||||||||||||||
(dollars in thousands) | Number of Loans | Pre-Modification Recorded Investment | Post-Modification Recorded Investment | Pre-Modification | Post- Modification | Charge-off Amount | Capitalized Interest | |||||||||||||||||||||
Loan Category: | ||||||||||||||||||||||||||||
One-to-four family | 4 | $ | 810 | $ | 990 | 5.93 | % | 2.21 | % | $ | — | $ | 12 | |||||||||||||||
Acquisition, development, and construction | 2 | 8,652 | 8,652 | 5.50 | 5.50 | — | — | |||||||||||||||||||||
Commercial and industrial | 52 | 48,716 | 23,673 | 3.36 | 3.29 | 11,079 | — | |||||||||||||||||||||
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Total | 58 | $ | 58,178 | $ | 33,315 | $ | 11,079 | $ | 12 | |||||||||||||||||||
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For the Nine Months Ended September 30, 2016 | ||||||||||||||||||||||||||||
Weighted Average Interest Rate | ||||||||||||||||||||||||||||
(dollars in thousands) | Number of Loans | Pre-Modification Recorded Investment | Post-Modification Recorded Investment | Pre-Modification | Post- Modification | Charge-off Amount | Capitalized Interest | |||||||||||||||||||||
Loan Category: | ||||||||||||||||||||||||||||
Multi-family | 1 | $ | 9,340 | $ | 8,303 | 4.63 | % | 4.00 | % | $ | — | $ | — | |||||||||||||||
One-to-four family | 3 | 477 | 628 | 3.62 | 3.07 | — | 6 | |||||||||||||||||||||
Commercial and industrial | 4 | 2,712 | 2,560 | 3.26 | 3.21 | 89 | — | |||||||||||||||||||||
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Total | 8 | $ | 12,529 | $ | 11,491 | $ | 89 | $ | 6 | |||||||||||||||||||
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At September 30, 2017, twonon-coveredone-to-four family loans, totaling $497,000 and six C&I loans, totaling $1.4 million that had been modified as TDRs during the twelve months ended at that date were in payment default. A loan is considered to be in payment default once it is 30 days contractually past due under the modified terms. The Company does not consider a payment to be in default when the loan is in forbearance, or otherwise granted a delay of payment, or 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.
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 September 30, 2017.
The Company referred to certain loans acquired in the AmTrust and Desert Hills Bank (“Desert Hills”) transactions as “covered loans” because the Company was being reimbursed for a substantial portion of losses on these loans under the terms of the LSA. Covered loans were accounted for under ASC310-30 and were initially measured at fair value, which included estimated future credit losses expected to be incurred over the lives of the loans. Under ASC310-30, purchasers are permitted to aggregate acquired loans into one or more pools, provided that the loans have common risk characteristics. A pool is then accounted for as a single asset with a single composite interest rate and an aggregate expectation of cash flows.
The following table presents the carrying value of covered loans which were acquired in the acquisitions of AmTrust and Desert Hills as of December 31, 2016.
(dollars in thousands) | Amount | Percent of Covered Loans | ||||||
Loan Category: | ||||||||
One-to-four family | $ | 1,609,635 | 94.8 | % | ||||
Other loans | 88,498 | 5.2 | ||||||
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Total covered loans | $ | 1,698,133 | 100.0 | % | ||||
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At December 31, 2016, the unpaid principal balance of covered loans was $2.1 billion and the carrying value of such loans was $1.7 billion.
At December 31, 2016, the Company estimated the fair values of the AmTrust and Desert Hills loan portfolios, which represented the expected cash flows from the portfolios, discounted at market-based rates. In estimating such fair values, the Company: (a) calculated the contractual amount and timing of undiscounted principal and interest payments (the “undiscounted contractual cash flows”); and (b) estimated the expected amount and timing of undiscounted principal and interest payments (the “undiscounted expected cash flows”). The amount by which the undiscounted expected cash flows exceed the estimated fair value (the “accretable yield”) was accreted into interest income over the lives of the loans. The amount by which the undiscounted contractual cash flows exceed the undiscounted expected cash flows is referred to as the“non-accretable difference.” Thenon-accretable difference represented an estimate of the credit risk in the loan portfolios at the respective acquisition dates.
The accretable yield was affected by changes in interest rate indices for variable rate loans, changes in prepayment assumptions, and changes in expected principal and interest payments over the estimated lives of the loans. Changes in interest rate indices for variable rate loans increased or decreased the amount of interest income expected to be collected, depending on the direction of interest rates. Prepayments affected the estimated lives of covered loans and could have changed the amount of interest income and principal expected to be collected. Changes in expected principal and interest payments over the estimated lives of covered loans were driven by the credit outlook and by actions that may be taken with borrowers. As of September 30, 2017, the accretable yield was reduced to zero.
On a quarterly basis, the Company had evaluated the estimates of the cash flows it expected to collect. Expected future cash flows from interest payments were based on variable rates at the time of the quarterly evaluation. Estimates of expected cash flows that were impacted by changes in interest rate indices for variable rate loans and prepayment assumptions were treated as prospective yield adjustments and included in interest income.
In the nine months ended September 30, 2017, changes in the accretable yield for covered loans were as follows:
(in thousands) | Accretable Yield | |||
Balance at beginning of period | $ | 647,470 | ||
Accretion | (72,842 | ) | ||
Reclassification tonon-accretable difference for the six months ended June 30, 2017 | (11,381 | ) | ||
Changes in expected cash flows due to the sale of the covered loan portfolio | (563,247 | ) | ||
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Balance at end of period | $ | — | ||
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In the preceding table, the line item “Reclassification tonon-accretable difference for the six months ended June 30, 2017” includes changes in cash flows that the Company expects to collect due to changes in prepayment assumptions, changes in interest rates on variable rate loans, and changes in loss assumptions. As of the Company’s most recent quarterly evaluation, prepayment assumptions increased, which resulted in a decrease in future expected interest cash flows and, consequently, a decrease in the accretable yield. The effect of this decrease was partially offset with an improvement in the underlying credit assumptions and the resetting of rates on variable rate loans at a slightly higher level, which resulted in an increase in future expected interest cash flows and, consequently, an increase in the accretable yield.
Reflecting the foreclosure of certain loans acquired in the AmTrust and Desert Hills acquisitions, the Company owned certain other real estate owned (“OREO”) that was covered under its LSA (“covered OREO”). Covered OREO was initially recorded at its estimated fair value on the respective dates of acquisition, based on independent appraisals, less the estimated selling costs. Any subsequent write-downs due to declines in fair value were charged tonon-interest expense, and were partially offset by loss reimbursements under the LSA. Any recoveries of previous write-downs have been credited tonon-interest expense and partially offset by the portion of the recovery that was due to the FDIC. As previously discussed, the Company’s covered OREO was sold during the third quarter of 2017.
The FDIC loss share receivable represented the presentappraised value of the estimated losses to be reimbursedunderlying property.
At December 31, 2016, the Company held residential mortgage loans of $78.6 million that were in the process of foreclosure. The vast majority of such loans were covered loans. The Company had no residential mortgage loans that were in the process of foreclosure at September 30, 2017.
The following table presents information regarding the Company’s covered loans at December 31, 2016 that were 90 days or more past due:
(in thousands) | ||||
Covered Loans 90 Days or More Past Due: | ||||
One-to-four family | $ | 124,820 | ||
Other loans | 6,645 | |||
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Total covered loans 90 days or more past due | $ | 131,465 | ||
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The following table presents information regarding the Company’s covered loans at December 31, 2016 that were 30 to 89 days past due:
(in thousands) | ||||
Covered Loans30-89 Days Past Due: | ||||
One-to-four family | $ | 21,112 | ||
Other loans | 1,536 | |||
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Total covered loans30-89 days past due | $ | 22,648 | ||
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As noted above, at December 31, 2016, the Company had $22.6 million of covered loans that were 30 to 89 days past due, and covered loans of $131.5 million that wereaverage interest-earning assets.
Loans that may have been classified asnon-performing loans by AmTrust or Desert Hills wereimpaired because we no longer classified asnon-performing by the Company because, at the respective dates of acquisition, the Company believed that it would fully collect the new carrying value of these loans. The new carrying value represented the contractual balance, reduced by the portion that was expected to be uncollectible (i.e., thenon-accretable difference) and by an accretable yield (discount) that was recognized as interest income. It is important to note that management’s judgment was required in reclassifying loans subject to ASC310-30 as performing loans, and such judgment was dependent on having a reasonable expectation about the timing and amount of the cash flows to be collected, even if the loan was contractually past due.
The primary credit quality indicator for covered loans is the expectation of underlying cash flows. In the nine months ended September 30, 2017, the Company recorded recoveries of losses on covered loans of $23.7 million. The recoveries were largely due to an increase in expected cash flows in the acquired portfolios ofone-to-four family and home equity loans, and were partly offset by FDIC indemnification expense of $19.0 million that was recorded in“Non-interest income.”
The Company recovered losses on covered loans of $6.0 million during the nine months ended September 30, 2016, which was largely offset by FDIC indemnification expense of $4.8 million. In the three months ended September 30, 2016, the Company recorded recoveries of losses on covered loans of $1.3 million and FDIC indemnification expense of $1.0 million.
Note 6. Allowances for Loan Losses
The following tables provide additional information regarding the Company’s allowances for losses onnon-covered loans and covered loans, based upon the method of evaluating loan impairment:
(in thousands) | Mortgage | Other | Total | |||||||||
Allowances for Loan Losses at September 30, 2017: | ||||||||||||
Loans individually evaluated for impairment | $ | — | $ | — | $ | — | ||||||
Loans collectively evaluated for impairment | 122,522 | 36,396 | 158,918 | |||||||||
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Total | $ | 122,522 | $ | 36,396 | $ | 158,918 | ||||||
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(in thousands) | Mortgage | Other | Total | |||||||||
Allowances for Loan Losses at December 31, 2016: | ||||||||||||
Loans individually evaluated for impairment | $ | — | $ | 577 | $ | 577 | ||||||
Loans collectively evaluated for impairment | 123,925 | 32,022 | 155,947 | |||||||||
Acquired loans with deteriorated credit quality | 11,984 | 13,483 | 25,467 | |||||||||
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Total | $ | 135,909 | $ | 46,082 | $ | 181,991 | ||||||
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The following tables provide additional information regarding the methods used to evaluate the Company’s loan portfolio for impairment:
(in thousands) | Mortgage | Other | Total | |||||||||
Loans Receivable at September 30, 2017: | ||||||||||||
Loans individually evaluated for impairment | $ | 29,431 | $ | 45,682 | $ | 75,113 | ||||||
Loans collectively evaluated for impairment | 35,465,464 | 1,940,127 | 37,405,591 | |||||||||
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| |||||||
Total | $ | 35,494,895 | $ | 1,985,809 | $ | 37,480,704 | ||||||
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|
|
| |||||||
(in thousands) | Mortgage | Other | Total | |||||||||
Loans Receivable at December 31, 2016: | ||||||||||||
Loans individually evaluated for impairment | $ | 29,660 | $ | 18,592 | $ | 48,252 | ||||||
Loans collectively evaluated for impairment | 35,402,029 | 1,900,158 | 37,302,187 | |||||||||
Acquired loans with deteriorated credit quality | 1,614,755 | 89,140 | 1,703,895 | |||||||||
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|
|
|
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| |||||||
Total | $ | 37,046,444 | $ | 2,007,890 | $ | 39,054,334 | ||||||
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|
|
|
|
Allowance for Losses onNon-Covered Loans
The following table summarizes activity in the allowance for losses onnon-covered loans for the periods indicated:
For the Nine Months Ended September 30, | ||||||||||||||||||||||||
2017 | 2016 | |||||||||||||||||||||||
(in thousands) | Mortgage | Other | Total | Mortgage | Other | Total | ||||||||||||||||||
Balance, beginning of period | $ | 125,416 | $ | 32,874 | $ | 158,290 | $ | 124,478 | $ | 22,646 | $ | 147,124 | ||||||||||||
Charge-offs | (375 | ) | (58,203 | ) | (58,578 | ) | (170 | ) | (1,155 | ) | (1,325 | ) | ||||||||||||
Recoveries | 595 | 594 | 1,189 | 1,251 | 956 | 2,207 | ||||||||||||||||||
(Recovery of) provision fornon-covered loan losses | (3,114 | ) | 61,131 | 58,017 | 675 | 6,024 | 6,699 | |||||||||||||||||
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|
|
|
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|
|
|
| |||||||||||||
Balance, end of period | $ | 122,522 | 36,396 | $ | 158,918 | $ | 126,234 | $ | 28,471 | $ | 154,705 | |||||||||||||
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|
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See “Critical Accounting Policies” for additional information regarding the Company’s allowance for losses onnon-covered loans.
The following table presents additional information about the Company’s impairednon-covered loans at September 30, 2017:
(in thousands) | Recorded Investment | Unpaid Principal Balance | Related Allowance | Average Recorded Investment | Interest Income Recognized | |||||||||||||||
Impaired loans with no related allowance: | ||||||||||||||||||||
Multi-family | $ | 9,071 | $ | 11,548 | $ | — | $ | 10,016 | $ | 378 | ||||||||||
Commercial real estate | 2,628 | 7,743 | — | 4,517 | 13 | |||||||||||||||
One-to-four family | 1,980 | 2,086 | — | 2,898 | 38 | |||||||||||||||
Acquisition, development, and construction | 15,752 | 25,952 | — | 8,588 | 435 | |||||||||||||||
Other | 45,682 | 98,084 | — | 32,556 | 1,486 | |||||||||||||||
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| |||||||||||
Total impaired loans with no related allowance | $ | 75,113 | $ | 145,413 | $ | — | $ | 58,575 | $ | 2,350 | ||||||||||
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|
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| |||||||||||
Impaired loans with an allowance recorded: | ||||||||||||||||||||
Multi-family | $ | — | $ | — | $ | — | $ | — | $ | — | ||||||||||
Commercial real estate | — | — | — | — | — | |||||||||||||||
One-to-four family | — | — | — | — | — | |||||||||||||||
Acquisition, development, and construction | — | — | — | — | — | |||||||||||||||
Other | — | — | — | 3,278 | — | |||||||||||||||
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|
|
|
|
|
|
|
| |||||||||||
Total impaired loans with an allowance recorded | $ | — | $ | — | $ | — | $ | 3,278 | $ | — | ||||||||||
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|
|
|
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|
|
| |||||||||||
Total impaired loans: | ||||||||||||||||||||
Multi-family | $ | 9,071 | $ | 11,548 | $ | — | $ | 10,016 | $ | 378 | ||||||||||
Commercial real estate | 2,628 | 7,743 | — | 4,517 | 13 | |||||||||||||||
One-to-four family | 1,980 | 2,086 | — | 2,898 | 38 | |||||||||||||||
Acquisition, development, and construction | 15,752 | 25,952 | — | 8,588 | 435 | |||||||||||||||
Other | 45,682 | 98,084 | — | 35,834 | 1,486 | |||||||||||||||
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|
|
|
|
|
|
|
|
| |||||||||||
Total impaired loans | $ | 75,113 | $ | 145,413 | $ | — | $ | 61,853 | $ | 2,350 | ||||||||||
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The following table presents additional information about the Company’s impairednon-covered loans at December 31, 2016:
(in thousands) | Recorded Investment | Unpaid Principal Balance | Related Allowance | Average Recorded Investment | Interest Income Recognized | |||||||||||||||
Impaired loans with no related allowance: | ||||||||||||||||||||
Multi-family | $ | 10,742 | $ | 13,133 | $ | — | $ | 11,431 | $ | 627 | ||||||||||
Commercial real estate | 9,117 | 14,868 | — | 10,461 | 143 | |||||||||||||||
One-to-four family | 3,601 | 4,267 | — | 3,079 | 124 | |||||||||||||||
Acquisition, development, and construction | 6,200 | 15,500 | — | 1,550 | 414 | |||||||||||||||
Other | 6,739 | 7,955 | — | 8,261 | 92 | |||||||||||||||
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|
|
|
|
|
|
| |||||||||||
Total impaired loans with no related allowance | $ | 36,399 | $ | 55,723 | $ | — | $ | 34,782 | $ | 1,400 | ||||||||||
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|
|
|
|
|
| |||||||||||
Impaired loans with an allowance recorded: | ||||||||||||||||||||
Multi-family | $ | — | $ | — | $ | — | $ | — | $ | — | ||||||||||
Commercial real estate | — | — | — | — | — | |||||||||||||||
One-to-four family | — | — | — | — | — | |||||||||||||||
Acquisition, development, and construction | — | — | — | — | — | |||||||||||||||
Other | 11,853 | 13,529 | 577 | 4,574 | 213 | |||||||||||||||
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|
|
|
|
|
|
|
|
| |||||||||||
Total impaired loans with an allowance recorded | $ | 11,853 | $ | 13,529 | $ | 577 | $ | 4,574 | $ | 213 | ||||||||||
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|
|
|
|
|
|
|
| |||||||||||
Total impaired loans: | ||||||||||||||||||||
Multi-family | $ | 10,742 | $ | 13,133 | $ | — | $ | 11,431 | $ | 627 | ||||||||||
Commercial real estate | 9,117 | 14,868 | — | 10,461 | 143 | |||||||||||||||
One-to-four family | 3,601 | 4,267 | — | 3,079 | 124 | |||||||||||||||
Acquisition, development, and construction | 6,200 | 15,500 | — | 1,550 | 414 | |||||||||||||||
Other | 18,592 | 21,484 | 577 | 12,835 | 305 | |||||||||||||||
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|
|
|
|
|
|
|
|
| |||||||||||
Total impaired loans | $ | 48,252 | $ | 69,252 | $ | 577 | $ | 39,356 | $ | 1,613 | ||||||||||
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Allowance for Losses on Covered Loans
Covered loans were reported exclusive of the FDIC loss share receivable. The covered loans acquired in the AmTrust and 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 pools of loans. The Company recorded a provision for (recovery of) losses on covered loans to the extent that the expected cash flows from a loan pool had decreased or increased since the acquisition date.
Accordingly, if there was a decrease in expected cash flows due to an increase in estimated credit losses (as 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 was increased. A related credit tonon-interest income and an increase in the LSA are recognized at the same time, and measured based on the applicable loss sharing agreement percentage.
If there was an increase in expected cash flows due to a decrease in estimated credit losses (as compared to the estimates made at the respective acquisition dates), the increase in the present value of expected cash flows was recorded as a recovery of the prior-period impairment charged to earnings, and the allowance for covered loan losses was reduced. A related debit tonon-interest income and a decrease in the LSA was recognized at the same time, and measured based on the applicable Loss Share Agreement percentage.
The following table summarizes activity in the allowance for losses on covered loans for the periods indicated:
For the Nine Months Ended September 30, | ||||||||
(in thousands) | 2017 | 2016 | ||||||
Balance, beginning of period | $ | 23,701 | $ | 31,395 | ||||
Recovery of losses on covered loans(1) | (23,701 | ) | (6,035 | ) | ||||
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| |||||
Balance, end of period | $ | — | $ | 25,360 | ||||
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Note 7. Borrowed Funds
The following table summarizes the Company’s borrowed funds at the dates indicated:
(in thousands) | September 30, 2017 | December 31, 2016 | ||||||
Wholesale Borrowings: | ||||||||
FHLB advances | $ | 11,554,500 | $ | 11,664,500 | ||||
Repurchase agreements | 450,000 | 1,500,000 | ||||||
Federal funds purchased | — | 150,000 | ||||||
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| |||||
Total wholesale borrowings | $ | 12,004,500 | $ | 13,314,500 | ||||
Junior subordinated debentures | 359,102 | 358,879 | ||||||
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| |||||
Total borrowed funds | $ | 12,363,602 | $ | 13,673,379 | ||||
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|
|
The following table summarizes the Company’s repurchase agreements accounted for as secured borrowings at September 30, 2017:
Remaining Contractual Maturity of the Agreements | ||||||||||||||||
(in thousands) | Overnight and Continuous | Up to 30 Days | 30–90 Days | Greater than 90 Days | ||||||||||||
GSE debentures and mortgage-related securities | $ | — | $ | — | $ | — | $ | 450,000 | ||||||||
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At September 30, 2017 and December 31, 2016, the Company had $359.1 million and $358.9 million, respectively, of outstanding junior subordinated deferrable interest debentures (“junior subordinated debentures”) held by statutory business trusts (the “Trusts”) that issued guaranteed capital securities.
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 junior subordinated debentures were outstanding at September 30, 2017:
Issuer | Interest Rate of Capital Securities and Debentures | Junior Subordinated Debentures Amount Outstanding | Capital Securities Amount Outstanding | Date of Original Issue | Stated Maturity | First Optional Redemption Date | ||||||||||||||||||
(dollars in thousands) | ||||||||||||||||||||||||
New York Community Capital Trust V (BONUSESSMUnits) | 6.000 | % | $ | 145,176 | $ | 138,825 | Nov. 4, 2002 | Nov. 1, 2051 | Nov. 4, 2007 | (1) | ||||||||||||||
New York Community Capital Trust X | 2.920 | 123,712 | 120,000 | Dec. 14, 2006 | Dec. 15, 2036 | Dec. 15, 2011 | (2) | |||||||||||||||||
PennFed Capital Trust III | 4.570 | 30,928 | 30,000 | June 2, 2003 | June 15, 2033 | June 15, 2008 | (2) | |||||||||||||||||
New York Community Capital Trust XI | 2.985 | 59,286 | 57,500 | April 16, 2007 | June 30, 2037 | June 30, 2012 | (2) | |||||||||||||||||
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| |||||||||||||||||||||
Total junior subordinated debentures | $ | 359,102 | $ | 346,325 | ||||||||||||||||||||
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Note 8. Mortgage Servicing Rights
The Company records a separate servicing asset representing the right to service third-party loans. Such MSRs are initially recorded at their fair value as a component of the sale proceeds. The fair values of MSRs are based on an analysis of discounted cash flows that incorporates estimates of (1) market servicing costs, (2) market-based estimates of ancillary servicing revenue, (3) market-based prepayment rates, and (4) market profit margins.
MSRs are subsequently measured at either fair value or are amortized in proportion to, and over the period of, estimated net servicing income. The Company elects one of those methods on a class basis. A class is determined based on (1) the availability of market inputs used in determining the fair value of servicing assets, and/or (2) the Company’s method for managing the risks of servicing assets.
As previously discussed, the Company completed the sale of its mortgage banking business in the third quarter of 2017, and consequently sold substantially all of its mortgage servicing assets. Accordingly, the value of the MSR asset declined to $6.9 million at September 30, 2017, compared to $225.4 million at June 30, 2017 and $234.0 million at December 31, 2016. These balances all consisted of two classes of MSRs for which the Company separately manages the economic risk: residential MSRs and participation MSRs (i.e., MSRs on loans sold through participations).
Residential MSRs are carried at fair value, and at September 30, 2017 reflected only loans sold through the FHLB’s Mortgage Partnership Finance Program, with changes in fair value recorded as a component ofnon-interest income in each period. The Company uses various derivative instruments to mitigate the income statement-effect of changes in fair value due to changes in valuation inputs and assumptions regarding its residential MSRs. The effects of changes in the fair value of the derivatives are recorded as “Mortgage banking income,” which is included in“Non-interest income” in the Consolidated Statements of Income and Comprehensive Income. MSRs do not trade in an active open market with readily observable prices. Accordingly, the Company utilizes a third-party valuation specialist to determine the fair value of its MSRs. This specialist determines fair value based on the present value of estimated future net servicing income cash flows, and incorporates assumptions that market participants would use to estimate fair value, including estimates of prepayment speeds, discount rates, default rates, refinance rates, servicing costs, escrow account earnings, contractual servicing fee income, and ancillary income. The specialist and the Company evaluate, and periodically adjust, as necessary, these underlying inputs and assumptions to reflect market conditions and changes in the assumptions that a market participant would consider in valuing MSRs.
The value of residential MSRs at any given time is significantly affected by the mortgage interest rates that are then available in the marketplace. These, in turn, influence mortgage loan prepayment speeds. The rate of prepayment of serviced residential loans is the most significant estimate involved in the measurement process. Actual prepayment rates may differ from those projected by management due to changes in a variety of economic factors, including prevailing interest rates and the availability of alternative financing sources to borrowers.
During periods of declining interest rates, the value of residential MSRs generally declines as an increase in mortgage refinancing activity results in an increase in prepayments and a decrease in the carrying value of residential MSRs through a charge to earnings in the current period. Conversely, during periods of rising interest rates, the value of residential MSRs generally increases as mortgage refinancing activity declines and the actual prepayments of loans being serviced occur more slowly than had been expected. This results in the carrying value of residential MSRs and servicing income being higher than previously anticipated. Accordingly, the value of residential MSRs that is actually realized could differ from the value initially recorded.
The collective amount of contractually specified servicing fees, late fees, and ancillary fees, which is recorded as “Mortgage banking income” in the Consolidated Statements of Income and Comprehensive Income, was $483,000 and $1.1 million for the three and nine months ended September 30, 2017, respectively, and $351,000 and $983,000 for the three and nine months ended September 30, 2016, respectively.
Participation MSRs are initially carried at fair value and are subsequently amortized and carried at the lower of their fair value or amortized amount. The amortization is recorded in proportion to, and over the period of, estimated net servicing income, with impairment of those servicing assets evaluated through an assessment of their fair value via a discounted cash-flow method. The net carrying value is compared to the discounted estimated future net cash flows to determine whether adjustments should be made to carrying values or amortization schedules. Impairment of participation MSRs is recognized through a valuation allowance and a charge to current-period earnings if it is considered to be temporary, or through a direct write-down of the asset and a charge to current-period earnings if it is considered to be other than temporary. The predominant risk characteristics of the underlying loans that are used to stratify the participation MSRs for measurement purposes generally include the (1) loan origination date, (2) loan rate, (3) loan type and size, (4) loan maturity date, and (5) geographic location. Changes in the carrying value of participation MSRs due to amortization or declines in fair value (i.e., impairment), if any, are reported in “Other income” in the period during which such changes occur. In the nine months ended September 30, 2017 and 2016, there was no impairment related to the Company’s participation MSRs.
The following tables set forth the changes in the balances of residential MSRs and participation MSRs for the periods indicated:
For the Three Months Ended | ||||||||||||||||
September 30, 2017 | September 30, 2016 | |||||||||||||||
(in thousands) | Residential | Participation | Residential | Participation | ||||||||||||
Carrying value, beginning of period | $ | 220,586 | $ | 4,853 | $ | 188,331 | $ | 5,663 | ||||||||
Additions | 6,072 | 39 | 12,005 | 731 | ||||||||||||
Sales | (208,827 | ) | — | — | — | |||||||||||
Increase (decrease) in fair value: | ||||||||||||||||
Due to changes in interest rates | (222 | ) | — | 5,668 | — | |||||||||||
Due to model assumption changes(1) | — | — | — | — | ||||||||||||
Due to loan payoffs | (7,855 | ) | — | (12,818 | ) | — | ||||||||||
Due to passage of time and other changes | (6,972 | ) | — | (1,767 | ) | — | ||||||||||
Amortization | — | (813 | ) | — | (618 | ) | ||||||||||
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| |||||||||
Carrying value, end of period | $ | 2,782 | $ | 4,079 | $ | 191,419 | $ | 5,776 | ||||||||
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For the Nine Months Ended | ||||||||||||||||
September 30, 2017 | September 30, 2016 | |||||||||||||||
(in thousands) | Residential | Participation | Residential | Participation | ||||||||||||
Carrying value, beginning of period | $ | 228,099 | $ | 5,862 | $ | 243,389 | $ | 4,345 | ||||||||
Additions | 18,054 | 595 | 31,185 | 2,999 | ||||||||||||
Sales | (208,827 | ) | — | — | — | |||||||||||
Increase (decrease) in fair value: | ||||||||||||||||
Due to changes in interest rates | (2,130 | ) | — | (32,139 | ) | — | ||||||||||
Due to model assumption changes(1) | — | — | (13,088 | ) | — | |||||||||||
Due to loan payoffs | (22,524 | ) | — | (31,939 | ) | — | ||||||||||
Due to passage of time and other changes | (9,890 | ) | — | (5,989 | ) | — | ||||||||||
Amortization | — | (2,378 | ) | — | (1,568 | ) | ||||||||||
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| |||||||||
Carrying value, end of period | $ | 2,782 | $ | 4,079 | $ | 191,419 | $ | 5,776 | ||||||||
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The following table presents the key assumptions used in calculating the fair value of the Company’s residential MSRs at the dates indicated:
September 30, 2017 | December 31, 2016 | |||||||
Expected weighted average life | 87 months | 82 months | ||||||
Constant prepayment speed | 9.89 | % | 8.70 | % | ||||
Discount rate | 12.00 | 10.05 | ||||||
Primary mortgage rate to refinance | 4.00 | 4.11 | ||||||
Cost to service (per loan per year): | ||||||||
Current | $70 | $64 | ||||||
30-59 days or less delinquent | 220 | 214 | ||||||
60-89 days delinquent | 370 | 364 | ||||||
90-119 days delinquent | 470 | 464 | ||||||
120 days or more delinquent | 870 | 864 |
The increase in the constant prepayment speed was primarily attributable to an increase in the housing price index used by the Company’s third-party valuation specialist, suggesting that homebuyer demand has increased and newly created equity could lead to more refinancing.
In connection with the aforementioned sale of the Company’s MSR portfolio, the Company will temporarily continue to service the $20.5 billion of loans and, consequently, the total unpaid principal balance of loans serviced for others remained largely unchanged at $24.5 billion and $25.1 billion at September 30, 2017 and December 31, 2016, respectively.
Note 9. Pension and Other Post-Retirement Benefits
The following table sets forth certain disclosures for the Company’s pension and post-retirement plans for the periods indicated:
For the Three Months Ended September 30, | ||||||||||||||||
2017 | 2016 | |||||||||||||||
(in thousands) | Pension Benefits | Post- Retirement Benefits | Pension Benefits | Post- Retirement Benefits | ||||||||||||
Components of net periodic (credit) expense: | ||||||||||||||||
Interest cost | $ | 1,404 | $ | 144 | $ | 1,470 | $ | 160 | ||||||||
Service cost | — | — | — | 1 | ||||||||||||
Expected return on plan assets | (4,073 | ) | — | (3,906 | ) | — | ||||||||||
Amortization of prior-service costs | — | (62 | ) | — | (62 | ) | ||||||||||
Amortization of net actuarial loss | 2,053 | 68 | 2,262 | 81 | ||||||||||||
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| |||||||||
Net periodic (credit) expense | $ | (616 | ) | $ | 150 | $ | (174 | ) | $ | 180 | ||||||
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|
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For the Nine Months Ended September 30, | ||||||||||||||||
2017 | 2016 | |||||||||||||||
(in thousands) | Pension Benefits | Post- Retirement Benefits | Pension Benefits | Post- Retirement Benefits | ||||||||||||
Components of net periodic (credit) expense: | ||||||||||||||||
Interest cost | $ | 4,211 | $ | 433 | $ | 4,411 | $ | 479 | ||||||||
Service cost | — | — | — | 3 | ||||||||||||
Expected return on plan assets | (12,217 | ) | — | (11,720 | ) | — | ||||||||||
Amortization of prior-service costs | — | (187 | ) | — | (187 | ) | ||||||||||
Amortization of net actuarial loss | 6,157 | 206 | 6,786 | 245 | ||||||||||||
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| |||||||||
Net periodic (credit) expense | $ | (1,849 | ) | $ | 452 | $ | (523 | ) | $ | 540 | ||||||
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The Company expects to contribute $1.3 million to its post-retirement plan to pay premiums and claims for the fiscal year ending December 31, 2017. The Company does not expect to make any contributionscollect all amounts due according to its pension plan in 2017.
Note 10. Stock-Based Compensation
At September 30, 2017, the Company had a total of 6,912,431 shares available for grants as options, restricted stock, or other forms of related rights under the New York Community Bancorp, Inc. 2012 Stock Incentive Plan (the “2012 Stock Incentive Plan”), which was approved by the Company’s shareholders at its Annual Meeting on June 7, 2012. The Company granted 2,941,249 shares of restricted stock during the nine months ended September 30, 2017. The shares had an average fair value of $15.18 per share on the date of grant and a vesting period of five years. The nine-month amount includes 122,500 shares that were granted in the third quarter with an average fair value of $12.95 per share on the date of grant. Compensation and benefits expense related to the restricted stock grants is recognized on a straight-line basis over the vesting period, and totaled $27.3 million and $24.6 million, respectively, in the nine months ended September 30, 2017 and 2016, including $9.1 million and $8.2 million, respectively, in the three months ended at those dates.
The following table provides a summary of activity with regard to restricted stock awards in the nine months ended September 30, 2017:
Number of Shares | Weighted Average Grant Date Fair Value | |||||||
Unvested at beginning of year | 6,930,306 | $ | 15.37 | |||||
Granted | 2,941,249 | 15.18 | ||||||
Vested | (2,291,234 | ) | 15.02 | |||||
Canceled | (206,920 | ) | 15.58 | |||||
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| |||||||
Unvested at end of period | 7,373,401 | 15.40 | ||||||
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|
As of September 30, 2017, unrecognized compensation cost relating to unvested restricted stock totaled $90.9 million. This amount will be recognized over a remaining weighted average period of 3.2 years.
