Edgar Filing: NEW YORK COMMUNITY BANCORP INC

For the Twelve Months Ended

March
2015

December
2014

March
2014

Change in prices:

Form 10-Q

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 MARCH 31, 2015

Commission File Number 1-31565

NEW YORK COMMUNITY BANCORP, INC.

(Exact name of registrant as specified in its charter)

Delaware

06-1377322

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer Identification No.)

615 Merrick Avenue, Westbury, New York 11590

(Address of principal executive offices)

(Registrant’s telephone number, including area code) (516) 683-4100

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

444,277,424

Number of shares of common stock outstanding at

May 4, 2015

NEW YORK COMMUNITY BANCORP, INC.

FORM 10-Q

Quarter Ended March 31, 2015


INDEX		Page No.

Part I.	FINANCIAL INFORMATION

Item 1.	Financial Statements

	Consolidated Statements of Condition as of March 31, 2015 (unaudited) and December 31, 2014	1

	Consolidated Statements of Income and Comprehensive Income for the Three Months Ended March 31, 2015 and 2014 (unaudited)	2

	Consolidated Statement of Changes in Stockholders’ Equity for the Three Months Ended March 31, 2015 (unaudited)	3

	Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2015 and 2014 (unaudited)	4

	Notes to the Consolidated Financial Statements	5

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	41

Item 3.	Quantitative and Qualitative Disclosures about Market Risk	83

Item 4.	Controls and Procedures	83

Part II.	OTHER INFORMATION

Item 1.	Legal Proceedings	84

Item 1A.	Risk Factors	84

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	84

Item 3.	Defaults Upon Senior Securities	84

Item 4.	Mine Safety Disclosures	84

Item 5.	Other Information	84

Item 6.	Exhibits	85

Signatures		86

Exhibits

NEW YORK COMMUNITY BANCORP, INC.

CONSOLIDATED STATEMENTS OF CONDITION

(in thousands, except share data)


	March 31, 2015		December 31, 2014
	(unaudited)
Assets:
Cash and cash equivalents		$ 582,558		$ 564,150
Securities:
Available-for-sale ($10,934 and $11,436 pledged, respectively)		175,710		173,783
Held-to-maturity ($4,528,139 and $4,584,886 pledged, respectively) (fair value of $7,028,201 and $7,085,971, respectively)		6,784,883		6,922,667

Total securities		6,960,593		7,096,450

Non-covered loans held for sale		351,467		379,399
Non-covered loans held for investment, net of deferred loan fees and costs		33,012,358		33,024,956
Less: Allowance for losses on non-covered loans		(142,168)		(139,857)

Non-covered loans held for investment, net		32,870,190		32,885,099
Covered loans		2,341,428		2,428,622
Less: Allowance for losses on covered loans		(43,942)		(45,481)

Covered loans, net		2,297,486		2,383,141

Total loans, net		35,519,143		35,647,639
Federal Home Loan Bank stock, at cost		464,942		515,327
Premises and equipment, net		322,039		319,002
FDIC loss share receivable		378,577		397,811
Goodwill		2,436,131		2,436,131
Core deposit intangibles, net		6,359		7,943
Mortgage servicing rights		220,371		227,297
Bank-owned life insurance		921,885		915,156
Other real estate owned (includes $31,015 and $32,048, respectively, covered by loss sharing agreements)		101,326		94,004
Other assets		337,791		338,307

Total assets		$48,251,715		$48,559,217

Liabilities and Stockholders’ Equity:
Deposits:
NOW and money market accounts		$12,629,459		$12,549,600
Savings accounts		7,698,404		7,051,622
Certificates of deposit		5,848,389		6,420,598
Non-interest-bearing accounts		2,755,135		2,306,914

Total deposits		28,931,387		28,328,734
Borrowed funds:
Wholesale borrowings:
Federal Home Loan Bank advances		8,985,987		10,183,132
Repurchase agreements		3,425,000		3,425,000
Fed funds purchased		495,000		260,000

Total wholesale borrowings		12,905,987		13,868,132
Junior subordinated debentures		358,415		358,355

Total borrowed funds		13,264,402		14,226,487
Other liabilities		261,129		222,181

Total liabilities		42,456,918		42,777,402

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; 444,278,206 and 442,659,460 shares issued, and 444,277,802 and 442,587,190 shares outstanding, respectively)		4,443		4,427
Paid-in capital in excess of par		5,370,090		5,369,623
Retained earnings		472,977		464,569
Treasury stock, at cost (404 and 72,270 shares, respectively)		(7)		(1,118)
Accumulated other comprehensive loss, net of tax:
Net unrealized gain on securities available for sale, net of tax of $3,183 and $2,022, respectively		4,705		2,990
Net unrealized loss on the non-credit portion of other-than-temporary impairment (“OTTI”) losses on securities, net of tax of $3,433 and $3,444, respectively		(5,370)		(5,387)
Net unrealized loss on pension and post-retirement obligations, net of tax of $35,274 and $36,118, respectively		(52,041)		(53,289)

Total accumulated other comprehensive loss, net of tax		(52,706)		(55,686)

Total stockholders’ equity		5,794,797		5,781,815

Total liabilities and stockholders’ equity		$48,251,715		$48,559,217

See accompanying notes to the consolidated financial statements.

NEW YORK COMMUNITY BANCORP, INC.

CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME

(in thousands, except per share data)

(unaudited)


	For the Three Months Ended March 31,
	2015		2014
Interest Income:
Mortgage and other loans		$364,504		$345,530
Securities and money market investments		64,409		69,781

Total interest income		428,913		415,311


Interest Expense:
NOW and money market accounts		11,052		8,396
Savings accounts		12,333		6,473
Certificates of deposit		17,116		19,060
Borrowed funds		95,644		97,232

Total interest expense		136,145		131,161

Net interest income		292,768		284,150
Recovery of losses on non-covered loans		(870)		--
Provision for (recovery of) losses on covered loans		877		(14,630)

Net interest income after (recoveries of) provisions for loan losses		292,761		298,780


Non-Interest Income:
Mortgage banking income		18,406		14,610
Fee income		8,394		8,894
Bank-owned life insurance		6,704		6,829
Net gain on sales of securities		211		4,873
FDIC indemnification income (expense)		702		(11,704)
Gain on Visa shares sold		--		3,856
Other income		17,817		9,877

Total non-interest income		52,234		37,235


Non-Interest Expense:
Operating expenses:
Compensation and benefits		87,209		75,740
Occupancy and equipment		25,299		25,998
General and administrative		42,744		42,264

Total operating expenses		155,252		144,002
Amortization of core deposit intangibles		1,584		2,323

Total non-interest expense		156,836		146,325

Income before income taxes		188,159		189,690
Income tax expense		68,900		74,436

Net income		$119,259		$115,254

Other comprehensive income, net of tax:
Change in net unrealized gain on securities available for sale, net of tax of $1,161 and $2,529, respectively		1,715		3,729
Change in the non-credit portion of OTTI losses recognized in other comprehensive income, net of tax of $11 and $11, respectively		17		17
Change in pension and post-retirement obligations, net of tax of $844 and $357, respectively		1,248		526
Less: Reclassification adjustment for sales of available-for-sale securities, net of tax of $1,969		--		(2,904)

Total other comprehensive income, net of tax		2,980		1,368

Total comprehensive income, net of tax		$122,239		$116,622


Basic earnings per share		$0.27		$0.26

Diluted earnings per share		$0.27		$0.26

See accompanying notes to the consolidated financial statements.

