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 JUNE 30, 2011
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)
(Registrants telephone number, including area code) (516) 683-4100
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of large accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act.
Large Accelerated Filer | x | Accelerated Filer | ¨ | |||
Non-accelerated Filer | ¨ | Smaller Reporting Company | ¨ |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x
437,426,665
Number of shares of common stock outstanding at August 3, 2011 |
NEW YORK COMMUNITY BANCORP, INC.
FORM 10-Q
Quarter Ended June 30, 2011
NEW YORK COMMUNITY BANCORP, INC.
CONSOLIDATED STATEMENTS OF CONDITION
(in thousands, except share data)
June 30, 2011 |
December 31, 2010 |
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(unaudited) | ||||||||
Assets: |
||||||||
Cash and cash equivalents |
$ | 710,113 | $ | 1,927,542 | ||||
Securities: |
||||||||
Available-for-sale ($49,459 and $500,811 pledged, respectively) |
162,272 | 652,956 | ||||||
Held to maturity ($4,972,930 and $3,881,139 pledged, respectively) (fair value of $5,562,091 and $4,157,322, respectively) |
5,506,643 | 4,135,935 | ||||||
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Total securities |
5,668,915 | 4,788,891 | ||||||
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|
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Non-covered loans held for sale |
491,724 | 1,207,077 | ||||||
Non-covered loans held for investment, net of deferred loan fees and costs |
24,493,938 | 23,707,494 | ||||||
Less: Allowance for losses on non-covered loans |
(134,471 | ) | (158,942 | ) | ||||
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|
|||||
Non-covered loans held for investment, net |
24,359,467 | 23,548,552 | ||||||
Covered loans |
4,008,287 | 4,297,869 | ||||||
Less: Allowance for losses on covered loans |
(20,611 | ) | (11,903 | ) | ||||
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|
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Covered loans, net |
3,987,676 | 4,285,966 | ||||||
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|
|||||
Total loans, net |
28,838,867 | 29,041,595 | ||||||
Federal Home Loan Bank stock, at cost |
424,737 | 446,014 | ||||||
Premises and equipment, net |
245,799 | 233,694 | ||||||
FDIC loss share receivable |
759,790 | 814,088 | ||||||
Goodwill |
2,436,131 | 2,436,159 | ||||||
Core deposit intangibles, net |
63,205 | 77,734 | ||||||
Mortgage servicing rights |
127,657 | 107,378 | ||||||
Bank-owned life insurance |
755,424 | 742,481 | ||||||
Other real estate owned (includes $81,435 and $62,412, respectively, covered by loss sharing agreements) |
138,076 | 90,478 | ||||||
Other assets |
433,911 | 484,635 | ||||||
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Total assets |
$ | 40,602,625 | $ | 41,190,689 | ||||
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Liabilities and Stockholders Equity: |
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Deposits: |
||||||||
NOW and money market accounts |
$ | 8,637,555 | $ | 8,235,825 | ||||
Savings accounts |
3,965,527 | 3,885,785 | ||||||
Certificates of deposit |
7,230,447 | 7,835,161 | ||||||
Non-interest-bearing accounts |
1,964,182 | 1,852,280 | ||||||
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|
|
|||||
Total deposits |
21,797,711 | 21,809,051 | ||||||
Borrowed funds: |
||||||||
Wholesale borrowings: |
||||||||
Federal Home Loan Bank advances |
7,856,912 | 8,375,659 | ||||||
Repurchase agreements |
4,125,000 | 4,125,000 | ||||||
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|
|
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Total wholesale borrowings |
11,981,912 | 12,500,659 | ||||||
Junior subordinated debentures |
426,846 | 426,992 | ||||||
Other borrowings |
608,526 | 608,465 | ||||||
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|
|
|||||
Total borrowed funds |
13,017,284 | 13,536,116 | ||||||
Other liabilities |
227,527 | 319,302 | ||||||
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|
|
|
|||||
Total liabilities |
35,042,522 | 35,664,469 | ||||||
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|
|
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Stockholders equity: |
||||||||
Preferred stock at par $0.01 (5,000,000 shares authorized; none issued) |
| | ||||||
Common stock at par $0.01 (600,000,000 shares authorized; 437,423,850 and 435,646,845 shares issued, and 437,414,149 and 435,646,845 shares outstanding, respectively) |
4,374 | 4,356 | ||||||
Paid-in capital in excess of par |
5,300,199 | 5,285,715 | ||||||
Retained earnings |
306,082 | 281,844 | ||||||
Treasury stock, at cost (9,701 shares) |
(150 | ) | | |||||
Accumulated other comprehensive loss, net of tax: |
||||||||
Net unrealized (loss) gain on securities available for sale, net of tax |
(798 | ) | 12,600 | |||||
Net unrealized loss on the non-credit portion of other-than-temporary impairment (OTTI) losses on securities, net of tax |
(13,365 | ) | (20,572 | ) | ||||
Net unrealized loss on pension and post-retirement obligations, net of tax |
(36,239 | ) | (37,723 | ) | ||||
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|
|
|
|||||
Total accumulated other comprehensive loss, net of tax |
(50,402 | ) | (45,695 | ) | ||||
|
|
|
|
|||||
Total stockholders equity |
5,560,103 | 5,526,220 | ||||||
|
|
|
|
|||||
Total liabilities and stockholders equity |
$ | 40,602,625 | $41,190,689 | |||||
|
|
|
|
See accompanying notes to the consolidated financial statements.
1
NEW YORK COMMUNITY BANCORP, INC.
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
(in thousands, except per share data)
(unaudited)
For the Three Months Ended June 30, |
For the Six Months Ended June 30, |
|||||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||
Interest Income: |
||||||||||||||||
Mortgage and other loans |
$ | 408,292 | $ | 417,168 | $ | 824,234 | $ | 830,843 | ||||||||
Securities and money market investments |
60,716 | 66,019 | 115,697 | 134,722 | ||||||||||||
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|
|
|||||||||
Total interest income |
469,008 | 483,187 | 939,931 | 965,565 | ||||||||||||
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|||||||||
Interest Expense: |
||||||||||||||||
NOW and money market accounts |
10,398 | 16,413 | 21,552 | 32,844 | ||||||||||||
Savings accounts |
4,206 | 5,800 | 8,333 | 11,545 | ||||||||||||
Certificates of deposit |
24,952 | 37,327 | 51,926 | 74,880 | ||||||||||||
Borrowed funds |
127,508 | 129,446 | 252,924 | 257,511 | ||||||||||||
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Total interest expense |
167,064 | 188,986 | 334,735 | 376,780 | ||||||||||||
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Net interest income |
301,944 | 294,201 | 605,196 | 588,785 | ||||||||||||
Provision for losses on non-covered loans |
15,000 | 22,000 | 41,000 | 42,000 | ||||||||||||
Provision for losses on covered loans |
8,708 | | 8,708 | | ||||||||||||
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Net interest income after provisions for loan losses |
278,236 | 272,201 | 555,488 | 546,785 | ||||||||||||
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Non-Interest Income: |
||||||||||||||||
Total loss on OTTI of securities |
(18,124 | ) | (481 | ) | (18,124 | ) | (13,666 | ) | ||||||||
Less: Non-credit portion of OTTI recorded in other comprehensive income (before taxes) |
| 59 | | 12,521 | ||||||||||||
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Net loss on OTTI recognized in earnings |
(18,124 | ) | (422 | ) | (18,124 | ) | (1,145 | ) | ||||||||
Fee income |
12,143 | 14,088 | 24,042 | 28,053 | ||||||||||||
Bank-owned life insurance |
7,564 | 6,775 | 14,453 | 14,176 | ||||||||||||
Mortgage banking income |
11,774 | 39,499 | 31,712 | 67,032 | ||||||||||||
Net gain (loss) on sale of securities |
18,743 | | 28,735 | (8 | ) | |||||||||||
Gain on business disposition |
9,823 | | 9,823 | | ||||||||||||
FDIC indemnification income |
7,624 | | 7,624 | | ||||||||||||
Gain on business acquisition |
| 2,883 | | 2,883 | ||||||||||||
Gain on debt repurchase |
| | | 293 | ||||||||||||
Other |
9,341 | 9,693 | 19,233 | 16,276 | ||||||||||||
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Total non-interest income |
58,888 | 72,516 | 117,498 | 127,560 | ||||||||||||
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Non-Interest Expense: |
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Operating expenses: |
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Compensation and benefits |
73,218 | 67,797 | 145,286 | 134,697 | ||||||||||||
Occupancy and equipment |
21,770 | 22,115 | 43,710 | 43,780 | ||||||||||||
General and administrative |
52,912 | 43,576 | 98,221 | 83,866 | ||||||||||||
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Total operating expenses |
147,900 | 133,488 | 287,217 | 262,343 | ||||||||||||
Amortization of core deposit intangibles |
7,144 | 7,883 | 14,529 | 15,775 | ||||||||||||
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Total non-interest expense |
155,044 | 141,371 | 301,746 | 278,118 | ||||||||||||
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Income before income taxes |
182,080 | 203,346 | 371,240 | 396,227 | ||||||||||||
Income tax expense |
62,621 | 71,919 | 128,605 | 140,651 | ||||||||||||
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Net Income |
$ | 119,459 | $ | 131,427 | $ | 242,635 | $ | 255,576 | ||||||||
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Other comprehensive income, net of tax: |
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Change in net unrealized (loss) gain on securities and non-credit portion of OTTI for the period |
(621 | ) | 212 | (6,191 | ) | (4,571 | ) | |||||||||
Change in pension and post-retirement obligations |
740 | 835 | 1,484 | 1,669 | ||||||||||||
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Total comprehensive income, net of tax |
$ | 119,578 | $ | 132,474 | $ | 237,928 | $ | 252,674 | ||||||||
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Basic earnings per share |
$ | 0.27 | $ | 0.30 | $ | 0.55 | $ | 0.59 | ||||||||
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Diluted earnings per share |
$ | 0.27 | $ | 0.30 | $ | 0.55 | $ | 0.59 | ||||||||
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See accompanying notes to the consolidated financial statements.
2
NEW YORK COMMUNITY BANCORP, INC.
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS EQUITY
(in thousands, except share data)
(unaudited)
Six Months Ended June 30, 2011 |
||||
Common Stock (Par Value: $0.01): |
||||
Balance at beginning of year |
$ | 4,356 | ||
Shares issued for exercise of stock options (168,001 shares) |
2 | |||
Shares issued for restricted stock awards (1,609,004 shares) |
16 | |||
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Balance at end of period |
4,374 | |||
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Paid-in Capital in Excess of Par: |
||||
Balance at beginning of year |
5,285,715 | |||
Shares issued for restricted stock awards, net of forfeitures |
(43 | ) | ||
Compensation expense related to restricted stock awards |
7,919 | |||
Stock options |
4,356 | |||
Tax effect of stock plans |
2,252 | |||
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Balance at end of period |
5,300,199 | |||
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Retained Earnings: |
||||
Balance at beginning of year |
281,844 | |||
Net income |
242,635 | |||
Dividends paid on common stock ($0.50 per share) |
(218,397 | ) | ||
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Balance at end of period |
306,082 | |||
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Treasury Stock: |
||||
Balance at beginning of year |
| |||
Purchase of common stock (146,359 shares) |
(2,677 | ) | ||
Exercise of stock options (135,162 shares) |
2,500 | |||
Shares issued for restricted stock awards (1,496 shares) |
27 | |||
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Balance at end of period |
(150 | ) | ||
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Accumulated Other Comprehensive Loss, net of tax: |
||||
Balance at beginning of year |
(45,695 | ) | ||
Other comprehensive loss, net of tax: |
||||
Change in net unrealized gain/loss on securities available for sale, net of tax of $7,643 |
(11,276 | ) | ||
Change in the non-credit portion of OTTI losses recognized in other comprehensive income, net of tax of $4,825 |
7,207 | |||
Change in pension and post-retirement obligations, net of tax of $1,006 |
1,484 | |||
Reclassification adjustment for net gain on sale of securities and loss on OTTI of securities, net of tax of $1,428 |
(2,122 | ) | ||
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Total other comprehensive loss, net of tax |
(4,707 | ) | ||
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Balance at end of period |
(50,402 | ) | ||
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Total stockholders equity |
$ | 5,560,103 | ||
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See accompanying notes to the consolidated financial statements.