The Company had no stock options outstanding at September 30, 2017 or December 31, 2016.
Note 11. Fair Value Measurements
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:
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.
The following tables present assets and liabilities that were measured at fair value on a recurring basis for the periods indicated, and that were included in the Company’s Consolidated Statements of Condition at those dates:
Fair Value Measurements at September 30, 2017 | ||||||||||||||||||||
(in thousands) | Quoted Prices in Active Markets for Identical Assets (Level 1) | Significant Other Observable Inputs (Level 2) | Significant Unobservable Inputs (Level 3) | Netting Adjustments(1) | Total Fair Value | |||||||||||||||
Assets: | ||||||||||||||||||||
Mortgage-Related Securities Available for Sale: | ||||||||||||||||||||
GSE certificates | $ | — | $ | 1,960,352 | $ | — | $ | — | $ | 1,960,352 | ||||||||||
GSE CMOs | — | 550,177 | — | — | 550,177 | |||||||||||||||
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| |||||||||||
Total mortgage-related securities | $ | — | $ | 2,510,529 | $ | — | $ | — | $ | 2,510,529 | ||||||||||
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Other Securities Available for Sale: | ||||||||||||||||||||
U.S Treasury Obligations | $ | 199,875 | $ | — | $ | — | $ | — | $ | 199,875 | ||||||||||
GSE debentures | — | 90,834 | — | — | 90,834 | |||||||||||||||
Corporate bonds | — | 86,137 | — | — | 86,137 | |||||||||||||||
Municipal bonds | — | 70,367 | — | — | 70,367 | |||||||||||||||
Capital trust notes | — | 40,767 | — | — | 40,767 | |||||||||||||||
Preferred stock | 15,339 | — | — | — | 15,339 | |||||||||||||||
Mutual funds and common stock | — | 17,178 | — | — | 17,178 | |||||||||||||||
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Total other securities | $ | 215,214 | $ | 305,283 | $ | — | $ | — | $ | 520,497 | ||||||||||
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Total securities available for sale | $ | 215,214 | $ | 2,815,812 | $ | — | $ | — | $ | 3,031,026 | ||||||||||
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Other Assets: | ||||||||||||||||||||
Loans held for sale | $ | — | $ | 104,938 | $ | — | $ | — | $ | 104,938 | ||||||||||
Mortgage servicing rights | — | — | 2,782 | — | 2,782 | |||||||||||||||
Interest rate lock commitments | — | — | 269 | — | 269 | |||||||||||||||
Derivative assets-other(2) | 157 | 836 | — | (674 | ) | 319 | ||||||||||||||
Liabilities: | ||||||||||||||||||||
Derivative liabilities | $ | (144 | ) | $ | (1,322 | ) | $ | — | $ | 1,248 | $ | (218 | ) |
Assets: Mortgage-Related Securities Available for Sale: GSE certificates Total mortgage-related securities Other Securities Available for Sale: 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 Interest rate lock commitments Derivative assets-other(2) Liabilities: Derivative liabilities Fair Value Measurements at December 31, 2016 (in thousands) Quoted Prices
in Active
Markets for
Identical
Assets
(Level 1) Significant
Other
Observable
Inputs
(Level 2) Significant
Unobservable
Inputs
(Level 3) Netting
Adjustments(1) Total
Fair Value $ — $ 7,326 $ — $ — $ 7,326 $ — $ 7,326 $ — $ — $ 7,326 $ — $ 631 $ — $ — $ 631 — 7,243 — — 7,243 42,724 29,260 — — 71,984 — 17,097 — — 17,097 $ 42,724 $ 54,231 $ — $ — $ 96,955 $ 42,724 $ 61,557 $ — $ — $ 104,281 $ — $ 409,152 $ — $ — $ 409,152 — — 228,099 — 228,099 — — 982 — 982 2,611 16,829 — (17,861 ) 1,579 $ (6,009 ) $ (17,719 ) $ — $ 16,588 $ (7,140 )
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 ofavailable-for-sale securities follows:
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, exchange-traded securities, and derivatives.
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.
The Company carries loans held for sale at fair value. The fair value of loans held for sale is primarily based on quoted market prices for securities backed by similar types of loans. Changes in the fair value of these assets are largely driven by changes in interest rates subsequent to loan funding, and changes in the fair value of servicing associated with the mortgage loans held for sale. Loans held for sale are classified within Level 2 of the valuation hierarchy.
MSRs do not trade in an active open market with readily observable prices. The Company bases the fair value of its MSRs on the present value of estimated future net servicing income cash flows, utilizing a third-party valuation specialist. The specialist estimates future net servicing income cash flows with assumptions that market participants would use to estimate fair value, including estimates of prepayment speeds, discount rates, default rates, refinance rates, servicing costs, escrow account earnings, contractual servicing fee income, and ancillary income. The Company periodically adjusts the underlying inputs and assumptions to reflect market conditions and assumptions that a market participant would consider in valuing the MSR asset. MSR fair value measurements use significant unobservable inputs and, accordingly, are classified within Level 3.
Exchange-traded derivatives that are valued using quoted prices are classified within Level 1 of the valuation hierarchy. The majority of the Company’s derivative positions are valued using internally developed models that use readily observable market parameters as their basis. These are parameters that are actively quoted and can be validated by external sources, including industry pricing services. Where the types of derivative products have been in existence for some time, the Company uses models that are widely accepted in the financial services industry. These models reflect the contractual terms of the derivatives, includingloan agreement. When a loan is placed on non-accrual status, we cease the period to maturity, and market-based parameters such as interest rates, volatility, and the credit quality of the counterparty. Furthermore, many of these models do not contain a high level of subjectivity, as the methodologies used in the models do not require significant judgment, and inputs to the models are readily observable from actively quoted markets, as is the case for “plain vanilla” interest rate swaps and option contracts. Such instruments are generally classified within Level 2 of the valuation hierarchy. Derivatives that are valued based on models with significant unobservable market parameters, and that are normally traded less actively, have trade activity that isone-way, and/or are traded in less-developed markets, are classified within Level 3 of the valuation hierarchy.
The fair valuesaccrual of interest rate lock commitments (“IRLCs”) for residential mortgageowed, 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.
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.
Fair Value Option
Loans Held for Sale
The Company has elected the fair value option for its loans held for sale. These loans held for sale consist ofone-to-four family mortgage loans, none of which was 90 days or more past due at September 30, 2017. Management believes that the mortgage banking business operates on a short-term cycle. Therefore, in order to reflect the most relevant valuations for the key componentsand still accruing interest. Non-performing assets consist of this business,non-performing loans, OREO and to reduce timing differences in amounts recognized in earnings,other repossessed assets.
The following table reflects the difference between the fair value carrying amount of loans held for sale, for which the Company has elected the fair value option, and the unpaid principal balance:
September 30, 2017 | December 31, 2016 | |||||||||||||||||||||||
(in thousands) | Fair Value Carrying Amount | Aggregate Unpaid Principal | Fair Value Carrying Amount Less Aggregate Unpaid Principal | Fair Value Carrying Amount | Aggregate Unpaid Principal | Fair Value Carrying Amount Less Aggregate Unpaid Principal | ||||||||||||||||||
Loans held for sale | $ | 104,938 | $ | 102,236 | $ | 2,702 | $ | 409,152 | $ | 408,928 | $ | 224 |
Gains and Losses Included in Income for Assets Where the Fair Value Option Has Been Elected
The assets accounted for under the fair value option are initially measured at fair value. Gains and losses from the initial measurement and subsequent changes in fair value are recognized in earnings. The following table presents the changes in fair value related to initial measurement, and the subsequent changes in fair value included in earnings, for loans held for sale and MSRs for the periods indicated:
Gain (Loss) Included in Mortgage Banking Income from Changes in Fair Value(1) | ||||||||||||||||
For the Three Months Ended September 30, | For the Nine Months Ended September 30, | |||||||||||||||
(in thousands) | 2017 | 2016(2) | 2017 | 2016(2) | ||||||||||||
Loans held for sale | $ | 464 | $ | (1,020 | ) | $ | 1,059 | $ | 2,782 | |||||||
Mortgage servicing rights | (9,743 | ) | (8,917 | ) | (20,092 | ) | (76,998 | ) | ||||||||
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Total loss | $ | (9,279 | ) | $ | (9,937 | ) | $ | (19,033 | ) | $ | (74,216 | ) | ||||
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The Company has determined that there is no instrument-specific credit risk related to its loans held for sale, due to the short duration of such assets.
Changes in Level 3 Fair Value Measurements
The following tables present, for the nine months ended September 30, 2017 and 2016, a roll-forward of the balance sheet amounts (including changes in fair value) for financial instruments classified in Level 3 of the valuation hierarchy:
(in thousands) | Fair Value January 1, 2017 | Total Realized/Unrealized Gains/(Losses) Recorded in | Issuances | Settlements | Transfers to/(from) Level 3 | Fair Value at September 30, 2017 | Change in Unrealized Gains/ (Losses) Related to Instruments Held at September 30, 2017 | |||||||||||||||||||||||||
Income/ (Loss) | Comprehensive (Loss) Income | |||||||||||||||||||||||||||||||
Mortgage servicing rights | $ | 228,099 | $ | (34,544 | ) | $ | — | $ | 18,054 | $ | (208,827 | ) | $ | — | $ | 2,782 | $ | (182 | ) | |||||||||||||
Interest rate lock commitments | 982 | (713 | ) | — | — | — | — | 269 | 269 | |||||||||||||||||||||||
(in thousands) | Fair Value January 1, 2016 | Total Realized/Unrealized Gains/(Losses) Recorded in | Issuances | Settlements | Transfers to/(from) Level 3 | Fair Value at September 30, 2016 | Change in Unrealized Gains/ (Losses) Related to Instruments Held at September 30, 2016 | |||||||||||||||||||||||||
Income/ (Loss) | Comprehensive (Loss) Income | |||||||||||||||||||||||||||||||
Mortgage servicing rights | $ | 243,389 | $ | (83,155 | ) | $ | — | $ | 31,185 | $ | — | $ | — | $ | 191,419 | $ | (58,546 | ) | ||||||||||||||
Interest rate lock commitments | 2,526 | 4,408 | — | — | — | — | 6,934 | 6,934 |
The Company’s policy is to recognize transfers in and out of Levels 1, 2, and 3 as of the end of the reporting period. There were no transfers in or out of Levels 1, 2, or 3 during the nine months ended September 30, 2017 or 2016.
For Level 3 assets and liabilities measured at fair value on a recurring basis as of September 30, 2017, the significant unobservable inputs used in the fair value measurements were as follows:
(dollars in thousands) | Fair Value at | Valuation Technique | Significant Unobservable Inputs | Significant Unobservable Input Value | ||||||
Mortgage servicing rights | $2,782 | Discounted Cash Flow | Weighted Average Constant Prepayment Rate(1) | 9.89 | % | |||||
Weighted Average Discount Rate | 12.00 | |||||||||
Interest rate lock commitments | 269 | Discounted Cash Flow | Weighted Average Closing Ratio | 69.88 |
The significant unobservable inputs used in the fair value measurement of the Company’s MSRs are the weighted average constant prepayment rate and the weighted average discount rate. Significant increases or decreases in either of those inputs in isolation could result in significantly lower or higher fair value measurements. Although the constant prepayment rate and the discount rateexcept they are not directly interrelated, they generally move in opposite directions.
The significant unobservable input used in the fair value measurement of the Company’s IRLCs is the closing ratio, which represents the percentage of loans currently in an interest rate lock position that management estimates will ultimately close. Generally, the fair value of an IRLC is positive if the prevailing interest rate is lower than the IRLC rate, and the fair value of an IRLC is negative if the prevailing interest rate is higher than the IRLC rate. Therefore, an increase in the closing ratio (i.e., a higher percentage of loans estimated to close) will result in the fair value of the IRLC increasing if in a gain position, or decreasing if in a loss position. The closing ratio is largely dependent on the stage of processing that a loan is currently in, and the change in prevailing interest rates from the time of the interest rate lock.
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 and liabilities that were measured at fair value on anon-recurring basis as of September 30, 2017 and December 31, 2016, and that were included in the Company’s Consolidated Statements of Condition at those dates:
Fair Value Measurements at September 30, 2017 Using | ||||||||||||||||
(in thousands) | Quoted Prices in Active Markets for Identical Assets (Level 1) | Significant Other Observable Inputs (Level 2) | Significant Unobservable Inputs (Level 3) | Total Fair Value | ||||||||||||
Certain impaired loans(1) | $ | — | $ | — | $ | 42,581 | $ | 42,581 | ||||||||
Other assets(2) | — | — | 1,493 | 1,493 | ||||||||||||
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Total | $ | — | $ | — | $ | 44,074 | $ | 44,074 | ||||||||
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Fair Value Measurements at December 31, 2016 Using | ||||||||||||||||
(in thousands) | Quoted Prices in Active Markets for Identical Assets (Level 1) | Significant Other Observable Inputs (Level 2) | Significant Unobservable Inputs (Level 3) | Total Fair Value | ||||||||||||
Certain impaired loans(1) | $ | — | $ | — | $ | 15,635 | $ | 15,635 | ||||||||
Other assets(2) | — | — | 5,684 | 5,684 | ||||||||||||
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Total | $ | — | $ | — | $ | 21,319 | $ | 21,319 |
The fair values of collateral-dependent impaired loans are determined using various valuation techniques, including consideration of appraised values and other pertinent real estate market data.
Other Fair Value Disclosures
GAAP requires the disclosure of fair value information about the Company’son- andoff-balance sheet financial instruments. When available, quoted market prices are used as the measure of fair value. estate-related assets.
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.
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 the dates indicated:
September 30, 2017 | ||||||||||||||||||||
Fair Value Measurement Using | ||||||||||||||||||||
(in thousands) | Carrying Value | Estimated Fair Value | Quoted Prices in Active Markets for Identical Assets (Level 1) | Significant Other Observable Inputs (Level 2) | Significant Unobservable Inputs (Level 3) | |||||||||||||||
Financial Assets: | ||||||||||||||||||||
Cash and cash equivalents | $ | 3,277,427 | $ | 3,277,427 | $ | 3,277,427 | $ | — | $ | — | ||||||||||
FHLB stock(1) | 579,474 | 579,474 | — | 579,474 | — | |||||||||||||||
Loans, net | 37,452,219 | 37,671,152 | — | — | 37,671,152 | |||||||||||||||
Financial Liabilities: | ||||||||||||||||||||
Deposits | $ | 28,893,197 | $ | 28,869,413 | $ | 20,090,624 | (2) | $ | 8,778,789 | (3) | $ | — | ||||||||
Borrowed funds | 12,363,602 | 12,277,697 | — | 12,277,697 | — |
December 31, 2016 | ||||||||||||||||||||
Fair Value Measurement Using | ||||||||||||||||||||
(in thousands) | Carrying Value | Estimated Fair Value | Quoted Prices in Active Markets for Identical Assets (Level 1) | Significant Other Observable Inputs (Level 2) | Significant Unobservable Inputs (Level 3) | |||||||||||||||
Financial Assets: | ||||||||||||||||||||
Cash and cash equivalents | $ | 557,850 | $ | 557,850 | $ | 557,850 | $ | — | $ | — | ||||||||||
Securities held to maturity | 3,712,776 | 3,813,959 | 200,220 | 3,613,739 | — | |||||||||||||||
FHLB stock(1) | 590,934 | 590,934 | — | 590,934 | — | |||||||||||||||
Loans, net | 39,308,016 | 39,416,469 | — | — | 39,416,469 | |||||||||||||||
Financial Liabilities: | ||||||||||||||||||||
Deposits | $ | 28,887,903 | $ | 28,888,064 | $ | 21,310,733 | (2) | $ | 7,577,331 | (3) | $ | — | ||||||||
Borrowed funds | 13,673,379 | 13,633,943 | — | 13,633,943 | — |
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.
Federal Home Loan Bank Stock
Ownership in equity securities of the FHLB is restricted and there is no established market for their resale. The carrying amount approximates the fair value.
Loans
The loan portfolio is segregated into various components for valuation purposes in order to group loans based on their significant financial characteristics, such as loan type (mortgage or other) and payment status (performing ornon-performing). The estimated fair values of mortgage and other loans are computed by discounting the anticipated cash flows from the respective portfolios. The discount rates reflect current market rates for loans with similar terms to borrowers of similar credit quality. The estimated fair values ofnon-performing mortgage and other loans are based on recent collateral appraisals.
The methods used to estimate the fair values of loans are extremely sensitive to the assumptions and estimates used. While management has attempted to use assumptions and estimates that best reflect the Company’s loan portfolio and current market conditions, a greater degree of subjectivity is inherent in these values than in those determined in active markets. Accordingly, readers are cautioned in using this information for purposes of evaluating the financial condition and/or value of the Company in and of itself, or in comparison with that of any other company.
Mortgage Servicing Rights
MSRs do not trade in an active market with readily observable prices. Accordingly, the Company bases the fair value of its MSRs on a valuation performed by a third-party valuation specialist. This specialist determines fair value based on the present value of estimated future net servicing income cash flows, and incorporates assumptions that market participants would use to estimate fair value, including estimates of prepayment speeds, discount rates, default rates, refinance rates, servicing costs, escrow account earnings, contractual servicing fee income, and ancillary income. The specialist and the Company evaluate, and periodically adjust, as necessary, these underlying inputs and assumptions to reflect market conditions and changes in the assumptions that a market participant would consider in valuing MSRs.
Derivative Financial Instruments
For exchange-traded futures and exchange-traded options, fair value is based on observable quoted market prices in an active market. For forward commitments to buy and sell loans and mortgage-backed securities, fair value is based on observable market prices for similar loans and securities in an active market. The fair value of IRLCs forone-to-four family mortgage loans that the Company intends to sell is based on internally developed models. The key model inputs primarily include the sum of the value of the forward commitment based on the loans’ expected settlement dates, the value of MSRs arrived at by an independent MSR broker, government agency price adjustment factors, and historical IRLCfall-out factors.
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 significant portion of the Company’s deposit base.
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 September 30, 2017 and December 31, 2016.
Note 12. Derivative Financial Instruments
The Company’s derivative financial instruments consist of financial forward and futures contracts, interest rate swaps, IRLCs, and options. These derivatives relate to mortgage banking operations, residential MSRs, and other risk management activities, and seek to mitigate or reduce the Company’s exposure to losses from adverse changes in interest rates. These activities will vary in scope based on the level and volatility of interest rates, other changing market conditions, and the types of assets held.
In accordance with the applicable accounting guidance, the Company takes into account the impact of collateral and master netting agreements that allow it to settle all derivative contracts held with a single counterparty on a net basis, and to offset the net derivative position with the related collateral when recognizing derivative assets and liabilities. As a result, the Company’s Statements of Financial Condition could reflect derivative contracts with negative fair values that are included in derivative assets, and contracts with positive fair values that are included in derivative liabilities.
The Company held derivatives with a notional amount of $765.9 million at September 30, 2017. Changes in the fair value of these derivatives are reflected in current-period earnings. None of these derivatives are designated as hedges for accounting purposes.
The Company uses various financial instruments, including derivatives, in connection with its strategies to reduce pricing risk resulting from changes in interest rates. Derivative instruments may include IRLCs entered into with borrowers or correspondents/brokers to acquire agency-conforming fixed and adjustable rate residential mortgage loans that will be held for sale, as well as Treasury options and Eurodollar futures.
The Company enters into forward contracts to sell fixed rate mortgage-backed securities to protect against changes in the prices of agency-conforming fixed rate loans held for sale. Forward contracts are entered into with securities dealers in an amount related to the portion of IRLCs that is expected to close. The value of these forward sales contracts moves inversely with the value of the loans in response to changes in interest rates.
To manage the price risk associated with fixed-ratenon-conforming mortgage loans, the Company generally enters into forward contracts on mortgage-backed securities or forward commitments to sell loans to approved investors. Short positions in Eurodollar futures contracts are used to manage price risk on adjustable rate mortgage loans held for sale.
The Company uses interest rate swaps to hedge the fair value of its residential MSRs. The Company also purchases put and call options to manage the risk associated with variations in the amount of IRLCs that ultimately close.
The following table sets forth information regarding the Company’s derivative financial instruments at September 30, 2017:
(in thousands) | Notional Amount | Unrealized(1) | ||||||||||
Gain | Loss | |||||||||||
Treasury options | $ | 20,000 | $ | — | $ | 144 | ||||||
Eurodollar futures | 20,000 | 1 | — | |||||||||
Forward commitments to sell loans/mortgage-backed securities | 365,000 | 836 | 461 | |||||||||
Forward commitments to buy loans/mortgage-backed securities | 305,000 | — | 861 | |||||||||
Interest rate lock commitments | 55,886 | 269 | — | |||||||||
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Total derivatives | $ | 765,886 | $ | 1,106 | $ | 1,466 | ||||||
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In addition, the Company mitigates a portion of the risk associated with changes in the value of its residential MSRs. The general strategy for mitigating this risk is to purchase derivative instruments, the value of which changes in the opposite direction of interest rates. This action partially offsets changes in the value of its servicing assets, which tends to move in the same direction as interest rates. Accordingly, the Company purchases Eurodollar futures and call options on Treasury securities, and enters into forward contracts to purchase mortgage-backed securities.
The following table sets forth the effect of derivative instruments on the Consolidated Statements of Income and Comprehensive Income for the periods indicated:
Gain (Loss) Included in Mortgage Banking Income | ||||||||||||||||
For the Three Months Ended September 30, | For the Nine Months Ended September 30, | |||||||||||||||
(in thousands) | 2017 | 2016 | 2017 | 2016 | ||||||||||||
Treasury options | $ | (1,147 | ) | $ | (6,245 | ) | $ | (4,397 | ) | $ | 3,619 | |||||
Treasury and Eurodollar futures | (90 | ) | 17 | (163 | ) | (38 | ) | |||||||||
Interest rate swaps | (2,449 | ) | (1,751 | ) | (202 | ) | 2,427 | |||||||||
Forward commitments to buy/sell loans/mortgage-backed securities | (442 | ) | 1,768 | (3,522 | ) | 48 | ||||||||||
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Total (loss)/gain | $ | (4,128 | ) | $ | (6,211 | ) | $ | (8,284 | ) | $ | 6,056 | |||||
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The Company has in place an enforceable master netting arrangement with every counterparty. All master netting arrangements include rights to offset associated with the Company’s recognized derivative assets, derivative liabilities, and the cash collateral received and pledged. Accordingly, the Company, where appropriate, offsets all derivative asset and liability positions with the cash collateral received and pledged.
The following tables present the effect of the master netting arrangements on the presentation of the derivative assets in the Consolidated Statements of Condition as of the dates indicated:
September 30, 2017 | ||||||||||||||||||||||||
(in thousands) | Gross Amount of Recognized Assets(1) | Gross Amount Offset in the Statements of Condition | Net Amount of Assets Presented in the Statements of Condition | Gross Amounts Not Offset in the Consolidated Statements of Condition | Net Amount | |||||||||||||||||||
Financial Instruments | Cash Collateral Received | |||||||||||||||||||||||
Derivatives | $ | 1,262 | $ | 674 | $ | 588 | $ | — | $ | — | $ | 588 |
December 31, 2016 | ||||||||||||||||||||||||
(in thousands) | Gross Amount of Recognized Assets(1) | Gross Amount Offset in the Statements of Condition | Net Amount of Assets Presented in the Statements of Condition | Gross Amounts Not Offset in the Consolidated Statements of Condition | Net Amount | |||||||||||||||||||
Financial Instruments | Cash Collateral Received | |||||||||||||||||||||||
Derivatives | $ | 20,422 | $ | 17,861 | $ | 2,561 | $ | — | $ | — | $ | 2,561 |
The following tables present the effect the master netting arrangements had on the presentation of the derivative liabilities in the Consolidated Statements of Condition as of the dates indicated:
September 30, 2017 | ||||||||||||||||||||||||
(in thousands) | Gross Amount of Recognized Liabilities | Gross Amount Offset in the Statements of Condition | Net Amount of Liabilities Presented in the Statements of Condition | Gross Amounts Not Offset in the Consolidated Statements of Condition | Net Amount | |||||||||||||||||||
Financial Instruments | Cash Collateral Pledged | |||||||||||||||||||||||
Derivatives | $ | 1,466 | $ | 1,248 | $ | 218 | $ | — | $ | — | $ | 218 |
Derivatives December 31, 2016 (in thousands) Gross Amount
of Recognized
Liabilities Gross Amount
Offset in the
Statements of
Condition Net Amount of
Liabilities
Presented in the
Statements of
Condition Gross Amounts Not
Offset in the
Consolidated
Statements of Condition Net
Amount Financial
Instruments Cash
Collateral
Pledged $ 23,728 $ 16,588 $ 7,140 $ — $ — $ 7,140
Note 13. Segment Reporting
The Company’s operations are divided into two reportable business segments: Banking Operations and Residential Mortgage Banking. These operating segments have been identified based on the Company’s organizational structure. The segments require unique technology and marketing strategies, and offer different products and services. While the Company is managed as an integrated organization, individual executive managers are held accountable for the operations of these business segments.
The Company measures and presents information for internal reporting purposes in a variety of ways. The internal reporting system presently used by management in the planning and measurement of operating activities, and to which most managers are held accountable, is based on organizational structure.
The management accounting process uses various estimates and allocation methodologies to measure the performance of the operating segments. To determine financial performance for each segment, the Company allocates capital, funding charges and credits, certainnon-interest expenses, and income tax provisions to each segment, as applicable. Allocation methodologies are subject to periodic adjustment as the internal management accounting system is revised and/or as business or product lines within the segments change. In addition, because the development and application of these methodologies is a dynamic process, the financial results presented may be periodically revised.
The Company seeks to maximize shareholder value by, among other means, optimizing the return on stockholders’ equity and managing risk. Capital is assigned to each segment, the combination of which is equivalent to the Company’s consolidated total, on an economic basis, using management’s assessment of the inherent risks associated with the respective segments.
The Company allocates expenses to the reportable segments based on various factors, including the volume and number of loans produced and the number of full-time equivalent employees. Income taxes are allocated to the various segments based on taxable income and statutory rates applicable to the segment.
Banking Operations Segment
The Banking Operations segment serves consumers and businesses by offering and servicing a variety of loan and deposit products and other financial services.
Residential Mortgage Banking Segment
The Residential Mortgage Banking segment originated, aggregated, sold, and servicedone-to-four family mortgage loans. Mortgage loan products consist primarily of agency-conforming, fixed and adjustable rate loans and, to a lesser extent, jumbo loans, for the purpose of purchasing or refinancingone-to-four family homes. The Residential Mortgage Banking segment earns interest on loans held in the warehouse andnon-interest income from the origination and servicing of loans. It also recognizes gains or losses on the sale of such loans.
The following tables provide a summary of the Company’s segment results for the periods indicated on an internally managed accounting basis:
For the Three Months Ended September 30, 2017 | ||||||||||||
(in thousands) | Banking Operations | Residential Mortgage Banking | Total Company | |||||||||
Net interest income | $ | 273,265 | $ | 3,078 | $ | 276,343 | ||||||
Provision for loan losses | 44,585 | — | 44,585 | |||||||||
Non-Interest Income: | ||||||||||||
Third party(1) | 99,596 | 1,973 | 101,569 | |||||||||
Gain on sale of mortgage banking operations | — | 7,359 | 7,359 | |||||||||
Inter-segment | (2,411 | ) | 2,411 | — | ||||||||
|
|
|
|
|
| |||||||
Totalnon-interest income | 97,185 | 11,743 | 108,928 | |||||||||
|
|
|
|
|
| |||||||
Non-interest expense(2) | 146,869 | 15,365 | 162,234 | |||||||||
|
|
|
|
|
| |||||||
Income (loss) before income tax expense | 178,996 | (544 | ) | 178,452 | ||||||||
Income tax expense (benefit) | 68,200 | (216 | ) | 67,984 | ||||||||
|
|
|
|
|
| |||||||
Net income (loss) | $ | 110,796 | $ | (328 | ) | $ | 110,468 | |||||
|
|
|
|
|
| |||||||
Identifiable segment assets(period-end) | $ | 48,457,891 | $ | — | $ | 48,457,891 | ||||||
|
|
|
|
|
|
For the Three Months Ended September 30, 2016 | ||||||||||||
(in thousands) | Banking Operations | Residential Mortgage Banking | Total Company | |||||||||
Net interest income | $ | 314,081 | $ | 4,342 | $ | 318,423 | ||||||
Recovery of loan losses | (55 | ) | — | (55 | ) | |||||||
Non-Interest Income: | ||||||||||||
Third party(1) | 27,131 | 13,464 | 40,595 | |||||||||
Inter-segment | (4,863 | ) | 4,863 | — | ||||||||
|
|
|
|
|
| |||||||
Totalnon-interest income | 22,268 | 18,327 | 40,595 | |||||||||
|
|
|
|
|
| |||||||
Non-interest expense(2) | 144,504 | 17,181 | 161,685 | |||||||||
|
|
|
|
|
| |||||||
Income before income tax expense | 191,900 | 5,488 | 197,388 | |||||||||
Income tax expense | 69,905 | 2,184 | 72,089 | |||||||||
|
|
|
|
|
| |||||||
Net income | $ | 121,995 | $ | 3,304 | $ | 125,299 | ||||||
|
|
|
|
|
| |||||||
Identifiable segment assets(period-end) | $ | 48,478,288 | $ | 984,332 | $ | 49,462,620 | ||||||
|
|
|
|
|
|
The following tables provide a summary of the Company’s segment results for the periods indicated on an internally managed accounting basis:
For the Nine Months Ended September 30, 2017 | ||||||||||||
(in thousands) | Banking Operations | Residential Mortgage Banking | Total Company | |||||||||
Net interest income | $ | 850,486 | $ | 8,543 | $ | 859,029 | ||||||
Provision for loan losses | 34,316 | — | 34,316 | |||||||||
Non-Interest Income: | ||||||||||||
Third party(1) | 163,221 | 20,957 | 184,178 | |||||||||
Gain on sale of mortgage banking operations | — | 7,359 | 7,359 | |||||||||
Inter-segment | (10,222 | ) | 10,222 | — | ||||||||
|
|
|
|
|
| |||||||
Totalnon-interest income | 152,999 | 38,538 | 191,537 | |||||||||
|
|
|
|
|
| |||||||
Non-interest expense(2) | 445,910 | 47,032 | 492,942 | |||||||||
|
|
|
|
|
| |||||||
Income before income tax expense | 523,259 | 49 | 523,308 | |||||||||
Income tax expense | 193,608 | 20 | 193,628 | |||||||||
|
|
|
|
|
| |||||||
Net income | $ | 329,651 | $ | 29 | $ | 329,680 | ||||||
|
|
|
|
|
| |||||||
Identifiable segment assets(period-end) | $ | 48,457,891 | $ | — | $ | 48,457,891 | ||||||
|
|
|
|
|
|
For the Nine Months Ended September 30, 2016 | ||||||||||||
(in thousands) | Banking Operations | Residential Mortgage Banking | Total Company | |||||||||
Net interest income | $ | 960,661 | $ | 11,201 | $ | 971,862 | ||||||
Provision for loan losses | 664 | — | 664 | |||||||||
Non-Interest Income: | ||||||||||||
Third party(1) | 87,616 | 25,582 | 113,198 | |||||||||
Inter-segment | (13,292 | ) | 13,292 | — | ||||||||
|
|
|
|
|
| |||||||
Totalnon-interest income | 74,324 | 38,874 | 113,198 | |||||||||
|
|
|
|
|
| |||||||
Non-interest expense(2) | 430,706 | 50,338 | 481,044 | |||||||||
|
|
|
|
|
| |||||||
Income (loss) before income tax expense | 603,615 | (263 | ) | 603,352 | ||||||||
Income tax expense (benefit) | 221,817 | (133 | ) | 221,684 | ||||||||
|
|
|
|
|
| |||||||
Net income (loss) | $ | 381,798 | $ | (130 | ) | $ | 381,668 | |||||
|
|
|
|
|
| |||||||
Identifiable segment assets(period-end) | $ | 48,478,288 | $ | 984,332 | $ | 49,462,620 | ||||||
|
|
|
|
|
|
Note 14. Impact of Recent Accounting Pronouncements, Not Yet Adopted
In March 2017, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”)No. 2017-08, “Receivables- Nonrefundable Fees and Other Costs (Subtopic310-20): Premium Amortization on Purchased Callable Debt Securities” (“ASUNo. 2017-08”). ASUNo. 2017-08 shortens the amortization period of premiums on certain purchased callable debt securities to the earliest call date. 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 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. The Company plans to adopt ASUNo. 2017-04 beginning January 1, 2020 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 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 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 or results of operations.