NEW YORK COMMUNITY BANCORP, INC.

CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY

(in thousands, except share data)

(unaudited)


	For the Three Months Ended March 31, 2015
Common Stock (Par Value: $0.01):
Balance at beginning of year		$ 4,427
Shares issued for restricted stock awards (1,618,746 shares)		16

Balance at end of period		4,443


Paid-in Capital in Excess of Par:
Balance at beginning of year		5,369,623
Shares issued for restricted stock awards, net of forfeitures		(7,694)
Compensation expense related to restricted stock awards		7,165
Tax effect of stock plans		996

Balance at end of period		5,370,090


Retained Earnings:
Balance at beginning of year		464,569
Net income		119,259
Dividends paid on common stock ($0.25 per share)		(110,851)

Balance at end of period		472,977


Treasury Stock:
Balance at beginning of year		(1,118)
Purchase of common stock (423,129 shares)		(6,567)
Shares issued for restricted stock awards (494,995 shares)		7,678

Balance at end of period		(7)


Accumulated Other Comprehensive Loss, net of tax:
Balance at beginning of year		(55,686)
Other comprehensive income, net of tax		2,980

Balance at end of period		(52,706)

Total stockholders’ equity		$ 5,794,797

See accompanying notes to the consolidated financial statements.

NEW YORK COMMUNITY BANCORP, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(unaudited)


	For the Three Months Ended March 31,
	2015		2014
Cash Flows from Operating Activities:
Net income	$	119,259	$	115,254
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for (recovery of) loan losses		7		(14,630)
Depreciation and amortization		7,645		6,765
Amortization of discounts and premiums, net		(1,670)		(2,007)
Amortization of core deposit intangibles		1,584		2,323
Net gain on sales of securities		(211)		(4,873)
Gain on sales of loans		(21,461)		(3,778)
Gain on Visa shares sold		--		(3,856)
Stock plan-related compensation		7,165		6,664
Deferred tax expense		9,419		10,587
Changes in assets and liabilities:
Decrease in other assets		12,625		49,571
Increase in other liabilities		29,606		45,305
Origination of loans held for sale		(1,492,222)		(636,855)
Proceeds from sales of loans originated for sale		1,404,595		617,633

Net cash provided by operating activities		76,341		188,103

Cash Flows from Investing Activities:
Proceeds from repayment of securities held to maturity		139,544		103,577
Proceeds from repayment of securities available for sale		886		3,918
Proceeds from sale of securities available for sale		135,211		136,747
Purchase of securities held to maturity		--		(138,342)
Purchase of securities available for sale		(135,000)		(99,000)
Proceeds from sale of Visa shares		--		3,856
Net redemption of Federal Home Loan Bank stock		50,385		16,277
Net increase in loans		(321,684)		(875,092)
Proceeds from sales of loans		559,261		--
Purchase of premises and equipment, net		(10,682)		(11,682)

Net cash provided by (used in) investing activities		417,921		(859,741)

Cash Flows from Financing Activities:
Net increase in deposits		602,653		1,092,574
Net decrease in short-term borrowed funds		(1,161,000)		(276,100)
Net increase (decrease) in long-term borrowed funds		198,915		(1,522)
Tax effect of stock plans		996		1,496
Cash dividends paid on common stock		(110,851)		(110,461)
Treasury stock purchases		(6,567)		(6,029)
Net cash received from stock option exercises		--		2

Net cash (used in) provided by financing activities		(475,854)		699,960

Net increase in cash and cash equivalents		18,408		28,322
Cash and cash equivalents at beginning of period		564,150		644,550

Cash and cash equivalents at end of period	$	582,558	$	672,872

Supplemental information:
Cash paid for interest		$139,220		$135,424
Cash paid for income taxes		10,698		17,418
Non-cash investing and financing activities:
Transfers to other real estate owned from loans		17,098		45,917
Transfer of loans from held for investment to held for sale		553,315		--
Transfer of loans from held for sale to held for investment		153,578		--

See accompanying notes to the consolidated financial statements.

NEW YORK COMMUNITY BANCORP, INC.

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

Note 1. Organization and Basis of Presentation

Organization

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 between September 30, 1994 and February 17, 2004, the Company’s initial offering price adjusts to $0.93 per share. All share and per share data presented in this report 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 certain deposits of Aurora Bank FSB.

Reflecting its growth through acquisitions, the Community Bank currently operates 242 branches, four of which operate directly under the Community Bank name. The remaining 238 Community Bank branches operate through seven divisional banks: Queens County Savings Bank, Roslyn Savings Bank, Richmond County Savings Bank, and Roosevelt Savings Bank in New York; Garden State Community Bank in New Jersey; AmTrust Bank in Florida and Arizona; and Ohio Savings Bank in Ohio.

The Commercial Bank currently operates 30 branches in Manhattan, Queens, Brooklyn, Westchester County, and Long Island (all in New York), including 18 branches that operate under the name “Atlantic Bank.”

Basis of Presentation

The following is a description of the significant accounting and reporting policies that the Company and its 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 mortgage servicing rights (“MSRs”); 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 Company’s deferred tax assets.

The accompanying consolidated financial statements include the accounts of the Company and other entities in which the Company has a controlling financial interest. All inter-company accounts and transactions are eliminated in consolidation. The Company currently has certain unconsolidated subsidiaries in the form of wholly-owned statutory business trusts, which were formed to issue guaranteed capital debentures (“capital securities”). Please see Note 7, “Borrowed Funds,” for additional information regarding these trusts.

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, 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 Company’s computation of basic and diluted EPS for the periods indicated:


	Three Months Ended March 31,
(in thousands, except share and per share amounts)	2015		2014
Net income		$119,259		$115,254
Less: Dividends paid on and earnings allocated to participating securities		(872)		(796)

Earnings applicable to common stock		$118,387		$114,458


Weighted average common shares outstanding		441,990,338		440,570,598

Basic earnings per common share		$0.27		$0.26


Earnings applicable to common stock		$118,387		$114,458


Weighted average common shares outstanding		441,990,338		440,570,598
Potential dilutive common shares ⁽¹⁾		--		--

Total shares for diluted earnings per share computation		441,990,338		440,570,598


Diluted earnings per common share and common share equivalents		$0.27		$0.26

(1)

Options to purchase 32,400 and 57,400 shares, of the Company’s common stock that were outstanding as of March 31, 2015 and 2014, respectively, at weighted average exercise prices of $18.15 and $18.08 per share, were excluded from the respective computations of diluted EPS because their inclusion would have had an antidilutive effect.

Note 3. Reclassifications Out of Accumulated Other Comprehensive Loss (“AOCL”)


(in thousands)	For the Three Months Ended March 31, 2015
Details about Accumulated Other Comprehensive Loss	Amount Reclassified from Accumulated Other Comprehensive Loss ⁽¹⁾		Affected Line Item in the Consolidated Statement of Income and Comprehensive Income
Amortization of defined benefit pension plan items:
Prior-service costs	$	62	Included in the computation of net periodic (credit) expense ⁽²⁾
Actuarial losses		(2,148)	Included in the computation of net periodic (credit) expense ⁽²⁾

		(2,086)	Total before tax
		842	Tax benefit

Total reclassifications for the period	$	(1,244)	Amortization of defined benefit pension plan items, net of tax

(1)	Amounts in parentheses indicate expense items.

