UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2013
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
440,868,525 |
||||
Number of shares of common stock outstanding at November 1, 2013 |
NEW YORK COMMUNITY BANCORP, INC.
FORM 10-Q
Quarter Ended September 30, 2013
NEW YORK COMMUNITY BANCORP, INC.
CONSOLIDATED STATEMENTS OF CONDITION
(in thousands, except share data)
September 30, 2013 (unaudited) |
December 31, 2012 | |||||||||
Assets: |
||||||||||
Cash and cash equivalents |
$ | 1,253,562 | $ | 2,427,258 | ||||||
Securities: |
||||||||||
Available for sale ($81,840 and $196,300 pledged, respectively) |
305,703 | 429,266 | ||||||||
Held to maturity ($5,055,199 and $4,084,380 pledged, respectively) (fair value of $6,627,256 and $4,705,960, respectively) |
6,777,715 | 4,484,262 | ||||||||
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|
|
|
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Total securities |
7,083,418 | 4,913,528 | ||||||||
|
|
|
|
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Non-covered loans held for sale |
281,289 | 1,204,370 | ||||||||
Non-covered loans held for investment, net of deferred loan fees and costs |
29,173,396 | 27,284,464 | ||||||||
Less: Allowance for losses on non-covered loans |
(141,314) | (140,948) | ||||||||
|
|
|
|
|||||||
Non-covered loans held for investment, net |
29,032,082 | 27,143,516 | ||||||||
Covered loans |
2,898,803 | 3,284,061 | ||||||||
Less: Allowance for losses on covered loans |
(69,897) | (51,311) | ||||||||
|
|
|
|
|||||||
Covered loans, net |
2,828,906 | 3,232,750 | ||||||||
|
|
|
|
|||||||
Total loans, net |
32,142,277 | 31,580,636 | ||||||||
Federal Home Loan Bank stock, at cost |
552,830 | 469,145 | ||||||||
Premises and equipment, net |
264,470 | 264,149 | ||||||||
FDIC loss share receivable |
516,008 | 566,479 | ||||||||
Goodwill |
2,436,131 | 2,436,131 | ||||||||
Core deposit intangibles, net |
19,305 | 32,024 | ||||||||
Mortgage servicing rights |
228,105 | 144,713 | ||||||||
Bank-owned life insurance |
887,022 | 867,250 | ||||||||
Other real estate owned (includes $34,565 and $45,115, respectively, covered by loss sharing agreements) |
107,056 | 74,415 | ||||||||
Other assets |
273,949 | 369,372 | ||||||||
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|
|
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Total assets |
$ | 45,764,133 | $ | 44,145,100 | ||||||
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|
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Liabilities and Stockholders Equity: |
||||||||||
Deposits: |
||||||||||
NOW and money market accounts |
$ | 9,949,689 | $ | 8,783,795 | ||||||
Savings accounts |
5,838,552 | 4,213,972 | ||||||||
Certificates of deposit |
7,140,653 | 9,120,914 | ||||||||
Non-interest-bearing accounts |
2,380,456 | 2,758,840 | ||||||||
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|
|
|
|||||||
Total deposits |
25,309,350 | 24,877,521 | ||||||||
Borrowed funds: |
||||||||||
Wholesale borrowings: |
||||||||||
Federal Home Loan Bank advances |
10,678,070 | 8,842,974 | ||||||||
Repurchase agreements |
3,425,000 | 4,125,000 | ||||||||
Fed funds purchased |
100,000 | 100,000 | ||||||||
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|
|
|
|||||||
Total wholesale borrowings |
14,203,070 | 13,067,974 | ||||||||
Other borrowings |
362,372 | 362,217 | ||||||||
|
|
|
|
|||||||
Total borrowed funds |
14,565,442 | 13,430,191 | ||||||||
Other liabilities |
192,296 | 181,124 | ||||||||
|
|
|
|
|||||||
Total liabilities |
40,067,088 | 38,488,836 | ||||||||
|
|
|
|
|||||||
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; 440,873,285 and 439,133,951 shares issued, and 440,868,895 and 439,050,966 shares outstanding, respectively) |
4,409 | 4,391 | ||||||||
Paid-in capital in excess of par |
5,339,501 | 5,327,111 | ||||||||
Retained earnings |
412,742 | 387,534 | ||||||||
Treasury stock, at cost (4,390 and 82,985 shares, respectively) |
(65) | (1,067) | ||||||||
Accumulated other comprehensive loss, net of tax: |
||||||||||
Net unrealized gain on securities available for sale, net of tax |
2,762 | 12,614 | ||||||||
Net unrealized loss on the non-credit portion of other-than-temporary impairment (OTTI) losses on securities, net of tax |
(5,968) | (13,525) | ||||||||
Net unrealized loss on pension and post-retirement obligations, net of tax |
(56,336) | (60,794) | ||||||||
|
|
|
|
|||||||
Total accumulated other comprehensive loss, net of tax |
(59,542) | (61,705) | ||||||||
|
|
|
|
|||||||
Total stockholders equity |
5,697,045 | 5,656,264 | ||||||||
|
|
|
|
|||||||
Total liabilities and stockholders equity |
$ | 45,764,133 | $ | 44,145,100 | ||||||
|
|
|
|
See accompanying notes to the unaudited 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 September 30, |
For the Nine Months Ended September 30, |
|||||||||||||||
2013 | 2012 | 2013 | 2012 | |||||||||||||
Interest Income: |
||||||||||||||||
Mortgage and other loans |
$370,341 | $394,935 | $1,125,496 | $1,199,600 | ||||||||||||
Securities and money market investments |
57,334 | 47,776 | 151,560 | 144,729 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total interest income |
427,675 | 442,711 | 1,277,056 | 1,344,329 | ||||||||||||
|
|
|
|
|
|
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|
|||||||||
Interest Expense: |
||||||||||||||||
NOW and money market accounts |
8,613 | 9,106 | 27,565 | 27,196 | ||||||||||||
Savings accounts |
6,285 | 3,288 | 15,512 | 10,349 | ||||||||||||
Certificates of deposit |
20,206 | 23,516 | 64,223 | 70,725 | ||||||||||||
Borrowed funds |
98,340 | 121,851 | 300,465 | 366,039 | ||||||||||||
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|
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|||||||||
Total interest expense |
133,444 | 157,761 | 407,765 | 474,309 | ||||||||||||
|
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|
|||||||||
Net interest income |
294,231 | 284,950 | 869,291 | 870,020 | ||||||||||||
Provision for losses on non-covered loans |
5,000 | 10,000 | 15,000 | 40,000 | ||||||||||||
Provision for losses on covered loans |
9,467 | 2,820 | 18,587 | 21,268 | ||||||||||||
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|
|
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|
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|
|||||||||
Net interest income after provisions for loan losses |
279,764 | 272,130 | 835,704 | 808,752 | ||||||||||||
|
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|
|
|
|
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Non-Interest Income: |
||||||||||||||||
Mortgage banking income |
16,205 | 52,581 | 65,530 | 146,069 | ||||||||||||
Fee income |
9,799 | 9,427 | 28,532 | 28,618 | ||||||||||||
Bank-owned life insurance |
7,916 | 6,781 | 22,506 | 23,168 | ||||||||||||
Gain on sales of securities |
1,019 | 510 | 17,764 | 1,369 | ||||||||||||
FDIC indemnification income |
7,573 | 2,256 | 14,869 | 17,015 | ||||||||||||
Other |
8,212 | 10,102 | 30,819 | 25,619 | ||||||||||||
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|
|
|
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|
|
|||||||||
Total non-interest income |
50,724 | 81,657 | 180,020 | 241,858 | ||||||||||||
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|
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|
|
|
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Non-Interest Expense: |
||||||||||||||||
Operating expenses: |
||||||||||||||||
Compensation and benefits |
77,083 | 74,416 | 237,989 | 221,624 | ||||||||||||
Occupancy and equipment |
24,342 | 22,956 | 72,101 | 68,089 | ||||||||||||
General and administrative |
44,785 | 51,094 | 135,279 | 154,280 | ||||||||||||
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|
|
|||||||||
Total operating expenses |
146,210 | 148,466 | 445,369 | 443,993 | ||||||||||||
Amortization of core deposit intangibles |
4,117 | 4,855 | 12,719 | 14,934 | ||||||||||||
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|
|
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|
|||||||||
Total non-interest expense |
150,327 | 153,321 | 458,088 | 458,927 | ||||||||||||
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|
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|
|||||||||
Income before income taxes |
180,161 | 200,466 | 557,636 | 591,683 | ||||||||||||
Income tax expense |
65,961 | 71,668 | 202,244 | 213,420 | ||||||||||||
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|
|
|
|
|||||||||
Net income |
$114,200 | $128,798 | $355,392 | $378,263 | ||||||||||||
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|
|
|||||||||
Other comprehensive income, net of tax: |
||||||||||||||||
Change in net unrealized gain/loss on securities available for sale, net of tax of $1,770; $3,498; $4,152; and $6,971, respectively |
(2,625) | 5,198 | (6,143) | 10,383 | ||||||||||||
Change in the non-credit portion of OTTI losses recognized in other comprehensive income, net of tax of $10; $17; $4,795; and $48, respectively |
16 | 26 | 7,557 | 75 | ||||||||||||
Change in pension and post-retirement obligations, net of tax of $1,008; $1,042; $3,024; and $3,128, respectively |
1,486 | 1,537 | 4,458 | 4,611 | ||||||||||||
Less: Reclassification adjustment for sales of available-for-sale securities, net of tax of $405; $204; $2,503; and $536, respectively |
(614) | (306) | (3,709) | (833) | ||||||||||||
|
|
|
|
|
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|
|||||||||
Total other comprehensive (loss) income, net of tax |
(1,737) | 6,455 | 2,163 | 14,236 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total comprehensive income, net of tax |
$112,463 | $135,253 | $357,555 | $392,499 | ||||||||||||
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|
|
|
|
|||||||||
Basic earnings per share |
$0.26 | $0.29 | $0.80 | $0.86 | ||||||||||||
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|
|||||||||
Diluted earnings per share |
$0.26 | $0.29 | $0.80 | $0.86 | ||||||||||||
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|
|
|
|
|
See accompanying notes to the unaudited consolidated financial statements.
2
NEW YORK COMMUNITY BANCORP, INC.