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. 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. The Company plans to adopt ASUNo. 2016-13 effective January 1, 2020, using the required modified retrospective approach, which includes presenting the cumulative effect of initial application along with supplementary disclosures. The Company is evaluating ASUNo. 2016-13, initiating implementation efforts across the Company, and planning for loss modeling requirements consistent with lifetime expected loss estimates. 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 Company plans to adopt ASUNo. 2016-02 effective January 1, 2019 using the required modified retrospective approach, which includes presenting the cumulative effect of initial application along with supplementary disclosures. As a lessor and lessee, we do not anticipate the classification of our leases to change, but we expect to recognize substantially all of our leases for which we 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 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 related to the classification and measurement of investments in equity securities and presentation of certain fair value changes for financial liabilities when the fair value option is elected. ASU2016-01 also amends certain disclosure requirements associated with the fair value of financial instruments. The company will adopt ASUNo. 2016-01 on 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 May 2014, the FASB issued ASUNo. 2014-09, “Revenue from Contracts with Customers,” which requires an entity to recognize revenue to depict the transfer 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 will adopt ASUNo. 2014-09 effective January 1, 2018 using the modified retrospective approach, which includes presenting the cumulative effect of initial application along with supplementary disclosures. ASUNo. 2014-09 does not apply to the vast majority of the properties securing our revenue streams, (i.e. interest income) and thereforemulti-family loans are not in scope. The remaining revenue streamslocated, the amount of rent that are in scope are de minimis and will not have a material impacttenants may be charged on the Company’s Consolidated Statementsapartments in certain buildings is restricted under rent-stabilization laws. Rent-stabilized apartments are generally located in buildings with six or more units that were built between February 1947 and January 1974. Rent-regulated apartments tend to be more affordable to live in because of Condition, resultsthe applicable regulations, and buildings with a preponderance of operations, or cash flows.
such rent-regulated apartments are therefore less likely to experience vacancies in times of economic adversity.
post-merger balance sheet when deemed appropriate.
RECONCILIATIONS OF STOCKHOLDERS’ EQUITY, COMMON STOCKHOLDERS’ EQUITY, AND TANGIBLE COMMON STOCKHOLDERS’ EQUITY;
TOTAL ASSETS AND TANGIBLE ASSETS; AND THE RELATED MEASURES
(unaudited)
While stockholders’ equity, common stockholders’ equity,
ITEM 2. | MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
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:
(in thousands, except per share amounts) | September 30, 2017 | December 31, 2016 | ||||||
Stockholders’ Equity | $ | 6,759,654 | $ | 6,123,991 | ||||
Less: Goodwill | (2,436,131 | ) | (2,436,131 | ) | ||||
Core deposit intangibles | — | (208 | ) | |||||
Preferred stock | (502,840 | ) | — | |||||
|
|
|
| |||||
Tangible common stockholders’ equity | $ | 3,820,683 | $ | 3,687,652 | ||||
Total Assets | $ | 48,457,891 | $ | 48,926,555 | ||||
Less: Goodwill | (2,436,131 | ) | (2,436,131 | ) | ||||
Core deposit intangibles | — | (208 | ) | |||||
|
|
|
| |||||
Tangible assets | $ | 46,021,760 | $ | 46,490,216 | ||||
Common stockholders’ equity to total assets | 12.91 | % | 12.52 | % | ||||
Tangible common stockholders’ equity to tangible assets | 8.30 | 7.93 | ||||||
Book value per common share | $12.79 | $12.57 | ||||||
Tangible book value per common share | 7.81 | 7.57 |
Executive Summary
New York Community Bancorp, Inc. is the holding company for New York CommunitySignature Bridge Bank (the “Community Bank”“Signature Transaction”), with 225 branches in Metro New York, New Jersey, Ohio, Florida, and Arizona; and New York Commercial Bank (the “Commercial Bank”), with 30 branches in Metro New York. At September 30, 2017, we had total assets of $48.5 billion, including total loans, net, of $37.5 billion, total deposits of $28.9 billion, and total stockholders’ equity of $6.8 billion.
Chartered in. See Note 3 “Business Combinations” to the State of New York,Consolidated Financial Statements for further information regarding 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. 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 the requirements of the New York Stock Exchange, where shares of our common stock are traded under the symbol “NYCB” and shares of our preferred stock trade under the symbol “NYCB PR A.”
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. InSignature Transaction
Resumption12 percent due to using our market position in this vertical to capitalize on several competitors exiting the market.
After not growinghigher interest rates and our increasing ability to diversify our loan portfolio as a result of our recent acquisition. At June 30, 2023, multi-family loans represented 45 percent of total loans, compared to 55 percent at December 31, 2022, further demonstrating the reduction of our concentration in this asset class.
We Maintained Our Solid Record of 3.10 percent.
Non-performingnon-covered assets declined 7% to $84.7 million, or 0.17%, of totalnon-covered assets at the end of the current third quarter as compared to $91.6 million, or 0.20%, of totalnon-covered assets at June 30, 2017.Non-performingnon-covered loans decreased 16% to $69.0 million, or 0.18%, of totalnon-covered loans at the end of the current third quarter as compared to $82.0 million, or 0.22%, of totalnon-covered loans at June 30, 2017.
During the quarter,non-accrualnon-covered mortgage loans declined 22% to $24.3 million, while othernon-accrualnon-covered loans, which primarily consisted of taxi medallion-related loans, decreased 12% to $44.7 million. These improvements were partially offset by a 64% increase, to $15.8 million, innon-covered repossessed assets.
Net charge-offs for the current third quarter rose to $40.4 million, or 0.11%, of average loans compared to $11.4 million, or 0.03%, of average loans in
Our record as of August 7, 2023.
The FRB has raised its target federal funds rate four times sinceaverage balance of our interest-earning assets, the fourth quarteraverage balance of 2016, including in Marchour interest-bearing liabilities, and June of 2017. This increase in short-term interest rates led to an increase in ourthe spread between the yield on such assets and the cost of funds. As a resultsuch liabilities. These factors are influenced by both the pricing and mix of this factor, our net interest income fell $11.4 million, or 4% sequentially, and $42.1 million, or 13% year-over-year, to $276.3 millioninterest-earning assets and our net interest margin fell 12 and 38 basis points, respectively, to 2.53%interest-bearing liabilities which, in the third quarter of this year.
Ongoing Expense Control
Non-interest expense totaled $162.2 million in the current third quarter, down 1% from the trailing-quarter level and up modestly from the year-earlier quarter. Merger-related expenses were $2.2 million in the year-earlier period; there were no comparable expenses in the third quarter of 2017. The sequential improvement was largely due to lower operating expenses including compensation and benefits expense and general and administrative (“G&A”) expense.
External Factors
The following is a discussion of certainturn, are impacted by various external factors, that tend to influence our financial performanceincluding the local economy, competition for loans and deposits, the strategic actions we take:
Interest Rates
Amongmonetary policy of the external factors that tend to influence our performance, theFOMC, and market interest rate environment is key.
rates.
Just as short-term interest rates affectgenerally impacts the cost of our depositsshort-term borrowings and that of the funds we borrow, market interest rates affectdeposits, the yields on our held-for-investment loans and other interest-earning assets are not as sensitive to intermediate-term market interest rates.
Three Months Ended, | |||||||||||||||||||||||
June 30, 2023 | March 31, 2023 | ||||||||||||||||||||||
(dollars in millions) | Average Balance | Interest | Average Yield/Cost | Average Balance | Interest | Average Yield/Cost | |||||||||||||||||
ASSETS: | |||||||||||||||||||||||
Interest-earning assets: | |||||||||||||||||||||||
Mortgage and other loans and leases , net (1) | $ | 83,810 | $ | 1,161 | 5.55 | % | $ | 70,774 | $ | 867 | 4.92 | % | |||||||||||
Securities (2) (3) | 9,781 | 102 | 4.18 | % | 10,850 | 104 | 3.86 | % | |||||||||||||||
Reverse repurchase agreements | 429 | 6 | 5.85 | % | 785 | 11 | 5.53 | % | |||||||||||||||
Interest-earning cash and cash equivalents | 18,279 | 229 | 5.03 | % | 4,257 | 52 | 4.96 | % | |||||||||||||||
Total interest-earning assets | $ | 112,299 | $ | 1,498 | 5.34 | % | $ | 86,666 | $ | 1,034 | 4.80 | % | |||||||||||
Non-interest-earning assets | 8,974 | 7,864 | |||||||||||||||||||||
Total assets | $ | 121,273 | $ | 94,530 | |||||||||||||||||||
LIABILITIES AND STOCKHOLDERS' EQUITY: | |||||||||||||||||||||||
Interest-bearing deposits: | |||||||||||||||||||||||
Interest-bearing checking and money market accounts | $ | 30,647 | $ | 232 | 3.05 | % | $ | 23,098 | $ | 157 | 2.76 | % | |||||||||||
Savings accounts | 10,015 | 40 | 1.61 | % | 11,093 | 39 | 1.44 | % | |||||||||||||||
Certificates of deposit | 18,587 | 169 | 3.61 | % | 13,712 | 87 | 2.57 | % | |||||||||||||||
Total interest-bearing deposits | $ | 59,249 | $ | 441 | 2.98 | % | $ | 47,903 | $ | 283 | 2.40 | % | |||||||||||
Short term borrowed funds | 6,807 | 75 | 4.46 | % | 9,036 | 103 | 4.61 | % | |||||||||||||||
Other borrowed funds | 11,393 | 82 | 2.88 | % | 13,290 | 93 | 2.85 | % | |||||||||||||||
Total Borrowed funds | $ | 18,200 | $ | 157 | 3.47 | % | $ | 22,326 | $ | 196 | 3.56 | % | |||||||||||
Total interest-bearing liabilities | $ | 77,449 | $ | 598 | 3.10 | % | $ | 70,229 | $ | 479 | 2.77 | % | |||||||||||
Non-interest-bearing deposits | 24,613 | 13,189 | |||||||||||||||||||||
Other liabilities | 8,320 | 1,939 | |||||||||||||||||||||
Total liabilities | $ | 110,383 | $ | 85,357 | |||||||||||||||||||
Stockholders’ equity | 10,890 | 9,173 | |||||||||||||||||||||
Total liabilities and stockholders’ equity | $ | 121,273 | $ | 94,530 | |||||||||||||||||||
Net interest income/interest rate spread | $ | 900 | 2.24 | % | $ | 555 | 2.03 | % | |||||||||||||||
Net interest margin | 3.21 | % | 2.60 | % | |||||||||||||||||||
Ratio of interest-earning assets to interest-bearing liabilities | 1.45 | x | 1.23 | x |
Six Months Ended, | |||||||||||||||||||||||
June 30, 2023 | June 30, 2022 | ||||||||||||||||||||||
(dollars in millions) | Average Balance | Interest | Average Yield/Cost | Average Balance | Interest | Average Yield/Cost | |||||||||||||||||
ASSETS: | |||||||||||||||||||||||
Interest-earning assets: | |||||||||||||||||||||||
Mortgage and other loans and leases , net (1) | $ | 77,481 | $ | 2,028 | 5.25 | % | $ | 46,479 | $ | 817 | 3.52 | % | |||||||||||
Securities (2) (3) | 10,313 | 206 | 4.01 | % | 6,607 | 75 | 2.26 | % | |||||||||||||||
Reverse repurchase agreements | 606 | 17 | 5.64 | % | 320 | 2 | 1.56 | % | |||||||||||||||
Interest-earning cash and cash equivalents | 11,300 | 281 | 5.02 | % | 2,395 | 8 | 0.64 | % | |||||||||||||||
Total interest-earning assets | $ | 99,700 | $ | 2,532 | 5.10 | % | $ | 55,801 | $ | 902 | 3.24 | % | |||||||||||
Non-interest-earning assets | 8,271 | 5,145 | |||||||||||||||||||||
Total assets | $ | 107,971 | $ | 60,946 | |||||||||||||||||||
LIABILITIES AND STOCKHOLDERS' EQUITY: | |||||||||||||||||||||||
Interest-bearing deposits: | |||||||||||||||||||||||
Interest-bearing checking and money market accounts | $ | 26,894 | $ | 389 | 2.91 | % | $ | 15,629 | $ | 32 | 0.42 | % | |||||||||||
Savings accounts | 10,551 | 79 | 1.52 | % | 9,218 | 18 | 0.38 | % | |||||||||||||||
Certificates of deposit | 16,159 | 256 | 3.19 | % | 8,086 | 23 | 0.58 | % | |||||||||||||||
Total interest-bearing deposits | $ | 53,604 | $ | 724 | 2.72 | % | $ | 32,933 | $ | 73 | 0.45 | % | |||||||||||
Short term borrowed funds | 7,915 | 178 | 4.54 | % | 2,132 | 7 | 0.66 | % | |||||||||||||||
Other borrowed funds | 12,336 | 175 | 2.86 | % | 13,650 | 131 | 1.93 | % | |||||||||||||||
Total Borrowed funds | $ | 20,251 | $ | 353 | 3.52 | % | $ | 15,782 | $ | 138 | 1.76 | % | |||||||||||
Total interest-bearing liabilities | $ | 73,855 | $ | 1,077 | 2.94 | % | $ | 48,715 | $ | 211 | 0.87 | % | |||||||||||
Non-interest-bearing deposits | 18,933 | 4,483 | |||||||||||||||||||||
Other liabilities | 5,145 | 775 | |||||||||||||||||||||
Total liabilities | $ | 97,933 | $ | 53,973 | |||||||||||||||||||
Stockholders’ equity | 10,038 | 6,973 | |||||||||||||||||||||
Total liabilities and stockholders’ equity | $ | 107,971 | $ | 60,946 | |||||||||||||||||||
Net interest income/interest rate spread | $ | 1,455 | 2.16 | % | $ | 691 | 2.37 | % | |||||||||||||||
Net interest margin | 2.94 | % | 2.48 | % | |||||||||||||||||||
Ratio of interest-earning assets to interest-bearing liabilities | 1.35 | x | 1.15 | x |
Three Months Ended, | Six Months Ended, | |||||||||||||||||||||||||
June 30, 2023 compared to March 31, 2023 Increase/(Decrease) Due to: | June 30, 2023 compared to June 30, 2022 Increase/(Decrease) Due to: | |||||||||||||||||||||||||
(in millions) | Volume | Rate | Net | Volume | Rate | Net | ||||||||||||||||||||
INTEREST-EARNING ASSETS: | ||||||||||||||||||||||||||
Mortgage and other loans and leases, net | $ | 181 | $ | 113 | $ | 294 | $ | 814 | $ | 397 | $ | 1211 | ||||||||||||||
Securities | (11) | 9 | (2) | 74 | 57 | 131 | ||||||||||||||||||||
Reverse repurchase agreements | (5) | — | (5) | 8 | 7 | 15 | ||||||||||||||||||||
Interest Earning Cash & Cash Equivalent | 176 | 1 | 177 | 224 | 49 | 273 | ||||||||||||||||||||
Total interest-earnings assets | $ | 341 | $ | 123 | $ | 464 | $ | 1120 | $ | 510 | $ | 1630 | ||||||||||||||
INTEREST-BEARING LIABILITIES: | ||||||||||||||||||||||||||
Interest-bearing checking and money market accounts | $ | 58 | $ | 17 | $ | 75 | $ | 164 | $ | 193 | $ | 357 | ||||||||||||||
Savings accounts | (4) | 5 | 1 | 10 | 51 | 61 | ||||||||||||||||||||
Certificates of deposit | 44 | 38 | 82 | 129 | 104 | 233 | ||||||||||||||||||||
Short Term Borrowed Funds | 85 | 73 | 158 | 131 | 40 | 171 | ||||||||||||||||||||
Other Borrowed Funds | (25) | (3) | (28) | (19) | 63 | 44 | ||||||||||||||||||||
Total interest-bearing liabilities | 158 | 130 | 288 | 415 | 451 | 866 | ||||||||||||||||||||
Change in net interest income | $ | 183 | $ | (7) | $ | 176 | $ | 705 | $ | 59 | $ | 764 |
Three Months Ended, | Six Months Ended, | |||||||||||||||||||||||||
(in millions) | June 30, 2023 | March 31, 2023 | June 30, 2023 | June 30, 2022 | ||||||||||||||||||||||
Bargain purchase gain | $ | 141 | $ | 2,001 | $ | 2,142 | $ | — | ||||||||||||||||||
Fee income | 48 | 27 | 75 | 12 | ||||||||||||||||||||||
Net return on mortgage servicing rights | 25 | 22 | 47 | — | ||||||||||||||||||||||
Net gain on loan sales and securitizations | 25 | 20 | 45 | — | ||||||||||||||||||||||
Other | 14 | 11 | 25 | 7 | ||||||||||||||||||||||
Bank-owned life insurance | 11 | 10 | 21 | 14 | ||||||||||||||||||||||
Net Loan administration income | 39 | 7 | 46 | — | ||||||||||||||||||||||
Net (loss) gain on securities | (1) | — | (1) | (1) | ||||||||||||||||||||||
Total non-interest income | $ | 302 | $ | 2,098 | $ | 2,400 | $ | 32 |
, $34 billion of deposits, net of PAA, and $2 billion of other liabilities related to the Signature Transaction.
Five-Year Constant Maturity Treasury Rate | Ten-Year Constant Maturity Treasury Rate | |||||||||||||||||||||||||
Sept. 30 | June 30, | Sept. 30, | Sept. 30, | June 30, | Sept. 30, | |||||||||||||||||||||
2017 | 2017 | 2016 | 2017 | 2017 | 2016 | |||||||||||||||||||||
High | 1.95 | % | 1.94 | % | 1.26 | % | High | 2.39 | % | 2.42 | % | 1.73 | % | |||||||||||||
Low | 1.63 | 1.71 | 0.94 | Low | 2.05 | 2.05 | 1.37 | |||||||||||||||||||
Average | 1.81 | 1.81 | 1.13 | Average | 2.24 | 2.26 | 1.56 |
(Source: Bloomberg)
Changes in market interest rates generally have a lesser impact on our multi-family and CRE loan production than they do on other types of loans we produce. 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 meaningful. In the third quarter of 2017, prepayment income from loans contributed $14.1 million to interest income; in the trailing and year-earlier quarters, the contribution was $13.3 million and $13.4 million, respectively.
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:
June 30, 2023 | December 31, 2022 | ||||||||||||||||
(dollars in millions) | Amount | Percent of Loans Held for Investment | Amount | Percent of Loans Held for Investment | |||||||||||||
Mortgage Loans: | |||||||||||||||||
Multi-family | $37,831 | 45.4 | % | $ | 38,130 | 55.3 | % | ||||||||||
Commercial real estate | 10,613 | 12.7 | % | 8,526 | 12.4 | % | |||||||||||
One-to-four family first mortgage | 5,889 | 7.1 | % | 5,821 | 8.4 | % | |||||||||||
Acquisition, development, and construction | 2,481 | 3.0 | % | 1,996 | 2.9 | % | |||||||||||
Total mortgage loans | $ | 56,814 | 68.2 | % | $ | 54,473 | 78.9 | % | |||||||||
Other Loans: | |||||||||||||||||
Commercial and industrial | $ | 23,861 | 28.7 | % | $ | 12,276 | 17.8 | % | |||||||||
Other loans | 2,603 | 3.1 | % | 2,252 | 3.3 | % | |||||||||||
Total other loans held for investment | $ | 26,464 | 31.8 | % | $ | 14,528 | 21.1 | % | |||||||||
Total loans and leases held for investment | $ | 83,278 | 100.0 | % | $ | 69,001 | 100.0 | % | |||||||||
Allowance for credit losses on loans and leases | (594) | (393) | |||||||||||||||
Total loans and leases held for investment, net | $ | 82,684 | $ | 68,608 | |||||||||||||
Loans held for sale, at fair value | 2,194 | 1,115 | |||||||||||||||
Total loans and leases, net | $ | 84,878 | $ | 69,723 |
For the Month Ended | ||||||||||||
September 30, 2017 | June 30, 2017 | September 30, 2016 | ||||||||||
Unemployment rate: | ||||||||||||
United States | 4.1 | % | 4.5 | % | 4.8 | % | ||||||
New York City | 5.0 | 4.4 | 5.4 | |||||||||
Arizona | 4.7 | 5.3 | 5.4 | |||||||||
Florida | 3.6 | 4.4 | 5.1 | |||||||||
New Jersey | 4.8 | 4.3 | 4.9 | |||||||||
New York | 4.7 | 4.5 | 4.9 | |||||||||
Ohio | 4.7 | 5.4 | 4.9 |
(Source: U.S. Department of Labor)
Another key economic indicator is the Consumer Price Index (the “CPI”), which 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 | ||||||||||||
September 2017 | June 2017 | September 2016 | ||||||||||
Change in prices: | 0.5 | % | (0.1 | )% | 0.3 | % |
Yet another pertinent economic indicator is 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. These measures are important in view of the fact that 64.7% of our multi-family loans and 70.0% of our CRE loans are secured by properties in New York, with Manhattan accounting for 26.9% and 51.3% of our multi-family and CRE loans, respectively.
As reflected in the following table, residential rental vacancy rates in New York increased year-over-year and linked-quarter, while office vacancy rates in Manhattan declined year-over-year and linked quarter.
For the Three Months Ended | ||||||||||||
September 30, 2017 | June 30, 2017 | September 30, 2016 | ||||||||||
Rental Vacancy Rates: | ||||||||||||
New York residential | 5.6 | % | 5.1 | % | 5.1 | % | ||||||
Manhattan office | 10.2 | 10.8 | 10.5 |
Lastly, the Consumer Confidence Index® increased to 120.6 in September 2017 from 117.3 in June 2017 and 104.1 in September 2016. An index level of 90 or more is considered indicative of a strong economy.
Recent Events
Strategic Exit from the Mortgage Banking Business
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 (“Freedom”). The sale of our mortgage banking business effectively takes the Company out of theone-to-four family residential wholesale lending business. 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 FirstKey Mortgage, LLC, 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 to sell the aforementioned loans and settle the related LSA, resulting in a gain of $74.6 million which is included in“Non-interest income” in the accompanying Consolidated Statement of Income and Comprehensive Income. Effective October 31, 2017, the Company and the FDIC completed termination of the LSA.
The sale of our mortgage banking business to Freedom, which included both our origination and servicing platforms, as well as our mortgage servicing portfolio with unpaid loan principal balances totaling $20.5 billion and related mortgage servicing rights (“MSRs”) asset of $208.8 million, closed on September 29, 2017. We received proceeds in the amount of $226.6 million, resulting in apre-tax gain of $7.4 million.
The decision to sell the mortgage banking business and the assets covered under our LSA was the result of an evaluation with the Board of Directors and our outside advisors. Selling to a large, national, full-service mortgage banking company that would keep certain employees and maintain operations in the region were important considerations during the evaluation process. These actions are consistent with the Company’s strategic objectives. Such sales allow the Company to focus on its core business model, including growth through acquisitions, generate liquidity which will be redeployed into higher-earning assets, and enhance returns through improved efficiencies.
The Community Bank’s mortgage banking operation originated, aggregated, sold, and servicedone-to-four family loans. Community banks, credit unions, mortgage companies, and mortgage brokers used its proprietaryweb-accessible mortgage banking platform to originate and closeone-to-four family loans nationwide. These loans were generally sold to GSEs, servicing retained. To a much lesser extent, the Community Bank used its mortgage banking platform to originate jumbo loans.
Declaration of Dividend on Common Shares
On October 24, 2017, the Board of Directors declared a quarterly cash dividend of $0.17 per share on our common stock, payable on November 21, 2017 to shareholders of record at the close of business on November 7, 2017.
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 onnon-covered loans; the determination of the amount, if any, of goodwill impairment; and the determination of the valuation allowance 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.
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 September 30, 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 rolling27-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 that are acquired and liabilities that are assumed are recorded at their estimated fair values. Goodwill represents the excess of the purchase price of our acquisitions over the fair value of the identifiable net assets acquired, including other identified intangible assets. 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. Previously, we had 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; accordingly, we have identified only one reporting unit.
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.
Under step one of thetwo-step test, we are required to determine the fair value of each reporting unit and compare it to the carrying value, including goodwill and other intangible assets, of such reporting unit. If the fair value exceeds the carrying value, no impairment loss is recognized and the second step, which is a calculation of the impairment, is not performed. However, if the carrying value of the reporting unit exceeds its fair value, an impairment charge is recorded equal to the extent that the carrying amount of goodwill exceeds its implied fair value.
Application of the impairment test requires judgment, including the identification of reporting units, assignment of assets and liabilities to reporting units, assignment of goodwill to reporting units, and the determination of the fair value of each reporting unit. In assessing whether goodwill is impaired, we must make estimates and assumptions regarding future cash flows, long-term growth rates of our business, operating margins, discount rates, weighted average cost of capital, and other factors to determine the fair value of our assets. These estimates and assumptions require management’s judgment, and changes to these estimates and assumptions, as a result of changing economic and competitive conditions, could materially affect the determination of fair value and/or impairment. Future events could cause us to conclude that indicators of impairment exist for goodwill, and may result from, among other things, deterioration in the performance of our business, adverse market conditions, adverse changes in applicable laws and regulations, competition, or the sale or disposition of a reporting unit. Any resulting impairment loss could have a material adverse impact on our financial condition and results of operations.
As of September 30, 2017, we had goodwill of $2.4 billion. Our goodwill is evaluated for impairment annually at December 31st, or more frequently if conditions exist that indicate that the value may be impaired. During the three months ended September 30, 2017, no triggering events were identified that indicated that the value of goodwill might be impaired as of such date. We performed our annual goodwill impairment test as of December 31, 2016 and, based on the results of our qualitative assessments, 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.
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 carry forward 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 carry forwards. 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.
Balance Sheet Summary
At September 30, 2017, we recorded total assets of $48.5 billion, a $110.2 million increase from the balance at June 30, 2017 and a $468.7 million decline from the balance at December 31, 2016. Loans, net, and securities represented $37.5 billion and $3.0 billion, respectively, of the September 30th balance and were down $1.4 billion and $140.1 million, respectively, from the trailingquarter-end balances and $1.9 billion and $786.0 million, respectively, from theyear-end balances.
Deposits and borrowed funds totaled $28.9 billion and $12.4 billion, respectively, at the end of the current third quarter. The current third quarter deposit balance was comparable to the balances at both the second quarter of this year and year end. Borrowed funds were unchanged from the priorquarter-end balance and declined $1.3 billion from year end.
Total stockholders’ equity rose $635.7 million from theyear-end 2016 balance, due primarily to a $502.8 million preferred stock offering in March, and $24.9 million from the June 30, 2017 balance, to $6.8 billion, at the current third-quarter end. Common stockholders’ equity represented 12.91% of total assets at September 30, 2017 compared to 12.89% and 12.31%, respectively, of total assets at June 30, 2017 and September 30, 2016, and a book value per common share of $12.79 at September 30, 2017 compared to $12.74 at June 30, 2017 and $12.50 at September 30, 2016.
Loans
Loans, net, fell $1.4 billion from the trailingquarter-end and $1.9 billion from year end to $37.5 billion in the three months ended September 30, 2017, representing 77.3% of total assets at that date. Included in thequarter-end balance werenon-covered loans held for investment, net, of $37.3 billion, andnon-covered loans held for sale of $104.9 million, as more fully discussed below.
Non-Covered Loans Held for Investment
Non-covered loans held for investment totaled $37.5 billion at the end of the current third quarter, up $255.2 million from the June 30, 2017 balance and up $123.5 million from the balance at December 31, 2016. Loan originations increased $444.6 million, or 24%, sequentially, driven by 50% growth in multi-family originations and 30% growth in CRE originations.
Sales of participations totaled $37.8 million in the three months ended September 30, 2017, as compared to $148.2 million in the trailing three-month period. The pace of loan sale participations has declined due to the Company’s strategic decision to resume its balance sheet growth.
In addition to multi-family and CRE loans, theheld-for-investment portfolio includes substantially smaller balances ofone-to-four family loans, ADC loans, and other loans, with specialty finance loans and leases and other C&I loans comprising the bulk of the “Other loan” portfolio.
At September 30, 2017, loans secured by multi-family, CRE, and ADC properties (as defined in the FDIC’s CRE Guidance) represented 739.9% of the consolidated Banks’ total risk-based capital, within the 850% limit agreed to with our regulators.
The following table presents information about the loans held for investment we originated for the respective periods:
For the Three Months Ended | For the Nine Months Ended | |||||||||||||||||||
Sept. 30, | June 30, | Sept. 30, | Sept. 30, | Sept. 30, | ||||||||||||||||
(in thousands) | 2017 | 2017 | 2016 | 2017 | 2016 | |||||||||||||||
Mortgage Loans Originated for Investment: | ||||||||||||||||||||
Multi-family | $ | 1,432,424 | $ | 952,265 | $ | 1,276,358 | $ | 3,339,302 | $ | 4,529,904 | ||||||||||
Commercial real estate | 249,773 | 192,072 | 345,543 | 692,187 | 892,676 | |||||||||||||||
One-to-four family residential | 22,047 | 50,697 | 101,365 | 116,603 | 248,020 | |||||||||||||||
Acquisition, development, and construction | 21,754 | 20,836 | 17,855 | 55,509 | 123,849 | |||||||||||||||
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Total mortgage loans originated for investment | $ | 1,725,998 | $ | 1,215,870 | $ | 1,741,121 | $ | 4,203,601 | $ | 5,794,449 | ||||||||||
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Other Loans Originated for Investment: | ||||||||||||||||||||
Specialty finance | $ | 468,735 | $ | 498,918 | $ | 369,308 | $ | 1,236,817 | $ | 907,551 | ||||||||||
Other commercial and industrial | 115,569 | 150,787 | 151,279 | 388,511 | 451,340 | |||||||||||||||
Other | 700 | 785 | 894 | 2,370 | 3,010 | |||||||||||||||
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Total other loans originated for investment | $ | 585,004 | $ | 650,490 | $ | 521,481 | $ | 1,627,698 | $ | 1,361,901 | ||||||||||
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Total loans originated for investment | $ | 2,311,002 | $ | 1,866,360 | $ | 2,262,602 | $ | 5,831,299 | $ | 7,156,350 | ||||||||||
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The individualheld-for-investment loan portfolios are discussed in detail below.
investment:
Three Months Ended, | Six Months Ended, | ||||||||||||||||||||||
June 30, 2023 | March 31, 2023 | June 30, 2023 | June 30, 2022 | ||||||||||||||||||||
(dollars in millions) | Amount | Amount | Amount | Amount | |||||||||||||||||||
Mortgage Loan Originated for Investment: | |||||||||||||||||||||||
Multi-family | $ | 217 | $ | 340 | $ | 557 | $ | 5,349 | |||||||||||||||
Commercial real estate | 278 | 309 | 587 | 494 | |||||||||||||||||||
One-to-four family first mortgage | 98 | 274 | 372 | 144 | |||||||||||||||||||
Acquisition, development, and construction | 593 | 185 | 778 | 72 | |||||||||||||||||||
Total mortgage loans originated for investment | $ | 1,186 | $ | 1,108 | $ | 2,294 | $ | 6,059 | |||||||||||||||
Other Loans Originated for Investment: | |||||||||||||||||||||||
Specialty finance | $ | 1,905 | $ | 1,335 | $ | 3,240 | $ | 2,515 | |||||||||||||||
Commercial and industrial | 1,581 | 497 | 2,078 | 218 | |||||||||||||||||||
Other | 312 | 338 | 650 | 3 | |||||||||||||||||||
Total other loans originated for investment | $ | 3,797 | $ | 2,170 | $ | 5,967 | $ | 2,736 | |||||||||||||||
Total loans originated for investment | $ | 4,983 | $ | 3,278 | $ | 8,261 | $ | 8,795 |
Multi-family loans are our principal asset.
Multi-family loan originations represented $1.4 billion, or 62.0%, of theheld-for-investment loans we produced in the current third quarter, reflecting a linked-quarter increase of $480.2 million and a $156.1 million increase year-over-year. At September 30, 2017, multi-family loans represented $27.1 billion, or 72.4%, of totalnon-covered loans held for investment, reflecting a $286.2 million increase from the balance at June 30th and a $200.3 million increase from the balance at December 31st.
rents.
2022 due to a combination of higher interest rates and our loan diversification strategy.
Our multi-family loans tend to refinance in approximately three years of origination; at September 30, 2017, June 30, 2017, and December 31, 2016, the weighted average life of the multi-family loan portfolio was 2.7 years, 3.2 years, and 2.9 years, respectively.
At September 30, 2017,
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 lendingcredit cycle has been the comparative quality of the loans we originate.
taken a downward turn.
property.