(2)	Please see Note 9, Pension and Other Post-Retirement Benefits, for additional information.

Note 4. Securities

The following table summarizes the Company’s portfolio of securities available for sale at March 31, 2015:


	March 31, 2015
(in thousands)	Amortized Cost		Gross Unrealized Gain		Gross Unrealized Loss		Fair Value
Mortgage-Related Securities:
GSE⁽¹⁾ certificates	$	17,400	$	1,371	$	--	$	18,771
GSE CMOs⁽²⁾		--		--		--		--
Private label CMOs		--		--		--		--

Total mortgage-related securities	$	17,400	$	1,371	$	--	$	18,771

Other Securities:
Municipal bonds	$	843	$	97	$	--	$	940
Capital trust notes		13,434		41		2,471		11,004
Preferred stock		118,205		8,098		--		126,303
Mutual funds and common stock ⁽³⁾		17,939		824		71		18,692

Total other securities	$	150,421	$	9,060	$	2,542	$	156,939

Total securities available for sale	$	167,821	$	10,431	$	2,542	$	175,710

(1)	Government-sponsored enterprise

(2)	Collateralized mortgage obligations

(3)	Primarily consists of mutual funds that are Community Reinvestment Act-qualified investments.

The following table summarizes the Company’s portfolio of securities available for sale at December 31, 2014:


	December 31, 2014
(in thousands)	Amortized Cost		Gross Unrealized Gain		Gross Unrealized Loss		Fair Value
Mortgage-Related Securities:
GSE certificates	$	18,350	$	1,350	$	--	$	19,700
GSE CMOs		--		--		--		--
Private label CMOs		--		--		--		--

Total mortgage-related securities	$	18,350	$	1,350	$	--	$	19,700

Other Securities:
Municipal bonds	$	841	$	101	$	--	$	942
Capital trust notes		13,431		31		1,980		11,482
Preferred stock		118,205		5,246		440		123,011
Mutual funds and common stock		17,943		748		43		18,648

Total other securities	$	150,420	$	6,126	$	2,463	$	154,083

Total securities available for sale	$	168,770	$	7,476	$	2,463	$	173,783

The following tables summarize the Company’s portfolio of securities held to maturity at March 31, 2015 and December 31, 2014:


	March 31, 2015
(in thousands)	Amortized Cost		Carrying Amount		Gross Unrealized Gain		Gross Unrealized Loss		Fair Value
Mortgage-Related Securities:
GSE certificates	$	2,401,201	$	2,401,201	$	133,896	$	2,080	$	2,533,017
GSE CMOs		1,553,938		1,553,938		84,888		6		1,638,820

Total mortgage-related securities	$	3,955,139	$	3,955,139	$	218,784	$	2,086	$	4,171,837

Other Securities:
GSE debentures	$	2,632,327	$	2,632,327	$	29,242	$	9,104	$	2,652,465
Corporate bonds		73,426		73,426		12,446		--		85,872
Municipal bonds		58,376		58,376		--		352		58,024
Capital trust notes		74,419		65,615		5,316		10,928		60,003

Total other securities	$	2,838,548	$	2,829,744	$	47,004	$	20,384	$	2,856,364

Total securities held to maturity ⁽¹⁾	$	6,793,687	$	6,784,883	$	265,788	$	22,470	$	7,028,201

(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 March 31, 2015, the non-credit portion of OTTI recorded in AOCL was $8.8 million (before tax).


	December 31, 2014
(in thousands)	Amortized Cost		Carrying Amount		Gross Unrealized Gain		Gross Unrealized Loss		Fair Value
Mortgage-Related Securities:
GSE certificates	$	2,468,791	$	2,468,791	$	106,414	$	3,838	$	2,571,367
GSE CMOs		1,610,243		1,610,243		65,075		711		1,674,607

Total mortgage-related securities	$	4,079,034	$	4,079,034	$	171,489	$	4,549	$	4,245,974

Other Securities:
GSE debentures	$	2,635,989	$	2,635,989	$	24,173	$	32,920	$	2,627,242
Corporate bonds		73,317		73,317		12,113		--		85,430
Municipal bonds		58,682		58,682		--		1,027		57,655
Capital trust notes		84,476		75,645		5,193		11,168		69,670

Total other securities	$	2,852,464	$	2,843,633	$	41,479	$	45,115	$	2,839,997

Total securities held to maturity ⁽¹⁾	$	6,931,498	$	6,922,667	$	212,968	$	49,664	$	7,085,971

(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 December 31, 2014, the non-credit portion of OTTI recorded in AOCL was $8.8 million (before tax).

At March 31, 2015 and December 31, 2014, respectively, the Company had $464.9 million and $515.3 million of Federal Home Loan Bank (“FHLB”) stock, at cost, primarily consisting of stock in the FHLB-New York (the “FHLB-NY”). The Company is required to maintain an investment in FHLB-NY stock in order to have access to the funding it provides.

The following table summarizes the gross proceeds, gross realized gains, and gross realized losses from the sale of available-for-sale securities during the three months ended March 31, 2015 and 2014:


	For the Three Months Ended March 31,
(in thousands)	2015		2014
Gross proceeds		$135,211		$136,747
Gross realized gains		211		4,873
Gross realized losses		--		--

In the following table, the beginning balance represents the credit loss component for debt securities on which OTTI occurred prior to January 1, 2015. 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 Three Months Ended March 31, 2015
Beginning credit loss amount as of December 31, 2014		$199,008
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		--

Ending credit loss amount as of March 31, 2015		$199,008

The following table summarizes the carrying amounts and estimated fair values of held-to-maturity mortgage-backed securities and debt securities, and the amortized costs and estimated fair values of available-for-sale securities, at March 31, 2015, by contractual maturity.


	At March 31, 2015
(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			--		--			60,060		4.17			756		2.96			--		--			66,125
Due from five to ten years			3,119,709		3.23			2,572,267		2.70			--		--			47,425		3.15			5,932,713
Due after ten years			835,430		3.27			--		--			57,620		2.85			91,616		5.76			1,029,363

Total securities held to maturity		$	3,955,139		3.24%		$	2,632,327		2.73%		$	58,376		2.85%		$	139,041		4.87%		$	7,028,201

Available-for-Sale Securities: ⁽³⁾
Due within one year		$	1		4.41%		$	--		--%		$	124		6.45%		$	--		--%		$	129
Due from one to five years			3,327		6.72			--		--			579		6.49			--		--			4,111
Due from five to ten years			3,112		3.78			--		--			140		6.66			--		--			3,505
Due after ten years			10,960		4.67			--		--			--		--			13,434		5.70			22,970

Total securities available for sale		$	17,400		4.90%		$	--		--%		$	843		6.51%		$	13,434		5.70%		$	30,715

(1)	Not presented on a tax-equivalent basis.