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS EQUITY
(in thousands, except share data)
(unaudited)
For the Nine Months Ended September 30, 2013 |
|||||||||||
Common Stock (Par Value: $0.01): |
|||||||||||
Balance at beginning of year |
$ | 4,391 | |||||||||
Shares issued for restricted stock awards (1,729,950 shares) |
18 | ||||||||||
Shares issued for exercise of stock options (9,384 shares) |
-- | ||||||||||
|
|
||||||||||
Balance at end of period |
4,409 | ||||||||||
|
|
||||||||||
Paid-in Capital in Excess of Par: |
|||||||||||
Balance at beginning of year |
5,327,111 | ||||||||||
Shares issued for restricted stock awards, net of forfeitures |
(5,093) | ||||||||||
Compensation expense related to restricted stock awards |
16,626 | ||||||||||
Stock options exercised |
60 | ||||||||||
Tax effect of stock plans |
797 | ||||||||||
|
|
||||||||||
Balance at end of period |
5,339,501 | ||||||||||
|
|
||||||||||
Retained Earnings: |
|||||||||||
Balance at beginning of year |
387,534 | ||||||||||
Net income |
355,392 | ||||||||||
Dividends paid on common stock ($0.75 per share) |
(330,172) | ||||||||||
Exercise of stock options |
(12) | ||||||||||
|
|
||||||||||
Balance at end of period |
412,742 | ||||||||||
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|
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Treasury Stock: |
|||||||||||
Balance at beginning of year |
(1,067) | ||||||||||
Purchase of common stock (324,110 shares) |
(4,352) | ||||||||||
Exercise of stock options (20,234 shares) |
279 | ||||||||||
Shares issued for restricted stock awards (382,471 shares) |
5,075 | ||||||||||
|
|
||||||||||
Balance at end of period |
(65) | ||||||||||
|
|
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Accumulated Other Comprehensive Loss, net of tax: |
|||||||||||
Balance at beginning of year |
(61,705) | ||||||||||
Other comprehensive income, net of tax |
2,163 | ||||||||||
|
|
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Balance at end of period |
(59,542) | ||||||||||
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|
||||||||||
Total stockholders equity |
$ | 5,697,045 | |||||||||
|
|
See accompanying notes to the unaudited consolidated financial statements.
3
NEW YORK COMMUNITY BANCORP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
For the Nine Months Ended September 30, |
||||||||
2013 | 2012 | |||||||
Cash Flows from Operating Activities: |
||||||||
Net income |
$ | 355,392 | $ | 378,263 | ||||
Adjustments to reconcile net income to net cash provided by operating activities: |
||||||||
Provisions for loan losses |
33,587 | 61,268 | ||||||
Depreciation and amortization |
21,057 | 18,699 | ||||||
Amortization of discounts and premiums, net |
(2,098) | (2,263) | ||||||
Amortization of core deposit intangibles |
12,719 | 14,934 | ||||||
Gain on sales of securities |
(17,764) | (1,369) | ||||||
Net gain on sale of loans |
(48,809) | (159,511) | ||||||
Stock plan-related compensation |
16,626 | 15,514 | ||||||
Deferred tax expense |
32,430 | 28,344 | ||||||
Changes in operating assets and liabilities: |
||||||||
(Increase) decrease in other assets |
(20,473) | 93,341 | ||||||
Increase in other liabilities |
15,630 | 112,006 | ||||||
Origination of loans held for sale |
(5,510,041) | (7,971,638) | ||||||
Proceeds from sale of loans originated for sale |
6,440,377 | 7,950,220 | ||||||
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|
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Net cash provided by operating activities |
1,328,633 | 537,808 | ||||||
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|
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Cash Flows from Investing Activities: |
||||||||
Proceeds from repayment of securities held to maturity |
617,351 | 1,838,793 | ||||||
Proceeds from repayment of securities available for sale |
54,709 | 457,808 | ||||||
Proceeds from sale of securities held to maturity |
191,142 | -- | ||||||
Proceeds from sale of securities available for sale |
593,551 | 561,369 | ||||||
Purchase of securities held to maturity |
(3,075,597) | (2,785,758) | ||||||
Purchase of securities available for sale |
(535,347) | (656,115) | ||||||
Net (purchase) redemption of Federal Home Loan Bank stock |
(83,685) | 16,599 | ||||||
Net increase in loans |
(1,476,755) | (969,820) | ||||||
Purchase of premises and equipment, net |
(21,378) | (21,344) | ||||||
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|
|||||
Net cash used in investing activities |
(3,736,009) | (1,558,468) | ||||||
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|
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Cash Flows from Financing Activities: |
||||||||
Net increase in deposits |
431,829 | 2,247,493 | ||||||
Net increase (decrease) in short-term borrowed funds |
1,925,000 | (262,000) | ||||||
Net decrease in long-term borrowed funds |
(789,749) | (97,028) | ||||||
Tax effect of stock plans |
797 | 340 | ||||||
Cash dividends paid on common stock |
(330,172) | (328,879) | ||||||
Treasury stock purchases |
(4,352) | (2,713) | ||||||
Net cash received from stock option exercises |
327 | -- | ||||||
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|
|||||
Net cash provided by financing activities |
1,233,680 | 1,557,213 | ||||||
|
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|
|||||
Net (decrease) increase in cash and cash equivalents |
(1,173,696) | 536,553 | ||||||
Cash and cash equivalents at beginning of period |
2,427,258 | 2,001,737 | ||||||
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|
|||||
Cash and cash equivalents at end of period |
$ | 1,253,562 | $ | 2,538,290 | ||||
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|
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Supplemental information: |
||||||||
Cash paid for interest |
$415,399 | $469,664 | ||||||
Cash paid for income taxes |
118,322 | 196,761 | ||||||
Non-cash investing and financing activities: |
||||||||
Transfers to other real estate owned from loans |
96,729 | 77,080 |
See accompanying notes to the unaudited 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, at which date the Company issued its initial offering of common stock (par value: $0.01 per share) at a price of $25.00 per share. 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 its 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 its assumption of certain liabilities of Desert Hills Bank (Desert Hills) in March 2010. On June 28, 2012, the Company completed its 11th transaction when it assumed the deposits of Aurora Bank FSB.
Reflecting this strategy of growth through acquisitions, the Community Bank currently operates 236 branches, four of which operate directly under the Community Bank name. The remaining 232 Community Bank 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 35 branches in Manhattan, Queens, Brooklyn, Westchester County, and Long Island (all in New York), including 18 branches that operate under the name Atlantic Bank.
Basis of Presentation
The following is a description of the significant accounting and reporting policies that the Company and its wholly-owned subsidiaries follow in preparing and presenting their consolidated financial statements, which conform to U.S. generally accepted accounting principles (GAAP) and to general practices within the banking industry. The preparation of financial statements in conformity with GAAP requires the Company to make estimates and judgments that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the consolidated financial statements, and the reported amounts of revenues and expenses during the reporting period. Estimates that are particularly susceptible to change in the near term are used in connection with the determination of the allowances for loan losses; the valuation of loans held for sale; the evaluation of goodwill for impairment; the evaluation of other-than-temporary impairment (OTTI) on securities; and the evaluation of the need for a valuation allowance on the 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 consolidated financial statements and notes thereto included in the Companys 2012 Annual Report on Form 10-K. The Company currently has unconsolidated subsidiaries in the form of wholly-owned statutory business trusts, which were formed to issue guaranteed capital debentures (capital securities). Please see Note 7, Borrowed Funds, for additional information regarding these trusts.
When necessary, reclassifications are made to prior-year amounts to conform to the current-year presentation.
5
Note 2. Computation of Earnings per Share
Basic earnings per share (EPS) is computed by dividing net income by the weighted average number of common shares outstanding during the period. Diluted EPS is computed using the same method as basic EPS, however, the computation reflects the potential dilution that would occur if outstanding in-the-money stock options were exercised and converted into common stock.
Unvested stock-based compensation awards containing non-forfeitable rights to dividends are considered participating securities, and therefore are included in the two-class method for calculating EPS. Under the two-class method, all earnings (distributed and undistributed) are allocated to common shares and participating securities based on their respective rights to receive dividends. The Company grants restricted stock to certain employees under its stock-based compensation plans. Recipients receive cash dividends during the vesting periods of these awards (i.e., including on the unvested portion of such awards). Since these dividends are non-forfeitable, the unvested awards are considered participating securities and therefore have earnings allocated to them.