3
NEW YORK COMMUNITY BANCORP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
Six Months
Ended June 30, |
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2011 | 2010 | |||||||
Cash Flows from Operating Activities: |
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Net income |
$ | 242,635 | $ | 255,576 | ||||
Adjustments to reconcile net income to net cash provided by (used in) operating activities: |
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Provision for loan losses |
49,708 | 42,000 | ||||||
Depreciation and amortization |
11,876 | 9,752 | ||||||
(Accretion) amortization of discounts and premiums, net |
(850 | ) | 2,763 | |||||
Amortization of core deposit intangibles |
14,529 | 15,775 | ||||||
Net (gain) loss on sale of securities |
(28,735 | ) | 8 | |||||
Net gain on sale of loans |
(25,213 | ) | (25,814 | ) | ||||
Gain on business disposition |
(9,823 | ) | | |||||
Gain on business acquisition |
| (2,883 | ) | |||||
Stock plan-related compensation |
7,919 | 8,062 | ||||||
Loss on OTTI of securities recognized in earnings |
18,124 | 1,145 | ||||||
Changes in assets and liabilities: |
||||||||
Decrease in deferred tax asset, net |
38,358 | 12,200 | ||||||
Increase in other assets |
(11,574 | ) | (189,344 | ) | ||||
(Decrease) increase in other liabilities |
(83,978 | ) | 144,793 | |||||
Origination of loans held for sale |
(2,640,272 | ) | (3,507,401 | ) | ||||
Proceeds from sale of loans originated for sale |
3,379,810 | 2,953,595 | ||||||
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Net cash provided by (used in) operating activities |
962,514 | (279,773 | ) | |||||
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Cash Flows from Investing Activities: |
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Proceeds from repayment of securities held to maturity |
963,317 | 1,780,505 | ||||||
Proceeds from repayment of securities available for sale |
81,642 | 588,726 | ||||||
Proceeds from sale of securities held to maturity |
284,406 | | ||||||
Proceeds from sale of securities available for sale |
544,149 | 660 | ||||||
Purchase of securities held to maturity |
(2,609,676 | ) | (1,331,059 | ) | ||||
Purchase of securities available for sale |
(142,178 | ) | | |||||
Net redemption of Federal Home Loan Bank stock |
21,277 | 53,484 | ||||||
Net increase in loans |
(653,405 | ) | (9,942 | ) | ||||
Purchase of premises and equipment, net |
(24,027 | ) | (4,820 | ) | ||||
Net cash acquired in business transactions |
100,027 | 140,895 | ||||||
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Net cash (used in) provided by investing activities |
(1,434,468 | ) | 1,218,449 | |||||
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Cash Flows from Financing Activities: |
||||||||
Net decrease in deposits |
(11,340 | ) | (263,385 | ) | ||||
Net decrease in short-term borrowed funds |
(500,000 | ) | | |||||
Net decrease in long-term borrowed funds |
(18,832 | ) | (542,706 | ) | ||||
Tax effect of stock plans |
2,252 | 1,103 | ||||||
Cash dividends paid on common stock |
(218,397 | ) | (216,870 | ) | ||||
Treasury stock purchases |
(2,677 | ) | (2,758 | ) | ||||
Net cash received from stock option exercises |
3,519 | 3,539 | ||||||
Proceeds from issuance of common stock, net |
| 28,935 | ||||||
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|
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Net cash used in financing activities |
(745,475 | ) | (992,142 | ) | ||||
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Net decrease in cash and cash equivalents |
(1,217,429 | ) | (53,466 | ) | ||||
Cash and cash equivalents at beginning of period |
1,927,542 | 2,670,857 | ||||||
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Cash and cash equivalents at end of period |
$ | 710,113 | $ | 2,617,391 | ||||
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Supplemental information: |
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Cash paid for interest |
$ | 346,984 | $ | 414,470 | ||||
Cash paid for income taxes |
89,958 | 147,548 | ||||||
Non-cash investing and financing activities: |
||||||||
Transfers to other real estate owned from loans |
111,612 | 20,890 |
Note: | Excluding the core deposit intangible and FDIC loss share receivable, the fair values of non-cash assets acquired, and of liabilities assumed, in the acquisition of Desert Hills Bank on March 26, 2010 were $230.5 million and $442.5 million, respectively. |
See accompanying notes to the consolidated financial statements.
4
NEW YORK COMMUNITY BANCORP, INC.
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
Note 1: Organization and Basis of Presentation
Organization
Formerly known as Queens County Bancorp, Inc., New York Community Bancorp, Inc. (on a stand-alone basis, the Parent Company or, collectively with its subsidiaries, the Company) was organized under Delaware law on July 20, 1993 and is the holding company for New York Community Bank and New York Commercial Bank (hereinafter referred to as the Community Bank and the Commercial Bank, respectively, and collectively as the Banks). In addition, for the purpose of these Consolidated Financial Statements, the Community Bank and the Commercial Bank refer not only to the respective banks but also to their respective subsidiaries.
The Community Bank is the primary banking subsidiary of the Company. Founded on April 14, 1859 and formerly known as Queens County Savings Bank, the Community Bank converted from a state-chartered mutual savings bank to the capital stock form of ownership on November 23, 1993, on which date the Company completed its initial offering of common stock (par value: $0.01 per share) at a price of $25.00 per share. The Commercial Bank was established on December 30, 2005.
Reflecting nine stock splits, the Companys initial offering price adjusts to $0.93 per share. All share and per share data presented in this report have been adjusted to reflect the impact of the stock splits.
The Company changed its name to New York Community Bancorp, Inc. on November 21, 2000 in anticipation of completing the first of eight business combinations that expanded its footprint well beyond Queens County to encompass all five boroughs of New York City, Long Island, and Westchester County in New York, and seven counties in the northern and central parts of New Jersey. The Company expanded beyond this region to south Florida, northeast Ohio, and central Arizona through its FDIC-assisted acquisition of certain assets and assumption of certain liabilities of AmTrust Bank (AmTrust) in December 2009, and extended its Arizona franchise through its FDIC-assisted acquisition of certain assets and assumption of certain liabilities of Desert Hills Bank (Desert Hills) in March 2010.
Reflecting this strategy of growth through acquisitions, the Community Bank currently operates 242 branches, four of which operate directly under the Community Bank name. The remaining 238 branches operate through seven divisional banksQueens County Savings Bank, Roslyn Savings Bank, Richmond County Savings Bank, and Roosevelt Savings Bank (in New York), Garden State Community Bank in New Jersey, AmTrust Bank in Florida and Arizona, and Ohio Savings Bank in Ohio.
The Commercial Bank currently operates 34 branches in Manhattan, Queens, Brooklyn, Westchester County, and Long Island (all in New York), including 17 branches that operate under the name Atlantic Bank.
Basis of Presentation
The following is a description of the significant accounting and reporting policies that the Company and its wholly-owned subsidiaries follow in preparing and presenting their consolidated financial statements, which conform to U.S. generally accepted accounting principles (GAAP) and to general practices within the banking industry. The preparation of financial statements in conformity with GAAP requires the Company to make estimates and judgments that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the consolidated financial statements, and the reported amounts of revenues and expenses during the reporting period. Estimates that are particularly susceptible to change in the near term are used in connection with the determination of the allowance for losses on non-covered loans; the evaluation of goodwill for impairment; the evaluation of other-than-temporary impairment (OTTI) on securities; and the evaluation of the need for a valuation allowance on the Companys deferred tax assets. The current economic environment has increased the degree of uncertainty inherent in these material estimates.
The unaudited consolidated financial statements include the accounts of the Company and other entities in which the Company has a controlling financial interest. All inter-company accounts and transactions are eliminated in consolidation. These unaudited consolidated financial statements should be read in conjunction with the audited
5
consolidated financial statements and notes thereto included in the Companys 2010 Annual Report on Form 10-K. The Company currently has unconsolidated subsidiaries in the form of nine wholly-owned statutory business trusts, which were formed to issue guaranteed capital debentures (capital securities). Please see Note 6, Borrowed Funds, for additional information regarding these trusts.
When necessary, certain reclassifications have been made to prior-year amounts to conform to the current-year presentation.
Note 2. Computation of Earnings per Share
Basic earnings per share (EPS) is computed by dividing net income by the weighted-average number of common shares outstanding during the period. Weighted-average common shares are adjusted to exclude unallocated Employee Stock Ownership Plan (ESOP) shares. Diluted EPS is computed using the same method as basic EPS, however, the computation reflects the potential dilution that would occur if outstanding in-the-money stock options were exercised and converted into common stock.
Unvested stock-based compensation awards containing non-forfeitable rights to dividends are considered participating securities and therefore are included in the two-class method for calculating EPS. Under the two-class method, all earnings (distributed and undistributed) are allocated to common shares and participating securities based on their respective rights to receive dividends. The Company grants restricted stock to certain employees under its stock-based compensation plans. Recipients receive cash dividends during the vesting periods of these awards (i.e., including on the unvested portion of such awards). Since these dividends are non-forfeitable, the unvested awards are considered participating securities and have earnings allocated to them.
The following table presents the Companys computation of basic and diluted EPS for the periods indicated:
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
(in thousands, except share and per share data) | 2011 | 2010 | 2011 | 2010 | ||||||||||||
Net income |
$ | 119,459 | $ | 131,427 | $ | 242,635 | $ | 255,576 | ||||||||
Less: Dividends paid on and earnings allocated to participating securities |
(921 | ) | (766 | ) | (1,815 | ) | (1,464 | ) | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Earnings applicable to common stock |
$ | 118,538 | $ | 130,661 | $ | 240,820 | $ | 254,112 | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Weighted average common shares outstanding |
436,179,448 | 434,184,751 | 435,872,952 | 433,137,053 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Basic earnings per common share |
$ | 0.27 | $ | 0.30 | $ | 0.55 | $ | 0.59 | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Earnings applicable to common stock |
$ | 118,538 | $ | 130,661 | $ | 240,820 | $ | 254,112 | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Weighted average common shares outstanding |
436,179,448 | 434,184,751 | 435,872,952 | 433,137,053 | ||||||||||||
Potential dilutive common shares(1) |
437,504 | 438,776 | 646,914 | 351,309 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total shares for diluted earnings per share computation |
436,616,952 | 434,623,527 | 436,519,866 | 433,488,362 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Diluted earnings per common share and common share equivalents |
$ | 0.27 | $ | 0.30 | $ | 0.55 | $ | 0.59 | ||||||||
|
|
|
|
|
|
|
|
(1) | Options to purchase 744,838 and 736,938 shares, respectively, of the Companys common stock that were outstanding in the three and six months ended June 30, 2011, at respective weighted average exercise prices of $21.37 and $21.42, were excluded from the respective computations of diluted EPS because their inclusion would have had an antidilutive effect. Options to purchase 2,822,923 and 5,304,612 shares, respectively, of the Companys common stock that were outstanding in the three and six months ended June 30, 2010, at respective weighted average exercise prices of $19.18 and $17.72, were excluded from the respective computations of diluted EPS because their inclusion would have had an antidilutive effect. |
6
Note 3: Securities
The following table summarizes the Companys portfolio of securities available for sale at June 30, 2011:
June 30, 2011 | ||||||||||||||||
(in thousands) | Amortized Cost |
Gross Unrealized Gain |
Gross Unrealized Loss |
Fair Value | ||||||||||||
Mortgage-Related Securities: |
||||||||||||||||
GSE(1) certificates |
$ | 47,369 | $ | 1,735 | $ | 20 | $ | 49,084 | ||||||||
Private label CMOs(2) |
33,855 | | 304 | 33,551 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total mortgage-related securities |
$ | 81,224 | $ | 1,735 | $ | 324 | $ | 82,635 | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Other Securities: |
||||||||||||||||
GSE debentures |
$ | 618 | $ | | $ | 10 | $ | 608 | ||||||||
State, county, and municipal |
1,309 | 55 | 2 | 1,362 | ||||||||||||
Capital trust notes |
38,842 | 2,880 | 4,376 | 37,346 | ||||||||||||
Preferred stock |
| 455 | | 455 | ||||||||||||
Common stock |
42,202 | 1,509 | 3,845 | 39,866 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total other securities |
$ | 82,971 | $ | 4,899 | $ | 8,233 | $ | 79,637 | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Total securities available for sale(3) |
$ | 164,195 | $ | 6,634 | $ | 8,557 | $ | 162,272 | ||||||||
|
|
|
|
|
|
|
|
(1) | Government-sponsored enterprises |
(2) | Collateralized mortgage obligations |
(3) | The non-credit portion of OTTI was $570,000 (before taxes). |
As of June 30, 2011, the fair value of marketable equity securities included common stock of $39.9 million and Freddie Mac preferred stock of $455,000. Common stock primarily consisted of an investment in a large cap equity fund and certain other funds that are Community Reinvestment Act (CRA) eligible. The Freddie Mac preferred stock was recognized by the Company as other-than-temporarily impaired in the fourth quarter of 2008.