At June 30, 2023 | ||||||||
Multi-Family Loans | ||||||||
(dollars in millions) | Amount | Percent of Total | ||||||
New York City: | ||||||||
Manhattan | $ | 7,175 | 19 | % | ||||
Brooklyn | 6,285 | 17 | % | |||||
Bronx | 3,630 | 10 | % | |||||
Queens | 2,852 | 8 | % | |||||
Staten Island | 135 | — | % | |||||
Total New York City | $ | 20,077 | 54 | % | ||||
New Jersey | 5,087 | 13 | % | |||||
Long Island | 548 | 1 | % | |||||
Total Metro New York | $ | 25,712 | 68 | % | ||||
Other New York State | 1,194 | 3 | % | |||||
Pennsylvania | 3,738 | 10 | % | |||||
Florida | 1,686 | 4 | % | |||||
Ohio | 1,035 | 3 | % | |||||
Arizona | 440 | 1 | % | |||||
All other states | 4,026 | 11 | % | |||||
Total | $ | 37,831 | 100 | % |
At September 30, 2017,or 9.4 percent in the average CRE loan had a principal balance of $5.7 million, unchanged from the average principal balance at June 30, 2017, and up modestly from December 31, 2016.
first quarter 2023.
June 30, 2023.
six through ten or eight through twelve.
One-to-Four Family
At June 30, 2023 | ||||||||
Commercial Real Estate Loans | ||||||||
(dollars in millions) | Amount | Percent of Total | ||||||
New York | $ | 4,884 | 46 | % | ||||
Michigan | 1,186 | 11 | % | |||||
New Jersey | 654 | 6 | % | |||||
Florida | 543 | 5 | % | |||||
Texas | 337 | 3 | % | |||||
Pennsylvania | 324 | 3 | % | |||||
Ohio | 237 | 2 | % | |||||
All other states | 2,448 | 24 | % | |||||
Total | $ | 10,613 | 100 | % |
Reflecting
Acquisition, Development, and Construction Loans
The balance of ADC loans increased $12.8 million to $385.9 million sequentially, representing 1.0% of totalheld-for-investment loans at the current third-quarter end. In the third quarter of 2017, we originated ADC loans of $21.8 million, a $918,000 increase from the trailing-quarter volume and a year-over-yearreflecting an increase of $3.9 million.
$485 million compared to December 31, 2022.
Other Loans
Other2023 C&I loans of $2.0totaled $23.9 billion were relatively unchanged from the trailing three-month period, representing 5.3%or 28.7 percent of total loans at September 30th due to an increase in specialty finance loans and leases to $1.4 billion and a $20.8 million decline in other C&I loans to $545.5 million.held-for-investment. Included in the latter amount were taxi medallion-related loans of $99.1 million, representing 0.3% of total loans held for investment. The remainder of the “other loan”this portfolio included a nominal amount of consumer loans.
Originations of other loans totaled $585.0 millionis $6.0 billion in the current third quarter, reflecting a $65.5 million decrease from the trailing-quarter volume and a $63.5 million increase from the year-earlier amount. Specialty finance loans and leases represented the bulk of the quarter’s other loan originations, at $468.7 million, reflecting a $30.2 million decrease from the trailing-quarter level and a $99.4 million increase from the year-earlier amount. Other C&I loans represented $115.6 million of the other loans produced in the current third quarter, down $35.2 million and $35.7 million, respectively, from the volumes in the earlier periods.
Specialty Finance Loans and Leases
Our specialty finance subsidiary is based in Foxboro, Massachusetts, and staffed by a group of industry veterans with expertise in originating and underwriting senior secured debt and equipment loans and leases. The subsidiary participates in syndicatedwarehouse loans that are broughtallow mortgage lenders to us, and equipment loans and leases that are assigned to us, by a select groupfund the closing 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.
residential mortgage loans.
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 Commercial and Industrial Loans
In contrast to the loans produced by our specialty finance subsidiary, the othernon-warehouse C&I loans we produce are primarily made to small andmid-size businesses in the five boroughs of New York City and on Long Island.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.
Lending Authority
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.One-to-four family mortgage loans were approved byline-of-business personnel having underwriting authority pursuant to a separate policy applicable to our mortgage banking segment.
Effective January 27, 2017, and in accordance with the Banks’ credit policies, all loans other thanone-to-four family mortgage loans and 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 Banks’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 allone-to-four family mortgage loans and C&I loans less than or equal to $3.0 million continue to be approved byline-of-business personnel.
In view of the heightened regulatory focus on CRE concentration, we monitor the ratio of our multi-family, CRE, and ADC loans (as defined in the FDIC’s CRE Guidance) to our total risk-based capital to ensure
Geographical Analysis of the Portfolio ofNon-Covered Loans Held for Investment
are insured by U.S government agencies.
June 30, 2023 | December 31, 2022 | ||||||||||
Non-performing loans to total loans | 0.28 | % | 0.20 | % | |||||||
Non-performing assets to total assets | 0.21 | 0.17 | |||||||||
Allowance for losses on loans to non-performing loans | 255.40 | 278.87 | |||||||||
Allowance for losses on loans to total loans held for investment | 0.71 | 0.57 |
Multi-Family Loans | Commercial Real Estate Loans | |||||||||||||||
Percent | Percent | |||||||||||||||
(dollars in thousands) | Amount | of Total | Amount | of Total | ||||||||||||
New York City: | ||||||||||||||||
Manhattan | $ | 7,311,621 | 26.94 | % | $ | 3,873,867 | 51.31 | % | ||||||||
Brooklyn | 4,237,542 | 15.61 | 597,718 | 7.92 | ||||||||||||
Bronx | 3,697,390 | 13.62 | 110,749 | 1.46 | ||||||||||||
Queens | 2,230,371 | 8.22 | 647,450 | 8.57 | ||||||||||||
Staten Island | 79,177 | 0.29 | 56,313 | 0.75 | ||||||||||||
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Total New York City | $ | 17,556,101 | 64.68 | % | $ | 5,286,097 | 70.01 | % | ||||||||
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| |||||||||
Long Island | 522,364 | 1.92 | 877,343 | 11.62 | ||||||||||||
Other New York State | 967,434 | 3.56 | 193,000 | 2.56 | ||||||||||||
All other states | 8,099,498 | 29.84 | 1,193,947 | 15.81 | ||||||||||||
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Total | $ | 27,145,397 | 100.00 | % | $ | 7,550,387 | 100.00 | % | ||||||||
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At September 30, 2017, the largest concentration ofone-to-four familynon-performing loans held for investment was located in California, with a total of $202.2 million; the largest concentration of ADC loans held for investment was located in New York City, with a total of $282.5 million. The majority of our other loans held for investment were secured by properties and/or businesses located in Metro New York.
Non-Covered Loans Held for Sale
At September 30, 2017,non-covered loans held for sale were $104.9 million, down $304.2 million from the level at December 31, 2016. The decline is attributable to our exit from the mortgage banking business. The Company expects a majority of the current-period balance to be sold during the fourth quarter of 2017.
Outstanding Loan Commitments
At September 30, 2017, we had outstanding loan commitments of $2.2 billion, down $248.4 million from the level at June 30, 2017. Commitments to originate loans held for investment represented $2.1 billion of the September 30th total, and commitments to originate loans held for sale represented the remaining $50.4 million. At December 31, 2016, the respective commitments were $1.8 billion and $242.5 million.
Multi-family, CRE, and ADC loans together represented $814.5 million ofheld-for-investment loan commitments at the end of the third quarter, while other loans represented $1.3 billion, respectively. Included in the latter amount were commitments to originate specialty finance loans and leases of $901.9 million and commitments to originate other C&I loans of $403.8 million.
In addition to loan commitments, we had commitments to issue financialstand-by, performancestand-by, and commercial letters of credit totaling $339.6 million at September 30, 2017, a $20.7 million decrease from the volume at June 30th. 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.
Asset Quality
Non-Covered Loans Held for Investment andNon-Covered Repossessed Assets
Non-performingnon-covered assets represented $84.7 million, or 0.17%, of totalnon-covered assets at September 30, 2017, as compared to $91.6 million, or 0.20% at June 30, 2017 and $68.1 million, or 0.14%, of totalnon-covered assets, at December 31, 2016. The $6.9 million decrease was the net effect of a $13.0 million decline innon-performingnon-covered loans to $69.0 million, and a $6.2 million increase innon-covered repossessed assets to $15.8 million.Non-performingnon-covered loans represented 0.18% of totalnon-covered loans at the end of the third quarter, compared to 0.22% at June 30th and 0.15% at December 31st.
The increase in bothnon-performingnon-covered loans andnon-performingnon-covered assets in the current nine-month period was largely attributable to the transition tonon-accrual status of taxi medallion-related loans. As reflected in the tables featured later in this discussion, the balance ofnon-accrualnon-covered mortgage loans declined $14.4 million from theyear-end balance to $24.3 million, while the balance ofnon-accrualnon-covered other loans rose $26.9 million to $44.7 million. Taxi medallion-related loans accounted for $43.4 million of this total.
In addition, the Company recorded net charge-offs of $40.4 million during the current third quarter, representing 0.11% of average loans.
The following table sets forth the changes innon-performingnon-covered loans over the nine months ended September 30, 2017:
(in thousands) | ||||
Balance at December 31, 2016 | $ | 56,469 | ||
Newnon-accrual | 68,616 | |||
Charge-offs | (24,409 | ) | ||
Transferred to other real estate owned | (6,607 | ) | ||
Loan payoffs, including dispositions and principalpay-downs | (25,009 | ) | ||
Restored to performing status | (90 | ) | ||
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| |||
Balance at September 30, 2017 | $ | 68,970 | ||
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Change from December 31, 2016 to September 30, 2017 | ||||||||||||||||
(dollars in thousands) | September 30, 2017 | December 31, 2016 | Amount | Percent | ||||||||||||
Non-PerformingNon-Covered Loans: | ||||||||||||||||
Non-accrualnon-covered mortgage loans: | ||||||||||||||||
Multi-family | $ | 11,018 | $ | 13,558 | $ | (2,540 | ) | (18.73 | )% | |||||||
Commercial real estate | 4,923 | 9,297 | (4,374 | ) | (47.05 | ) | ||||||||||
One-to-four family residential | 2,179 | 9,679 | (7,500 | ) | (77.49 | ) | ||||||||||
Acquisition, development, and construction | 6,200 | 6,200 | — | — | ||||||||||||
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Totalnon-accrualnon-covered mortgage loans | 24,320 | 38,734 | (14,414 | ) | (37.21 | ) | ||||||||||
Non-accrualnon-covered other loans(1) | 44,650 | 17,735 | 26,915 | 151.76 | ||||||||||||
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Totalnon-performingnon-covered loans | $ | 68,970 | $ | 56,469 | $ | 12,501 | 22.14 | % | ||||||||
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balances:
June 30, 2023 | |||||||||||||||||||||||
compared to | |||||||||||||||||||||||
December 31, 2022 | |||||||||||||||||||||||
(dollars in millions) | June 30, 2023 | December 31, 2022 | Amount | Percent | |||||||||||||||||||
Loans 30 to 89 Days Past Due: | |||||||||||||||||||||||
Multi-family | $ | 79 | $ | 34 | $ | 45 | 132 | % | |||||||||||||||
Commercial real estate | 147 | 2 | 145 | NM | |||||||||||||||||||
One-to-four family first mortgage | 17 | 21 | (4) | (19) | % | ||||||||||||||||||
Acquisition, development, and construction | 29 | — | 29 | NM | |||||||||||||||||||
Commercial and industrial | 45 | — | 45 | NM | |||||||||||||||||||
Other loans | 18 | 13 | 5 | 38 | % | ||||||||||||||||||
Total loans 30-89 days past due | $ | 335 | $ | 70 | 265 | 379 | % |
Change from | |||||||||||||||||||||||
December 31, 2022 | |||||||||||||||||||||||
to | |||||||||||||||||||||||
June 30, 2023 | |||||||||||||||||||||||
(dollars in millions) | June 30, 2023 | December 31, 2022 | Amount | Percent | |||||||||||||||||||
Non-Performing Loans: | |||||||||||||||||||||||
Non-accrual mortgage loans: | |||||||||||||||||||||||
Multi-family | $ | 33 | $ | 13 | $ | 20 | 154 | % | |||||||||||||||
Commercial real estate | 36 | 20 | 16 | 80 | % | ||||||||||||||||||
One-to-four family first mortgage | 85 | 92 | (7) | (8) | % | ||||||||||||||||||
Total non-accrual mortgage loans | $ | 154 | $ | 125 | 29 | 23 | % | ||||||||||||||||
Other non-accrual loans(1) | 79 | 16 | 63 | 394 | % | ||||||||||||||||||
Total non-accrual loans | $ | 233 | $ | 141 | 92 | 65 | % | ||||||||||||||||
Loans 90 days or more past due and still accruing (2) | — | $ | — | — | NM | ||||||||||||||||||
Total non-performing loans | $ | 233 | $ | 141 | 92 | 65 | % | ||||||||||||||||
Repossessed assets | 13 | 12 | 1 | 8 | % | ||||||||||||||||||
Total non-performing assets | $ | 246 | $ | 153 | 93 | 61 | % |
(in millions) | |||||
Balance at December 31, 2022 | $ | 141 | |||
New non-accrual | 121 | ||||
Non-accrual acquired from acquisition | 13 | ||||
Charge-offs | (4) | ||||
Transferred to repossessed assets | (3) | ||||
Loan payoffs, including dispositions and principal pay-downs | (10) | ||||
Restored to performing status | (25) | ||||
Balance at June 30, 2023 | $ | 233 |
The following tables present the number and amount ofnon-performing multi-family and CRE loans by originating bank at September 30, 2017 and December 31, 2016:
As of September 30, 2017 | Non-Performing Multi-Family Loans | Non-Performing Commercial Real Estate Loans | ||||||||||||||
(dollars in thousands) | Number | Amount | Number | Amount | ||||||||||||
New York Community Bank | 6 | $ | 11,012 | 10 | $ | 4,923 | ||||||||||
New York Commercial Bank | 1 | 6 | — | — | ||||||||||||
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Total for New York Community Bancorp | 7 | $ | 11,018 | 10 | $ | 4,923 | ||||||||||
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As of December 31, 2016 | Non-Performing Multi-Family Loans | Non-Performing Commercial Real Estate Loans | ||||||||||||||
(dollars in thousands) | Number | Amount | Number | Amount | ||||||||||||
New York Community Bank | 11 | $ | 13,298 | 7 | $ | 4,297 | ||||||||||
New York Commercial Bank | 2 | 260 | 2 | 5,000 | ||||||||||||
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Total for New York Community Bancorp | 13 | $ | 13,558 | 9 | $ | 9,297 | ||||||||||
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In addition,one-to-four family loans, ADC loans, and other loans represented 1.1%, 1.0%, and 5.3%, respectively, of totalnon-covered loans held for investment at September 30, 2017, comparable to, or consistent with, the levels at both June 30, 2017 and December 31, 2016. Furthermore, while 0.5% of ourone-to-four family loans werenon-performing at the end of the current third quarter, 1.6% of our ADC loans and 2.2% of our other loans werenon-performing at that date.
specified index rate.
The following table presents ourheld-for-investment loans 30 to 89 days past due by loan type and the changes in the respective balances for the nine months ended September 30, 2017:
Change from December 31, 2016 to September 30, 2017 | ||||||||||||||||
(dollars in thousands) | September 30, 2017 | December 31, 2016 | Amount | Percent | ||||||||||||
Non-Covered Loans30-89 Days Past Due: | ||||||||||||||||
Multi-family | $ | 602 | $ | 28 | $ | 574 | 2,050.00 | % | ||||||||
Commercial real estate | 450 | — | 450 | — | ||||||||||||
One-to-four family residential | 676 | 2,844 | (2,168 | ) | (76.23 | ) | ||||||||||
Acquisition, development, and construction | — | — | — | — | ||||||||||||
Other loans | 3,425 | 7,511 | (4,086 | ) | (54.40 | ) | ||||||||||
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Totalnon-covered loans30-89 days past due | $ | 5,153 | $ | 10,383 | $ | (5,230 | ) | (50.37 | )% | |||||||
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Reflecting management’s assessment$13 million in specific reserves primarily related to two loans that have moved to nonaccrual and an increase of the$56 million primarily related to our worsening forecast of macroeconomic conditions and origination volume since year-end. The allowance fornon-covered loan credit losses we recorded a $44.6 million provision for such losses in the current third quarter,on loans and leases represented 255 percent of non-performing loans at June 30, 2023, as compared to $11.6 million and $1.2 million, respectively, in279 percent at the trailing and year-earlier three months. Reflecting the third-quarter provision, and the aforementioned net charge-offs, the allowance for losses onnon-covered loans increased to $158.9 million at September 30, 2017. This represented 0.42% of totalnon-covered loans and 230.42% ofnon-performingnon-covered loans at that date.
prior year-end.
At September 30, 2017, our three largestnon-performing loans were a C&I loan with a balance of $7.8 million, a multi-family loan with a balance of $7.6 million, and an ADC loan with a balance of $6.2 million.
Troubled Debt Restructurings
In an effort to proactively manage delinquent loans, we have selectively extended to certain borrowers such concessions as rate reductions and extensions of maturity dates, as well as forbearance agreements, when such borrowers have exhibited 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. At September 30, 2017,non-accrual TDRs included taxi medallion-related loans with a combined balance of $43.4 million.
At September 30, 2017, loans on which concessions were made with respect to rate reductions and/or extensions of maturity dates totaled $41.5 million; loans in connection with which forbearance agreements were reached totaled $1.8 million at that date.
Based on the number of loans performing in accordance with their revised terms, our success rates for restructured multi-family loans, CRE loans,one-to-four family loans and other loans were 100%, 100%, 50%, and 84%, respectively, at September 30, 2017. There were no restructured ADC loans atleases represents a reasonable estimate based upon our judgment as that date.
Analysis of Troubled Debt Restructurings
The following table sets forth the changes in our TDRs over the nine months ended September 30, 2017:
(in thousands) | Accruing | Non-Accrual | Total | |||||||||
Balance at December 31, 2016 | $ | 3,466 | $ | 16,454 | $ | 19,920 | ||||||
New TDRs | 8,960 | 35,297 | 44,257 | |||||||||
Transferred to other real estate owned | — | (877 | ) | (877 | ) | |||||||
Charge-offs | — | (11,956 | ) | (11,956 | ) | |||||||
Transferred from accruing tonon-accrual | (1,254 | ) | 1,254 | — | ||||||||
Loan payoffs, including dispositions and principalpay-downs | (886 | ) | (7,141 | ) | (8,027 | ) | ||||||
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Balance at September 30, 2017 | $ | 10,286 | $ | 33,031 | $ | 43,317 | ||||||
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On a limited basis, we may provide additional credit to a borrower after a loan has been placed onnon-accrual status or classified 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. During the nine months ended September 30, 2017, no such additions were made. 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.
Except for thenon-accrual loans and TDRs disclosed in this filing, we did not have any potential problem loans at the end of the current first quarter 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 Repossessed Assets, andNon-Covered PCI Loans)
(dollars in thousands) | At or For the Nine Months Ended September 30, 2017 | At or For the Year Ended December 31, 2016 | ||||||
Allowance for Losses onNon-Covered Loans: | ||||||||
Balance at beginning of period | $ | 158,290 | $ | 147,124 | ||||
Provision for losses onnon-covered loans | 58,017 | 11,874 | ||||||
Charge-offs: | ||||||||
Multi-family | (279 | ) | — | |||||
Commercial real estate | — | — | ||||||
One-to-four family residential | (96 | ) | (170 | ) | ||||
Acquisition, development, and construction | — | — | ||||||
Other loans | (58,203 | ) | (3,413 | ) | ||||
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Total charge-offs | (58,578 | ) | (3,583 | ) | ||||
Recoveries: | ||||||||
Multi-family | 28 | 78 | ||||||
Commercial real estate | 398 | 799 | ||||||
One-to-four family residential | 169 | 228 | ||||||
Acquisition, development, and construction | — | 167 | ||||||
Other loans | 594 | 1,603 | ||||||
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Total recoveries | 1,189 | 2,875 | ||||||
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Net charge-offs | (57,389 | ) | (708 | ) | ||||
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Balance at end of period | $ | 158,918 | $ | 158,290 | ||||
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Non-PerformingNon-Covered Assets: | ||||||||
Non-accrualnon-covered mortgage loans: | ||||||||
Multi-family | $ | 11,018 | $ | 13,558 | ||||
Commercial real estate | 4,923 | 9,297 | ||||||
One-to-four family residential | 2,179 | 9,679 | ||||||
Acquisition, development, and construction | 6,200 | 6,200 | ||||||
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Totalnon-accrualnon-covered mortgage loans | $ | 24,320 | $ | 38,734 | ||||
Othernon-accrualnon-covered loans | 44,650 | 17,735 | ||||||
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Totalnon-performingnon-covered loans(1) | $ | 68,970 | $ | 56,469 | ||||
Non-covered repossessed assets(2) | 15,753 | 11,607 | ||||||
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Totalnon-performingnon-covered assets | $ | 84,723 | $ | 68,076 | ||||
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Asset Quality Measures: | ||||||||
Non-performingnon-covered loans to totalnon-covered loans | 0.18 | % | 0.15 | % | ||||
Non-performingnon-covered assets to totalnon-covered assets | 0.17 | 0.14 | ||||||
Allowance for losses onnon-covered loans tonon-performing non-covered loans | 230.42 | 277.19 | ||||||
Allowance for losses onnon-covered loans to totalnon-covered loans | 0.42 | 0.42 | ||||||
Net charge-offs during the period to average loans outstanding during the period(3) | 0.15 | 0.00 | ||||||
Non-Covered Loans30-89 Days Past Due: | ||||||||
Multi-family | $ | 602 | $ | 28 | ||||
Commercial real estate | 450 | — | ||||||
One-to-four family residential | 676 | 2,844 | ||||||
Acquisition, development, and construction | — | — | ||||||
Other loans | 3,425 | 7,511 | ||||||
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Totalnon-covered loans30-89 days past due(4) | $ | 5,153 | $ | 10,383 | ||||
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Covered Loans and Covered Other Real Estate Owned
In connection with the AmTrust and Desert Hills Bank LSA, we established FDIC loss share receivables of $740.0 million and $69.6 million, respectively, which were the acquisition-date fair values of the respective LSA (i.e., the expected reimbursements from the FDIC over the terms of the agreements). The loss share receivables increased if the losses increased, and decreased if the losses fell short of the expected amounts. Increases in estimated reimbursements were recognized in income in the same period that they were identified and that the allowance for losses on the related coveredCompany's net charge-offs as compared to average loans was recognized.
Additionally, as previously disclosed, the Company received approval from the FDIC to sell assets covered under our LSA, early terminate the LSA, and enter 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. On July 28, 2017, the Company completed the sale, resulting in the receipt of proceeds of $1.9outstanding:
Six Months Ended, | |||||||||||
(dollars in millions) | June 30, 2023 | June 30, 2022 | |||||||||
Multi-family | |||||||||||
Net charge-offs (recoveries) during the period | $ | — | $ | — | |||||||
Average amount outstanding | $ | 37,819 | $ | 35,332 | |||||||
Net charge-offs (recoveries) as a percentage of average loans | — | % | — | % | |||||||
Commercial real estate | |||||||||||
Net charge-offs (recoveries) during the period | $ | — | $ | — | |||||||
Average amount outstanding | $ | 9,619 | $ | 6,669 | |||||||
Net charge-offs (recoveries) as a percentage of average loans | — | % | — | % | |||||||
One-to-Four Family first mortgage | |||||||||||
Net charge-offs (recoveries) during the period | $ | 3 | $ | — | |||||||
Average amount outstanding | $ | 5,881 | $ | 146 | |||||||
Net charge-offs (recoveries) as a percentage of average loans | — | % | — | % | |||||||
Acquisition, Development and Construction | |||||||||||
Net charge-offs (recoveries) during the period | $ | — | $ | — | |||||||
Average amount outstanding | $ | 2,219 | $ | 228 | |||||||
Net charge-offs (recoveries) as a percentage of average loans | — | % | — | % | |||||||
Other Loans | |||||||||||
Net charge-offs (recoveries) during the period | $ | (4) | $ | (5) | |||||||
Average amount outstanding | $ | 21,943 | $ | 4,104 | |||||||
Net charge-offs (recoveries) as a percentage of average loans | (0.02) | % | (0.12) | % | |||||||
Total loans | |||||||||||
Net charge-offs (recoveries) during the period | $ | (1) | $ | (5) | |||||||
Average amount outstanding | $ | 77,481 | $ | 46,479 | |||||||
Net charge-offs (recoveries) as a percentage of average loans | — | % | -0.01 | % |
Asset Quality Analysis (Including Covered Loans, Covered OREO, andNon-Covered PCI Loans)
As previously discussed, the covered loan portfolio was sold 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 loans | 6,646 | |||
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Total covered loans andnon-covered PCI loans 90 days or more past due | $ | 132,334 | ||
Covered other real estate owned | 16,990 | |||
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Total covered assets andnon-covered PCI loans | $ | 149,324 | ||
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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 | |||
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Totalnon-performing loans | $ | 188,803 | ||
Other real estate owned | 28,598 | |||
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Totalnon-performing assets | $ | 217,401 | ||
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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 | |||
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Total covered loans andnon-covered PCI loans30-89 days past due | $ | 22,654 | ||
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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 | |||
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Total loans30-89 days past due | $ | 33,037 | ||
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Geographical Analysis ofNon-Performing Loans
The following table presents a geographical analysis of ournon-performing loans at September 30, 2017:
(in thousands) | Total | |||
New York | $ | 49,097 | ||
New Jersey | 9,938 | |||
Maryland | 6,200 | |||
Connecticut | 1,781 | |||
Arizona | 1,204 | |||
Florida | 475 | |||
All other states | 275 | |||
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Totalnon-performing loans | $ | 68,970 | ||
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Securities
Securities declined $140.1 million from the current second quarter-end 2017 balance and $786.0 million from theyear-end 2016 balance to $3.0 billion, representing 6.3%or 7 percent, of total assets at SeptemberJune 30, 2017. During2023,
Mortgage- Related Securities | U.S. Government and GSE Obligations | State, County, and Municipal | Other Debt Securities (2) | ||||||||||||||||||||
Available-for-Sale Debt Securities: (1) | |||||||||||||||||||||||
Due within one year | 2.71 | % | 3.68 | % | — | % | 4.76 | % | |||||||||||||||
Due from one to five years | 3.33 | 4.83 | — | 6.39 | |||||||||||||||||||
Due from five to ten years | 2.84 | 1.55 | 3.16 | 4.82 | |||||||||||||||||||
Due after ten years | 3.72 | 3.16 | — | 5.63 | |||||||||||||||||||
Total debt securities available for sale | 3.65 | 2.27 | 3.16 | 5.61 |
tax-equivalent basis.
As members
Dividends from theFHLB-NY to the Community Bank totaled $22.8 million and $19.2 million, respectively, in the nine months ended September 30, 2017 and 2016; dividends from theFHLB-NY to the Commercial Bank totaled $701,000 and $1.1 million, respectively, in the corresponding periods.
Bank-owned life insurance (“BOLI”)
Reflecting an increase in the cash surrender value of the underlying policies, our investment in BOLI
at June 30, 2023 rose$1.6 billion compared to December 31, 2022.
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 valueAs 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 SeptemberJune 30, 20172023 and December 31, 2016, the balance of CDI, net, declined from $208,000 to zero as a result of amortization in the first nine months of this year.
For more information about the Company’s2022 goodwill see the discussion of “Critical Accounting Policies” earlier in this report.
was $2.4 billion.
instruments; and repayments of, and income from, investment securities.
Loan repayments and sales totaled $9.3 billion in the nine months ended September 30, 2017, down from the $9.1 billion recorded in the year-earlier nine months. Cash flows from the repayment and sales of securities totaled $1.3 billion and $2.7 billion, respectively, in the corresponding periods, while purchases of securities totaled $404.0 million and $281.9 million, respectively.
In the nine months ended September 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).
Included in the September 30th balance of deposits were institutional deposits of $2.2 billion and municipal deposits of $791.5 million, as compared to $2.8 billion and $637.7 million, respectively, at December 31, 2016. Brokered deposits dropped $79.1 million during this timeframe, to $3.9 billion, the net effect of an $83.1 million increase in brokered money market accounts to $2.6 billion and a $641.1 million decline in2022; brokered interest-bearing checking accounts to $804.9 million.represented $1.0 billion and $1.0 billion, respectively. At SeptemberJune 30, 2017,2023, we had $478.9 million
FDIC insurance limit (currently $250,000) by time remaining until maturity:
(in millions) | June 30, 2023 | December 31, 2022 | |||||||||
Portion of U.S. time deposits in excess of insurance limit | $ | 4,847 | $ | 3,749 | |||||||
Time deposits otherwise uninsured with a maturity of: | |||||||||||
3 months or less | 1,601 | 969 | |||||||||
Over 3 months through 6 months | 1,239 | 604 | |||||||||
Over 6 months through 12 months | 1,260 | 1,269 | |||||||||
Over 12 months | 747 | 907 | |||||||||
Total time deposits otherwise uninsured | $ | 4,847 | $ | 3,749 |
Borrowed
Wholesale Borrowings
Wholesale borrowings were unchanged from the trailing quarter but fell $1.3 billion from year end to $12.0 billion, representing 24.8% of total assets, at quarter end.
FHLB-NY advances declined $110.0 million during this time, to $11.6 billion, while the balance of repurchase agreements dropped $1.1decreased $4.9 billion to $450.0 million. In addition, while federal funds purchased amounted to $150.0 million at the end of December, there were no federal funds purchased at September 30, 2017.
Junior Subordinated Debentures
Junior subordinated debentures totaled $359.1 million at the end of the current third quarter, comparable$16.4 billion compared to the balance at December 31st.
Risk Definitions
31, 2022 primarily driven by the paydown of wholesale borrowings with cash received in the Signature Transaction.
Interest Rate Risk –Interest rate risk is the risk to earnings or capital arising from movements in interest rates. Interest rate risk arises from differences between the timingtypes of rate changesproducts we feature; and the timingattractiveness of cash flows(re-pricing risk); from changing rate relationshipstheir terms.
Market Risk –Market risk is the risk to earningsdeclare or capital arising from changes in the value of portfolios of financial instruments. This risk arises from market-making, dealing, and position-taking activities in interest rate, foreign exchange, equity, and commodities markets. Many banks use the term “price risk” interchangeably with market risk; this is because market risk focusespay dividends on the changes in market factors (e.g., interest rates, marketamount of retained earnings that represents any net bargain purchase gain that is subject to a conditional period that may be imposed by the OCC.
Liquidity Risk –Liquidity risk is the risk to earnings or capital arising from a bank’s inabilityresources to meet its cash flow obligations when they become due, without incurring unacceptable losses. Liquidity risk includesover the inabilitynext 12 months and for the foreseeable future.
Management of Market and Interest Rate Risk
We manage our assets and liabilities, fund loan growth, operate our branch network, and address our capital needs.
(in millions) | June 30, 2023 | December 31, 2022 | |||||||||
Multi-family and commercial real estate | $ | 96 | $ | 216 | |||||||
One-to-four family including interest rate locks | 2,497 | 2,066 | |||||||||
Acquisition, development, and construction | 4,281 | 3,539 | |||||||||
Warehouse loan commitments | 5,479 | 8,042 | |||||||||
Other loan commitments | 11,484 | 7,964 | |||||||||
Total loan commitments | $ | 23,837 | $ | 21,827 | |||||||
Commercial, performance stand-by, and financial stand-by letters of credit | 941 | 541 | |||||||||
Total commitments | $ | 24,778 | $ | 22,368 |
Risk-Based Capital | |||||||||||||||||||||||||||||||||||
June 30, 2023 | Common Equity Tier 1 | Tier 1 | Total | Leverage Capital | |||||||||||||||||||||||||||||||
(dollars in millions) | Amount | Ratio | Amount | Ratio | Amount | Ratio | Amount | Ratio | |||||||||||||||||||||||||||
Total capital | $ | 8,269 | 9.59 | % | $ | 8,772 | 10.17 | % | $ | 10,304 | 11.95 | % | $ | 8,772 | 7.37 | % | |||||||||||||||||||
Minimum for capital adequacy purposes | 3,881 | 4.50 | 5,175 | 6.00 | 6,900 | 8.00 | 4,762 | 4.00 | |||||||||||||||||||||||||||
Excess | $ | 4,388 | 5.09 | % | $ | 3,597 | 4.17 | % | $ | 3,404 | 3.95 | % | $ | 4,010 | 3.37 | % | |||||||||||||||||||
December 31, 2022 | |||||||||||||||||||||||||||||||||||
Total capital | $ | 6,335 | 9.06 | % | $ | 6,838 | 9.78 | % | $ | 8,154 | 11.66 | % | $ | 6,838 | 9.70 | % | |||||||||||||||||||
Minimum for capital adequacy purposes | 3,146 | 4.50 | 4,195 | 6.00 | 5,593 | 8.00 | 2,819 | 4.00 | |||||||||||||||||||||||||||
Excess | $ | 3,189 | 4.56 | % | $ | 2,643 | 3.78 | % | $ | 2,561 | 3.66 | % | $ | 4,019 | 5.70 | % |
Risk-Based Capital | |||||||||||||||||||||||||||||||||||
June 30, 2023 | Common Equity Tier 1 | Tier 1 | Total | Leverage Capital | |||||||||||||||||||||||||||||||
(dollars in millions) | Amount | Ratio | Amount | Ratio | Amount | Ratio | Amount | Ratio | |||||||||||||||||||||||||||
Total capital | $ | 9,587 | 11.12 | % | $ | 9,587 | 11.12 | % | $ | 10,128 | 11.75 | % | $ | 9,587 | 8.06 | % | |||||||||||||||||||
Minimum for capital adequacy purposes | 3,878 | 4.50 | 5,171 | 6.00 | 6,895 | 8.00 | 4,759 | 4.00 | |||||||||||||||||||||||||||
Excess | $ | 5,709 | 6.62 | % | $ | 4,416 | 5.12 | % | $ | 3,233 | 3.75 | % | $ | 4,828 | 4.06 | % | |||||||||||||||||||
December 31, 2022 | |||||||||||||||||||||||||||||||||||
Total capital | $ | 7,653 | 10.96 | % | $ | 7,653 | 10.96 | % | $ | 7,982 | 11.43 | % | $ | 7,653 | 10.87 | % | |||||||||||||||||||
Minimum for capital adequacy purposes | 3,142 | 4.50 | 4,189 | 6.00 | 5,585 | 8.00 | 2,817 | 4.00 | |||||||||||||||||||||||||||
Excess | $ | 4,511 | 6.46 | % | $ | 3,464 | 4.96 | % | $ | 2,397 | 3.43 | % | $ | 4,836 | 6.87 | % |
ratio of tangible common stockholders’ equity to tangible assets are among the capital measures considered by current and prospective investors, both independent of, and in comparison with, the Company’s peers.