The following table presents the Companys computation of basic and diluted EPS for the periods indicated:
Three Months Ended September 30, |
Nine Months Ended September 30, | |||||||||||||||||||
(in thousands, except share and per share data) | 2013 | 2012 | 2013 | 2012 | ||||||||||||||||
Net income |
$114,200 | $128,798 | $355,392 | $378,263 | ||||||||||||||||
Less: Dividends paid on and earnings allocated to participating securities |
(723) | (1,213) | (2,248) | (3,552) | ||||||||||||||||
|
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|
|
|
|
|||||||||||||
Earnings applicable to common stock |
$113,477 | $127,585 | $353,144 | $374,711 | ||||||||||||||||
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|
|||||||||||||
Weighted average common shares outstanding |
439,435,579 | 437,787,688 | 439,199,487 | 437,692,411 | ||||||||||||||||
|
|
|
|
|
|
|
|
|||||||||||||
Basic earnings per common share |
$0.26 | $0.29 | $0.80 | $0.86 | ||||||||||||||||
|
|
|
|
|
|
|
|
|||||||||||||
Earnings applicable to common stock |
$113,477 | $127,585 | $353,144 | $374,711 | ||||||||||||||||
|
|
|
|
|
|
|
|
|||||||||||||
Weighted average common shares outstanding |
439,435,579 | 437,787,688 | 439,199,487 | 437,692,411 | ||||||||||||||||
Potential dilutive common shares(1) |
-- | 5,664 | 3,971 | 5,026 | ||||||||||||||||
|
|
|
|
|
|
|
|
|||||||||||||
Total shares for diluted earnings per share computation |
439,435,579 | 437,793,352 | 439,203,458 | 437,697,437 | ||||||||||||||||
|
|
|
|
|
|
|
|
|||||||||||||
Diluted earnings per common share and common share equivalents |
$0.26 | $0.29 | $0.80 | $0.86 | ||||||||||||||||
|
|
|
|
|
|
|
|
(1) | Options to purchase 62,040 shares of the Companys common stock that were outstanding in the three and nine months ended September 30, 2013, at a weighted average exercise price of $17.95, were excluded from the respective computations of diluted EPS because their inclusion would have had an antidilutive effect. Options to purchase 2,579,585 shares of the Companys common stock that were outstanding in the three and nine months ended September 30, 2012, at a weighted average exercise price of $16.86, were excluded from the respective computations of diluted EPS because their inclusion also would have had an antidilutive effect. |
6
Note 3. Reclassifications Out of Accumulated Other Comprehensive Loss
(in thousands) | For the Nine Months Ended September 30, 2013 | |||||||
Details about Accumulated Other Comprehensive Loss (AOCL) |
Amount Reclassified from Accumulated Other Comprehensive Loss (1) |
Affected Line Item in the Consolidated Statement of Income and Comprehensive Income | ||||||
Unrealized gains on available-for-sale securities |
$ | 6,212 | Gain on sales of securities | |||||
(2,503) | Tax expense | |||||||
|
|
|||||||
$ | 3,709 | Net gain on sales of securities, net of tax | ||||||
|
|
|||||||
Amortization of defined benefit pension items: |
||||||||
Prior-service costs |
$ | 187 | (2) | |||||
Actuarial losses |
(7,547) | (2) | ||||||
|
|
|||||||
(7,360) | Total before tax | |||||||
2,975 | Tax benefit | |||||||
|
|
|||||||
$ | (4,385) | Amortization of defined benefit pension items, net of tax | ||||||
|
|
|||||||
Total reclassifications for the period |
$ | (676) | ||||||
|
|
(1) | Amounts in parentheses indicate expense items. |
(2) | These components of AOCL are included in the computation of net periodic (credit) expense. (Please see Note 9, Pension and Other Post-Retirement Benefits, for additional information). |
7
Note 4. Securities
The following table summarizes the Companys portfolio of securities available for sale at September 30, 2013:
September 30, 2013 | |||||||||||||||||||||||||||||
(in thousands) | Amortized Cost |
Gross Unrealized Gain |
Gross Unrealized Loss |
Fair Value | |||||||||||||||||||||||||
Mortgage-Related Securities: |
|||||||||||||||||||||||||||||
GSE(1) certificates |
$ | 25,345 | $ | 1,378 | $ | 3 | $ | 26,720 | |||||||||||||||||||||
GSE CMOs (2) |
62,122 | 772 | 691 | 62,203 | |||||||||||||||||||||||||
Private label CMOs |
12,317 | -- | 62 | 12,255 | |||||||||||||||||||||||||
|
|
|
|
|
|
|
|
||||||||||||||||||||||
Total mortgage-related securities |
$ | 99,784 | $ | 2,150 | $ | 756 | $ | 101,178 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
||||||||||||||||||||||
Other Securities: |
|||||||||||||||||||||||||||||
Municipal bonds |
$ | 1,079 | $ | 86 | $ | -- | $ | 1,165 | |||||||||||||||||||||
Capital trust notes |
32,275 | 5,530 | 2,003 | 35,802 | |||||||||||||||||||||||||
Preferred stock |
118,206 | 1,364 | 4,339 | 115,231 | |||||||||||||||||||||||||
Common stock |
49,744 | 3,332 | 749 | 52,327 | |||||||||||||||||||||||||
|
|
|
|
|
|
|
|
||||||||||||||||||||||
Total other securities |
$ | 201,304 | $ | 10,312 | $ | 7,091 | $ | 204,525 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
||||||||||||||||||||||
Total securities available for sale (3) |
$ | 301,088 | $ | 12,462 | $ | 7,847 | $ | 305,703 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
(1) | Government-sponsored enterprise |
(2) | Collateralized mortgage obligations |
(3) | At September 30, 2013, the non-credit portion of OTTI recorded in AOCL was $570,000 (before taxes). |
As of September 30, 2013, the fair value of marketable equity securities included corporate preferred stock of $115.2 million and common stock of $52.3 million, with the latter primarily consisting of an investment in a large cap equity fund and certain other funds that are Community Reinvestment Act (CRA) eligible.
The following table summarizes the Companys portfolio of securities available for sale at December 31, 2012:
December 31, 2012 | |||||||||||||||||||||||||||||
(in thousands) | Amortized Cost |
Gross Unrealized Gain |
Gross Unrealized Loss |
Fair Value | |||||||||||||||||||||||||
Mortgage-Related Securities: |
|||||||||||||||||||||||||||||
GSE certificates |
$ | 85,488 | $ | 7,197 | $ | 6 | $ | 92,679 | |||||||||||||||||||||
GSE CMOs |
62,236 | 4,924 | -- | 67,160 | |||||||||||||||||||||||||
Private label CMOs |
17,276 | 140 | -- | 17,416 | |||||||||||||||||||||||||
|
|
|
|
|
|
|
|
||||||||||||||||||||||
Total mortgage-related securities |
$ | 165,000 | $ | 12,261 | $ | 6 | $ | 177,255 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
||||||||||||||||||||||
Other Securities: |
|||||||||||||||||||||||||||||
Municipal bonds |
$ | 46,288 | $ | 128 | $ | 120 | $ | 46,296 | |||||||||||||||||||||
Capital trust notes |
35,231 | 7,363 | 4,159 | 38,435 | |||||||||||||||||||||||||
Preferred stock |
118,205 | 6,843 | 30 | 125,018 | |||||||||||||||||||||||||
Common stock |
43,984 | 1,191 | 2,913 | 42,262 | |||||||||||||||||||||||||
|
|
|
|
|
|
|
|
||||||||||||||||||||||
Total other securities |
$ | 243,708 | $ | 15,525 | $ | 7,222 | $ | 252,011 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
||||||||||||||||||||||
Total securities available for sale (1) |
$ | 408,708 | $ | 27,786 | $ | 7,228 | $ | 429,266 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
(1) | At December 31, 2012, the non-credit portion of OTTI recorded in AOCL was $570,000 (before taxes). |
8
The following tables summarize the Companys portfolio of securities held to maturity at September 30, 2013 and December 31, 2012:
September 30, 2013 | |||||||||||||||||||||||||
(in thousands) | Amortized Cost |
Carrying Amount |
Gross Unrealized Gain |
Gross Unrealized Loss |
Fair Value | ||||||||||||||||||||
Mortgage-Related Securities: |
|||||||||||||||||||||||||
GSE certificates |
$ | 2,221,859 | $ | 2,221,859 | $ | 37,756 | $ | 48,066 | $ | 2,211,549 | |||||||||||||||
GSE CMOs |
1,718,497 | 1,718,497 | 38,437 | 12,890 | 1,744,044 | ||||||||||||||||||||
Other mortgage-related securities |
3,016 | 3,016 | -- | -- | 3,016 | ||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
||||||||||||||||
Total mortgage-related securities |
$ | 3,943,372 | $ | 3,943,372 | $ | 76,193 | $ | 60,956 | $ | 3,958,609 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
||||||||||||||||
Other Securities: |
|||||||||||||||||||||||||
GSE debentures |
$ | 2,624,773 | $ | 2,624,773 | $ | 7,681 | $ | 170,695 | $ | 2,461,759 | |||||||||||||||
Corporate bonds |
72,799 | 72,799 | 10,898 | -- | 83,697 | ||||||||||||||||||||
Municipal bonds |
61,123 | 61,123 | 29 | 3,710 | 57,442 | ||||||||||||||||||||
Capital trust notes |
84,865 | 75,648 | 1,288 | 11,187 | 65,749 | ||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
||||||||||||||||
Total other securities |
$ | 2,843,560 | $ | 2,834,343 | $ | 19,896 | $ | 185,592 | $ | 2,668,647 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
||||||||||||||||
Total securities held to maturity (1) |
$ | 6,786,932 | $ | 6,777,715 | $ | 96,089 | $ | 246,548 | $ | 6,627,256 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
(1) | Held-to-maturity securities are reported at a carrying amount equal to amortized cost less the non-credit portion of OTTI recorded in AOCL. At September 30, 2013, the non-credit portion of OTTI recorded in AOCL was $9.2 million (before taxes). |
December 31, 2012 | |||||||||||||||||||||||||
(in thousands) | Amortized Cost |
Carrying Amount |
Gross Unrealized Gain |
Gross Unrealized Loss |
Fair Value | ||||||||||||||||||||
Mortgage-Related Securities: |
|||||||||||||||||||||||||
GSE certificates |
$ | 1,253,769 | $ | 1,253,769 | $ | 87,860 | $ | 5 | $ | 1,341,624 | |||||||||||||||
GSE CMOs |
1,898,228 | 1,898,228 | 104,764 | -- | 2,002,992 | ||||||||||||||||||||
Other mortgage-related securities |
3,220 | 3,220 | -- | -- | 3,220 | ||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
||||||||||||||||
Total mortgage-related securities |
$ | 3,155,217 | $ | 3,155,217 | $ | 192,624 | $ | 5 | $ | 3,347,836 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
||||||||||||||||
Other Securities: |
|||||||||||||||||||||||||
GSE debentures |
$ | 1,129,618 | $ | 1,129,618 | $ | 15,739 | $ | -- | $ | 1,145,357 | |||||||||||||||
Corporate bonds |
72,501 | 72,501 | 12,504 | -- | 85,005 | ||||||||||||||||||||
Municipal bonds |
16,982 | 16,982 | 245 | -- | 17,227 | ||||||||||||||||||||
Capital trust notes |
131,513 | 109,944 | 14,588 | 13,997 | 110,535 | ||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
||||||||||||||||
Total other securities |
$ | 1,350,614 | $ | 1,329,045 | $ | 43,076 | $ | 13,997 | $ | 1,358,124 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
||||||||||||||||
Total securities held to maturity (1) |
$ | 4,505,831 | $ | 4,484,262 | $ | 235,700 | $ | 14,002 | $ | 4,705,960 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
(1) | At December 31, 2012, the non-credit portion of OTTI recorded in AOCL was $21.6 million (before taxes). |
The Company had $552.8 million and $469.1 million of Federal Home Loan Bank (FHLB) stock, at cost, at September 30, 2013 and December 31, 2012, respectively. The Company is required to maintain this investment in order to have access to the 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 nine months ended September 30, 2013 and 2012:
For the Nine Months Ended September 30, | ||||||||||
(in thousands) | 2013 | 2012 | ||||||||
Gross proceeds |
$593,551 | $561,369 | ||||||||
Gross realized gains |
6,212 | 1,369 | ||||||||
Gross realized losses |
-- | -- | ||||||||
|
|
|
|
In addition, during the nine months ended September 30, 2013, the Company sold held-to-maturity securities with gross proceeds of $191.1 million and gross realized gains of $11.6 million. These sales occurred because the Company had collected a substantial portion (at least 85%) of the initial principal balance.
