false2019Q3000091007312-31NEW YORK COMMUNITY BANCORP INCAmounts in parentheses indicate expense items.See Note 8, “Pension and Other Post-Retirement Benefits,” for additional information.The underlying assets of the asset-backed securities are substantially guaranteed by the U.S. Government.The amortized cost includes the non-credit portion of OTTI recorded in AOCL. At September 30, 2019, the non-credit portion of OTTI recorded in AOCL was $8.6 million before taxes.Primarily consists of mutual funds that are CRA-qualified investments.The amortized cost includes the non-credit portion of OTTI recorded in AOCL. At December 31, 2018, the non-credit portion of OTTI recorded in AOCL was $8.6 million before taxes.Includes corporate bonds, capital trust notes, and asset-backed securities.Not presented on a tax-equivalent basis.Includes specialty finance loans and leases of $2.4 billion and $1.9 billion, respectively, at September 30, 2019 and December 31, 2018. Other C&I loans of $447.1 million and $469.9 million, respectively, at September 30, 2019 and December 31, 2018.Includes $27.4 million and $20.4 million of taxi medallion-related loans at September 30, 2019 and December 31, 2018, respectively.Amounts are included in G&A expense on the Consolidated Statements of Income and Comprehensive Income.Represents the fair value of impaired loans, based on the value of the collateral.Carrying value and estimated fair value are at cost.Included in Interest Income – Mortgage and other loans and leases in the Consolidated Statements of Income and Comprehensive Income.These amounts include the amortized cost basis of closed portfolios used to designated hedging relationships in which the hedged item is the last layer expected to be remaining at the end of the hedging relationship. 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Table of Contents
 
 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
FORM
10-Q
 
☒
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2019
☐
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from
                
to
                
Commission File Number
1-31565
 
NEW YORK COMMUNITY BANCORP, INC.
(Exact name of registrant as specified in its charter)
 
Delaware
  
06-1377322
(State or other jurisdiction of
incorporation or organization)
 
(I.R.S. Employer
Identification No.)
615 Merrick Avenue
,
Westbury
,
New York
11590
(Address of principal executive offices)
(Registrant’s telephone number, including area code) (
516
)
 
683-4100
 
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
 
Trading
symbol(s)
 
Name of each exchange
on which registered
Common Stock
, $0.01 par value per share
 
NYCB
  
New York Stock Exchange
Bifurcated Option Note Unit SecuritiES 
SM
 
NYCB PU
  
New York Stock Exchange
Fixed-to-Floating Rate Series A Noncumulative Perpetual Preferred Stock, $0.01 par value
 
NYCB PR A
  
New York Stock Exchange
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    
Yes
  
☒
    No  
☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation
S-T
(§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    
Yes
  
☒
    No  
☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a
non-accelerated
filer, a smaller reporting company, or an emerging growth company. See the definition of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule
12b-2
of the Exchange Act.
Large accelerated filer
 
☒
  
Accelerated filer
 
☐
             
Non-Accelerated filer
 
☐
  
Smaller Reporting Company
  
☐
             
  
 
Emerging Growth Company
 
☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  
☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule
12b-2
of the Exchange Act).    Yes  
☐
    No  
☒
467,350,628
 
Number of shares of common stock outstanding at
November 
6
, 2019
 
 
 
 
Table of Contents
NEW YORK COMMUNITY BANCORP, INC.
FORM
10-Q
Quarter Ended September 30, 2019
             
 
Glossary
List of Abbreviations and Acronyms
 
 
Page No.
 
             
Part I.
 
FINANCIAL INFORMATION
   
 
             
Item 1.
     
 
             
     
7
  
             
     
8
  
             
     
9
  
             
     
11
  
             
     
12
  
             
Item 2.
     
39
  
             
Item 3.
     
72
  
             
Item 4.
     
72
  
             
Part II.
 
OTHER INFORMATION
   
74
 
             
Item 1.
     
74
  
             
Item 1A.
     
74
  
             
Item 2.
     
74
  
             
Item 3.
     
74
  
             
Item 4.
     
74
  
             
Item 5.
     
74
  
             
Item 6.
     
75
  
         
   
76
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
2
 
Table of Contents
GLOSSARY
BASIS POINT
Throughout this filing, the year-over-year changes that occur in certain financial measures are reported in terms of basis points. Each basis point is equal to one hundredth of a percentage point, or 0.01%.
BOOK VALUE PER COMMON SHARE
Book value per common share refers to the amount of common stockholders’ equity attributable to each outstanding share of common stock, and is calculated by dividing total stockholders’ equity less preferred stock at the end of a period, by the number of shares outstanding at the same date.
BROKERED DEPOSITS
Refers to funds obtained, directly or indirectly, by or through deposit brokers that are then deposited into one or more deposit accounts at a bank.
CHARGE-OFF
Refers to the amount of a loan balance that has been written off against the allowance for loan losses.
COMMERCIAL REAL ESTATE LOAN
A mortgage loan secured by either an income-producing property owned by an investor and leased primarily for commercial purposes or, to a lesser extent, an owner-occupied building used for business purposes. The CRE loans in our portfolio are typically secured by either office buildings, retail shopping centers, light industrial centers with multiple tenants, or
mixed-use
properties.
COST OF FUNDS
The interest expense associated with interest-bearing liabilities, typically expressed as a ratio of interest expense to the average balance of interest-bearing liabilities for a given period.
CRE CONCENTRATION RATIO
Refers to the sum of multi-family,
non-owner
occupied CRE, and acquisition, development, and construction (“ADC”) loans divided by total risk-based capital.
DEBT SERVICE COVERAGE RATIO
An indication of a borrower’s ability to repay a loan, the DSCR generally measures the cash flows available to a borrower over the course of a year as a percentage of the annual interest and principal payments owed during that time.
DERIVATIVE
A term used to define a broad base of financial instruments, including swaps, options, and futures contracts, whose value is based upon, or derived from, an underlying rate, price, or index (such as interest rates, foreign currency, commodities, or prices of other financial instruments such as stocks or bonds).
DIVIDEND PAYOUT RATIO
The percentage of our earnings that is paid out to shareholders in the form of dividends. It is determined by dividing the dividend paid per share during a period by our diluted earnings per share during the same period of time.
EFFICIENCY RATIO
Measures total operating expenses as a percentage of the sum of net interest income and
non-interest
income.
GOODWILL
Refers to the difference between the purchase price and the fair value of an acquired company’s assets, net of the liabilities assumed. Goodwill is reflected as an asset on the balance sheet and is tested at least annually for impairment.
GOVERNMENT-SPONSORED ENTERPRISES
Refers to a group of financial services corporations that were created by the United States Congress to enhance the availability, and reduce the cost, of credit to certain targeted borrowing sectors, including home finance. The GSEs include, but are not limited to, the Federal National Mortgage Association (“Fannie Mae”), the Federal Home Loan Mortgage Corporation (“Freddie Mac”), and the Federal Home Loan Banks (the “FHLBs”).
 
3
 
Table of Contents
GSE OBLIGATIONS
Refers to GSE mortgage-related securities (both certificates and collateralized mortgage obligations) and GSE debentures.
INTEREST RATE SENSITIVITY
Refers to the likelihood that the interest earned on assets and the interest paid on liabilities will change as a result of fluctuations in market interest rates.
INTEREST RATE SPREAD
The difference between the yield earned on average interest-earning assets and the cost of average interest-bearing liabilities.
LOAN-TO-VALUE
RATIO
Measures the balance of a loan as a percentage of the appraised value of the underlying property.
MULTI-FAMILY LOAN
A mortgage loan secured by a rental or cooperative apartment building with more than four units.
NET INTEREST INCOME
The difference between the interest income generated by loans and securities and the interest expense produced by deposits and borrowed funds.
NET INTEREST MARGIN
Measures net interest income as a percentage of average interest-earning assets.
NON-ACCRUAL
LOAN
A loan generally is classified as a
“non-accrual”
loan when it is 90 days or more past due or when it is deemed to be impaired because we no longer expect to collect all amounts due according to the contractual terms of the loan agreement. When a loan is placed on
non-accrual
status, we cease the accrual of interest owed, and previously accrued interest is reversed and charged against interest income. A loan generally is returned to accrual status when the loan is current and we have reasonable assurance that the loan will be fully collectible.
NON-PERFORMING
LOANS AND ASSETS
Non-performing
loans consist of
non-accrual
loans and loans that are 90 days or more past due and still accruing interest.
Non-performing
assets consist of
non-performing
loans, OREO and other repossessed assets.
OREO AND OTHER REPOSSESSED ASSETS
Includes real estate owned by the Company which was acquired either through foreclosure or default. Repossessed assets are similar, except they are not real estate-related assets.
RENT-REGULATED APARTMENTS
In New York City, where the vast majority of the properties securing our multi-family loans are located, the amount of rent that tenants may be charged on the apartments in certain buildings is restricted under 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 the applicable regulations, and buildings with a preponderance of such rent-regulated apartments are therefore less likely to experience vacancies in times of economic adversity.
REPURCHASE AGREEMENTS
Repurchase agreements are contracts for the sale of securities owned or borrowed by the Bank with an agreement to repurchase those securities at an agreed-upon price and date. The Bank’s repurchase agreements are primarily collateralized by GSE obligations and other mortgage-related securities, and are entered into with either the FHLBs or various brokerage firms.
SYSTEMICALLY IMPORTANT FINANCIAL INSTITUTION (“SIFI”)
A bank holding company with total consolidated assets that average more than $250 billion over the four most recent quarters is designated a “Systemically Important Financial Institution” under the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”) of 2010, as amended by the Economic Growth, Regulatory Relief, and Consumer Protection Act of 2018.
 
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Table of Contents
WHOLESALE BORROWINGS
Refers to advances drawn by the Bank against its line(s) of credit with the FHLBs, their repurchase agreements with the FHLBs and various brokerage firms, and federal funds purchased.
YIELD
The interest income associated with interest-earning assets, typically expressed as a ratio of interest income to the average balance of interest-earning assets for a given period.
 
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Table of Contents
LIST OF ABBREVIATIONS AND ACRONYMS
     
ADC—Acquisition, development, and construction loan
 
ALCO—Asset and Liability Management Committee
 
AMT—Alternative minimum tax
 
AmTrust—AmTrust Bank
 
AOCL—Accumulated other comprehensive loss
 
ASC—Accounting Standards Codification
 
ASU—Accounting Standards Update
 
BOLI—Bank-owned life insurance
 
BP—Basis point(s)
 
C&I—Commercial and industrial loan
 
CCAR—Comprehensive Capital Analysis and Review
 
CDs—Certificates of deposit
 
CECL—Current Expected Credit Loss
 
CFPB—Consumer Financial Protection Bureau
 
CMOs—Collateralized mortgage obligations
 
CMT—Constant maturity treasury rate
 
CPI—Consumer Price Index
 
CPR—Constant prepayment rate
 
CRA—Community Reinvestment Act
 
CRE—Commercial real estate loan
 
Desert Hills—Desert Hills Bank
 
DIF—Deposit Insurance Fund
 
DFA—Dodd-Frank Wall Street Reform and Consumer Protection Act
 
DSCR—Debt service coverage ratio
 
EAR—Earnings at Risk
 
EPS—Earnings per common share
 
ERM—Enterprise Risk Management
 
ESOP—Employee Stock Ownership Plan
 
EVE—Economic Value of Equity at Risk
 
Fannie Mae—Federal National Mortgage Association
 
FASB—Financial Accounting Standards Board
 
FDI Act—Federal Deposit Insurance Act
 
FDIC—Federal Deposit Insurance Corporation
 
FHLB—Federal Home Loan Bank
 
FHLB-NY—Federal Home Loan Bank of New York
 
FOMC—Federal Open Market Committee
 
FRB—Federal Reserve Board
 
FRB-NY—Federal Reserve Bank of New York
 
Freddie Mac—Federal Home Loan Mortgage Corporation
 
FTEs—Full-time equivalent employees
 
GAAP—U.S. generally accepted accounting principles
 
GLBA—The Gramm Leach Bliley Act
 
GNMA—Government National Mortgage Association
 
GSEs—Government-sponsored enterprises
 
HQLAs—High-quality liquid assets
 
LIBOR-London Interbank Offered Rate
 
LSA—Loss Share Agreements
 
LTV—Loan-to-value ratio
 
MBS – Mortgage-backed securities
 
MSRs—Mortgage servicing rights
 
NIM—Net interest margin
 
NOL—Net operating loss
 
NPAs—Non-performing assets
 
NPLs—Non-performing loans
 
NPV—Net Portfolio Value
 
NYSDFS—New York State Department of Financial Services
 
NYSE—New York Stock Exchange
 
OCC—Office of the Comptroller of the Currency
 
OFAC—Office of Foreign Assets Control
 
OREO—Other real estate owned
 
OTTI—Other-than-temporary impairment
 
ROU – Right of use asset
 
SEC—U.S. Securities and Exchange Commission
 
SIFI—Systemically Important Financial Institution
 
TDRs—Troubled debt restructurings
 
 
 
 
 
 
 
 
 
 
 
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Table of Contents
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
NEW YORK COMMUNITY BANCORP, INC.
CONSOLIDATED STATEMENTS OF CONDITION
(in thousands, except share data)
                 
 
September 30,
2019
 
  
December 31,
2018
 
 
(unaudited)
   
 
Assets:
 
 
 
  
 
 
Cash and cash equivalents
  $
854,678
    $
1,474,955
 
Securities:
   
     
 
Debt securities
available-for-sale
($1,720,197 and $1,228,702 pledged, respectively)
    
5,854,568
     
5,613,520
 
Equity investments with readily determinable fair values, at fair value
   
32,861
     
30,551
 
                 
Total securities
   
5,887,429
     
5,644,071
 
                 
Loans and leases, net of deferred loan fees and costs
   
40,844,220
     
40,165,908
 
Less: Allowance for loan losses
   
(149,433
 )    
(159,820
 )
                 
Total loans and leases, net
   
40,694,787
     
40,006,088
 
Federal Home Loan Bank stock, at cost
   
606,371
     
644,590
 
Premises and equipment, net
   
321,792
     
346,179
 
Operating lease
right-of-use
assets
    
300,955
     
—  
  
Goodwill
   
2,426,379
     
2,436,131
 
Bank-owned life insurance
   
1,028,707
     
977,627
 
Other real estate owned and other repossessed assets
   
11,691
     
10,794
 
Other assets
   
404,840
     
358,941
 
                 
Total assets
  $
52,537,629
    $
51,899,376
 
                 
Liabilities and Stockholders’ Equity:
 
 
 
  
 
 
Deposits:
   
     
 
Interest-bearing checking and money market accounts
  $
9,960,403
    $
11,530,049
 
Savings accounts
   
4,817,697
     
4,643,260
 
Certificates of deposit
   
14,264,171
     
12,194,322
 
Non-interest-bearing
accounts
    
2,529,905
     
2,396,799
 
                 
Total deposits
   
31,572,176
     
30,764,430
 
                 
Borrowed funds:
   
     
 
Wholesale borrowings:
   
     
 
Federal Home Loan Bank advances
   
12,171,661
     
13,053,661
 
Repurchase agreements
   
800,000
     
500,000
 
                 
Total wholesale borrowings
   
12,971,661
     
13,553,661
 
Junior subordinated debentures
   
359,773
     
359,508
 
Subordinated notes
   
294,926
     
294,697
 
                 
Total borrowed funds
   
13,626,360
     
14,207,866
 
                 
Operating lease liabilities
   
300,610
     
—  
  
Other liabilities
   
343,476
     
271,845
 
                 
Total liabilities
   
45,842,622
     
45,244,141
 
                 
Stockholders’ equity:
   
     
 
Preferred stock at par $0.01 (5,000,000 shares authorized): Series A (515,000 shares issued and outstanding)
   
502,840
     
502,840
 
Common stock at par $0.01 (900,000,000 shares authorized; 490,439,070 and 490,439,070 shares issued; and 467,350,860 and 473,536,604 shares outstanding, respectively)
   
4,904
     
4,904
 
Paid-in
capital in excess of par
    
6,107,376
     
6,099,940
 
Retained earnings
   
328,407
     
297,202
 
Treasury stock, at cost 23,080,210 and 16,902,466 shares, respectively)
   
(220,669
 )    
(161,998
 )
Accumulated other comprehensive loss, net of tax:
   
     
 
Net unrealized gain (loss) on securities available for sale, net of tax of $(16,706) and $4,201, respectively
   
43,804
     
(10,534
 )
Net unrealized loss on the
non-credit
portion of OTTI losses on securities, net of tax of $2,517 and $2,517, respectively
    
(6,042
 )    
(6,042
 )
Net unrealized loss on pension and post-retirement obligations, net of tax of $25,093 and $27,224, respectively
   
(65,613
 )    
(71,077
 )
                 
Total accumulated other comprehensive loss, net of tax
   
(27,851
 )    
(87,653
 )
                 
Total stockholders’ equity
   
6,695,007
     
6,655,235
 
                 
Total liabilities and stockholders’ equity
  $
52,537,629
    $
51,899,376
 
                 
 
 
 
 
 
 
 
 
See accompanying notes to the consolidated financial statements.
 
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Table of Contents
NEW YORK COMMUNITY BANCORP, INC.
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
(in thousands, except per share data)
(unaudited)
                                 
 
For the
Three Months Ended
September 30,
    
For the
Nine Months Ended
September 30,
  
 
2019
 
 
  
 
 
 
 
2018
 
 
 
 
 
 
 
2019
 
 
 
 
 
 
 
2018
 
Interest Income:
  
 
 
  
 
 
  
 
 
  
 
 
Mortgage and other loans and leases
  $
391,920
    $
368,264
    $
1,159,344
    $
1,092,637
 
Securities and money market investments
   
62,631
     
56,880
     
195,133
     
154,164
 
                                 
Total interest income
   
454,551
     
425,144
     
1,354,477
     
1,246,801
 
                                 
Interest Expense:
  
 
 
  
 
 
  
 
 
  
 
 
Interest-bearing checking and money market accounts
   
42,465
     
44,497
     
140,396
     
119,246
 
Savings accounts
   
9,326
     
7,325
     
26,270
     
21,176
 
Certificates of deposit
   
86,934
     
51,249
     
235,360
     
121,298
 
Borrowed funds
   
79,911
     
72,567
     
237,521
     
201,322
 
                                 
Total interest expense
   
218,636
     
175,638
     
639,547
     
463,042
 
                                 
Net interest income
   
235,915
     
249,506
     
714,930
     
783,759
 
Provision for losses on loans
   
4,781
     
1,201
     
5,403
     
15,486
 
                                 
Net interest income after provision for loan losses
   
231,134
     
248,305
     
709,527
     
768,273
 
                                 
Non-Interest Income:
  
 
 
  
 
 
  
 
 
  
 
 
Fee income
   
7,580
     
7,237
     
22,295
     
22,056
 
Bank-owned life insurance
   
6,791
     
7,302
     
20,245
     
20,424
 
Net gain (loss) on securities
   
275
     
(41
 )    
7,755
     
(810
 )
Other
   
9,740
     
8,424
     
16,473
     
26,815
 
                                 
Total non-interest income
   
24,386
     
22,922
     
66,768
     
68,485
 
                                 
Non-Interest Expense:
  
 
 
  
 
 
  
 
 
  
 
 
Operating expenses:
   
     
     
     
 
Compensation and benefits
   
75,159
     
78,283
     
229,172
     
242,572
 
Occupancy and equipment
   
21,748
     
24,401
     
66,599
     
74,311
 
General and administrative
   
26,395
     
31,749
     
89,350
     
94,799
 
                                 
Total non-interest expense
   
123,302
     
134,433
     
385,121
     
411,682
 
                                 
Income before income taxes
   
132,218
     
136,794
     
391,174
     
425,076
 
Income tax expense
   
33,172
     
30,022
     
97,305
     
104,398
 
                                 
Net income
   
99,046
     
106,772
     
293,869
     
320,678
 
Preferred stock dividends
   
8,207
     
8,207
     
24,621
     
24,621
 
                                 
Net income available to common shareholders
  $
90,839
    $
98,565
    $
269,248
    $
296,057
 
                                 
Basic earnings per common share
  $
0.19
    $
0.20
    $
0.57
    $
0.60
 
                                 
Diluted earnings per common share
  $
0.19
    $
0.20
    $
0.57
    $
0.60
 
                                 
Net income
  $
99,046
    $
106,772
    $
293,869
    $
320,678
 
Other comprehensive income (loss), net of tax:
   
     
     
     
 
Change in net unrealized gain (loss) on securities available for sale, net of tax of $666; $8,738; $(22,434) and $40,456, respectively
   
(757
 )    
(20,790
 )    
58,256
     
(69,047
 )
Change in the non-credit portion of OTTI losses recognized in other comprehensive income (loss), net of tax of $0; $0; $0; and ($821), respectively
   
—
     
—  
      
—
     
(821
 )
Change in pension and post-retirement obligations, net of tax of ($710); ($547); ($2,131) and ($11,611), respectively
   
1,821
     
1,314
     
5,464
     
(6,029
 )
Less: Reclassification adjustment for sales of available-for-sale securities, net of tax of $0;
$0; $1,527 and $0 respectively
   
—
     
—  
      
(3,918
 )    
—  
  
                                 
Total other comprehensive income (loss), net of tax
   
1,064
     
(19,476
 )    
59,802
     
(75,897
 )
                                 
Total comprehensive income, net of tax
  $
100,110
    $
87,296
    $
353,671
    $
244,781
 
                                 
 
 
 
 
 
 
 
 
 
 
 
 
 
See accompanying notes to the consolidated financial statements.
 
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Table of Contents
NEW YORK COMMUNITY BANCORP, INC.
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY
(in thousands, except share data)
(unaudited)
                                                                 
 
   
Preferred
   
Common
   
   
   
   
Accumulated
   
 
 
   
Stock
   
Stock
   
 
    
   
   
Other
   
Total
 
 
  
Shares
Outstanding
   
(Par Value:
$0.01)
   
(Par Value:
$0.01)
   
Paid-in
 
Capital
in excess of Par
   
Retained
Earnings
   
Treasury Stock,
at Cost
   
Comprehensive
Loss, Net of Tax
   
Stockholders’
Equity
 
Three Months Ended
September 30, 2019
   
     
     
     
     
     
     
     
 
Balance at July 1, 2019
   
467,358,939
    $
502,840
    $
4,904
    $
6,099,474
    $
316,921
    $
(220,546
 )   $
(28,915
 )   $
6,674,678
 
Shares issued for restricted stock,
net of forfeitures
   
22,980
     
—
     
—
     
(222
 )    
—
     
222
     
—
     
—
 
Compensation expense related to
restricted stock awards
   
—
      
—
     
—
     
8,124
     
—
     
—
     
—
     
8,124
 
Net income
   
—
      
—
     
—
     
—
     
99,046
     
—
     
—
     
99,046
 
Dividends paid on common stock
($0.17)
   
—
      
—
     
—
     
—
     
(79,353
 )    
—
     
—
     
(79,353
 )
Dividends paid on preferred stock
($15.94)
   
—
      
—
     
—
     
—
     
(8,207
 )    
—
     
—
     
(8,207
 )
Purchase of common stock
   
(31,059
 )    
—
     
—
     
—
     
—
     
(345
 )    
—
     
(345
 )
Other comprehensive income, net
of tax
   
—
      
—
     
—
     
—
     
—
     
—
     
1,064
     
1,064
 
                                                                 
Balance at September 30, 2019
   
467,350,860
    $
502,840
    $
4,904
    $
6,107,376
    $
328,407
    $
(220,669
 )   $
(27,851
 )   $
6,695,007
 
Nine Months Ended
September 30, 2019
   
     
     
     
     
     
     
     
 
Balance at January 1, 2019
   
473,536,604
    $
502,840
    $
4,904
    $
6,099,940
    $
297,202
    $
(161,998
 )   $
(87,653
 )   $
6,655,235
 
Shares issued for restricted stock,
net of forfeitures
   
1,665,028
     
—
     
—
     
(16,501
 )    
—
     
16,501
     
—
     
—
 
Compensation expense related to
restricted stock awards
   
—
      
—
     
—
     
23,937
     
—
     
—
     
—
     
23,937
 
Net income
   
—
      
—
     
—
     
—
     
293,869
     
—
     
—
     
293,869
 
Dividends paid on common stock
($0.51)
   
—
      
—
     
—
     
—
     
(238,043
 )    
—
     
—
     
(238,043
 )
Dividends paid on preferred stock
($47.82)
   
—
      
—
     
—
     
—
     
(24,621
 )    
—
     
—
     
(24,621
 )
Purchase of common stock
   
(7,850,772
 )    
—
     
—
     
—
     
—
     
(75,172
 )    
—
     
(75,172
 )
Other comprehensive income, net
of tax
   
—
      
—
     
—
     
—
     
—
     
—
     
59,802
     
59,802
 
                                                                 
Balance at September 30, 2019
   
467,350,860
    $
502,840
    $
4,904
    $
6,107,376
    $
328,407
    $
(220,669
 )   $
(27,851
 )   $
6,695,007
 
                                                                 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
See accompanying notes to the consolidated financial statements.
 
9
 
Table of Contents
NEW YORK COMMUNITY BANCORP, INC.
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY
(in thousands, except share data)
(unaudited)
                                                                 
 
   
Preferred
   
Common
   
   
   
   
Accumulated
   
 
 
   
Stock
   
Stock
   
Paid-in
   
   
   
Other
   
Total
 
 
  
Shares
Outstanding
   
(Par Value:
$0.01)
   
(Par Value:
$0.01)
   
Capital in
excess of Par
   
Retained
Earnings
   
Treasury Stock,
at Cost
   
Comprehensive
Loss, Net of Tax
   
Stockholders’
Equity
 
Three Months Ended September 30, 2018
   
     
     
     
     
     
     
     
 
Balance at July 1, 2018
   
490,379,705
    $
502,840
    $
4,904
    $
6,082,394
    $
271,559
    $
(757
 )   $
(71,588
 )   $
6,789,352
 
Shares issued for restricted stock
   
—  
      
—  
      
—  
      
—  
      
—  
      
—  
      
—  
      
—  
  
Compensation expense related to restricted stock awards
   
—  
      
—  
      
—  
      
9,355
     
—  
      
—  
      
—  
      
9,355
 
Net income
   
—  
      
—  
      
—  
      
—  
      
106,772
     
—  
      
—  
      
106,772
 
Dividends paid on common stock
($0.17)
   
—  
      
—  
      
—  
      
—  
      
(83,361
 )    
—  
      
—  
      
(83,361
 )
Dividends paid on preferred stock ($15.94)
   
—  
      
—  
      
—  
      
—  
      
(8,207
 )    
—  
      
—  
      
(8,207
 )
Effect of adopting ASU No.
 2016-01
   
—  
      
—  
      
—  
      
—  
      
—  
      
—  
      
—  
      
—  
  
Effect of adopting ASU No.
 2018-02
   
—  
      
—  
      
—  
      
—  
      
—  
      
—  
      
—  
      
—  
  
Purchase of common stock
   
(37,841
 )    
—  
      
—  
      
—  
      
—  
      
(420
 )    
—  
      
(420
 )
Other comprehensive loss, net of tax
   
—  
      
—  
      
—  
      
—  
      
—  
      
—  
      
(19,476
 )    
(19,476
 )
                                                                 
Balance at September 30, 2018
   
490,341,864
    $
502,840
    $
4,904
    $
6,091,749
    $
286,763
    $
(1,177
 )   $
(91,064
 )   $
6,794,015
 
Nine Months Ended September 30,
2018
   
     
     
     
     
     
     
     
 
Balance at January 1, 2018
   
488,490,352
    $
502,840
    $
4,891
    $
6,072,559
    $
237,868
    $
(7,615
 )   $
(15,167
 )   $
6,795,376
 
Shares issued for restricted stock
   
2,039,603
     
—  
      
13
     
(8,879
 )    
—  
      
8,866
     
—  
      
—  
  
Compensation expense related to restricted stock awards
   
—  
      
—  
      
—  
      
28,069
     
—  
      
—  
      
—  
      
28,069
 
Net income
   
—  
      
—  
      
—  
      
—  
      
320,678
     
—  
      
—  
      
320,678
 
Dividends paid on common stock ($0.51)
   
—  
      
—  
      
—  
      
—  
      
(249,968
 )    
—  
      
—  
      
(249,968
 )
Dividends paid on preferred stock ($47.82)
   
—  
      
—  
      
—  
      
—  
      
(24,621
 )    
—  
      
—  
      
(24,621
 )
Effect of adopting ASU No.
 2016-01
   
—  
      
—  
      
—  
      
—  
      
260
     
—  
      
—  
      
260
 
Effect of adopting ASU No.
 2018-02
   
—  
      
—  
      
—  
      
—  
      
2,546
     
—  
      
(2,546
 )    
—  
  
Purchase of common stock
   
(188,091
 )    
—  
      
—  
      
—  
      
—  
      
(2,428
 )    
—  
      
(2,428
 )
Other comprehensive loss, net of tax
   
—  
      
—  
      
—  
      
—  
      
—  
      
—  
      
(73,351
 )    
(73,351
 )
                                                                 
Balance at September 30, 2018
   
490,341,864
    $
502,840
    $
4,904
    $
6,091,749
    $
286,763
    $
(1,177
 )   $
(91,064
 )   $
6,794,015
 
                                                                 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
See accompanying notes to the consolidated financial statements.
 