Three Months Ended, | Six months ended | ||||||||||||||||||||||
(dollars in millions) | June 30, 2023 | March 31, 2023 | June 30, 2023 | June 30, 2022 | |||||||||||||||||||
Stockholders’ Equity | $ | 11,060 | $ | 10,782 | $ | 11,060 | $ | 6,824 | |||||||||||||||
Less: Goodwill and other intangible assets | (3,123) | (3,160) | (3,123) | (2,426) | |||||||||||||||||||
Preferred stock | (503) | (503) | (503) | (503) | |||||||||||||||||||
Tangible common stockholders’ equity | $ | 7,434 | $ | 7,119 | $ | 7,434 | $ | 3,895 | |||||||||||||||
Total Assets | $ | 118,796 | $ | 123,706 | $ | 118,796 | $ | 63,093 | |||||||||||||||
Less: Goodwill and other intangible assets | (3,123) | (3,160) | (3,123) | (2,426) | |||||||||||||||||||
Tangible assets | $ | 115,673 | $ | 120,546 | $ | 115,673 | $ | 60,667 | |||||||||||||||
Common stockholders’ equity to total assets | 8.89 | % | 8.31 | % | 8.89 | % | 10.02 | % | |||||||||||||||
Tangible common stockholders’ equity to tangible assets | 6.43 | % | 5.91 | % | 6.43 | % | 6.42 | % | |||||||||||||||
Book value per common share | $ | 14.61 | $ | 14.23 | $ | 14.61 | $ | 13.56 | |||||||||||||||
Tangible book value per common share | $ | 10.29 | $ | 9.86 | $ | 10.29 | $ | 8.35 |
In the first nine months of 2017, we
In connection withrates; (3) Increased the activitiesfocus on retaining low costs deposits; and (4) Obtained new low cost deposits as part of the banking-as-a-service initiative (5) The use of derivatives to manage our interest rate position.
To mitigate the interest rate risk associated with our IRLCs, we entered into forward commitments to sell mortgage loans or mortgage-backed securities (“MBS”) by a specified future date and at a specified price. These forward-sale agreements were also carried at fair value. Such forward commitments to sell generally obligated us to complete the transaction as agreed, and therefore pose a risk to us if we are not able to deliver the loans or MBS pursuant to the terms of the applicable forward-sale agreement.
When we retained the servicingestimated based on the loans we sold, we capitalized an MSR asset. Residential MSRs are recorded at fair value, with changes in fair value recorded assame methodologies and assumptions used for regulatory reporting purposes and excludes internal accounts. At June 30, 2023 our deposit base includes $37.8 billion of uninsured deposits, reflecting a componentnet increase ofnon-interest income. We estimate the fair value of the MSR asset based upon a number of factors, including current and expected loan prepayment rates, economic conditions, and market forecasts, as well as relevant characteristics of the associated underlying loans. Generally, when market interest rates decline, loan prepayments increase as customers refinance their existing mortgages to take advantage of more favorable interest rate terms. When a mortgage prepays, or when loans are expected to prepay earlier than originally expected, a portion of the anticipated cash flows associated with servicing these loans is terminated or reduced, which can result in a reduction in the fair value of the capitalized MSRs and a corresponding reduction in earnings.
To mitigate the prepayment risk inherent in residential MSRs, we could have sold the servicing of the loans we produced, and thus minimized the potential for earnings volatility. Instead, we opted to mitigate such risk by investing in exchange-traded derivative financial instruments that were expected to experience opposite and partially offsetting changes in fair value as related to the value of our residential MSRs.
Interest Rate Sensitivity Analysis
The matching of assets and liabilities may be analyzed by examining the extent to which such assets and liabilities are “interest rate sensitive” and by monitoring a bank’s interest rate sensitivity “gap.” An asset or liability is said to be interest rate sensitive within a specific time frame if it will mature or reprice within that period of time. The interest rate sensitivity gap is defined as the difference between the amount of interest-earning assets maturing 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, 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 September 30, 2017, ourone-year gap was a negative 17.52%, $18.2 billion as compared to a negative 21.37% at December 31, 2016. The385-basis point change was largely2022 due to an increase in cash balances as a resultthe Signature Transaction. This represents 43 percent of our total deposits.
The tablesubstitute index, which would have an adverse effect on the following page sets forth the amounts of interest-earning assets and interest-bearing liabilities outstanding at September 30, 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 September 30, 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 15% per annum; for multi-family and CRE loans, prepayment rates are forecasted at weighted average CPRs of 15% and 13% per annum, respectively. Borrowed funds were not assumed to prepay.
Savings, interest-bearing checking 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 57% for the first five years and 43% 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 71% for the first five years and 29% for years six through ten.
Interest Rate Sensitivity Analysis
At September 30, 2017 | ||||||||||||||||||||||||||||
Three | Four to | More Than | More Than | More Than | More | |||||||||||||||||||||||
Months | Twelve | One Year | Three Years | Five Years | Than | |||||||||||||||||||||||
(dollars in thousands) | or Less | Months | to Three Years | to Five Years | to 10 Years | 10 Years | Total | |||||||||||||||||||||
INTEREST-EARNING ASSETS: | ||||||||||||||||||||||||||||
Mortgage and other loans(1) | $ | 3,404,215 | $ | 5,395,365 | $ | 13,855,861 | $ | 10,974,797 | $ | 3,759,589 | $ | 152,340 | $ | 37,542,167 | ||||||||||||||
Mortgage-related securities(2)(3) | 28,954 | 48,601 | 153,528 | 1,010,056 | 1,187,286 | 82,104 | 2,510,529 | |||||||||||||||||||||
Other securities(2) | 694,896 | 260,513 | 3,848 | 10,929 | 60,632 | 69,153 | 1,099,971 | |||||||||||||||||||||
Interest-earning cash and cash equivalents | 3,114,444 | — | — | — | — | — | 3,114,444 | |||||||||||||||||||||
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Total interest-earning assets | 7,242,509 | 5,704,479 | 14,013,237 | 11,995,782 | 5,007,507 | 303,597 | 44,267,111 | |||||||||||||||||||||
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INTEREST-BEARING LIABILITIES: | ||||||||||||||||||||||||||||
Interest-bearing checking and money market accounts | 6,442,546 | 436,363 | 1,007,765 | 826,948 | 3,625,327 | — | 12,338,949 | |||||||||||||||||||||
Savings accounts | 902,004 | 824,160 | 614,154 | 484,171 | 2,172,089 | — | 4,996,578 | |||||||||||||||||||||
Certificates of deposit | 3,193,359 | 4,899,393 | 629,427 | 67,239 | 13,155 | — | 8,802,573 | |||||||||||||||||||||
Borrowed funds | 1,463,926 | 3,273,500 | 7,381,000 | 100,000 | — | 145,176 | 12,363,602 | |||||||||||||||||||||
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Total interest-bearing liabilities | 12,001,835 | 9,433,416 | 9,632,346 | 1,478,358 | 5,810,571 | 145,176 | 38,501,702 | |||||||||||||||||||||
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Interest rate sensitivity gap per period(4) | $ | (4,759,326 | ) | $ | (3,728,937 | ) | $ | 4,380,891 | $ | 10,517,424 | $ | (803,064 | ) | $ | 158,421 | $ | 5,765,409 | |||||||||||
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Cumulative interest rate sensitivity gap | $ | (4,759,326 | ) | $ | (8,488,263 | ) | $ | (4,107,372 | ) | $ | 6,410,052 | $ | 5,606,988 | $ | 5,765,409 | |||||||||||||
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Cumulative interest rate sensitivity gap as a percentage of total assets | (9.82 | )% | (17.52 | )% | (8.48 | )% | 13.23 | % | 11.57 | % | 11.90 | % | ||||||||||||||||
Cumulative net interest-earning assets as a percentage of net interest-bearing liabilities | 60.35 | % | 60.40 | % | 86.78 | % | 119.70 | % | 114.62 | % | 114.97 | % | ||||||||||||||||
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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.
To validate our prepayment assumptions for our multi-familyoperations. The Company has LIBOR-based contracts that extend beyond June 30, 2023. The sub-committee has monitored the Bank’s LIBOR transition progress 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 reviewsubstantially all contracts have been updated. In complying with industry requirements, the actual prepayment rates to ensure that our projections are as accurate as possible,Bank has not offered new LIBOR-based products 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, if any, 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.
As of September 30, 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 11.23% 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 4.08% per annum.
Certain shortcomings are inherent in the method of analysis presented in the preceding December 31, 2021.
Analysis
and betas.
Change in Interest Rates
| Estimated Percentage Change in | of Equity | ||||||||
| ||||||||||
-100 over one year | (1.5)% | |||||||||
+100 over one year | (0.6)% | |||||||||
+200 over one year |
As withBank.
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, 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.
Change in Interest Rates
| Estimated Percentage Change in Future Net Interest Income | |||||||||
| ||||||||||
-100 over one year | (4.9)% | |||||||||
+100 over one year | 5.0% | |||||||||
+200 over one year |
NII simulations.
Liquidity
ITEM 1. | FINANCIAL STATEMENTS |
June 30, 2023 | December 31, 2022 | ||||||||||
(in millions, except per share data) | |||||||||||
ASSETS: | |||||||||||
Cash and cash equivalents | $ | 15,806 | $ | 2,032 | |||||||
Securities: | |||||||||||
Debt Securities available-for-sale $1,275 and $434 pledged at June 30, 2023 and December 31, 2022, respectively) | 7,782 | 9,060 | |||||||||
Equity investments with readily determinable fair values, at fair value | 14 | 14 | |||||||||
Total securities | 7,796 | 9,074 | |||||||||
Loans held for sale ($1,572 and $1,115 measured at fair value, respectively) | 2,194 | 1,115 | |||||||||
Loans and leases held for investment, net of deferred loan fees and costs | 83,278 | 69,001 | |||||||||
Less: Allowance for credit losses on loans and leases | (594) | (393) | |||||||||
Total loans and leases held for investment, net | 82,684 | 68,608 | |||||||||
Federal Home Loan Bank stock and Federal Reserve Bank stock, at cost | 1,136 | 1,267 | |||||||||
Premises and equipment, net | 660 | 491 | |||||||||
Core deposit and other intangibles | 697 | 287 | |||||||||
Goodwill | 2,426 | 2,426 | |||||||||
Mortgage servicing rights | 1,031 | 1,033 | |||||||||
Bank-owned life insurance | 1,567 | 1,561 | |||||||||
Other assets | 2,799 | 2,250 | |||||||||
Total assets | $ | 118,796 | $ | 90,144 | |||||||
LIABILITIES AND STOCKHOLDERS' EQUITY: | |||||||||||
Deposits: | |||||||||||
Interest-bearing checking and money market accounts | $ | 30,795 | $ | 22,511 | |||||||
Savings accounts | 9,762 | 11,645 | |||||||||
Certificates of deposit | 18,188 | 12,510 | |||||||||
Non-interest-bearing accounts | 29,752 | 12,055 | |||||||||
Total deposits | 88,497 | 58,721 | |||||||||
Borrowed funds: | |||||||||||
Federal Home Loan Bank advances | 15,400 | 20,325 | |||||||||
Junior subordinated debentures | 577 | 575 | |||||||||
Subordinated notes | 435 | 432 | |||||||||
Total borrowed funds | 16,412 | 21,332 | |||||||||
Other liabilities | 2,827 | 1,267 | |||||||||
Total liabilities | 107,736 | 81,320 | |||||||||
Stockholders' equity: | |||||||||||
Preferred stock at par $0.01 (5,000,000 shares authorized): Series A (515,000 shares issued and outstanding) | 503 | 503 | |||||||||
Common stock at par $0.01 (900,000,000 shares authorized; 744,506,254 and 705,429,386 shares issued; and 722,475,755 and 681,217,334 shares outstanding, respectively) | 7 | 7 | |||||||||
Paid-in capital in excess of par | 8,204 | 8,130 | |||||||||
Retained earnings | 3,205 | 1,041 | |||||||||
Treasury stock, at cost ($22,030,499 and 24,212,052 shares, respectively) | (217) | (237) | |||||||||
Accumulated other comprehensive loss, net of tax: | |||||||||||
Net unrealized loss on securities available for sale, net of tax of $255 and $240, respectively | (668) | (626) | |||||||||
Net unrealized loss on pension and post-retirement obligations, net of tax of $17 and $18, respectively | (43) | (46) | |||||||||
Net unrealized gain on cash flow hedges, net of tax of $(26) and $(20), respectively | 69 | 52 | |||||||||
Total accumulated other comprehensive loss, net of tax | (642) | (620) | |||||||||
Total stockholders’ equity | 11,060 | 8,824 | |||||||||
Total liabilities and stockholders’ equity | $ | 118,796 | $ | 90,144 |
Three Months Ended June 30, | Six months ended June 30, | ||||||||||||||||||||||
(in millions, except per share data) | 2023 | 2022 | 2023 | 2022 | |||||||||||||||||||
INTEREST INCOME: | |||||||||||||||||||||||
Loans and leases | $ | 1,161 | $ | 424 | $ | 2,028 | $ | 817 | |||||||||||||||
Securities and money market investments | 337 | 49 | 504 | 85 | |||||||||||||||||||
Total interest income | 1,498 | 473 | 2,532 | 902 | |||||||||||||||||||
INTEREST EXPENSE: | |||||||||||||||||||||||
Interest-bearing checking and money market accounts | 232 | 24 | 389 | 32 | |||||||||||||||||||
Savings accounts | 40 | 10 | 79 | 18 | |||||||||||||||||||
Certificates of deposit | 169 | 12 | 256 | 23 | |||||||||||||||||||
Borrowed funds | 157 | 68 | 353 | 138 | |||||||||||||||||||
Total interest expense | 598 | 114 | 1,077 | 211 | |||||||||||||||||||
Net interest income | 900 | 359 | 1,455 | 691 | |||||||||||||||||||
Provision for (recovery of) credit losses | 49 | 9 | 219 | 7 | |||||||||||||||||||
Net interest income after provision for credit loan losses | 851 | 350 | 1,236 | 684 | |||||||||||||||||||
NON-INTEREST INCOME: | |||||||||||||||||||||||
Fee income | 48 | 6 | 75 | 12 | |||||||||||||||||||
Bank-owned life insurance | 11 | 7 | 21 | 14 | |||||||||||||||||||
Net (loss) on securities | (1) | — | (1) | (1) | |||||||||||||||||||
Net return on mortgage servicing rights | 25 | — | 47 | — | |||||||||||||||||||
Net gain on loan sales and securitizations | 25 | — | 45 | — | |||||||||||||||||||
Net Loan administration income | 39 | — | 46 | — | |||||||||||||||||||
Bargain purchase gain | 141 | — | 2,142 | — | |||||||||||||||||||
Other | 14 | 5 | 25 | 7 | |||||||||||||||||||
Total non-interest income | 302 | 18 | 2,400 | 32 | |||||||||||||||||||
NON-INTEREST EXPENSE: | |||||||||||||||||||||||
Operating expenses: | |||||||||||||||||||||||
Compensation and benefits | 289 | 79 | 508 | 159 | |||||||||||||||||||
Occupancy and equipment | 50 | 22 | 87 | 45 | |||||||||||||||||||
General and administrative | 176 | 33 | 312 | 64 | |||||||||||||||||||
Total operating expense | 515 | 134 | 907 | 268 | |||||||||||||||||||
Intangible asset amortization | 37 | — | 54 | — | |||||||||||||||||||
Merger-related and restructuring expenses | 109 | 4 | 176 | 11 | |||||||||||||||||||
Total non-interest expense | 661 | 138 | 1,137 | 279 | |||||||||||||||||||
Income before income taxes | 492 | 230 | 2,499 | 437 | |||||||||||||||||||
Income tax expense | 79 | 59 | 80 | 111 | |||||||||||||||||||
Net income | $ | 413 | $ | 171 | $ | 2,419 | $ | 326 | |||||||||||||||
Preferred stock dividends | 8 | 8 | 16 | 16 | |||||||||||||||||||
Net income available to common stockholders | $ | 405 | $ | 163 | $ | 2,403 | $ | 310 | |||||||||||||||
Basic earnings per common share | $ | 0.55 | $ | 0.34 | $ | 3.37 | $ | 0.66 | |||||||||||||||
Diluted earnings per common share | $ | 0.55 | $ | 0.34 | $ | 3.37 | $ | 0.66 | |||||||||||||||
Net income | $ | 413 | $ | 171 | $ | 2,419 | $ | 326 | |||||||||||||||
Other comprehensive loss, net of tax: | |||||||||||||||||||||||
Change in net unrealized loss on securities available for sale, net of tax of $36; $68; $15 and $150;, respectively | (102) | (176) | (42) | (391) | |||||||||||||||||||
Change in pension and post-retirement obligations, net of tax of $(1); $0; $(1) and $0;, respectively | 1 | (1) | 2 | (1) | |||||||||||||||||||
Change in net unrealized gain on cash flow hedges, net of tax of $(32); $(3); $(9) and $(7);, respectively | 92 | 6 | 25 | 18 | |||||||||||||||||||
Reclassification adjustment for defined benefit pension plan, net of tax of $1; $0; $0 and $0;, respectively | — | 1 | 1 | 1 | |||||||||||||||||||
Reclassification adjustment for net (loss) gain on cash flow hedges included in net income, net of tax $1; $0; $3 and $(2);, respectively | (4) | 1 | (8) | 5 | |||||||||||||||||||
Total other comprehensive loss, net of tax | (13) | (169) | (22) | (368) | |||||||||||||||||||
Total comprehensive income (loss), net of tax | $ | 400 | $ | 2 | $ | 2,397 | $ | (42) |
(in millions, except share data) | Shares Outstanding | Preferred Stock (Par Value: $0.01) | Common Stock (Par Value: $0.01) | Paid-in Capital in excess of Par | Retained Earnings | Treasury Stock, at Cost | Accumulated Other Comprehensive Loss, Net of Tax | Total Stockholders’ Equity | |||||||||||||||||||||||||||||||||||||||
Three Months Ended June 30, 2023 | |||||||||||||||||||||||||||||||||||||||||||||||
Balance at March 31, 2023 | 722,150,297 | $ | 503 | $ | 7 | $ | 8,197 | $ | 2,923 | $ | (219) | $ | (629) | $ | 10,782 | ||||||||||||||||||||||||||||||||
Shares issued for restricted stock, net of forfeitures | 515,635 | — | — | (4) | — | 4 | — | — | |||||||||||||||||||||||||||||||||||||||
Compensation expense related to restricted stock awards | — | — | 11 | — | — | — | 11 | ||||||||||||||||||||||||||||||||||||||||
Net income | — | — | — | 413 | — | — | 413 | ||||||||||||||||||||||||||||||||||||||||
Dividends paid on common stock ($0.17) | — | — | — | (123) | — | — | (123) | ||||||||||||||||||||||||||||||||||||||||
Dividends paid on preferred stock ($15.94) | — | — | — | (8) | — | — | (8) | ||||||||||||||||||||||||||||||||||||||||
Purchase of common stock | (190,177) | — | — | — | — | (2) | — | (2) | |||||||||||||||||||||||||||||||||||||||
Other comprehensive loss, net of tax | — | — | — | — | — | (13) | (13) | ||||||||||||||||||||||||||||||||||||||||
Balance at June 30, 2023 | 722,475,755 | $ | 503 | $ | 7 | $ | 8,204 | $ | 3,205 | $ | (217) | $ | (642) | $ | 11,060 | ||||||||||||||||||||||||||||||||
Three Months Ended June 30, 2022 | |||||||||||||||||||||||||||||||||||||||||||||||
Balance at March 31, 2022 | 467,024,144 | $ | 503 | $ | 5 | $ | 6,107 | $ | 809 | $ | (231) | $ | (284) | $ | 6,909 | ||||||||||||||||||||||||||||||||
Shares issued for restricted stock, net of forfeitures | 28,930 | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||
Compensation expense related to restricted stock awards | — | — | — | 7 | — | — | — | 7 | |||||||||||||||||||||||||||||||||||||||
Net income | — | — | — | — | 171 | — | — | 171 | |||||||||||||||||||||||||||||||||||||||
Dividends paid on common stock ($0.17) | — | — | — | — | (79) | — | — | (79) | |||||||||||||||||||||||||||||||||||||||
Dividends paid on preferred stock ($15.94) | — | — | — | — | (8) | — | — | (8) | |||||||||||||||||||||||||||||||||||||||
Purchase of common stock | (809,996) | — | — | — | — | (7) | — | (7) | |||||||||||||||||||||||||||||||||||||||
Other comprehensive loss, net of tax | — | — | — | — | — | — | (169) | (169) | |||||||||||||||||||||||||||||||||||||||
Balance at June 30, 2022 | 466,243,078 | $ | 503 | $ | 5 | $ | 6,114 | $ | 893 | $ | (238) | $ | (453) | $ | 6,824 |
(in millions, except share data) | Shares Outstanding | Preferred Stock (Par Value: $0.01) | Common Stock (Par Value: $0.01) | Paid-in Capital in excess of Par | Retained Earnings | Treasury Stock, at Cost | Accumulated Other Comprehensive Loss, Net of Tax | Total Stockholders’ Equity | |||||||||||||||||||||||||||||||||||||||
Six Months Ended June 30, 2023 | |||||||||||||||||||||||||||||||||||||||||||||||
Balance at December 31, 2022 | 681,217,334 | $ | 503 | $ | 7 | $ | 8,130 | $ | 1,041 | $ | (237) | $ | (620) | $ | 8,824 | ||||||||||||||||||||||||||||||||
Issuance and exercise of FDIC Equity appreciation instrument | 39,032,006 | — | — | 85 | — | — | — | 85 | |||||||||||||||||||||||||||||||||||||||
Shares issued for restricted stock, net of forfeitures | 3,393,046 | — | — | (31) | — | 31 | — | — | |||||||||||||||||||||||||||||||||||||||
Compensation expense related to restricted stock awards | 0 | — | — | 20 | — | — | — | 20 | |||||||||||||||||||||||||||||||||||||||
Net income | 0 | — | — | — | 2,419 | — | — | 2,419 | |||||||||||||||||||||||||||||||||||||||
Dividends paid on common stock ($0.34) | 0 | — | — | — | (239) | — | — | (239) | |||||||||||||||||||||||||||||||||||||||
Dividends paid on preferred stock ($31.88) | 0 | — | — | — | (16) | — | — | (16) | |||||||||||||||||||||||||||||||||||||||
Purchase of common stock | (1,166,631) | — | — | — | — | (11) | — | (11) | |||||||||||||||||||||||||||||||||||||||
Other comprehensive loss, net of tax | 0 | — | — | — | — | — | (22) | (22) | |||||||||||||||||||||||||||||||||||||||
Balance at June 30, 2023 | 722,475,755 | $ | 503 | $ | 7 | $ | 8,204 | $ | 3,205 | $ | (217) | $ | (642) | $ | 11,060 | ||||||||||||||||||||||||||||||||
Six Months Ended June 30, 2022 | |||||||||||||||||||||||||||||||||||||||||||||||
Balance at December 31, 2021 | 465,015,643 | $ | 503 | $ | 5 | $ | 6,126 | $ | 741 | $ | (246) | $ | (85) | $ | 7,044 | ||||||||||||||||||||||||||||||||
Shares issued for restricted stock, net of forfeitures | 2,939,365 | — | — | (27) | — | 27 | — | — | |||||||||||||||||||||||||||||||||||||||
Compensation expense related to restricted stock awards | — | — | — | 15 | — | — | — | 15 | |||||||||||||||||||||||||||||||||||||||
Net income | — | — | — | — | 326 | — | — | 326 | |||||||||||||||||||||||||||||||||||||||
Dividends paid on common stock ($0.34) | — | — | — | — | (158) | — | — | (158) | |||||||||||||||||||||||||||||||||||||||
Dividends paid on preferred stock ($31.88) | — | — | — | — | (16) | — | — | (16) | |||||||||||||||||||||||||||||||||||||||
Purchase of common stock | (1,711,930) | — | — | — | — | (19) | — | (19) | |||||||||||||||||||||||||||||||||||||||
Other comprehensive loss, net of tax | — | — | — | — | — | — | (368) | (368) | |||||||||||||||||||||||||||||||||||||||
Balance at June 30, 2022 | 466,243,078 | $ | 503 | $ | 5 | $ | 6,114 | $ | 893 | $ | (238) | $ | (453) | $ | 6,824 |
For the Six Months Ended June 30, | |||||||||||
(in millions) | 2023 | 2022 | |||||||||
CASH FLOWS FROM OPERATING ACTIVITIES: | |||||||||||
Net income | $ | 2,419 | $ | 326 | |||||||
Adjustments to reconcile net income to net cash (used in) provided by operating activities: | |||||||||||
Provision for loan losses | 219 | 7 | |||||||||
Amortization of intangibles | 54 | — | |||||||||
Depreciation | 18 | 9 | |||||||||
Amortization of discounts and premiums, net | (119) | (2) | |||||||||
Net (gain) loss on securities | 1 | 1 | |||||||||
Net (gain) loss on sales of loans | (45) | — | |||||||||
Net gain on sales of fixed assets | — | (2) | |||||||||
Gain on business acquisition | (2,142) | — | |||||||||
Stock-based compensation | 20 | 15 | |||||||||
Deferred tax expense | (44) | (15) | |||||||||
Changes in operating assets and liabilities: | |||||||||||
Decrease (increase) in other assets | (71) | 42 | |||||||||
(Decrease) increase in other liabilities | (969) | 18 | |||||||||
Purchases of securities held for trading | (10) | (35) | |||||||||
Proceeds from sales of securities held for trading | 10 | 35 | |||||||||
Change in loans held for sale, net | (911) | — | |||||||||
Net cash (used in) provided by operating activities | (1,570) | 399 | |||||||||
CASH FLOWS FROM INVESTING ACTIVITIES: | |||||||||||
Proceeds from repayment of securities available for sale | 1,148 | 397 | |||||||||
Proceeds from sales of securities available for sale | 1,341 | — | |||||||||
Purchase of securities available for sale | (1,111) | (788) | |||||||||
Redemption of Federal Home Loan Bank stock | 967 | 175 | |||||||||
Purchases of Federal Home Loan Bank and Federal Reserve Bank stock | (836) | (76) | |||||||||
Proceeds from bank-owned life insurance, net | 24 | 5 | |||||||||
Purchases of loans | — | (144) | |||||||||
Net Proceeds from sales of MSR's | 50 | — | |||||||||
Other changes in loans, net | (2,433) | (2,650) | |||||||||
(Purchases) dispositions of premises and equipment, net | (53) | 11 | |||||||||
Cash acquired in business acquisition | 25,043 | — | |||||||||
Net cash provided by (used in) investing activities | 24,140 | (3,070) | |||||||||
CASH FLOWS FROM FINANCING ACTIVITIES: | |||||||||||
Net (decrease) increase in deposits | (3,809) | 6,185 | |||||||||
Net decrease in short-term borrowed funds | (2,050) | (1,700) | |||||||||
Proceeds from long-term borrowed funds | 500 | 2,955 | |||||||||
Repayments of long-term borrowed funds | (3,374) | (3,510) | |||||||||
Net receipt of payments of loans serviced for others | 367 | — | |||||||||
Cash dividends paid on common stock | (239) | (158) | |||||||||
Cash dividends paid on preferred stock | (16) | (16) | |||||||||
Treasury stock repurchased | — | (7) | |||||||||
Payments relating to treasury shares received for restricted stock award tax payments | (11) | (12) | |||||||||
Net cash (used in) provided by financing activities | (8,632) | 3,737 | |||||||||
Net increase in cash, cash equivalents, and restricted cash (1) | 13,938 | 1,066 | |||||||||
Cash, cash equivalents, and restricted cash at beginning of year (1) | 2,082 | 2,211 | |||||||||
Cash, cash equivalents, and restricted cash at end of year (1) | $ | 16,020 | $ | 3,277 | |||||||
Supplemental information: | |||||||||||
Cash paid for interest | $ | 1,043 | $ | 229 |
Cash paid for income taxes | 17 | 8 | |||||||||
Non-cash investing and financing activities: | |||||||||||
Transfers to repossessed assets from loans | $ | 1 | $ | — | |||||||
Securitization of loans to mortgage-backed securities available for sale | 109 | 144 | |||||||||
Shares issued for restricted stock awards | 31 | 27 | |||||||||
Business Combination: | |||||||||||
Fair value of tangible assets acquired | 37,542 | — | |||||||||
Intangible assets | 464 | — | |||||||||
Liabilities assumed | 35,779 | — | |||||||||
Issuance of FDIC Equity appreciation instrument | 85 | — |
Standard | Description | Effective Date | ||||||
ASU 2022-02- Financial Instruments - Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures Issued March 2022 | ASU 2022-02 eliminates prior accounting guidance for TDRs, while enhancing disclosure requirements for certain loan refinancings and restructurings by creditors when a borrower is experiencing financial difficulty. The standard also requires that an entity disclose current-period gross charge-offs by year of origination for financing receivables and net investments in leases. | The Company adopted ASU 2022-02 effective January 1, 2023 using a modified retrospective transition approach for the amendments related to the recognition and measurement of TDRs. The impact of the adoption resulted in an immaterial change to the allowance for credit losses ("ACL"), thus no adjustment to retained earnings was recorded. Disclosures have been updated to reflect information on loan modifications given to borrowers experiencing financial difficulty as presented in Note 6. TDR disclosures are presented for comparative periods only and are not required to be updated in current periods. Additionally, the current year vintage disclosure included in Note 6 has been updated to reflect gross charge-offs by year of origination for the three months ended June 30, 2023. | ||||||
ASU 2023-02 Investments - Equity Method and Joint Ventures (Topic 323): Accounting for Investments in Tax Credit Structures Using the Proportional Amortization Method Issued: March 2023 | Permits reporting entities to elect to account for their tax equity investments, regardless of the tax credit program from which the income tax credits are received, using the proportional amortization method if certain conditions are met. | The Company adopted ASU 2023-02 effective January 1, 2023 and is not expected to have a significant impact on the Company's consolidated financial statements. |
Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||
(in millions, except share and per share amounts) | 2023 | 2022 | 2023 | 2022 | |||||||||||||||||||
Net income available to common stockholders | $ | 405 | $ | 163 | $ | 2,403 | $ | 310 | |||||||||||||||
Less: Dividends paid on and earnings allocated to participating securities | (4) | (2) | (26) | (4) | |||||||||||||||||||
Earnings applicable to common stock | $ | 401 | $ | 161 | $ | 2,377 | $ | 306 | |||||||||||||||
Weighted average common shares outstanding | 722,264,568 | 465,811,096 | 704,685,721 | 465,476,526 | |||||||||||||||||||
Basic earnings per common share | $ | 0.55 | $ | 0.34 | $ | 3.37 | $ | 0.66 | |||||||||||||||
Earnings applicable to common stock | $ | 401 | $ | 161 | $ | 2,377 | $ | 306 | |||||||||||||||
Weighted average common shares outstanding | 722,264,568 | 465,811,096 | 704,685,721 | 465,476,526 | |||||||||||||||||||
Potential dilutive common shares | 1,462,426 | 988,976 | 1,411,524 | 899,249 | |||||||||||||||||||
Total shares for diluted earnings per common share computation | 723,726,994 | 466,800,072 | 706,097,245 | 466,375,775 | |||||||||||||||||||
Diluted earnings per common share and common share equivalents | $ | 0.55 | $ | 0.34 | $ | 3.37 | $ | 0.66 |
(in millions) | March 20, 2023 | ||||
Net assets acquired before fair value adjustments | $ | 2,973 | |||
Fair value adjustments: | |||||
Loans | (727) | ||||
Core deposit and other intangibles | 464 | ||||
Certificates of deposit | 27 | ||||
Other net assets and liabilities | 39 | ||||
FDIC Equity Appreciation Instrument | (85) | ||||
Deferred tax liability | (690) | ||||
Bargain purchase gain on Signature Transaction, as initially reported | $ | 2,001 | |||
Measurement period adjustments, excluding taxes | 53 | ||||
Change in deferred tax liability | 88 | ||||
Bargain purchase gain on Signature Transaction, as adjusted | $ | 2,142 |
(in millions) | As Initially Reported | Measurement Period Adjustments | As Adjusted | ||||||||
Purchase Price consideration | $ | 85 | $ | — | $ | 85 | |||||
Fair value of assets acquired: | |||||||||||
Cash & cash equivalents | 25,043 | — | 25,043 | ||||||||
Loans held for sale | 232 | — | 232 | ||||||||
Loans held for investment: | |||||||||||
Commercial and industrial | 10,102 | (214) | 9,888 | ||||||||
Commercial real estate | 1,942 | (262) | 1,680 | ||||||||
Consumer and other | 174 | (1) | 173 | ||||||||
Total loans held for investment | 12,218 | (477) | 11,741 | ||||||||
CDI and other intangible assets | 464 | 464 | |||||||||
Other assets | 679 | (153) | 526 | ||||||||
Total assets acquired | 38,636 | (630) | 38,006 | ||||||||
Fair value of liabilities assumed: | |||||||||||
Deposits | 33,568 | — | 33,568 | ||||||||
Other liabilities | 2,982 | (771) | 2,211 | ||||||||
Total liabilities assumed | 36,550 | (771) | 35,779 | ||||||||
Fair value of net identifiable assets | 2,086 | 141 | 2,227 | ||||||||
Bargain purchase gain | $ | 2,001 | $ | 141 | $ | 2,142 |
We monitor our liquidity daily to ensure that sufficient funds are available to meet our financial obligations. Our most liquid assets areliabilities assumed in the Signature Transaction.