(2)	Includes corporate bonds and capital trust notes. Included in capital trust notes are $183,000 of pooled trust preferred securities held to maturity, all of which are due after ten years. The remaining capital trust notes consist of single-issue trust preferred securities.

(3)	As equity securities have no contractual maturity, they have been excluded from this table.

The following table presents held-to-maturity securities and available-for-sale securities having a continuous unrealized loss position for less than twelve months and for twelve months or longer as of March 31, 2015:


At March 31, 2015 (in thousands)	Less than Twelve Months						Twelve Months or Longer						Total
At March 31, 2015 (in thousands)	Fair Value			Unrealized Loss			Fair Value			Unrealized Loss			Fair Value			Unrealized Loss
Temporarily Impaired Held-to-Maturity Mortgage-Backed Securities and Debt Securities:
GSE debentures		$	809,531		$	2,412		$	1,392,128		$	6,692		$	2,201,659		$	9,104
GSE certificates			165,674			1,882			13,233			198			178,907			2,080
GSE CMOs			--			--			20,102			6			20,102			6
Municipal bonds			58,024			352			--			--			58,024			352
Capital trust notes			--			--			25,265			10,928			25,265			10,928

Total temporarily impaired held-to-maturity mortgage-backed securities and debt securities		$	1,033,229		$	4,646		$	1,450,728		$	17,824		$	2,483,957		$	22,470

Temporarily Impaired Available-for-Sale Securities:
Capital trust notes		$	--		$	--		$	4,964		$	2,471		$	4,964		$	2,471
Equity securities			--			--			991			71			991			71

Total temporarily impaired available-for-sale securities		$	--		$	--		$	5,955		$	2,542		$	5,955		$	2,542


At December 31, 2014	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 Mortgage-Backed Securities and Debt Securities:
GSE debentures		$	--		$	--		$	2,204,399		$	32,920		$	2,204,399		$	32,920
GSE certificates			--			--			242,909			3,838			242,909			3,838
GSE CMOs			--			--			72,209			711			72,209			711
Municipal bonds			13,735			195			43,058			832			56,793			1,027
Capital trust notes			--			--			25,019			11,168			25,019			11,168

Total temporarily impaired held-to-maturity mortgage-backed securities and debt securities		$	13,735		$	195		$	2,587,594		$	49,469		$	2,601,329		$	49,664

Temporarily Impaired Available-for-Sale Securities:
Capital trust notes		$	--		$	--		$	5,451		$	1,980		$	5,451		$	1,980
Equity securities			53,721			364			15,174			119			68,895			483

Total temporarily impaired available-for-sale securities		$	53,721		$	364		$	20,625		$	2,099		$	74,346		$	2,463

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 Company’s 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 Company’s cash flow estimates take into account expectations of relevant market and economic data as of the end of the reporting period. As of March 31, 2015, the Company did not intend to sell its 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 March 31, 2015.

Other factors considered in determining whether or not an impairment is temporary include the severity of the impairment; the cause of the impairment; the near-term prospects of the issuer; and the forecasted recovery period using current estimates of volatility in market interest rates (including liquidity and risk premiums).

Management’s 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 management’s 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 Company’s GSE mortgage-related securities, GSE municipal bonds, and GSE debentures at March 31, 2015 were primarily caused by movements in market interest rates and spread volatility, rather than credit risk. It is expected that these securities will not be settled at a price that is less than the amortized cost of the Company’s 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 March 31, 2015.

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 March 31, 2015. It is possible that these securities will perform worse than is currently expected, which could lead to adverse changes in cash flows from these securities and potential OTTI losses in the future. Future events that could trigger material unrecoverable declines in the fair values of the Company’s investments, and thus result in potential OTTI losses, include, but are not limited to, government intervention; deteriorating asset quality and credit metrics; significantly higher levels of default and loan loss provisions; losses in value on the underlying collateral; deteriorating credit enhancement; net operating losses; and illiquidity in the financial markets.

At March 31, 2015, the Company’s 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. There was an unrealized loss on one of the Company’s equity securities at March 31, 2015, which was primarily caused by market volatility. The

Company evaluated the near-term prospects of a recovery of fair value for this security, together with the severity and duration of impairment to date. Based on this evaluation, and its ability and intent to hold this investment for a reasonably sufficient period of time to realize a near-term forecasted recovery of fair value, the Company did not consider this investment to be other than temporarily impaired at March 31, 2015. Nonetheless, it is possible that this equity security will perform worse than is currently expected, which could lead to adverse changes in its fair value, or the failure of the security to fully recover in value as presently forecasted by management. This potentially would cause the Company to record an OTTI loss in a future period. Events that could trigger a material decline in the fair value of this security include, but are not limited to, deterioration in the equity markets; a decline in the quality of the loan portfolio of the issuer in which the Company has invested; and the recording of higher loan loss provisions and net operating losses by such issuer.

The investment securities designated as having a continuous loss position for twelve months or more at March 31, 2015 consisted of eight agency debt securities, five capital trust notes, three agency mortgage-backed securities, one GSE CMO, and one common stock security. At December 31, 2014, the investment securities designated as having a continuous loss position for twelve months or more consisted of sixteen agency mortgage-backed securities, seventeen GSE debt securities, three GSE CMOs, five capital trust notes, two GSE municipal bonds, and one preferred stock security. At March 31, 2015 and December 31, 2014, the combined market value of the respective securities represented unrealized losses of $20.4 million and $51.6 million. At March 31, 2015, the fair value of securities having a continuous loss position for twelve months or more was 1.4% below the collective amortized cost of $1.5 billion. At December 31, 2014, the fair value of such securities was 1.9% below the collective amortized cost of $2.7 billion.

Note 5. Loans

The following table sets forth the composition of the loan portfolio at March 31, 2015 and December 31, 2014:


	March 31, 2015				December 31, 2014
(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	$	23,450,187		71.07%	$	23,831,846		72.21%
Commercial real estate		7,822,820		23.71		7,634,320		23.13
One-to-four family		105,054		0.32		138,915		0.42
Acquisition, development, and construction		308,526		0.94		258,116		0.78

Total mortgage loans held for investment		31,686,587		96.04		31,863,197		96.54

Other Loans:
Commercial and industrial		1,035,179		3.14		900,551		2.73
Lease financing, net of unearned income of $20,333 and $18,913		226,013		0.69		208,670		0.63

Total commercial and industrial loans		1,261,192		3.83		1,109,221		3.36
Purchased credit-impaired loans ⁽¹⁾		14,227		0.04		--		--
Other		29,460		0.09		31,943		0.10

Total other loans held for investment		1,304,879		3.96		1,141,164		3.46

Total non-covered loans held for investment	$	32,991,466		100.00%	$	33,004,361		100.00%

Net deferred loan origination costs		20,892				20,595
Allowance for losses on non-covered loans		(142,168)				(139,857)

Non-covered loans held for investment, net	$	32,870,190			$	32,885,099

Covered loans		2,341,428				2,428,622
Allowance for losses on covered loans		(43,942)				(45,481)

Covered loans, net	$	2,297,486			$	2,383,141
Loans held for sale		351,467				379,399

Total loans, net	$	35,519,143			$	35,647,639

(1)	Includes $947,000 of multi-family loans; $10.8 million of commercial real estate loans; $1.6 million of acquisition, development, and construction loans; $675,000 of commercial and industrial loans; and $171,000 of other loans that were included in “Covered loans” at December 31, 2014.