9
The $101.6 million market value of the capital trust note portfolio at September 30, 2013 included three pooled trust preferred securities. The following table details the pooled trust preferred securities that had at least one credit rating below investment grade as of September 30, 2013:
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 | $ | 407 | |||||||||
Fair value |
19,977 | 1,005 | 953 | ||||||||||||
Unrealized gain |
5,013 | 452 | 546 | ||||||||||||
Lowest credit rating assigned to security |
CCC | C | C | ||||||||||||
Number of banks/insurance companies currently performing |
19 | 54 | 10 | ||||||||||||
Actual deferrals and defaults as a percentage of original collateral |
9 | % | 12 | % | 26 | % | |||||||||
Expected deferrals and defaults as a percentage of remaining performing collateral |
22 | 25 | 46 | ||||||||||||
Expected recoveries as a percentage of remaining performing collateral |
-- | -- | -- | ||||||||||||
Excess subordination as a percentage of remaining performing collateral |
15 | -- | -- |
As of September 30, 2013, 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 15%. Excess subordination is calculated after taking into account the projected 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.
In the following table, the beginning balance represents the credit loss component for debt securities for which OTTI occurred prior to January 1, 2013. For credit-impaired debt securities, OTTI recognized in earnings after that date is presented as an addition in two components, based upon whether the current period is the first time a debt security was credit-impaired (initial credit impairment) or is not the first time a debt security was credit-impaired (subsequent credit impairment).
(in thousands) | For the Nine Months Ended September 30, 2013 |
|||
Beginning credit loss amount as of December 31, 2012 |
$219,978 | |||
Add: Initial other-than-temporary credit losses |
-- | |||
Subsequent other-than-temporary credit losses |
-- | |||
Amount previously recognized in AOCL |
-- | |||
Less: Realized losses for securities sold |
-- | |||
Securities intended or required to be sold |
-- | |||
Increases in expected cash flows on debt securities |
4,256 | |||
|
|
|||
Ending credit loss amount as of September 30, 2013 |
$215,722 | |||
|
|
10
The following table summarizes the carrying amounts and estimated fair values of held-to-maturity debt securities, and the amortized costs and estimated fair values of available-for-sale debt securities, at September 30, 2013, 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.
At September 30, 2013 | |||||||||||||||||||||||||||||||||||||||||||||
(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 |
$ | -- | --% | $ | -- | --% | $ | -- | --% | $ | -- | --% | $ | -- | |||||||||||||||||||||||||||||||
Due from one to five years |
-- | -- | 60,441 | 4.17 | 1,384 | 2.96 | -- | -- | 68,735 | ||||||||||||||||||||||||||||||||||||
Due from five to ten years |
2,705,808 | 3.22 | 2,048,292 | 2.63 | -- | -- | 46,913 | 3.15 | 4,666,410 | ||||||||||||||||||||||||||||||||||||
Due after ten years |
1,237,564 | 3.55 | 516,040 | 2.87 | 59,739 | 2.85 | 101,535 | 5.80 | 1,892,111 | ||||||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||||||||||||||||
Total debt securities held to maturity |
$ | 3,943,372 | 3.32% | $ | 2,624,773 | 2.72% | $ | 61,123 | 2.85% | $ | 148,448 | 4.97% | $ | 6,627,256 | |||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||||||||||||||||
Available-for-Sale Securities: (3) |
|||||||||||||||||||||||||||||||||||||||||||||
Due within one year |
$ | 31 | 2.26% | $ | -- | --% | $ | 125 | 5.90% | $ | -- | --% | $ | 157 | |||||||||||||||||||||||||||||||
Due from one to five years |
6,863 | 6.90 | -- | -- | 534 | 6.36 | -- | -- | 7,860 | ||||||||||||||||||||||||||||||||||||
Due from five to ten years |
19,113 | 3.64 | -- | -- | 420 | 6.59 | -- | -- | 20,529 | ||||||||||||||||||||||||||||||||||||
Due after ten years |
73,777 | 3.83 | -- | -- | -- | -- | 32,275 | 4.23 | 109,598 | ||||||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||||||||||||||||
Total debt securities available for sale |
$ | 99,784 | 4.01% | $ | -- | --% | $ | 1,079 | 6.39% | $ | 32,275 | 4.23% | $ | 138,144 | |||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(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 $407,000 of pooled trust preferred securities available for sale and held to maturity, respectively, all of which are due after ten years. The remaining capital trust notes consist of single-issue trust preferred securities. |
(3) | As equity securities have no contractual maturity, they have been excluded from this table. |
At September 30, 2013, the Company had commitments to purchase $51.0 million of securities, all of which were GSE obligations.
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 September 30, 2013:
At September 30, 2013 (in thousands) |
Less than Twelve Months | Twelve Months or Longer | Total | |||||||||||||||||||||||||||
Fair Value | Unrealized Loss | Fair Value | Unrealized Loss | Fair Value | Unrealized Loss | |||||||||||||||||||||||||
Temporarily Impaired Held-to-Maturity Debt Securities: |
||||||||||||||||||||||||||||||
GSE debentures |
$2,344,708 | $170,695 | $ -- | $ -- | $2,344,708 | $170,695 | ||||||||||||||||||||||||
GSE Certificates |
1,087,114 | 48,066 | -- | -- | 1,087,114 | 48,066 | ||||||||||||||||||||||||
GSE CMOs |
500,367 | 12,890 | -- | -- | 500,367 | 12,890 | ||||||||||||||||||||||||
Municipal notes/bonds |
56,029 | 3,710 | -- | -- | 56,029 | 3,710 | ||||||||||||||||||||||||
Capital trust notes |
24,581 | 419 | 35,393 | 10,768 | 59,974 | 11,187 | ||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||
Total temporarily impaired held-to-maturity debt securities |
$4,012,799 | $235,780 | $35,393 | $10,768 | $4,048,192 | $246,548 | ||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||
Temporarily Impaired Available-for-Sale Securities: |
||||||||||||||||||||||||||||||
Debt Securities: |
||||||||||||||||||||||||||||||
GSE certificates |
$ -- | $ -- | $ 167 | $ 3 | $ 167 | $ 3 | ||||||||||||||||||||||||
Private label CMOs |
12,255 | 62 | -- | -- | 12,255 | 62 | ||||||||||||||||||||||||
GSE CMOs |
45,883 | 691 | 45,883 | 691 | ||||||||||||||||||||||||||
Capital trust notes |
1,966 | 33 | 5,446 | 1,970 | 7,412 | 2,003 | ||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||
Total temporarily impaired available-for-sale debt securities |
$ 60,104 | $ 786 | $ 5,613 | $ 1,973 | $ 65,717 | $ 2,759 | ||||||||||||||||||||||||
Equity securities |
75,517 | 4,458 | 1,046 | 630 | (1) | 76,563 | 5,088 | |||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||
Total temporarily impaired available-for-sale securities |
$ 135,621 | $ 5,244 | $ 6,659 | $ 2,603 | $ 142,280 | $ 7,847 | ||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
(1) | The twelve months or longer unrealized losses on equity securities of $630,000 at September 30, 2013 relate to an investment in a financial institution. The principal balance of the investment was $1.7 million at that date. |
12
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, 2012:
At December 31, 2012 | Less than Twelve Months | Twelve Months or Longer | Total | |||||||||||||||||||||||||||
(in thousands) | Fair Value | Unrealized Loss | Fair Value | Unrealized Loss | Fair Value | Unrealized Loss | ||||||||||||||||||||||||
Temporarily Impaired Held-to-Maturity Debt Securities: |
||||||||||||||||||||||||||||||
GSE debentures |
$ | -- | $ | -- | $ | -- | $ | -- | $ | -- | $ | -- | ||||||||||||||||||
GSE certificates |
2,238 | 5 | -- | -- | 2,238 | 5 | ||||||||||||||||||||||||
GSE CMOs |
-- | -- | -- | -- | -- | -- | ||||||||||||||||||||||||
Corporate bonds |
-- | -- | -- | -- | -- | -- | ||||||||||||||||||||||||
Capital trust notes |
-- | -- | 32,148 | 13,997 | 32,148 | 13,997 | ||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||
Total temporarily impaired held-to-maturity debt securities |
$ | 2,238 | $ | 5 | $ | 32,148 | $ | 13,997 | $ | 34,386 | $ | 14,002 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||
Temporarily Impaired Available-for-Sale Securities: |
||||||||||||||||||||||||||||||
Debt Securities: |
||||||||||||||||||||||||||||||
GSE certificates |
$ | 297 | $ | 5 | $ | 53 | $ | 1 | $ | 350 | $ | 6 | ||||||||||||||||||
Private label CMOs |
-- | -- | -- | -- | -- | -- | ||||||||||||||||||||||||
Corporate bonds |
-- | -- | -- | -- | -- | -- | ||||||||||||||||||||||||
State, county, and municipal |
45,096 | 120 | -- | -- | 45,096 | 120 | ||||||||||||||||||||||||
Capital trust notes |
-- | -- | 4,371 | 4,159 | 4,371 | 4,159 | ||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||
Total temporarily impaired available-for-sale debt securities |
$ | 45,393 | $ | 125 | $ | 4,424 | $ | 4,160 | $ | 49,817 | $ | 4,285 | ||||||||||||||||||
Equity securities |
15,262 | 30 | 28,989 | 2,913 | (1) | 44,251 | 2,943 | |||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||
Total temporarily impaired available-for-sale securities |
$ | 60,655 | $ | 155 | $ | 33,413 | $ | 7,073 | $ | 94,068 | $ | 7,228 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
(1) | The twelve months or longer unrealized losses on equity securities of $2.9 million at December 31, 2012 relate to available-for-sale equity securities that consisted of a large cap equity fund and investments in certain financial institutions. The principal balance of the large cap equity fund was $30.2 million and the twelve months or longer unrealized loss was $2.2 million at that date. The principal balance of investments in financial institutions totaled $1.7 million and the twelve months or longer unrealized loss was $709,000 at that date. |
13
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.
Securities in unrealized loss positions are analyzed as part of the Companys ongoing assessment of OTTI. When the Company intends to sell such 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 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 September 30, 2013, the Company did not intend to sell the securities with an unrealized loss position, 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 were not other-than-temporarily impaired as of September 30, 2013.
Other factors considered in determining whether or not an impairment 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 a security before its anticipated recovery, is based on a number of factors, including a quantitative estimate of the expected recovery period (which may extend to maturity), and 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 mortgage-related securities and GSE debentures at September 30, 2013 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 or premium relative to their face amount, and the contractual cash flows of these investments are guaranteed by the GSEs. Accordingly, it is expected that these securities will not be settled at a price that is less than the amortized cost of the 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 them before the anticipated recovery of fair value, which may be at maturity, the Company did not consider these investments to be other-than-temporarily impaired at September 30, 2013.