10
 
Table of Contents
NEW YORK COMMUNITY BANCORP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
                 
 
For the Nine Months Ended
September 30,
 
 
2019
 
  
2018
 
Cash Flows from Operating Activities:
 
 
 
  
 
 
Net income
  $
293,869
    $
320,678
 
Adjustments to reconcile net income to net cash provided by operating activities:
   
     
 
Provision for loan losses
   
5,403
     
15,486
 
Depreciation
   
20,471
     
24,388
 
Amortization of discounts and premiums, net
   
3,690
     
(3,868
 )
Net gain on securities
   
(7,755
 )    
—  
  
Gain on trading activity
   
(66
 )    
(222
 )
Net loss (gain) on sales of loans
   
43
     
(124
 )
Stock-based compensation
   
23,937
     
28,069
 
Deferred tax expense
   
41,655
     
35,105
 
Changes in operating assets and liabilities:
 
Decrease in other assets
(1)
    
(30,826
 )    
(214,040
 )
Decrease in other liabilities
(2)
    
(11,527
 )    
(21,101
 )
Purchases of securities held for trading
   
(42,500
 )    
(141,615
 )
Proceeds from sales of securities held for trading
   
42,566
     
141,837
 
Proceeds from sales of loans originated for sale
   
—
     
35,258
 
                 
Net cash provided by operating activities
   
338,960
     
219,851
 
                 
Cash Flows from Investing Activities:
 
 
 
  
 
 
Proceeds from repayment of securities available for sale
   
1,579,297
     
725,328
 
Proceeds from sales of securities available for sale
   
363,621
     
—  
  
Purchase of securities available for sale
   
(2,103,973
 )    
(2,095,742
 )
Redemption of Federal Home Loan Bank stock
   
114,097
     
57,101
 
Purchases of Federal Home Loan Bank stock
   
(75,878
 )    
(108,221
 )
P
urchases of 
(
p
roceeds from
)
bank-owned life insurance
, net
    
(29,332
)    
10,968
 
Proceeds from sales of loans
   
91,074
     
180,377
 
Purchases of loans
   
(20,206
 )    
—  
  
Other changes in loans, net
   
(765,013
 )    
(1,644,430
 )
Dispositions (purchase) of premises and equipment, net
   
(646
 )    
(8,251
 )
                 
Net cash used in investing activities
   
(846,959
 )    
(2,882,870
 )
                 
Cash Flows from Financing Activities:
 
 
 
  
 
 
Net increase in deposits
   
807,746
     
1,217,121
 
Proceeds from long-term borrowed funds
   
3,285,812
     
3,700,000
 
Repayments of long-term borrowed funds
   
(3,868,000
 )    
(2,773,500
 )
Cash dividends paid on common stock
   
(238,043
 )    
(249,968
 )
Cash dividends paid on preferred stock
   
(24,621
 )    
(24,621
 )
Treasury stock repurchased
   
(67,125
 )    
—  
  
Payments relating to treasury shares received for restricted stock award tax payments
   
(8,047
 )    
(2,428
 )
                 
Net cash (used in) provided by financing activities
   
(112,278
 )    
1,866,604
 
                 
Net decrease in cash, cash equivalents, and restricted cash
   
(620,277
 )    
(796,415
 )
Cash, cash equivalents, and restricted cash at beginning of period
   
1,474,955
     
2,528,169
 
                 
Cash, cash equivalents, and restricted cash at end of period
  $
854,678
    $
1,731,754
 
                 
Supplemental information:
 
Cash paid for interest
  $
622,027
    $
444,444
 
Cash paid for income taxes
   
75,280
     
23,384
 
Non-cash
investing and financing activities:
  
Transfers to repossessed assets from loans
  $
3,027
    $
3,124
 
Operating lease liabilities arising from obtaining
right-of-use
assets as of January 1, 2019
    
324,360
     
—  
  
Securitization of residential mortgage loans to mortgage-backed securities available for sale
   
20,206
     
—  
  
Transfer of loans from held for investment to held for sale
   
91,117
     
180,253
 
Dispositions of premises and equipment
   
1,245
     
—  
  
Shares issued for restricted stock awards
   
16,501
     
8,879
 
 
 
 
 
 
 
 
 
 
 
(1) Includes $23.8 million of amortization of operating lease
right-of-use
assets for the nine months ended September 30, 2019.
 
 
 
 
 
 
 
 
 
 
(2) Includes $23.8 million of amortization of operating lease liability for the nine months ended September 30, 2019.
 
 
 
 
 
 
 
 
 
 
See accompanying notes to the consolidated financial statements.
 
11
 
Table of Contents
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 (hereinafter referred to as the “Bank”).
Founded on April 14, 1859 and formerly known as Queens County Savings Bank, the 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 completed 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 Company currently operates 239 branches through eight local divisions, each with a history of service and strength: Queens County Savings Bank, Roslyn Savings Bank, Richmond County Savings Bank, Roosevelt Savings Bank, and Atlantic Bank in New York; Garden State Community Bank in New Jersey; Ohio Savings Bank in Ohio; and AmTrust Bank in Arizona and Florida.
Basis of Presentation
The following is a description of the significant accounting and reporting policies that the Company and its subsidiaries follow in preparing and presenting their consolidated financial statements, which conform to U.S. generally accepted accounting principles (“GAAP”) and to general practices within the banking industry. The preparation of financial statements in conformity with GAAP requires the Company to make estimates and judgments that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the consolidated financial statements, and the reported amounts of revenues and expenses during the reporting period. Estimates that are used in connection with the determination of the allowance for loan losses and the evaluation of goodwill for impairment.
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. 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 all dilutive securities were exercised and converted into common stock.
Unvested stock-based compensation awards containing
non-forfeitable
rights to dividends paid on the Company’s common stock are considered participating securities, and therefore are included in the
two-class
method for calculating EPS. Under the
two-class
method, all earnings (distributed and undistributed) are allocated to common shares and participating securities based on their respective rights to receive dividends 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 are
non-forfeitable,
the unvested awards are considered participating securities and therefore have earnings allocated to them.
 
12
 
Table of Contents
The following table presents the Company’s computation of basic and diluted EPS for the periods indicated:
 
Three Months Ended
September 30,
   
Nine Months Ended
September 30,
 
(in thousands, except share and per share amounts)
 
2019
 
  
2018
 
  
2019
 
  
2018
 
Net income available to common shareholders
  $
90,839
    $
98,565
    $
269,248
    $
296,057
 
Less: Dividends paid on and earnings allocated to participating securities
   
(1,073
 )    
(1,219
 )    
(3,245
 )    
(3,735
 )
                                 
Earnings applicable to common stock
  $
89,766
    $
97,346
    $
266,003
    $
292,322
 
                                 
Weighted average common shares outstanding
   
465,357,326
     
488,476,340
     
465,400,372
     
488,383,554
 
                                 
Basic earnings per common share
  $
0.19
    $
0.20
    $
0.57
    $
0.60
 
                                 
Earnings applicable to common stock
  $
89,766
    $
97,346
    $
266,003
    $
292,322
 
                                 
Weighted average common shares outstanding
   
465,357,326
     
488,476,340
     
465,400,372
     
488,383,554
 
Potential dilutive common shares
   
418,674
     
—  
      
237,708
     
—  
  
                                 
Total shares for diluted earnings per common share computation
   
465,776,000
     
488,476,340
     
465,638,080
     
488,383,554
 
                                 
Diluted earnings per common share and common share equivalents
  $
0.19
    $
0.20
    $
0.57
    $
0.60
 
                                 
Note 3. Reclassifications Out of Accumulated Other Comprehensive Loss
(in thousands)
 
For the Nine Months Ended September 30, 2019
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
   $
5,445
   
Net gain (loss) on securities
   
(1,527
 )  
Income tax (expense) benefit
             
   $
3,918
   
Net gain (loss) on securities, net of tax
             
Amortization of defined benefit pension plan items:
   
   
Past service liability
  $
187
   
Included in the computation of net periodic credit
(2)
Actuarial losses
   
(7,619
 )  
Included in the computation of net periodic credit
 
(2)
             
    
(7,432
 )  
Total before tax
   
2,052
   
Income tax benefit
             
   $
(5,380
 )  
Amortization of defined benefit pension plan items, net of tax
             
Total reclassifications for the period
  $
(1,462
 )  
             
(1) Amounts in parentheses indicate expense items.
(2) See Note 8, “Pension and Other Post-Retirement Benefits,” for additional information.
 
13
 
Table of Contents
Note 4. Securities
The following tables summarize the Company’s portfolio of debt securities available for sale and equity investments with readily determinable fair values at September 30, 2019 and December 31, 2018:
                                 
 
September 30, 2019
 
(in thousands)
 
Amortized
Cost
   
Gross
Unrealized
Gain
   
Gross
Unrealized
Loss
   
Fair Value
 
Debt securities
available-for-sale:
   
     
     
     
 
Mortgage-related Debt Securities:
   
     
     
     
 
GSE certificates
  $
1,538,922
    $
34,377
    $
394
    $
1,572,905
 
GSE CMOs
   
1,744,472
     
25,999
     
1,697
     
1,768,774
 
                                 
Total mortgage-related debt securities
  $
3,283,394
    $
60,376
    $
2,091
    $
3,341,679
 
                                 
Other Debt Securities:
   
     
     
     
 
U. S. Treasury obligations
  $
29,763
    $
6
    $
—
    $
29,769
 
GSE debentures
   
1,137,235
     
7,231
     
2,003
     
1,142,463
 
Asset-backed securities
 
(1)
    
384,784
     
—
     
6,528
     
378,256
 
Municipal bonds
   
27,319
     
620
     
382
     
27,557
 
Corporate bonds
   
836,558
     
13,333
     
9,877
     
840,014
 
Capital trust notes
   
95,006
     
6,477
     
6,653
     
94,830
 
                                 
Total other debt securities
  $
2,510,665
    $
27,667
    $
25,443
    $
2,512,889
 
                                 
Total debt securities available for sale
 
(2)
   $
5,794,059
    $
88,043
    $
27,534
    $
5,854,568
 
                                 
Equity Securities:
   
     
     
     
 
Preferred stock
   
15,292
     
81
     
—
     
15,373
 
Mutual funds and common stock
 
(3)
    
16,871
     
735
     
118
     
17,488
 
                                 
Total equity securities
  $
32,163
    $
816
    $
118
    $
32,861
 
                                 
Total securities
  $
5,826,222
    $
88,859
    $
27,652
    $
5,887,429
 
                                 
 
 
 
 
 
 
 
 
 
 
 
(1) The underlying assets of the asset-backed securities are substantially guaranteed by the U.S. Government.
 
 
 
 
 
 
 
 
 
 
 
(2) The amortized cost includes the
non-credit
portion of OTTI recorded in AOCL. At September 30, 2019, the
non-credit
portion of OTTI recorded in AOCL was $8.6 million before taxes.
 
 
 
 
 
 
 
 
 
 
 
(3) Primarily consists of mutual funds that are
CRA-qualified
investments
.
 
                                 
 
December 31, 2018
 
(in thousands)
 
Amortized
Cost
   
Gross
Unrealized
Gain
   
Gross
Unrealized
Loss
   
Fair Value
 
Debt securities
available-for-sale:
   
     
     
     
 
Mortgage-related Debt Securities:
   
     
     
     
 
GSE certificates
  $
1,705,336
    $
18,146
    $
15,961
    $
1,707,521
 
GSE CMOs
   
1,248,621
     
8,380
     
4,240
     
1,252,761
 
                                 
Total mortgage-related debt securities
  $
2,953,957
    $
26,526
    $
20,201
    $
2,960,282
 
                                 
Other Debt Securities:
   
     
     
     
 
GSE debentures
  $
1,334,549
    $
3,366
    $
8,988
    $
1,328,927
 
Asset-backed securities
 
(1)
    
386,768
     
784
     
430
     
387,122
 
Municipal bonds
   
68,551
     
195
     
2,563
     
66,183
 
Corporate bonds
   
836,153
     
8,667
     
23,105
     
821,715
 
Capital trust notes
   
48,278
     
6,435
     
5,422
     
49,291
 
                                 
Total other debt securities
  $
2,674,299
    $
19,447
    $
40,508
    $
2,653,238
 
                                 
Total debt securities available for sale
 
(2)
   $
5,628,256
    $
45,973
    $
60,709
    $
5,613,520
 
                                 
Equity Securities:
   
     
     
     
 
Preferred stock
   
15,292
     
—  
      
1,446
     
13,846
 
Mutual funds and common stock
 
(3)
    
16,870
     
366
     
531
     
16,705
 
                                 
Total equity securities
  $
32,162
    $
366
    $
1,977
    $
30,551
 
                                 
Total securities
  $
5,660,418
    $
46,339
    $
62,686
    $
5,644,071
 
                                 
 
 
 
 
 
 
 
 
(1) The underlying assets of the asset-backed securities are substantially guaranteed by the U.S. Government.
 
 
 
 
 
 
 
 
 
 
 
(2) The amortized cost includes the
non-credit
portion of OTTI recorded in AOCL. At December 31, 2018, the
non-credit
portion of OTTI recorded in AOCL was $8.6 million before taxes.
 
 
(3) Primarily consists of mutual funds that are
CRA-qualified
investments.
 
 
 
 
 
 
 
 
  
14
 
Table of Contents
At September 30, 2019 and December 31, 2018, respectively, the Company had $606.4 million and $644.6 million of
FHLB-NY
stock, at cost. The Company maintains an investment in
FHLB-NY
stock partly in conjunction with its membership in the FHLB and partly related to its access to the FHLB funding it utilizes.
The following table summarizes the gross proceeds and gross realized gains from the sale of
available-for-sale
securities during the nine months ended September 30, 2019 and 2018:
                 
 
For the Nine Months Ended
September 30,
 
(in thousands)
 
2019
 
  
2018
 
Gross proceeds
  $
363,621
     
—  
  
Gross realized gains
   
5,445
     
—  
  
 
 
 
 
Net unrealized gains on equity securities recognized in earnings for the three and nine months ended September 30, 2019 was $275,000 and $2.3 million, respectively.
In the following table, the beginning balance represents the credit loss component for debt securities on which OTTI occurred prior to January 1, 2019. 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, 2019
 
Beginning credit loss amount as of December 31, 2018
  $
196,187
 
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
   
46
 
         
Ending credit loss amount as of September 30, 2019
  $
196,141
 
         
 
 
 
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5
 
Table of Contents
The following table summarizes, by contractual maturity, the amortized cost of securities at September 30, 2019:
 
Mortgage-
Related
Securities
   
Average
Yield
   
U.S.
Government
and GSE
Obligations
   
Average
Yield
   
State, County,
and Municipal
   
Average
Yield
 (1)
    
Other Debt
Securities
 (2)
    
Average
Yield
   
Fair Value
 
(dollars in thousands)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Available-for-Sale
Debt Securities:
    
     
     
     
     
     
     
     
     
 
Due within one year
  $
2,505
     
2.99
 %   $
29,763
     
1.86
 %   $
150
     
6.59
 %   $
13,973
     
3.79
 %   $
46,495
 
Due from one to five years
   
656,530
     
3.29
     
32,874
     
3.48
     
148
     
6.66
     
154,424
     
3.42
     
865,091
 
Due from five to ten years
   
345,793
     
3.31
     
958,361
     
3.18
     
10,957
     
3.79
     
734,124
     
4.19
     
2,071,651
 
Due after ten years
   
2,278,566
     
2.96
     
146,000
     
2.88
     
16,064
     
3.22
     
413,827
     
2.91
     
2,871,331
 
                                                                         
Total debt securities available for sale
  $
3,283,394
     
3.06
    $
1,166,998
     
3.11
    $
27,319
     
3.49
    $
1,316,348
     
3.69
    $
5,854,568
 
                                                                         
(1) Not presented on a
tax-equivalent
basis.
(2) Includes corporate bonds, capital trust notes, and asset-backed securities.
The following table presents securities having a continuous unrealized loss position for less ​​​​​​​than twelve months and for twelve months or longer as of September 30, 2019:
 
Less than Twelve Months
   
Twelve Months or Longer
   
Total
 
(in thousands)
 
Fair Value
   
Unrealized Loss
   
Fair Value
   
Unrealized Loss
   
Fair Value
   
Unrealized Loss
 
Temporarily Impaired Securities:
   
     
     
     
     
     
 
U. S. Government agency and GSE obligations
  $
128,052
    $
821
    $
118,879
    $
1,182
    $
246,931
    $
2,003
 
GSE certificates
   
165,955
     
334
     
7,866
     
60
     
173,821
     
394
 
GSE CMOs
   
395,590
     
959
     
104,844
     
738
     
500,434
     
1,697
 
Asset-backed securities
   
378,256
     
6,528
     
—
     
—
     
378,256
     
6,528
 
Municipal bonds
   
—
     
—
     
9,793
     
382
     
9,793
     
382
 
Corporate bonds
   
325,936
     
9,877
     
—
     
—
     
325,936
     
9,877
 
Capital trust notes
   
45,999
     
690
     
37,855
     
5,963
     
83,854
     
6,653
 
Equity securities
   
—
     
—
     
11,687
     
118
     
11,687
     
118
 
                                                 
Total temporarily impaired securities
  $
1,439,788
    $
19,209
    $
290,924
    $
8,443
    $
1,730,712
    $
27,652
 
                                                 
 
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6
 
Table of Contents
The following table presents securities having a continuous unrealized loss position for less than twelve months and for twelve months or longer as of December 31, 2018:
 
Less than Twelve Months
   
Twelve Months or Longer
   
Total
 
(in thousands)
  
Fair Value
   
Unrealized Loss
   
Fair Value
   
Unrealized Loss
   
Fair Value
   
Unrealized Loss
 
Temporarily Impaired Securities:
   
     
     
     
     
     
 
U. S. Government agency and GSE obligations
  $
276,113
    $
2,629
    $
329,372
    $
6,359
    $
605,485
    $
8,988
 
GSE certificates
   
576,970
     
10,598
     
232,969
     
5,363
     
809,939
     
15,961
 
GSE CMOs
   
465,779
     
1,892
     
99,050
     
2,348
     
564,829
     
4,240
 
Asset-backed securities
   
69,166
     
430
     
—  
      
—  
      
69,166
     
430
 
Municipal bonds
   
5,876
     
21
     
48,837
     
2,542
     
54,713
     
2,563
 
Corporate bonds
   
642,843
     
23,105
     
—  
      
—  
      
642,843
     
23,105
 
Capital trust notes
   
—  
      
—  
      
38,360
     
5,422
     
38,360
     
5,422
 
Equity securities
   
17,836
     
1,464
     
11,293
     
513
     
29,129
     
1,977
 
                                                 
Total temporarily impaired securities
  $
2,054,583
    $
40,139
    $
759,881
    $
22,547
    $
2,814,464
    $
62,686
 
                                                 
 
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7
 
Table of Contents
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, 2019, the Company had unrealized losses on certain available for sale GSE obligations, municipal bonds, corporate bonds, asset-backed securities, capital trust notes, and equity investments with readily determinable fair values. The unrealized losses on the Company’s GSE obligations, municipal bonds, corporate bonds, asset-backed securities and capital trust notes at September 30, 2019 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 unrealized losses on the Company’s equity investments with readily determinable fair values at September 30, 2019 were caused by market volatility. Equity investments with readily determinable fair values are measured at fair value with changes in fair value recognized in net income, thus eliminating eligibility for the
available-for-sale
category. Events that could trigger a material decline in the fair value of these securities include, but are not limited to, deterioration in the equity markets; a decline in the quality of the loan portfolio of the issuer in which the Company has invested; and the recording of higher loan loss provisions and net operating losses by such issuer.
The investment securities designated as having a continuous loss position for twelve months or more at September 30, 2019 consisted of
six
US Government agency securities,
five
capital trusts notes,
three
agency mortgage-related securities,
two
agency collateralized mortgage obligations,
one
municipal bond, and
one
mutual fund. At December 31, 2018 securities designated as having a continuous loss position for twelve months or more consisted of
nine
agency mortgage-related securities,
nine
US Government agency securities,
seven
agency collateralized mortgage obligations,
five
capital trusts notes,
three
municipal bonds, and
one
mutual fund.
At September 30, 2019, the fair value of securities having a continuous loss position for twelve months or more was 2.8% below the collective amortized cost of $299.4 million. At December 31, 2018, the fair value of such securities was 2.9% below the collective amortized cost of $782.4 million. At September 30, 2019 and December 31, 2018, the combined market value of the respective securities represented unrealized losses of $8.4 million and $22.5 million, respectively.
 
18
 
Table of Contents
Note 5. Loans and Leases
The following table sets forth the composition of the loan and lease portfolio at the dates indicated:
 
  
September 30, 2019
   
December 31, 2018
 
(dollars in thousands)
 
Amount
   
Percent of
Loans Held for
Investment
   
Amount
   
Percent of
Loans Held
for Investment
 
Loans and Leases Held for Investment:
   
     
     
     
 
Mortgage Loans:
   
     
     
     
 
Multi-family
  $
30,269,409
     
74.19
 %   $
29,883,919
     
74.46
 %
Commercial real estate
   
6,985,568
     
17.12
     
6,998,834
     
17.44
 
One-to-four
family
    
395,044
     
0.97
     
446,094
     
1.11
 
Acquisition, development, and construction
   
297,526
     
0.73
     
407,870
     
1.02
 
                                 
Total mortgage loans held for investment
   
37,947,547
     
93.01
     
37,736,717
     
94.03
 
                                 
Other Loans:
   
     
     
     
 
Commercial and industrial
   
1,784,081
     
4.37
     
1,705,308
     
4.25
 
Lease financing, net of unearned income of $88,329 and $53,891, respectively
   
1,058,071
     
2.60
     
683,112
     
1.70
 
                                 
Total commercial and industrial loans
(1)
    
2,842,152
     
6.97
     
2,388,420
     
5.95
 
Other
   
8,741
     
0.02
     
8,724
     
0.02
 
                                 
Total other loans held for investment
   
2,850,893
     
6.99
     
2,397,144
     
5.97
 
                                 
Total loans and leases held for investment
  $
40,798,440
     
100.00
 %   $
40,133,861
     
100.00
 %
                                 
Net deferred loan origination costs
   
45,780
     
     
32,047
     
 
Allowance for losses
   
(149,433
 )    
     
(159,820
 )    
 
                                 
Total loans and leases, net
  $
40,694,787
     
    $
40,006,088
     
 
                                 
(1) Includes specialty finance loans and leases of $2.4 billion and $1.9 billion, respectively, at September 30, 2019 and December 31, 2018. Other C&I loans of $447.1 million and $469.9 million, respectively, at September 30, 2019 and December 31, 2018.
Loans and Leases
Loans and Leases Held for Investment
The majority of the loans the Company originates for investment are multi-family loans, most of which are collateralized by
non-luxury
apartment buildings in New York City with rent-regulated units and below-market rents. In addition, the Company originates CRE loans, most of which are collateralized by income-producing properties such as office buildings, retail centers,
mixed-use
buildings, and multi-tenanted light industrial properties that are located in New York City and on Long Island.
To a lesser extent, the Company also originates ADC loans for investment.
One-to-four
family loans held for investment were originated through the Company’s former mortgage banking operation and primarily consisted of jumbo prime adjustable rate mortgages made to borrowers with a solid credit history.
ADC loans are primarily originated for multi-family and residential tract projects in New York City and on Long Island. C&I loans consist of asset-based loans, equipment loans and leases, and dealer floor-plan loans (together, specialty finance loans and leases) that 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; and other C&I loans that primarily are made to small and
mid-size
businesses in Metro New York. Other C&I loans are typically made for working capital, business expansion, and the purchase of machinery and equipment.
The repayment of multi-family and CRE loans generally depends on the income produced by the underlying properties which, in turn, depends on their successful operation and management. To mitigate the potential for credit losses, the Company underwrites its loans in accordance with credit standards it considers to be prudent, looking first at the consistency of the cash flows being produced by the underlying property. In addition, multi-family buildings, CRE properties, and ADC projects are inspected as a prerequisite to approval, and independent appraisers, whose appraisals are carefully reviewed by the Company’s
in-house
appraisers, perform appraisals on the collateral properties. In many cases, a second independent appraisal review is performed.
To further manage its credit risk, the Company’s lending policies limit the amount of credit granted to any one borrower and typically require conservative debt service coverage ratios and
loan-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, the local economy and changes in applicable laws and regulations. Accordingly, there can be no assurance that its underwriting policies will protect the Company from credit-related losses or delinquencies​​​​​​​.
 
19
 
Table of Contents
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 by
in-house
inspectors or third-party engineers. The Company seeks to minimize the credit risk on ADC loans by maintaining conservative lending policies and rigorous underwriting standards. However, if the estimate of value proves to be inaccurate, the cost of completion is greater than expected, or the length of time to complete and/or sell or lease the collateral property is greater than anticipated, the property could have a value upon completion that is insufficient to assure full repayment of the loan. This could have a material adverse effect on the quality of the ADC loan portfolio, and could result in losses or delinquencies. In addition, the Company utilizes the same stringent appraisal process for ADC loans as it does for its multi-family and CRE loans.
To minimize the risk involved in specialty finance lending and leasing, the Company participates in syndicated loans that are brought to it, and equipment loans and leases that are assigned to it, by a select group of nationally recognized sources who have had long-term relationships with its experienced lending officers. Each of these credits is secured with a perfected first security interest or outright ownership in the underlying​​​​​​​ collateral, and structured as senior debt or as a
non-cancelable
lease. To further minimize the risk involved in specialty finance lending and leasing, each transaction is
re-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 in loans held for investment at September 30, 2019 were loans of $39.1 million to officers, directors, and their related interests and parties. There were no loans to principal shareholders at that date.
Asset Quality
The following table presents information regarding the quality of the Company’s loans held for investment at September 30, 2019:
(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
  $
—
    $
5,793
    $
—
    $
5,793
    $
30,263,616
    $
30,269,409
 
Commercial real estate
   
9,750
     
5,563
     
—
     
15,313
     
6,970,255
     
6,985,568
 
One-to-four
family
    
—
     
2,040
     
—
     
2,040
     
393,004
     
395,044
 
Acquisition, development, and construction
   
—
     
—
     
—
     
—
     
297,526
     
297,526
 
Commercial and industrial
(1) (2)
    
483
     
42,544
     
—
     
43,027
     
2,799,125
     
2,842,152
 
Other
   
6
     
253
     
—
     
259
     
8,482
     
8,741
 
                                                 
Total
  $
10,239
    $
56,193
    $
—
    $
66,432
    $
40,732,008
    $
40,798,440
 
                                                 
(1) Includes $483,000 and $33.6 million of taxi medallion-related loans that were 30 to 89 days past due and 90 days ​​​​​​​or more past due, respectively.
(2) Includes lease financing receivables, all of which were current.
 