The following table summarizes the Companys portfolio of securities available for sale at December 31, 2010:
December 31, 2010 | ||||||||||||||||
(in thousands) | Amortized Cost |
Gross Unrealized Gain |
Gross Unrealized Loss |
Fair Value | ||||||||||||
Mortgage-Related Securities: |
||||||||||||||||
GSE certificates |
$ | 203,480 | $ | 8,067 | $ | 32 | $ | 211,515 | ||||||||
GSE CMOs |
213,839 | 8,464 | | 222,303 | ||||||||||||
Private label CMOs |
51,657 | 110 | 405 | 51,362 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total mortgage-related securities |
$ | 468,976 | $ | 16,641 | $ | 437 | $ | 485,180 | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Other Securities: |
||||||||||||||||
U.S. Treasury obligations |
$ | 57,859 | $ | 694 | $ | | $ | 58,553 | ||||||||
GSE debentures |
620 | | | 620 | ||||||||||||
Corporate bonds |
4,814 | | 564 | 4,250 | ||||||||||||
State, county, and municipal |
1,304 | 41 | 11 | 1,334 | ||||||||||||
Capital trust notes |
38,843 | 8,550 | 5,389 | 42,004 | ||||||||||||
Preferred stock |
30,574 | 2,129 | 11,964 | 20,739 | ||||||||||||
Common stock |
42,044 | 3,786 | 5,554 | 40,276 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total other securities |
$ | 176,058 | $ | 15,200 | $ | 23,482 | $ | 167,776 | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Total securities available for sale(1) |
$ | 645,034 | $ | 31,841 | $ | 23,919 | $ | 652,956 | ||||||||
|
|
|
|
|
|
|
|
(1) | The non-credit portion of OTTI was $12.5 million (before taxes). |
7
The following tables summarize the Companys portfolio of securities held to maturity at June 30, 2011 and December 31, 2010:
June 30, 2011 | ||||||||||||||||||||
(in thousands) | Amortized Cost |
Carrying Amount |
Gross Unrealized Gain |
Gross Unrealized Loss |
Fair Value | |||||||||||||||
Mortgage-Related Securities: |
||||||||||||||||||||
GSE certificates |
$ | 682,503 | $ | 682,503 | $ | 12,732 | $ | 2,759 | $ | 692,476 | ||||||||||
GSE CMOs |
2,560,606 | 2,560,606 | 56,597 | 15,921 | 2,601,282 | |||||||||||||||
Other mortgage-related securities |
3,990 | 3,990 | | | 3,990 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total mortgage-related securities |
$ | 3,247,099 | $ | 3,247,099 | $ | 69,329 | $ | 18,680 | $ | 3,297,748 | ||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Other Securities: |
||||||||||||||||||||
GSE debentures |
$ | 2,044,524 | $ | 2,044,524 | $ | 10,549 | $ | 10,314 | $ | 2,044,759 | ||||||||||
Corporate bonds |
83,502 | 83,502 | 6,421 | 36 | 89,887 | |||||||||||||||
Capital trust notes |
153,329 | 131,518 | 14,483 | 16,304 | 129,697 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total other securities |
$ | 2,281,355 | $ | 2,259,544 | $ | 31,453 | $ | 26,654 | $ | 2,264,343 | ||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total securities held to maturity(1) |
$ | 5,528,454 | $ | 5,506,643 | $ | 100,782 | $ | 45,334 | $ | 5,562,091 | ||||||||||
|
|
|
|
|
|
|
|
|
|
(1) | Held-to-maturity securities are reported at a carrying amount equal to amortized cost less the non-credit portion of OTTI recorded in accumulated other comprehensive loss, net of tax (AOCL). The non-credit portion of OTTI was $21.8 million (before taxes). |
December 31, 2010 | ||||||||||||||||||||
(in thousands) | Amortized Cost |
Carrying Amount |
Gross Unrealized Gain |
Gross Unrealized Loss |
Fair Value | |||||||||||||||
Mortgage-Related Securities: |
||||||||||||||||||||
GSE certificates |
$ | 208,993 | $ | 208,993 | $ | 12,206 | $ | 1,094 | $ | 220,105 | ||||||||||
GSE CMOs |
2,763,545 | 2,763,545 | 47,352 | 28,345 | 2,782,552 | |||||||||||||||
Other mortgage-related securities |
6,777 | 6,777 | | | 6,777 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total mortgage-related securities |
$ | 2,979,315 | $ | 2,979,315 | $ | 59,558 | $ | 29,439 | $ | 3,009,434 | ||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Other Securities: |
||||||||||||||||||||
GSE debentures |
$ | 924,663 | $ | 924,663 | $ | 4,524 | $ | 10,592 | $ | 918,595 | ||||||||||
Corporate bonds |
86,483 | 86,483 | 8,647 | 13 | 95,117 | |||||||||||||||
Capital trust notes |
167,355 | 145,474 | 11,410 | 22,708 | 134,176 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total other securities |
$ | 1,178,501 | $ | 1,156,620 | $ | 24,581 | $ | 33,313 | $ | 1,147,888 | ||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total securities held to maturity(1) |
$ | 4,157,816 | $ | 4,135,935 | $ | 84,139 | $ | 62,752 | $ | 4,157,322 | ||||||||||
|
|
|
|
|
|
|
|
|
|
(1) | The non-credit portion of OTTI was $21.9 million (before taxes). |
The Company had $424.7 million and $446.0 million of Federal Home Loan Bank (FHLB) stock, at cost, at June 30, 2011 and December 31, 2010, respectively. The Company is required to maintain this investment in order to have access to funding resources provided by the FHLB.
The following table summarizes the gross proceeds, gross realized gains, and gross realized losses from the sale of available-for-sale securities during the six months ended June 30, 2011 and 2010:
For the Six Months Ended June 30, 2011 |
||||||||
(in thousands) | 2011 | 2010 | ||||||
Gross proceeds | $ | 544,149 | $ | 660 | ||||
Gross realized gains | 20,243 | | ||||||
Gross realized losses | 11 | 8 | ||||||
|
|
|
|
In addition, during the six months ended June 30, 2011, the Company sold held-to-maturity securities with gross proceeds totaling $284.4 million and gross realized gains of $8.5 million. These sales occurred as the Company either had collected a substantial portion (at least 85%) of the initial principal balance or there was evidence of significant deterioration in the issuers creditworthiness.
8
Included in the capital trust note portfolio at June 30, 2011 were three pooled trust preferred securities. The following table details the pooled trust preferred securities that had at least one credit rating below investment grade as of June 30, 2011:
INCAPS Funding I |
Alesco Preferred Funding VII Ltd. |
Preferred Term Securities II |
||||||||||
(dollars in thousands) | Class B-2 Notes | Class C-1 Notes | Mezzanine Notes | |||||||||
Book value |
$ | 14,964 | $ | 553 | $ | 627 | ||||||
Fair value |
17,828 | 374 | 904 | |||||||||
Unrealized gain (loss) |
2,864 | (179 | ) | 277 | ||||||||
Lowest credit rating assigned to security |
CCC- | C | C | |||||||||
Number of banks/insurance companies currently performing |
24 | 61 | 24 | |||||||||
Actual deferrals and defaults as a percentage of original collateral |
11 | % | 30 | % | 36 | % | ||||||
Expected deferrals and defaults as a percentage of remaining performing collateral |
20 | 26 | 19 | |||||||||
Expected recoveries as a percentage of remaining performing collateral |
| | 2 | |||||||||
Excess subordination as a percentage of remaining performing collateral |
27 | | |
As of June 30, 2011, after taking into account the Companys best estimates of future deferrals, defaults, and recoveries, two of its pooled trust preferred securities had no excess subordination in the classes it owns and one had excess subordination of 27%. Excess subordination is calculated after taking into account the deferrals, defaults, and recoveries noted in the table above, and indicates whether there is sufficient additional collateral to cover the outstanding principal balance of the class owned, after taking into account these projected deferrals, defaults, and recoveries.
The following table presents a roll-forward, from December 31, 2010 through June 30, 2011, of the credit loss component of OTTI on debt securities for which a non-credit component of OTTI was recognized in AOCL. The beginning balance represents the credit loss component for debt securities for which OTTI occurred prior to January 1, 2011. 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). There were no changes in the credit loss component of credit-impaired debt securities in the three months ended June 30, 2011:
(in thousands) | For the Six Months Ended June 30, 2011 |
|||||
Beginning credit loss amount as of December 31, 2010 |
$ | 201,854 | ||||
Add: |
Initial other-than-temporary credit losses | | ||||
Subsequent other-than-temporary credit losses | 6,160 | |||||
Amount previously recognized in AOCL | 11,964 | |||||
Less: |
Realized losses for securities sold | | ||||
Securities intended or required to be sold | | |||||
Increases in expected cash flows on debt securities | | |||||
|
|
|||||
Ending credit loss amount as of June 30, 2011 | $ | 219,978 | ||||
|
|
OTTI losses on securities (consisting entirely of preferred stock) totaled $18.1 million. As this entire amount was related to credit, it was recognized in earnings during the six months ended June 30, 2011. OTTI was determined based on the Companys expectation that it will no longer receive any cash flows from the impaired security.
9
The following table summarizes the carrying amount and estimated fair value of held-to-maturity debt securities, and the amortized cost and estimated fair value of available-for-sale debt securities, at June 30, 2011 by contractual maturity. Mortgage-related securities held to maturity and available for sale, all of which have prepayment provisions, are distributed to a maturity category based on the ends of the estimated average lives of such securities. Principal and amortization prepayments are not shown in maturity categories as they occur, but are considered in the determination of estimated average life.