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 are rent-regulated and 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 on Long Island.

The Company also originates acquisition, development, and construction (“ADC”) 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. C&I loans consist of asset-based loans, equipment loans and leases, and dealer floor-plan loans (together, “specialty finance loans and leases”) that are made to nationally recognized borrowers throughout the U.S. and are senior debt-secured; and other C&I loans, both secured and unsecured, that primarily are made to small and mid-size businesses in Metro New York. Other C&I loans are typically made for working capital, business expansion, and the purchase of machinery and equipment.

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 Company’s 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 property’s 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 property’s value upon completion of construction or development; the developer’s experience; 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, or the length of time to complete and/or sell or lease the collateral property is greater than anticipated (based, for example, on 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 losses or delinquencies.

To minimize the risk involved in specialty finance lending and leasing, we participate in syndicated loans that are brought to us, and equipment loans and leases that are assigned to us, by a select group of nationally recognized sources who have had long-term relationships with our experienced lending officers. Our specialty finance loans and leases generally are made to large corporate obligors, many of which are publicly traded, carry investment grade or near-investment grade ratings, and participate in stable industries nationwide. Furthermore, each of our credits is secured with a perfected first security interest or outright ownership in the underlying collateral, and structured as senior debt or as a non-cancelable lease. To further minimize the risk involved in specialty finance lending and leasing, we re-underwrite each transaction. In addition, we retain outside counsel to conduct a further review of the underlying documentation.

To minimize the risks involved in other C&I lending, the Company underwrites such loans on the basis of the cash flows produced by the business; requires that such loans be collateralized by various business assets, including inventory, equipment, and accounts receivable, among others; and requires personal guarantees. However, the capacity of a borrower to repay such a C&I loan is substantially dependent on the degree to which his or her business is successful. In addition, the collateral underlying such loans may depreciate over time, may not be conducive to appraisal, or may fluctuate in value, based upon the results of operations of the business.

Included in non-covered loans held for investment at March 31, 2015 and December 31, 2014 were loans to non-officer directors of $128.8 million and $129.5 million, respectively.

Non-covered purchased credit-impaired (“PCI”) loans, which had a carrying value of $14.2 million and an unpaid principal balance of $17.6 million at March 31, 2015, are loans that had been covered under an FDIC loss sharing agreement that expired in March 2015 and that now are included in non-covered loans. Such loans continue to be accounted for under Accounting Standards Codification (“ASC”) 310-30 and are 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.

Loans Held for Sale

The mortgage banking operation of the Community Bank was established in January 2010 to originate, aggregate, and service one-to-four family loans. 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 to GSEs, servicing retained. To a much lesser extent, the Community Bank uses its mortgage banking platform to originate jumbo loans which it typically sells to other financial institutions. Such loans have not represented, nor are they expected to represent, a material portion of the held-for-sale loans originated by the Community Bank. In addition, the Community Bank services mortgage loans for various third parties, primarily including GSEs. The unpaid principal balance of loans serviced for others was $22.9 billion and $22.4 billion at March 31, 2015 and December 31, 2014, respectively.

Asset Quality

The following table presents information regarding the quality of the Company’s non-covered loans held for investment (excluding non-covered PCI loans) at March 31, 2015:


(in thousands)	Loans 30-89 Days Past Due		Non- Accrual Loans⁽¹⁾		Loans 90 Days or More Delinquent and Still Accruing Interest		Total Past Due Loans		Current Loans		Total Loans Receivable
Multi-family	$	1,594	$	18,779	$	--	$	20,373	$	23,429,814	$	23,450,187
Commercial real estate		3,259		23,698		--		26,957		7,795,863		7,822,820
One-to-four family		1,244		11,270		--		12,514		92,540		105,054
Acquisition, development, and construction		--		654		--		654		307,872		308,526
Commercial and industrial⁽²⁾		353		7,547		--		7,900		1,253,292		1,261,192
Other		311		1,149		--		1,460		28,000		29,460

Total	$	6,761	$	63,097	$	--	$	69,858	$	32,907,381	$	32,977,239

(1)	Excludes $2.9 million of non-covered PCI loans that were 90 days or more past due.

(2)	Includes lease financing receivables, all of which were current.

The following table presents information regarding the quality of the Company’s non-covered loans held for investment at December 31, 2014:


(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	$	464	$	31,089	$	--	$	31,553	$	23,800,293	$	23,831,846
Commercial real estate		1,464		24,824		--		26,288		7,608,032		7,634,320
One-to-four family		3,086		11,032		--		14,118		124,797		138,915
Acquisition, development, and construction		--		654		--		654		257,462		258,116
Commercial and industrial⁽¹⁾		530		8,382		--		8,912		1,100,309		1,109,221
Other		648		969		--		1,617		30,326		31,943

Total	$	6,192	$	76,950	$	--	$	83,142	$	32,921,219	$	33,004,361

(1)	Includes lease financing receivables, all of which were current.

The following table summarizes the Company’s portfolio of non-covered loans held for investment, excluding non-covered PCI loans, by credit quality indicator at March 31, 2015:


(in thousands)	Multi-Family		Commercial Real Estate		One-to-Four Family		Acquisition, Development, and Construction		Total Mortgage Loans		Commercial and Industrial⁽¹⁾		Other		Total Other Loan Segment
Credit Quality Indicator:
Pass	$	23,406,267	$	7,788,726	$	93,784	$	307,270	$	31,596,047	$	1,225,663	$	28,311	$	1,253,974
Special mention		9,846		1,950		--		--		11,796		26,968		--		26,968
Substandard		34,074		32,144		11,270		1,256		78,744		8,561		1,149		9,710
Doubtful		--		--		--		--		--		--		--		--

Total	$	23,450,187	$	7,822,820	$	105,054	$	308,526	$	31,686,587	$	1,261,192	$	29,460	$	1,290,652

(1)	Includes lease financing receivables, all of which were classified as “pass.”

The following table summarizes the Company’s portfolio of non-covered loans held for investment by credit quality indicator at December 31, 2014:


(in thousands)	Multi-Family		Commercial Real Estate		One-to-Four Family		Acquisition, Development, and Construction		Total Mortgage Loans		Commercial and Industrial⁽¹⁾		Other		Total Other Loan Segment
Credit Quality Indicator:
Pass	$	23,777,569	$	7,591,223	$	127,883	$	256,868	$	31,753,543	$	1,083,173	$	30,974	$	1,114,147
Special mention		6,798		9,123		--		--		15,921		17,032		--		17,032
Substandard		47,479		33,974		11,032		1,248		93,733		9,016		969		9,985
Doubtful		--		--		--		--		--		--		--		--

Total	$	23,831,846	$	7,634,320	$	138,915	$	258,116	$	31,863,197	$	1,109,221	$	31,943	$	1,141,164

(1)	Includes lease financing receivables, all of which were classified as “pass.”

The preceding classifications follow regulatory guidelines and can generally be 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 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 and restructurings as troubled debt restructurings (“TDRs”). In general, a modification or restructuring of a loan constitutes a TDR if the Company grants a concession to a borrower experiencing financial difficulty. A loan modified as a TDR generally is placed on non-accrual status until the Company determines that future collection of principal and interest is reasonably assured, which 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 March 31, 2015, loans on which concessions were made with respect to rate reductions and/or extension of maturity dates amounted to $27.4 million; loans on which forbearance agreements were reached amounted to $6.3 million.