20
 
Table of Contents
The following table presents information regarding the quality of the Company’s loans held for investment at December 31, 2018:
(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
  $
 —  
     $
4,220
    $
—  
     $
4,220
    $
29,879,699
    $
29,883,919
 
Commercial real estate
   
—  
      
3,021
     
—  
      
3,021
     
6,995,813
     
6,998,834
 
One-to-four
family
    
9
     
1,651
     
—  
      
1,660
     
444,434
     
446,094
 
Acquisition, development, and construction
   
—  
      
—  
      
—  
      
—  
      
407,870
     
407,870
 
Commercial and industrial
(1) (2)
    
530
     
36,608
     
—  
      
37,138
     
2,351,282
     
2,388,420
 
Other
   
25
     
6
     
—  
      
31
     
8,693
     
8,724
 
                                                 
Total
  $
564
    $
45,506
    $
—  
     $
46,070
    $
40,087,791
    $
40,133,861
 
                                                 
(1) Includes $530,000 and $35.5 million of taxi medallion-related loans that were 30 to 89 days past due and 90 days or more past due, respectively.
(2) Includes lease financing receivables, all of which were current.
The following table summarizes the Company’s portfolio of loans held for investment by credit quality indicator at September 30, 2019:
 
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
  $
29,958,415
    $
6,849,317
    $
392,251
    $
249,543
    $
37,449,526
    $
2,772,244
    $
8,488
    $
2,780,732
 
Special mention
   
269,615
     
52,023
     
753
     
45,634
     
368,025
     
3,424
     
—
     
3,424
 
Substandard
   
41,379
     
84,228
     
2,040
     
2,349
     
129,996
     
66,484
     
253
     
66,737
 
Doubtful
   
—
     
—
     
—
     
—
     
—
     
—
     
—
     
—
 
                                                                 
Total
  $
30,269,409
    $
6,985,568
    $
395,044
    $
297,526
    $
37,947,547
    $
2,842,152
    $
8,741
    $
2,850,893
 
                                                                 
(1) Includes lease financing receivables, all of which were classified as Pass.
The following table summarizes the Company’s portfolio of loans held for investment by credit quality indicator at December 31, 2018:
 
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
  $
29,548,242
    $
6,880,105
    $
444,443
    $
319,001
    $
37,191,791
    $
2,306,563
    $
8,469
    $
2,315,032
 
Special mention
   
312,025
     
90,653
     
—  
      
73,964
     
476,642
     
19,751
     
—  
      
19,751
 
Substandard
   
23,652
     
28,076
     
1,651
     
14,905
     
68,284
     
62,106
     
255
     
62,361
 
Doubtful
   
—  
      
—  
      
—  
      
—  
      
—  
      
—  
      
—  
      
—  
  
                                                                 
Total
  $
29,883,919
    $
6,998,834
    $
446,094
    $
407,870
    $
37,736,717
    $
2,388,420
    $
8,724
    $
2,397,144
 
                                                                 
(1) Includes lease financing receivables, all of which were classified as Pass.
The preceding classifications are the most current ones available and generally have been updated within the last twelve months. In addition, they follow regulatory guidelines and can generally be described as follows: pass loans are of satisfactory quality; special mention loans have potential weaknesses that deserve management’s close attention; substandard loans are inadequately protected by the current net worth and paying capacity of the borrower or of the collateral pledged (these loans have a well-defined weakness and 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.
 
21
 
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Troubled Debt Restructurings
The Company is required to account for certain loan modifications and restructurings as 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 on
non-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, 2019, loans on which concessions were made with respect to rate reductions and/or extension of maturity dates amounted to $35.2 million; loans on which forbearance agreements were reached amounted to $8.1 million.
The following table presents information regarding the Company’s TDRs as of September 30, 2019 and December 31, 2018:
 
September 30, 2019
   
December 31, 2018
 
(in thousands)
 
Accruing
   
Non-Accrual
   
Total
   
Accruing
   
Non-Accrual
   
Total
 
Loan Category:
   
     
     
     
     
     
 
Multi-family
  $
—
    $
3,741
    $
3,741
    $
—  
     $
4,220
    $
4,220
 
Commercial real estate
   
—
     
—
     
—
     
—  
      
—  
      
—  
  
One-to-four
family
    
—
     
891
     
891
     
—  
      
1,022
     
1,022
 
Acquisition, development, and construction
   
2,349
     
—
     
2,349
     
8,297
     
—  
      
8,297
 
Commercial and industrial
(1)
    
865
     
35,487
     
36,352
     
865
     
20,477
     
21,342
 
                                                 
Total
  $
3,214
    $
40,119
    $
43,333
    $
9,162
    $
25,719
    $
34,881
 
                                                 
(1) Includes $27.4 million and $20.4 million of taxi medallion-related loans at September 30, 2019 and December 31, 2018, respectively.
The eligibility of a borrower for
work-out
concessions of any nature depends upon the facts and circumstances of each loan, which may change from period to period, and involves judgment by Company personnel regarding the likelihood that the concession will result in the maximum recovery for the Company.
The financial effects of the Company’s TDRs for the three months ended September 30, 2019 and 2018 are summarized as follows:
 
For the Three Months Ended September 30, 2019
 
  
   
   
   
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:
   
     
     
     
     
     
     
 
Commercial and industrial
   
28
    $
7,366
    $
7,086
     
2.99
 %    
2.82
 %   $
280
    $
3
 
                                                         
       
  
For the Three Months Ended September 30, 2018
 
  
   
   
   
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:
   
     
     
     
     
     
     
 
Commercial and industrial
   
6
    $
1,848
    $
1,212
     
3.36
 %    
3.28
 %   $
545
    $
—  
  
                                                         
 
22
 
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The financial effects of the Company’s TDRs for the nine months ended September 30, 2019 and 2018 are summarized as follows:
 
For the Nine Months Ended September 30, 2019
 
  
   
   
   
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:
   
     
     
     
     
     
     
 
Commercial and industrial
   
58
    $
30,910
    $
28,179
     
4.48
 %    
4.52
 %   $
2,731
    $
3
 
                                                         
       
  
For the Nine Months Ended September 30, 2018
 
  
   
   
   
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
   
1
    $
900
    $
900
     
4.50
 %    
4.50
 %   $
—  
     $
—  
  
Commercial and industrial
   
18
     
6,914
     
4,386
     
3.30
     
3.18
     
2,308
     
—  
  
                                                         
Total
   
19
    $
7,814
    $
5,286
     
     
    $
2,308
    $
—  
  
                                                         
At September 30, 2019, C&I and
one-to-four
family loans totaling $505,000 that had been modified as a TDR during the twelve months ended at that date were in payment default. At September 30, 2018, five C&I loans in the amount of $1.1 million that had been modified as a TDR during the twelve months ended at that date were in prepayment default.
The Company does not consider a payment to be in default when the loan is in forbearance, or otherwise granted a delay of payment, when the agreement to forebear or allow a delay of payment is part of a modification.
Subsequent to the modification, the loan is not considered to be in default until payment is contractually past due in accordance with the modified terms. However, the Company does consider a loan with multiple modifications or forbearance periods to be in default, and would also consider a loan to be in default if the borrower were in bankruptcy or if the loan were partially charged off subsequent to modification.
Note 6. Allowance for Loan Losses
The following tables provide additional information regarding the Company’s allowance for loan losses based upon the method of evaluating loan impairment:
(in thousands)
 
Mortgage
 
  
Other
 
  
Total
 
Allowances for Loan Losses at September 30, 2019:
   
     
     
 
Loans collectively evaluated for impairment
  $
122,967
    $
26,466
    $
149,433
 
                         
                   
(in thousands)
 
Mortgage
 
  
Other
 
  
Total
 
Allowances for Loan Losses at December 31, 2018:
   
     
     
 
Loans collectively evaluated for impairment
  $
130,983
    $
28,837
    $
159,820
 
                         
 
23
 
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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, 2019:
   
     
     
 
Loans individually evaluated for impairment
  $
14,363
    $
42,742
    $
57,105
 
Loans collectively evaluated for impairment
   
37,933,184
     
2,808,151
     
40,741,335
 
                         
Total
  $
37,947,547
    $
2,850,893
    $
40,798,440
 
                         
                   
(in thousands)
 
Mortgage
 
  
Other
 
  
Total
 
Loans Receivable at December 31, 2018:
   
     
     
 
Loans individually evaluated for impairment
  $
15,794
    $
36,375
    $
52,169
 
Loans collectively evaluated for impairment
   
37,720,923
     
2,360,769
     
40,081,692
 
                         
Total
  $
37,736,717
    $
2,397,144
    $
40,133,861
 
                         
 
Allowance for Loan Losses
The following table summarizes activity in the allowance for loan losses for the periods indicated:
                                                 
 
For the Nine Months Ended September 30,
 
 
2019
   
2018
 
(in thousands)
 
Mortgage
   
Other
   
Total
   
Mortgage
   
Other
   
Total
 
Balance, beginning of period
  $
130,983
    $
28,837
    $
159,820
    $
128,275
    $
29,771
    $
158,046
 
Charge-offs
   
(1,386
 )    
(15,010
 )    
(16,396
 )    
(5,445
 )    
(9,705
 )    
(15,150
 )
Recoveries
   
43
     
563
     
606
     
242
     
1,031
     
1,273
 
(Recovery of) provision for losses on loans
   
(6,673
 )    
12,076
     
5,403
     
5,744
     
9,742
     
15,486
 
                                                 
Balance, end of period
  $
122,967
    $
26,466
    $
149,433
    $
128,816
    $
30,839
    $
159,655
 
                                                 
 
The following table presents additional information about the Company’s impaired loans at September 30, 2019:
                                         
(in thousands)
 
Recorded
Investment
 
  
Unpaid
Principal
Balance
 
  
Related
Allowance
 
  
Average
Recorded
Investment
 
  
Interest
Income
Recognized
 
Impaired loans with no related allowance:
   
     
     
     
     
 
Multi-family
  $
5,793
    $
9,375
    $
—
    $
4,590
    $
317
 
Commercial real estate
   
5,330
     
10,445
     
—
     
3,280
     
83
 
One-to-four
family
    
891
     
909
     
—
     
887
     
20
 
Acquisition, development, and construction
   
2,349
     
3,249
     
—
     
4,548
     
324
 
Other
   
42,742
     
120,414
     
—
     
40,241
     
2,365
 
                                         
Total impaired loans with no related allowance
  $
57,105
    $
144,392
    $
—
    $
53,546
    $
3,109
 
                                         
Impaired loans with an allowance recorded:
   
     
     
     
     
 
Multi-family
  $
—
    $
—
    $
—
    $
—
    $
—
 
Commercial real estate
   
—
     
—
     
—
     
—
     
—
 
One-to-four
family
    
—
     
—
     
—
     
—
     
—
 
Acquisition, development, and construction
   
—
     
—
     
—
     
—
     
—
 
Other
   
—
     
—
     
—
     
5,000
     
—
 
                                         
Total impaired loans with an allowance recorded
  $
—
    $
—
    $
—
    $
5,000
    $
—
 
                                         
Total impaired loans:
   
     
     
     
     
 
Multi-family
  $
5,793
    $
9,375
    $
—
    $
4,590
    $
317
 
Commercial real estate
   
5,330
     
10,445
     
—
     
3,280
     
83
 
One-to-four
family
    
891
     
909
     
—
     
887
     
20
 
Acquisition, development, and construction
   
2,349
     
3,249
     
—
     
4,548
     
324
 
Other
   
42,742
     
120,414
     
—
     
45,241
     
2,365
 
                                         
Total impaired loans
  $
57,105
    $
144,392
    $
—
    $
58,546
    $
3,109
 
                                         
 
 
24
 
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The following table presents additional information about the Company’s impaired loans at December 31, 2018:
                                         
(in thousands)
  
Recorded
Investment
 
  
Unpaid
Principal
Balance
 
  
Related
Allowance
 
  
Average
Recorded
Investment
 
  
Interest
Income
Recognized
 
Impaired loans with no related allowance:
   
     
     
     
     
 
Multi-family
  $
4,220
    $
7,168
    $
—  
     $
6,114
    $
340
 
Commercial real estate
   
2,256
     
7,371
     
—  
      
3,234
     
—  
  
One-to-four
family
    
1,022
     
1,076
     
—  
      
1,576
     
26
 
Acquisition, development, and construction
   
8,296
     
9,197
     
—  
      
9,238
     
590
 
Other
   
36,375
     
101,701
     
—  
      
42,984
     
3,057
 
                                         
Total impaired loans with no related allowance
  $
52,169
    $
126,513
    $
—  
     $
63,146
    $
4,013
 
                                         
Impaired loans with an allowance recorded:
   
     
     
     
     
 
Multi-family
  $
—  
     $
—  
     $
—  
     $
—  
     $
—  
  
Commercial real estate
   
—  
      
—  
      
—  
      
—  
      
—  
  
One-to-four
family
    
—  
      
—  
      
—  
      
—  
      
—  
  
Acquisition, development, and construction
   
—  
      
—  
      
—  
      
—  
      
—  
  
Other
   
—  
      
—  
      
—  
      
20
     
—  
  
                                         
Total impaired loans with an allowance recorded
  $
—  
     $
—  
     $
—  
     $
20
    $
—  
  
                                         
Total impaired loans:
   
     
     
     
     
 
Multi-family
  $
4,220
    $
7,168
    $
—  
     $
6,114
    $
340
 
Commercial real estate
   
2,256
     
7,371
     
—  
      
3,234
     
—  
  
One-to-four
family
    
1,022
     
1,076
     
—  
      
1,576
     
26
 
Acquisition, development, and construction
   
8,296
     
9,197
     
—  
      
9,238
     
590
 
Other
   
36,375
     
101,701
     
—  
      
43,004
     
3,057
 
                                         
Total impaired loans
  $
52,169
    $
126,513
    $
—  
     $
63,166
    $
4,013
 
                                         
 
Note 7. Borrowed Funds
The following table summarizes the Company’s borrowed funds at the dates indicated:
                 
(in thousands)
 
September 30,
2019
 
  
December 31,
2018
 
Wholesale Borrowings:
   
     
 
FHLB advances
  $
12,171,661
    $
13,053,661
 
Repurchase agreements
   
800,000
     
500,000
 
                 
Total wholesale borrowings
  $
12,971,661
    $
13,553,661
 
Junior subordinated debentures
   
359,773
     
359,508
 
Subordinated notes
   
294,926
     
294,697
 
                 
Total borrowed funds
  $
13,626,360
    $
14,207,866
 
                 
 
The following table summarizes the Company’s repurchase agreements accounted for as secured borrowings at September 30, 2019:
                                 
 
Remaining Contractual Maturity of the Agreements
 
(in thousands)
 
Overnight and
Continuous
   
Up to
30 Days
   
30–90 Days
   
Greater than
90 Days
 
GSE obligations
  $
—
    $
—
    $
—
    $
800,000
 
                                 
 
 
 
 
Subordinated Notes
On November 6, 2018, the Company issued $300.0 million aggregate principal amount of our 5.90%
Fixed-to-Floating
Rate Subordinated Notes due 2028 (the “Notes”). The Notes will mature on November 6, 2028. From and including the date of original issuance to, but excluding November 6, 2023, the Notes will bear interest at an initial rate of 5.90% per annum, payable semi-annually in arrears on May 6 and November 6 of each year, commencing on May 6, 2019. Unless redeemed, from and
 
25
 
Table of Contents
including November 6, 2023 to but excluding the Maturity Date, the interest rate will reset quarterly to an annual interest rate equal to the then-current three-month LIBOR rate plus 278 basis points, payable quarterly in arrears on February 6, May 6, August 6 and November 6 of each year, commencing on February 6, 2024.
Junior Subordinated Debentures
The following junior subordinated debentures were outstanding at September 30, 2019:
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
(BONUSES
SM
Units)
   
6.00
 %   $
145,847
    $
139,496
     
Nov. 4, 2002
      
Nov. 1, 2051
      
Nov. 4, 2007 
(1)
 
New York Community Capital Trust X
   
3.72
     
123,712
     
120,000
     
Dec. 14, 2006
     
Dec. 15, 2036
     
Dec. 15, 2011 
(2)
 
PennFed Capital Trust III
   
5.37
     
30,928
     
30,000
     
June 2, 2003
     
June 15, 2033
     
June 15, 2008 
(2)
 
New York Community Capital Trust XI
   
3.75
     
59,286
     
57,500
     
April 16, 2007
     
June 30, 2037
     
June 30, 2012 
(2)
 
                                                 
Total junior subordinated debentures
   
    $
359,773
    $
346,996
     
     
     
 
                                                 
(1) Callable subject to certain conditions as described in the prospectus filed with the SEC on November 4, 2002.
(2) Callable from this date forward.
At September 30, 2019 and December 31, 2018, the Company had $359.8 million and $359.5 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.
Note 8. 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,
 
  
2019
   
2018
 
(in thousands)
 
Pension
Benefits
   
Post-
Retirement
Benefits
   
Pension
Benefits
   
Post-
Retirement
Benefits
 
Components of net periodic expense (credit):
(1)
    
     
     
     
 
Interest cost
  $
1,415
    $
128
    $
1,271
    $
128
 
Expected return on plan assets
   
(3,483
 )    
—
     
(4,035
 )    
—  
  
Amortization of prior-service costs
   
—
     
(62
 )    
—  
      
(62
 )
Amortization of net actuarial loss
   
2,509
     
31
     
1,795
     
76
 
                                 
Net periodic expense (credit)
  $
441
    $
97
    $
(969
 )   $
142
 
                                 
(1) Amounts are included in G&A expense on the Consolidated Statements of Income and Comprehensive Income.
 
2
6
 
Table of Contents
  
For the Nine Months Ended September 30,
 
  
2019
   
2018
 
(in thousands)
 
Pension
Benefits
   
Post-
Retirement
Benefits
   
Pension
Benefits
   
Post-
Retirement
Benefits
 
Components of net periodic expense (credit):
(1)
    
     
     
     
 
Interest cost
  $
4,245
    $
384
    $
3,814
    $
384
 
Expected return on plan assets
   
(10,449
 )    
—
     
(12,106
 )    
—  
  
Amortization of prior-service costs
   
—
     
(187
 )    
—  
      
(186
 )
Amortization of net actuarial loss
   
7,526
     
93
     
5,386
     
229
 
                                 
Net periodic expense (credit)
  $
1,322
    $
290
    $
(2,906
 )   $
427
 
                                 
(1) Amounts are included in G&A expense on the Consolidated Statements of Income and Comprehensive Income.
The Company expects to contribute $1.2 million to its post-retirement plan to pay premiums and claims for the fiscal year ending December 31, 2019. The Company does not expect to make any contributions to its pension​​​​​​​ plan in 2019.
Note 9. Stock-Based Compensation
At September 30, 2019, the Company had a total of 2,498,370 shares available for grants as restricted stock, options, or other forms of related rights under the New York Community Bancorp, Inc. 2012 Stock Incentive Plan, which was approved by the Company’s shareholders at its annual meeting of shareholders held on June 7, 2012. The Company granted 2,022,198 shares of restricted stock during the nine months ended September 30, 2019. The shares had an average fair value of $10.44 per share on the date of grant and a vesting period of five years. The nine-month amount includes 81,400 shares that were granted in the third quarter with an average fair value of $10.78 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 $23.2 million and $28.1 million, respectively, in the nine months ended September 30, 2019 and 2018, including $7.7
mill
ion
 
and $9.4 million 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, 2019:
 
Number of Shares
   
Weighted Average
Grant Date
Fair Value
 
Unvested at beginning of year
   
6,904,388
    $
14.74
 
Granted
   
2,022,198
     
10.44
 
Vested
   
(2,189,635
 )    
15.19
 
Canceled
   
(197,470
 )    
12.88
 
                 
Unvested at end of period
   
6,539,481
     
13.32
 
                 
As of September 30, 2019, unrecognized compensation cost relating to unvested restricted stock totaled $71.6 million. This amount will be recognized over a remaining weighted average period of 2.9 years.
In addition, during the nine months ended September 30, 2019, the Company granted 418,674 Performance-Based Restricted Stock Units (“PSUs”). The PSUs have a performance period of January 1, 2019 to December 31, 2021 and vest on April 1, 2022, subject to adjustment or forfeiture, based upon the achievement by the Company of certain performance standards. Compensation and benefits expense related to PSUs is recognized using the fair value as of the date the units were approved, on a straight-line basis over the vesting period and totaled $411,000 and $689,000 for the three and nine months ended September 30, 2019, respectively. As of September 30, 2019, the Company believes it is probable that the performance conditions will be met.
Note 10. 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 or
non-recurring
basis. GAAP also clarifies that fair value is an “exit” price, representing the amount that would be received when selling an asset, or paid when transferring a liability, in an orderly transaction between market participants. Fair value is thus a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or liability. As a basis for considering such assumptions, GAAP establishes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value as follows:
 
•
Level 1 – Inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets.
 
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7
 
Table of Contents
  • Level 2 – Inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, and inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument.
  • Level 3 – Inputs to the valuation methodology are significant unobservable inputs that reflect a company’s own assumptions ​​​​​​​about the assumptions that market participants use in pricing an asset or liability.
A financial instrument’s categorization within this valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement.
The following tables present assets and liabilities that were measured at fair value on a recurring basis as of September 30, 2019 and December 31, 2018, and that were included in the Company’s Consolidated Statements of Condition at those dates:
 
Fair Value Measurements at September 30, 2019
 
(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
   
Total
Fair Value
 
Assets:
   
     
     
     
     
 
Mortgage-related Debt Securities Available for Sale:
   
     
     
     
     
 
GSE certificates
  $
—
    $
1,572,905
    $
—
    $
—
    $
1,572,905
 
GSE CMOs
   
—
     
1,768,774
     
—
     
—
     
1,768,774
 
                                         
Total mortgage-related debt securities
  $
—
    $
3,341,679
    $
—
    $
—
    $
3,341,679
 
                                         
Other Debt Securities Available for Sale:
   
     
     
     
     
 
U. S. Treasury obligations
  $
29,769
    $
—
    $
—
    $
—
    $
29,769
 
GSE debentures
   
—
     
1,142,463
     
—
     
—
     
1,142,463
 
Asset-backed securities
   
—
     
378,256
     
—
     
—
     
378,256
 
Municipal bonds
   
—
     
27,557
     
—
     
—
     
27,557
 
Corporate bonds
   
—
     
840,014
     
—
     
—
     
840,014
 
Capital trust notes
   
—
     
94,830
     
—
     
—
     
94,830
 
                                         
Total other debt securities
  $
29,769
    $
2,483,120
    $
—
    $
—
    $
2,512,889
 
                                         
Total debt securities available for sale
  $
29,769
    $
5,824,799
    $
—
    $
—
    $
5,854,568
 
                                         
Equity securities:
   
     
     
     
     
 
Preferred stock
  $
15,373
    $
—
    $
—
    $
—
    $
15,373
 
Mutual funds and common stock
   
—
     
17,488
     
—
     
—
     
17,488
 
                                         
Total equity securities
  $
15,373
    $
17,488
    $
—
    $
—
    $
32,861
 
                                         
Total securities
  $
45,142
    $
5,842,287
    $
—
    $
—
    $
5,887,429
 
                                         
 
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8
 
Table of Contents
  
Fair Value Measurements at December 31, 2018
 
(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
   
Total
Fair Value
 
Assets:
   
     
     
     
     
 
Mortgage-related Debt Securities Available for Sale:
   
     
     
     
     
 
GSE certificates
  $
—  
     $
1,707,521
    $
—  
     $
—  
     $
1,707,521
 
GSE CMOs
   
—  
      
1,252,761
     
—  
      
—  
      
1,252,761
 
                                         
Total mortgage-related debt securities
  $
—  
     $
2,960,282
    $
—  
     $
—  
     $
2,960,282
 
                                         
Other Debt Securities Available for Sale:
   
     
     
     
     
 
GSE debentures
  $
—  
     $
1,328,927
    $
—  
     $
—  
     $
1,328,927
 
Asset-backed securities
   
—  
      
387,122
     
—  
      
—  
      
387,122
 
Municipal bonds
   
—  
      
66,183
     
—  
      
—  
      
66,183
 
Corporate bonds
   
—  
      
821,715
     
—  
      
—  
      
821,715
 
Capital trust notes
   
—  
      
49,291
     
—  
      
—  
      
49,291
 
                                         
Total other debt securities
  $
—  
     $
2,653,238
    $
—  
     $
—  
     $
2,653,238
 
                                         
Total debt securities available for sale
  $
—  
     $
5,613,520
    $
—  
     $
—  
     $
5,613,520
 
                                         
Equity securities:
   
     
     
     
     
 
Preferred stock
  $
13,846
    $
—  
     $
—  
     $
—  
     $
13,846
 
Mutual funds and common stock
   
—  
      
16,705
     
—  
      
—  
      
16,705
 
                                         
Total equity securities
  $
13,846
    $
16,705
    $
—  
     $
—  
     $
30,551
 
                                         
Total securities
  $
13,846
    $
5,630,225
    $
—  
     $
—  
     $
5,644,071
 
                                         
The Company reviews and updates the fair value hierarchy classifications for its assets on a quarterly basis. Changes from one quarter to the next that are related to the observability of inputs for a fair value measurement may result in a reclassification from one hierarchy level to another.
A description of the methods and significant assumptions utilized in estimating the fair values of 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 and exchange-traded securities.
If quoted market prices are not available for a specific security, then fair values are estimated by using pricing models. These pricing models primarily use market-based or independently sourced market parameters as inputs, including, but not limited to, yield curves, interest rates, equity or debt prices, and credit spreads. In addition to observable market information, models incorporate transaction details such as maturity and cash flow assumptions. Securities valued in this manner would generally be classified within Level 2 of the valuation hierarchy, and primarily include such instruments as mortgage-related and corporate debt securities.
Periodically, the Company uses fair values supplied by independent pricing services to corroborate the fair values derived from the pricing models. In addition, the Company reviews the fair values supplied by independent pricing services, as well as their underlying pricing methodologies, for reasonableness. The Company challenges pricing service valuations that appear to be unusual or unexpected.
While the Company believes its valuation methods are appropriate, and consistent with those of other market participants, the use of different methodologies or assumptions to determine the fair values of certain financial instruments could result in different estimates of fair values at a reporting date.
 
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9
 
Table of Contents
Assets Measured at Fair Value on a
Non-Recurring
Basis
Certain assets are measured at fair value on a non-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 that were measured at fair value on a non-recurring basis as of September 30, 2019 and December 31, 2018, and that were included in the Company’s Consolidated Statements of Condition at those dates:
 
 
  
Fair Value Measurements at September 30, 2019 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)
  
$
—
   
$
—
   
$
35,697
   
$
35,697
 
Other assets
(2)
    
—
     
—
     
—
     
—
 
                                 
Total
 
$
—
   
$
—
   
$
35,697
   
$
35,697
 
                                 
 
 
 
 
 
 
 
 
 
 
 
(1) Represents the fair value of impaired loans, based on the value of the collateral.
 
 
 
 
 
 
 
 
 
 
 
(2) Represents the fair value of repossessed assets, based on the appraised value of the collateral subsequent to its initial classification as repossessed assets.
 
 
 
 
                                 
 
Fair Value Measurements at December 31, 2018 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)
   $
—  
     $
—  
     $
38,213
    $
38,213
 
Other assets
(2)
    
—  
      
—  
      
1,265
     
1,265
 
                                 
Total
  $
—  
     $
—  
     $
39,478
    $
39,478
 
                                 
 
 
 
 
 
 
 
 
 
 
 
(1) Represents the fair value of impaired loans, based on the value of the collateral.
 
 
 
 
 
 
 
 
 
 
 
(2) Represents the fair value of repossessed assets, based on the appraised value of the collateral subsequent to its initial classification as repossessed assets.
 