The Company reviews quarterly financial information related to its investments in municipal bonds and capital trust notes, as well as other information that is released by each of the issuers of such bonds and notes, to determine their continued creditworthiness. The contractual terms of these investments do not permit settling the securities at prices that are less than the amortized costs of the investments; therefore, the Company expects that these investments will not be settled at prices that are less than their amortized costs. The Company continues to monitor these investments and currently estimates that the present value of expected cash flows is not less than the amortized cost of the securities. Because the Company does not have the intent to sell the investments, and it is not more likely than not 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 September 30, 2013. It is possible that these securities will perform worse than is currently expected, which could lead to adverse changes in cash flows from these securities and potential OTTI losses in the future. Future events that could trigger material unrecoverable declines in the fair values of the Companys investments, and result in potential OTTI losses, include, but are not limited to, government intervention; deteriorating asset quality and credit metrics; significantly higher levels of default and loan loss provisions; losses in value on the underlying collateral; deteriorating credit enhancement; net operating losses; and further illiquidity in the financial markets.
14
At September 30, 2013, the Companys equity securities portfolio consisted of perpetual preferred stock, common stock, and mutual funds. The Company considers a decline in the fair value of available-for-sale equity securities to be other than temporary if the Company does not expect to recover the entire amortized cost basis of the security. The unrealized losses on the Companys equity securities at the end of September 2013 were primarily caused by market volatility. The Company evaluated the near-term prospects of a recovery of fair value for each security in the portfolio, together with the severity and duration of impairment to date. Based on this evaluation, and the Companys ability and intent to hold these investments for a reasonably sufficient period of time to realize a near-term forecasted recovery of fair value, the Company did not consider these investments to be other-than-temporarily impaired at September 30, 2013. 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. This would cause the Company to potentially record OTTI losses in future periods. Events that could trigger material declines in the fair values of these securities include, but are not limited to, deterioration in the equity markets; a decline in the quality of the loan portfolios of the issuers in which the Company has invested; and the recording of higher loan loss provisions and net operating losses by such issuers.
The investment securities designated as having a continuous loss position for twelve months or more at September 30, 2013 consisted of six capital trust notes, two mortgage-backed securities, and one equity security. At December 31, 2012, the investment securities designated as having a continuous loss position for twelve months or more consisted of seven capital trust notes, three equity securities, and one mortgage-backed security. At September 30, 2013 and December 31, 2012, the combined market value of the respective securities represented unrealized losses of $13.4 million and $21.1 million. At September 30, 2013, the fair value of securities having a continuous loss position for twelve months or more was 24.2% below the collective amortized cost of $55.4 million. At December 31, 2012, the fair value of such securities was 24.5% below the collective amortized cost of $86.1 million.
Note 5. Loans
The following table sets forth the composition of the loan portfolio at September 30, 2013 and December 31, 2012:
September 30, 2013 | December 31, 2012 | |||||||||||||||||||
(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 |
$ | 20,183,746 | 69.22% | $ | 18,595,833 | 68.18% | ||||||||||||||
Commercial real estate |
7,244,862 | 24.85 | 7,436,598 | 27.27 | ||||||||||||||||
One-to-four family |
490,829 | 1.68 | 203,435 | 0.75 | ||||||||||||||||
Acquisition, development, and construction |
403,160 | 1.38 | 397,917 | 1.46 | ||||||||||||||||
|
|
|
|
|
|
|
|
|||||||||||||
Total mortgage loans held for investment |
28,322,597 | 97.13 | 26,633,783 | 97.66 | ||||||||||||||||
|
|
|
|
|
|
|
|
|||||||||||||
Other Loans: |
||||||||||||||||||||
Commercial and industrial(1) |
792,029 | 2.72 | 590,044 | 2.16 | ||||||||||||||||
Other |
43,246 | 0.15 | 49,880 | 0.18 | ||||||||||||||||
|
|
|
|
|
|
|
|
|||||||||||||
Total other loans held for investment |
835,275 | 2.87 | 639,924 | 2.34 | ||||||||||||||||
|
|
|
|
|
|
|
|
|||||||||||||
Total non-covered loans held for investment |
$ | 29,157,872 | 100.00% | $ | 27,273,707 | 100.00% | ||||||||||||||
|
|
|
|
|||||||||||||||||
Net deferred loan origination costs |
15,524 | 10,757 | ||||||||||||||||||
Allowance for losses on non-covered loans |
(141,314) | (140,948) | ||||||||||||||||||
|
|
|
|
|||||||||||||||||
Non-covered loans held for investment, net |
$ | 29,032,082 | $ | 27,143,516 | ||||||||||||||||
Covered loans |
2,898,803 | 3,284,061 | ||||||||||||||||||
Allowance for losses on covered loans |
(69,897) | (51,311) | ||||||||||||||||||
|
|
|
|
|||||||||||||||||
Total covered loans, net |
$ | 2,828,906 | $ | 3,232,750 | ||||||||||||||||
Loans held for sale |
281,289 | 1,204,370 | ||||||||||||||||||
|
|
|
|
|||||||||||||||||
Total loans, net |
$ | 32,142,277 | $ | 31,580,636 | ||||||||||||||||
|
|
|
|
(1) | The balance at September 30, 2013 includes $46.2 million of lease financing, net of unearned income. |
15
Non-Covered Loans
Non-Covered Loans Held for Investment
The vast majority of the loans the Company originates for investment are multi-family loans, most of which are collateralized by non-luxury apartment buildings in New York City that feature below-market rents. In addition, the Company originates commercial real estate (CRE) loans, most of which are collateralized by properties located in New York City and, to a lesser extent, on Long Island and in New Jersey.
The Company also originates acquisition, development, and construction (ADC) loans, one-to-four family loans, and commercial and industrial (C&I) loans for investment. ADC loans are primarily originated for multi-family and residential tract projects in New York City and on Long Island, while secured and unsecured in-market C&I loans are made to small and mid-size businesses in New York City, on Long Island, in New Jersey, and, to a lesser extent, in Arizona. In-market C&I loans are typically made for working capital, business expansion, and the purchase of machinery and equipment. In June 2013, the Company began the funding of asset-based, equipment lease financing, and dealer floor plan loans to nationally recognized borrowers throughout the U.S. All of these C&I loans are senior debt-secured.
Payments on multi-family and CRE loans generally depend on the income produced by the underlying properties which, in turn, depends on their successful operation and management. Accordingly, the ability of the 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 loans secured by improved or owner-occupied real estate. Accordingly, borrowers are required to provide a guarantee of repayment and completion, and loan proceeds are disbursed as construction progresses, as certified by in-house or third-party engineers. 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 conservative lending policies and rigorous underwriting standards. However, if the estimate of value proves to be inaccurate, the cost of completion is greater than expected, the length of time to complete and/or sell or lease the collateral property is greater than anticipated, or if there is a downturn in the local economy or real estate market, the property could have a value upon completion that is insufficient to assure full repayment of the loan. This could have a material adverse effect on the quality of the ADC loan portfolio, and could result in significant losses or delinquencies.
The Company seeks to minimize the risks involved in in-market 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 an in-market 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.
To minimize the risk involved in specialty finance C&I lending, the Company participates in broadly syndicated asset-based loans, equipment loan and lease financing, and dealer floor plan loans that are presented by an approved list of select, nationally recognized sources with whom it has established long-term funding relationships. The loans, which are secured by a perfected first security interest in the underlying collateral and structured as senior debt, are made to large corporate obligors, the majority of which are publicly traded, carry investment grade or near-investment grade ratings, participate in stable industries, and are located nationwide. To further minimize the risk involved in specialty finance lending, the Company re-underwrites each transaction; in addition, it retains outside counsel to conduct a further review of the underlying documentation.
The ability of the Companys borrowers to repay their loans, and the value of the collateral securing such loans, could be adversely impacted by economic weakness in its local markets as a result of higher unemployment, declining real estate values, or increased residential and office vacancies. This not only could result in the Company experiencing an increase in charge-offs and/or non-performing assets, but also could necessitate an increase in the provision for losses on non-covered loans. These events, if they were to occur, would have an adverse impact on the Companys results of operations and its capital.
While the vast majority of the one-to-four family loans the Company holds for investment are loans that were acquired in merger transactions prior to 2009, the portfolio also includes hybrid jumbo one-to-four family loans that the Company has been originating for investment since 2012. Such loans feature conservative loan-to-value ratios and are made to borrowers with a strong record of repaying their debt.
16
Loans Held for Sale
The Community Banks mortgage banking operation is one of the largest aggregators of one-to-four family loans for sale in the nation. Community banks, credit unions, mortgage companies, and mortgage brokers use its proprietary web-accessible mortgage banking platform to originate and close one-to-four family loans throughout the U.S. These loans are generally sold, servicing retained, to GSEs. To a much lesser extent, the Community Bank uses its mortgage banking platform to originate fixed-rate jumbo loans under contract for sale to other financial institutions. Although the volume of jumbo loan originations has been insignificant to date, and the Company does not expect the origination of such loans to represent a material portion of the held-for-sale loans it produces, it decided to originate jumbo loans to complement its position in the residential loan origination marketplace. The Company also services mortgage loans for various third parties, primarily including those it sells to GSEs. The unpaid principal balance of serviced loans was $21.4 billion at September 30, 2013 and $17.6 billion at December 31, 2012.