The following table presents information regarding the Company’s TDRs as of March 31, 2015 and December 31, 2014:


	March 31, 2015						December 31, 2014
(in thousands)	Accruing		Non-Accrual		Total		Accruing		Non-Accrual		Total
Loan Category:
Multi-family	$	7,664	$	6,041	$	13,705	$	7,697	$	17,879	$	25,576
Commercial real estate		8,234		9,642		17,876		8,139		9,939		18,078
One-to-four family		--		259		259		--		260		260
Acquisition, development, and construction		--		654		654		--		654		654
Commercial and industrial		--		1,198		1,198		--		1,195		1,195

Total	$	15,898	$	17,794	$	33,692	$	15,836	$	29,927	$	45,763

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 involves judgment by Company personnel regarding the likelihood that the concession will result in the maximum recovery for the Company.

There were no financial effects of the Company’s TDRs in the three months ended March 31, 2015, as there were no new TDRs arranged during the quarter.

However, in the three months ended March 31, 2014, the Company classified one ADC loan in the amount of $935,000, and three C&I loans totaling $638,000, 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 Company’s results of operations during the first quarter of 2014.

At March 31, 2015 and 2014, none of the loans that had been modified as TDRs during the twelve months ended at those dates were in payment default. A loan is considered to be in payment default once it is 30 days contractually past due under the modified terms.

The Company does not consider a payment to be in default when the loan is in forbearance, or otherwise granted a delay of payment, 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 was 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 March 31, 2015:


(dollars in thousands)	Amount			Percent of Covered Loans
Loan Category:
One-to-four family		$	2,152,731		91.9%
All other loans			188,697		8.1

Total covered loans		$	2,341,428		100.0%

The Company refers to the loans acquired in the AmTrust and Desert Hills transactions 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 ASC 310-30 and are 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 March 31, 2015 and December 31, 2014, the unpaid principal balances of covered loans were $2.8 billion and $2.9 billion, respectively. The carrying values of such loans were $2.3 billion and $2.4 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 values, the Company: (a) calculated the contractual amount and timing of undiscounted principal and interest payments (the “undiscounted contractual cash flows”); and (b) estimated the expected amount and timing of undiscounted principal and interest payments (the “undiscounted expected cash flows”). The amount by which the undiscounted expected cash flows exceed the estimated fair value (the “accretable yield”) 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 by actions that may be taken with borrowers.

On a quarterly basis, the Company 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 quarterly 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.

In the three months ended March 31, 2015, changes in the accretable yield for covered loans were as follows:


(in thousands)	Accretable Yield
Balance at beginning of period	$	1,037,023
Reclassification from non-accretable difference		61,742
Accretion		(35,577)

Balance at end of period	$	1,063,188

In the preceding table, the line item “Reclassification from 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 rate loans, and changes in loss assumptions. As of the Company’s most recent quarterly evaluation, the underlying credit assumptions improved, which resulted in an increase in future expected interest cash flows and, consequently, an increase in the accretable yield. The effect of this increase was partially offset by the coupon rates on variable rate loans resetting lower, which resulted in a decrease in future expected interest cash flows and, consequently, a decrease in the accretable yield.

In connection with the AmTrust and Desert Hills acquisitions, the Company also acquired other real estate owned (“OREO”), all of which is covered under the FDIC loss sharing agreements with the exception of one one-to-four family property that is no longer covered due to the expiration of the pertinent loss-sharing agreement in March 2015. Covered OREO was initially recorded at its estimated fair value on the acquisition date, based on independent appraisals, less the estimated selling costs. Any subsequent write-downs due to declines in fair value have been charged to non-interest expense, and have been partially offset by loss reimbursements under the FDIC loss sharing agreements. Any recoveries of previous write-downs have been credited to non-interest expense and partially offset by the portion of the recovery that was due to the FDIC.

The FDIC loss share receivable represents the present value of the estimated losses 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 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 is reduced by amortization to interest income.

The following table presents information regarding the Company’s covered loans that were 90 days or more past due at March 31, 2015 and December 31, 2014:


(in thousands)	March 31, 2015		December 31, 2014
Covered Loans 90 Days or More Past Due:
One-to-four family	$	145,235	$	148,967
Other loans		6,752		8,922

Total covered loans 90 days or more past due	$	151,987	$	157,889

The following table presents information regarding the Company’s covered loans that were 30 to 89 days past due at March 31, 2015 and December 31, 2014:


(in thousands)	March 31, 2015		December 31, 2014
Covered Loans 30-89 Days Past Due:
One-to-four family	$	32,497	$	37,680
Other loans		3,226		4,016

Total covered loans 30-89 days past due	$	35,723	$	41,696

At March 31, 2015, the Company had $35.7 million of covered loans that were 30 to 89 days past due, and covered loans of $152.0 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 Company’s covered loan portfolio totaled $2.2 billion at March 31, 2015 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 by the Company because, at the respective dates of acquisition, the Company believed that it would fully collect the new carrying value of these loans. The new carrying value 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 interest income. It is important to note that management’s 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 a provision for losses on covered loans of $877,000 in the three months ended March 31, 2015. The provision was largely due to credit deterioration in the acquired portfolios of one-to-four family and home equity loans, and was partly offset by FDIC indemnification income of $702,000 recorded in non-interest income in the corresponding period.

The Company recovered $14.6 million from the allowance for losses on covered loans during the three months ended March 31, 2014. The recoveries were recorded in connection with an increase in expected cash flows on certain pools of loans acquired in the Company’s FDIC-assisted transactions, and were largely offset by FDIC indemnification expense of $11.7 million, which was recorded in non-interest income in the corresponding period.

Note 6. Allowances for Loan Losses

The following tables provide additional information regarding the Company’s allowances for losses on non-covered and covered loans, based upon the method of evaluating loan impairment:


(in thousands)	Mortgage		Other		Total
Allowances for Loan Losses at March 31, 2015:
Loans individually evaluated for impairment	$	--	$	--	$	--
Loans collectively evaluated for impairment		116,928		22,824		139,752
Acquired loans with deteriorated credit quality		24,457		21,901		46,358

Total	$	141,385	$	44,725	$	186,110


(in thousands)	Mortgage		Other		Total
Allowances for Loan Losses at December 31, 2014:
Loans individually evaluated for impairment	$	26	$	--	$	26
Loans collectively evaluated for impairment		122,590		17,241		139,831
Acquired loans with deteriorated credit quality		23,538		21,943		45,481

Total	$	146,154	$	39,184	$	185,338

The following tables provide additional information regarding the methods used to evaluate the Company’s loan portfolio for impairment:


(in thousands)	Mortgage		Other		Total
Loans Receivable at March 31, 2015:
Loans individually evaluated for impairment	$	69,448	$	6,147	$	75,595
Loans collectively evaluated for impairment		31,617,139		1,284,505		32,901,644
Acquired loans with deteriorated credit quality		2,166,111		189,544		2,355,655