The fair values of collateral-dependent impaired loans are determined using various valuation techniques, including consideration of appraised values and other pertinent real estate and other market data.
Other Fair Value Disclosures
For the disclosure of fair value information about the Company’s
on-
and
off-balance
sheet financial instruments, when available, quoted market prices are used as the measure of fair value. In cases where quoted market prices are not available, fair values are based on present-value estimates or other valuation techniques. Such fair values are significantly affected by the assumptions used, the timing of future cash flows, and the discount rate.
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 September 30, 2019 and December 31, 2018:
                                         
 
September 30, 2019
 
 
   
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
  $
854,678
    $
854,678
    $
854,678
    $
—
    $
—
 
FHLB stock
 (1)
    
606,371
     
606,371
     
—
     
606,371
     
—
 
Loans and leases, net
   
40,694,787
     
40,608,048
     
—
     
—
     
40,608,048
 
Financial Liabilities:
   
     
     
     
     
 
Deposits
 
$
31,572,176
   
$
31,633,111
   
$
17,308,005
(2)
 		  
$
14,325,106
(3)
 		  
$
—
 
Borrowed funds
   
13,626,360
     
14,088,303
     
—
     
14,088,303
     
—
 
 
 
 
 
 
 
 
 
 
 
 
(1) Carrying value and estimated fair value are at cost.
 
 
 
 
 
 
 
 
 
 
 
(2) Interest-bearing checking and money market accounts, savings accounts, and
non-interest-bearing
accounts.
 
 
 
 
 
 
 
 
 
 
 
(3) Certificates of deposit.
 
 
 
 
 
30
 
Table of Contents
                                         
 
December 31, 2018
 
 
   
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
  $
1,474,955
    $
1,474,955
    $
1,474,955
    $
—  
     $
—  
  
FHLB stock
(1)
    
644,590
     
644,590
     
—  
      
644,590
     
—  
  
Loans and leases, net
   
40,006,088
     
39,461,985
     
—  
      
—  
      
39,461,985
 
Financial Liabilities:
   
     
     
     
     
 
Deposits
  $
30,764,430
    $
30,748,729
    $
18,570,108
(2)
 		   $
12,178,621
(3)
 		   $
—  
  
Borrowed funds
   
14,207,866
     
14,136,526
     
—  
      
14,136,526
     
—  
  
 
 
 
 
 
 
 
 
 
 
 
(1) Carrying value and estimated fair value are at cost.
 
 
 
 
 
 
 
 
 
 
 
(2) Interest-bearing checking and money market accounts, savings accounts, and
non-interest-bearing
accounts.
 
 
 
 
 
 
 
 
 
 
 
(3) Certificates of deposit.
 
 
 
 
The methods and significant assumptions used to estimate fair values for the Company’s financial instruments follow:
Cash and Cash Equivalents
Cash and cash equivalents include cash and due from banks and federal funds sold. The estimated fair values of cash and cash equivalents are assumed to equal their carrying values, as these financial instruments are either due on demand or have short-term maturities.
Securities
If quoted market prices are not available for a specific security, then fair values are estimated by using pricing models, quoted prices of securities with similar characteristics, or discounted cash flows. These pricing models primarily use market-based or independently sourced market parameters as inputs, including, but not limited to, yield curves, interest rates, equity or debt prices, and credit spreads. In addition to observable market information, pricing models also incorporate transaction details such as maturities and cash flow assumptions.
Federal Home Loan Bank Stock
Ownership in equity securities of the FHLB is generally restricted and there is no established liquid market for their resale. The carrying amount approximates the fair value.
Loans
The Company discloses the fair value of loans measured at amortized cost using an exit price notion. The Company determined the fair value on substantially all of its loans for disclosure purposes, on an individual loan basis. The discount rates reflect current market rates for loans with similar terms to borrowers having similar credit quality on an exit price basis. The estimated fair values of
non-performing
mortgage and other loans are based on recent collateral appraisals. For those loans where a discounted cash flow technique was not considered reliable, the Company used a quoted market price for each individual loan.
Deposits
The fair values of deposit liabilities with no stated maturity (i.e., interest-bearing checking and money market accounts, savings accounts, and
non-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 portion of the Company’s deposit base.
 
31
 
Table of Contents
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 such
off-balance
sheet financial instruments were insignificant at September 30, 2019 and December 31, 2018.
Note 11. Leases
Lessor Arrangements
The Company is a lessor in the equipment finance business where it has executed direct financing leases (“lease finance receivables”). The Company produces lease finance receivables through a specialty finance subsidiary that is staffed by a group of industry veterans with expertise in originating and underwriting senior securitized debt and equipment loans and leases. The subsidiary participates in syndicated loans that are brought to them, and equipment loans and leases that are assigned to them, by a select group of nationally recognized sources, and are generally made to large corporate obligors, many of which are publicly traded, carry investment grade or near-investment grade ratings, and participate in stable industries nationwide. Lease finance receivables are carried at the aggregate of lease payments receivable plus the estimated residual value of the leased assets and any initial direct costs incurred to originate these leases, less unearned income, which is accreted to interest income over the lease term using the interest method.
The standard leases are typically repayable on a level monthly basis with terms ranging from 24 to 120 months. At the end of the lease term, the lessee usually has the option to return the equipment, to renew the lease or purchase the equipment at the then fair market value (“FMV”) price. For leases with a FMV renewal/purchase option, the relevant residual value assumptions are based on the estimated value of the leased asset at the end of 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 provide 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 lease.
The residual value component of a lease financing receivable represents the estimated fair value of the leased equipment at the end of the lease term. In establishing residual value estimates, the Company may rely on industry data, historical experience, and independent appraisals and, where appropriate, information regarding product life cycle, product upgrades and competing products. Upon expiration of a lease, residual assets are remarketed, resulting in 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. The carrying value of residual assets with third-party residual value insurance for at least a portion of the asset value was $70.5 million.
The Company uses the interest rate implicit in the lease to determine the present value of its lease financing receivables.
The components of lease income were as follows:
(in thousands)
  
For the Three
Months Ended
September 30, 2019
 
  
For the Nine
Months Ended
September 30, 2019
 
Interest income on lease financing
(1)
   $
10,149
    $
27,358
 
(1) Included in Interest Income – Mortgage and other loans and leases in the Consolidated Statements of Income and Comprehensive Income.
 
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Table of Contents
At September 30, 2019, the carrying value of net investment in leases was $1.1 billion. The components of net investment in direct financing leases, including the carrying amount of the lease receivables, as well as the unguaranteed residual asset were as follows:
(in thousands)
  
September 30, 2019
 
Net investment in the lease- lease payments receivable
  $
1,077,574
 
Net investment in the lease- unguaranteed residual assets
   
68,826
 
         
Total lease payments
  $
1,146,400
 
         
The following table presents the remaining maturity analysis of the undiscounted lease receivables as of September 30, 2019, as well as the reconciliation to the total amount of receivables recognized in the Consolidated Statements of Condition:
(in thousands)
  
September 30, 2019
 
2019
  $
660
 
2020
   
55,811
 
2021
   
180,936
 
2022
   
194,564
 
2023
   
75,000
 
Thereafter
   
639,429
 
         
Total lease payments
   
1,146,400
 
Plus: deferred origination costs
   
19,781
 
Less: unearned income
   
(88,329
 )
         
Total lease finance receivables, net
  $
1,077,852
 
         
Lessee Arrangements
The Company determines if an arrangement is a lease at inception. Operating leases are included in operating lease
right-of-use
assets and operating lease liabilities in the Consolidated Statements of Condition.
ROU assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent the obligation to make lease payments arising from the lease. Operating lease ROU assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term. As most leases do not provide an implicit rate, the incremental borrowing rate (FHLB borrowing rate) is used based on the information available at adoption date in determining the present value of lease payments. The implicit rate is used when readily determinable. The operating lease ROU asset is measured at cost, which includes the initial measurement of the lease liability, prepaid rent and initial direct costs incurred by the Company, less incentives received. The lease terms include options to extend the lease when it is reasonably certain that we will exercise that option. For the vast majority of the Company’s leases, we are reasonably certain we will exercise our options to renew to the end of all renewal option periods. As such, substantially all of our future options to extend the leases have been included in the lease liability and ROU assets.
Variable costs such as the proportionate share of actual costs for utilities, common area maintenance, property taxes and insurance are not included in the lease liability and are recognized in the period in which they are incurred. Amortization of the ROU assets was $7.5 million and $23.8 million for the three and nine months ended September 30, 2019, respectively. Included in the nine month period amount is $11.7 million that was due to the closing of certain locations.
The Company has operating leases for corporate offices, branch locations and certain equipment. The Company’s leases have remaining lease terms of
one year
to approximately 25 years, the vast majority of which include one or more options to extend the leases for up to five years resulting in lease terms up to 40 years.
During the three months ended September 30, 2019, the Company entered into a sale-lease back transaction with an unrelated third party with a lease term of 20 years (including renewal options). The sale of the branch property in Florida resulted in a gain of
$7.9
million, which ​​​​​​​is included in “Other income” in the Consolidated Statements of Income and Comprehensive Income for the three and nine months ended September 30, 2019.
 
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Table of Contents
The components of lease expense were as follows:
(in thousands)
  
For the Three
Months Ended
September 30,
2019
 
  
For the Nine
Months Ended
September 30,
2019
 
Components of Lease Expense:
   
     
 
Operating lease cost
  $
7,193
    $
21,751
 
Sublease income
   
(18
 )    
(83
 )
                 
Total lease cost
  $
7,175
    $
21,668
 
                 
Supplemental cash flow information related to the leases for the following period:
(in thousands)
  
For the Three
Months Ended
September 30,
2019
 
  
For the Nine
Months Ended
September 30,
2019
 
Cash paid for amounts included in the measurement of lease liabilities:
   
     
 
Operating cash flows from operating leases
  $
7,193
    $
21,751
 
                 
Supplemental balance sheet information related to the leases for the following period:
(in thousands, except lease term and discount rate)
  
September 30, 2019
 
Operating Leases:
 
 
 
Operating lease
right-of-use
assets
   $
300,955
 
Operating lease liabilities
   
300,610
 
Weighted average remaining lease term
   
17
 
years
 
Weighted average discount rate
   
3.24
%
Maturities of lease liabilities:
Maturities of lease liabilities:
 
 
(in thousands)
  
September 30, 2019
 
2019
  $
7,178
 
2020
   
28,373
 
2021
   
27,723
 
2022
   
26,885
 
2023
   
26,448
 
Thereafter
   
286,225
 
 
        
Total lease payments
   
402,832
 
Less: imputed interest
   
(102,222
 )
 
        
Total present value of lease liabilities
  $
300,610
 
         
As previously disclosed in the Company’s 2018 Form
10-K,
under the prior guidance of ASC 840, at December 31, 2018, the Company was obligated under various
non-cancelable
operating lease and license agreements with renewal options on properties used primarily for branch operations. The agreements contain periodic escalation clauses that provide for increases in the annual rents, commencing at various times during the lives of the agreements, which are primarily based on increases in real estate taxes and
cost-of-living
indices. The remaining projected minimum annual rental commitments under these agreements, exclusive of taxes and other charges, are summarized as follows:
(in thousands)
 
2019
  $
30,322
 
2020
   
23,399
 
2021
   
19,736
 
2022
   
16,552
 
2023 and thereafter
   
55,525
 
         
Total minimum future rentals
  $
145,534
 
         
 
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Note 12. Derivative and Hedging Activities
The Company’s derivative financial instruments consist of interest rate swaps. The Company is exposed to certain risks arising from both its business operations and economic conditions. The Company principally manages its exposure to a wide variety of business and operational risks through management of its core business activities. The Company manages economic risks, including interest rate and liquidity risks, primarily by managing the amount, sources, and duration of its assets and liabilities and, from time to time, the use of derivative financial instruments. Specifically, the Company enters into derivative financial instruments to manage exposures that arise from business activities that result in the payment of future known and uncertain cash amounts, the value of which are determined by interest rates. The Company’s derivative financial instruments are used to manage differences in the amount, timing, and duration of the Company’s known or expected cash receipts and its known or expected cash payments principally related to the Company’s pools of fixed-rate assets.
The Company is exposed to changes in the fair value of certain of its fixed-rate assets due to changes in benchmark interest rates. The Company uses interest rate swaps to manage its exposure to changes in fair value on these instruments attributable to changes in the designated benchmark interest rate. Interest rate swaps designated as fair value hedges involve the payment of fixed-rate amounts to a counterparty in exchange for the Company receiving variable-rate payments over the life of the agreements without the exchange of the underlying notional amount. Such derivatives were used to hedge the changes in fair value of certain of its pools of prepayable fixed rate assets. For derivatives designated and that qualify as fair value hedges, the gain or loss on the derivative as well as the offsetting loss or gain on the hedged item attributable to the hedged risk are recognized in interest income.
In the first quarter of 2019, the Company entered into an interest rate swap with a notional amount of $
2.0
 billion to hedge certain real estate loans. For the three and nine months ended September 30, 2019, the floating rate received related to the net settlement of this interest rate swap was
less than
the fixed rate payments. As such, interest income from Mortgage and Other Loans and Leases in the accompanying Consolidated Statements of Income and Comprehensive Income was decreased by $1.1 million and $684,000 for the three and nine months ended September 30, 2019, respectively.
As of September 30, 2019, the following amounts were recorded on the balance sheet related to cumulative basis adjustment for fair value hedges. The Company did not have any derivative instruments at December 31, 2018:
(in thousands)
  
September 30, 2019
 
Line Item in the Consolidated Statements of Condition
    in which the Hedge Item is Included
  
Carrying Amount of
the Hedged Assets
   
Cumulative Amount of Fair
Value Hedging
Adjustments Included in
the Carrying Amount of the
Hedged Assets
 
Total loans and leases, net
(1)
   $
2,048,338
    $
48,338
 
(1) These amounts include the amortized cost basis of closed portfolios used to designated hedging relationships in which the hedged item is the last layer expected to be remaining at the end of the hedging relationship. At September 30, 2019, the amortized cost basis of the closed portfolios used in these hedging relationships was $4.6 billion; the cumulative basis adjustments associated with these hedging relationships was $48.3 million; and the amount of the designated hedged items was $2.0 billion.
The following table sets forth information regarding the Company’s derivative financial instruments at September 30, 2019. The Company had no derivative financial instruments at December 31, 2018.
  
September 30, 2019
 
(in thousands)
  
Notional
Amount
   
Fair Value
 
Other
Assets
   
Other
Liabilities
 
Derivatives designated as hedging instruments:
   
     
     
 
Interest rate swap
   $
2,000,000
    $
—
    $
—
 
                         
Total derivatives designated as hedging instruments
  $
2,000,000
    $
—
     $
—
  
                         
Title VII of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (the “Dodd-Frank Act”) requires all standardized derivatives, including most interest rate swaps, to be submitted for clearing to central counterparties to reduce counterparty risk. Two of the central counterparties are the Chicago Mercantile Exchange (“CME”) and the London
 
35
 
Table of Contents
Clearing House (“LCH”). As of September 30, 2019, all of the Company’s $2.0 billion notional derivative contracts were cleared on the LCH. Variation margin payments on derivatives cleared through the LCH are accounted for as legal settlement. For derivatives cleared through LCH, the net gain (loss) position includes the variation margin amounts as settlement of the derivative and not collateral against the fair value of the derivative
, 
which includes accrued interest.
The Company’s exposure is limited to the value of the derivative contracts in a gain position less any collateral held and plus any collateral posted. When there is a net negative exposure, we consider our exposure to the counterparty to be zero. At September 30, 2019, the Company had a net negative exposure.
The following table sets forth the effect of derivative instruments on the Consolidated Statements of Income and Comprehensive Income for the periods indicated. The Company had no derivative financial instruments outstanding during 2018:
(in thousands)
  
For the Three
Months Ended
September 30, 2019
 
  
For the Nine
Months Ended
September 30, 2019
 
Derivative – interest rate swap:
   
     
 
Interest income
  $
10,016
     $
(48,338
 )
Hedged item – loans:
   
     
 
Interest income
  $
(10,016
)   $
48,338
 
Note 13. Impact of Recent Accounting Pronouncements
Recently Adopted Accounting Standards
The Company adopted ASU No.
 2018-16,
Derivatives and Hedging (Topic 815)—Inclusion of the Secured Overnight Financing Rate (SOFR) Overnight Index Swap (OIS) Rate as a Benchmark Interest Rate for Hedge Accounting Purposes, effective on its issuance date of October 25, 2018. The purpose of ASU
2018-16
is to permit the use of the OIS rate based on SOFR as a U.S. benchmark interest rate for hedge accounting purposes under Topic 815. The amendments in ASU
2018-16
are required to be applied prospectively for qualifying new or redesignated hedging relationships entered into on or after the date of adoption. The adoption of ASU No.
 2018-16
did not have a material impact on the Company’s Consolidated Statements of Condition, results of operations, or cash flows.
The Company adopted ASU No.
 2018-15,
Intangibles – Goodwill and Other – Internal Use Software (Subtopic
350-40):
Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement that is a Service Contract as of January 1, 2019. ASU
2018-15
aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain
internal-use
software (and hosting arrangements that include an
internal-use
software license). The accounting for the service element of a hosting arrangement that is a service contract is not affected by the amendment. The adoption of ASU
2018-15
did not have a material effect on the Company’s Consolidated Statements of Condition, results of operations, or cash flows.
The Company adopted ASU No.
 2017-08,
Receivables—Nonrefundable Fees and Other Costs (Subtopic
310-20):
Premium Amortization on Purchased Callable Debt Securities as of January 1, 2019. ASU No.
 2017-08
specifies that the premium amortization period ends at the earliest call date, rather than the contractual maturity date, for purchased
non-contingently
callable debt securities. Shortening the amortization period is generally expected to more closely align the interest income recognition with the expectations incorporated in the market pricing of the underlying securities. The adoption of ASU No.
 2017-08
on January 1, 2019 did not have a material effect on the Company’s Consolidated Statements of Condition, results of operations, or cash flows.
The Company adopted ASU No.
 2016-02,
Leases (Topic 842), and its subsequent amendments to the ASU as of January 1, 2019, using the modified retrospective approach and utilizing the effective date as its date of initial application, for which prior periods are presented in accordance with the previous guidance in ASC 840, Leases. Topic 842 was intended to improve financial reporting about leasing transactions and the key provision impacting the Company was the requirement for a lessee to record a
right-of-use
asset and a liability, which represents the obligation to make lease payments for long-term operating leases. Additionally, ASU
2016-02
includes quantitative and qualitative disclosures required by lessees and lessors to help financial statement users better understand the amount, timing, and uncertainty of cash flows arising from leases. Topic 842 includes a number of optional practical expedients that entities may elect to apply. The Company adopted the practical expedients of: not reevaluating whether or not a contract contains a lease; retaining current lease classification; not reassessing initial direct costs for existing leases; and not reassessing existing land easements that were not previously accounted for as leases under current lease accounting rules. Accordingly, previously reported financial statements, including footnote disclosures, have not been recast to reflect the application of ASU
2016-02
to all comparative periods presented. The adoption of ASU
2016-02,
as reflected in Note 11, did not have a material impact on the Company’s Consolidated Statements of Condition, results of operations, or cash flows.
 
3
6
 
Table of Contents
Recently Issued Accounting Standards
In August 2018, the FASB issued ASU
2018-13,
Fair Value Measurement (Topic 820): Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement. The purpose of ASU
2018-13
is to improve the effectiveness of disclosures in the notes to financial statements by facilitating clear communication of the information required by GAAP that is most important to users of each entity’s financial statements. The amendments in ASU
2018-13
are effective for the Company as of January 1, 2020. The amendments remove the disclosure requirements for transfers between Levels 1 and 2 of the fair value hierarchy, the disclosure of the policy for timing of transfers between levels of the fair value hierarchy, and the disclosure of the valuation processes for Level 3 fair value measurements. Additionally, the amendments modify the disclosure requirements for investments in certain entities that calculate net asset value and measurement uncertainty. Finally, the amendments added disclosure requirements for the changes in unrealized gains and losses included in other comprehensive income for recurring Level 3 fair value measurements and the range and weighted average of significant unobservable inputs used to develop Level 3 measurements. The amendments on changes in unrealized gains and losses, the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements and the narrative description of measurement uncertainty should be applied prospectively for only the most recent interim or annual period presented in the initial fiscal year of adoption. All other amendments should be applied retrospectively to all periods presented upon their effective date. The adoption of ASU
2018-13
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 ASU No.
 2017-04,
Intangibles—Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment. ASU No.
 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. ASU No.
 2017-04
does not amend the optional qualitative assessment of goodwill impairment. The Company plans to adopt ASU No.
 2017-04
prospectively beginning January 1, 2020 and the impact of its adoption on the Company’s Consolidated Statements of Condition, results of operations, or cash flows will be dependent upon goodwill impairment determinations made after that date.
In June 2016, the FASB issued ASU No.
 2016-13,
Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. ASU No.
 2016-13
amends guidance on reporting credit losses for assets held on an amortized cost basis and
available-for-sale
debt securities. For assets held at amortized cost, ASU No.
 2016-13
eliminates the probable initial recognition threshold in current GAAP and, instead, requires an entity to reflect its current estimate of all expected credit losses. Current GAAP requires an “incurred loss” methodology for recognizing credit losses that delays recognition until it is probable a loss has been incurred. The amendments in ASU No.
 2016-13
replace the incurred loss impairment methodology in current GAAP with a methodology that reflects the measurement of expected credit losses based on relevant information about past events, including historical loss experience, current conditions, and reasonable and supportable forecasts that affect the collectability of the reported amounts. The allowance for credit losses is a valuation account that is deducted from the amortized cost basis of financial assets to present the net amount expected to be collected. For
available-for-sale
debt securities, credit losses should be measured in a manner similar to current GAAP but will be presented as an allowance rather than as a write-down. The amendments affect loans, debt securities, trade receivables,
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 will adopt ASU No.
 2016-13
as of January 1, 2020 on a modified retrospective basis with a cumulative-effect adjustment to retained earnings as of the adoption date. However, a prospective transition approach is required for debt securities for which an OTTI had been recognized before the effective date. The effect of a prospective transition approach is to maintain the same amortized cost basis before and after the effective date of ASU No.
 2016-13.
Amounts previously recognized in accumulated other comprehensive income (loss) as of the date of adoption that relate to improvements in cash flows expected to be collected will continue to be accreted into income over the remaining life of the asset. Recoveries of amounts previously written off relating to improvements in cash flows after the date of adoption will be recorded in earnings when received.
The Company has evaluated ASU No.
 2016-13
 
and established a working group with multiple members from applicable departments to evaluate the requirements of the new standard, assess loss modeling requirements consistent with lifetime expected loss estimates, and determine the impact it will have on current processes. The Company has tested its credit loss models, where applicable, and has assessed additional systems that were required. We will estimate the CECL allowance using relevant information, from internal and external sources, relating to past events, current conditions, and reasonable and
 
37
 
Table of Contents
supportable forecasts. The Company has performed parallel runs utilizing its CECL credit models to test its implementation. We have preliminarily determined for modeling current expected credit losses, we can reasonably estimate expected losses that incorporate the current and forecasted economics conditions over a two year period, after which the model will revert to our long-term historic loss rates on a straight line basis over one year. These models are currently being refined and undergoing final model validations. As the Company approaches the implementation date, additional parallel runs will be performed, required governance and internal controls will be implemented and testing and validation of all models ​​​​​​​will be completed.
 
38
 
Table of Contents
ITEM 2.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 
 
 
For the purpose of this Quarterly Report on Form
10-Q,
the words “we,” “us,” “our,” and the “Company” are used to refer to New York Community Bancorp, Inc. and our consolidated subsidiary, New York Community Bank (the “Bank”).
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING LANGUAGE
This report, like many written and oral communications presented by New York Community Bancorp, Inc. and our authorized officers, may contain certain forward-looking statements regarding our prospective performance and strategies within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. We intend such forward-looking statements to be covered by the safe harbor provisions for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995, and are including this statement for purposes of said safe harbor provisions.
Forward-looking statements, which are based on certain assumptions and describe future plans, strategies, and expectations of the Company, are generally identified by use of the words “anticipate,” “believe,” “estimate,” “expect,” “intend,” “plan,” “project,” “seek,” “strive,” “try,” or future or conditional verbs such as “will,” “would,” “should,” “could,” “may,” or similar expressions. Although we believe that our plans, intentions, and expectations as reflected in these forward-looking statements are reasonable, we can give no assurance that they will be achieved or realized.
Our ability to predict results or the actual effects of our plans and strategies is inherently uncertain. Accordingly, actual results, performance, or achievements could differ materially from those contemplated, expressed, or implied by the forward-looking statements contained in this report.
There are a number of factors, many of which are beyond our control, that could cause actual conditions, events, or results to differ significantly from those described in our forward-looking statements. These factors include, but are not limited to:
  • general economic conditions, either nationally or in some or all of the areas in which we and our customers conduct our respective businesses;
 
 
 
  • conditions in the securities markets and real estate markets or the banking industry;
 
 
 
  • changes in real estate values, which could impact the quality of the assets securing the loans in our portfolio;
 
 
 
  • changes in interest rates, which may affect our net income, prepayment penalty income, and other future cash flows, or the market value of our assets, including our investment securities;
 
 
 
  • any uncertainty relating to the LIBOR calculation process and the potential phasing out of LIBOR after 2021;
 
 
 
  • changes in the quality or composition of our loan or securities portfolios;
 
 
 
  • changes in our capital management policies, including those regarding business combinations, dividends, and share repurchases, among others;
 
 
 
  • heightened regulatory focus on CRE concentrations by regulators;
 
 
 
  • changes in competitive pressures among financial institutions or from
non-financial
institutions;
 
 
 
  • changes in deposit flows and wholesale borrowing facilities;
 
 
 
  • changes in the demand for deposit, loan, and investment products and other financial services in the markets we serve;
 
 
 
  • our timely development of new lines of business and competitive products or services in a changing environment, and the acceptance of such products or services by our customers;
 
 
 
  • our ability to obtain timely shareholder and regulatory approvals of any merger transactions or corporate restructurings we may propose;
 
 
 
  • our ability to successfully integrate any assets, liabilities, customers, systems, and management personnel we may acquire into our operations, and our ability to realize related revenue synergies and cost savings within expected time frames;
 
 
 
  • potential exposure to unknown or contingent liabilities of companies we have acquired, may acquire, or target for acquisition;
 
 
 
  • the ability to invest effectively in new information technology systems and platforms;
 
 
 
  • changes in estimates of future ALLL requirements based on our periodic review under relevant accounting and regulatory requirements;
 
 
 
  • the ability to pay future dividends at currently expected rates;
 
 
 
  • the ability to hire and retain key personnel;
 
 
 
  • the ability to attract new customers and retain existing ones in the manner anticipated;
 
 
 
  • changes in our customer base or in the financial or operating performances of our customers’ businesses;
 
 
 
  • any interruption in customer service due to circumstances beyond our control;
 
 
 
 
39
 
Table of Contents
  • the outcome of pending or threatened litigation, or of matters before regulatory agencies, whether currently existing or commencing in the future;
 
 
 
  • environmental conditions that exist or may exist on properties owned by, leased by, or mortgaged to the Company;
 
 
 
  • any interruption or breach of security resulting in failures or disruptions in customer account management, general ledger, deposit, loan, or other systems;
 
 
 
  • operational issues stemming from, and/or capital spending necessitated by, the potential need to adapt to industry changes in information technology systems, on which we are highly dependent;
 
 
 
  • the ability to keep pace with, and implement on a timely basis, technological changes;
 
 
 
  • changes in legislation, regulation, policies, or administrative practices, whether by judicial, governmental, or legislative action, and other changes pertaining to banking, securities, taxation, rent regulation and housing (the Housing Stability and Tenant Protection Act of 2019), financial accounting and reporting, environmental protection, insurance, and the ability to comply with such changes in a timely manner;
 
 
 
  • changes in the monetary and fiscal policies of the U.S. Government, including policies of the U.S. Department of the Treasury and the Board of Governors of the Federal Reserve System;
 
 
 
  • changes in accounting principles, policies, practices, and guidelines;
 
 
 
 
 
 
  • changes in regulatory expectations relating to predictive models we use in connection with stress testing and other forecasting or in the assumptions on which such modeling and forecasting are predicated;
 
 
 
  • changes in our credit ratings or in our ability to access the capital markets;
 
 
 
  • natural disasters, war, or terrorist activities; and
 
 
 
  • other economic, competitive, governmental, regulatory, technological, and geopolitical factors affecting our operations, pricing, and services.
 