Asset Quality
The following table presents information regarding the quality of the Companys non-covered loans held for investment at September 30, 2013:
(in thousands) | Loans 30-89 Days Past Due |
Non- Accrual Loans |
Loans 90 Days or More Delinquent and Still Accruing Interest |
Total Past
Due Loans |
Current Loans |
Total Loans Receivable | ||||||||||||||||||||||||
Multi-family |
$ | 3,141 | $ | 69,016 | $ | -- | $ | 72,157 | $ | 20,111,589 | $ | 20,183,746 | ||||||||||||||||||
Commercial real estate |
4,409 | 34,475 | -- | 38,884 | 7,205,978 | 7,244,862 | ||||||||||||||||||||||||
One-to-four family |
1,730 | 10,663 | -- | 12,393 | 478,436 | 490,829 | ||||||||||||||||||||||||
Acquisition, development, and construction |
-- | 3,629 | -- | 3,629 | 399,531 | 403,160 | ||||||||||||||||||||||||
Commercial and industrial |
-- | 5,197 | -- | 5,197 | 786,832 | 792,029 | ||||||||||||||||||||||||
Other |
605 | 1,384 | -- | 1,989 | 41,257 | 43,246 | ||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||
Total |
$ | 9,885 | $ | 124,364 | $ | -- | $ | 134,249 | $ | 29,023,623 | $ | 29,157,872 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
The following table presents information regarding the quality of the Companys non-covered loans held for investment at December 31, 2012:
(in thousands) | Loans 30-89 Days Past Due |
Non- Accrual Loans |
Loans 90 Days or More Delinquent and Still Accruing Interest |
Total Past
Due Loans |
Current Loans |
Total Loans Receivable | ||||||||||||||||||||||||
Multi-family |
$ | 19,945 | $ | 163,460 | $ | -- | $ | 183,405 | $ | 18,412,428 | $ | 18,595,833 | ||||||||||||||||||
Commercial real estate |
1,679 | 56,863 | -- | 58,542 | 7,378,056 | 7,436,598 | ||||||||||||||||||||||||
One-to-four family |
2,645 | 10,945 | -- | 13,590 | 189,845 | 203,435 | ||||||||||||||||||||||||
Acquisition, development, and construction |
1,178 | 12,091 | -- | 13,269 | 384,648 | 397,917 | ||||||||||||||||||||||||
Commercial and industrial |
262 | 17,372 | -- | 17,634 | 572,410 | 590,044 | ||||||||||||||||||||||||
Other |
1,876 | 599 | -- | 2,475 | 47,405 | 49,880 | ||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||
Total |
$ | 27,585 | $ | 261,330 | $ | -- | $ | 288,915 | $ | 26,984,792 | $ | 27,273,707 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
The following table summarizes the Companys portfolio of non-covered held-for-investment loans by credit quality indicator at September 30, 2013:
(in thousands) | Multi-Family | Commercial Real Estate |
One-to-Four Family |
Acquisition, Development, and Construction |
Total Mortgage Loans |
Commercial and Industrial |
Other | Total Other Loans | ||||||||||||||||||||||||||||||||
Credit Quality Indicator: |
||||||||||||||||||||||||||||||||||||||||
Pass |
$20,001,264 | $ | 7,168,850 | $ | 484,618 | $ | 396,764 | $ | 28,051,496 | $ | 773,544 | $ | 41,863 | $ | 815,407 | |||||||||||||||||||||||||
Special mention |
83,086 | 31,384 | 268 | 2,448 | 117,186 | 11,888 | -- | 11,888 | ||||||||||||||||||||||||||||||||
Substandard |
94,964 | 44,128 | 5,943 | 3,948 | 148,983 | 6,428 | 1,383 | 7,811 | ||||||||||||||||||||||||||||||||
Doubtful |
4,432 | 500 | -- | -- | 4,932 | 169 | -- | 169 | ||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||||
Total |
$20,183,746 | $ | 7,244,862 | $ | 490,829 | $ | 403,160 | $ | 28,322,597 | $ | 792,029 | $ | 43,246 | $ | 835,275 | |||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
17
The following table summarizes the Companys portfolio of non-covered held-for-investment loans by credit quality indicator at December 31, 2012:
(in thousands) | Multi-Family | Commercial Real Estate |
One-to-Four
Family |
Acquisition, Development, and Construction |
Total Mortgage Loans |
Commercial and Industrial |
Other | Total Other Loans | ||||||||||||||||||||||||||||||||
Credit Quality Indicator: |
||||||||||||||||||||||||||||||||||||||||
Pass |
$18,285,333 | $ | 7,337,315 | $ | 195,232 | $ | 383,557 | $ | 26,201,437 | $ | 561,541 | $ | 49,281 | $ | 610,822 | |||||||||||||||||||||||||
Special mention |
55,280 | 26,523 | 294 | -- | 82,097 | 10,211 | -- | 10,211 | ||||||||||||||||||||||||||||||||
Substandard |
253,794 | 72,260 | 7,909 | 11,277 | 345,240 | 18,292 | 599 | 18,891 | ||||||||||||||||||||||||||||||||
Doubtful |
1,426 | 500 | -- | 3,083 | 5,009 | -- | -- | -- | ||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||||
Total |
$18,595,833 | $ | 7,436,598 | $ | 203,435 | $ | 397,917 | $ | 26,633,783 | $ | 590,044 | $ | 49,880 | $ | 639,924 | |||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The preceding classifications follow regulatory guidelines and can be generally described as follows: pass loans are of satisfactory quality; special mention loans have a potential weakness or risk that may result in the deterioration of future repayment; substandard loans are inadequately protected by the current net worth and paying capacity of the borrower or of the collateral pledged (these loans have a well-defined weakness and there is a distinct possibility that the Company will sustain some loss); and doubtful loans, based on existing circumstances, have weaknesses that make collection or liquidation in full highly questionable and improbable. In addition, one-to-four family residential loans are classified utilizing an inter-regulatory agency methodology that incorporates the extent of delinquency and the loan-to-value ratios. These classifications are the most current available and generally have been updated within the last twelve months.
Troubled Debt Restructurings
The Company is required to account for certain held-for-investment loan modifications or restructurings as Troubled Debt Restructurings (TDRs). In general, a modification or restructuring of a loan constitutes a TDR if the Company grants a concession to a borrower experiencing financial difficulty. Loans modified as TDRs are placed on non-accrual status until the Company determines that future collection of principal and interest is reasonably assured, which generally requires that the borrower demonstrate performance according to the restructured terms for a period of at least six consecutive months.
In an effort to proactively manage delinquent loans, the Company has selectively extended to certain borrowers concessions such as rate reductions, extension of maturity dates, and forbearance agreements. As of September 30, 2013, loans on which concessions were made with respect to rate reductions and/or extension of maturity dates amounted to $74.7 million; loans on which forbearance agreements were reached amounted to $7.5 million.
The following table presents information regarding the Companys TDRs as of September 30, 2013 and December 31, 2012:
September 30, 2013 | December 31, 2012 | |||||||||||||||||||||||||||||
(in thousands) | Accruing | Non-Accrual | Total | Accruing | Non-Accrual | Total | ||||||||||||||||||||||||
Loan Category: |
||||||||||||||||||||||||||||||
Multi-family |
$10,558 | $50,778 | $61,336 | $ 66,092 | $114,556 | $180,648 | ||||||||||||||||||||||||
Commercial real estate |
2,216 | 16,349 | 18,565 | 37,457 | 39,127 | 76,584 | ||||||||||||||||||||||||
Acquisition, development, and construction |
-- | 1,058 | 1,058 | -- | 510 | 510 | ||||||||||||||||||||||||
Commercial and industrial |
1,248 | -- | 1,248 | 1,463 | -- | 1,463 | ||||||||||||||||||||||||
One-to-four family |
-- | -- | -- | -- | 1,101 | 1,101 | ||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||
Total |
$14,022 | $68,185 | $82,207 | $105,012 | $155,294 | $260,306 | ||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
The $55.5 million decline in accruing multi-family loans noted in the preceding table was due to a $49.6 million loan that was transferred to non-accrual in the second quarter of 2013. The $35.2 million decline in accruing CRE loans noted in the preceding table was due to the pay-off of a single CRE loan in the first quarter of 2013.
The $63.8 million decline in non-accrual multi-family loans primarily reflects two loan relationships totaling $50.6 million that were repaid during the second and third quarters of 2013, and a $41.6 million transfer to other real estate owned during the first quarter of 2013. These decreases were partially offset by the aforementioned $49.6 million loan that was transferred from accruing TDR to non-accrual TDR. The $22.8 million decline in non-accrual CRE loans was primarily due to the pay-off of a $22.0 million loan relationship during the second quarter of 2013.
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.
18
In the nine months ended September 30, 2013, the Company classified two CRE loans and one ADC loan totaling $2.8 million as non-accrual TDRs. While other concessions were granted to the borrowers, the interest rates on the loans were maintained. As a result, these TDRs did not have a financial impact on the Companys results of operations.
During the nine months ended September 30, 2013, there were no payment defaults on any loans that had been modified as TDRs during the preceding twelve months. A loan is considered to be in payment default once it is 30 days contractually past due under the modified terms.
The Company does not consider a payment to be in default when the loan is in forbearance, or otherwise granted a delay of payment, when the agreement to forebear or allow a delay of payment is part of a modification. Subsequent to the modification, the loan is not considered to be in default until payment is contractually past due in accordance with the modified terms. However, the Company does consider a loan with multiple modifications or forbearance periods to be in default, and would also consider a loan to be in default if it were in bankruptcy or was partially charged off subsequent to modification.
Covered Loans
The following table presents the carrying value of covered loans acquired in the AmTrust and Desert Hills acquisitions as of September 30, 2013:
(dollars in thousands) | Amount | Percent of Covered Loans | ||||||||
Loan Category: |
||||||||||
One-to-four family |
$ | 2,631,042 | 90.8% | |||||||
All other loans |
267,761 | 9.2 | ||||||||
|
|
|
|
|||||||
Total covered loans |
$ | 2,898,803 | 100.0% | |||||||
|
|
|
|
The Company refers to the loans acquired in the AmTrust and Desert Hills acquisitions as covered loans because the Company is being reimbursed for a substantial portion of losses on these loans under the terms of the FDIC loss sharing agreements. Covered loans are accounted for under Accounting Standards Codification (ASC) Topic 310-30, Loans and Debt Securities Acquired with Deteriorated Credit Quality (ASC 310-30), and initially measured at fair value, which includes estimated future credit losses expected to be incurred over the lives of the loans. Under ASC 310-30, purchasers are permitted to aggregate acquired loans into one or more pools, provided that the loans have common risk characteristics. A pool is then accounted for as a single asset with a single composite interest rate and an aggregate expectation of cash flows.
At September 30, 2013 and December 31, 2012, the unpaid principal balances of covered loans were $3.5 billion and $3.9 billion, respectively. The carrying values of such loans were $2.9 billion and $3.3 billion, respectively, at the corresponding dates.
At the respective acquisition dates, the Company estimated the fair values of the AmTrust and Desert Hills loan portfolios, which represented the expected cash flows from the portfolios, discounted at market-based rates. In estimating such fair value, the Company (a) calculated the contractual amount and timing of undiscounted principal and interest payments (the undiscounted contractual cash flows); and (b) estimated the expected amount and timing of undiscounted principal and interest payments (the undiscounted expected cash flows). The amount by which the undiscounted expected cash flows exceed the estimated fair value (the accretable yield) is accreted into interest income over the lives of the loans. The amount by which the undiscounted contractual cash flows exceed 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 respective acquisition dates.
The accretable yield is affected by changes in interest rate indices for variable rate loans, changes in prepayment assumptions, and changes in expected principal and interest payments over the estimated lives of the loans. Changes in interest rate indices for variable rate loans increase or decrease the amount of interest income expected to be collected, depending on the direction of interest rates. Prepayments affect the estimated lives of covered loans and could change the amount of interest income and principal expected to be collected. Changes in expected principal and interest payments over the estimated lives of covered loans are driven by the credit outlook and actions that may be taken with borrowers.
The Company periodically evaluates the estimates of the cash flows it expects to collect. Expected future cash flows from interest payments are based on 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.