Carrying Amount at June 30, 2011 | ||||||||||||||||||||||||||||||||||||
(dollars in thousands) | Mortgage- Related Securities |
Average Yield |
U.S. Treasury and GSE Obligations |
Average Yield |
State, County, and Municipal |
Average Yield(1) |
Other
Debt Securities(2) |
Average Yield |
Fair Value | |||||||||||||||||||||||||||
Held-to-Maturity Securities: |
||||||||||||||||||||||||||||||||||||
Due within one year |
$ | | | % | $ | | | % | $ | | | % | $ | 8,756 | 7.79 | % | $ | 8,864 | ||||||||||||||||||
Due from one to five years |
| | | | | | 23,983 | 5.80 | 24,892 | |||||||||||||||||||||||||||
Due from five to ten years |
869,483 | 3.76 | 2,044,524 | 3.88 | | | 20,023 | 5.98 | 2,928,283 | |||||||||||||||||||||||||||
Due after ten years |
2,377,616 | 3.78 | | | | | 162,258 | 7.18 | 2,600,052 | |||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||
Total debt securities held to maturity |
$ | 3,247,099 | 3.77 | % | $ | 2,044,524 | 3.88 | % | $ | | | % | $ | 215,020 | 6.94 | % | $ | 5,562,091 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||
Available-for-Sale Securities:(3) |
||||||||||||||||||||||||||||||||||||
Due within one year |
$ | | | % | $ | | | % | $ | 125 | 5.39 | % | $ | | | % | $ | 127 | ||||||||||||||||||
Due from one to five years |
10,095 | 7.20 | | | 631 | 6.10 | | | 10,788 | |||||||||||||||||||||||||||
Due from five to ten years |
3,410 | 4.15 | | | 553 | 6.56 | | | 4,185 | |||||||||||||||||||||||||||
Due after ten years |
67,719 | 4.85 | 618 | 5.26 | | | 38,842 | 4.84 | 106,851 | |||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||
Total debt securities available for sale |
$ | 81,224 | 5.12 | % | $ | 618 | 5.26 | % | $ | 1,309 | 6.22 | % | $ | 38,842 | 4.84 | % | $ | 121,951 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) | Not presented on a tax-equivalent basis. |
(2) | Includes corporate bonds and capital trust notes. Included in capital trust notes are $15.5 million and $627,000 of pooled trust preferred securities available for sale and held to maturity, respectively, all of which are due after ten years. The remaining capital trust notes consist of single-issue trust preferred securities. |
(3) | As equity securities have no contractual maturity, they have been excluded from this table. |
The Company had no commitments to purchase securities at June 30, 2011.
10
The following tables present held-to-maturity and available-for-sale securities having a continuous unrealized loss position for less than twelve months and for twelve months or longer as of June 30, 2011:
At June 30, 2011 | Less than Twelve Months | Twelve Months or Longer | Total | |||||||||||||||||||||
(in thousands) | Fair Value | Unrealized Loss | Fair Value | Unrealized Loss | Fair Value | Unrealized Loss | ||||||||||||||||||
Temporarily Impaired Held-to-Maturity Debt Securities: |
||||||||||||||||||||||||
GSE debentures |
$ | 1,045,736 | $ | 10,314 | $ | | $ | | $ | 1,045,736 | $ | 10,314 | ||||||||||||
GSE certificates |
355,482 | 2,759 | | | 355,482 | 2,759 | ||||||||||||||||||
GSE CMOs |
945,147 | 15,921 | | | 945,147 | 15,921 | ||||||||||||||||||
Corporate bonds |
24,987 | 36 | | | 24,987 | 36 | ||||||||||||||||||
Capital trust notes |
| | 72,085 | 16,304 | 72,085 | 16,304 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total temporarily impaired held-to-maturity debt securities |
$ | 2,371,352 | $ | 29,030 | $ | 72,085 | $ | 16,304 | $ | 2,443,437 | $ | 45,334 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Temporarily Impaired Available-for-Sale Securities: |
||||||||||||||||||||||||
Debt Securities: |
||||||||||||||||||||||||
GSE certificates |
$ | 9,364 | $ | 19 | $ | 15 | $ | 1 | $ | 9,379 | $ | 20 | ||||||||||||
Private label CMOs |
33,551 | 304 | | | 33,551 | 304 | ||||||||||||||||||
GSE debentures |
608 | 10 | | | 608 | 10 | ||||||||||||||||||
State, county, and municipal |
133 | 2 | | | 133 | 2 | ||||||||||||||||||
Capital trust notes |
2,463 | 179 | 9,940 | 4,197 | 12,403 | 4,376 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total temporarily impaired available-for-sale debt securities |
$ | 46,119 | $ | 514 | $ | 9,955 | $ | 4,198 | $ | 56,074 | $ | 4,712 | ||||||||||||
Equity securities |
40 | | 26,241 | 3,845 | 26,281 | 3,845 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total temporarily impaired available-for-sale securities |
$ | 46,159 | $ | 514 | $ | 36,196 | $ | 8,043 | $ | 82,355 | $ | 8,557 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
The twelve months or longer unrealized losses of $3.8 million at June 30, 2011 relate to available-for-sale equity securities that primarily consisted of a large cap equity fund at that date. The twelve months or longer unrealized loss on this large cap equity fund was $3.4 million.
11
The following tables present held-to-maturity and available-for-sale securities having a continuous unrealized loss position for less than twelve months and for twelve months or longer as of December 31, 2010:
At December 31, 2010 | Less than Twelve Months | Twelve Months or Longer | Total | |||||||||||||||||||||
(in thousands) | Fair Value | Unrealized Loss | Fair Value | Unrealized Loss | Fair Value | Unrealized Loss | ||||||||||||||||||
Temporarily Impaired Held-to-Maturity Debt Securities: |
||||||||||||||||||||||||
GSE debentures |
$ | 569,361 | $ | 10,592 | $ | | $ | | $ | 569,361 | $ | 10,592 | ||||||||||||
GSE certificates |
54,623 | 1,094 | | | 54,623 | 1,094 | ||||||||||||||||||
GSE CMOs |
1,251,850 | 28,345 | | | 1,251,850 | 28,345 | ||||||||||||||||||
Corporate bonds |
4,987 | 13 | | | 4,987 | 13 | ||||||||||||||||||
Capital trust notes |
| | 66,698 | 22,708 | 66,698 | 22,708 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total temporarily impaired held-to-maturity debt securities |
$ | 1,880,821 | $ | 40,044 | $ | 66,698 | $ | 22,708 | $ | 1,947,519 | $ | 62,752 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Temporarily Impaired Available-for-Sale Securities: |
||||||||||||||||||||||||
Debt Securities: |
||||||||||||||||||||||||
GSE certificates |
$ | 12,809 | $ | 28 | $ | 779 | $ | 4 | $ | 13,588 | $ | 32 | ||||||||||||
Private label CMOs |
| | 35,511 | 405 | 35,511 | 405 | ||||||||||||||||||
Corporate bonds |
| | 4,250 | 564 | 4,250 | 564 | ||||||||||||||||||
State, county, and municipal |
399 | 11 | | | 399 | 11 | ||||||||||||||||||
Capital trust notes |
1,988 | 102 | 8,848 | 5,287 | 10,836 | 5,389 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total temporarily impaired available-for-sale debt securities |
$ | 15,196 | $ | 141 | $ | 49,388 | $ | 6,260 | $ | 64,584 | $ | 6,401 | ||||||||||||
Equity securities |
79 | 11 | 25,339 | 17,507 | 25,418 | 17,518 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total temporarily impaired available-for-sale securities |
$ | 15,275 | $ | 152 | $ | 74,727 | $
|
23,767 |
|
$ | 90,002 | $ | 23,919 | |||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
12
An OTTI loss on impaired securities must be fully recognized in earnings if an investor has the intent to sell the debt security or if it is more likely than not that the investor will be required to sell the debt security before recovery of its amortized cost. However, even if an investor does not expect to sell a debt security, it must evaluate the expected cash flows to be received and determine if a credit loss has occurred. In the event that a credit loss occurs, only the amount of impairment associated with the credit loss is recognized in earnings. Amounts relating to factors other than credit losses are recorded in AOCL. Financial Accounting Standards Board (FASB) guidance also requires additional disclosures regarding the calculation of credit losses, as well as factors considered by the investor in reaching a conclusion that an investment is not other-than-temporarily impaired.
Available-for-sale securities in unrealized loss positions are analyzed as part of the Companys ongoing assessment of OTTI. When the Company intends to sell such available-for-sale securities, the Company recognizes an impairment loss equal to the full difference between the amortized cost basis and the fair value of those securities. When the Company does not intend to sell available-for-sale equity or debt securities in an unrealized loss position, potential OTTI is considered based on a variety of factors, including the length of time and extent to which the fair value has been less than the cost; adverse conditions specifically related to the industry, the geographic area, or financial condition of the issuer, or the underlying collateral of a security; the payment structure of the security; changes to the rating of the security by a rating agency; the volatility of the fair value changes; and changes in fair value of the security after the balance sheet date. For debt securities, the Company estimates cash flows over the remaining life of the underlying collateral to assess whether credit losses exist and, where applicable, to determine if any adverse changes in cash flows have occurred. The Companys cash flow estimates take into account expectations of relevant market and economic data as of the end of the reporting period. As of June 30, 2011, the Company did not intend to sell the securities with an unrealized loss position in AOCL, and it was more likely than not that the Company would not be required to sell these securities before recovery of their amortized cost basis. The Company believes that the securities with an unrealized loss position in AOCL were not other-than- temporarily impaired as of June 30, 2011.
Other factors considered in determining whether a loss is temporary include the length of time and the extent to which fair value has been below cost; the severity of the impairment; the cause of the impairment; the financial condition and near-term prospects of the issuer; activity in the market of the issuer that may indicate adverse credit conditions; and the forecasted recovery period using current estimates of volatility in market interest rates (including liquidity and risk premiums).
Managements assertion regarding its intent not to sell, or that it is not more likely than not that the Company will be required to sell the security before its anticipated recovery, considers a number of factors, including a quantitative estimate of the expected recovery period (which may extend to maturity) and managements intended strategy with respect to the identified security or portfolio. If management does have the intent to sell, or believes it is more likely than not that the Company will be required to sell the security before its anticipated recovery, the unrealized loss is charged directly to earnings in the Consolidated Statement of Income and Comprehensive Income.
The unrealized losses on the Companys GSE debentures and GSE CMOs at June 30, 2011 were primarily caused by movements in market interest rates and spread volatility, rather than credit risk. The Company purchased these investments either at par or at a discount relative to their face amount, and the contractual cash flows of these investments are guaranteed by the GSEs. Accordingly, it is expected that these securities would not be settled at a price that is less than the amortized cost of the Companys investment. Because the Company does not have the intent to sell the investments and it is not more likely than not that the Company will be required to sell the investments before anticipated recovery of fair value, which may be at maturity, the Company did not consider these investments to be other-than-temporarily impaired at June 30, 2011.
The Company reviews quarterly financial information related to its investments in capital securities as well as other information that is released by each financial institution to determine the continued creditworthiness of the issuer of the securities. The contractual terms of these investments do not permit settling the securities at prices that are less than the amortized costs of the investments; therefore, the Company expects that these investments would not be settled at prices that are less than their amortized costs. The Company continues to monitor these investments and currently estimates that the present value of expected cash flows is not less than the amortized cost of the securities. Because the Company does not have the intent to sell the investments and it is not more likely than
13
not that the Company will be required to sell them before the anticipated recovery of fair value, which may be at maturity, it did not consider these investments to be other-than-temporarily impaired at June 30, 2011. It is possible that these securities will perform worse than is currently expected, which could lead to adverse changes in cash flows from these securities and potential OTTI losses in the future. Events that may occur in the future at the financial institutions that issued these securities could trigger material unrecoverable declines in fair values for the Companys investments and therefore could result in future potential OTTI losses. Such events include, but are not limited to, government intervention, deteriorating asset quality and credit metrics, significantly higher levels of default and loan loss provisions, losses in value on the underlying collateral, deteriorating credit enhancement, net operating losses, and further illiquidity in the financial markets.
The unrealized losses on the Companys private label CMOs were insignificant at June 30, 2011. Current characteristics of each security owned, such as delinquency and foreclosure levels, credit enhancement, and projected losses and coverage, are reviewed periodically by management. Accordingly, it is expected that the securities would not be settled at a price less than the amortized cost of the Companys investment. Because the Company does not have the intent to sell the investments and it is not more likely than not that the Company will be required to sell the investments before anticipated recovery of fair value, which may be at maturity, the Company did not consider these investments to be other-than-temporarily impaired at June 30, 2011. It is possible that the underlying loan collateral of these securities will perform worse than is currently expected, which could lead to adverse changes in cash flows from these securities and potential OTTI losses in the future. Events that could trigger material unrecoverable declines in fair values, and therefore potential OTTI losses for these securities in the future, include, but are not limited to, deterioration of credit metrics, significantly higher levels of default, loss in value on the underlying collateral, deteriorating credit enhancement, and further illiquidity in the financial markets.