Additional liquidity stems from the retail, institutional, and municipal deposits we gather and from our use of wholesale funding sources, including brokered deposits and wholesale borrowings. We also have accessinclude adjustments for liquidity. The discount rates do not include a factor for credit losses as that has been included as a reduction to the Banks’ approved lines of credit with various counterparties, including theFHLB-NY. The availability of these wholesale funding sources is generally based on the available amount of mortgage loan collateral under a blanket lien we have pledgedestimated cash flows. Acquired loans were marked to the respective institutionsfair value and to a lesser extent, the available amount of securities that may be pledged to collateralize our borrowings. At September 30, 2017, our available borrowing capacity with theFHLB-NY was $7.5 billion. In addition, the Banks had $3.0 billion ofavailable-for-sale securities, combined, at that date.
Furthermore, both the Community Bank and the Commercial Bank have agreements with the Federal Reserve Bank of New York (the“FRB-NY”) that enable them to access the discount window as a further means of enhancing their liquidity if need be. In connection with their agreements, the Banks have pledged certain loans and securities to collateralizeadjusted for any funds they may borrow. At September 30, 2017, the maximum amount the Community Bank could borrow from theFRB-NY was $1.3 billion; the maximum amount the Commercial Bank could borrow from theFRB-NY was $77.5 million. There were no borrowings against either of these lines of credit at that date.
Our primary investing activity is loan production. In the first nine months of 2017, the volume of loans originated for investment was $5.8 billion. During this time, the net cash provided by investing activities totaled $2.5 billion. Our operating activities provided net cash of $1.3 billion, while the net cash used in our financing activities totaled $1.1 billion.
CDs due to mature in one year or less from September 30, 2017 totaled $8.1 billion, representing 91.9% of total CDs at that date. Our ability to retain these CDs and to attract new deposits depends on numerous factors, including customer satisfaction, the rates of interest we pay on our deposits, the types of products we offer, and the attractiveness of their terms. However, there are times when we may choose not to compete for such deposits, depending on the availability of lower-cost funding, the competitiveness of the market and its impact on pricing, and our need for such deposits to fund loan demand, as previously discussed.
The Parent Company is a separate legal entity from each of the Banks and must provide for its own liquidity. In addition to operating expenses and any share repurchases, the Parent Company is responsible for paying dividends declared to our 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 of the four quarters of 2016, the Company was required under Supervisory Letter SR09-04 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 FRB subsequently advised the Company to continue the exchange of written documentation to obtain theirnon-objection to the declaration of dividends in 2017. The Company has received all necessarynon-objections from the FRB for the dividends declaredPCD gross up as of the date of the Signature Transaction.
(in millions) | Total | ||||
Par value (UPB) | $ | 583 | |||
ACL at acquisition | (13) | ||||
Non-credit (discount) | (76) | ||||
Fair value | $ | 494 |
(in millions) | For the Six Months Ended June 30, 2023 | ||||||||||
Details about Accumulated Other Comprehensive Loss | Amount Reclassified out of Accumulated Other Comprehensive Loss (1) | Affected Line Item in the Consolidated Statements of Income and Comprehensive Income | |||||||||
Unrealized gains on available-for-sale securities: | $ | — | Net gain on securities | ||||||||
— | Income tax expense | ||||||||||
$ | — | Net gain on securities, net of tax | |||||||||
Unrealized gains on cash flow hedges: | $ | 12 | Interest expense | ||||||||
(4) | Income tax benefit | ||||||||||
$ | 8 | Net gain on cash flow hedges, net of tax | |||||||||
Amortization of defined benefit pension plan items: | |||||||||||
Past service liability | $ | — | Included in the computation of net periodic credit (2) | ||||||||
Actuarial losses | (1) | Included in the computation of net periodic cost (2) | |||||||||
(1) | Total before tax | ||||||||||
— | Income tax benefit | ||||||||||
$ | (1) | Amortization of defined benefit pension plan items, net of tax | |||||||||
Total reclassifications for the period | $ | 7 |
June 30, 2023 | |||||||||||||||||||||||
(in millions) | Amortized Cost | Gross Unrealized Gain | Gross Unrealized Loss | Fair Value | |||||||||||||||||||
Debt securities available-for-sale | |||||||||||||||||||||||
Mortgage-Related Debt Securities: | |||||||||||||||||||||||
GSE certificates | $ | 1,366 | $ | — | $ | 162 | $ | 1,204 | |||||||||||||||
GSE CMOs | 3,942 | — | 369 | 3,573 | |||||||||||||||||||
Private Label CMOs | 180 | 4 | 1 | 183 | |||||||||||||||||||
Total mortgage-related debt securities | $ | 5,488 | $ | 4 | $ | 532 | $ | 4,960 | |||||||||||||||
Other Debt Securities: | |||||||||||||||||||||||
U. S. Treasury obligations | $ | — | $ | — | $ | — | $ | — | |||||||||||||||
GSE debentures | 1,974 | — | 330 | 1,644 | |||||||||||||||||||
Asset-backed securities (1) | 332 | — | 9 | 323 | |||||||||||||||||||
Municipal bonds | 7 | — | — | 7 | |||||||||||||||||||
Corporate bonds | 789 | 3 | 39 | 753 | |||||||||||||||||||
Foreign notes | 10 | — | 2 | 8 | |||||||||||||||||||
Capital trust notes | 96 | 5 | 14 | 87 | |||||||||||||||||||
Total other debt securities | $ | 3,208 | $ | 8 | $ | 394 | $ | 2,822 | |||||||||||||||
Total debt securities available for sale | $ | 8,696 | $ | 12 | $ | 926 | $ | 7,782 | |||||||||||||||
Equity securities: | |||||||||||||||||||||||
Mutual funds | $ | 16 | $ | — | $ | 2 | $ | 14 | |||||||||||||||
Total equity securities | $ | 16 | $ | — | $ | 2 | $ | 14 | |||||||||||||||
Total securities (2) | $ | 8,712 | $ | 12 | $ | 928 | $ | 7,796 |
December 31, 2022 | |||||||||||||||||||||||
(in millions) | Amortized Cost | Gross Unrealized Gain | Gross Unrealized Loss | Fair Value | |||||||||||||||||||
Debt securities available-for-sale | |||||||||||||||||||||||
Mortgage-Related Debt Securities: | |||||||||||||||||||||||
GSE certificates | $ | 1,457 | $ | — | $ | 160 | $ | 1,297 | |||||||||||||||
GSE CMOs | 3,600 | 1 | 300 | 3,301 | |||||||||||||||||||
Private Label CMOs | 185 | 6 | — | 191 | |||||||||||||||||||
Total mortgage-related debt securities | $ | 5,242 | $ | 7 | $ | 460 | $ | 4,789 | |||||||||||||||
Other Debt Securities: | |||||||||||||||||||||||
U. S. Treasury obligations | $ | 1,491 | $ | — | $ | 4 | $ | 1,487 | |||||||||||||||
GSE debentures | 1,749 | — | 351 | 1,398 | |||||||||||||||||||
Asset-backed securities (1) | 375 | — | 14 | 361 | |||||||||||||||||||
Municipal bonds | 30 | — | — | 30 | |||||||||||||||||||
Corporate bonds | 913 | 2 | 30 | 885 | |||||||||||||||||||
Foreign Notes | 20 | — | — | 20 | |||||||||||||||||||
Capital trust notes | 97 | 5 | 12 | 90 | |||||||||||||||||||
Total other debt securities | $ | 4,675 | $ | 7 | $ | 411 | $ | 4,271 | |||||||||||||||
Total other securities available for sale | $ | 9,917 | $ | 14 | $ | 871 | $ | 9,060 | |||||||||||||||
Equity securities: | |||||||||||||||||||||||
Mutual funds | $ | 16 | $ | — | $ | 2 | $ | 14 | |||||||||||||||
Total equity securities | $ | 16 | $ | — | $ | 2 | $ | 14 | |||||||||||||||
Total securities (2) | $ | 9,933 | $ | 14 | $ | 873 | $ | 9,074 |
Mortgage- Related Securities | U.S. Government and GSE Obligations | State, County, and Municipal | Other Debt Securities (1) | Fair Value | |||||||||||||||||||||||||
( in millions) | |||||||||||||||||||||||||||||
Available-for-Sale Debt Securities: | |||||||||||||||||||||||||||||
Due within one year | $ | 20 | $ | 247 | $ | — | $ | 20 | $ | 283 | |||||||||||||||||||
Due from one to five years | 175 | 200 | — | 432 | 795 | ||||||||||||||||||||||||
Due from five to ten years | 322 | 1,377 | 7 | 409 | 1,738 | ||||||||||||||||||||||||
Due after ten years | 4,971 | 150 | — | 367 | 4,966 | ||||||||||||||||||||||||
Total debt securities available for sale | $ | 5,488 | $ | 1,974 | $ | 7 | $ | 1,228 | $ | 7,782 |
Less than Twelve Months | Twelve Months or Longer | Total | |||||||||||||||||||||||||||||||||
(in millions) | Fair Value | Unrealized Loss | Fair Value | Unrealized Loss | Fair Value | Unrealized Loss | |||||||||||||||||||||||||||||
Temporarily Impaired Securities: | |||||||||||||||||||||||||||||||||||
U. S. Treasury obligations | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | |||||||||||||||||||||||
U.S. Government agency and GSE obligations | $ | 221 | $ | 1 | $ | 1,399 | $ | 328 | $ | 1,620 | $ | 329 | |||||||||||||||||||||||
GSE certificates | 458 | 14 | 739 | 148 | 1,197 | 162 | |||||||||||||||||||||||||||||
Private Label CMOs | 20 | 1 | — | — | 20 | 1 | |||||||||||||||||||||||||||||
GSE CMOs | 2,391 | 81 | 1,182 | 288 | 3,573 | 369 | |||||||||||||||||||||||||||||
Asset-backed securities | 34 | — | 289 | 9 | 323 | 9 | |||||||||||||||||||||||||||||
Municipal bonds | — | — | 6 | 1 | 6 | 1 | |||||||||||||||||||||||||||||
Corporate bonds | 38 | 5 | 383 | 34 | 421 | 39 | |||||||||||||||||||||||||||||
Foreign notes | 8 | 2 | — | — | 8 | 2 | |||||||||||||||||||||||||||||
Capital trust notes | 1 | — | 78 | 14 | 79 | 14 | |||||||||||||||||||||||||||||
Equity securities | — | — | 14 | 2 | 14 | 2 | |||||||||||||||||||||||||||||
Total temporarily impaired securities | $ | 3,171 | $ | 104 | $ | 4,090 | $ | 824 | $ | 7,261 | $ | 928 |
Less than Twelve Months | Twelve Months or Longer | Total | |||||||||||||||||||||||||||||||||
(in millions) | Fair Value | Unrealized Loss | Fair Value | Unrealized Loss | Fair Value | Unrealized Loss | |||||||||||||||||||||||||||||
Temporarily Impaired Securities: | |||||||||||||||||||||||||||||||||||
U. S. Treasury obligations | $ | 1,487 | $ | 4 | $ | — | $ | — | $ | 1,487 | $ | 4 | |||||||||||||||||||||||
U.S. Government agency and GSE obligations | 243 | 5 | 1,156 | 346 | 1,399 | 351 | |||||||||||||||||||||||||||||
GSE certificates | 871 | 46 | 420 | 114 | 1,291 | 160 | |||||||||||||||||||||||||||||
GSE CMOs | 2,219 | 36 | 925 | 264 | 3,144 | 300 | |||||||||||||||||||||||||||||
Asset-backed securities | 61 | 2 | 262 | 12 | 323 | 14 | |||||||||||||||||||||||||||||
Municipal bonds | 9 | — | 7 | — | 16 | — | |||||||||||||||||||||||||||||
Corporate bonds | 698 | 27 | 97 | 4 | 795 | 31 | |||||||||||||||||||||||||||||
Foreign notes | 20 | — | — | — | 20 | — | |||||||||||||||||||||||||||||
Capital trust notes | 46 | 2 | 34 | 10 | 80 | 12 | |||||||||||||||||||||||||||||
Equity securities | 4 | — | 10 | 2 | 14 | 2 | |||||||||||||||||||||||||||||
Total temporarily impaired securities | $ | 5,658 | $ | 122 | $ | 2,911 | $ | 752 | $ | 8,569 | $ | 874 |
The Parent Company’sassessment 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
June 30, 2023 | December 31, 2022 | ||||||||||||||||
(dollars in millions) | Amount | Percent of Loans Held for Investment | Amount | Percent of Loans Held for Investment | |||||||||||||
Loans and Leases Held for Investment: | |||||||||||||||||
Mortgage Loans: | |||||||||||||||||
Multi-family | $ | 37,831 | 45.4 | % | $ | 38,130 | 55.3 | % | |||||||||
Commercial real estate | 10,613 | 12.7 | % | 8,526 | 12.4 | % | |||||||||||
One-to-four family first mortgage | 5,889 | 7.1 | % | 5,821 | 8.4 | % | |||||||||||
Acquisition, development, and construction | 2,481 | 3.0 | % | 1,996 | 2.9 | % | |||||||||||
Total mortgage loans held for investment (1) | 56,814 | 68.2 | % | $ | 54,473 | 78.9 | % | ||||||||||
Other Loans: | |||||||||||||||||
Commercial and industrial | 20,869 | 25.1 | % | 10,597 | 15.4 | % | |||||||||||
Lease financing, net of unearned income of $219 and $85, respectively | 2,992 | 3.6 | % | 1,679 | 2.4 | % | |||||||||||
Total commercial and industrial loans (2) | 23,861 | 28.7 | % | 12,276 | 17.8 | % | |||||||||||
Other | 2,603 | 3.1 | % | 2,252 | 3.3 | % | |||||||||||
Total other loans held for investment | 26,464 | 31.8 | % | 14,528 | 21.1 | % | |||||||||||
Total loans and leases held for investment (1) | $ | 83,278 | 100.0 | % | $ | 69,001 | 100.0 | % | |||||||||
Allowance for credit losses on loans and leases | (594) | (393) | |||||||||||||||
Total loans and leases held for investment, net | 82,684 | 68,608 | |||||||||||||||
Loans held for sale, at fair value | 2,194 | 1,115 | |||||||||||||||
Total loans and leases, net | $ | 84,878 | $ | 69,723 |
(in millions) | Loans 30-89 Days Past Due | Non- Accrual Loans | Loans 90 Days or More Delinquent and Still Accruing Interest | Total Past Due Loans | Current Loans | Total Loans Receivable | ||||||||||||||||||||||||||||||||
Multi-family | $ | 79 | $ | 33 | $ | — | $ | 112 | $ | 37,719 | $ | 37,831 | ||||||||||||||||||||||||||
Commercial real estate | 147 | 36 | — | 183 | 10,430 | 10,613 | ||||||||||||||||||||||||||||||||
One-to-four family first mortgage | 17 | 85 | — | 102 | 5,787 | 5,889 | ||||||||||||||||||||||||||||||||
Acquisition, development, and construction | 29 | — | — | 29 | 2,452 | 2,481 | ||||||||||||||||||||||||||||||||
Commercial and industrial(1) | 45 | 79 | — | 124 | 23,737 | 23,861 | ||||||||||||||||||||||||||||||||
Other | 18 | — | — | 18 | 2,585 | 2,603 | ||||||||||||||||||||||||||||||||
Total | $ | 335 | $ | 233 | $ | — | $ | 568 | $ | 82,710 | $ | 83,278 |
(in millions) | Loans 30-89 Days Past Due | Non- Accrual Loans | Loans 90 Days or More Delinquent and Still Accruing Interest | Total Past Due Loans | Current Loans | Total Loans Receivable | ||||||||||||||||||||||||||||||||
Multi-family | $ | 34 | $ | 13 | $ | — | $ | 47 | $ | 38,083 | $ | 38,130 | ||||||||||||||||||||||||||
Commercial real estate | 2 | 20 | — | 22 | 8,504 | 8,526 | ||||||||||||||||||||||||||||||||
One-to-four family first mortgage | 21 | 92 | — | 113 | 5,708 | 5,821 | ||||||||||||||||||||||||||||||||
Acquisition, development, and construction | — | — | — | — | 1,996 | 1,996 | ||||||||||||||||||||||||||||||||
Commercial and industrial(1) | — | 7 | — | 7 | 12,269 | 12,276 | ||||||||||||||||||||||||||||||||
Other | 13 | 9 | — | 22 | 2,230 | 2,252 | ||||||||||||||||||||||||||||||||
Total | $ | 70 | $ | 141 | $ | — | $ | 211 | $ | 68,790 | $ | 69,001 |
Mortgage Loans | Other Loans | ||||||||||||||||||||||||||||||||||||||||||||||
(in millions) | Multi- Family | Commercial Real Estate | One-to- Four Family | Acquisition, Development, and Construction | Total Mortgage Loans | Commercial and Industrial(1) | Other | Total Other Loans | |||||||||||||||||||||||||||||||||||||||
Credit Quality Indicator: | |||||||||||||||||||||||||||||||||||||||||||||||
Pass | $ | 36,423 | $ | 9,731 | $ | 5,785 | $ | 2,473 | $ | 54,412 | $ | 23,659 | $ | 2,582 | $ | 26,241 | |||||||||||||||||||||||||||||||
Special mention | 803 | 261 | 9 | — | 1,073 | 86 | — | 86 | |||||||||||||||||||||||||||||||||||||||
Substandard | 605 | 621 | 95 | 8 | 1,329 | 109 | 21 | 130 | |||||||||||||||||||||||||||||||||||||||
Doubtful | — | — | — | — | — | 7 | — | 7 | |||||||||||||||||||||||||||||||||||||||
Total | $ | 37,831 | $ | 10,613 | $ | 5,889 | $ | 2,481 | $ | 56,814 | $ | 23,861 | $ | 2,603 | $ | 26,464 |
Mortgage Loans | Other Loans | ||||||||||||||||||||||||||||||||||||||||||||||
(in millions) | Multi- Family | Commercial Real Estate | One-to- Four Family | Acquisition, Development, and Construction | Total Mortgage Loans | Commercial and Industrial(1) | Other | Total Other Loans | |||||||||||||||||||||||||||||||||||||||
Credit Quality Indicator: | |||||||||||||||||||||||||||||||||||||||||||||||
Pass | $ | 36,622 | $ | 7,871 | $ | 5,710 | $ | 1,992 | $ | 52,195 | $ | 12,208 | $ | 2,238 | $ | 14,446 | |||||||||||||||||||||||||||||||
Special mention | 864 | 230 | 8 | 4 | 1,106 | 18 | — | 18 | |||||||||||||||||||||||||||||||||||||||
Substandard | 644 | 425 | 103 | — | 1,172 | 50 | 14 | 64 | |||||||||||||||||||||||||||||||||||||||
Doubtful | — | — | — | — | 0 | — | — | — | |||||||||||||||||||||||||||||||||||||||
Total | $ | 38,130 | $ | 8,526 | $ | 5,821 | $ | 1,996 | $ | 54,473 | $ | 12,276 | $ | 2,252 | $ | 14,528 |
Vintage Year | |||||||||||||||||||||||||||||||||||||||||||||||||||||
(in millions) | 2023 | 2022 | 2021 | 2020 | 2019 | Prior To 2019 | Revolving Loans | Revolving Loans Converted to Term Loans | Total | ||||||||||||||||||||||||||||||||||||||||||||
Pass | $ | 1,903 | $ | 13,645 | $ | 10,819 | $ | 9,880 | $ | 5,598 | $ | 12,288 | $ | 273 | $ | 6 | $ | 54,412 | |||||||||||||||||||||||||||||||||||
Special Mention | 2 | 2 | 61 | 142 | 251 | 614 | 1 | — | 1,073 | ||||||||||||||||||||||||||||||||||||||||||||
Substandard | 4 | 2 | 31 | 42 | 254 | 993 | — | 3 | 1,329 | ||||||||||||||||||||||||||||||||||||||||||||
Doubtful | — | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||
Total mortgage loans | $ | 1,909 | $ | 13,649 | $ | 10,911 | $ | 10,064 | $ | 6,103 | $ | 13,895 | $ | 274 | $ | 9 | $ | 56,814 | |||||||||||||||||||||||||||||||||||
Current-period gross writeoffs | — | — | — | — | (1) | (2) | — | — | (3) | ||||||||||||||||||||||||||||||||||||||||||||
Pass | $ | 6,321 | $ | 2,338 | $ | 2,514 | $ | 3,706 | $ | 2,036 | $ | 1,122 | $ | 7,869 | $ | 335 | $ | 26,241 | |||||||||||||||||||||||||||||||||||
Special Mention | 32 | 5 | 4 | 12 | 7 | 21 | 5 | — | 86 | ||||||||||||||||||||||||||||||||||||||||||||
Substandard | 5 | 5 | 5 | 33 | 2 | 56 | 18 | 6 | 130 | ||||||||||||||||||||||||||||||||||||||||||||
Doubtful | — | — | — | 7 | — | — | — | — | 7 | ||||||||||||||||||||||||||||||||||||||||||||
Total other loans | $ | 6,358 | $ | 2,348 | $ | 2,523 | $ | 3,758 | $ | 2,045 | $ | 1,199 | $ | 7,892 | $ | 341 | $ | 26,464 | |||||||||||||||||||||||||||||||||||
Current-period gross writeoffs | $ | — | $ | (1) | $ | (1) | $ | (1) | $ | — | $ | (2) | $ | — | $ | — | $ | (5) | |||||||||||||||||||||||||||||||||||
Total | $ | 8,267 | $ | 15,997 | $ | — | $ | 13,434 | $ | 13,822 | $ | 8,148 | $ | 15,094 | $ | 8,166 | $ | 350 | $ | 83,278 |
Collateral Type | |||||||||||
(in millions) | Real Property | Other | |||||||||
Multi-family | $ | 41 | $ | — | |||||||
Commercial real estate | 33 | — | |||||||||
One-to-four family first mortgage | 92 | — | |||||||||
Commercial and industrial | — | 39 | |||||||||
Other | 12 | — | |||||||||
Total collateral-dependent loans held for investment | $ | 178 | $ | 39 |
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, the approval of the Superintendent is required if the total of all dividends declared in a calendar year would exceed the total of a bank’s net profits for that year, combined with its retained net profits for the preceding two years. In the ninesix months ended September 30, 2017, the Banks paid dividends totaling $276.0 million to the Parent Company, leaving $302.4 million they could dividend to the Parent Company without regulatory approval at that date. Additional sources of liquidity available to the Parent Company at September 30, 2017 included $135.8 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.
Derivative Financial Instruments
We use 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 consist of financial forward and futures contracts, IRLCs, swaps, and options, and relate to our mortgage banking operation, residential MSRs, and other 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 September 30, 2017, we held derivative financial instruments with a notional value of $765.9 million. (See Note 12, “Derivative Financial Instruments,” for a further discussion of our use of such financial instruments.)
Capital Position
In March 2017, the Company raised $502.8 million, net of underwriting and other issuance expenses, through an offering of depositary shares, each representing a 1/40 interest in a share of preferred stock. Primarily reflecting the capital raised, total stockholders’ equity rose $635.7 million from the December 31st balance to $6.8 billion at September 30, 2017.
Common stockholders’ equity represented 12.91%, 12.89%, and 12.52%, respectively, of total assets at September 30, 2017, June 30, 2017,2023.
Amortized Cost | |||||||||||||||||||||||||||||
(dollars in millions) | Interest Rate Reduction | Term Extension | Combination - Interest Rate Reduction & Term Extension | Total | Percent of Total Loan class | ||||||||||||||||||||||||
Three months ended June 30, 2023 | |||||||||||||||||||||||||||||
Commercial real estate | $ | 8 | $ | — | $ | — | $ | 8 | 0.08 | % | |||||||||||||||||||
One-to-four family first mortgage | — | 2 | 2 | 4 | 0.07 | % | |||||||||||||||||||||||
Commercial and Industrial | — | 7 | — | 7 | 0.03 | % | |||||||||||||||||||||||
Total | $ | 8 | $ | 9 | $ | 2 | $ | 19 | |||||||||||||||||||||
Six months ended June 30, 2023 | |||||||||||||||||||||||||||||
Commercial real estate | $ | 52 | $ | — | $ | — | $ | 52 | 0.49 | % | |||||||||||||||||||
One-to-four family first mortgage | $ | — | $ | 3 | $ | 3 | 6 | 0.10 | % | ||||||||||||||||||||
Commercial and Industrial | $ | — | $ | 7 | $ | — | 7 | 0.03 | % | ||||||||||||||||||||
Total | $ | 52 | $ | 10 | $ | 3 | $ | 65 |
Interest Rate Reduction | Term Extension | ||||||||||||||||
Weighted-average contractual interest rate | |||||||||||||||||
From | To | Weighted-average Term (in years) | |||||||||||||||
Three months ended June 30, 2023 | |||||||||||||||||
Commercial real estate | 8.00 | % | 4.0 | % | |||||||||||||
One-to-four family first mortgage | 6.05 | % | 4.8 | % | 13.6 | ||||||||||||
Commercial and industrial | 0.76 | ||||||||||||||||
Six months ended June 30, 2023 | |||||||||||||||||
Commercial real estate | 10.09 | % | 4.0 | % | |||||||||||||
One-to-four family first mortgage | 5.47 | % | 4.4 | % | 13.0 | ||||||||||||
Commercial and industrial | 0.76 | ||||||||||||||||
June 30, 2023 | ||||||||||||||||||||||||||
(dollars in millions) | Current | 30 - 89 Past Due | 90+ Past Due | Total | ||||||||||||||||||||||
One-to-four family first mortgage | — | — | 6 | 6 | ||||||||||||||||||||||
Total | $ | — | $ | — | $ | 6 | $ | 6 |
June 30, 2022 | |||||||||||||||||
(dollars in millions) | Accruing | Non- Accrual | Total | ||||||||||||||
Loan Category: | |||||||||||||||||
Multi-family | $ | — | $ | 6 | $ | 6 | |||||||||||
Commercial real estate | 16 | 19 | 35 | ||||||||||||||
Commercial and industrial (1) | — | 4 | 4 | ||||||||||||||
Total | $ | 16 | $ | 29 | $ | 45 |
Weighted Average Interest Rate | |||||||||||||||||||||||||||||||||||||||||
(dollars in millions) | Number of Loans | Pre- Modification Recorded Investment | Post- Modification Recorded Investment | Pre- Modification | Post- Modification | Charge- off Amount | Capitalized Interest | ||||||||||||||||||||||||||||||||||
Loan Category: | |||||||||||||||||||||||||||||||||||||||||
Three Months Ended June 30, 2022 | |||||||||||||||||||||||||||||||||||||||||
Commercial real estate | 1 | $ | — | $ | — | 4.75 | % | 9.75 | % | $ | — | $ | — | ||||||||||||||||||||||||||||
Six Months Ended June 30, 2022 | |||||||||||||||||||||||||||||||||||||||||
Commercial real estate | 2 | $ | 22 | $ | 19 | 6.00 | % | 4.00 | % | $ | 3 | $ | — |
For the Six Months Ended June 30, | |||||||||||||||||||||||||||||||||||
2023 | 2022 | ||||||||||||||||||||||||||||||||||
(in millions) | Mortgage | Other | Total | Mortgage | Other | Total | |||||||||||||||||||||||||||||
Balance, beginning of period | $ | 290 | $ | 103 | $ | 393 | $ | 178 | $ | 21 | $ | 199 | |||||||||||||||||||||||
Adjustment for Purchased PCD Loans | — | 13 | 13 | — | — | — | |||||||||||||||||||||||||||||
Charge-offs | (3) | (5) | (8) | (4) | — | (4) | |||||||||||||||||||||||||||||
Recoveries | — | 9 | 9 | 4 | 5 | 9 | |||||||||||||||||||||||||||||
Provision for (recovery of) credit losses on loans and leases | 43 | 144 | 187 | 30 | (18) | 12 | |||||||||||||||||||||||||||||
Balance, end of period | $ | 330 | $ | 264 | $ | 594 | $ | 208 | $ | 8 | $ | 216 |
Tangible common stockholders’ equity was relativelyrepayment 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.
(in millions) | Recorded Investment | Related Allowance | Interest Income Recognized | ||||||||||||||
Nonaccrual loans with no related allowance: | |||||||||||||||||
Multi-family | $ | 32 | $ | — | $ | — | |||||||||||
Commercial real estate | 34 | — | 1 | ||||||||||||||
One-to-four family first mortgage | 78 | — | — | ||||||||||||||
Other (includes C&I) | 59 | — | — | ||||||||||||||
Total nonaccrual loans with no related allowance | $ | 203 | $ | — | $ | 1 | |||||||||||
Nonaccrual loans with an allowance recorded: | |||||||||||||||||
Multi-family | $ | 1 | $ | — | $ | — | |||||||||||
Commercial real estate | 2 | — | — | ||||||||||||||
One-to-four family first mortgage | 7 | 3 | — | ||||||||||||||
Other (includes C&I) | 20 | 15 | — | ||||||||||||||
Total nonaccrual loans with an allowance recorded | $ | 30 | $ | 18 | $ | — | |||||||||||
Total nonaccrual loans: | |||||||||||||||||
Multi-family | $ | 33 | $ | — | $ | — | |||||||||||
Commercial real estate | 36 | — | 1 | ||||||||||||||
One-to-four family first mortgage | 85 | 3 | — | ||||||||||||||
Other (includes C&I) | 79 | 15 | — | ||||||||||||||
Total nonaccrual loans | $ | 233 | $ | 18 | $ | 1 |
(in millions) | Recorded Investment | Related Allowance | Interest Income Recognized | ||||||||||||||
Nonaccrual loans with no related allowance: | |||||||||||||||||
Multi-family | $ | 13 | $ | — | $ | — | |||||||||||
Commercial real estate | 19 | — | 1 | ||||||||||||||
One-to-four family first mortgage | 90 | — | — | ||||||||||||||
Other (includes C&I) | 3 | — | — | ||||||||||||||
Total nonaccrual loans with no related allowance | $ | 125 | $ | — | $ | 1 | |||||||||||
Nonaccrual loans with an allowance recorded: | |||||||||||||||||
Commercial real estate | $ | 1 | $ | — | $ | — | |||||||||||
One-to-four family first mortgage | 2 | — | — | ||||||||||||||
Other (includes C&I) | 13 | 14 | — | ||||||||||||||
Total nonaccrual loans with an allowance recorded | $ | 16 | $ | 14 | $ | — | |||||||||||
Total nonaccrual loans: | |||||||||||||||||
Multi-family | $ | 13 | $ | — | $ | — | |||||||||||
Commercial real estate | 20 | — | 1 | ||||||||||||||
One-to-four family first mortgage | 92 | — | — | ||||||||||||||
Other (includes C&I) | 16 | 14 | — | ||||||||||||||
Total nonaccrual loans | $ | 141 | $ | 14 | $ | 1 |
We calculate tangible common stockholders’ equity by subtracting the amount of goodwill and CDI recordedleased asset at the end of the lease term, including evaluation of key factors, such as, the estimated remaining useful life of the leased asset, its historical secondary market value including history of the lessee executing the FMV option, overall credit evaluation and return provisions. The Company acquires the leased asset at fair market value and provides funding to the respective lessee at acquisition cost, less any volume or trade discounts, as applicable. Therefore, there is generally no selling profit or loss to recognize or defer at inception of a period fromlease.