 
 
In addition, the timing and occurrence or
non-occurrence
of events may be subject to circumstances beyond our control.
Furthermore, we routinely evaluate opportunities to expand through acquisitions and conduct due diligence activities in connection with such opportunities. As a result, acquisition discussions and, in some cases, negotiations, may take place at any time, and acquisitions involving cash or our debt or equity securities may occur.
See Part II, Item 1A, Risk Factors, in this report and Part I, Item 1A, Risk Factors, in our Form
10-K
for the year ended December 31, 2018 for a further discussion of important risk factors that could cause actual results to differ materially from our forward-looking statements.
Readers should not place undue reliance on these forward-looking statements, which reflect our expectations only as of the date of this report. We do not assume any obligation to revise or update these forward-looking statements except as may be required by law.
 
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Table of Contents
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, total assets, and book value per common share are financial measures that are recorded in accordance with GAAP, tangible common stockholders’ equity, tangible assets, and tangible book value per common share are not. It is management’s belief that these
non-GAAP
measures should be disclosed in this report and others we issue for the following reasons:
  1. Tangible common stockholders’ equity is an important indication of the Company’s ability to grow organically and through business combinations, as well as its ability to pay dividends and to engage in various capital management strategies.
 
 
 
  2. Tangible book value per common share and the 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.
 
 
 
Tangible common stockholders’ equity, tangible assets, and the related
non-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 these
non-GAAP
measures may differ from that of other companies reporting
non-GAAP
measures with similar names.
Reconciliations of our stockholders’ equity, common stockholders’ equity, and tangible common stockholders’ equity; our total assets and tangible assets; and the related financial measures for the respective periods follow:
                                         
 
At or for the
   
At or for the
 
 
Three Months Ended
   
Nine Months Ended
 
(dollars in thousands)
 
Sep. 30,
2019
 
  
Jun. 30,
2019
 
  
Sep. 30,
2018
 
  
Sep. 30,
2019
 
  
Sep. 30,
2018
 
Total Stockholders’ Equity
  $
6,695,007
    $
6,674,678
    $
6,794,015
    $
6,695,007
    $
6,794,015
 
Less: Goodwill
   
(2,426,379
 )    
(2,426,379
 )    
(2,436,131
 )    
(2,426,379
 )    
(2,436,131
 )
Preferred stock
   
(502,840
 )    
(502,840
 )    
(502,840
 )    
(502,840
 )    
(502,840
 )
                                         
Tangible common stockholders’ equity
  $
3,765,788
    $
3,745,459
    $
3,855,044
    $
3,765,788
    $
3,855,044
 
Total Assets
  $
52,537,629
    $
52,776,253
    $
51,246,654
    $
52,537,629
    $
51,246,654
 
Less: Goodwill
   
(2,426,379
 )    
(2,426,379
 )    
(2,436,131
 )    
(2,426,379
 )    
(2,436,131
 )
                                         
Tangible assets
  $
50,111,250
    $
50,349,874
    $
48,810,523
    $
50,111,250
    $
48,810,523
 
Average Common Stockholders’ Equity
  $
6,201,970
    $
6,149,275
    $
6,301,525
    $
6,152,253
    $
6,291,911
 
Less: Average goodwill
   
(2,426,379
 )    
(2,426,379
 )    
(2,436,131
 )    
(2,429,487
 )    
(2,436,131
 )
                                         
Average tangible common stockholders’ equity
  $
3,775,591
    $
3,722,896
    $
3,865,394
    $
3,722,766
    $
3,855,780
 
Average Assets
  $
52,257,718
    $
52,072,326
    $
50,608,283
    $
51,984,879
    $
49,685,717
 
Less: Average goodwill
   
(2,426,379
 )    
(2,426,379
 )    
(2,436,131
 )    
(2,429,487
 )    
(2,436,131
 )
                                         
Average tangible assets
  $
49,831,339
    $
49,645,947
    $
48,172,152
    $
49,555,392
    $
47,249,586
 
Net Income Available to Common Shareholders
  $
90,839
    $
89,039
    $
98,565
    $
269,248
    $
296,057
 
GAAP MEASURES:
 
 
 
  
 
 
  
 
 
  
 
 
  
 
 
Return on average assets (1)
   
0.76
 %    
0.75
 %    
0.84
 %    
0.75
 %    
0.86
 %
Return on average common stockholders’ equity (2)
   
5.86
     
5.79
     
6.26
     
5.84
     
6.27
 
Book value per common share
  $
13.25
    $
13.21
    $
12.83
    $
13.25
    $
12.83
 
Common stockholders’ equity to total assets
   
11.79
     
11.69
     
12.28
     
11.79
     
12.28
 
NON-GAAP
MEASURES:
 
 
 
  
 
 
  
 
 
  
 
 
  
 
 
Return on average tangible assets (1)
   
0.80
 %    
0.78
 %    
0.89
 %    
0.79
 %    
0.90
 %
Return on average tangible common stockholders’ equity (2)
   
9.62
     
9.57
     
10.20
     
9.64
     
10.24
 
Tangible book value per common share
  $
8.06
    $
8.01
    $
7.86
    $
8.06
    $
7.86
 
Tangible common stockholders’ equity to tangible assets
   
7.51
     
7.44
     
7.90
     
7.51
     
7.90
 
 
 
 
(1) To calculate return on average assets for a period, we divide net income generated during that period by average assets recorded during that period. To calculate return on average tangible assets for a period, we divide net income by average tangible assets recorded during that period.
 
 
 
(2) To calculate return on average common stockholders’ equity for a period, we divide net income available to common shareholders generated during that period by average common stockholders’ equity recorded during that period. To calculate return on average tangible common stockholders’ equity for a period, we divide net income available to common shareholders generated during that period by average tangible common stockholders’ equity recorded during that period.
 
 
 
 
41
 
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Executive Summary
New York Community Bancorp, Inc. is the holding company for New York Community Bank. At September 30, 2019, we had total assets of $52.5 billion, total loans of $40.7 billion, deposits of $31.6 billion, and total stockholders’ equity of $6.7 billion.
Chartered in the State of New York, the Community Bank is subject to regulation by the FDIC, the CFPB, and the NYSDFS. In addition, the holding company is subject to regulation by the FRB, the SEC, and to the requirements of the NYSE, 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.”
Reflecting our growth through a series of acquisitions, the Company currently operates 239 branches through eight local divisions, each with a history of service and strength: Queens County Savings Bank, Roslyn Savings Bank, Richmond County Savings Bank, Roosevelt Savings Bank, and Atlantic Bank in New York; Garden State Community Bank in New Jersey; Ohio Savings Bank in Ohio; and AmTrust Bank in Arizona and Florida.
Now in our 26th year 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, adhering to conservative underwriting standards, maintaining a solid capital position, and engaging in corporate strategies that enhance the value of our shares.
The Company reported net income for the three months ended September 30, 2019 of $99.0 million, up 2% from the $97.2 million reported for the three months ended June 30, 2019. On a
year-to-date
basis, net income was $293.9 million, down 8% compared to the first nine months of 2018.
Net income available to common shareholders for the third quarter of 2019 was $90.8 million, or $0.19 per common share, compared to $89.0 million, also $0.19 per common share for the second quarter of 2019. For the nine months ended September 30, 2019, net income available to common shareholders totaled $269.2 million, or $0.57 per common share, compared to $296.1 million or $0.60 per common share for the nine months ended September 30, 2018.
The key trends in the quarter were:
Net Interest Margin and Net Interest Income Stabilization
The NIM for the third quarter of 2019 was 1.99%, down one bp compared to the second quarter of 2019. This was the result of stable asset yields and lower funding costs. The average yield on our interest-earning assets for the current quarter was 3.82% unchanged from the previous quarter, while funding costs declined two bps to 2.04% compared to the prior quarter.
At the same time, net interest income for the third quarter of 2019 was $235.9 million, relatively unchanged compared to the $237.7 million for the second quarter of 2019. Both interest income and interest expense increased modestly compared to the second quarter of this year.
Operating Expenses Continued to Improve
Total
non-interest
expense for the three months ended September 30, 2019 were $123.3 million, relatively unchanged from the prior quarter. Included in current third-quarter operating expenses was certain items related to severance costs totaling $1.4 million. There were no such items in the three months ended June 30, 2019.
Recent Events
Declaration of Dividend on Common Shares
On October 29, 2019, our Board of Directors declared a quarterly cash dividend on the Company’s common stock of $0.17 per share. The dividend is payable on November 25, 2019 to common shareholders of record as of November 11, 2019.
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.
 
42
 
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We have identified the following to be critical accounting policies: the determination of the allowances for loan losses; and the determination of the amount, if any, of goodwill impairment.
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 Loan Losses
The allowance for loan losses represents our estimate of probable and estimable losses inherent in the loan portfolio as of the date of the balance sheet. Losses on loans are charged against, and recoveries of losses on loans are credited back to, the allowance for loan losses.
The methodology used for the allocation of the allowance for loan losses at September 30, 2019 and December 31, 2018 was generally comparable, whereby the Bank segregated their loss factors (used for both criticized and
non-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 allowance for loan losses, management considers the Bank’s current business strategies and credit processes, including compliance with applicable regulatory guidelines and with guidelines approved by the Boards of Directors with regard to credit limitations, loan approvals, underwriting criteria, and loan workout procedures.
The allowance for loan losses is established based on management’s evaluation of incurred losses in the portfolio in accordance with GAAP, and is comprised of both specific valuation allowances and a general valuation allowance.
Specific valuation allowances are established based on management’s analyses of individual loans that are considered impaired. If a loan is deemed to be impaired, management measures the extent of the impairment and establishes a specific valuation allowance for that amount. A 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 to 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 TDRs and are classified as impaired.
We primarily 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 the general valuation allowance to loan categories. The general valuation allowance is established by applying our loan loss provisioning methodology, and reflect the inherent risk in outstanding
held-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 allowance. 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/or
charge-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 periodically
re-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:
  • Changes in lending policies and procedures, including changes in underwriting standards and collection, and
charge-off
and recovery practices;
 
 
 
  • Changes in international, national, regional, and local economic and business conditions and developments that affect the collectability of the portfolio, including the condition of various market segments;
 
 
 
  • Changes in the nature and volume of the portfolio and in the terms of loans;
 
 
 
 
43
 
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  • Changes in the volume and severity of
past-due
loans, the volume of
non-accrual
loans, and the volume and severity of adversely classified or graded loans;
 
 
 
 
  • Changes in the quality of our loan review system;
 
 
 
 
  • Changes in the value of the underlying collateral for collateral-dependent loans;
 
 
 
 
  • The existence and effect of any concentrations of credit, and changes in the level of such concentrations;
 
 
 
 
  • Changes in the experience, ability, and depth of lending management and other relevant staff; and
 
 
 
 
  • The effect of other external factors, such as competition and legal and regulatory requirements, on the level of estimated credit losses in the existing portfolio.
 
 
 
 
By considering the factors discussed above, we determine an allowance for loan losses that is applied to each significant loan portfolio segment to determine the total allowance for loan losses.
The historical loss period we use to determine the allowance for loan losses on loans is a rolling
35-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 on loans also involves:
  • Periodic inspections of the loan collateral by qualified
in-house
and external property appraisers/inspectors;
 
 
 
 
  • Regular meetings of executive management with the pertinent Board committees, during which observable trends in the local economy and/or the real estate market are discussed;
 
 
 
 
  • Assessment of the aforementioned factors by the pertinent members of the Board of Directors and management when making a business judgment regarding the impact of anticipated changes on the future level of loan losses; and
 
 
 
 
  • Analysis of the portfolio in the aggregate, as well as on an individual loan basis, taking into consideration payment history, underwriting analyses, and internal risk ratings.
 
 
 
 
In order to determine their overall adequacy, the loan loss allowance is reviewed quarterly by management Board Committees and the Board of Directors of the 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. 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 we received notification that the borrower has filed for bankruptcy.
The level of future additions to the respective loan loss allowance 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 allowance; however, the Bank may be required to take certain charge-offs and/or recognize further additions to the loan loss allowance, based on the judgment of regulatory agencies with regard to information provided during their examinations of the Bank.
An allowance for unfunded commitments is maintained separate from the allowance for loan losses and is included in Other liabilities in the Consolidated Statements of Condition.
The Company will adopt ASU No.
 2016-13,
Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, as of January 1, 2020 on a modified retrospective basis with a cumulative-effect adjustment to retained earnings as of the adoption date. As we approach the implementation date, parallel runs have been performed. Based on those parallel runs, the Company expects its total credit loss allowances to increase by, at the most, approximately 20%, upon the adoption of ASU No.
2016-13.
The estimate is based upon our current portfolio mix, which is largely CRE concentrated, preliminary analyses, current assumptions, expectations, and forecasted economic conditions. These preliminary estimates are contingent upon continued testing and refinement of models, methodologies and judgments which will be ongoing for the remainder of the year.
See Note 6, Allowance for Loan Losses for a further discussion of our allowance for loan losses and Note 13, Impact of Recent Accounting Pronouncements for a further discussion of ASU No.
 2016-13.
 
44
 
Table of Contents
Goodwill Impairment
We have significant intangible assets related to goodwill. In connection with our acquisitions, assets acquired and liabilities assumed are recorded at their estimated fair values. Goodwill represents the excess of the purchase price of our acquisitions over the fair value of identifiable net assets acquired, including other identified intangible assets. Our goodwill is evaluated for impairment annually as of
year-end
or more frequently if conditions exist that indicate that the value may be impaired. We test our goodwill for impairment at the reporting unit level. These impairment evaluations are performed by comparing the carrying value of the goodwill of a reporting unit to its estimated fair value. We allocate goodwill to reporting units based on the reporting unit expected to benefit from the business combination. We had previously identified two reporting units: our Banking Operations reporting unit and our Residential Mortgage Banking reporting unit. On September 29, 2017, the Company sold the Residential Mortgage Banking reporting unit. Our reporting unit is the same as our operating segment and reportable segment. If we change our strategy or if market conditions shift, our judgments may change, which may result in adjustments to the recorded goodwill balance.
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 the
two-step
test described below. If we conclude based on the qualitative assessment that it is not more 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 the
two-step
test.
Step one requires the fair value of each reporting unit is compared to its carrying value in order to identify potential impairment. If the fair value of a reporting unit exceeds the carrying value of its net assets, goodwill is not considered impaired and no further testing is required. If the carrying value of the net assets exceeds the fair value of a reporting unit, potential impairment is indicated at the reporting unit level and step two of the impairment test is performed.
Step two requires that when potential impairment is indicated in step one, we compare the implied fair value of goodwill with the carrying amount of that goodwill. Determining the implied fair value of goodwill requires a valuation of the reporting unit’s tangible and
(non-goodwill)
intangible assets and liabilities in a manner similar to the allocation of the purchase price in a business combination. Any excess in the value of a reporting unit over the amounts assigned to its assets and liabilities is referred to as the implied fair value of goodwill. If the carrying amount of the reporting unit goodwill exceeds the implied fair value of that goodwill, an impairment loss is recognized in an amount equal to that excess.
As of September 30, 2019, we had goodwill of $2.4 billion. During the quarter ended September 30, 2019, no triggering events were identified that indicated that the value of goodwill may be impaired. The Company performed its annual goodwill impairment assessment as of December 31, 2018 using step one of the quantitative test and found no indication of goodwill impairment at that date.
Balance Sheet Summary
Total assets as of September 30, 2019 were $52.5 billion, an increase of $638.3 million, or 2% annualized, compared to our total assets at December 31, 2018. The
year-to-date
increase was driven by growth in our loan portfolio, with both the multi-family and C&I segments increasing, and to a lesser degree, growth in the securities portfolio.
Total loans held for investment increased $678.3 million or 2% on an annualized basis, compared to the level at December 31, 2018. Loan growth during the first nine months of 2019 was centered in our multi-family loan portfolio and in our C&I loan portfolio, the majority of which are comprised of specialty finance loans and leases. During the current third quarter, a number of loans refinanced away from the Bank because other lenders were willing to provide more credit, with less stringent terms then we were, which was inconsistent with our rigorous underwriting standards.
Total multi-family loans rose $385.5 million or 2% annualized in the first nine months of 2019 to $30.3 billion, while total C&I loans increased $453.7 million or 25% annualized to $2.8 billion, over the same time frame. The growth in the C&I portfolio was largely driven by our specialty finance business. Specialty finance loans and leases increased $476.5 million or 33% annualized compared to December 31, 2018. On a linked-quarter basis, multi-family loans declined $196.4 million or 3% annualized and C&I loans increased $65.3 million or 9% annualized.
For the nine months ended September 30, 2019, total deposits increased $807.7 million or 4% annualized to $31.6 billion. As has been the case through 2019, deposit growth during the current third quarter was driven by growth in CDs. CDs rose $2.1 billion or 23% annualized to $14.3 billion. However, interest-bearing checking and money market accounts dropped $1.6 billion or 18% on an annualized basis to $10.0 billion. We also had some modest growth in both the savings accounts and
non-interest-bearing
accounts categories.
 
45
 
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Historically, the Company has been able to garner large institutional deposit balances during such time when there was less competition for these types of deposits. During the current third quarter, several competitors
re-entered
this market paying higher interest rates for these deposit balances then we were willing to pay. Rather than compete with these financial institutions, the Company selectively exited many of these relationships, opting instead to grow lower cost retail deposits and other relatively less expensive funding sources. On a linked-quarter basis, total deposits declined $760.4 million or 9% on an annualized basis.
At September 30, 2019, total borrowed funds declined $581.5 million or 5% annualized to $13.6 billion, compared to $14.2 billion at December 31, 2018. On a linked-quarter basis, total borrowed funds increased $544.2 million or 17% on an annualized basis. The entire linked-quarter increase was due to an increase in wholesale borrowings, mainly Federal Home Loan Bank of New York advances.
Total stockholders’ equity at September 30, 2019 was $6.7 billion, relatively unchanged compared to the balance at December 31, 2018. Common stockholders’ equity to total assets was 11.79% compared to 11.85% at December 31, 2018. Book value per common share was $13.25 at September 30, 2019 compared to $12.99 at December 31, 2018.
Excluding goodwill of $2.4 billion, tangible common stockholders’ equity totaled $3.8 billion at September 30, 2019, also relatively unchanged compared to December 31, 2018. Tangible common stockholders’ equity to tangible assets was 7.51% unchanged compared to December 31, 2018. Tangible book value per common share at September 30, 2019 was $8.06 compared to $7.85 at December 31, 2018.
Loans and Leases
Loans Originated for Investment
The majority of the loans we produce are loans and leases held for investment and most of the
held-for-investment
loans we produce are multi-family loans. Our production of multi-family loans began five decades ago in the five boroughs of New York City, where the majority of the rental units currently consist of
non-luxury,
rent-regulated apartments featuring below-market rents. In addition to multi-family loans, our portfolio of loans held for investment contains a large number of CRE loans, most of which are secured by income-producing properties located in New York City and Long Island.
In addition to multi-family and CRE loans, our portfolio includes smaller balances of
one-to-four
family loans, ADC loans, and other loans held for investment, with C&I loans comprising the bulk of the other loan portfolio. Specialty finance loans and leases account for the majority of our C&I loans, with the remainder consisting primarily of loans to small- and
mid-size
businesses, referred to as other C&I loans.
During the third quarter of 2019, we originated $2.3 billion of loans held for investment, down 23% from the $3.0 billion originated in the second quarter of 2019 and down 10% from the amount we originated in the third quarter of last year. The linked-quarter decrease was primarily due to a decline in multi-family originations, which declined 34% and 25%, on a linked-quarter and year-over-year basis, respectively. Third quarter multi-family originations were $1.2 billion, CRE originations were $309.3 million, and specialty finance originations were $637.8 million. During the current quarter, origination activity was tempered by lower purchase and sale activity, as some borrowers have temporarily postponed their investment decisions while they fully assess the impact of the recently enacted Housing Stability and Tenant Protection Act of 2019 in New York State.
For the first nine months of 2019, we originated $7.3 billion of loans, down 8% compared to the $7.9 billion originated in the first nine months of 2018. Multi-family originations dropped 25% to $4.0 billion, which was only partially offset by a 23% increase in CRE originations to $899.4 million and a 44% increase in specialty finance originations to $2.0 billion.
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
 
(in thousands)
 
Sept. 30,
2019
 
  
June 30,
2019
 
  
Sept. 30,
2018
 
  
Sept. 30,
2019
 
  
Sept. 30,
2018
 
Mortgage Loans Originated for Investment:
 
 
 
  
 
 
  
 
 
  
 
 
  
 
 
Multi-family
  $
1,180,054
    $
1,800,659
    $
1,566,861
    $
3,990,064
    $
5,343,294
 
Commercial real estate
   
309,314
     
382,915
     
301,414
     
899,438
     
733,364
 
One-to-four
family residential
    
20,745
     
1,554
     
5,025
     
25,508
     
7,724
 
Acquisition, development, and construction
   
36,961
     
9,242
     
15,233
     
58,227
     
44,358
 
                                         
Total mortgage loans originated for investment
  $
1,547,074
    $
2,194,370
    $
1,888,533
    $
4,973,237
    $
6,128,740
 
                                         
Other Loans Originated for Investment:
 
 
 
  
 
 
  
 
 
  
 
 
  
 
 
Specialty finance
  $
637,843
    $
677,345
    $
509,165
    $
2,000,799
    $
1,392,944
 
Other commercial and industrial
   
93,905
     
104,178
     
140,452
     
303,030
     
377,515
 
Other
   
1,343
     
1,230
     
839
     
3,493
     
3,039
 
                                         
Total other loans originated for investment
  $
733,091
    $
782,753
    $
650,456
    $
2,307,322
    $
1,773,498
 
                                         
Total loans originated for investment
  $
2,280,165
    $
2,977,123
    $
2,538,989
    $
7,280,559
    $
7,902,238
 
                                         
 
 
 
 
 
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Table of Contents
Loans and Leases Held for Investment
The individual
held-for-investment
loan portfolios are discussed in detail below.
Multi-Family Loans
Multi-family loans are our principal asset. The loans we produce are primarily secured by
non-luxury
residential apartment buildings in New York City that are rent-regulated and feature below-market rents—a market we refer to as our “Primary Lending Niche.” The majority of our multi-family loans are made to long-term owners of buildings with apartments that are subject to rent regulation and feature below-market rents.
At September 30, 2019, multi-family loans represented $30.3 billion, or 74%, of total loans held for investment reflecting a $385.5 million increase from the balance at December 31, 2018. The average multi-family loan had a principal balance of $6.2 million at the end of the current third quarter and an average weighted life of 2.1 years.
At September 30, 2019, the majority of our multi-family loans were secured by rental apartment buildings. In addition, 77.6% of our multi-family loans were secured by buildings in the metro New York City area and 3.6% were secured by buildings elsewhere in New York State. The remaining multi-family loans were secured by buildings outside these markets, including in the four other states served by our retail branch offices.
At September 30, 2019, $18.3 billion or 61% of the Company’s total multi-family portfolio is secured by properties in New York State and subject to the new rent regulation laws. The weighted average LTV of the rent regulated multi-family portfolio was 53.54% as of September 30, 2019.
While a small percentage of our multi-family loans are
ten-year
fixed rate credits, the vast majority of our multi-family loans feature a term of ten or twelve years, with a fixed rate of interest for the first five or seven years of the loan, and an alternative rate of interest in years six through ten or eight through twelve. The rate charged in the first five or seven years is generally based on intermediate-term interest rates plus a spread. During the remaining years, the loan resets to an annually adjustable rate that is tied to the prime rate of interest, plus a spread. Alternately, the borrower may opt for a fixed rate that is tied to the five-year fixed advance rate of the
FHLB-NY,
plus a spread. The fixed-rate option also requires the payment of one percentage point of the then-outstanding loan balance. In either case, the minimum rate at repricing is equivalent to the rate in the initial
five-or
seven-year term.
Multi-family loans that refinance within the first five or seven years are typically subject to an established prepayment penalty schedule. Depending on the remaining term of the loan at the time of prepayment, the penalties normally range from five percentage points to one percentage point of the then-current loan balance. If a loan extends past the fifth or seventh year and the borrower selects the fixed-rate option, the prepayment penalties typically reset to a range of five points to one point over years six through ten or eight through twelve. For example, a
ten-year
multi-family loan that prepays in year three would generally be expected to pay a prepayment penalty equal to three percentage points of the remaining principal balance. A twelve-year multi-family loan that prepays in year one or two would generally be expected to pay a penalty equal to five percentage points.
Because prepayment penalties are recorded as interest income, they are reflected in the average yields on our loans and interest-earning assets, our net interest rate spread and net interest margin, and the level of net interest income we record. No assumptions are involved in the recognition of prepayment income, as such income is only recorded when cash is received.
Our success as a multi-family lender partly reflects the solid relationships we have developed with the market’s leading mortgage brokers, who are familiar with our lending practices, our underwriting standards, and our long-standing practice of basing our loans on the existing,
in-place
cash flows produced by the properties. The process of producing such loans is generally four to six weeks in duration and, because the multi-family market is largely broker-driven, the expense incurred in sourcing such loans is substantially reduced.
 
47
 
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Our emphasis on multi-family loans is driven by several factors, including their structure, which reduces our exposure to interest rate volatility to some degree. Another factor driving our focus on multi-family lending has been the comparative quality of the loans we produce. Reflecting the nature of the buildings securing our loans, our underwriting standards, and the generally conservative LTV ratios our multi-family loans feature at origination, a relatively small percentage of the multi-family loans that have transitioned to
non-performing
status have actually resulted in losses, even when the credit cycle has taken a downward turn.
We primarily underwrite our multi-family loans based on the current cash flows produced by the collateral property, with a reliance on the “income” approach to appraising the properties, rather than the “sales” approach. The sales approach is subject to fluctuations in the real estate market, as well as general economic conditions, and is therefore likely to be more risky in the event of a downward credit cycle turn. We also consider a variety of other factors, including the physical condition of the underlying property; the net operating income of the mortgaged premises prior to debt service; the DSCR, which is the ratio of the property’s net operating income to its debt service; and the ratio of the loan amount to the appraised value (i.e., the LTV) of the property.
In addition to requiring a minimum DSCR of 120% on multi-family buildings, we obtain a security interest in the personal property located on the premises, and an assignment of rents and leases. Our multi-family loans generally represent no more than 75% of the lower of the appraised value or the sales price of the underlying property, and typically feature an amortization period of 30 years. In addition, some of our multi-family loans may contain an initial interest-only period which typically does not exceed two years; however, these loans are underwritten on a fully amortizing basis.
Commercial Real Estate Loans
CRE loans represented $7.0 billion, or 17.1%, of total loans held for investment at the end of the current third quarter, a $13.3 million decrease from the balance at December 31, 2018. At September 30, 2019, the average CRE loan had a principal balance of $6.4 million and the average weighted life was 2.4 years.
The CRE loans we produce are secured by income-producing properties such as office buildings, retail centers,
mixed-use
buildings, and multi-tenanted light industrial properties. At September 30, 2019, 86.4% of our CRE loans were secured by properties in the metro New York City area, while properties in other parts of New York State accounted for 2.6% of the properties securing our CRE credits, while all other states accounted for 11.0%, combined.
The terms of our CRE loans are similar to the terms of our multi-family credits. While a small percentage of our CRE loans feature
ten-year
fixed-rate terms, they primarily feature a fixed rate of interest for the first five or seven years of the loan that is generally based on intermediate-term interest rates plus a spread. During years six through ten or eight through twelve, the loan resets to an annually adjustable rate that is tied to the prime rate of interest, plus a spread. Alternately, the borrower may opt for a fixed rate that is tied to the five-year fixed advance rate of the
FHLB-NY
plus a spread. The fixed-rate option also requires the payment of an amount equal to one percentage point of the then-outstanding loan balance. In either case, the minimum rate at repricing is equivalent to the rate in the initial five- or seven-year term.
Prepayment penalties apply to our CRE loans, as they do our multi-family credits. Depending on the remaining term of the loan at the time of prepayment, the penalties normally range from five percentage points to one percentage point of the then-current loan balance. If a loan extends past the fifth or seventh year and the borrower selects the fixed rate option, the prepayment penalties typically reset to a range of five points to one point over years six through ten or eight through twelve. Our CRE loans tend to refinance within two to three years of origination, as reflected in the expected weighted average life of the CRE portfolio noted above.
Acquisition, Development, and Construction Loans
The balance of ADC loans declined $110.3 million from December 31, 2018 representing 0.7% of total
held-for-investment
loans at the current third-quarter end. Because ADC loans are generally considered to have a higher degree of credit risk, especially during a downturn in the credit cycle, borrowers are required to provide a guarantee of repayment and completion. We had no recoveries against guarantees for the nine months ended September 30, 2019.
 