At June 30, 2011, the Companys equity securities portfolio consisted of perpetual preferred and common stock, and mutual funds. The Company considers a decline in fair value of available-for-sale equity securities to be other than temporary if the Company does not expect to recover the entire amortized cost basis of the security. In analyzing its investments in perpetual preferred stock for OTTI, the Company uses an impairment model that is applied to debt securities, consistent with guidance provided by the SEC, provided that there has been no evidence of deterioration in the creditworthiness of the issuer. The unrealized losses on the Companys equity securities were primarily caused by market volatility. In addition, perpetual preferred stock was impacted by widening interest rate spreads across market sectors related to the continued illiquidity and uncertainty in the marketplace. The Company evaluated the near-term prospects of a recovery of fair value for each security in the portfolio, together with the severity and duration of impairment to date. Based on this evaluation, and the Companys ability and intent to hold these investments for a reasonable period of time sufficient to realize a near-term forecasted recovery of fair value, the Company did not consider these investments to be other-than-temporarily impaired at June 30, 2011. Nonetheless, it is possible that these equity securities will perform worse than is currently expected, which could lead to adverse changes in their fair values or the failure of the securities to fully recover in value as presently forecasted by management, causing the Company to record potential OTTI losses in future periods. Events that could trigger material declines in the fair values of these securities include, but are not limited to, deterioration in the equity markets; a decline in the quality of the loan portfolios of the issuers in which the Company has invested; and the recording of higher loan loss provisions and net operating losses by such issuers.
The investment securities designated as having a continuous loss position for twelve months or more at June 30, 2011 consisted of 11 capital trust notes, five equity securities, and one mortgage-backed security. At December 31, 2010, the investment securities designated as having a continuous loss position for twelve months or more consisted of two mortgage-related securities, one corporate debt obligation, eleven capital trust notes, and seven equity securities. At June 30, 2011 and December 31, 2010, the combined market value of these securities represented unrealized losses of $24.3 million and $46.5 million, respectively. At June 30, 2011, the fair value of securities having a continuous loss position for twelve months or more was 18.4% below their collective amortized cost of $132.0 million. At December 31, 2010, the fair value of such securities was 24.0% below their collective amortized cost of $193.5 million.
14
Note 4: Loans
The following table sets forth the composition of the loan portfolio at June 30, 2011 and December 31, 2010:
June 30, 2011 | December 31, 2010 | |||||||||||||||
(dollars in thousands) | Amount | Percent of Non-Covered Loans Held for Investment |
Amount | Percent of Non-Covered Loans Held for Investment |
||||||||||||
Non-Covered Loans Held for Investment: |
||||||||||||||||
Mortgage Loans: |
||||||||||||||||
Multi-family |
$ | 17,055,571 | 69.62 | % | $ | 16,807,913 | 70.88 | % | ||||||||
Commercial real estate |
6,123,594 | 25.00 | 5,439,611 | 22.94 | ||||||||||||
Acquisition, development, and construction |
524,077 | 2.14 | 569,537 | 2.40 | ||||||||||||
One-to-four family |
148,194 | 0.61 | 170,392 | 0.72 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total mortgage loans held for investment |
23,851,436 | 97.37 | 22,987,453 | 96.94 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Other Loans: |
||||||||||||||||
Commercial and industrial |
571,200 | 2.33 | 641,663 | 2.70 | ||||||||||||
Other |
73,980 | 0.30 | 85,559 | 0.36 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total other loans held for investment |
645,180 | 2.63 | 727,222 | 3.06 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total non-covered loans held for investment |
24,496,616 | 100.00 | % | 23,714,675 | 100.00 | % | ||||||||||
|
|
|
|
|||||||||||||
Net deferred loan origination fees |
(2,678 | ) | (7,181 | ) | ||||||||||||
Allowance for losses on non-covered loans |
(134,471 | ) | (158,942 | ) | ||||||||||||
|
|
|
|
|||||||||||||
Non-covered loans held for investment, net |
24,359,467 | 23,548,552 | ||||||||||||||
Covered loans |
4,008,287 | 4,297,869 | ||||||||||||||
Allowance for losses on covered loans |
(20,611 | ) | (11,903 | ) | ||||||||||||
|
|
|
|
|||||||||||||
Total covered loans, net |
3,987,676 | 4,285,966 | ||||||||||||||
Loans held for sale |
491,724 | 1,207,077 | ||||||||||||||
|
|
|
|
|||||||||||||
Total loans, net |
$ | 28,838,867 | $ | 29,041,595 | ||||||||||||
|
|
|
|
Non-Covered Loans
Non-Covered Loans Held for Investment
The majority of the loans the Company originates for investment are multi-family loans, most of which are collateralized by non-luxury apartment buildings in New York City that feature below-market rents.
The Company also originates the following types of loans for investment: commercial real estate (CRE) loans, primarily in New York City, Long Island, and New Jersey; and, to a lesser extent, acquisition, development, and construction (ADC) loans and commercial and industrial (C&I) loans. ADC loans are primarily originated for multi-family and residential tract projects in New York City and Long Island, while C&I loans are made to small and mid-size businesses in New York City, Long Island, New Jersey, and Arizona, on both a secured and unsecured basis, for working capital, business expansion, and the purchase of machinery and equipment.
Payments on multi-family and CRE loans generally depend on the income produced by the underlying properties which, in turn, depends on their successful operation and management. The ability of the Companys borrowers to repay these loans may be impacted by adverse conditions in the local real estate market and the local economy. While the Company generally requires that such loans be qualified on the basis of the collateral propertys current cash flows, appraised value, and debt service coverage ratio, among other factors, there can be no assurance that its underwriting policies will protect the Company from credit-related losses or delinquencies.
ADC loans typically involve a higher degree of credit risk than financing on improved, owner-occupied real estate. The risk of loss on an ADC loan is largely dependent upon the accuracy of the initial appraisal of the propertys value upon completion of construction or development; the estimated cost of construction, including interest; and the estimated time to complete and/or sell or lease such property. The Company seeks to minimize these risks by maintaining consistent lending policies and rigorous underwriting standards. However, if the estimate of value proves to be inaccurate, the cost of completion is greater than expected, the length of time to complete and/or sell or lease the collateral property is greater than anticipated, or if there is a downturn in the local economy or real estate market, the property could have a value upon completion that is insufficient to assure full repayment
15
of the loan. This could have a material adverse effect on the quality of the ADC loan portfolio, and could result in significant losses or delinquencies.
The Company seeks to minimize the risks involved in C&I lending by underwriting such loans on the basis of the cash flows produced by the business; by requiring that such loans be collateralized by various business assets, including inventory, equipment, and accounts receivable, among others; and by requiring personal guarantees. However, the capacity of a borrower to repay a C&I loan is substantially dependent on the degree to which his or her business is successful. In addition, the collateral underlying such loans may depreciate over time, may not be conducive to appraisal, or may fluctuate in value, based upon the results of operations of the business.
The Company sold $92.1 million of C&I loans in the second quarter of 2011, in connection with the disposition of the assets and liabilities of the Companys insurance premium financing subsidiary, Standard Funding Corp. The Company recognized a gain of $9.8 million ($5.9 million after-tax) as a result of this business disposition during the three months ended June 30, 2011.
The markets served by the Company have been impacted by widespread economic weakness and high unemployment, which have contributed to it recording a higher level of charge-offs and non-performing assets. The ability of the Companys borrowers to repay their loans, and the value of the collateral securing such loans, could be further adversely impacted by continued or more significant economic weakness in its local markets as a result of increased unemployment, declining real estate values, or increased residential and office vacancies. This not only could result in the Company experiencing a further increase in charge-offs and/or non-performing assets, but also could necessitate an increase in the provision for losses on covered loans. These events, if they were to occur, would have an adverse impact on the Companys results of operations and its capital.
One-to-Four Family Loans Originated for Sale
The Community Banks mortgage banking subsidiary, NYCB Mortgage Company, LLC, is one of the 20 largest aggregators of one-to-four family loans for sale to GSEs in the United States. Community banks, credit unions, mortgage companies, and mortgage brokers use the subsidiarys proprietary web-accessible mortgage banking platform to originate one-to-four family loans in all 50 states.
Prior to December 2010, the Company originated one-to-four family loans in its branches and on its web site on a pass-through, or conduit, basis, and would sell the loans to the third-party conduit shortly after they closed. Since December 2010, the Company has been originating one-to-four family loans in its branches and on its web site through several selected clients of its mortgage banking operation, rather than through the single third-party conduit with which it previously worked. The one-to-four family loans produced for its customers are aggregated with loans produced by its mortgage banking clients throughout the nation, and sold.
The Company also services mortgage loans for various third parties. At June 30, 2011, the unpaid principal balance of serviced loans amounted to $12.1 billion as compared to $9.5 billion at December 31, 2010.
Asset Quality
The following table presents information regarding the quality of the Companys non-covered loans at June 30, 2011:
(in thousands) | 30-89 Days Past Due |
Non- Accrual |
90 Days or More Delinquent and Still Accruing Interest |
Total Past Due Loans |
Total Current Loans |
Total Loans Receivable |
||||||||||||||||||
Multi-family |
$ | 14,678 | $ | 304,695 | $ | | $ | 319,373 | $ | 16,736,198 | $ | 17,055,571 | ||||||||||||
Commercial real estate |
13,496 | 105,167 | | 118,663 | 6,004,931 | 6,123,594 | ||||||||||||||||||
Acquisition, development, and construction |
16,535 | 63,001 | | 79,536 | 444,541 | 524,077 | ||||||||||||||||||
One-to-four family |
3,261 | 16,126 | | 19,387 | 128,807 | 148,194 | ||||||||||||||||||
Commercial and industrial |
4,621 | 11,936 | | 16,557 | 554,643 | 571,200 | ||||||||||||||||||
Other |
550 | 2,056 | | 2,606 | 71,374 | 73,980 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total |
$ | 53,141 | $ | 502,981 | $ | | $ | 556,122 | $ | 23,940,494 | $ | 24,496,616 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
16
The following table presents information regarding the quality of the Companys non-covered loans at December 31, 2010:
(in thousands) | 30-89 Days Past Due |
Non- Accrual |
90 Days or More Delinquent and Still Accruing Interest |
Total Past Due Loans |
Total Current Loans |
Total Loans Receivable |
||||||||||||||||||
Multi-family |
$ | 121,188 | $ | 327,892 | $ | | $ | 449,080 | $ | 16,358,833 | $ | 16,807,913 | ||||||||||||
Commercial real estate |
8,207 | 162,400 | | 170,607 | 5,269,004 | 5,439,611 | ||||||||||||||||||
Acquisition, development, and construction |
5,194 | 91,850 | | 97,044 | 472,493 | 569,537 | ||||||||||||||||||
One-to-four family |
5,723 | 17,813 | | 23,536 | 146,856 | 170,392 | ||||||||||||||||||
Commercial and industrial |
9,324 | 22,804 | | 32,128 | 609,535 | 641,663 | ||||||||||||||||||
Other |
1,404 | 1,672 | | 3,076 | 82,483 | 85,559 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total |
$ | 151,040 | $ | 624,431 | $ | | $ | 775,471 | $ | 22,939,204 | $ | 23,714,675 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
In accordance with GAAP, the Company is required to account for certain loan modifications or restructurings as troubled debt restructurings (TDRs). In general, a modification or restructuring of a loan constitutes a TDR if the Company grants a concession to a borrower experiencing financial difficulty. Loans modified in TDRs are placed on non-accrual status until the Company determines that future collection of principal and interest is reasonably assured, which generally requires that the borrower demonstrate performance according to the restructured terms for a period of at least six months.
The following table presents additional information regarding the Companys TDRs as of June 30, 2011:
(in thousands) | Accruing | Non-Accrual | Total | |||||||||
Multi-family |
$ | 60,845 | $ | 175,060 | $ | 235,905 | ||||||
Commercial real estate |
3,464 | 63,250 | 66,714 | |||||||||
Acquisition, development, and construction |
| 17,666 | 17,666 | |||||||||
Commercial and industrial |
| 3,917 | 3,917 | |||||||||
One-to-four family |
| 1,520 | 1,520 | |||||||||
|
|
|
|
|
|
|||||||
Total |
$ | 64,309 | $ | 261,413 | $ | 325,722 | ||||||
|
|
|
|
|
|
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, capitalizing interest, and forbearance agreements. As of June 30, 2011, loans on which concessions were made with respect to rate reductions amounted to $235.5 million; loans on which maturities were extended or interest was capitalized amounted to $53.3 million; and loans in connection with which forbearance agreements were reached amounted to $36.9 million.