Total	$	33,852,698	$	1,480,196	$	35,332,894


(in thousands)	Mortgage		Other		Total
Loans Receivable at December 31, 2014:
Loans individually evaluated for impairment	$	81,574	$	6,806	$	88,380
Loans collectively evaluated for impairment		31,781,623		1,134,358		32,915,981
Acquired loans with deteriorated credit quality		2,227,572		201,050		2,428,622

Total	$	34,090,769	$	1,342,214	$	35,432,983

Allowance for Losses on Non-Covered Loans

The following table summarizes activity in the allowance for losses on non-covered loans for the three months ended March 31, 2015 and 2014:


	March 31,
	2015						2014
(in thousands)	Mortgage		Other		Total		Mortgage		Other		Total
Balance, beginning of period		$122,616		$17,241		$139,857		$127,840		$14,106		$141,946
Charge-offs		(485)		(313)		(798)		(950)		(2,032)		(2,982)
Recoveries		1,400		163		1,563		336		61		397
Transfer from the allowance for losses on covered loans ⁽¹⁾		2,250		166		2,416		--		--		--
(Recovery of) provision for non-covered loan losses		(6,603)		5,733		(870)		--		--		--

Balance, end of period		$119,178		$22,990		$142,168		$127,226		$12,135		$139,361

(1)	Represents the allowance associated with $14.2 million of loans acquired in the Desert Hills transaction that were transferred from covered loans to non-covered loans upon expiration of the related FDIC loss sharing agreement.

Please see “Critical Accounting Policies” for additional information regarding the Company’s allowance for losses on non-covered loans.

The following table presents additional information about the Company’s impaired non-covered loans at March 31, 2015:


(in thousands)	Recorded Investment		Unpaid Principal Balance		Related Allowance		Average Recorded Investment		Interest Income Recognized
Impaired loans with no related allowance:
Multi-family	$	36,199	$	44,086	$	--	$	40,791	$	371
Commercial real estate		31,086		33,268		--		30,729		364
One-to-four family		1,509		1,550		--		1,769		--
Acquisition, development, and construction		654		1,024		--		654		--
Commercial and industrial		6,147		11,782		--		6,476		60

Total impaired loans with no related allowance	$	75,595	$	91,710	$	--	$	80,419	$	795


Impaired loans with an allowance recorded:
Multi-family	$	--	$	--	$	--	$	--	$	--
Commercial real estate		--		--		--		--		--
One-to-four family		--		--		--		--		--
Acquisition, development, and construction		--		--		--		--		--
Commercial and industrial		--		--		--		--		--

Total impaired loans with an allowance recorded	$	--	$	--	$	--	$	--	$	--


Total impaired loans:
Multi-family	$	36,199	$	44,086	$	--	$	40,791	$	371
Commercial real estate		31,086		33,268		--		30,729		364
One-to-four family		1,509		1,550		--		1,769		--
Acquisition, development, and construction		654		1,024		--		654		--
Commercial and industrial		6,147		11,782		--		6,476		60

Total impaired loans	$	75,595	$	91,710	$	--	$	80,419	$	795

The following table presents additional information about the Company’s impaired non-covered loans at December 31, 2014:


(in thousands)	Recorded Investment		Unpaid Principal Balance		Related Allowance		Average Recorded Investment		Interest Income Recognized
Impaired loans with no related allowance:
Multi-family	$	45,383	$	52,593	$	--	$	54,051	$	1,636
Commercial real estate		30,370		32,460		--		29,935		1,629
One-to-four family		2,028		2,069		--		1,254		--
Acquisition, development, and construction		654		1,024		--		505		218
Commercial and industrial		6,806		12,155		--		7,749		307

Total impaired loans with no related allowance	$	85,241	$	100,301	$	--	$	93,494	$	3,790


Impaired loans with an allowance recorded:
Multi-family	$	3,139	$	3,139	$	26	$	628	$	72
Commercial real estate		--		--		--		490		--
One-to-four family		--		--		--		61		--
Acquisition, development, and construction		--		--		--		--		--
Commercial and industrial		--		--		--		--		--

Total impaired loans with an allowance recorded	$	3,139	$	3,139	$	26	$	1,179	$	72


Total impaired loans:
Multi-family	$	48,522	$	55,732	$	26	$	54,679	$	1,708
Commercial real estate		30,370		32,460		--		30,425		1,629
One-to-four family		2,028		2,069		--		1,315		--
Acquisition, development, and construction		654		1,024		--		505		218
Commercial and industrial		6,806		12,155		--		7,749		307

Total impaired loans	$	88,380	$	103,440	$	26	$	94,673	$	3,862

Allowance for Losses on Covered Loans

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.

If there is an increase in expected cash flows due to a decrease in estimated credit losses (as compared to the estimates made at the respective acquisition dates), the increase in the present value of expected cash flows is recorded as a recovery of the prior-period impairment charged to earnings, and the allowance for covered loan losses is reduced. A related debit to non-interest income and a decrease 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 three months ended March 31, 2015 and 2014:


	March 31,
(in thousands)	2015			2014
Balance, beginning of period	$	45,481		$	64,069
Provision for (recovery of) losses on covered loans		877			(14,630	)
Transfer to the allowance for losses on non-covered loans		(2,416	)		--

Balance, end of period	$	43,942		$	49,439

Note 7. Borrowed Funds

The following table summarizes the Company’s borrowed funds at March 31, 2015 and December 31, 2014:


(in thousands)	March 31, 2015		December 31, 2014
Wholesale borrowings:
FHLB advances	$	8,985,987	$	10,183,132
Repurchase agreements		3,425,000		3,425,000
Fed funds purchased		495,000		260,000

Total wholesale borrowings	$	12,905,987	$	13,868,132
Junior subordinated debentures		358,415		358,355

Total borrowed funds	$	13,264,402	$	14,226,487

The following table summarizes the Company’s repurchase agreements accounted for as secured borrowings at March 31, 2015:


	Remaining Contractual Maturity of the Agreements
(in thousands)	Overnight and Continuous		Up to 30 Days		30–90 Days		Greater than 90 Days		Total
GSE debentures and mortgage-related securities	$	--	$	--	$	100,000	$	3,325,000	$	3,425,000

At both March 31, 2015 and December 31, 2014, the Company had $358.4 million of outstanding junior subordinated deferrable interest debentures (“junior subordinated debentures”) held by statutory business trusts (the “Trusts”) that issued guaranteed capital securities. Reflecting the adoption of the Basel III capital rules on January 1, 2015, 25% of the capital securities qualified as Tier 1 capital of the Company at March 31, 2015. At December 31, 2014, 100% of the capital securities qualified as Tier 1 capital of the Company.

The Trusts are accounted for as unconsolidated subsidiaries in accordance with GAAP. The proceeds of each issuance were invested in a series of junior subordinated debentures of the Company and the underlying assets of each statutory business trust are the relevant debentures. The Company has fully and unconditionally guaranteed the obligations under each trust’s capital securities to the extent set forth in a guarantee by the Company to each trust. The Trusts’ capital securities are each subject to mandatory redemption, in whole or in part, upon repayment of the debentures at their stated maturity or earlier redemption.