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C&I Loans
Our C&I loans are divided into two categories: specialty finance loans and leases and other C&I loans, as further described below.
Specialty Finance Loans and Leases
At September 30, 2019, specialty finance loans and leases totaled $2.4 billion of total loans held for investment, up $476.5 million compared to December 31, 2018, representing 5.9% of total
held-for-investment
loans.
We produce our specialty finance loans and leases through a subsidiary that is staffed by a group of industry veterans with expertise in originating and underwriting senior securitized debt and equipment loans and leases. The subsidiary participates in syndicated loans that are brought to them, and equipment loans and leases that are assigned to them, by a select group of nationally recognized sources, and are generally made to large corporate obligors, many of which are publicly traded, carry investment grade or near-investment grade ratings, and participate in stable industries nationwide.
The specialty finance loans and leases we fund fall into three categories: asset-based lending, dealer floor-plan lending, and equipment loan and lease financing. Each of these credits is secured with a perfected first security interest in, or outright ownership of, the underlying collateral, and structured as senior debt or as a
non-cancelable
lease. Asset-based and dealer floor-plan loans are priced at floating rates predominately tied to LIBOR, while our equipment financing credits are priced at fixed rates at a spread over Treasuries.
Since launching our specialty finance business in the third quarter of 2013, no losses have been recorded on any of the loans or leases in this portfolio.
Other C&I Loans
In the three months ended September 30, 2019, other C&I loans totaled $447.1 million compared to $469.9 million at December 31, 2018. Included in the
quarter-end
balance were taxi medallion-related loans of $61.0 million, representing 0.15% of total
held-for-investment
loans at September 30, 2019.
In contrast to the loans produced by our specialty finance subsidiary, the other C&I loans we produce are primarily made to small and
mid-size
businesses in the five boroughs of New York City and on Long Island. Such loans are tailored to meet the specific needs of our borrowers, and include term loans, demand loans, revolving lines of credit, and, to a much lesser extent, loans that are partly guaranteed by the Small Business Administration.
A broad range of other C&I loans, both collateralized and unsecured, are made available to businesses for working capital (including inventory and accounts receivable), business expansion, the purchase of machinery and equipment, and other general corporate needs. In determining the term and structure of other C&I loans, several factors are considered, including the purpose, the collateral, and the anticipated sources of repayment. Other C&I loans are typically secured by business assets and personal guarantees of the borrower, and include financial covenants to monitor the borrower’s financial stability.
The interest rates on our other C&I loans can be fixed or floating, with floating-rate loans being tied to prime or some other market index, plus an applicable spread. Our floating-rate loans may or may not feature a floor rate of interest. The decision to require a floor on other C&I loans depends on the level of competition we face for such loans from other institutions, the direction of market interest rates, and the profitability of our relationship with the borrower.
One-to-Four
Family Loans
At September 30, 2019,
one-to-four
family loans held for investment decreased to $395.0 million, representing 0.97% of total loans held for investment at that date.
Other Loans
At September 30, 2019, other loans totaled $8.7 million and consisted primarily of overdraft loans and loans to
non-profit
organizations. We currently do not offer home equity loans or home equity lines of credit.
 
49
 
Table of Contents
Lending Authority
The loans we originate for investment are subject to federal and state laws and regulations, and are underwritten in accordance with loan underwriting policies approved by the Management Credit Committee, the Commercial Credit Committee and the Mortgage and Real Estate and Credit Committees of the Board, and the Board of Directors of the Bank.
C&I loans less than or equal to $3.0 million are approved by the joint authority of lending officers. C&I loans in excess of $3.0 million and all multifamily, CRE, ADC and Specialty Finance loans regardless of amount are required to be presented to the Management Credit Committee for approval. Multifamily, CRE and C&I loans in excess of $5.0 million and Specialty finance in excess of $15.0 million are also required to be presented to the Commercial Credit Committee and the Mortgage and Real Estate Committee of the Board, as applicable so that the Committees can review the loan’s associated risks. The Commercial Credit and Mortgage and Real Estate Committees have authority to direct changes in lending practices as they deem necessary or appropriate in order to address individual or aggregate risks and credit exposures in accordance with the Bank’s strategic objectives and risk appetites.
All mortgage loans in excess of $50.0 million, specialty finance loans in excess of $15.0 million and all other C&I loans in excess of $5.0 million require approval by the Mortgage and Real Estate Committee or the Credit Committee of the Board, as applicable.
In addition, all loans of $20.0 million or more originated by the Bank continue to be reported to the Board of Directors.
At September 30, 2019, the largest loan in our portfolio was a $246.0 million multi-family loan originated by the Bank on February 8, 2018 collateralized by six properties in Brooklyn, New York. As of the date of this report, the loan has been current since origination.
Geographical Analysis of the Portfolio of Loans Held for Investment
The following table presents a geographical analysis of the multi-family and CRE loans in our
held-for-investment
loan portfolio at September 30, 2019:
                                 
 
At September 30, 2019
 
 
Multi-Family Loans
   
Commercial Real Estate Loans
 
(dollars in thousands)
 
Amount
   
Percent
of Total
   
Amount
   
Percent
of Total
 
New York City:
   
     
     
     
 
Manhattan
  $
7,610,013
     
25.14
 %   $
3,417,963
     
48.93
 %
Brooklyn
   
5,354,342
     
17.69
     
531,293
     
7.61
 
Bronx
   
3,900,616
     
12.89
     
120,498
     
1.73
 
Queens
   
2,532,967
     
8.37
     
594,659
     
8.51
 
Staten Island
   
81,168
     
0.27
     
54,066
     
0.77
 
                                 
Total New York City
  $
19,479,106
     
64.36
 %   $
4,718,479
     
67.55
 %
                                 
New Jersey
   
3,447,539
     
11.39
     
499,613
     
7.15
 
Long Island
   
544,474
     
1.80
     
813,975
     
11.65
 
                                 
Total Metro New York
  $
23,471,119
     
77.55
 %   $
6,032,067
     
86.35
 %
                                 
Other New York State
   
1,089,788
     
3.60
     
186,609
     
2.67
 
All other states
   
5,708,502
     
18.85
     
766,892
     
10.98
 
                                 
Total
  $
30,269,409
     
100.00
 %   $
6,985,568
     
100.00
 %
                                 
 
 
At September 30, 2019, the largest concentration of ADC loans held for investment was located in New York City, with a total of $233.5 million. The majority of our other loans held for investment were secured by properties and/or businesses located in Metro New York.
Outstanding Loan Commitments
At September 30, 2019, we had outstanding loan commitments of $2.3 billion, down $242.9 million from the level at December 31, 2018.
 
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Multi-family, CRE, and ADC loans together represented $774.9 million of
held-for-investment
loan commitments at the end of the quarter, while other loans represented $1.5 billion. Included in the latter amount were commitments to originate specialty finance loans and leases of $1.0 billion and commitments to originate other C&I loans of $324.1 million.
In addition to loan commitments, we had commitments to issue financial
stand-by,
performance
stand-by,
and commercial letters of credit totaling $499.8 million at September 30, 2019, an $8.3 million decrease from the volume at December 31, 2018. 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-Performing
Loans and Repossessed Assets
Total NPAs increased 8% to $67.9 million compared to the second quarter of the year, as the level of
non-accrual
loans rose while repossessed assets were unchanged. Total
non-performing
loans rose 9% to $56.2 million or 0.14% of total loans. Included in this amount is $33.6 million of
non-accrual
taxi medallion-related loans, up modestly compared to the prior quarter. Total repossessed assets of $11.7 million were unchanged compared to the previous quarter. Included in this amount is $9.7 million of repossessed taxi medallions, also unchanged compared to the previous quarter. As of September 30, 2019, our remaining taxi medallion-related loans totaled $61.0 million compared to $65.3 million at June 30, 2019.
Net charge-offs for the three months ended September 30, 2019 totaled $6.5 million or 0.02% of average loans, and down 12% compared to $7.4 million or 0.02% of average loans for the three months ended June 30, 2019. Included in this amount was $2.7 million of taxi medallion-related charge-offs compared to $2.0 million last quarter. Net charge-offs for the nine months ended September 30, 2019 totaled $15.8 million or 0.04% of average loans, up $1.9 million or 14% compared to the nine months ended September 30, 2018. Included in these amounts were taxi medallion-related charge-offs of $6.8 million and $9.7 million, respectively.
The following table presents our
non-performing
loans by loan type and the changes in the respective balances from December 31, 2018 to September 30, 2019:
                                 
 
   
Change from
December 31, 2018
to
September 30, 2019
 
(dollars in thousands)
 
September 30,
2019
 
  
December 31,
2018
 
  
Amount
 
  
Percent
 
Non-Performing
Loans:
 
 
 
  
 
 
  
 
 
  
 
 
Non-accrual
mortgage loans:
    
     
     
     
 
Multi-family
  $
5,793
    $
4,220
    $
1,573
     
37.27
 %
Commercial real estate
   
5,563
     
3,021
     
2,542
     
84.14
 
One-to-four
family
    
2,040
     
1,651
     
389
     
23.56
 
Acquisition, development, and construction
   
—  
      
—  
      
—  
      
—  
  
                                 
Total
non-accrual
mortgage loans
    
13,396
     
8,892
     
4,504
     
50.65
 
Non-accrual
other loans
(1)
    
42,797
     
36,614
     
6,183
     
16.89
 
                                 
Total
non-performing
loans
   $
56,193
    $
45,506
    $
10,687
     
23.48
 %
                                 
 
 
(1) Includes $33.6 million and $35.5 million of
non-accrual
taxi medallion-related loans at September 30, 2019 and December 31, 2018, respectively.
 
 
The following table sets forth the changes in
non-performing
loans over the nine months ended September 30, 2019:
         
(in thousands)
 
 
Balance at December 31, 2018
  $
45,506
 
New
non-accrual
   
35,823
 
Charge-offs
   
(8,596
 )
Transferred to repossessed assets
   
(3,129
 )
Loan payoffs, including dispositions and principal
pay-downs
   
(13,411
 )
Restored to performing status
   
—  
  
         
Balance at September 30, 2019
  $
56,193
 
         
 
 
 
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A loan generally is classified as a
non-accrual
loan when it is 90 days or more past due or when it is deemed to be impaired because we no longer expect to collect all amounts due according to the contractual terms of the loan agreement. When a loan is placed on
non-accrual
status, we cease the accrual of interest owed, and previously accrued interest is reversed and charged against interest income. At September 30, 2019 and December 31, 2018, all of our
non-performing
loans were
non-accrual
loans. A loan is generally returned to accrual status when the loan is current and we have reasonable assurance that the loan will be fully collectible.
We monitor
non-accrual
loans both within and beyond our primary lending area, which is defined as including: (a) the counties that comprise our CRA Assessment area, and (b) the entirety of the following states: Arizona; Florida; New York; New Jersey; Ohio; and Pennsylvania, in the same manner. Monitoring loans generally involves inspecting and
re-appraising
the collateral properties; holding discussions with the principals and managing agents of the borrowing entities and/or retained legal counsel, as applicable; requesting financial, operating, and rent roll information; confirming that hazard insurance is in place or force-placing such insurance; monitoring tax payment status and advancing funds as needed; and appointing a receiver, whenever possible, to collect rents, manage the operations, provide information, and maintain the collateral properties.
It is our policy to order updated appraisals for all
non-performing
loans, irrespective of loan type, that are collateralized by multi-family buildings, CRE properties, or land, in the event that such a loan is 90 days or more past due, and if the most recent appraisal on file for the property is more than one year old. Appraisals are ordered annually until such time as the loan becomes performing and is returned to accrual status. It is not our policy to obtain updated appraisals for performing loans. However, appraisals may be ordered for performing loans when a borrower requests an increase in the loan amount, a modification in loan terms, or an extension of a maturing loan. We do not analyze current LTVs on a portfolio-wide basis.
Non-performing
loans are reviewed regularly by management and discussed on a monthly basis with the Management Credit Committee, the Commercial and the Mortgage and Real Estate Credit Committees of the Board, and the Boards of Directors of the Company and the Bank, as applicable. Collateral-dependent
non-performing
loans are written down to their current appraised values, less certain transaction costs. Workout specialists from our Loan Workout Unit actively pursue borrowers who are delinquent in repaying their loans in an effort to collect payment. In addition, outside counsel with experience in foreclosure proceedings are retained to institute such action with regard to such borrowers.
Properties and assets that are acquired through foreclosure are classified as either OREO or repossessed assets, and are recorded at fair value at the date of acquisition, less the estimated cost of selling the property/asset. Subsequent declines in the fair value of OREO or repossessed assets are charged to earnings and are included in
non-interest
expense. It is our policy to require an appraisal and an environmental assessment of properties classified as OREO before foreclosure, and to
re-appraise
the properties/assets on an
as-needed
basis, and not less than annually, until they are sold. We dispose of such properties/assets as quickly and prudently as possible, given current market conditions and the property’s or asset’s condition.
To mitigate the potential for credit losses, we underwrite our loans in accordance with credit standards that we consider to be prudent. In the case of multi-family and CRE loans, we look first at the consistency of the cash flows being generated by the property to determine its economic value using the “income approach,” and then at the market value of the property that collateralizes the loan. The amount of the loan is then based on the lower of the two values, with the economic value more typically used.
The condition of the collateral property is another critical factor. Multi-family buildings and CRE properties are inspected from rooftop to basement as a prerequisite to approval, with a member of the Mortgage or Credit Committee participating in inspections on multi-family loans to be originated in excess of $7.5 million, and a member of the Mortgage or Credit Committee participating in inspections on CRE loans to be originated in excess of $4.0 million. Furthermore, independent appraisers, whose appraisals are carefully reviewed by our experienced
in-house
appraisal officers and staff, perform appraisals on collateral properties. In many cases, a second independent appraisal review is performed.
In addition to underwriting multi-family loans on the basis of the buildings’ income and condition, we consider the borrowers’ credit history, profitability, and building management expertise. Borrowers are required to present evidence of their ability to repay the loan from the buildings’ current rent rolls, their financial statements, and related documents.
In addition, we work with a select group of mortgage brokers who are familiar with our credit standards and whose track record with our lending officers is typically greater than ten years. Furthermore, in New York City, where the majority of the buildings securing our multi-family loans are located, the rents that tenants may be charged on certain apartments are typically restricted under certain new rent regulation laws. As a result, the rents that tenants pay for such apartments are generally lower than current market rents. Buildings with a preponderance of such rent-regulated apartments are less likely to experience vacancies in times of economic adversity.
 
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Reflecting the strength of the underlying collateral for these loans and the collateral structure, a relatively small percentage of our
non-performing
multi-family loans have resulted in losses over time. While our multi-family lending niche has not been immune to downturns in the credit cycle, the limited number of losses we have recorded, even in adverse credit cycles, suggests that the multi-family loans we produce involve less credit risk than certain other types of loans. In general, buildings that are subject to rent regulation have tended to be stable, with occupancy levels remaining more or less constant over time. Because the rents are typically below market and the buildings securing our loans are generally maintained in good condition, they have been more likely to retain their tenants in adverse economic times. In addition, we exclude any short-term property tax exemptions and abatement benefits the property owners receive when we underwrite our multi-family loans.
To further manage our credit risk, our lending policies limit the amount of credit granted to any one borrower, and typically require minimum DSCRs of 120% for multi-family loans and 130% for CRE loans. Although we typically lend up to 75% of the appraised value on multi-family buildings and up to 65% on commercial properties, the average LTVs of such credits at origination were below those amounts at September 30, 2019. Exceptions to these LTV limitations are minimal and are reviewed on a
case-by-case
basis.
The repayment of loans secured by commercial real estate is often dependent on the successful operation and management of the underlying properties. To minimize our credit risk, we originate CRE loans in adherence with conservative underwriting standards, and require that such loans qualify on the basis of the property’s current income stream and DSCR. The approval of a loan also depends on the borrower’s credit history, profitability, and expertise in property management, and generally requires a minimum DSCR of 130% and a maximum LTV of 65%. In addition, the origination of CRE loans typically requires a security interest in the fixtures, equipment, and other personal property of the borrower and/or an assignment of the rents and/or leases. In addition, our CRE loans may contain an interest-only period which typically does not exceed three years; however, these loans are underwritten on a fully amortizing basis.
Multi-family and CRE loans are generally originated at conservative LTVs and DSCRs, as previously stated. Low LTVs provide a greater likelihood of full recovery and reduce the possibility of incurring a severe loss on a credit; in many cases, they reduce the likelihood of the borrower “walking away” from the property. Although borrowers may default on loan payments, they have a greater incentive to protect their equity in the collateral property and to return their loans to performing status. Furthermore, in the case of multi-family loans, the cash flows generated by the properties are generally below-market and have significant value.
With regard to ADC loans, we typically lend up to 75% of the estimated
as-completed
market value of multi-family and residential tract projects; however, in the case of home construction loans to individuals, the limit is 80%. With respect to commercial construction loans, we typically lend up to 65% of the estimated
as-completed
market value of the property. Credit risk is also managed through the loan disbursement process. Loan proceeds are disbursed periodically in increments as construction progresses, and as warranted by inspection reports provided to us by our own lending officers and/or consulting engineers.
To minimize the risk involved in specialty finance lending and leasing, each of our credits is secured with a perfected first security interest or outright ownership in the underlying collateral, and structured as senior debt or as a
non-cancellable
lease. To further minimize the risk involved in specialty finance lending and leasing, we
re-underwrite
each transaction. In addition, we retain outside counsel to conduct a further review of the underlying documentation.
Other C&I loans are typically underwritten on the basis of the cash flows produced by the borrower’s business, and are generally collateralized by various business assets, including, but not limited to, inventory, equipment, and accounts receivable. As a result, the capacity of the borrower to repay is substantially dependent on the degree to which the business is successful. Furthermore, the collateral underlying the loan may depreciate over time, may not be conducive to appraisal, and may fluctuate in value, based upon the operating results of the business. Accordingly, personal guarantees are also a normal requirement for other C&I loans.
In addition,
one-to-four
family loans, ADC loans, and other loans represented 0.97%, 0.73%, and 7.0%, respectively, of total loans and leases held for investment at September 30, 2019, comparable to the levels at December 31, 2018. Furthermore, at the end of the current third quarter, only 1.5% of our other loans and 0.52% of
one-to-four
family loans were
non-performing
at that date, while we had no
non-performing
ADC loans.
 
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The procedures we follow with respect to delinquent loans are generally consistent across all categories, with late charges assessed, and notices mailed to the borrower, at specified dates. We attempt to reach the borrower by telephone to ascertain the reasons for delinquency and the prospects for repayment. When contact is made with a borrower at any time prior to foreclosure or recovery against collateral property, we attempt to obtain full payment, and will consider a repayment schedule to avoid taking such action. Delinquencies are addressed by our Loan Workout Unit and every effort is made to collect rather than initiate foreclosure proceedings.
The following table presents our loans 30 to 89 days past due by loan type and the changes in the respective balances from December 31, 2018 to September 30, 2019:
                                 
 
   
Change from
December 31, 2018 to
September 30, 2019
 
(dollars in thousands)
 
September 30,
2019
 
  
December 31,
2018
 
  
Amount
   
Percent
 
Loans
30-89
Days Past Due:
 
 
 
  
 
 
  
 
 
  
 
 
Multi-family
  $
—  
     $
 —  
     $
—  
      
—
 %
Commercial real estate
   
9,750
     
—  
      
9,750
     
NM
 
One-to-four
family
    
—  
      
9
     
(9
 )    
NM
 
Acquisition, development, and construction
   
—  
      
—  
      
—  
      
—  
  
Other loans
(1)
    
489
     
555
     
(66
 )    
(11.89
 )
                                 
Total loans
30-89
days past due
   $
10,239
    $
564
    $
9,675
     
1,715.43
 %
                                 
 
 
 
 
 
 
(1) Includes $483,000 and $530,000 of
non-accrual
taxi medallion-related loans at September 30, 2019 and December 31, 2018, respectively
.
 
 
 
 
 
 
Fair values for all multi-family buildings, CRE properties, and land are determined based on the appraised value. If an appraisal is more than one year old and the loan is classified as either
non-performing
or as an accruing TDR, then an updated appraisal is required to determine fair value. Estimated disposition costs are deducted from the fair value of the property to determine estimated net realizable value. In the instance of an outdated appraisal on an impaired loan, we adjust the original appraisal by using a third-party index value to determine the extent of impairment until an updated appraisal is received.
While we strive to originate loans that will perform fully, adverse economic and market conditions, among other factors, can adversely impact a borrower’s ability to repay.
Reflecting management’s assessment of the allowance for loan losses, the Company reported a provision for loan losses of $4.8 million compared to a provision for loan losses of $1.8 million in the previous quarter. On a
year-to-date
basis, the Company reported a provision for loan losses of $5.4 million compared to a provision for loan losses of $15.5 million in the first nine months of 2018.
Based upon all relevant and available information as of the end of the current third quarter, management believes that the allowance for losses on loans was appropriate at that date.
At September 30, 2019, our three largest
non-performing
loans were two C&I loans with balances of $7.2 million and $2.8 million, and a multi-family loan with a balance of $3.7 million. The borrower with the $7.2 million
non-performing
loan also has a $599,000
non-performing
loan as part of his relationship.
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 for
work-out
concessions of any nature depends upon the facts and circumstances of each transaction, which may change from period to period, and involve management’s judgment regarding the likelihood that the concession will result in the maximum recovery for the Company.
Loans modified as TDRs are placed on
non-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, 2019,
non-accrual
TDRs included taxi medallion-related loans with a combined balance of $27.4 million.
 
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At September 30, 2019, loans on which concessions were made with respect to rate reductions and/or extensions of maturity dates totaled $35.2 million; loans in connection with which forbearance agreements were reached totaled $8.1 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, and ADC loans were 100%. The success rates for restructured
one-to-four
family and other loans were 50% and 88%, respectively, at September 30, 2019.
Analysis of Troubled Debt Restructurings
The following table sets forth the changes in our TDRs over the nine months ended September 30, 2019:
                         
(in thousands)
 
Accruing
   
Non-Accrual
   
Total
 
Balance at December 31, 2018
  $
9,162
    $
25,719
    $
34,881
 
New TDRs
   
865
     
26,627
     
27,492
 
Charge-offs
   
—  
      
(7,294
 )    
(7,294
 )
Transferred to repossessed assets
   
—  
      
(189
 )    
(189
 )
Loan payoffs, including dispositions and principal
pay-downs
   
(6,813
 )    
(4,744
 )    
(11,557
 )
                         
Balance at September 30, 2019
  $
3,214
    $
40,119
    $
43,333
 
                         
 
 
 
 
 
 
On a limited basis, we may provide additional credit to a borrower after a loan has been placed on
non-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, 2019, 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 of
non-payment
of a restructured loan.
Except for the
non-accrual
loans and TDRs disclosed in this filing, we did not have any potential problem loans at the end of the current third 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.
 
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Asset Quality Analysis
The following table presents information regarding our consolidated allowance for loan losses, our
non-performing
assets, and our 30 to 89 days past due loans at September 30, 2019 and December 31, 2018.
                 
(dollars in thousands)
 
At or For the
Nine Months Ended
September 30, 2019
 
  
At or For the
Year Ended 
December 31, 2018
 
Allowance for Loan Losses:
 
 
 
  
 
 
Balance at beginning of period
  $
159,820
    $
158,046
 
Provision for losses
   
5,403
     
18,256
 
Charge-offs:
   
     
 
Multi-family
   
(437
 )    
(34
 )
Commercial real estate
   
—  
      
(3,191
 )
One-to-four
family residential
    
(949
 )    
—  
  
Acquisition, development, and construction
   
—  
      
(2,220
 )
Other loans
   
(15,010
 )    
(12,897
 )
                 
Total charge-offs
   
(16,396
 )    
(18,342
 )
Recoveries:
   
     
 
Multi-family
   
—  
      
—  
  
Commercial real estate
   
—  
      
137
 
One-to-four
family residential
    
—  
      
—  
  
Acquisition, development, and construction
   
43
     
127
 
Other loans
   
563
     
1,596
 
                 
Total recoveries
   
606
     
1,860
 
                 
Net charge-offs
   
(15,790
 )    
(16,482
 )
                 
Balance at end of period
  $
149,433
    $
159,820
 
                 
Non-Performing
Assets:
 
 
 
  
 
 
Non-accrual
mortgage loans:
    
     
 
Multi-family
  $
5,793
    $
4,220
 
Commercial real estate
   
5,563
     
3,021
 
One-to-four
family residential
    
2,040
     
1,651
 
Acquisition, development, and construction
   
—  
      
—  
  
                 
Total
non-accrual
mortgage loans
    
13,396
     
8,892
 
Other
non-accrual
loans
    
42,797
     
36,614
 
                 
Total
non-performing
loans
   $
56,193
    $
45,506
 
Repossessed assets
(1)
    
11,691
     
10,794
 
                 
Total
non-performing
assets
   $
67,884
    $
56,300
 
                 
Asset Quality Measures:
 
 
 
  
 
 
Non-performing
loans to total loans
    
0.14
 %    
0.11
 %
Non-performing
assets to total assets
    
0.13
     
0.11
 
Allowance for loan losses to
non-performing
loans
    
265.93
     
351.21
 
Allowance for loan losses to total loans
   
0.37
     
0.40
 
Net charge-offs during the period to average loans outstanding during the period
   
0.04
     
0.04
 
Loans
30-89
Days Past Due:
 
 
 
  
 
 
Multi-family
  $
—  
     $
—  
  
Commercial real estate
   
9,750
     
—  
  
One-to-four
family residential
    
—  
      
9
 
Acquisition, development, and construction
   
—  
      
—  
  
Other loans
   
489
     
555
 
                 
Total loans
30-89
days past due
(2)
   $
10,239
    $
564
 
                 
 
 
 
 
 
 
(1) Includes $9.7 million and $8.2 million of repossessed taxi medallions at September 30, 2019 and December 31, 2018, respectively.
 
 
 
 
 
 
(2) Includes $483,000 and $530,000 of taxi medallion loans at September 30, 2019 and December 31, 2018, respectively.
 