Most of the Companys TDRs involve rate reductions and/or forbearance of arrears, which thus far have proven the most successful in enabling selected borrowers to emerge from delinquency and keep their loans current.
The eligibility of a borrower for work-out concessions of any nature depends upon the facts and circumstances of each transaction, which may change from period to period, and involve judgment by Company personnel regarding the likelihood that the concession will result in the maximum recovery for the Company.
17
The following table summarizes the Companys non-covered loan portfolio by credit quality indicator at June 30, 2011:
(in thousands) | Multi-Family | Commercial Real Estate |
Acquisition, Development, and Construction |
One-to- Four Family |
Total Mortgage Segment |
Commercial and Industrial |
Other | Total Other Loan Segment |
||||||||||||||||||||||||
Credit Quality Indicator: |
||||||||||||||||||||||||||||||||
Pass |
$ | 16,602,460 | $ | 5,930,036 | $ | 434,077 | $ | 136,458 | $ | 23,103,031 | $ | 537,415 | $ | 71,924 | $ | 609,339 | ||||||||||||||||
Special mention |
56,001 | 66,810 | 21,968 | | 144,779 | 16,626 | | 16,626 | ||||||||||||||||||||||||
Substandard |
397,015 | 126,748 | 68,032 | 11,736 | 603,531 | 17,159 | 2,056 | 19,215 | ||||||||||||||||||||||||
Doubtful |
95 | | | | 95 | | | | ||||||||||||||||||||||||
Loss |
| | | | | | | | ||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
Total |
$ | 17,055,571 | $ | 6,123,594 | $ | 524,077 | $ | 148,194 | $ | 23,851,436 | $ | 571,200 | $ | 73,980 | $ | 645,180 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table summarizes the Companys non-covered loan portfolio by credit quality indicator at December 31, 2010:
(in thousands) | Multi-Family | Commercial Real Estate |
Acquisition, Development, and Construction |
One-to- Four Family |
Total Mortgage Segment |
Commercial and Industrial |
Other | Total Other Loan Segment |
||||||||||||||||||||||||
Credit Quality Indicator: |
||||||||||||||||||||||||||||||||
Pass |
$ | 16,097,834 | $ | 5,239,936 | $ | 454,570 | $ | 158,240 | $ | 21,950,580 | $ | 594,373 | $ | 83,887 | $ | 678,260 | ||||||||||||||||
Special mention |
172,713 | 22,650 | 6,650 | | 202,013 | 21,224 | | 21,224 | ||||||||||||||||||||||||
Substandard |
535,366 | 176,797 | 108,317 | 12,152 | 832,632 | 23,564 | 1,672 | 25,236 | ||||||||||||||||||||||||
Doubtful |
2,000 | 228 | | | 2,228 | 2,502 | | 2,502 | ||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
Total |
$ | 16,807,913 | $ | 5,439,611 | $ | 569,537 | $ | 170,392 | $ | 22,987,453 | $ | 641,663 | $ | 85,559 | $ | 727,222 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The preceding classifications follow regulatory guidelines and can be generally described as follows: pass loans are of satisfactory quality; special mention loans have a potential weakness or risk that may result in the deterioration of future repayment; substandard loans are inadequately protected by the current net worth and paying capacity of the borrower or of the collateral pledged (these loans have a well defined weakness and there is a distinct possibility that the Company will sustain some loss); doubtful loans, based on existing circumstances, have weaknesses that make collection or liquidation in full highly questionable and improbable. In addition, one-to-four family residential loans are classified utilizing an inter-regulatory agency methodology that incorporates the extent of delinquency and the loan-to-value ratios. These classifications are the most current available and have been generally updated within the last twelve months.
Covered Loans
The following table presents the balance of covered loans acquired in the AmTrust and Desert Hills acquisitions as of June 30, 2011:
(dollars in thousands) | Amount | Percent of Covered Loans |
||||||
Loan Category: |
||||||||
One-to-four family |
$ | 3,622,087 | 90.4 | % | ||||
All other loans |
386,200 | 9.6 | ||||||
|
|
|
|
|||||
Total covered loans |
$ | 4,008,287 | 100.0 | % | ||||
|
|
|
|
The Company refers to the loans acquired in the AmTrust and Desert Hills acquisitions as covered loans because the Company will be reimbursed for a substantial portion of any future losses on these loans under the terms of the FDIC loss sharing agreements. Covered loans are accounted for under FASB Accounting Standards Codification (ASC) 310-30, Loans and Debt Securities Acquired with Deteriorated Credit Quality, and initially measured at fair value, which includes estimated future credit losses expected to be incurred over the lives of the loans. Under ASC 310-30, purchasers are permitted to aggregate acquired loans into one or more pools, provided that the loans have common risk characteristics. A pool is then accounted for as a single asset with a single composite interest rate and an aggregate expectation of cash flows.
At June 30, 2011 and December 31, 2010, the outstanding balance of covered loans (representing amounts owed to the Company) totaled $4.8 billion and $5.2 billion, respectively. The carrying values of such loans were $4.0 billion and $4.3 billion, respectively, at June 30, 2011 and December 31, 2010.
18
At the respective acquisition dates, the Company estimated the fair values of the AmTrust and Desert Hills loan portfolios, which represented the expected cash flows from the portfolios discounted at market-based rates. In estimating such fair value, the Company (a) calculated the contractual amount and timing of undiscounted principal and interest payments (the undiscounted contractual cash flows); and (b) estimated the amount and timing of undiscounted expected principal and interest payments (the undiscounted expected cash flows). The amount by which the undiscounted expected cash flows exceed the estimated fair value (the accretable yield) is accreted into interest income over the lives of the loans. The difference between the undiscounted contractual cash flows and the undiscounted expected cash flows is referred to as the non-accretable difference. The non-accretable difference represents an estimate of the credit risk in the loan portfolios at the acquisition date.
The accretable yield is affected by changes in interest rate indices for variable rate loans, changes in prepayment assumptions, and changes in expected principal and interest payments over the estimated lives of the loans. Prepayments affect the estimated lives of covered loans and could change the amount of interest income, and possibly principal, expected to be collected. Changes in the expected principal and interest payments over the estimated lives are driven by the credit outlook and actions taken with borrowers. The Company periodically evaluates the estimates of cash flows expected to be collected. Expected future cash flows from interest payments are based on the variable rates at the time of the periodic evaluation. Estimates of expected cash flows that are impacted by changes in interest rate indices for variable rate loans and prepayment assumptions are treated as prospective yield adjustments and included in interest income.
Changes in the accretable yield for acquired loans were as follows for the six months ended June 30, 2011:
(in thousands) | Accretable Yield | |||
Balance at beginning of period |
$ | 1,356,844 | ||
Reclassification from nonaccretable difference |
142,294 | |||
Accretion |
(101,870 | ) | ||
|
|
|||
Balance at end of period |
$ | 1,397,268 | ||
|
|
In connection with the Desert Hills acquisition, the Company also acquired other real estate owned (OREO), all of which is covered under an FDIC loss sharing agreement. Covered OREO was initially recorded at its estimated fair value on the acquisition date, based on independent appraisals less the estimated selling costs. Any subsequent write-downs due to declines in fair value are charged to non-interest expense, and partially offset by the loss reimbursement under the FDIC loss sharing agreement. Any recoveries of previous write-downs are credited to non-interest expense and partially offset by the portion of the recovery that is due to the FDIC.
The FDIC loss share receivable represents the present value of the estimated losses on covered loans to be reimbursed by the FDIC. The estimated losses were based on the same cash flow estimates used in determining the fair value of the covered loans. The FDIC loss share receivable will be reduced as losses are recognized on covered loans and loss sharing payments are received from the FDIC. Realized losses in excess of acquisition-date estimates will result in an increase in the FDIC loss share receivable. Conversely, if realized losses are less than acquisition-date estimates, the FDIC loss share receivable will be reduced.
The following table presents information regarding the Companys covered loans 90 days or more past due at June 30, 2011 and December 31, 2010:
(in thousands) | June 30, 2011 |
December 31, 2010 |
||||||
Covered Loans 90 Days or More Past Due: |
||||||||
One-to-four family |
$ | 308,902 | $ | 310,929 | ||||
Other loans |
47,360 | 49,898 | ||||||
|
|
|
|
|||||
Total covered loans 90 days or more past due |
$ | 356,262 | $ | 360,827 | ||||
|
|
|
|
19
The following table presents information regarding the Companys covered loans that were 30 to 89 days past due at June 30, 2011 and December 31, 2010:
(in thousands) | June 30, 2011 |
December 31, 2010 |
||||||
Covered Loans 30-89 Days Past Due: |
||||||||
One-to-four family |
$ | 109,857 | $ | 108,691 | ||||
Other loans |
14,343 | 21,851 | ||||||
|
|
|
|
|||||
Total covered loans 30-89 days past due |
$ | 124,200 | $ | 130,542 | ||||
|
|
|
|
At June 30, 2011, the Company had $124.2 million of covered loans that were 30 to 89 days past due, and covered loans of $356.3 million that were 90 days or more past due but considered to be performing due to the application of the yield accretion method under ASC 310-30. The remaining portion of the Companys covered loan portfolio totaled $3.5 billion at June 30, 2011 and is considered current. ASC 310-30 allows the Company to aggregate credit-impaired loans acquired in the same fiscal quarter into one or more pools, provided that the loans have common risk characteristics. A pool is then accounted for as a single asset with a single composite interest rate and an aggregate expectation of cash flows. Accordingly, loans that may have been classified as non-performing loans by AmTrust or Desert Hills are no longer classified as non-performing because, at the respective dates of acquisition, the Company believed that it would fully collect the new carrying value of these loans. The new carrying value represents the contractual balance, reduced by the portion expected to be uncollectible (referred to as the non-accretable difference) and by an accretable yield (discount) that is recognized as interest income. It is important to note that managements judgment is required in reclassifying loans subject to ASC 310-30 as performing loans, and is dependent on having a reasonable expectation about the timing and amount of the cash flows to be collected, even if the loan is contractually past due.
The Company recorded an $8.7 million provision for losses on covered loans during the three months ended June 30, 2011. This provision was largely due to credit deterioration in the C&I loan portfolio acquired in the Desert Hills transaction, and in the portfolios of home equity lines of credit acquired in the acquisitions of both Desert Hills and AmTrust. The provision for covered loans was largely offset by FDIC indemnification income of $7.6 million that was recorded in non-interest income for the three months ended June 30, 2011.