Stockholders’ equity, common stockholders’ equity, and tangible common stockholders’ equity include AOCL, which increased $3.1 million from the balanceleased equipment at the end of Junethe lease term. In establishing residual value estimates, the Company may rely on industry data, historical experience, and decreased $52.3 million from the end of December to $4.4 million at September 30, 2017. The increase was the resultindependent appraisals and, where appropriate, information regarding product life cycle, product upgrades and competing products. Upon expiration of a $4.3lease, 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 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 June 30, 2023 and December 31, 2022, the carrying value of residual assets with third-party residual value insurance for at least a portion of the asset value was $428 million increaseand $32 million, respectively.
(in millions) | For the three months ended June 30, 2023 | For the six months ended June 30, 2023 | For the three months ended June 30, 2022 | For the six months ended June 30, 2022 | |||||||||||||||||||
Interest income on lease financing (1) | $ | 32 | $ | 52 | $ | 12 | $ | 24 |
At September 30, 2017, our capital measures continued to exceed the minimum federal requirements for a bank holding company. The following table sets forth our common equity tier 1, tier 1 risk-based, total risk-based, and leverage capital amounts and ratios on a consolidated basis,lease receivables, as well as the respective minimum regulatory capital requirements, at that date:
Regulatory Capital Analysis (the Company)
Risk-Based Capital | ||||||||||||||||||||||||||||||||
At September 30, 2017 | Common Equity Tier 1 | Tier 1 | Total | Leverage Capital | ||||||||||||||||||||||||||||
(dollars in thousands) | Amount | Ratio | Amount | Ratio | Amount | Ratio | Amount | Ratio | ||||||||||||||||||||||||
Total capital | $ | 3,823,765 | 11.54 | % | $ | 4,326,605 | 13.06 | % | $ | 4,832,749 | 14.59 | % | $ | 4,326,605 | 9.40 | % | ||||||||||||||||
Minimum for capital adequacy purposes | 1,490,799 | 4.50 | 1,987,732 | 6.00 | 2,650,309 | 8.00 | 1,840,256 | 4.00 | ||||||||||||||||||||||||
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Excess | $ | 2,332,966 | 7.04 | % | $ | 2,338,873 | 7.06 | % | $ | 2,182,440 | 6.59 | % | $ | 2,486,349 | 5.40 | % | ||||||||||||||||
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Basel III calls forunguaranteed residual asset were as follows:
(in millions) | June 30, 2023 | December 31, 2022 | |||||||||
Net investment in the lease - lease payments receivable | $ | 2,822 | $ | 1,685 | |||||||
Net investment in the lease - unguaranteed residual assets | 461 | 60 | |||||||||
Total lease payments | $ | 3,283 | $ | 1,745 |
As reflected in the following tables, the capital ratios for the Community Bank and the Commercial Bank also continued to exceed the minimum regulatory capital levels required at September 30, 2017:
Regulatory Capital Analysis (New York Community Bank)
Risk-Based Capital | ||||||||||||||||||||||||||||||||
At September 30, 2017 | Common Equity Tier 1 | Tier 1 | Total | Leverage Capital | ||||||||||||||||||||||||||||
(dollars in thousands) | Amount | Ratio | Amount | Ratio | Amount | Ratio | Amount | Ratio | ||||||||||||||||||||||||
Total capital | $ | 4,176,102 | 13.60 | % | $ | 4,176,102 | 13.60 | % | $ | 4,304,995 | 14.02 | % | $ | 4,176,102 | 9.80 | % | ||||||||||||||||
Minimum for capital adequacy purposes | 1,381,593 | 4.50 | 1,842,123 | 6.00 | 2,456,165 | 8.00 | 1,703,799 | 4.00 | ||||||||||||||||||||||||
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Excess | $ | 2,794,509 | 9.10 | % | $ | 2,333,979 | 7.60 | % | $ | 1,848,830 | 6.02 | % | $ | 2,472,303 | 5.80 | % | ||||||||||||||||
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Regulatory Capital Analysis (New York Commercial Bank)
Risk-Based Capital | ||||||||||||||||||||||||||||||||
At September 30, 2017 | Common Equity Tier 1 | Tier 1 | Total | Leverage Capital | ||||||||||||||||||||||||||||
(dollars in thousands) | Amount | Ratio | Amount | Ratio | Amount | Ratio | Amount | Ratio | ||||||||||||||||||||||||
Total capital | $ | 372,817 | 15.30 | % | $ | 372,817 | 15.30 | % | $ | 403,287 | 16.55 | % | $ | 372,817 | 11.07 | % | ||||||||||||||||
Minimum for capital adequacy purposes | 109,671 | 4.50 | 146,227 | 6.00 | 194,970 | 8.00 | 134,716 | 4.00 | ||||||||||||||||||||||||
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Excess | $ | 263,146 | 10.80 | % | $ | 226,590 | 9.30 | % | $ | 208,317 | 8.55 | % | $ | 238,101 | 7.07 | % | ||||||||||||||||
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As of September 30, 2017, the Community Bank and the Commercial Bank also exceeded the minimum capital requirements to be categorized as “Well Capitalized.” To be categorized as well capitalized, a bank must maintain a minimum common equity tier 1 ratio of 6.50%; a minimum tier 1 risk-based capital ratio of 8.00%; a minimum total risk-based capital ratio of 10.00%; and a minimum leverage capital ratio of 5.00%.
Earnings Summary for the Three Months Ended September 30, 2017
Net income available to common shareholders (“net income”) totaled $102.3 million in the current third quarter, equivalent to $0.21 per diluted common share. In the trailing and year-earlier quarters, net income totaled $107.0 million and $125.3 million, and was equivalent to $0.22 and $0.26 per diluted common share, respectively. The sequential and year-over-year declines in net income were primarily due to a decrease in net interest income, as further discussed below.
Net Interest Income
Net interest income is our primary source of income. Its level is a function remaining maturity analysis 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 short-term 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. Since the fourth quarter of 2008, when the target federal funds rate was lowered to a range of 0% to 0.25%, the rate has been raised three times: on December 17, 2015, to a range of 0.25% to 0.50%; on December 14, 2016, to a range of 0.50% to 0.75%; on March 15, 2017, to a range of 0.75% to 1.00%, and, most recently on June 14, 2017 to a range of 1.00% to 1.25%.
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 the third quarter of 2017, the average five-year CMT was 1.81%, unchanged from the trailing quarter and as compared to 1.13% for the year-earlier quarter. The averageten-year CMT was 2.24% in the current third quarter, as compared to 2.26% and 1.56%, respectively, in the prior periods.
Net interest income is also influenced by the level of prepayment income primarily generated in connection with the prepayment of our multi-family and CRE loans,undiscounted lease receivables, as well as securities. Since prepayment income is recorded as interest income, an increase or decrease in its level will also be reflectedthe reconciliation to the total amount of receivables recognized in the average yields (as applicable) on our loans, securities,Consolidated Statements of Condition:
(in millions) | June 30, 2023 | ||||
2023 | $ | 396 | |||
2024 | 526 | ||||
2025 | 677 | ||||
2026 | 574 | ||||
2027 | 473 | ||||
Thereafter | 637 | ||||
Total lease payments | $ | 3,283 | |||
Plus: deferred origination costs | 18 | ||||
Less: unearned income | (219) | ||||
Less: purchase accounting adjustment | $ | (90) | |||
Total lease finance receivables, net | $ | 2,992 |
It should be noted that the levelcertain equipment. These leases generally have terms of prepayment income on loans recorded in any given period depends20 years or less, determined based on the volumecontractual maturity of loansthe lease, and include periods covered by options to extend or terminate the lease when the Company is reasonably certain that refinance or prepay during that time. Such activity is largely dependent on such external factors as current market conditions, including real estate values, andit will exercise those options. For the perceived or actual directionvast majority 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 isthe Company’s leases, we are not unusual for borrowersreasonably certain we will exercise our options 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.
The Company recorded net interest income of $276.3 million in the current second quarter, an $11.4 million decrease from the trailing-quarter level and a $42.1 million decrease from the year-earlier amount.
Linked-Quarter Comparison
The sequential decline in net interest income was attributablerenew to a variety of factors, including an increase in our cost of funds, as short-term interest rates rose in the quarter. Additionally, the sale of our covered loan portfolio, which closed at the end of Julyall 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 resultedoperating lease liabilities in excess liquidity being investedthe Consolidated Statements of Condition.
(in millions) | For the three months ended June 30, 2023 | For the six months ended June 30, 2023 | For the three months ended June 30, 2022 | For the six months ended June 30, 2022 | ||||||||||||||||||||||
Operating lease cost | $ | 25 | $ | 35 | $ | 7 | $ | 14 | ||||||||||||||||||
Sublease income | — | — | — | — | ||||||||||||||||||||||
Total lease cost | $ | 25 | $ | 35 | $ | 7 | $ | 14 |
(in millions) | For the three months ended June 30, 2023 | For the six months ended June 30, 2023 | For the three months ended June 30, 2022 | For the six months ended June 30, 2022 | |||||||||||||||||||
Cash paid for amounts included in the measurement of lease liabilities: | |||||||||||||||||||||||
Operating cash flows from operating leases | $ | 20 | $ | 30 | $ | 7 | $ | 14 |
(in millions, except lease term and discount rate) | June 30, 2023 | December 31, 2022 | |||||||||
Operating Leases: | |||||||||||
Operating lease right-of-use assets (1) | $ | 529 | $ | 119 | |||||||
Operating lease liabilities (2) | $ | 536 | $ | 122 | |||||||
Weighted average remaining lease term | 9 years | 6 years | |||||||||
Weighted average discount rate % | 4.38 | % | 3.85 | % |
(in millions) | June 30, 2023 | ||||
Maturities of lease liabilities: | |||||
2023 | $ | 26 | |||
2024 | 79 | ||||
2025 | 73 | ||||
2026 | 63 | ||||
2027 | 59 | ||||
Thereafter | 416 | ||||
Total lease payments | $ | 716 | |||
Less: imputed interest | $ | (180) | |||
Total present value of lease liabilities | $ | 536 |
Year-Over-Year Comparison
The following factors contributed to the year-over-year reduction in net interest income:
(in millions) | Three Months Ended June 30, 2023 | Six Months Ended June 30, 2023 | ||||||
Balance at beginning of period | $ | 1,034 | $ | 1,033 | ||||
Additions from loans sold with servicing retained | 43 | 81 | ||||||
Reductions from sales | (51) | (51) | ||||||
Decrease in MSR fair value due to pay-offs, pay-downs, run-off, model changes, and other (1) | (16) | (34) | ||||||
Changes in estimates of fair value due to interest rate risk (1) (2) | 21 | 2 | ||||||
Fair value of MSRs at end of period | $ | 1,031 | $ | 1,031 |
June 30, 2023 | |||||||||||
Fair Value | |||||||||||
(dollars in millions) | Actual | 10% adverse change | 20% adverse change | ||||||||
Option adjusted spread | 5.6 | % | $ | 1,011 | $ | 993 | |||||
Constant prepayment rate | 8.2 | % | 997 | 966 | |||||||
Weighted average cost to service per loan | $ | 69 | $ | 1,021 | $ | 1,011 |
December 31, 2022 | |||||||||||
Fair Value | |||||||||||
(dollars in millions) | Actual | 10% adverse change | 20% adverse change | ||||||||
Option adjusted spread | 5.9 | % | $ | 1,012 | $ | 992 | |||||
Constant prepayment rate | 7.9 | % | 1,000 | 970 | |||||||
Weighted average cost to service per loan | $ | 68 | $ | 1,023 | $ | 1,013 |
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 2.53%, the margin was 12 basis points narrower than the trailing-quarter measure and 38 basis points narrower than the margin recorded in the third quarter of last year. The respective reductions were due, in part, to a decline in prepayment income from the levels recorded in the trailing and year-earlier quarters, as reflected in the following table:
For the Three Months Ended | ||||||||||||
(dollars in thousands) | September 30, 2017 | June 30, 2017 | September 30, 2016 | |||||||||
Total interest income | $ | 393,675 | $ | 399,075 | $ | 416,096 | ||||||
Prepayment income: | ||||||||||||
From loans | $ | 14,076 | $ | 13,285 | $ | 13,422 | ||||||
From securities | 2,488 | 1,708 | 8,947 | |||||||||
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Total prepayment income | $ | 16,564 | $ | 14,993 | $ | 22,369 | ||||||
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Net interest margin (including the contribution of prepayment income) | 2.53 | % | 2.65 | % | 2.91 | % | ||||||
Less: | ||||||||||||
Contribution of prepayment income to net interest margin: | ||||||||||||
From loans | 13 | bps | 12 | bps | 12 | bps | ||||||
From securities | 3 | 2 | 8 | |||||||||
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Total contribution of prepayment income to net interest margin | 16 | bps | 14 | bps | 20 | bps | ||||||
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Adjusted net interest margin (i.e., excluding the contribution of prepayment income)(1) | 2.37 | % | 2.51 | % | 2.71 | % |
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:
Adjusted net interest margin should not be considered to be predictive of future performance. Changes in isolationfair value based on adverse changes in assumptions generally cannot be extrapolated because the relationship of the change in 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.
(in millions) | Three months ended June 30, 2023 | Six months ended June 30, 2023 | ||||||
Net return on mortgage servicing rights | ||||||||
Servicing fees, ancillary income and late fees (1) | $ | 54 | $ | 110 | ||||
Decrease in MSR fair value due to pay-offs, pay-downs, run-off, model changes and other | (16) | (34) | ||||||
Changes in fair value due to interest rate risk | 21 | 2 | ||||||
Gain on MSR derivatives (2) | (35) | (32) | ||||||
Net transaction costs | 2 | 1 | ||||||
Total return (loss) included in net return on mortgage servicing rights | $ | 26 | $ | 47 |
(in millions) | Three months ended June 30, 2023 | Six months ended June 30, 2023 | ||||||
Loan administration income on mortgage loans subserviced | ||||||||
Servicing fees, ancillary income and late fees (1) | $ | 38 | $ | 74 | ||||
Charges on subserviced custodial balances (2) | (40) | (69) | ||||||
Other servicing charges | (1) | (2) | ||||||
Total income on mortgage loans subserviced, included in loan administration | $ | (3) | $ | 3 |
(in millions) | June 30, 2023 | December 31, 2022 | |||||||||
Wholesale borrowings: | |||||||||||
FHLB advances | $ | 15,400 | $ | 20,325 | |||||||
Total wholesale borrowings | $ | 15,400 | $ | 20,325 | |||||||
Junior subordinated debentures | 577 | 575 | |||||||||
Subordinated notes | 435 | 432 | |||||||||
Total borrowed funds | $ | 16,412 | $ | 21,332 |
Issuer | Interest Rate of Capital Securities and Debentures | Junior Subordinated Debentures Amount Outstanding (3) | Capital Securities Amount Outstanding | Date of Original Issue | Stated Maturity | ||||||||||||||||||||||||
(dollars in millions) | |||||||||||||||||||||||||||||
New York Community Capital Trust V (BONUSES Units) (1) | 0.06 | $ | 147 | $ | 141 | Nov. 4, 2002 | Nov. 1, 2051 | ||||||||||||||||||||||
New York Community Capital Trust X (2) | 7.15 | 124 | 120 | Dec. 14, 2006 | Dec. 15, 2036 | ||||||||||||||||||||||||
PennFed Capital Trust III (2) | 8.8 | 31 | 30 | June 2, 2003 | June 15, 2033 | ||||||||||||||||||||||||
New York Community Capital Trust XI (2) | 7.19 | 58 | 58 | April 16, 2007 | June 30, 2037 | ||||||||||||||||||||||||
Flagstar Statutory Trust II (2) | 8.79 | 26 | 25 | Dec. 26, 2002 | Dec. 26, 2032 | ||||||||||||||||||||||||
Flagstar Statutory Trust III (2) | 8.51 | 26 | 25 | Feb. 19, 2003 | April 7, 2033 | ||||||||||||||||||||||||
Flagstar Statutory Trust IV (2) | 8.41 | 26 | 25 | Mar. 19, 2003 | Mar 19, 2033 | ||||||||||||||||||||||||
Flagstar Statutory Trust V (2) | 7.26 | 26 | 25 | Dec 29, 2004 | Jan. 7, 2035 | ||||||||||||||||||||||||
Flagstar Statutory Trust VI (2) | 7.26 | 26 | 25 | Mar. 30, 2005 | April 7, 2035 | ||||||||||||||||||||||||
Flagstar Statutory Trust VII (2) | 7.30 | 52 | 50 | Mar. 29, 2005 | June 15, 2035 | ||||||||||||||||||||||||
Flagstar Statutory Trust VIII (2) | 6.76 | 26 | 25 | Sept. 22, 2005 | Oct. 7, 2035 | ||||||||||||||||||||||||
Flagstar Statutory Trust IX (2) | 7.00 | 26 | 25 | June 28, 2007 | Sept. 15, 2037 | ||||||||||||||||||||||||
Flagstar Statutory Trust X (2) | 8.05 | 15 | 15 | Aug. 31, 2007 | Sept 15, 2037 | ||||||||||||||||||||||||
Total junior subordinated debentures (3) | $ | 609 | $ | 589 |
Date of Original Issue | Stated Maturity | Interest Rate | Original Issue Amount | |||||||||||||||||
November 6, 2018 | November 6, 2028 (1) | 5.900% | $ | 300 | ||||||||||||||||
October 28, 2020 | November 1, 2030 (2) | 4.125% | $ | 150 |
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.
For the three months ended June 30, | |||||||||||||||||||||||
2023 | 2022 | ||||||||||||||||||||||
(in millions) | Pension Benefits | Post Retirement Benefits (2) | Pension Benefits | Post Retirement Benefits | |||||||||||||||||||
Components of net periodic pension expense (credit):(1) | |||||||||||||||||||||||
Interest cost | $ | 2 | $ | — | $ | 1 | $ | — | |||||||||||||||
Expected return on plan assets | (3) | — | (4) | — | |||||||||||||||||||
Amortization of net actuarial loss | 1 | — | 1 | — | |||||||||||||||||||
Net periodic (credit) expense | $ | — | $ | — | $ | (2) | $ | — |
For the Six Months Ended June 30, | |||||||||||||||||||||||
2023 | 2022 | ||||||||||||||||||||||
(in millions) | Pension Benefits | Post Retirement Benefits (2) | Pension Benefits | Post Retirement Benefits | |||||||||||||||||||
Components of net periodic pension expense (credit):(1) | |||||||||||||||||||||||
Interest cost | $ | 3 | $ | — | $ | 2 | $ | — | |||||||||||||||
Expected return on plan assets | (7) | — | (8) | — | |||||||||||||||||||
Amortization of net actuarial loss | 3 | — | 1 | — | |||||||||||||||||||
Net periodic (credit) expense | $ | (1) | $ | — | $ | (5) | $ | — |
Net Interest Income Analysis
For the Three Months Ended | ||||||||||||||||||||||||||||||||||||
September 30, 2017 | June 30, 2017 | September 30, 2016 | ||||||||||||||||||||||||||||||||||
(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) | $ | 37,791,476 | $ | 350,990 | 3.71 | % | $ | 39,113,348 | $ | 361,330 | 3.70 | % | $ | 39,337,380 | $ | 367,932 | 3.74 | % | ||||||||||||||||||
Securities(2)(3) | 3,597,699 | 34,359 | 3.81 | 4,226,369 | 37,732 | 3.55 | 4,426,703 | 48,160 | 4.34 | |||||||||||||||||||||||||||
Interest-earning cash and cash equivalents(2) | 2,474,307 | 8,326 | 1.34 | 8,858 | 13 | 0.59 | 8,629 | 4 | 0.18 | |||||||||||||||||||||||||||
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||
Total interest-earning assets | 43,863,482 | 393,675 | 3.59 | 43,348,575 | 399,075 | 3.68 | 43,772,712 | 416,096 | 3.80 | |||||||||||||||||||||||||||
Non-interest-earning assets | 4,662,777 | 5,720,589 | 5,386,459 | |||||||||||||||||||||||||||||||||
|
|
|
|
|
| |||||||||||||||||||||||||||||||
Total assets | $ | 48,526,259 | $ | 49,069,164 | $ | 49,159,171 | ||||||||||||||||||||||||||||||
|
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|
|
|
| |||||||||||||||||||||||||||||||
Liabilities and Stockholders’ Equity: | ||||||||||||||||||||||||||||||||||||
Interest-bearing deposits: | ||||||||||||||||||||||||||||||||||||
Interest-bearing checking and money market accounts | $ | 12,672,720 | $ | 27,620 | 0.86 | % | $ | 12,971,440 | $ | 24,084 | 0.74 | % | $ | 13,356,174 | $ | 15,866 | 0.47 | % | ||||||||||||||||||
Savings accounts | 5,006,499 | 7,109 | 0.56 | 5,260,397 | 7,150 | 0.55 | 5,629,135 | 7,439 | 0.53 | |||||||||||||||||||||||||||
Certificates of deposit | 8,533,404 | 27,649 | 1.29 | 7,827,633 | 24,006 | 1.23 | 7,245,325 | 20,501 | 1.13 | |||||||||||||||||||||||||||
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|
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|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||
Total interest-bearing deposits | 26,212,623 | 62,378 | 0.94 | 26,059,470 | 55,240 | 0.85 | 26,230,634 | 43,806 | 0.66 | |||||||||||||||||||||||||||
Borrowed funds | 12,397,681 | 54,954 | 1.76 | 13,195,987 | 56,066 | 1.70 | 13,802,662 | 53,867 | 1.55 | |||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||
Total interest-bearing liabilities | 38,610,304 | 117,332 | 1.21 | 39,255,457 | 111,306 | 1.14 | 40,033,296 | 97,673 | 0.97 | |||||||||||||||||||||||||||
Non-interest-bearing deposits | 2,766,701 | 2,960,164 | 2,832,569 | |||||||||||||||||||||||||||||||||
Other liabilities | 383,622 | 203,237 | 212,303 | |||||||||||||||||||||||||||||||||
|
|
|
|
|
| |||||||||||||||||||||||||||||||
Total liabilities | 41,760,627 | 42,418,858 | 43,078,168 | |||||||||||||||||||||||||||||||||
Stockholders’ equity | 6,765,632 | 6,650,306 | 6,081,003 | |||||||||||||||||||||||||||||||||
|
|
|
|
|
| |||||||||||||||||||||||||||||||
Total liabilities and stockholders’ equity | $ | 48,526,259 | $ | 49,069,164 | $ | 49,159,171 | ||||||||||||||||||||||||||||||
|
|
|
|
|
| |||||||||||||||||||||||||||||||
Net interest income/interest rate spread | $ | 276,343 | 2.38 | % | $ | 287,769 | 2.54 | % | $ | 318,423 | 2.83 | % | ||||||||||||||||||||||||
|
|
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|
|
|
|
| |||||||||||||||||||||||||
Net interest margin | 2.53 | % | 2.65 | % | 2.91 | % | ||||||||||||||||||||||||||||||
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|
|
|
|
| |||||||||||||||||||||||||||||||
Ratio of interest-earning assets to interest-bearing liabilities | 1.14x | 1.10x | 1.09x | |||||||||||||||||||||||||||||||||
|
|
|
|
|
|
Provision for Losses on Non-Covered Loans
The provision for losses onnon-covered loans is basedfair value of $9.57 per share on the methodology used by management in calculatingdate of grant, during the allowance for lossessix months ended June 30, 2023.
For the Six Months Ended June 30, 2023 | |||||||||||
Number of Shares | Weighted Average Grant Date Fair Value | ||||||||||
Unvested at beginning of year | 9,576,602 | $ | 10.92 | ||||||||
Granted | 6,388,840 | 9.57 | |||||||||
Vested | (2,885,476) | 11.08 | |||||||||
Forfeited | (592,118) | 10.72 | |||||||||
Unvested at end of period | 12,487,848 | $ | 10.20 |
Number of Shares | Weighted Average Grant Date Fair Value | Performance Period | Expected Vesting Date | ||||||||||||||||||||
Outstanding at beginning of year | 794,984 | $ | 10.73 | ||||||||||||||||||||
Granted | 566,656 | 8.95 | |||||||||||||||||||||
Released | (143,352) | 10.34 | |||||||||||||||||||||
Forfeited | 0 | — | |||||||||||||||||||||
Outstanding at end of period | 1,218,288 | 9.95 | January 1, 2022 - December 31, 2025 | March 31, 2023 - 2026 |
June 30, 2023 | |||||||||||||||||
Fair Value | |||||||||||||||||
(in millions) | Notional Amount | Other Assets | Other Liabilities | ||||||||||||||
Derivatives designated as cash flow hedging instruments: | |||||||||||||||||
Interest rate swaps on FHLB advances | $ | 5,500 | $ | 1 | $ | — | |||||||||||
Total | $ | 5,500 | $ | 1 | $ | — | |||||||||||
Derivatives designated as fair value hedging instruments: | |||||||||||||||||
Interest rate swaps on multi-family loans held for investment | $ | 2,000 | $ | — | $ | — | |||||||||||
Derivatives not designated as hedging instruments: | |||||||||||||||||
Assets | |||||||||||||||||
Futures | $ | 2,530 | $ | 3 | $ | — | |||||||||||
Mortgage-backed securities forwards | 2,372 | 21 | — | ||||||||||||||
Rate lock commitments | 1,954 | 10 | — | ||||||||||||||
Interest rate swaps and swaptions | 7,414 | 136 | — | ||||||||||||||
Foreign currency swaps | 19,825 | — | — | ||||||||||||||
Total | $ | 34,095 | $ | 170 | $ | — | |||||||||||
Liabilities | |||||||||||||||||
Mortgage-backed securities forwards | $ | 727 | $ | — | $ | 7 | |||||||||||
Rate lock commitments | 543 | — | 10 | ||||||||||||||
Interest rate swaps and swaptions | 1,442 | — | 61 | ||||||||||||||
Foreign currency swaps | $ | 18,213 | $ | — | $ | — | |||||||||||
Total derivatives not designated as hedging instruments | $ | 20,925 | $ | — | $ | 78 |
December 31, 2022 | |||||||||||||||||
Fair Value | |||||||||||||||||
(in millions) | Notional Amount | Other Assets | Other Liabilities | ||||||||||||||
Derivatives designated as cash flow hedging instruments: | |||||||||||||||||
Interest rate swaps | $ | 3,750 | $ | 5 | $ | — | |||||||||||
Total | $ | 3,750 | $ | 5 | $ | — | |||||||||||
Derivatives not designated as hedging instruments: | |||||||||||||||||
Assets | |||||||||||||||||
Futures | $ | 1,205 | $ | 2 | $ | — | |||||||||||
Mortgage-backed securities forwards | 1,065 | 36 | — | ||||||||||||||
Rate lock commitments | 1,539 | 9 | — | ||||||||||||||
Interest rate swaps and swaptions | 7,594 | 182 | — | ||||||||||||||
Total | $ | 11,403 | $ | 229 | $ | — | |||||||||||
Liabilities | |||||||||||||||||
Mortgage-backed securities forwards | $ | 739 | $ | — | $ | 61 | |||||||||||
Rate lock commitments | 527 | — | 10 | ||||||||||||||
Interest rate swaps and swaptions | 2,445 | — | 65 | ||||||||||||||
Total derivatives not designated as hedging instruments | $ | 3,711 | $ | — | $ | 136 |
June 30, 2023 | |||||||||||||||||||||||||||||
Gross Amounts Not Offset in the Statements of Condition | |||||||||||||||||||||||||||||
(in millions) | Gross Amount | Gross Amounts Netted in the Statements of Condition | Net Amount Presented in the Statements of Condition | Financial Instruments | Cash Collateral Pledged (Received) | ||||||||||||||||||||||||
Derivatives designated hedging instruments: | |||||||||||||||||||||||||||||
Interest rate swaps on FHLB advances | $ | 1 | $ | — | $ | 1 | $ | — | $ | 92 | |||||||||||||||||||
Interest rate swaps on multi-family loans held for investment(1) | $ | — | $ | — | $ | — | $ | — | $ | 34 | |||||||||||||||||||
Derivatives not designated as hedging instruments: | |||||||||||||||||||||||||||||
Assets | |||||||||||||||||||||||||||||
Mortgage-backed securities forwards | $ | 21 | $ | — | $ | 21 | $ | — | $ | (4) | |||||||||||||||||||
Interest rate swaptions | 136 | — | 136 | — | (15) | ||||||||||||||||||||||||
Futures | 3 | — | 3 | — | — | ||||||||||||||||||||||||
Total derivative assets | $ | 160 | $ | — | $ | 160 | $ | — | $ | (19) | |||||||||||||||||||
Liabilities | |||||||||||||||||||||||||||||
Futures | $ | — | $ | — | $ | — | $ | — | $ | — | |||||||||||||||||||
Mortgage-backed securities forwards | 7 | — | 7 | — | 6 | ||||||||||||||||||||||||
Interest rate swaps (1) | 61 | — | 61 | — | 26 | ||||||||||||||||||||||||
Total derivative liabilities | $ | 68 | $ | — | $ | 68 | $ | — | $ | 32 |
December 31, 2022 | |||||||||||||||||||||||||||||
Gross Amounts Not Offset in the Statements of Condition | |||||||||||||||||||||||||||||
(in millions) | Gross Amount | Gross Amounts Netted in the Statements of Condition | Net Amount Presented in the Statements of Condition | Financial Instruments | Cash Collateral Pledged (Received) | ||||||||||||||||||||||||
Derivatives designated hedging instruments: | |||||||||||||||||||||||||||||
Interest rate swaps on FHLB advances | $ | 5 | $ | — | $ | 5 | $ | 4 | $ | 27 | |||||||||||||||||||
Derivatives not designated as hedging instruments: | |||||||||||||||||||||||||||||
Assets | |||||||||||||||||||||||||||||
Mortgage-backed securities forwards | $ | 36 | $ | — | $ | 36 | $ | — | $ | (9) | |||||||||||||||||||
Interest rate swaptions | 182 | — | 182 | — | (36) | ||||||||||||||||||||||||
Futures | 2 | 2 | 1 | ||||||||||||||||||||||||||
Total derivative assets | $ | 220 | $ | — | $ | 220 | $ | — | $ | (44) | |||||||||||||||||||
Liabilities | |||||||||||||||||||||||||||||
Mortgage-backed securities forwards | $ | 61 | $ | — | $ | 61 | $ | — | $ | 54 | |||||||||||||||||||
Interest rate swaps (1) | 65 | — | 65 | — | 29 | ||||||||||||||||||||||||
Total derivative liabilities | $ | 126 | $ | — | $ | 126 | $ | — | $ | 83 |
(in millions) | For the Six Months Ended June 30, 2023 | For the Year Ended December 31, 2022 | For the Six Months Ended June 30, 2022 | ||||||||||||||
Amount of gain (loss) recognized in AOCL | $ | 34 | $ | 88 | $ | 25 | |||||||||||
Amount of reclassified from AOCL to interest expense | $ | (12) | $ | (4) | $ | 7 |
(dollars in millions) | Three months ended June 30, 2023 | Six months ended June 30, 2023 | ||||||||||||
Derivatives not designated as hedging instruments | Location of Gain (Loss) | |||||||||||||
Futures | Net return on mortgage servicing rights | $ | 5 | $ | 3 | |||||||||
Interest rate swaps and swaptions | Net return on mortgage servicing rights | (29) | (22) | |||||||||||
Mortgage-backed securities forwards | Net return on mortgage servicing rights | (11) | (13) | |||||||||||
Rate lock commitments and US Treasury futures | Net gain on loan sales | 18 | 38 | |||||||||||
Interest rate swaps (1) | Other non-interest income | 1 | 1 | |||||||||||
Total derivative (loss) gain | $ | (16) | $ | 7 |
June 30, 2023 | December 31, 2022 | ||||||||||||||||||||||||||||||||||
(in millions) | Gross Carrying Amount | Accumulated Amortization | Net Carrying Value | Gross Carrying Amount | Accumulated Amortization | Net Carrying Value | |||||||||||||||||||||||||||||
Core deposit intangible | $ | 700 | $ | (50) | $ | 650 | $ | 250 | $ | (4) | $ | 246 | |||||||||||||||||||||||
Other intangible assets | 56 | (9) | 47 | 42 | (1) | 41 | |||||||||||||||||||||||||||||
Total other intangible assets | $ | 756 | $ | (59) | $ | 697 | $ | 292 | $ | (5) | $ | 287 |
(in millions) | Amortization Expense | ||||
2023 | $ | 49 | |||
2024 | 108 | ||||
2025 | 88 | ||||
2026 | 79 | ||||
2027 | 71 | ||||
Total | $ | 395 |
June 30, 2023 | |||||||||||||||||||||||||||||
(in millions) | Quoted Prices in Active Markets for Identical Assets (Level 1) | Significant Other Observable Inputs (Level 2) | Significant Unobservable Inputs (Level 3) | Netting Adjustments | Total Fair Value | ||||||||||||||||||||||||
Assets: | |||||||||||||||||||||||||||||
Mortgage-related Debt Securities Available for Sale: | |||||||||||||||||||||||||||||
GSE certificates | $ | — | $ | 1,204 | $ | — | $ | — | $ | 1,204 | |||||||||||||||||||
GSE CMOs | — | 3,573 | — | — | 3,573 | ||||||||||||||||||||||||
Private Label CMOs | — | 183 | — | — | 183 | ||||||||||||||||||||||||
Total mortgage-related debt securities | $ | — | $ | 4,960 | $ | — | $ | — | $ | 4,960 | |||||||||||||||||||
Other Debt Securities Available for Sale: | |||||||||||||||||||||||||||||
U. S. Treasury obligations | $ | — | $ | — | $ | — | $ | — | $ | — | |||||||||||||||||||
GSE debentures | — | 1,644 | — | — | 1,644 | ||||||||||||||||||||||||
Asset-backed securities | — | 323 | — | — | 323 | ||||||||||||||||||||||||
Municipal bonds | — | 7 | — | — | 7 | ||||||||||||||||||||||||
Corporate bonds | — | 753 | — | — | 753 | ||||||||||||||||||||||||
Foreign notes | — | 8 | — | — | 8 | ||||||||||||||||||||||||
Capital trust notes | — | 87 | — | — | 87 | ||||||||||||||||||||||||
Total other debt securities | $ | — | $ | 2,822 | $ | — | $ | — | $ | 2,822 | |||||||||||||||||||
Total debt securities available for sale | $ | — | $ | 7,782 | $ | — | $ | — | $ | 7,782 | |||||||||||||||||||
Equity securities: | |||||||||||||||||||||||||||||
Mutual funds and common stock | — | 14 | — | — | 14 | ||||||||||||||||||||||||
Total equity securities | — | 14 | — | — | 14 | ||||||||||||||||||||||||
Total securities | $ | — | $ | 7,796 | $ | — | $ | — | $ | 7,796 | |||||||||||||||||||
Loans held-for-sale | |||||||||||||||||||||||||||||
Residential first mortgage loans | $ | — | $ | 1,406 | $ | — | $ | — | $ | 1,406 | |||||||||||||||||||
Acquisition, development, and construction | — | 157 | — | — | 157 | ||||||||||||||||||||||||
Commercial and industrial loans | — | 9 | 9 | — | — | 9 | |||||||||||||||||||||||
Derivative assets | |||||||||||||||||||||||||||||
Interest rate swaps and swaptions | — | 137 | — | — | 137 | ||||||||||||||||||||||||
Futures | — | 3 | — | — | 3 | ||||||||||||||||||||||||
Rate lock commitments (fallout-adjusted) | — | — | 10 | — | 10 | ||||||||||||||||||||||||
Mortgage-backed securities forwards | — | 21 | — | — | 21 | ||||||||||||||||||||||||
Mortgage servicing rights | — | — | 1,031 | — | 1,031 | ||||||||||||||||||||||||
Total assets at fair value | $ | — | $ | 9,529 | $ | 1,041 | $ | — | $ | 10,570 | |||||||||||||||||||
Derivative liabilities | |||||||||||||||||||||||||||||
Mortgage-backed securities forwards | — | 7 | — | — | 7 | ||||||||||||||||||||||||
Interest rate swaps and swaptions | — | 61 | — | — | 61 | ||||||||||||||||||||||||
Rate lock commitments (fallout-adjusted) | — | — | 10 | — | 10 | ||||||||||||||||||||||||
Total liabilities at fair value | $ | — | $ | 68 | $ | 10 | $ | — | $ | 78 |
December 31, 2022 | |||||||||||||||||||||||||||||
(in millions) | Quoted Prices in Active Markets for Identical Assets (Level 1) | Significant Other Observable Inputs (Level 2) | Significant Unobservable Inputs (Level 3) | Netting Adjustments | Total Fair Value | ||||||||||||||||||||||||
Assets: | |||||||||||||||||||||||||||||
Mortgage-related Debt Securities Available for Sale: | |||||||||||||||||||||||||||||
GSE certificates | $ | — | $ | 1,297 | $ | — | $ | — | $ | 1,297 | |||||||||||||||||||
GSE CMOs | — | 3,301 | — | — | 3,301 | ||||||||||||||||||||||||
Private Label CMOs | — | 191 | — | — | 191 | ||||||||||||||||||||||||
Total mortgage-related debt securities | $ | — | $ | 4,789 | $ | — | $ | — | $ | 4,789 | |||||||||||||||||||
Other Debt Securities Available for Sale: | |||||||||||||||||||||||||||||
U. S. Treasury obligations | $ | 1,487 | $ | — | $ | — | $ | — | $ | 1,487 | |||||||||||||||||||
GSE debentures | — | 1,398 | — | — | 1,398 | ||||||||||||||||||||||||
Asset-backed securities | — | 361 | — | — | 361 | ||||||||||||||||||||||||
Municipal bonds | — | 30 | — | — | 30 | ||||||||||||||||||||||||
Corporate bonds | — | 885 | — | — | 885 | ||||||||||||||||||||||||
Foreign notes | — | 20 | — | — | 20 | ||||||||||||||||||||||||
Capital trust notes | — | 90 | — | — | 90 | ||||||||||||||||||||||||
Total other debt securities | $ | 1,487 | $ | 2,784 | $ | — | $ | — | $ | 4,271 | |||||||||||||||||||
Total debt securities available for sale | $ | 1,487 | $ | 7,573 | $ | — | $ | — | $ | 9,060 | |||||||||||||||||||
Equity securities: | |||||||||||||||||||||||||||||
Mutual funds and common stock | — | 14 | — | — | 14 | ||||||||||||||||||||||||
Total equity securities | — | 14 | — | — | 14 | ||||||||||||||||||||||||
Total securities | $ | 1,487 | $ | 7,587 | $ | — | $ | — | $ | 9,074 | |||||||||||||||||||
Loans held-for-sale | |||||||||||||||||||||||||||||
Residential first mortgage loans | $ | — | $ | 1,115 | $ | — | $ | — | $ | 1,115 | |||||||||||||||||||
Derivative assets | |||||||||||||||||||||||||||||
Interest rate swaps and swaptions | — | 182 | — | — | 182 | ||||||||||||||||||||||||
Futures | — | 2 | — | — | 2 | ||||||||||||||||||||||||
Rate lock commitments (fallout-adjusted) | — | — | 9 | — | 9 | ||||||||||||||||||||||||
Mortgage-backed securities forwards | — | 36 | — | — | 36 | ||||||||||||||||||||||||
Mortgage servicing rights | — | — | 1,033 | — | 1,033 | ||||||||||||||||||||||||
Total assets at fair value | $ | 1,487 | $ | 8,922 | $ | 1,042 | $ | — | $ | 11,451 | |||||||||||||||||||
Derivative liabilities | |||||||||||||||||||||||||||||
Mortgage-backed securities forwards | — | 61 | — | — | 61 | ||||||||||||||||||||||||
Interest rate swaps and swaptions | — | 65 | — | — | 65 | ||||||||||||||||||||||||
Rate lock commitments (fallout-adjusted) | — | — | 10 | — | 10 | ||||||||||||||||||||||||
Total liabilities at fair value | $ | — | $ | 126 | $ | 10 | $ | — | $ | 136 |
For additional information about our provisions for and recoveries of loan losses, seecorroborate the discussion of the allowances for loan losses 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—mortgage banking income; fee income (in the form of retail deposit fees and charges on loans); income from our investment in BOLI; gains on the sale of securities; and revenues produced through the sale of third-party investment products and those produced through our wholly-owned subsidiary, Peter B. Cannell & Co., Inc. (“PBC”), an investment advisory firm.