 
 
 
 
 
 
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Geographical Analysis of
Non-Performing
Loans
The following table presents a geographical analysis of our
non-performing
loans at September 30, 2019:
         
(in thousands)
 
 
New York
  $
48,319
 
New Jersey
   
6,619
 
Arizona
   
329
 
All other states
   
926
 
         
Total
non-performing
loans
   $
56,193
 
         
 
 
 
 
 
 
Securities
Securities increased $243.3 million from December 31, 2018, up 6% annualized, to $5.9 billion or 11.2% of total assets at September 30, 2019. During the second quarter of 2017, we reclassified our entire securities portfolio as
“Available-for-Sale”.
Accordingly, at September 30, 2019 and December 31, 2018, we had no securities designated as
“Held-to-Maturity”.
During the current third quarter, the Company purchased $20.2 million of CRA - qualified loans. Subsequently, the loans were securitized and transfered to the securities portfolio. At September 30, 2019, 35% of the securities portfolio was tied to floating rates, 31% of which is currently at floating rates, mainly one and three month LIBOR and prime.
Federal Home Loan Bank Stock
As a member of the
FHLB-NY,
the Bank is required to acquire and hold shares of its capital stock, and to the extent FHLB borrowings are utilized, may further invest in FHLB stock. At September 30, 2019 and December 31, 2018, the Bank held
FHLB-NY
stock in the amount of $606.4 million and $644.6 million, respectively.
FHLB-NY
stock continued to be valued at par, with no impairment required at that date.
Dividends from the
FHLB-NY
to the Bank totaled $9.2 million and $10.4 million, respectively, in the three months ended September 30, 2019 and 2018.
Bank-Owned Life Insurance
BOLI is recorded at the total cash surrender value of the policies in the Consolidated Statements of Condition, and the income generated by the increase in the cash surrender value of the policies is recorded in
Non-Interest
Income in the Consolidated Statements of Income and Comprehensive Income. Reflecting both an increase in the cash surrender value of the underlying policies and additional purchases, our investment in BOLI increased $51.1 million to $1.0 billion at September 30, 2019 compared to $977.6 million at December 31, 2018.
Goodwill
We record goodwill in our Consolidated Statements of Condition in connection with certain of our business combinations. Goodwill, which is tested at least annually for impairment, refers to the difference between the purchase price and the fair value of an acquired company’s assets, net of the liabilities assumed. Goodwill totaled $2.4 billion at both September 30, 2019 and December 31, 2018. For more information about the Company’s goodwill, see the discussion of “Critical Accounting Policies” earlier in this report.
Sources of Funds
The Parent Company (i.e., the Company on an unconsolidated basis) has three primary funding sources for the payment of dividends, share repurchases, and other corporate uses: dividends paid to the Company by the Banks; capital raised through the issuance of stock; and funding raised through the issuance of debt instruments.
On a consolidated basis, our funding primarily stems from a combination of the following sources: deposits; borrowed funds, primarily in the form of wholesale borrowings; the cash flows generated through the repayment and sale of loans; and the cash flows generated through the repayment and sale of securities.
Loan repayments and sales totaled $6.6 billion in the nine months ended September 30, 2019, up $125.5 million from the $6.5 billion recorded in the year-earlier nine months. Cash flows from the repayment and sales of securities totaled $1.9 billion and $725.3 million, respectively, in the corresponding periods, while purchases of securities totaled $2.1 billion and $2.1 billion, respectively.
Deposits
Our ability to retain and attract deposits depends on numerous factors, including customer satisfaction, the rates of interest we pay, the types of products we offer, and the attractiveness of their terms. From time to time, we have chosen not to compete actively for deposits, depending on our access to deposits through acquisitions, the availability of lower-cost funding sources, the impact of competition on pricing, and the need to fund our loan demand.
 
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At September 30, 2019, total deposits of $31.6 billion were up $807.7 million as compared to the level recorded at December 31, 2018. CDs represented 45.2% of total deposits at the end of the third quarter, and total deposits represented 60.1% of total assets at that date.
Included in the September 30, 2019 balance of deposits were institutional deposits of $1.0 billion and municipal deposits of $1.4 billion, as compared to $1.8 billion and $961.9 million, respectively, at December 31, 2018. Brokered deposits rose $841.1 million during the first nine months of the year to $4.8 billion, reflecting a $461.3 million decrease in brokered money market accounts to $1.4 billion and a $1.2 billion increase in brokered CDs to $2.5 billion. In addition, at September 30, 2019, we had $938.1 million of brokered interest bearing checking accounts, an increase of $151.9 million from December 31, 2018. The extent to which we accept brokered deposits depends on various factors, including the availability and pricing of such wholesale funding sources, and the availability and pricing of other sources of funds.
Borrowed Funds
Borrowed funds consist primarily of wholesale borrowings (i.e.,
FHLB-NY
advances, repurchase agreements, and federal funds purchased) and, to a far lesser extent, junior subordinated debentures. As of September 30, 2019, the balance of borrowed funds decreased $581.5 million from
year-end
2018 to $13.6 billion, representing 25.9% of total assets, at that date. The majority of the decrease was related to a lower balance of wholesale borrowings.
Wholesale Borrowings
Wholesale borrowings declined $582.0 million from the
year-end
2018 amount to $13.0 billion, representing 24.7% of total assets at September 30, 2019.
FHLB-NY
advances decreased $882.0 million since December 31, 2018, to $12.2 billion, while the balance of repurchase agreements was $800.0 million at September 30, 2019 and $500 million at December 31, 2018.
Subordinated Notes
On November 6, 2018, the Company issued $300 million aggregate principal amount of its 5.90%
Fixed-to-Floating
Rate Subordinated Notes due 2028. The Company intends to use the net proceeds from the Offering for general corporate purposes, which may include opportunistic repurchases of shares of its common stock pursuant to its previously announced share repurchase program. The Notes were offered to the public at 100% of their face amount. At September 30, 2019, the balance of subordinated notes was $294.9 million, which excludes certain costs related to their issuance.
Junior Subordinated Debentures
Junior subordinated debentures totaled $359.8 million at September 30, 2019, comparable to the balance at December 31, 2018.
Risk Definitions
The following section outlines the definitions of interest rate risk, market risk, and liquidity risk, and how the Company manages market and interest rate risk:
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 timing of rate changes and the timing of cash flows
(re-pricing
risk); from changing rate relationships among different yield curves affecting Company activities (basis risk); from changing rate relationships across the spectrum of maturities (yield curve risk); and from interest-related options embedded in a bank’s products (options risk). The evaluation of interest rate risk must consider the impact of complex, illiquid hedging strategies or products, and also the potential impact on fee income (e.g. prepayment income) which is sensitive to changes in interest rates. In those situations where trading is separately managed, this refers to structural positions and not trading portfolios.
Market Risk –
Market risk is the risk to earnings 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 focuses on the changes in market factors (e.g., interest rates, market liquidity, and volatilities) that affect the value of traded instruments. The primary accounts affected by market risk are those which are revalued for financial presentation (e.g., trading accounts for securities, derivatives, and foreign exchange products).
 
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Liquidity Risk –
Liquidity risk is the risk to earnings or capital arising from a bank’s inability to meet its obligations when they become due, without incurring unacceptable losses. Liquidity risk includes the inability to manage unplanned decreases or changes in funding sources. Liquidity risk also arises from a bank’s failure to recognize or address changes in market conditions that affect the ability to liquidate assets quickly and with minimal loss in value.
Management of Market and Interest Rate Risk
We manage our assets and liabilities to reduce our exposure to changes in market interest rates. The asset and liability management process has three primary objectives: to evaluate the interest rate risk inherent in certain balance sheet accounts; to determine the appropriate level of risk, given our business strategy, risk appetite, operating environment, capital and liquidity requirements, and performance objectives; and to manage that risk in a manner consistent with guidelines approved by the Boards of Directors of the Company and the Bank.
Market and Interest Rate Risk
As a financial institution, we are focused on reducing our exposure to interest rate volatility. Changes in interest rates pose the greatest challenge to our financial performance, as such changes can have a significant impact on the level of income and expense recorded on a large portion of our interest-earning assets and interest-bearing liabilities, and on the market value of all interest-earning assets, other than those possessing a short term to maturity. To reduce our exposure to changing rates, the Boards of Directors and management monitor interest rate sensitivity on a regular or as needed basis so that adjustments to the asset and liability mix can be made when deemed appropriate.
The actual duration of
held-for-investment
mortgage loans and mortgage-related securities can be significantly impacted by changes in prepayment levels and market interest rates. The level of prepayments may be impacted by a variety of factors, including the economy in the region where the underlying mortgages were originated; seasonal factors; demographic variables; and the assumability of the underlying mortgages. However, the largest determinants of prepayments are interest rates and the availability of refinancing opportunities.
We managed our interest rate risk by taking the following actions: (1) We continued to emphasize the origination and retention of intermediate-term assets, primarily in the form of multi-family and CRE loans; (2) We continued the origination of certain C&I loans that feature floating interest rates; (3) We replaced maturing wholesale borrowings with longer term borrowings, including some with callable features; and (4) We entered into an interest rate swap with a notional amount of $2.0 billion to hedge certain real estate loans.
LIBOR Transition Process
On July 27, 2017, the U.K. Financial Conduct Authority (FCA), which regulates LIBOR, announced that it will no longer persuade or compel banks to submit rates for the calculation of LIBOR after 2021. Accordingly, the FRB has recommended an alternative index dubbed the Secured Overnight Financing Rate or “SOFR”. The Bank has established a
sub-committee
of its ALCO to address issues related to the
phase-out
and ultimate transition away from LIBOR to an alternate rate. This
sub-committee
is led by our ERM group and consists of personnel from various departments throughout the Bank including lending, loan administration, credit risk management, finance/treasury, IT and operations. The Company has LIBOR-based contracts that extend beyond 2021 included in loans and leases, securities, wholesale borrowings, derivative financial instruments and long-term debt. The
sub-committee
has reviewed contract fallback language and noted that certain contracts will need updated provisions for the transition and is coordinating with impacted business lines.
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.
 
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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, 2019, our
one-year
gap was a negative 13.12%, compared to a negative 22.56% at December 31, 2018. The change in our
one-year
gap reflects an increase in expected prepayments on loans coupled with the addition of the previously mentioned interest rate swap, partially offset by an increase in CDs maturing within one year.
The table on the following page sets forth the amounts of interest-earning assets and interest-bearing liabilities outstanding at September 30, 2019 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, 2019 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 CPR of 12% per annum; for multi-family and CRE loans, prepayment rates are forecasted at weighted average CPRs of 20% and 12% 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 the results of this analysis, savings accounts were assumed to decay at a rate of 60% for the first five years and 40% for years six through ten. Interest-bearing checking accounts were assumed to decay at a rate of 69% for the first five years and 31% 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 83% for the first five years and 17% for years six through ten.
 
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At September 30, 2019
 
(dollars in thousands)
  
Three
Months or Less
   
Four to
Twelve
Months
   
More Than
One Year
to Three Years
   
More Than
Three Years
to Five Years
   
More Than
Five Years
to 10 Years
   
More
Than
10 Years
   
Total
 
INTEREST-EARNING ASSETS:
   
     
     
     
     
     
     
 
Mortgage and other loans
(1)
   $
6,114,934
    $
8,216,484
    $
15,280,964
    $
9,231,977
    $
1,736,670
    $
206,999
    $
40,788,028
 
Mortgage-related securities 
(2)(3)
    
178,235
     
232,957
     
809,629
     
659,656
     
745,240
     
715,962
     
3,341,679
 
Other securities
(2)
    
2,299,027
     
400,778
     
125,586
     
63,549
     
193,702
     
36,618
     
3,119,260
 
Interest-earning cash and cash equivalents
   
700,095
     
—  
      
—  
      
—  
      
—  
      
—  
      
700,095
 
                                                         
Total interest-earning assets
   
9,292,291
     
8,850,219
     
16,216,179
     
9,955,182
     
2,675,612
     
959,579
     
47,949,062
 
                                                         
INTEREST-BEARING LIABILITIES:
   
     
     
     
     
     
     
 
Interest-bearing checking and money market accounts
   
4,376,796
     
812,842
     
1,481,637
     
882,876
     
2,406,252
     
—  
      
9,960,403
 
Savings accounts
   
812,020
     
990,851
     
661,428
     
443,156
     
1,910,242
     
—  
      
4,817,697
 
Certificates of deposit
   
3,754,894
     
9,279,604
     
1,033,919
     
195,715
     
38
     
—  
      
14,264,170
 
Borrowed funds
   
1,882,926
     
3,125,000
     
1,297,661
     
—  
      
7,180,000
     
140,773
     
13,626,360
 
                                                         
Total interest-bearing liabilities
   
10,826,636
     
14,208,297
     
4,474,645
     
1,521,747
     
11,496,532
     
140,773
     
42,668,630
 
                                                         
Interest rate sensitivity gap per period
(4)
   $
(1,534,345
 )   $
(5,358,078
 )   $
11,741,534
    $
8,433,435
    $
(8,820,920
 )   $
818,806
    $
5,280,432
 
                                                         
Cumulative interest rate sensitivity gap
  $
(1,534,345
 )   $
(6,892,423
 )   $
4,849,111
    $
13,282,546
    $
4,461,625
    $
5,280,432
     
 
                                                         
Cumulative interest rate sensitivity gap as a percentage of total assets
   
(2.92
 )%    
(13.12
 )%    
9.23
 %    
25.28
 %    
8.49
 %    
10.05
 %    
 
Cumulative net interest-earning assets as a percentage of net interest-bearing liabilities
   
85.83
 %    
72.47
 %    
116.43
 %    
142.80
 %    
110.49
 %    
112.38
 %    
 
                                                         
 
 
(1) For the purpose of the gap analysis,
non-performing
loans and the allowances for loan losses have been excluded.
 
 
(2) Mortgage-related and other securities, including FHLB stock, are shown at their respective carrying amounts.
 
 
(3) Expected amount based, in part, on historical experience.
 
 
(4) The interest rate sensitivity gap per period represents the difference between interest-earning assets and interest-bearing liabilities.
 
 
 
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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, there can be no assurance that the assumed prepayment and decay rates will approximate actual future loan and securities prepayments and deposit withdrawal activity.
To validate our prepayment assumptions for our multi-family and CRE loan portfolios, we perform a monthly analysis, during which we review our historical prepayment rates and compare them to our projected prepayment rates. We continually review the actual prepayment rates to ensure that our projections are as accurate as possible, since prepayments on these types of loans are not as closely correlated to changes in interest rates as prepayments on
one-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, 2019, the impact of a
100-bp
decline in market interest rates would have increased our projected prepayment rates for multi-family and CRE loans by a constant prepayment rate of 11.47% per annum. Conversely, the impact of a
100-bp
increase in market interest rates would have decreased our projected prepayment rates for multi-family and CRE loans by a constant prepayment rate of 8.08% per annum.
Certain shortcomings are inherent in the method of analysis presented in the preceding Interest Rate Sensitivity Analysis. For example, although certain assets and liabilities may have similar maturities or periods to repricing, they may react in different degrees to changes in market interest rates. The interest rates on certain types of assets and liabilities may fluctuate in advance of the market, while interest rates on other types may lag behind changes in market interest rates. Additionally, certain assets, such as adjustable-rate loans, have features that restrict changes in interest rates both on a short-term basis and over the life of the asset. Furthermore, in the event of a change in interest rates, prepayment and early withdrawal levels would likely deviate from those assumed in calculating the table. Also, the ability of some borrowers to repay their adjustable-rate loans may be adversely impacted by an increase in market interest rates.
Interest rate sensitivity is also monitored through the use of a model that generates estimates of the change in our Economic Vale of Equity (“EVE”) over a range of interest rate scenarios. EVE is defined as the net present value of expected cash flows from assets, liabilities, and
off-balance
sheet contracts. The EVE ratio, under any interest rate scenario, is defined as the EVE in that scenario divided by the market value of assets in the same scenario. The model assumes estimated loan prepayment rates, reinvestment rates, and deposit decay rates similar to those utilized in formulating the preceding Interest Rate Sensitivity Analysis.
Based on the information and assumptions in effect at September 30, 2019, the following table reflects the estimated percentage change in our EVE, assuming the changes in interest rates noted:
         
Change in Interest Rates
(in basis points)
(1)
  
Estimated Percentage Change in
Economic Value of Equity
 
+100
   
(3.12
 )%
+200
   
(9.96
 )%
-100
   
(2.45
 )%
 
 
(1) The impact of a
200-bp
reduction in interest rates is not presented in view of the current level of the federal funds rate and other short-term interest rates.
 
 
The net changes in EVE presented in the preceding table are within the parameters approved by the Boards of Directors of the Company and the Bank.
As with the Interest Rate Sensitivity Analysis, certain shortcomings are inherent in the methodology used in the preceding interest rate risk measurements. Modeling changes in EVE requires that certain assumptions be made which may or may not reflect the manner in which actual yields and costs respond to changes in market interest rates. In this regard, the EVE Analysis presented above assumes that the composition of our interest rate sensitive assets and liabilities existing at the beginning of a period remains constant over the period being measured, and also assumes that a particular change in interest rates is reflected uniformly across the yield curve, regardless of the duration to maturity or repricing of specific assets and liabilities. Furthermore, the model does not take into account the benefit of any strategic actions we may take to further reduce our exposure to interest rate risk. Accordingly, while the EVE Analysis provides an indication of our interest rate risk exposure at a particular point in time, such measurements are not intended to, and do not, provide a precise forecast of the effect of changes in market interest rates on our net interest income, and may very well differ from actual results.
We also utilize an internal net interest income simulation to manage our sensitivity to interest rate risk. The simulation incorporates various market-based assumptions regarding the impact of changing interest rates on future levels of our financial assets and liabilities. The assumptions used in the net interest income simulation are inherently uncertain. Actual results may differ significantly from those presented in the following table, due to the frequency, 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.
 
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Based on the information and assumptions in effect at September 30, 2019, the following table reflects the estimated percentage change in future net interest income for the next twelve months, assuming the changes in interest rates noted:
         
Change in Interest Rates
(in basis points)
(1)(2)
  
Estimated Percentage Change in
Future Net Interest Income
 
+100
   
(2.72
 )%
+200
   
(5.03
 )%
-100
   
2.63
 %
 
 
(1) In general, short- and long-term rates are assumed to increase in parallel fashion across all four quarters and then remain unchanged.
 
 
(2) The impact of a
200-bp
reduction in interest rates is not presented in view of the current level of the federal funds rate and other short-term interest rates.
 
 
Future changes in our mix of assets and liabilities may result in greater changes to our gap, NPV, and/or net interest income simulation.
In the event that our NPV and net interest income sensitivities were to breach our internal policy limits, we would undertake the following actions to ensure that appropriate remedial measures were put in place:
  • Our ALCO Committee would inform the Board of Directors of the variance, and present recommendations to the Board regarding proposed courses of action to restore conditions to within-policy tolerances.
 
 
  • In formulating appropriate strategies, the ALCO Committee would ascertain the primary causes of the variance from policy tolerances, the expected term of such conditions, and the projected effect on capital and earnings.
 
 
Where temporary changes in market conditions or volume levels result in significant increases in risk, strategies may involve reducing open positions or employing synthetic hedging techniques to more immediately reduce risk exposure. Where variance from policy tolerances is triggered by more fundamental imbalances in the risk profiles of core loan and deposit products, a remedial strategy may involve restoring balance through natural hedges to the extent possible before employing synthetic hedging techniques. Other strategies might include:
  • Asset restructuring, involving sales of assets having higher risk profiles, or a gradual restructuring of the asset mix over time to affect the maturity or repricing schedule of assets;
 
 
  • Liability restructuring, whereby product offerings and pricing are altered or wholesale borrowings are employed to affect the maturity structure or repricing of liabilities;
 
 
  • Expansion or shrinkage of the balance sheet to correct imbalances in the repricing or maturity periods between assets and liabilities; and/or
 
 
  • Use or alteration of
off-balance
sheet positions, including interest rate swaps, caps, floors, options, and forward purchase or sales commitments.
 
 
In connection with our net interest income simulation modeling, we also evaluate the impact of changes in the slope of the yield curve. At September 30, 2019, our analysis indicated that an immediate inversion of the yield curve would be expected to result in a 6.11% decrease in net interest income; conversely, an immediate steepening of the yield curve would be expected to result in a 10.77% increase in net interest income. It should be noted that the yield curve changes in these scenarios were updated, given the changing market rate environment, which resulted in an increase in the income sensitivity.
Liquidity
We manage our liquidity to ensure that cash flows are sufficient to support our operations, and to compensate for any temporary mismatches between sources and uses of funds caused by variable loan and deposit demand.
We monitor our liquidity daily to ensure that sufficient funds are available to meet our financial obligations. Our most liquid assets are cash and cash equivalents, which totaled $854.7 million and $1.5 billion, respectively, at September 30, 2019 and December 31, 2018. As in the past, our portfolios of loans and securities provided liquidity in the first nine months of the year, with cash flows from the repayment and sale of loans totaling $6.6 billion and cash flows from the repayment and sale of securities totaling $1.9 billion.
 
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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 access to the Bank’s approved lines of credit with various counterparties, including the
FHLB-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 pledged to the respective institutions and, to a lesser extent, the available amount of securities that may be pledged to collateralize our borrowings. At September 30, 2019, our available borrowing capacity with the
FHLB-NY
was $8.3 billion. In addition, the Bank had $5.9 billion of
available-for-sale
securities, at that date.
Furthermore, the Bank has agreements with the
FRB-NY
that enables it to access the discount window as a further means of enhancing their liquidity if need be. In connection with their agreements, the Bank pledged certain loans and securities to collateralize any funds they may borrow. At September 30, 2019, the maximum amount the Bank could borrow from the
FRB-NY
was $1.2 billion. 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 2019, the volume of loans originated for investment was $7.3 billion. During this time, the net cash used in investing activities totaled $847.0 million. Our operating activities provided net cash of $339.0 million, while the net cash used in our financing activities totaled $112.3 million.
CDs due to mature in one year or less as of September 30, 2019 totaled $13.0 billion, representing 91.4% 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 the Bank and must provide for its own liquidity. In addition to operating expenses and any share repurchases, the Parent Company is responsible for paying 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 2018, the Company was required to receive a
non-objection
from the FRB to pay all dividends;
non-objections
were received from the FRB in all four quarters of the year. Beginning in 2019, the Company no longer is required to receive
non-objection
from the FRB to pay dividends.
The Parent Company’s ability to pay dividends may also depend, in part, upon dividends it receives from the Bank. The ability of the Community Bank to pay dividends and other capital distributions to the Parent Company is generally limited by New York State Banking Law and regulations, and by certain regulations of the FDIC. In addition, the Superintendent of the New York State Department of Financial Services (the “Superintendent”), the FDIC, and the FRB, for reasons of safety and soundness, may prohibit the payment of dividends that are otherwise permissible by regulations.
Under New York State Banking Law, a New York State-chartered stock-form savings bank or commercial bank may declare and pay dividends out of its net profits, unless there is an impairment of capital. However, 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 nine months ended September 30, 2019, the Bank paid dividends totaling $285.0 million to the Parent Company, leaving $290.6 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, 2019 included $180.3 million in cash and cash equivalents. If the Bank was 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.
Capital Position
On March 17, 2017, we issued 515,000 shares of preferred stock. The offering generated capital of $502.8 million, net of underwriting and other issuance costs, for general corporate purposes, with the bulk of the proceeds being distributed to the Community Bank.
On October 24, 2018, the Company announced that it had received regulatory approval to repurchase its common stock. Accordingly, the Board of Directors approved a $300 million common share repurchase program. The repurchase program was funded through the issuance of a like amount of subordinated notes. As of September 30, 2019, the Company has repurchased a total of 23.9 million shares at an average price of $9.54 or an aggregate purchase price of $227.9 million, leaving $72.1 million remaining under the current authorization.
 
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Table of Contents
Common stockholders’ equity represented 11.79% and 11.85% of total assets at September 30, 2019 and December 31, 2018, and was equivalent to a book value per common share of $13.25, and $12.99 at the respective dates. We calculate book value per common share by dividing the amount of common stockholders’ equity at the end of a period by the number of common shares outstanding at the same date. At September 30, 2019 and December 31, 2018, we had outstanding common shares of 467,350,860 and 473,536,604, respectively.
Tangible common stockholders’ equity was relatively stable at $3.8 billion, representing 7.51% of tangible assets and a tangible book value per common share of $8.06 at September 30, 2019. At December 31, 2018, tangible common stockholders’ equity totaled $3.7 billion or 7.51% of tangible assets and a tangible book value per common share of $7.85.
We calculate tangible common stockholders’ equity by subtracting the amount of goodwill recorded at the end of a period from the amount of common stockholders’ equity recorded at the same date. At September 30, 2019 and December 31, 2018 we recorded goodwill of $2.4 billion, respectively, at the corresponding dates. (See the discussion and reconciliations of stockholders’ equity, common stockholders’ equity, and tangible common stockholders’ equity; total assets and tangible assets; and the related financial measures that appear earlier in this report.)
Stockholders’ equity, common stockholders’ equity, and tangible common stockholders’ equity include AOCL, which decreased $59.8 million from the balance at the end of last year and decreased $63.2 million from the
year-ago
quarter to $27.9 million at September 30, 2019. The
year-to-date
decrease was primarily the result of a $54.3 million change in the net unrealized gain (loss) on
available-for-sale
securities, net of tax, from a loss of $10.5 million at December 31, 2018 to a gain of $43.8 million at September 30, 2019 and a $5.5 million decrease in net unrealized loss on pension and post-retirement obligations, net of tax, to $65.6 million.
At September 30, 2019, our capital measures continued to exceed the minimum federal requirements for a bank holding company and for a bank. 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 and for the Bank on a stand-alone basis, as well as the respective minimum regulatory capital requirements, at that date:
Regulatory Capital Analysis (the Company)
                                                                 
 
Risk-Based Capital
   
 
At September 30, 2019
 
Common Equity
Tier 1
   
Tier 1
   
Total
   
Leverage Capital
 
(dollars in thousands)
 
Amount
   
Ratio
   
Amount
   
Ratio
   
Amount
   
Ratio
   
Amount
   
Ratio
 
Total capital
  $
3,796,601
     
10.15
 %   $
4,299,441
     
11.49
 %   $
5,091,873
     
13.61
 %   $
4,299,441
     
8.65
 %
Minimum for capital adequacy purposes
   
1,683,324
     
4.50
     
2,244,431
     
6.00
     
2,992,575
     
8.00
     
1,988,364
     
4.00
 
                                                                 
Excess
  $
2,113,277
     
5.65
 %   $
2,055,010
     
5.49
 %   $
2,099,298
     
5.61
 %   $
2,311,077
     
4.65
 %
                                                                 
 
 
At September 30, 2019, our total risk-based capital ratio exceeded the minimum requirement for capital adequacy purposes by 561 bp and the fully-phased in capital conservation buffer by 311 bp.
Regulatory Capital Analysis (New York Community Bank)
                                                                 
 
Risk-Based Capital
   
 
At September 30, 2019
 
Common Equity
Tier 1
   
Tier 1
   
Total
   
Leverage Capital
 
(dollars in thousands)
 
Amount
   
Ratio
   
Amount
   
Ratio
   
Amount
   
Ratio
   
Amount
   
Ratio
 
Total capital
  $
4,770,095
     
12.76
 %   $
4,770,095
     
12.76
 %   $
4,920,605
     
13.16
 %   $
4,770,095
     
9.60
 %
Minimum for capital adequacy purposes
   
1,682,572
     
4.50
     
2,243,429
     
6.00
     
2,991,239
     
8.00
     
1,987,679
     
4.00
 
                                                                 
Excess
  $
3,087,523
     
8.26
 %   $
2,526,666
     
6.76
 %   $
1,929,366
     
5.16
 %   $
2,782,416
     
5.60
 %
                                                                 
 
 
The 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%.
 