Note 5: Allowance for Loan Losses
The following tables provide additional information regarding the Companys allowance for loan losses, based upon the method of evaluating loan impairment:
(in thousands) | Mortgage | Other | Total | |||||||||
Allowance for Loan Losses at June 30, 2011: |
||||||||||||
Individually evaluated for impairment |
$ | 8,605 | $ | | $ | 8,605 | ||||||
Collectively evaluated for impairment |
111,695 | 14,171 | 125,866 | |||||||||
Loans acquired with deteriorated credit quality |
7,386 | 13,225 | 20,611 | |||||||||
|
|
|
|
|
|
|||||||
Total |
$ | 127,686 | $ | 27,396 | $ | 155,082 | ||||||
|
|
|
|
|
|
|||||||
(in thousands) | Mortgage | Other | Total | |||||||||
Allowance for Loan Losses at December 31, 2010: |
||||||||||||
Individually evaluated for impairment |
$ | 15,877 | $ | 130 | $ | 16,007 | ||||||
Collectively evaluated for impairment |
124,957 | 17,978 | 142,935 | |||||||||
Loans acquired with deteriorated credit quality |
4,873 | 7,030 | 11,903 | |||||||||
|
|
|
|
|
|
|||||||
Total |
$ | 145,707 | $ | 25,138 | $ | 170,845 | ||||||
|
|
|
|
|
|
20
The following tables provide additional information regarding the methods used to evaluate the Companys loan portfolio for impairment:
(in thousands) | Mortgage | Other | Total | |||||||||
Loans Receivable at June 30, 2011: |
||||||||||||
Individually evaluated for impairment |
$ | 485,055 | $ | 6,568 | $ | 491,623 | ||||||
Collectively evaluated for impairment |
23,366,381 | 638,612 | 24,004,993 | |||||||||
Loans acquired with deteriorated credit quality |
3,622,087 | 386,200 | 4,008,287 | |||||||||
|
|
|
|
|
|
|||||||
Total |
$ | 27,473,523 | $ | 1,031,380 | $ | 28,504,903 | ||||||
|
|
|
|
|
|
|||||||
(in thousands) | Mortgage | Other | Total | |||||||||
Loans Receivable at December 31, 2010: |
||||||||||||
Individually evaluated for impairment |
$ | 747,869 | $ | 12,929 | $ | 760,798 | ||||||
Collectively evaluated for impairment |
22,239,584 | 714,293 | 22,953,877 | |||||||||
Loans acquired with deteriorated credit quality |
3,874,449 | 423,420 | 4,297,869 | |||||||||
|
|
|
|
|
|
|||||||
Total |
$ | 26,861,902 | $ | 1,150,642 | $ | 28,012,544 | ||||||
|
|
|
|
|
|
Non-Covered Loans
The following table summarizes activity in the allowance for losses on non-covered loans for the six months ended June 30, 2011:
(in thousands) | Mortgage | Other | Total | |||||||||
Beginning balance at December 31, 2010 |
$ | 140,834 | $ | 18,108 | $ | 158,942 | ||||||
Charge-offs |
(60,051 | ) | (8,211 | ) | (68,262 | ) | ||||||
Recoveries |
772 | 2,019 | 2,791 | |||||||||
Provision for loan losses |
38,745 | 2,255 | 41,000 | |||||||||
|
|
|
|
|
|
|||||||
Ending balance at June 30, 2011 |
$ | 120,300 | $ | 14,171 | $ | 134,471 | ||||||
|
|
|
|
|
|
Non-accrual loans amounted to $503.0 million and $624.4 million, respectively, at June 30, 2011 and December 31, 2010. There were no loans over 90 days past due and still accruing interest at either of these dates.
The following table presents additional information regarding the Companys impaired loans at or for the six months ended June 30, 2011:
(in thousands) | Recorded Investment |
Unpaid Principal Balance |
Related Allowance |
Average Recorded Investment |
Interest Income Recognized |
|||||||||||||||
Impaired loans with no related allowance: |
||||||||||||||||||||
Multi-family |
$ | 325,905 | $ | 355,025 | $ | | $ | 386,521 | $ | 3,596 | ||||||||||
Commercial real estate |
79,773 | 84,700 | | 99,930 | 1,099 | |||||||||||||||
Acquisition, development, and construction |
37,477 | 40,407 | | 51,465 | | |||||||||||||||
One-to-four family |
3,985 | 4,080 | | 3,798 | 8 | |||||||||||||||
Commercial and industrial |
6,568 | 11,657 | | 8,743 | 139 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total impaired loans with no related allowance |
$ | 453,708 | $ | 495,869 | $ | | $ | 550,457 | $ | 4,842 | ||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Impaired loans with an allowance recorded: |
||||||||||||||||||||
Multi-family |
$ | 4,916 | $ | 5,163 | $ | 2,636 | $ | 27,534 | $ | | ||||||||||
Commercial real estate |
7,999 | 7,999 | 64 | 16,849 | | |||||||||||||||
Acquisition, development, and construction |
25,000 | 25,000 | 5,905 | 30,178 | | |||||||||||||||
One-to-four family |
| | | 187 | | |||||||||||||||
Commercial and industrial |
| | | 1,005 | | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total impaired loans with an allowance recorded |
$ | 37,915 | $ | 38,162 | $ | 8,605 | $ | 75,753 | $ | | ||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total Impaired Loans: |
||||||||||||||||||||
Multi-family |
$ | 330,821 | $ | 360,188 | $ | 2,636 | $ | 414,055 | $ | 3,596 | ||||||||||
Commercial real estate |
87,772 | 92,699 | 64 | 116,779 | 1,099 | |||||||||||||||
Acquisition, development, and construction |
62,477 | 65,407 | 5,905 | 81,643 | | |||||||||||||||
One-to-four family |
3,985 | 4,080 | | 3,985 | 8 | |||||||||||||||
Commercial and industrial |
6,568 | 11,657 | | 9,748 | 139 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total impaired loans |
$ | 491,623 | $ | 534,031 | $ | 8,605 | $ | 626,210 | $ | 4,842 | ||||||||||
|
|
|
|
|
|
|
|
|
|
21
The following table presents additional information regarding the Companys impaired loans at December 31, 2010:
(in thousands) | Recorded Investment |
Unpaid Principal Balance |
Related Allowance |
|||||||||
Loans with no related allowance: |
||||||||||||
Multi-family |
$ | 447,137 | $ | 464,011 | $ | | ||||||
Commercial real estate |
120,087 | 122,486 | | |||||||||
Acquisition, development, and construction |
65,453 | 71,541 | | |||||||||
One-to-four family |
3,611 | 3,707 | | |||||||||
Commercial and industrial |
10,919 | 15,197 | | |||||||||
|
|
|
|
|
|
|||||||
Total impaired loans with no related allowance |
$ | 647,207 | $ | 676,942 | $ | | ||||||
|
|
|
|
|
|
|||||||
Loans with an allowance recorded: |
||||||||||||
Multi-family |
$ | 50,153 | $ | 52,209 | $ | 6,756 | ||||||
Commercial real estate |
25,700 | 25,894 | 1,555 | |||||||||
Acquisition, development, and construction |
35,355 | 37,634 | 7,553 | |||||||||
One-to-four family |
373 | 373 | 13 | |||||||||
Commercial and industrial |
2,010 | 2,010 | 130 | |||||||||
|
|
|
|
|
|
|||||||
Total impaired loans with an allowance recorded |
$ | 113,591 | $ | 118,120 | $ | 16,007 | ||||||
|
|
|
|
|
|
|||||||
Total Impaired Loans: |
||||||||||||
Multi-family |
$ | 497,290 | $ | 516,220 | $ | 6,756 | ||||||
Commercial real estate |
145,787 | 148,380 | 1,555 | |||||||||
Acquisition, development, and construction |
100,808 | 109,175 | 7,553 | |||||||||
One-to-four family |
3,984 | 4,080 | 13 | |||||||||
Commercial and industrial |
12,929 | 17,207 | 130 | |||||||||
|
|
|
|
|
|
|||||||
Total impaired loans |
$ | 760,798 | $ | 795,062 | $ | 16,007 | ||||||
|
|
|
|
|
|
The interest income recorded on these loans was not materially different from cash-basis interest income.
Covered Loans
Under the loss sharing agreements with the FDIC, covered loans are reported exclusive of the FDIC loss share receivable. The covered loans acquired in the AmTrust and Desert Hills acquisitions are, and will continue to be, reviewed for collectability based on the expectations of cash flows from these loans. As a result, if there is a decrease in expected cash flows due to an increase in estimated credit losses compared to the estimates made at the respective acquisition dates, the decrease in the present value of expected cash flows will be recorded as a provision for losses on covered loans charged to earnings, and an allowance for losses on covered loans will be established. A related credit to non-interest income and an increase in the FDIC loss share receivable will be recognized at the same time, and will be measured based on the loss sharing agreement percentages.
The following table summarizes activity in the allowance for losses on covered loans for the six months ended June 30, 2011 and the twelve months ended December 31, 2010:
(in thousands) | June 30, 2011 |
December 31, 2010 |
||||||
Balance, beginning of period |
$ | 11,903 | $ | | ||||
Provision for loan losses |
8,708 | 11,903 | ||||||
|
|
|
|
|||||
Balance, end of period |
$ | 20,611 | $ | 11,903 | ||||
|
|
|
|
22
Note 6: Borrowed Funds
The following table summarizes the Companys borrowed funds at June 30, 2011 and December 31, 2010:
(in thousands) | June 30, 2011 |
December 31, 2010 |
||||||
FHLB advances |
$ | 7,856,912 | $ | 8,375,659 | ||||
Repurchase agreements |
4,125,000 | 4,125,000 | ||||||
Junior subordinated debentures |
426,846 | 426,992 | ||||||
Senior notes |
601,926 | 601,865 | ||||||
Preferred stock of subsidiaries |
6,600 | 6,600 | ||||||
|
|
|
|
|||||
Total borrowed funds |
$ | 13,017,284 | $ | 13,536,116 | ||||
|
|
|
|
At June 30, 2011, the Company had $426.8 million of outstanding junior subordinated deferrable interest debentures (junior subordinated debentures) held by nine statutory business trusts (the Trusts) that issued guaranteed capital securities. The capital securities qualified as Tier 1 capital of the Company at that date. However, with the passage of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (the Dodd-Frank Act) in July 2010, the qualification of capital securities as Tier 1 capital is expected to be phased out over a three-year period beginning January 1, 2013 and ending January 1, 2016.
The Trusts are accounted for as unconsolidated subsidiaries in accordance with GAAP. The proceeds of each issuance were invested in a series of junior subordinated debentures of the Company and the underlying assets of each statutory business trust are the relevant debentures. The Company has fully and unconditionally guaranteed the obligations under each trusts capital securities to the extent set forth in a guarantee by the Company to each trust. The Trusts capital securities are each subject to mandatory redemption, in whole or in part, upon repayment of the debentures at their stated maturity or earlier redemption.
The following table provides a summary of the outstanding capital securities issued by each trust and the carrying amounts of the junior subordinated debentures issued by the Company to each trust as of June 30, 2011:
Issuer |
Interest Rate of Capital Securities and Debentures |
Junior Subordinated Debenture Carrying Amount |
Capital Securities Amount Outstanding |
Date of Original Issue |
Stated Maturity | First Optional Redemption Date | ||||||||||||
(dollars in thousands) | ||||||||||||||||||
Haven Capital Trust II |
10.250 | % | $ | 23,333 | $ | 22,550 | May 26, 1999 | June 30, 2029 | June 30, 2009(1) | |||||||||
Queens County Capital Trust I |
11.045 | 10,309 | 10,000 | July 26, 2000 | July 19, 2030 | July 19, 2010(2) | ||||||||||||
Queens Statutory Trust I |
10.600 | 15,464 | 15,000 | September 7, 2000 | September 7, 2030 | September 7, 2010(1) | ||||||||||||
New York Community Capital Trust V |
6.000 | 143,710 | 137,359 | November 4, 2002 | November 1, 2051 | November 4, 2007(2) | ||||||||||||
New York Community Capital Trust X |
1.847 | 123,712 | 120,000 | December 14, 2006 | December 15, 2036 | December 15, 2011(3) | ||||||||||||
LIF Statutory Trust I |
10.600 | 7,732 | 7,500 | September 7, 2000 | September 7, 2030 | September 7, 2010(1) | ||||||||||||
PennFed Capital Trust II |
10.180 | 12,372 | 12,000 | March 28, 2001 | June 8, 2031 | June 8, 2011(1) | ||||||||||||
PennFed Capital Trust III |
3.497 | 30,928 | 30,000 | June 2, 2003 | June 15, 2033 | June 15, 2008(3) | ||||||||||||
New York Community Capital Trust XI |
1.896 | 59,286 | 57,500 | April 16, 2007 | June 30, 2037 | June 30, 2012(3) | ||||||||||||
|
|
|
|
|||||||||||||||
$ | 426,846 | $ | 411,909 | |||||||||||||||
|
|
|
|
(1) | Callable at a premium from this date forward. |
(2) | Callable subject to certain conditions as described in the prospectus filed with the SEC on November 4, 2002. |
(3) | Callable from this date forward. |
Senior notes totaled $608.5 million at June 30, 2011, comparable to the balance at December 31, 2010. Included in the respective amounts were $602.0 million of fixed rate senior notes that were issued under the FDICs Temporary Liquidity Guarantee Program in December 2008. Of this amount, $512.0 million are due at December 16, 2011 and $90.0 million are due at June 22, 2012.