19
Changes in the accretable yield for covered loans for the nine months ended September 30, 2013 were as follows:
(in thousands) | Accretable Yield | ||||
Balance at beginning of period |
$1,201,172 | ||||
Reclassification to non-accretable difference |
(166,560) | ||||
Accretion |
(118,522) | ||||
|
|
||||
Balance at end of period |
$ 916,090 | ||||
|
|
In the preceding table, the line item reclassification to non-accretable difference includes changes in cash flows that the Company expects to collect due to changes in prepayment assumptions, changes in interest rates on variable loans, and changes in loss assumptions. As of the Companys most recent periodic evaluation, prepayment assumptions increased and, accordingly, future expected interest cash flows decreased. In addition, coupon rates on variable rate loans reset lower which also resulted in a decrease in future expected interest cash flows. These two decreases caused a reduction in the accretable yield. Partially offsetting the effect of these decreases was an improvement in underlying credit assumptions. As the underlying credit assumptions improved, the projected loss assumptions on defaulting loans decreased, which, in turn, resulted in an increase in accretable yield.
In connection with the AmTrust and Desert Hills transactions, the Company has acquired other real estate owned (OREO), all of which is covered under FDIC loss sharing agreements. Covered OREO is initially recorded at its estimated fair value on the acquisition date, based on independent appraisals, less the estimated selling costs. Any subsequent write-downs due to declines in fair value are charged to non-interest expense, and partially offset by loss reimbursements under the FDIC loss sharing agreements. Any recoveries of previous write-downs are credited to non-interest expense and partially offset by the portion of the recovery that is due to the FDIC.
The FDIC loss share receivable represents the present value of the estimated losses on covered loans and OREO to be reimbursed by the FDIC. The estimated losses were based on the same cash flow estimates used in determining the fair value of the covered loans. The FDIC loss share receivable is reduced as losses on covered loans are recognized and as loss sharing payments are received from the FDIC. Realized losses in excess of acquisition-date estimates will result in an increase in the FDIC loss share receivable. Conversely, if realized losses are lower than the acquisition-date estimates, the FDIC loss share receivable will be reduced.
The following table presents information regarding the Companys covered loans that were 90 days or more past due at September 30, 2013 and December 31, 2012:
(in thousands) | September 30, 2013 | December 31, 2012 | ||||||||
Covered Loans 90 Days or More Past Due: |
||||||||||
One-to-four family |
$227,758 | $297,265 | ||||||||
Other loans |
10,817 | 15,308 | ||||||||
|
|
|
|
|||||||
Total covered loans 90 days or more past due |
$238,575 | $312,573 | ||||||||
|
|
|
|
The following table presents information regarding the Companys covered loans that were 30 to 89 days past due at September 30, 2013 and December 31, 2012:
(in thousands) | September 30, 2013 | December 31, 2012 | ||||||||
Covered Loans 30-89 Days Past Due: |
||||||||||
One-to-four family |
$48,039 | $75,129 | ||||||||
Other loans |
4,432 | 6,057 | ||||||||
|
|
|
|
|||||||
Total covered loans 30-89 days past due |
$52,471 | $81,186 | ||||||||
|
|
|
|
At September 30, 2013, the Company had $52.5 million of covered loans that were 30 to 89 days past due, and covered loans of $238.6 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 $2.6 billion at September 30, 2013 and was considered current at that date. ASC 310-30 allows the Company to aggregate credit-impaired loans acquired in the same fiscal quarter into one or more pools, provided that the loans have common risk characteristics. A pool is then accounted for as a single asset with a single composite interest rate and an aggregate expectation of cash flows.
Loans that may have been classified as non-performing loans by AmTrust or Desert Hills were no longer classified as non-performing because, at the respective dates of acquisition, the Company believed that it would fully collect the new carrying value of these loans. The new carrying value represents the contractual balance, reduced by the portion that is expected to be uncollectible (i.e., the non-accretable difference) and by an accretable yield (discount) that is recognized as
20
interest income. It is important to note that managements judgment is required in reclassifying loans subject to ASC 310-30 as performing loans, and such judgment is dependent on having a reasonable expectation about the timing and amount of the cash flows to be collected, even if the loan is contractually past due.
The primary credit quality indicator for covered loans is the expectation of underlying cash flows. The Company recorded provisions for losses on covered loans of $9.5 million and $18.6 million, respectively, in the three and nine months ended September 30, 2013. These provisions were largely due to credit deterioration in the acquired portfolios of one-to-four family and home equity loans, and were largely offset by FDIC indemnification income of $7.6 million and $14.9 million, respectively, recorded in non-interest income for the three and nine months ended September 30, 2013.
Note 6. Allowances for Loan Losses
The following tables provide additional information regarding the Companys allowances for losses on covered and non-covered loans by segment (i.e., mortgage and other), based upon the method of evaluating loan impairment:
(in thousands) | Mortgage | Other | Total | ||||||||||||
Allowance for Loan Losses at September 30, 2013: |
|||||||||||||||
Loans individually evaluated for impairment |
$ | 828 | $ | -- | $ | 828 | |||||||||
Loans collectively evaluated for impairment |
124,821 | 15,665 | 140,486 | ||||||||||||
Acquired loans with deteriorated credit quality |
59,926 | 9,971 | 69,897 | ||||||||||||
|
|
|
|
|
|
||||||||||
Total |
$ | 185,575 | $ | 25,636 | $ | 211,211 | |||||||||
|
|
|
|
|
|
(in thousands) | Mortgage | Other | Total | ||||||||||||
Allowance for Loan Losses at December 31, 2012: |
|||||||||||||||
Loans individually evaluated for impairment |
$ | 1,486 | $ | 1,199 | $ | 2,685 | |||||||||
Loans collectively evaluated for impairment |
126,448 | 11,815 | 138,263 | ||||||||||||
Acquired loans with deteriorated credit quality |
32,593 | 18,718 | 51,311 | ||||||||||||
|
|
|
|
|
|
||||||||||
Total |
$ | 160,527 | $ | 31,732 | $ | 192,259 | |||||||||
|
|
|
|
|
|
The following tables provide additional information, by segment, regarding the methods used to evaluate the Companys loan portfolio for impairment:
(in thousands) | Mortgage | Other | Total | ||||||||||||
Loans Receivable at September 30, 2013: |
|||||||||||||||
Loans individually evaluated for impairment |
$ | 133,469 | $ | 6,391 | $ | 139,860 | |||||||||
Loans collectively evaluated for impairment |
28,189,128 | 828,884 | 29,018,012 | ||||||||||||
Acquired loans with deteriorated credit quality |
2,631,042 | 267,761 | 2,898,803 | ||||||||||||
|
|
|
|
|
|
||||||||||
Total |
$ | 30,953,639 | $ | 1,103,036 | $ | 32,056,675 | |||||||||
|
|
|
|
|
|
(in thousands) | Mortgage | Other | Total | ||||||||||||
Loans Receivable at December 31, 2012: |
|||||||||||||||
Loans individually evaluated for impairment |
$ | 309,694 | $ | 17,702 | $ | 327,396 | |||||||||
Loans collectively evaluated for impairment |
26,324,088 | 622,223 | 26,946,311 | ||||||||||||
Acquired loans with deteriorated credit quality |
2,976,067 | 307,994 | 3,284,061 | ||||||||||||
|
|
|
|
|
|
||||||||||
Total |
$ | 29,609,849 | $ | 947,919 | $ | 30,557,768 | |||||||||
|
|
|
|
|
|
Allowance for Losses on Non-Covered Loans
The following table summarizes activity in the allowance for losses on non-covered loans, by segment, for the nine months ended September 30, 2013 and 2012:
For the Nine Months Ended September 30, | |||||||||||||||||||||||||||||||||
2013 | 2012 | ||||||||||||||||||||||||||||||||
(in thousands) | Mortgage | Other | Total | Mortgage | Other | Total | |||||||||||||||||||||||||||
Balance, beginning of period |
$127,934 | $13,014 | $140,948 | $121,995 | $15,295 | $137,290 | |||||||||||||||||||||||||||
Charge-offs |
(12,716) | (7,039) | (19,755) | (35,542) | (6,217) | (41,759) | |||||||||||||||||||||||||||
Recoveries |
3,580 | 1,541 | 5,121 | 735 | 2,749 | 3,484 | |||||||||||||||||||||||||||
Provision for losses on non-covered loans |
6,851 | 8,149 | 15,000 | 38,506 | 1,494 | 40,000 | |||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||||||||||
Balance, end of period |
$125,649 | $15,665 | $141,314 | $125,694 | $13,321 | $139,015 | |||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
21
Please see Critical Accounting Policies for additional information regarding the Companys allowance for losses on non-covered loans.