Non-interest income totaled $108.9 million in the current third quarter, up $58.5 millionfair values derived from the trailing-quarter level and $68.3 million from the year-earlier amount. The linked-quarter improvement was primarily driven by an $82.0 million gain on sale of covered loans and mortgage banking operations. This was partially offset by a $6.7 million decline in mortgage banking income. The year-over-year increase reflects contributions from the same factors which impacted the linked-quarter results.
The following table summarizes our mortgage banking income for the periods indicated:
For the Three Months Ended | ||||||||||||
September 30, | June 30, | September 30, | ||||||||||
(in thousands) | 2017 | 2017 | 2016 | |||||||||
Mortgage Banking Income: | ||||||||||||
Income from originations | $ | 2,109 | $ | 4,394 | $ | 10,884 | ||||||
Servicing (loss) income | (623 | ) | 3,802 | 2,041 | ||||||||
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Total mortgage banking income | $ | 1,486 | $ | 8,196 | $ | 12,925 | ||||||
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The following table summarizes ournon-interest income for the respective periods:
Non-Interest Income Analysis
For the Three Months Ended | ||||||||||||
September 30, | June 30, | September 30, | ||||||||||
(in thousands) | 2017 | 2017 | 2016 | |||||||||
Mortgage banking income | $ | 1,486 | $ | 8,196 | $ | 12,925 | ||||||
Fee income | 7,972 | 8,151 | 8,640 | |||||||||
BOLI income | 8,314 | 6,519 | 7,029 | |||||||||
Net (loss) gain on sales of loans | (76 | ) | 1,397 | 3,465 | ||||||||
Net gain on sales of securities | — | 26,936 | 237 | |||||||||
FDIC indemnification expense | — | (14,325 | ) | (1,031 | ) | |||||||
Gain on sale of covered loans and mortgage banking operations | 82,026 | — | — | |||||||||
Other income: | ||||||||||||
Peter B. Cannell & Co., Inc. | 5,502 | 5,476 | 5,535 | |||||||||
Third-party investment product sales | 2,888 | 3,205 | 2,467 | |||||||||
Other | 816 | 4,882 | 1,328 | |||||||||
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Total other income | 9,206 | 13,563 | 9,330 | |||||||||
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Totalnon-interest income | $ | 108,928 | $ | 50,437 | $ | 40,595 | ||||||
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Non-Interest Expense
Non-interest expense has two primary components: operating expenses, which consist of compensation and benefits expense, occupancy and equipment expense, and G&A expense, and the amortization of the CDI stemming from certain merger transactions.
Non-interest expense totaled $162.2 million in the current third quarter, a $1.5 million decrease from the trailing-quarter level and a $549,000 increase from the year-earlier amount. Merger-related expenses added $2.2 million tonon-interest expense in the year-earlier quarter; there were no comparable expenses in the current quarter.
The majority of the Company’snon-interest expense consists of operating expenses, which totaled $162.2 million in the current third quarter, as compared to $163.7 million and $158.9 million, respectively, in the trailing and year-earlier periods. The linked-quarter decrease was driven by a $1.3 million decline in compensation and benefits expense to $91.6 million and a $2.0 million decrease in G&A expense to $45.5 million, partially offset by a $1.7 million increase in occupancy and equipment expense to $25.1 million.
The year-over-year increase in operating expenses was largely due to a $5.5 million increase in compensation and benefits expense coupled with a $3.0 million decrease in G&A expense. The year-over-year rise in compensation and benefits expense was generally attributable to the addition of senior level staff in various departments, while the year-over-year decline in G&A expense was largely attributable to lower FDIC insurance premiums.
Income Tax Expense
Income tax expense totaled $68.0 million in the current third quarter, $2.5 million higher than the trailing-quarter level and $4.1 million lower than the year-earlier third-quarter amount.
Whilepre-tax income declined $2.3 million sequentially, to $178.5 million, the effective tax rate increased to 38.10% in the current third quarter from 36.22% in the trailing three-month period.
In the third quarter of 2016,pre-tax income was $18.9 million higher than the current third-quarter level, and the effective tax rate was 36.52%.
Earnings Summary for the Nine Months Ended September 30, 2017
In the first nine months of 2017, we generated net income available to common shareholders of $313.3 million or $0.64 per diluted common share as compared to net income available to common shareholders of $381.7 million, or $0.78 per diluted common share, in the first nine months of 2016.
Merger-related expenses totaled $4.7 million in the year-earlier nine months; there were no merger-related expenses in the current nine-month period.
Net Interest Income
Net interest income fell $112.8 million year-over-year to $859.0 million in the nine months ended September 30, 2017. The decrease was the net effect of a $67.7 million decrease in interest income to $1.2 billion and a $45.2 million increase in interest expense to $332.8 million. During this time, our net interest margin fell 32 basis points to 2.63%.
The following factors contributed to the year-over-year decrease in net interest income and margin:
(dollars in millions) | Balance at Beginning of Year | Total Gains / (Losses) Recorded in Earnings (1) | Purchases / Originations | Sales | Settlement | Transfers In (Out) | Balance at End of Year | ||||||||||||||||
Three Months Ended June 30, 2023 | |||||||||||||||||||||||
Assets | |||||||||||||||||||||||
Mortgage servicing rights (1) | $ | 1,034 | $ | 5 | $ | 43 | $ | (51) | — | — | $ | 1,031 | |||||||||||
Rate lock commitments (net) (1)(2) | 8 | (17) | 25 | (16) | — | ||||||||||||||||||
Totals | $ | 1,042 | $ | (12) | $ | 68 | $ | (51) | $ | — | $ | (16) | $ | 1,031 | |||||||||
Six Months Ended June 30, 2023 | |||||||||||||||||||||||
Assets | |||||||||||||||||||||||
Mortgage servicing rights (1) | $ | 1,033 | $ | (32) | $ | 81 | $ | (51) | — | $ | 1,031 | ||||||||||||
Rate lock commitments (net) (1)(2) | (1) | (28) | 60 | — | — | (31) | — | ||||||||||||||||
Totals | $ | 1,032 | $ | (60) | $ | 141 | $ | (51) | $ | — | $ | (31) | $ | 1,031 |
Fair Value | Valuation Technique | Unobservable Input (1) | Range (Weighted Average) | |||||||||||
(dollars in millions) | ||||||||||||||
Assets | ||||||||||||||
Option adjusted spread | 5.3% - 21.5% (5.6)% | |||||||||||||
Mortgage servicing rights | $ | 1,031 | Discounted cash flows | Constant prepayment rate | 0% - 9.8% (8.2)% | |||||||||
Weighted average cost to service per loan | $65 - $90 $(69) | |||||||||||||
Rate lock commitments (net) | $ | — | Consensus pricing | Origination pull-through rate | 80.20% |
Fair Value Measurements at June 30, 2023 Using | |||||||||||||||||||||||
(in millions) | Quoted Prices in Active Markets for Identical Assets (Level 1) | Significant Other Observable Inputs (Level 2) | Significant Unobservable Inputs (Level 3) | Total Fair Value | |||||||||||||||||||
Other assets(1) | $ | — | $ | — | $ | 45 | $ | 45 | |||||||||||||||
Total | $ | — | $ | — | $ | 45 | $ | 45 |
Fair Value Measurements at December 31, 2022 Using | |||||||||||||||||||||||
(in millions) | Quoted Prices in Active Markets for Identical Assets (Level 1) | Significant Other Observable Inputs (Level 2) | Significant Unobservable Inputs (Level 3) | Total Fair Value | |||||||||||||||||||
Certain impaired loans (2) | $ | — | $ | — | $ | 28 | $ | 28 | |||||||||||||||
Other assets (1) | — | — | 41 | 41 | |||||||||||||||||||
Total | $ | — | $ | — | $ | 69 | $ | 69 |
June 30, 2023 | |||||||||||||||||||||||||||||||||||
Fair Value Measurement Using | |||||||||||||||||||||||||||||||||||
(in millions) | Carrying Value | Estimated Fair Value | Quoted Prices in Active Markets for Identical Assets (Level 1) | Significant Other Observable Inputs (Level 2) | Significant Unobservable Inputs (Level 3) | ||||||||||||||||||||||||||||||
Financial Assets: | |||||||||||||||||||||||||||||||||||
Cash and cash equivalents | $ | 15,806 | $ | 15,806 | $ | 15,806 | |||||||||||||||||||||||||||||
FHLB and FRB stock (1) | 1,136 | 1,136 | — | 1,136 | |||||||||||||||||||||||||||||||
Loans and leases held for investment, net | 82,684 | 79,144 | — | 79,144 | |||||||||||||||||||||||||||||||
Financial Liabilities: | |||||||||||||||||||||||||||||||||||
Deposits | $ | 88,497 | $ | 88,245 | $ | 70,309 | (2) | $ | 17,936 | (3) | |||||||||||||||||||||||||
Borrowed funds | 16,412 | 16,161 | 16,161 |
December 31, 2022 | |||||||||||||||||||||||||||||||||||
Fair Value Measurement Using | |||||||||||||||||||||||||||||||||||
(in millions) | Carrying Value | Estimated Fair Value | Quoted Prices in Active Markets for Identical Assets (Level 1) | Significant Other Observable Inputs (Level 2) | Significant Unobservable Inputs (Level 3) | ||||||||||||||||||||||||||||||
Financial Assets: | |||||||||||||||||||||||||||||||||||
Cash and cash equivalents | $ | 2,032 | $ | 2,032 | $ | 2,032 | $ | — | $ | — | |||||||||||||||||||||||||
FHLB and FRB stock (1) | 1,267 | 1,267 | — | 1,267 | 0 | ||||||||||||||||||||||||||||||
Loans and leases held for investment, net | 68,608 | 65,673 | — | — | 65,673 | ||||||||||||||||||||||||||||||
Financial Liabilities: | |||||||||||||||||||||||||||||||||||
Deposits | $ | 58,721 | $ | 58,479 | $ | 46,211 | (2) | $ | 12,268 | (3) | $ | — | |||||||||||||||||||||||
Borrowed funds | 21,332 | 21,231 | — | 21,231 | — |
For the Three Months ended June 30, | For the Six Months Ended June 30, | |||||||
(dollars in millions) | 2023 | 2023 | ||||||
Assets | ||||||||
Loans held-for-sale | $ | — | $ | — | ||||
Net gain on loan sales | $ | 29 | $ | 57 |
June 30, 2023 | |||||||||||
(dollars in millions) | Unpaid Principal Balance | Fair Value | Fair Value Over / (Under) UPB | ||||||||
Assets: | |||||||||||
Nonaccrual loans: | |||||||||||
Loans held-for-sale | $ | 1 | $ | 1 | $ | — | |||||
Loans held-for-investment | — | — | — | ||||||||
Total non-accrual loans | $ | 1 | $ | 1 | $ | — | |||||
Other performing loans: | |||||||||||
Loans held-for-sale | $ | 1,556 | $ | 1,571 | $ | 15 | |||||
Total other performing loans | $ | 1,556 | $ | 1,571 | $ | 15 | |||||
Total loans: | |||||||||||
Loans held-for-sale | $ | 1,557 | $ | 1,572 | $ | 15 | |||||
Total loans | $ | 1,557 | $ | 1,572 | $ | 15 |
December 31, 2022 | |||||||||||
(dollars in millions) | Unpaid Principal Balance | Fair Value | Fair Value Over / (Under) UPB | ||||||||
Assets: | |||||||||||
Other performing loans: | |||||||||||
Loans held-for-sale | 1,095 | 1,115 | 20 | ||||||||
Total other performing loans | $ | 1,095 | $ | 1,115 | $ | 20 | |||||
Total loans: | |||||||||||
Loans held-for-sale | 1,095 | 1,115 | 20 | ||||||||
Total loans | $ | 1,095 | $ | 1,115 | $ | 20 |
Item 3. | Quantitative and Qualitative Disclosures about Market Risk |
For the Nine Months Ended September 30, | ||||||||
(dollars in thousands) | 2017 | 2016 | ||||||
Total interest income | $ | 1,191,869 | $ | 1,259,521 | ||||
Prepayment income: | ||||||||
From loans | $ | 36,926 | $ | 42,648 | ||||
From securities | 6,744 | 29,695 | ||||||
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Total prepayment income | $ | 43,670 | $ | 72,343 | ||||
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Net interest margin (including the contribution of prepayment income) | 2.63 | % | 2.95 | % | ||||
Less: | ||||||||
Contribution of prepayment income to net interest margin: | ||||||||
From loans | 11 | bps | 13 | bps | ||||
From securities | 2 | 9 | ||||||
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Total contribution of prepayment income to net interest margin | 13 | bps | 22 | bps | ||||
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Adjusted net interest margin (i.e., excluding the contribution of prepayment income)(1) | 2.50 | % | 2.73 | % |
(1) “Adjusted net interest margin” is anon-GAAP financial measure, as more fully discussed below.
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"Market Risk" in this report in "Management’s Discussion and other investor communications for the following reasons:
Adjusted net interest margin should not be considered in isolation or as a substitute for net interest margin,Analysis of Financial Condition and Results of Operations" 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 nine-month periods indicated, including the average yields on our interest-earning assets and the average costs of our interest-bearing liabilities. Average yields are calculatedincorporated herein 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 nine-month periods 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 Nine Months Ended September 30, | ||||||||||||||||||||||||
2017 | 2016 | |||||||||||||||||||||||
Average | Average | |||||||||||||||||||||||
Average | Yield/ | Average | Yield/ | |||||||||||||||||||||
(dollars in thousands) | Balance | Interest | Cost | Balance | Interest | Cost | ||||||||||||||||||
Assets: | ||||||||||||||||||||||||
Interest-earning assets: | ||||||||||||||||||||||||
Mortgage and other loans, net(1) | $ | 38,652,113 | $ | 1,070,722 | 3.69 | % | $ | 38,878,111 | $ | 1,099,137 | 3.77 | % | ||||||||||||
Securities(2)(3) | 4,052,154 | 112,800 | 3.72 | 5,065,917 | 160,373 | 4.22 | ||||||||||||||||||
Interest-earning cash and cash equivalents(2) | 832,463 | 8,347 | 1.34 | 8,749 | 11 | 0.17 | ||||||||||||||||||
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Total interest-earning assets | 43,536,730 | 1,191,869 | 3.65 | 43,952,777 | 1,259,521 | 3.82 | ||||||||||||||||||
Non-interest-earning assets | 5,239,745 | 5,316,971 | ||||||||||||||||||||||
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Total assets | $ | 48,776,475 | $ | 49,269,748 | ||||||||||||||||||||
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Liabilities and Stockholders’ Equity: | ||||||||||||||||||||||||
Interest-bearing deposits: | ||||||||||||||||||||||||
Interest-bearing checking and money market accounts | $ | 12,950,570 | $ | 71,413 | 0.74 | % | $ | 13,349,201 | $ | 45,771 | 0.46 | % | ||||||||||||
Savings accounts | 5,171,645 | 21,069 | 0.54 | 6,112,342 | 25,001 | 0.55 | ||||||||||||||||||
Certificates of deposit | 8,019,142 | 73,786 | 1.23 | 6,700,188 | 55,129 | 1.10 | ||||||||||||||||||
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Total interest-bearing deposits | 26,141,357 | 166,268 | 0.85 | 26,161,731 | 125,901 | 0.64 | ||||||||||||||||||
Borrowed funds | 12,992,691 | 166,572 | 1.71 | 14,083,459 | 161,758 | 1.53 | ||||||||||||||||||
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Total interest-bearing liabilities | 39,134,048 | 332,840 | 1.14 | 40,245,190 | 287,659 | 0.95 | ||||||||||||||||||
Non-interest-bearing deposits | 2,820,923 | 2,817,043 | ||||||||||||||||||||||
Other liabilities | 269,132 | 179,471 | ||||||||||||||||||||||
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Total liabilities | 42,224,103 | 43,241,704 | ||||||||||||||||||||||
Stockholders’ equity | 6,552,372 | 6,028,044 | ||||||||||||||||||||||
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Total liabilities and stockholders’ equity | $ | 48,776,475 | $ | 49,269,748 | ||||||||||||||||||||
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Net interest income/interest rate spread | $ | 859,029 | 2.51 | % | $ | 971,862 | 2.87 | % | ||||||||||||||||
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Net interest margin | 2.63 | % | 2.95 | % | ||||||||||||||||||||
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Ratio of interest-earning assets to interest-bearing liabilities | 1.11x | 1.09x | ||||||||||||||||||||||
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Item 4. | Controls and |
Provision for Loan Losses
Provision for Losses onNon-Covered Loans
Reflecting the methodology used by management to calculate the allowance fornon-covered loan losses, we recorded a provision for losses onnon-covered loans of $58.0 million in the nine months ended September 30, 2017 compared to $6.7 million in the year ago nine months. The higher loan loss provision for the nine months ended September 30, 2017 was due to our taxi medallion-related loans. For the nine months ended September 30, 2017, the Company recorded net charge-offs of $57.4 million, of which $54.8 million was due to taxi medallion-related loans. For the nine months ended September 30, 2016, the Company recorded a net recovery of $882,000, with taxi medallion-related charge-offs of $265,000.
Provision for (Recovery of) Losses on Covered Loans
In the first nine months of 2017, we recovered $23.7 million from the allowance for covered loan losses, reflecting an increase in expected cash flows from certain pools of covered loans as their credit quality improved and the aforementioned sale of the covered loans. In connection with this recovery, we recorded FDIC indemnification expense of $19.0 million in“Non-interest income” during the corresponding period.
In the first nine months of 2016, we recovered $6.0 million from the allowance for covered loan losses, reflecting an increase in expected cash flows from certain pools of covered loans as their credit quality improved. In connection with this recovery, we recorded FDIC indemnification income of $4.8 million in“Non-interest income” during the corresponding period.
Non-Interest Income
In the first nine months of 2017, we recordednon-interest income of $191.5 million, as compared to $113.2 million in the first nine months of 2016. The $78.3 million increase was largely driven by the $82.0 million gain on the sale of our covered loans and mortgage banking operations and a net gain on sales of securities of $28.9 million. This was partially offset by lower mortgage banking income and lower gains on sales of loans.
The following table summarizes our mortgage banking income for the periods indicated:
For the Nine Months Ended September 30, | ||||||||
(in thousands) | 2017 | 2016 | ||||||
Mortgage Banking Income: | ||||||||
Income from originations | $ | 11,478 | $ | 34,691 | ||||
Servicing income (loss) | 7,968 | (10,671 | ) | |||||
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Total mortgage banking income | $ | 19,446 | $ | 24,020 | ||||
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The following table summarizes the components ofnon-interest income for the respective periods:
Non-Interest Income Analysis
For the Nine Months Ended September 30, | ||||||||
(in thousands) | 2017 | 2016 | ||||||
Mortgage banking income | $ | 19,446 | $ | 24,020 | ||||
Fee income | 23,983 | 24,480 | ||||||
BOLI income | 21,170 | 23,208 | ||||||
Net gain on sales of loans | 1,055 | 15,118 | ||||||
Net gain on sales of securities | 28,915 | 413 | ||||||
FDIC indemnification expense | (18,961 | ) | (4,828 | ) | ||||
Gain on sale of covered loans and mortgage banking operations | 82,026 | — | ||||||
Other income: | ||||||||
Peter B. Cannell & Co., Inc. | 16,512 | 17,100 | ||||||
Third-party investment product sales | 9,262 | 8,823 | ||||||
Other | 8,129 | 4,864 | ||||||
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Total other income | 33,903 | 30,787 | ||||||
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Totalnon-interest income | $ | 191,537 | $ | 113,198 | ||||
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Non-Interest Expense
In the first nine months of 2017, we recordednon-interest expense of $492.9 million, reflecting an $11.9 million increase from the year-earlier amount. Operating expenses accounted for $492.7 million of the current nine-month total, and were up $18.4 million year-over-year.
The rise in operating expenses was largely due to an $18.8 million increase in compensation and benefits expense to $280.0 million, while most other expense categories were flat on a year-over-year basis.
Income Tax Expense
Income tax expense fell $28.1 million year-over-year to $193.6 million in the nine months ended September 30, 2017. During this time,pre-tax income declined $80.0 million to $523.3 million, while the effective tax rate rose modestly to 37.00%, as compared to 36.74%.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Quantitative and qualitative disclosures about the Company’s market risk were presented on pages83-87 of our 2016 Annual Report on Form10-K, filed with the U.S. Securities and Exchange Commission (the “SEC”) on March 1, 2017. Subsequent changes in the Company’s market risk profile and interest rate sensitivity are detailed in the discussion entitled “Management of Market and Interest Rate Risk” earlier in this quarterly report.
ITEM 4. CONTROLS AND PROCEDURES
Disclosure
As of the end of the period covered by this report, the Company carried out an evaluation, under the supervision and with the participation of the Company’s management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures pursuant toRule 13a-15(b), as adopted by 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 effectiveforms as of the end of the period.
June 30, 2023.
financial reporting to include the acquired operations. There have not been anyno changes in the Company’s internal control over financial reporting (as such term is defined inRules 13a-15(f) and15d-15(f) under Rule 13a-15(d) of the Exchange Act) during the fiscal quarter to which this report relatesthree months ended June 30, 2023, that have materially affected, or are reasonably likely to materially affect, the Company’sour internal control over financial reporting.
Item 1. | Legal Proceedings |
In addition to the other information set forth in this report, readers should carefully consider the factors discussed in Part I,
Item 1A. | Risk Factors |
The risks described 10-K for the year ended December 31, 2022 and the Company’s Form 10-Q for the quarter ended March 31, 2023.
Item 2. Unregistered Salessuch 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 Equity Securitiessystems failures and Use of Proceeds
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.
Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds |
During the three months ended September 30, 2017, the Company allocated $344,000 toward the repurchase of shares of its common stock pursuant to the terms of its stock-based incentive plans, as indicated in the following table:
(dollars in thousands, except per share data) | ||||||||||||
Third Quarter 2017 | Total Shares of Common Stock Repurchased | Average Price Paid per Common Share | Total Allocation | |||||||||
July 1 – July 31 | 19,252 | $13.04 | $ | 251 | ||||||||
August 1 – August 31 | 2,074 | 12.59 | 26 | |||||||||
September 1 – September 30 | 5,344 | 12.46 | 67 | |||||||||
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Total shares repurchased | 26,670 | 12.89 | $ | 344 | ||||||||
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repurchase authorization.
Item 3. Defaults upon Senior Securities
Not applicable.
Item 4. Mine Safety Disclosures
Not applicable.
Not applicable.
(dollars in millions, except share data) | ||||||||||||||||||||||||||
Period | Total Shares of Common Stock Repurchased | Average Price Paid per Common Share | Total Allocation | Total Shares of Common Stock Purchased as Part of Publicly Announced Plans or Programs | ||||||||||||||||||||||
Second Quarter 2023 | ||||||||||||||||||||||||||
April 1 - 30, 2023 | 26,330 | $ | 8.93 | $ | — | — | ||||||||||||||||||||
May 1 - 31, 2023 | 111,992 | 10.49 | 1 | — | ||||||||||||||||||||||
June 1 - 30, 2023 | 51,855 | 10.81 | 1 | — | ||||||||||||||||||||||
Total Second Quarter 2023 | 190,177 | $ | 10.36 | $ | 2 | 0 |
Defaults Upon Senior Securities |
Mine Safety Disclosures |
Item 5. | Other Information |
Item 6. | Exhibits |
Exhibit No. |
3.1 | ||||||||
3.2 | ||||||||
3.3 | ||||||||
3.5 | ||||||||
4.1 | ||||||||
4.2 | ||||||||
4.4 | ||||||||
4.6 | Registrant will furnish, upon request, copies of all instruments defining the rights of holders of long-term debt instruments of the registrant and its consolidated subsidiaries. | |||||||
31.1 | ||||||||
31.2 | ||||||||
101.SCH | Inline XBRL Taxonomy Extension Schema Document. | |||||||
101.CAL | Inline XBRL Taxonomy Extension Calculation Linkbase Document. | |||||||
101.DEF | Inline XBRL Taxonomy Extension Definition Linkbase Document. | |||||||
101.LAB | Inline XBRL Taxonomy Extension Label Linkbase Document. | |||||||
101.PRE | Inline XBRL Taxonomy Extension Presentation Linkbase Document. | |||||||
104 | Cover Page Interactive Date File (formatted in Inline XBRL |
NEW YORK COMMUNITY BANCORP, INC.
DATE: | August 9, 2023 | New York Community Bancorp, Inc. | ||||||||||||
(Registrant) | ||||||||||||||
/s/ | ||||||||||||||
Thomas R. Cangemi | ||||||||||||||
President and Chief Executive Officer
| ||||||||||||||
(Principal Executive Officer) | ||||||||||||||
| ||||||||||||||
/s/ John J. Pinto | ||||||||||||||
John J. Pinto | ||||||||||||||
Senior Executive Vice President and Chief Financial Officer | ||||||||||||||
(Principal Financial Officer) |
86