23
Note 7: Mortgage Servicing Rights
The Company had mortgage servicing rights (MSRs) of $127.7 million at June 30, 2011. The Company has two classes of MSRs (residential and securitized) for which it separately manages the economic risk.
Residential MSRs are carried at fair value, with changes in fair value recorded as a component of non-interest income in each period. The Company uses various derivative instruments to mitigate the income statement-effect of changes in fair value due to changes in valuation inputs and assumptions regarding its residential MSRs. MSRs do not trade in an active open market with readily observable prices. Accordingly, the Company utilizes a valuation model that calculates the present value of estimated future cash flows. The model incorporates various assumptions, including estimates of prepayment speeds, discount rates, refinance rates, servicing costs, and ancillary income. The Company reassesses and periodically adjusts the underlying inputs and assumptions in the model to reflect market conditions and assumptions that a market participant would consider in valuing the MSR asset.
The value of MSRs is significantly affected by mortgage interest rates available in the marketplace, which influence mortgage loan prepayment speeds. In general, during periods of declining interest rates, the value of MSRs declines due to a rise in prepayments attributable to increased mortgage refinancing activity. Conversely, during periods of rising interest rates, the value of MSRs generally increases due to reduced mortgage refinancing activity.
Securitized MSRs are carried at the lower of the initial carrying value, adjusted for amortization or fair value, and are amortized in proportion to, and over the period of, estimated net servicing income. Such MSRs are periodically evaluated for impairment based on the difference between the carrying amount and current fair value. If it is determined that impairment exists, the resultant loss is charged against earnings.
The following table sets forth the changes in residential and securitized MSRs for the six months ended June 30, 2011 and the year ended December 31, 2010:
For the Six Months Ended June 30, 2011 |
For the Year Ended December 31, 2010 |
|||||||||||||||
(in thousands) | Residential | Securitized | Residential | Securitized | ||||||||||||
Carrying value, beginning of year |
$ | 106,186 | $ | 1,192 | $ | 8,617 | $ | 1,965 | ||||||||
Additions |
37,319 | | 100,767 | | ||||||||||||
Change in fair value |
(16,734 | ) | | (3,198 | ) | | ||||||||||
Amortization |
| (306 | ) | | (773 | ) | ||||||||||
|
|
|
|
|
|
|
|
|||||||||
Carrying value, end of period |
$ | 126,771 | $ | 886 | $ | 106,186 | $ | 1,192 | ||||||||
|
|
|
|
|
|
|
|
Note 8. Pension and Other Post-Retirement Benefits
The following table sets forth certain disclosures for the Companys pension and post-retirement plans for the periods indicated:
For the Three Months Ended June 30, | ||||||||||||||||
2011 | 2010 | |||||||||||||||
(in thousands) | Pension Benefits |
Post-Retirement Benefits |
Pension Benefits |
Post-Retirement Benefits |
||||||||||||
Components of net periodic (credit) expense: |
||||||||||||||||
Interest cost |
$ | 1,491 | $ | 180 | $ | 1,515 | $ | 198 | ||||||||
Service cost |
| 1 | | 1 | ||||||||||||
Expected return on plan assets |
(3,133 | ) | | (2,866 | ) | | ||||||||||
Unrecognized past service liability |
| (62 | ) | 49 | (62 | ) | ||||||||||
Amortization of unrecognized loss |
1,190 | 103 | 1,286 | 78 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Net periodic (credit) expense |
$ | (452 | ) | $ | 222 | $ | (16 | ) | $ | 215 | ||||||
|
|
|
|
|
|
|
|
24
For the Six Months Ended June 30, | ||||||||||||||||
2011 | 2010 | |||||||||||||||
(in thousands) | Pension Benefits |
Post-Retirement Benefits |
Pension Benefits |
Post-Retirement Benefits |
||||||||||||
Components of net periodic (credit) expense: |
||||||||||||||||
Interest cost |
$ | 2,982 | $ | 360 | $ | 3,028 | $ | 397 | ||||||||
Service cost |
| 3 | | 2 | ||||||||||||
Expected return on plan assets |
(6,265 | ) | | (5,731 | ) | | ||||||||||
Unrecognized past service liability |
| (125 | ) | 98 | (125 | ) | ||||||||||
Amortization of unrecognized loss |
2,379 | 205 | 2,572 | 157 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Net periodic (credit) expense |
$ | (904 | ) | $ | 443 | $ | (33 | ) | $ | 431 | ||||||
|
|
|
|
|
|
|
|
As discussed in the notes to the consolidated financial statements presented in the Companys 2010 Annual Report on Form 10-K, the Company expects to contribute $1.4 million to its post-retirement plan to pay premiums and claims for the fiscal year ending December 31, 2011. The Company does not expect to contribute to its pension plan in 2011.
Note 9: Stock-Based Compensation
At June 30, 2011, the Company had 3,017,958 shares available for grant as options, restricted stock, or other forms of related rights under the New York Community Bancorp, Inc. 2006 Stock Incentive Plan (the 2006 Stock Incentive Plan), which was approved by the Companys shareholders at its Annual Meeting on June 7, 2006 and reapproved at its Annual Meeting on June 2, 2011. Under the 2006 Stock Incentive Plan, the Company granted 1,643,000 shares of restricted stock in the six months ended June 30, 2011, with an average fair value of $18.40 per share on the date of grant and a vesting period of five years. There were no shares granted in the second quarter of this year. Compensation and benefits expense related to restricted stock grants is recognized on a straight-line basis over the vesting period, and totaled $4.3 million and $2.8 million, respectively, in the three months ended June 30, 2011 and 2010, and $7.9 million and $5.7 million, respectively, in the six months ended at those dates.
A summary of activity with regard to restricted stock awards in the six months ended June 30, 2011 is presented in the following table:
For the Six Months Ended June 30, 2011 |
||||||||
Number of Shares |
Weighted Average Grant Date Fair Value |
|||||||
Unvested at beginning of year |
2,636,700 | $ | 14.17 | |||||
Granted |
1,643,000 | 18.40 | ||||||
Vested |
(400,400 | ) | 15.16 | |||||
Cancelled |
(45,400 | ) | 16.63 | |||||
|
|
|
|
|||||
Unvested at end of period |
3,833,900 | 15.85 | ||||||
|
|
|
|
As of June 30, 2011, unrecognized compensation cost relating to unvested restricted stock totaled $54.1 million. This amount will be recognized over a remaining weighted average period of 3.6 years.
In addition, the Company had eight stock option plans at June 30, 2011: the 1993 and 1997 New York Community Bancorp, Inc. Stock Option Plans; the 1993 Haven Bancorp, Inc. Stock Option Plan; the 1998 Richmond County Financial Corp. Stock Compensation Plan; the 2001 Roslyn Bancorp, Inc. Stock-based Incentive Plan; the 1998 Long Island Financial Corp. Stock Option Plan; and the 2003 and 2004 Synergy Financial Group Stock Option Plans (all eight plans collectively referred to as the Stock Option Plans). All stock options granted under the Stock Option Plans expire ten years from the date of grant.
The Company uses the modified prospective approach to recognize compensation costs related to share-based payments at fair value on the date of grant, and recognizes such costs in the financial statements over the vesting period during which the employee provides service in exchange for the award. As there were no unvested options at any time during the six months ended June 30, 2011 or the year ended December 31, 2010, the Company did not record any compensation and benefits expense relating to stock options during those periods.
25
Currently, the Company issues new shares of common stock to satisfy the exercise of options. The Company may also use common stock held in Treasury to satisfy the exercise of options. In such event, the difference between the average cost of Treasury shares and the exercise price is recorded as an adjustment to retained earnings or paid-in capital on the date of exercise. At June 30, 2011, there were 9,920,890 stock options outstanding. The number of shares available for future issuance under the Stock Option Plans was 10,400 at June 30, 2011.
The status of the Stock Option Plans at June 30, 2011 and changes that occurred during the six months ended at that date are summarized below:
For the Six Months Ended June 30, 2011 |
||||||||
Number of Stock Options |
Weighted Average Exercise Price |
|||||||
Stock options outstanding, beginning of year |
12,443,676 | $ | 15.75 | |||||
Exercised |
(349,923 | ) | 12.54 | |||||
Expired/forfeited |
(2,172,863 | ) | 18.24 | |||||
|
|
|||||||
Stock options outstanding, end of period |
9,920,890 | 15.32 | ||||||
Options exercisable, end of period |
9,920,890 | 15.32 | ||||||
|
|
|
|
The intrinsic value of stock options outstanding and exercisable at June 30, 2011 was $5.5 million. The intrinsic values of options exercised during the six months ended June 30, 2011 and 2010 were $1.9 million and $1.5 million, respectively.
Note 10: Fair Value Measurements
The FASB has issued guidance that, among other things, defined fair value, established a consistent framework for measuring fair value, and expanded disclosure for each major asset and liability category measured at fair value on either a recurring or non-recurring basis. The standard clarified 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 is determined based on assumptions that market participants would use in pricing an asset or liability. As a basis for considering such assumptions, the standard established a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value as follows:
| Level 1 Inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets. |
| Level 2 Inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, and inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument. |
| Level 3 Inputs to the valuation methodology are significant unobservable inputs that reflect a companys own assumptions about the assumptions that market participants use in pricing an asset or liability. |
A financial instruments categorization within this valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement.
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The following tables present assets and liabilities that were measured at fair value on a recurring basis as of June 30, 2011 and December 31, 2010, and that were included in the Companys Consolidated Statements of Condition at those dates:
Fair Value Measurements at June 30, 2011 Using | ||||||||||||||||||||
(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 |
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Mortgage-Related Securities Available for Sale: |
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GSE certificates |
$ | | $ | 49,084 | $ | | $ | | $ | 49,084 | ||||||||||
GSE CMOs |
| | | | | |||||||||||||||
Private label CMOs |
| 33,551 | | | 33,551 | |||||||||||||||
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|
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Total mortgage-related securities |
$ | | $ | 82,635 | $ | | $ | | $ | 82,635 | ||||||||||
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|
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Other Securities Available for Sale: |
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GSE debentures |
$ | | $ | 608 | $ | | $ | | $ | 608 | ||||||||||
Corporate bonds |
| | | | | |||||||||||||||
U. S. Treasury obligations |
| | | | | |||||||||||||||
State, county, and municipal |
| 1,362 | | | 1,362 | |||||||||||||||
Capital trust notes |
| 19,214 | 18,132 | | 37,346 | |||||||||||||||
Preferred stock |
| 455 | | | 455 | |||||||||||||||
Common stock |
39,866 | | | | 39,866 | |||||||||||||||
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|
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Total other securities |
$ | 39,866 | $ | 21,639 | $ | 18,132 | $ | | $ | 79,637 | ||||||||||
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|
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Total securities available for sale |
$ | 39,866 | $ | 104,274 | $ | 18,132 | $ | | $ | 162,272 | ||||||||||
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Other Assets: |
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Loans held for sale |
$ | | $ | 491,724 | $ | | $ | | $ | 491,724 | ||||||||||
Mortgage servicing rights |
| | 126,771 | | 126,771 | |||||||||||||||
Derivative assets |
2,870 | 1,372 | 700 | | 4,942 | |||||||||||||||
Liabilities: |
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Derivative liabilities |
$ | | $ | 3,870 | $ | | $ | | $ | 3,870 |
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Fair Value Measurements at December 31, 2010 Using | ||||||||||||||||||||
(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 |
|||||||||||||||
Mortgage-Related Securities Available for Sale: |
||||||||||||||||||||
GSE certificates |
$ | | $ | 211,515 | $ | | $ | | $ | 211,515 | ||||||||||
GSE CMOs |
| 222,303 | | | 222,303 | |||||||||||||||
Private label CMOs |
| 51,362 | | |