65
 
Table of Contents
Earnings Summary for the Three Months Ended September 30, 2019
The Company reported net income for the three months ended September 30, 2019 of $99.0 million, up 2% compared to the $97.2 million the Company reported for the three months ended June 30, 2019, but down 7% compared to the $106.8 million reported for the three months ended September 30, 2018. On a
year-to-date
basis, the Company reported net income of $293.9 million, down 8% compared to the $320.7 million we reported for the nine months ended September 30, 2018.
Net income available to common shareholders for the three months ended September 30, 2019 was $90.8 million or $0.19 per diluted common share, up 2% compared to the $89.0 million or $0.19 per diluted common share for the three months ended June 30, 2019, but down 8% compared to $98.6 million or $0.20 per diluted common share we reported for the three months ended September 30, 2018. On a
year-to-date
basis, net income available to common shareholders was $269.2 million or $0.57 per diluted common share, down 9% compared to $296.1 million or $0.60 per diluted common share for the nine months ended September 30, 2018.
Net Interest Income
Net interest income is our primary source of income. Its level is a function of the average balance of our interest-earning assets, the average balance of our interest-bearing liabilities, and the spread between the yield on such assets and the cost of such liabilities. These factors are influenced by both the pricing and mix of our interest-earning assets and our interest-bearing liabilities which, in turn, are impacted by various external factors, including the local economy, competition for loans and deposits, the monetary policy of the FOMC, and market interest rates.
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, as well as securities. Since prepayment income is recorded as interest income, an increase or decrease in its level will also be reflected in the average yields (as applicable) on our loans, securities, and interest-earning assets, and therefore in our interest rate spread and net interest margin.
It should be noted that the level of prepayment income on loans recorded in any given period depends on the volume of loans that refinance or prepay during that time. Such activity is largely dependent on such external factors as current market conditions, including real estate values, and the perceived or actual direction of market interest rates. In addition, while a decline in market interest rates may trigger an increase in refinancing and, therefore, prepayment income, so too may an increase in market interest rates. It is not unusual for borrowers to lock in lower interest rates when they expect, or see, that market interest rates are rising rather than risk refinancing later at a still higher interest rate.
Linked-Quarter and Year-Over-Year Comparison
Both the year-over-year and sequential decline in net interest income was primarily attributable to an increase in our cost of funds, as short-term interest rates rose throughout the second half of 2017 and all of 2018. This was partially offset by higher yields on our loan portfolio, as well as continued loan growth.
Details of the decline in net interest income follow:
  • Interest income of $454.6 million grew $799,000 during the third quarter on a linked-quarter basis and rose $29.4 million or 7% compared to the
year-ago
quarter. Interest income on loans of $391.9 million increased $4.3 million or 1% on a linked-quarter basis and $23.7 million or 6% on a year-over-year basis. Interest income from securities and money market instruments declined 5% or $3.5 million on a linked-quarter basis, but increased 10% or $5.8 million on a year-over-year basis.
 
 
  • Interest income on a linked-quarter basis was driven by a $96.9 million increase in average earning assets to $47.6 billion, while the average yield remained unchanged at 3.82%. The increase in average earning assets was the result of a $548.2 million or 5% annualized increase in average loans, partially offset by a $455.6 million decrease in average cash balances.
 
 
  • Interest expense increased $2.6 million to $218.6 million on a linked-quarter basis and 24% on a year-over-year basis. This was largely due to higher average CD balances and higher costs on those balances, offset somewhat by lower average balances and costs on interest-bearing checking and money market accounts.
 
 
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 1.99%, the margin was one bp narrower than the trailing-quarter measure and 17 bps narrower than the margin recorded in the third quarter of last year.
 
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Table of Contents
The following table summarizes the contribution of loan and securities prepayment income on the Company’s interest income and net interest margin in the periods noted:
                                         
 
For the Three Months Ended
   
Sep. 30, 2019 compared to
 
(dollars in thousands)
 
Sep. 30,
2019
 
  
Jun. 30,
2019
 
  
Sep. 30,
2018
 
  
Jun. 30,
2019
 
  
Sep. 30,
2018
 
Total Interest Income
  $
454,551
    $
453,752
    $
425,144
     
0
 %    
7
 %
Prepayment Income:
 
 
 
  
 
 
  
 
 
  
 
 
  
 
 
Loans
  $
12,279
    $
11,842
    $
8,288
     
4
 %    
48
 %
Securities
   
1,866
     
780
     
1,037
     
139
 %    
80
 %
                                         
Total prepayment income
  $
14,145
    $
12,622
    $
9,325
     
12
 %    
52
 %
                                         
GAAP Net Interest Margin
   
1.99
 %    
2.00
 %    
2.16
 %    
-1
 bp    
-17
 bp
Less:
   
     
     
     
     
 
Prepayment income from loans
   
10
 bp    
10
 bp    
7
 bp    
0
 bp    
3
 bp
Prepayment income from securities
   
1
     
1
     
1
     
0
 bp    
0
 bp
                                         
Total prepayment income contribution to net interest margin
   
11
 bp    
11
 bp    
8
 bp    
0
 bp    
3
 bp
                                         
Adjusted Net Interest Margin
(non-GAAP)
   
1.88
 %    
1.89
 %    
2.08
 %    
-1
 bp    
-20
 bp
 
 
(1) “Adjusted net interest margin” is a
non-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 this
non-GAAP
measure in its analysis of our performance, and believes that this
non-GAAP
measure should be disclosed in this report and other investor communications for the following reasons:
  1. Adjusted net interest margin gives investors a better understanding of the effect of prepayment income on our net interest margin. Prepayment income in any given period depends on the volume of loans that refinance or prepay, or securities that prepay, during that period. Such activity is largely dependent on external factors such as current market conditions, including real estate values, and the perceived or actual direction of market interest rates.
 
 
  2. Adjusted net interest margin is among the measures considered by current and prospective investors, both independent of, and in comparison with, our peers.
 
 
Adjusted net interest margin should not be considered in isolation or as a substitute for net interest margin, which is calculated in accordance with GAAP. Moreover, the manner in which we calculate this
non-GAAP
measure may differ from that of other companies reporting a
non-GAAP
measure with a similar name.
The following table sets forth certain information regarding our average balance sheet for the quarters indicated, including the average yields on our interest-earning assets and the average costs of our interest-bearing liabilities. Average yields are calculated by dividing the interest income produced by the average balance of interest-earning assets. Average costs are calculated by dividing the interest expense produced by the average balance of interest-bearing liabilities. The average balances for the quarters are derived from average balances that are calculated daily. The average yields and costs include fees, as well as premiums and discounts (including
mark-to-market
adjustments from acquisitions), that are considered adjustments to such average yields and costs.
 
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Table of Contents
Net Interest Income Analysis
                                                                         
 
For the Three Months Ended
 
 
September 30, 2019
   
June 30, 2019
   
September 30, 2018
 
(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
  $
40,756,495
    $
391,920
     
3.84
 %   $
40,208,256
    $
387,634
     
3.86
 %   $
39,465,876
    $
368,264
     
3.73
 %
Securities
   
6,324,588
     
59,785
     
3.78
     
6,320,252
     
60,340
     
3.82
     
5,279,319
     
49,084
     
3.71
 
Interest-earning cash and cash equivalents
   
511,730
     
2,846
     
2.21
     
967,364
     
5,778
     
2.40
     
1,557,465
     
7,796
     
1.99
 
                                                                         
Total interest-earning assets
   
47,592,813
     
454,551
     
3.82
     
47,495,872
     
453,752
     
3.82
     
46,302,660
     
425,144
     
3.67
 
Non-interest-
earning assets
    
4,664,905
     
     
     
4,576,454
     
     
     
4,305,623
     
     
 
                                                                         
Total assets
  $
52,257,718
     
     
    $
52,072,326
     
     
    $
50,608,283
     
     
 
                                                                         
Liabilities and Stockholders’ Equity:
 
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
Interest-bearing deposits:
   
     
     
     
     
     
     
     
     
 
Interest-bearing checking and money market accounts
  $
10,263,331
    $
42,465
     
1.64
 %   $
10,811,077
    $
47,772
     
1.77
 %   $
11,732,410
    $
44,497
     
1.50
 %
Savings accounts
   
4,747,843
     
9,326
     
0.78
     
4,729,517
     
8,861
     
0.75
     
4,872,126
     
7,325
     
0.60
 
Certificates of deposit
   
14,093,146
     
86,934
     
2.45
     
13,509,392
     
80,651
     
2.39
     
10,740,927
     
51,249
     
1.89
 
                                                                         
Total interest-bearing deposits
   
29,104,320
     
138,725
     
1.89
     
29,049,986
     
137,284
     
1.90
     
27,345,463
     
103,071
     
1.50
 
Borrowed funds
   
13,325,104
     
79,911
     
2.38
     
13,111,692
     
78,778
     
2.41
     
13,704,208
     
72,567
     
2.10
 
                                                                         
Total interest-bearing liabilities
   
42,429,424
     
218,636
     
2.04
     
42,161,678
     
216,062
     
2.06
     
41,049,671
     
175,638
     
1.70
 
Non-interest-
bearing deposits
    
2,491,796
     
     
     
2,698,578
     
     
     
2,488,674
     
     
 
Other liabilities
   
631,688
     
     
     
559,955
     
     
     
265,573
     
     
 
                                                                         
Total liabilities
   
45,552,908
     
     
     
45,420,211
     
     
     
43,803,918
     
     
 
Stockholders’ equity
   
6,704,810
     
     
     
6,652,115
     
     
     
6,804,365
     
     
 
                                                                         
Total liabilities and stockholders’ equity
  $
52,257,718
     
     
    $
52,072,326
     
     
    $
50,608,283
     
     
 
                                                                         
Net interest income/interest rate spread
   
    $
235,915
     
1.78
 %    
    $
237,690
     
1.76
 %    
    $
249,506
     
1.97
 %
                                                                         
Net interest margin
   
     
     
1.99
 %    
     
     
2.00
 %    
     
     
2.16
 %
                                                                         
Ratio of interest-earning assets to interest-bearing liabilities
   
     
     
1.12
 x    
     
     
1.13
 x    
     
     
1.13
 x
                                                                         
 
 
(1) Amounts are net of net deferred loan origination costs/(fees) and the allowances for loan losses, and include loans held for sale and
non-performing
loans.
 
 
(2) Amounts are at amortized cost.
 
 
(3) Includes FHLB stock. .
 
 
 
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Provision for (recovery of) Losses on Loans
The provision for losses on loans is based on the methodology used by management in calculating the allowance for losses on such loans. Reflecting this methodology, which is discussed in detail under “Critical Accounting Policies,” the Company reported a provision for loan losses of $4.8 million compared to $1.8 million in the previous quarter and a $1.2 million provision in the third quarter of 2018.
For additional information about our provisions for and recoveries of loan losses, see 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 generate
non-interest
income through a variety of sources, including—among others— fee income (in the form of retail deposit fees and charges on loans); income from our investment in BOLI; gains on the sale of securities; and revenues produced through the sale of third-party investment products.
For the three months ended September 30, 2019,
non-interest
income increased $6.8 million or 39% to $24.4 million compared to $17.6 million for the three months ended June 30, 2019 and it increased $1.5 million or 6% compared to $22.9 million for the three months ended September 30, 2018. During the third quarter, the Company entered into a sale/lease back agreement on a branch property located in Florida. Accordingly, we recorded a $7.9 million gain related to this transaction, which is included in the other income category. Included in the
year-ago
period was approximately $5.3 million related to our wealth management business, Peter B. Cannell & Co., which was sold in the first quarter of 2019.
The following table summarizes our
non-interest
income for the respective periods:
Non-Interest
Income Analysis
                         
 
For the Three Months Ended
 
(in thousands)
 
September 30,
2019
 
  
June 30,
2019
 
  
September 30,
2018
 
Fee income
  $
7,580
    $
7,487
    $
7,237
 
BOLI income
   
6,791
     
6,479
     
7,302
 
Net gain (loss) on securities
   
275
     
493
     
(41
 )
Other income:
   
     
     
 
Third-party investment product sales
   
1,121
     
1,225
     
2,893
 
Other
   
8,619
     
1,913
     
5,531
 
                         
Total other income
   
9,740
     
3,138
     
8,424
 
                         
Total
non-interest
income
   $
24,386
    $
17,597
    $
22,922
 
                         
 
 
 
Non-Interest
Expense
Total
non-interest
expense for the three months ended September 30, 2019 were $123.3 million, relatively unchanged on a linked-quarter basis and down $11.1 million or 8% on a year-over-year basis. Third quarter 2019 operating expenses included certain items related to severance costs totaling $1.4 million. Excluding this item, total
non-interest
expenses, on a
non-GAAP
basis would have totaled $121.9 million.
Income Tax Expense
Income tax expense for the three months ended September 30, 2019 totaled $33.2 million, compared to $33.1 million in the prior quarter and $30.0 million in the
year-ago
quarter. The effective tax rate was 25.09% during the current third quarter, compared to 25.42% in the second quarter of 2019 and 21.95% in the
year-ago
quarter.
Earnings Summary for the Nine Months Ended September 30, 2019
For the nine months ended September 30, 2019, net income totaled $293.9 million, down $26.8 million or 8% compared to the $320.7 million the Company reported for the nine months ended September 30, 2018. Net income available to common shareholders was $269.2 million or $0.57 per diluted common share, down 9% compared to $296.1 million or $0.60 per diluted common share for the nine months ended September 30, 2018.
Net Interest Income
Net interest income declined $68.8 million or 9% to $714.9 million for the nine months ended September 30, 2019 compared to the $783.8 million the Company reported for the nine months ended September 30, 2018. The decrease was attributable to a $107.7 million increase in interest income offset by a $176.5 million increase in interest expense. For the nine months ended September 30, 2019, the NIM was 2.01%, down 29 bp compared to 2.30% for the nine months ended September 30, 2018.
 
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The following factors contributed to the year-over-year decrease in net interest income and NIM:
  • Average interest-earning assets rose $2.0 billion or 4% due to growth in average loans and average securities. Average loans increased $1.4 billion or 4% to $40.3 billion, while average securities increased $1.8 billion or 41% to $6.3 billion. This was partially offset by a $1.2 billion decline in average cash balances as the Company reinvested its cash into higher yielding assets over the course of the last 12 months.
 
 
 
  • The average yield on interest-earning assets rose 14 bp to 3.81% due to a nine bp increase in the average loan yield and a three bp increase in the average securities yield.
 
 
 
  • Average interest-bearing liabilities increased $2.1 billion or 5% to $42.2 billion. The increase was largely the result of a $3.6 billion or 37% increase in average CD balances.
 
 
 
  • In addition to the growth in the average balance of interest-bearing liabilities, the average cost of those liabilities also increased given the increase in short term interest rates over the several years. The average cost of interest-bearing liabilities rose 49 bp to 2.03% driven by a 56 bp increase in the cost of average interest-bearing deposits to 1.86% and a 36 bp increase in the cost of average borrowed funds to 2.39%.
 
 
 
The following table summarizes the contribution from prepayment income on loans and securities on the Company’s interest income and NIM for the nine months ended September 30, 2019 and 2018:
                         
 
For the Nine Months Ended
   
 
(dollars in thousands)
 
Sep. 30, 2019
 
  
Sep. 30, 2018
 
  
Change (%)
 
Total Interest Income
  $
1,354,477
    $
1,246,801
     
9
 %
Prepayment Income:
 
 
 
  
 
 
  
 
 
Loans
  $
33,462
    $
35,848
     
-7
 %
Securities
   
2,873
     
4,604
     
-38
 %
                         
Total prepayment income
  $
36,335
    $
40,452
     
-10
 %
                         
GAAP Net Interest Margin
   
2.01
 %    
2.30
 %    
-29
 bp
Less:
   
     
     
 
Prepayment income from loans
   
10bp
     
11bp
     
-1
 bp
Prepayment income from securities
   
—  
      
1
     
-1
 bp
                         
Total prepayment income contribution to net interest margin
   
10
 bp    
12
 bp    
-2
 bp
                         
Adjusted Net Interest Margin
(non-GAAP)
   
1.91
 %    
2.18
 %    
-27
 bp
 
 
 
(1) “Adjusted net interest margin” is a
non-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 this
non-GAAP
measure in its analysis of our performance, and believes that this
non-GAAP
measure should be disclosed in this report and other investor communications for the following reasons:
  1. Adjusted net interest margin gives investors a better understanding of the effect of prepayment income on our net interest margin. Prepayment income in any given period depends on the volume of loans that refinance or prepay, or securities that prepay, during that period. Such activity is largely dependent on external factors such as current market conditions, including real estate values, and the perceived or actual direction of market interest rates.
 
 
 
  2. Adjusted net interest margin is among the measures considered by current and prospective investors, both independent of, and in comparison with, our peers.
 
 
 
 
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Adjusted net interest margin should not be considered in isolation or as a substitute for net interest margin, which is calculated in accordance with GAAP. Moreover, the manner in which we calculate this
non-GAAP
measure may differ from that of other companies reporting a
non-GAAP
measure with a similar name.
The following table sets forth certain information regarding our average balance sheet for the quarters indicated, including the average yields on our interest-earning assets and the average costs of our interest-bearing liabilities. Average yields are calculated by dividing the interest income produced by the average balance of interest-earning assets. Average costs are calculated by dividing the interest expense produced by the average balance of interest-bearing liabilities. The average balances for the quarters are derived from average balances that are calculated daily. The average yields and costs include fees, as well as premiums and discounts (including
mark-to-market
adjustments from acquisitions), that are considered adjustments to such average yields and costs.
Net Interest Income Analysis
                                                 
 
For the Nine Months Ended September 30,
 
 
2019
   
2018
 
(dollars in thousands)
 
Average
Balance
 
  
Interest
 
  
Average
Yield/Cost
 
  
Average
Balance
 
  
Interest
 
  
Average
Yield/Cost
 
Assets:
 
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
Interest-earning assets:
   
     
     
     
     
     
 
Mortgage and other loans, net
  $
40,288,311
    $
1,159,344
     
3.84
 %   $
38,902,370
    $
1,092,637
     
3.75
 %
Securities
   
6,303,147
     
181,162
     
3.83
     
4,463,058
     
127,038
     
3.80
 
Interest-earning cash and cash equivalents
   
789,034
     
13,971
     
2.37
     
1,991,558
     
27,126
     
1.82
 
                                                 
Total interest-earning assets
   
47,380,492
     
1,354,477
     
3.81
     
45,356,986
     
1,246,801
     
3.67
 
Non-interest-earning
assets
    
4,604,387
     
     
     
4,328,731
     
     
 
                                                 
Total assets
  $
51,984,879
     
     
    $
49,685,717
     
     
 
                                                 
Liabilities and Stockholders’ Equity:
 
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
Interest-bearing deposits:
   
     
     
     
     
     
 
Interest-bearing checking and money market accounts
  $
10,846,624
    $
140,396
     
1.73
 %   $
12,178,512
    $
119,246
     
1.31
 %
Savings accounts
   
4,716,014
     
26,270
     
0.74
     
4,956,358
     
21,176
     
0.57
 
Certificates of deposit
   
13,306,845
     
235,360
     
2.36
     
9,732,912
     
121,298
     
1.67
 
                                                 
Total interest-bearing deposits
   
28,869,483
     
402,026
     
1.86
     
26,867,782
     
261,720
     
1.30
 
Borrowed funds
   
13,308,941
     
237,521
     
2.39
     
13,255,400
     
201,322
     
2.03
 
                                                 
Total interest-bearing liabilities
   
42,178,424
     
639,547
     
2.03
     
40,123,182
     
463,042
     
1.54
 
Non-interest-bearing
deposits
    
2,555,984
     
     
     
2,522,784
     
     
 
Other liabilities
   
595,378
     
     
     
245,000
     
     
 
                                                 
Total liabilities
   
45,329,786
     
     
     
42,890,966
     
     
 
Stockholders’ equity
   
6,655,093
     
     
     
6,794,751
     
     
 
                                                 
Total liabilities and stockholders’ equity
  $
51,984,879
     
     
    $
49,685,717
     
     
 
                                                 
Net interest income/interest rate spread
   
    $
714,930
     
1.78
 %    
    $
783,759
     
2.13
 %
                                                 
Net interest margin
   
     
     
2.01
 %    
     
     
2.30
 %
                                                 
Ratio of interest-earning assets to interest-bearing liabilities
   
     
     
1.12x
     
     
     
1.13x
 
                                                 
 
 
 
(1) Amounts are net of net deferred loan origination costs/(fees) and the allowances for loan losses and include
non-performing
loans.
 
 
 
(2) Amounts are at amortized cost.
 
 
 
(3) Includes FHLB stock.
 
 
 
 
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Table of Contents
Provision for (recovery of) Losses on Loans
The provision for losses on loans is based on the methodology used by management in calculating the allowance for losses on such loans. Reflecting this methodology, which is discussed in detail under “Critical Accounting Policies,” the Company reported a provision for losses on loans losses of $5.4 million for the nine months ended September 30, 2019 compared to $15.5 million for the nine months ended September 30, 2018. The majority of the 2018 provision for losses on loans was related to taxi medallion-related loans.
Non-Interest
Income
The following table summarizes the components of
non-interest
income for the respective periods:
Non-Interest
Income Analysis
                 
 
For the Nine Months
Ended September 30,
 
(in thousands)
 
2019
 
  
2018
 
Fee income
  $
22,295
    $
22,056
 
BOLI income
   
20,245
     
20,424
 
Net gain (loss) on securities
   
7,755
     
(810
 )
Other income:
   
     
 
Third-party investment product sales
   
5,242
     
9,484
 
Other
   
11,231
     
17,331
 
                 
Total other income
   
16,473
     
26,815
 
                 
Total
non-interest
income
   $
66,768
    $
68,485
 
                 
 
 
 
For the nine months ended September 30, 2019, the Company reported
non-interest
income of $66.8 million compared to $68.5 million for the nine months ended September 30, 2018. The $1.7 million or 3% decline reflects a number of items: a net gain on securities of $7.8 million during this period compared to a net loss on securities of $810,000 in the
year-ago
period and a $7.9 million gain on sale of a branch property in Florida compared to no such gain in the
year-ago
period. Additionally, in the year earlier period, the other income category includes $15.7 million of income from our former wealth management subsidiary, Peter B. Cannell & Co. Peter B. Cannell & Co. was sold in the first quarter of this year, therefore no such income was recorded in the other income category in 2019.
Non-Interest Expense
In the first nine months of 2019, we recorded
non-interest
expense of $385.1 million compared to $411.7 million for the first nine months of 2018, reflecting a $26.6 million or 6% decrease.
Non-interest
expenses for the current nine month period includes certain items related to severance costs and branch rationalization totaling $10.4 million compared to no such items in the prior year nine month period. The year-over-over improvement is a result of the Company’s continuing efforts to reduce costs throughout the organization.
Income Tax Expense
Income tax expense for the nine months ended September 30, 2019 declined $7.1 million or 7% to $97.3 million and reflects an effective tax rate of 24.88%, relatively unchanged from the 24.56% recorded in the
year-ago
nine month period.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Quantitative and qualitative disclosures about the Company’s market risk were presented on pages 73 and 77 of our 2018 Annual Report on Form
10-K,
filed with the SEC on March 1, 2019. 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
(a) Evaluation of Disclosure Controls and Procedures
Disclosure controls and procedures are the controls and other procedures that are designed to ensure that information required to be disclosed in the reports that the Company files or submits under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the U.S. Securities and Exchange Commission’s (the “SEC’s”) rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in the reports that the Company files or submits under the Exchange Act is accumulated and communicated to management, including the Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.
 
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Table of Contents
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 to Rule
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 effective as of the end of the period.
(b) Changes in Internal Control over Financial Reporting
There have not been any changes in the Company’s internal control over financial reporting (as such term is defined in Rules
13a-15(f)
and
15d-15(f)
under the Exchange Act) during the fiscal quarter to which this report relates that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
 
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Table of Contents
PART II – OTHER INFORMATION
Item 1. Legal Proceedings
The Company is involved in various legal actions arising in the ordinary course of its business. All such actions in the aggregate involve amounts that are believed by management to be immaterial to the financial condition and results of operations of the Company.
Item 1A. Risk Factors
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” in the Company’s Annual Report on Form
10-K
for the year ended December 31, 2018 and in the Company’s Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2019, as such factors could materially affect the Company’s business, financial condition, or future results of operations.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Shares Repurchased Pursuant to the Company’s Stock-Based Incentive Plans
Participants in the Company’s stock-based incentive plans may have shares of common stock withheld to fulfill the income tax obligations that arise in connection with the vesting of their stock awards. Shares that are withheld for this purpose are repurchased pursuant to the terms of the applicable stock-based incentive plan, rather than pursuant to the share repurchase program authorized by the Board of Directors, described below.
Shares Repurchased Pursuant to the Board of Directors’ Share Repurchase Authorization
On October 23, 2018, the Board of Directors authorized the repurchase of up to $300 million of the Company’s common stock. Under said authorization, shares may be repurchased on the open market or in privately negotiated transactions.
Shares that are repurchased pursuant to the Board of Directors’ authorization, and those that are repurchased pursuant to the Company’s stock-based incentive plans, are held in our Treasury account and may be used for various corporate purposes, including, but not limited to, merger transactions and the vesting of restricted stock awards.
As indicated in the table below, during the three months ended September 30, 2019, the Company allocated 31,059 shares or $345,000 toward the repurchase of shares tied to its stock-based incentive plans. Also, during the first quarter of the year, the Company repurchased $67.1 million or 7.1 million shares of its common stock under its recently authorized share repurchase program.
                         
(dollars in thousands, except per share data)
 
Third Quarter 2019
 
Total Shares of Common
Stock Repurchased
 
  
Average Price Paid
per Common Share
 
  
Total
Allocation
 
July 1 – July 31
   
19,532
    $
10.60
    $
207
 
August 1 – August 31
   
5,144
     
11.23
     
58
 
September 1 – September 30
   
6,383
     
12.51
     
80
 
                         
Total shares repurchased
   
31,059
     
11.10
    $
345
 
                         
 
 
 
 
 
 
Item 3. Defaults upon Senior Securities
Not applicable.
Item 4. Mine Safety Disclosures
Not applicable.
Item 5. Other Information
Not applicable.
 
74
 
Table of Contents
Item 6. Exhibits
         
Exhibit No.
 
  
         
 
    3.1
   
         
 
    3.2
   
         
 
    3.3
   
         
 
    3.4
   
         
 
    3.5
   
         
 
    4.1
   
         
 
    4.2
   
         
 
    4.3
   
         
 
    4.4
   
         
 
    4.5
   
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
   
         
 
  32.0
   
         
 
101.INS.
   
Inline XBRL Instance Document – the instance document does not appear in the Interactive Data File because iXBRL tags are embedded within the Inline XBRL document.
         
 
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
   
The cover page of New York Community Bancorp, Inc.’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2019, formatted in Inline XBRL (included within the Exhibit 101 attachments).
 
 
(1) Incorporated by reference to Exhibits filed with the Company’s Form
10-Q
for the quarterly period ended March 31, 2001 (File No.
 0-22278).
 
(2) Incorporated by reference to Exhibits filed with the Company’s Form
10-K
for the year ended December 31, 2003 (File No.
 1-31565).
 
(3) Incorporated by reference to Exhibits to the Company’s Form
8-K
filed with the Securities and Exchange Commission on April 27, 2016 (File No.
 1-31565).
 
(4) Incorporated by reference to Exhibits of the Company’s Registration Statement on Form
8-A
(File No.
 333-210919),
as filed with the Securities and Exchange Commission on March 16, 2017.
 
(5) Incorporated by reference to Exhibits filed with the Company’s Form
10-K
for the year ended December 31, 2016 (File No.
 1-31565).
 
(6) Incorporated by reference to Exhibits filed with the Company’s Form
10-Q
for the quarterly period ended September 30, 2017 (File No.
 1-31565).
 
(7) Incorporated by reference to Exhibits filed with the Company’s Form
8-K
filed with the Securities and Exchange
 
 
75
 
Table of Contents
NEW YORK COMMUNITY BANCORP, INC.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
             
     
New York Community Bancorp, Inc.
     
(Registrant)
             
DATE: November 12, 2019
     
BY:
 
/s/ Joseph R. Ficalora
     
 
Joseph R. Ficalora
President, Chief Executive Officer, and Director
             
DATE: November 12, 2019
     
BY:
 
/s/ Thomas R. Cangemi
     
 
Thomas R. Cangemi
Senior Executive Vice President and Chief Financial Officer
 
 
 
 
 
 
 
76