The following table presents additional information regarding the Companys impaired non-covered loans at September 30, 2013:
(in thousands) | Recorded Investment |
Unpaid Principal Balance |
Related Allowance |
Average Recorded Investment |
Interest Income Recognized | ||||||||||||||||||||
Impaired loans with no related allowance: |
|||||||||||||||||||||||||
Multi-family |
$ | 85,843 | $ | 96,852 | $ | -- | $ | 130,020 | $ | 1,991 | |||||||||||||||
Commercial real estate |
42,126 | 46,770 | -- | 47,882 | 1,604 | ||||||||||||||||||||
One-to-four family |
-- | -- | -- | 367 | -- | ||||||||||||||||||||
Acquisition, development, and construction |
2,451 | 2,451 | -- | 4,815 | 89 | ||||||||||||||||||||
Commercial and industrial |
6,391 | 22,702 | -- | 6,855 | 366 | ||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
||||||||||||||||
Total impaired loans with no related allowance |
$ | 136,811 | $ | 168,775 | $ | -- | $ | 189,939 | $ | 4,050 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
||||||||||||||||
Impaired loans with an allowance recorded: |
|||||||||||||||||||||||||
Multi-family |
$ | 3,049 | $ | 3,049 | $ | 828 | $ | 3,256 | $ | -- | |||||||||||||||
Commercial real estate |
-- | -- | -- | 1,200 | -- | ||||||||||||||||||||
One-to-four family |
-- | -- | -- | -- | -- | ||||||||||||||||||||
Acquisition, development, and construction |
-- | -- | -- | -- | -- | ||||||||||||||||||||
Commercial and industrial |
-- | -- | -- | -- | -- | ||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
||||||||||||||||
Total impaired loans with an allowance recorded |
$ | 3,049 | $ | 3,049 | $ | 828 | $ | 4,456 | $ | -- | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
||||||||||||||||
Total impaired loans: |
|||||||||||||||||||||||||
Multi-family |
$ | 88,892 | $ | 99,901 | $ | 828 | $ | 133,276 | $ | 1,991 | |||||||||||||||
Commercial real estate |
42,126 | 46,770 | -- | 49,082 | 1,604 | ||||||||||||||||||||
One-to-four family |
-- | -- | -- | 367 | -- | ||||||||||||||||||||
Acquisition, development, and construction |
2,451 | 2,451 | -- | 4,815 | 89 | ||||||||||||||||||||
Commercial and industrial |
6,391 | 22,702 | -- | 6,855 | 366 | ||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
||||||||||||||||
Total impaired loans |
$ | 139,860 | $ | 171,824 | $ | 828 | $ | 194,395 | $ | 4,050 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
The following table presents additional information regarding the Companys impaired non-covered loans at December 31, 2012:
(in thousands) | Recorded Investment |
Unpaid Principal Balance |
Related Allowance |
Average Recorded Investment |
Interest Income Recognized | ||||||||||||||||||||
Impaired loans with no related allowance: |
|||||||||||||||||||||||||
Multi-family |
$ | 193,500 | $ | 211,329 | $ | -- | $ | 189,510 | $ | 4,929 | |||||||||||||||
Commercial real estate |
80,453 | 81,134 | -- | 72,271 | 1,705 | ||||||||||||||||||||
One-to-four family |
1,101 | 1,147 | -- | 1,114 | -- | ||||||||||||||||||||
Acquisition, development, and construction |
10,203 | 14,297 | -- | 20,954 | 790 | ||||||||||||||||||||
Commercial and industrial |
10,564 | 14,679 | -- | 10,021 | 380 | ||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
||||||||||||||||
Total impaired loans with no related allowance |
$ | 295,821 | $ | 322,586 | $ | -- | $ | 293,870 | $ | 7,804 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
||||||||||||||||
Impaired loans with an allowance recorded: |
|||||||||||||||||||||||||
Multi-family |
$ | 20,307 | $ | 21,620 | $ | 1,055 | $ | 27,894 | $ | 802 | |||||||||||||||
Commercial real estate |
2,914 | 2,940 | 402 | 3,693 | 98 | ||||||||||||||||||||
One-to-four family |
-- | -- | -- | -- | -- | ||||||||||||||||||||
Acquisition, development, and construction |
1,216 | 1,494 | 29 | 1,877 | -- | ||||||||||||||||||||
Commercial and industrial |
7,138 | 10,252 | 1,199 | 1,785 | 1,405 | ||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
||||||||||||||||
Total impaired loans with an allowance recorded |
$ | 31,575 | $ | 36,306 | $ | 2,685 | $ | 35,249 | $ | 2,305 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
||||||||||||||||
Total impaired loans: |
|||||||||||||||||||||||||
Multi-family |
$ | 213,807 | $ | 232,949 | $ | 1,055 | $ | 217,404 | $ | 5,731 | |||||||||||||||
Commercial real estate |
83,367 | 84,074 | 402 | 75,964 | 1,803 | ||||||||||||||||||||
One-to-four family |
1,101 | 1,147 | -- | 1,114 | -- | ||||||||||||||||||||
Acquisition, development, and construction |
11,419 | 15,791 | 29 | 22,831 | 790 | ||||||||||||||||||||
Commercial and industrial |
17,702 | 24,931 | 1,199 | 11,806 | 1,785 | ||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
||||||||||||||||
Total impaired loans |
$ | 327,396 | $ | 358,892 | $ | 2,685 | $ | 329,119 | $ | 10,109 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
22
Allowance for Losses on Covered Loans
Under the loss sharing agreements with the FDIC, covered loans are reported exclusive of the FDIC loss share receivable. The covered loans acquired in the AmTrust and Desert Hills acquisitions are, and will continue to be, reviewed for collectability based on the expectations of cash flows from these loans. Covered loans have been aggregated into pools of loans with common characteristics. In determining the allowance for losses on covered loans, the Company periodically performs an analysis to estimate the expected cash flows for each of the loan pools. The Company records a provision for losses on covered loans to the extent that the expected cash flows from a loan pool have decreased since the acquisition date. Accordingly, if there is a decrease in expected cash flows due to an increase in estimated credit losses, as compared to the estimates made at the respective acquisition dates, the decrease in the present value of expected cash flows is recorded as a provision for covered loan losses charged to earnings, and an allowance for covered loan losses is established. A related credit to non-interest income and an increase in the FDIC loss share receivable is recognized at the same time, and measured based on the applicable loss sharing agreement percentage.
The following table summarizes activity in the allowance for losses on covered loans for the nine months ended September 30, 2013 and 2012:
For the Nine Months Ended September 30, | ||||||||||
(in thousands) | 2013 | 2012 | ||||||||
Balance, beginning of period |
$ | 51,311 | $ | 51,771 | ||||||
Provision for covered loan losses |
18,586 | 2,820 | ||||||||
|
|
|
|
|||||||
Balance, end of period |
$ | 69,897 | $ | 54,591 | ||||||
|
|
|
|
Note 7. Borrowed Funds
The following table summarizes the Companys borrowed funds at September 30, 2013 and December 31, 2012:
(in thousands) | September 30, 2013 |
December 31, 2012 | ||||||||
Wholesale borrowings: |
||||||||||
FHLB advances |
$ | 10,678,070 | $ | 8,842,974 | ||||||
Repurchase agreements |
3,425,000 | 4,125,000 | ||||||||
Fed funds purchased |
100,000 | 100,000 | ||||||||
|
|
|
|
|||||||
Total wholesale borrowings |
$ | 14,203,070 | $ | 13,067,974 | ||||||
|
|
|
|
|||||||
Other borrowings: |
||||||||||
Junior subordinated debentures |
358,072 | 357,917 | ||||||||
Preferred stock of subsidiaries |
4,300 | 4,300 | ||||||||
|
|
|
|
|||||||
Total other borrowings |
362,372 | 362,217 | ||||||||
|
|
|
|
|||||||
Total borrowed funds |
$ | 14,565,442 | $ | 13,430,191 | ||||||
|
|
|
|
At September 30, 2013 and December 31, 2012, the Company had $358.1 million and $357.9 million, respectively, of junior subordinated deferrable interest debentures (junior subordinated debentures) held by wholly-owned statutory business trusts (the Trusts) that issued guaranteed capital securities.
The Trusts are accounted for as unconsolidated subsidiaries in accordance with GAAP. The proceeds of each issuance were invested in a series of junior subordinated debentures of the Company, and the underlying assets of each statutory business trust are the relevant debentures. The Company has fully and unconditionally guaranteed the obligations under each 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.
23
The following junior subordinated debentures were outstanding at September 30, 2013:
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) | |||||||||||||||||||||||||||||||||||
New York Community Capital Trust V (BONUSESSM Units) |
6.000 | % | $144,146 | $137,795 | Nov. 4, 2002 | Nov. 1, 2051 | Nov. 4, 2007 (1) | ||||||||||||||||||||||||||||
New York Community Capital Trust X |
1.854 | 123,712 | 120,000 | Dec. 14, 2006 | Dec. 15, 2036 | Dec. 15, 2011(2) | |||||||||||||||||||||||||||||
PennFed Capital Trust III |
3.504 | 30,928 | 30,000 | June 2, 2003 | June 15, 2033 | June 15, 2008 (2) | |||||||||||||||||||||||||||||
New York Community Capital Trust XI |
1.898 | 59,286 | 57,500 | April 16, 2007 | June 30, 2037 | June 30, 2012 (2) | |||||||||||||||||||||||||||||
|
|
|
|
||||||||||||||||||||||||||||||||
Total junior subordinated debentures |
$358,072 | $345,295 | |||||||||||||||||||||||||||||||||
|
|
|
|
(1) | Callable subject to certain conditions as described in the prospectus filed with the SEC on November 4, 2002. |
(2) | Callable from this date forward. |
On December 31, 2012, the Company redeemed the following junior subordinated debentures totaling $69.2 million: Haven Capital Trust II, Queens County Capital Trust I, Queens Statutory Trust I, LIF Statutory Trust I, and PennFed Capital Trust II. As a result, a $2.3 million loss on debt redemption was recorded in non-interest income in the fourth quarter of 2012.
Note 8. Mortgage Servicing Rights
The Company had mortgage servicing rights (MSRs) of $228.1 million and $144.7 million, respectively, at September 30, 2013 and December 31, 2012. The September 30th balance consisted entirely of residential MSRs, whereas the December 31st balance consisted of both residential MSRs and securitized MSRs, for which the economic risk was separately managed.
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. The effects of changes in the fair value of the derivatives are recorded in non-interest income. MSRs do not trade in an active open market with readily observable prices. Accordingly, the Company bases the fair value of its MSRs on the present value of estimated future net servicing income cash flows utilizing an internal valuation model. The Company estimates future net servicing income cash flows with assumptions that market participants would use to estimate fair value, including estimates of prepayment speeds, discount rates, default rates, refinance rates, servicing costs, escrow account earnings, contractual servicing fee income, and ancillary income. The Company reassesses, and periodically adjusts, the underlying inputs and assumptions in the model to reflect market conditions and assumptions that a market participant would consider in valuing the MSR asset.
The value of residential MSRs at any given time is significantly affected by the mortgage interest rates that are then currently available in the marketplace which, in turn, influence mortgage loan prepayment speeds. During periods of declining interest rates, the value of MSRs generally declines as an increase in mortgage refinancing activity results in an increase in prepayments. Conversely, during periods of rising interest rates, the value of MSRs generally increases as mortgage refinancing activity declines.
Securitized MSRs were carried at the lower of the initial carrying value, adjusted for amortization or fair value, and were amortized in proportion to, and over the period of, estimated net servicing income. Such MSRs were periodically evaluated for impairment, based on the difference between their carrying amount and their current fair value.
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The following tables set forth the changes in the balances of residential and securitized MSRs for the periods indicated below:
For the Three Months Ended | ||||||||||||||||||||
September 30, 2013 | September 30, 2012 | |||||||||||||||||||
(in thousands) | Residential | Securitized | Residential | Securitized | ||||||||||||||||
Carrying value, beginning of year |
$214,959 | $ 97 | $136,176 | $386 | ||||||||||||||||
Additions |
18,725 | -- | 28,178 | |
-- |
| ||||||||||||||
Increase (decrease) in fair value: |
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Due to changes in valuation assumptions |
6,589 | -- | (23,720) | |
-- |
| ||||||||||||||
Due to other changes(1) |
(12,168) | |
-- |
|
(18,394) | |
-- |
| ||||||||||||
Amortization |
-- | (97) | |
-- |
|
(96) | ||||||||||||||
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Carrying value, end of period |
$228,105 | $ -- | $122,240 | $290 | ||||||||||||||||
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(1) |