The following junior subordinated debentures were outstanding at March 31, 2015:

Issuer

Interest Rate of
Capital Securities
and Debentures

Junior
Subordinated
Debentures
Amount
Outstanding

Capital
Securities
Amount
Outstanding

Date of
Original Issue

Stated Maturity

First Optional
Redemption Date

(dollars in thousands)

New York Community Capital Trust V (BONUSES^SMUnits)

6.000%

$144,489

$138,138

Nov. 4, 2002

Nov. 1, 2051

Nov. 4, 2007 ⁽¹⁾

New York Community Capital Trust X

1.871

123,712

120,000

Dec. 14, 2006

Dec. 15, 2036

Dec. 15, 2011 ⁽²⁾

PennFed Capital Trust III

3.521

30,928

30,000

June 2, 2003

June 15, 2033

June 15, 2008 ⁽²⁾

New York Community Capital Trust XI

1.923

59,286

57,500

April 16, 2007

June 30, 2037

June 30, 2012 ⁽²⁾

Total junior subordinated debentures

$358,415

$345,638

(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.

Note 8. Mortgage Servicing Rights

The Company had MSRs of $220.4 million and $227.3 million, respectively, at March 31, 2015 and December 31, 2014, with both balances consisting entirely of residential MSRs.

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” in the Consolidated Statements of Income and Comprehensive Income. MSRs do not trade in an active open market with readily observable prices. Accordingly, the Company bases the fair value of its MSRs on the present value of estimated future net servicing income cash flows. 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 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.

The following table sets forth the changes in the balances of residential MSRs for the periods indicated:


	For the Three Months Ended March 31,
(in thousands)	2015		2014
Carrying value, beginning of year	$	227,297	$	241,018
Additions		15,017		6,808
Increase (decrease) in fair value:
Due to changes in interest rates and valuation assumptions		(6,448)		43
Due to other changes⁽¹⁾		(15,495)		(9,865)
Amortization		--		--

Carrying value, end of period	$	220,371	$	238,004

(1)	Net servicing cash flows, including loan payoffs, and the passage of time.

The following table presents the key assumptions used in calculating the fair value of the Company’s residential MSRs at the dates indicated:


	March 31, 2015			December 31, 2014
Expected Weighted Average Life		83 months			83 months
Constant Prepayment Speed		10.5	%		9.3	%
Discount Rate		10.0			10.0
Primary Mortgage Rate to Refinance		3.8			4.0
Cost to Service (per loan per year):
Current		$ 63			$ 63
30-59 days or less delinquent		213			213
60-89 days delinquent		313			313
90-119 days delinquent		413			413
120 days or more delinquent		563			563

As indicated in the preceding table, there were no changes in the assumed servicing costs.

Note 9. Pension and Other Post-Retirement Benefits

The following tables set forth certain disclosures for the Company’s pension and post-retirement plans for the periods indicated:


	For the Three Months Ended March 31,
	2015						2014
(in thousands)	Pension Benefits			Post-Retirement Benefits			Pension Benefits			Post-Retirement Benefits
Components of net periodic (credit) expense:
Interest cost	$	1,516		$	175		$	1,474		$	190
Service cost		--			1			--			1
Expected return on plan assets		(4,390	)		--			(4,859	)		--
Amortization of prior-service costs		--			(62	)		--			(62	)
Amortization of net actuarial loss		2,052			96			822			118

Net periodic (credit) expense	$	(822	)	$	210		$	(2,563	)	$	247

The Company expects to contribute $1.3 million to its post-retirement plan to pay premiums and claims for the fiscal year ending December 31, 2015. The Company does not expect to make any contributions to its pension plan in 2015.

Note 10. Stock-Based Compensation

At March 31, 2015, the Company had 12,325,312 shares available for grants as options, restricted stock, or other forms of related rights under the New York Community Bancorp, Inc. 2012 Stock Incentive Plan (the “2012 Stock Incentive Plan”), which was approved by the Company’s shareholders at its Annual Meeting on June 7, 2012. Included in this amount were 1,030,673 shares that were transferred from the 2006 Stock Incentive Plan, which was approved by the Company’s shareholders at its Annual Meeting on June 7, 2006 and reapproved at its Annual Meeting on June 2, 2011. The Company granted 2,186,141 shares of restricted stock during the three months ended March 31, 2015. The shares had an average fair value of $15.73 per share on the date of grant and a vesting period of five years. Compensation and benefits expense related to the restricted stock grants is recognized on a straight-line basis over the vesting period, and totaled $7.2 million and $6.7 million, respectively, for the three months ended March 31, 2015 and 2014.

The following table provides a summary of activity with regard to restricted stock awards in the three months ended March 31, 2015:


	For the Three Months Ended March 31, 2015
	Number of Shares			Weighted Average Grant Date Fair Value
Unvested at beginning of year		5,802,409			$15.24
Granted		2,186,141			15.73
Vested		(1,568,973	)		15.33
Cancelled		(44,400	)		15.31

Unvested at end of period		6,375,177			15.38

As of March 31, 2015, unrecognized compensation cost relating to unvested restricted stock totaled $92.4 million. This amount will be recognized over a remaining weighted average period of 3.6 years.

In addition, the Company had the following stock option plans at March 31, 2015: the 1998 Richmond County Financial Corp. Stock Compensation Plan and the 2004 Synergy Financial Group Stock Option Plans (the two plans collectively referred to as the “Stock Option Plans”). All stock options granted under the Stock Option Plans expire ten years from the date of grant.

The Company uses the modified prospective approach to recognize compensation costs related to share-based payments at fair value on the date of grant, and recognizes such costs in the financial statements over the vesting period during which the employee provides service in exchange for the award. As there were no unvested options at any time during the three months ended March 31, 2015 or the year ended December 31, 2014, the Company did not record any compensation and benefits expense relating to stock options during those periods.

To satisfy the exercise of options, the Company either issues new shares of common stock or uses common stock held in Treasury. In the event that Treasury stock is used, the difference between the average cost of Treasury shares and the exercise price is recorded as an adjustment to retained earnings or paid-in capital on the date of exercise. At March 31, 2015, there were 32,400 stock options outstanding. There were no shares available for future issuance under the Stock Option Plans at March 31, 2015.

The status of the Stock Option Plans at March 31, 2015, and the changes that occurred during the three months ended at that date, are summarized below:


	For the Three Months Ended March 31, 2015
	Number of Stock Options		Weighted Average Exercise Price
Stock options outstanding, beginning of year		58,560		$	18.04
Exercised		--			--
Expired/forfeited		(26,160)			17.91

Stock options outstanding, end of period		32,400			18.15
Options exercisable, end of period		32,400			18.15

The intrinsic value of stock options outstanding and exercisable at March 31, 2015 was $0. There were no options exercised during the three months ended March 31, 2015. The intrinsic value of options exercised during the three months ended March 31, 2014 was $58,000.

Note 11. Fair Value Measurements

GAAP sets forth a definition of fair value, establishes a consistent framework for measuring fair value, and requires disclosure for each major asset and liability category measured at fair value on either a recurring or non-recurring basis. GAAP also clarifies that fair value is an “exit” price, representing the amount that would be received when selling an asset, or paid when transferring a liability, in an orderly transaction between market participants. Fair value is thus a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or liability. As a basis for considering such assumptions, GAAP establishes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value as follows:

—

Level 1 – Inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets.

—

Level 2 – Inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, and inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument.

—

Level 3 – Inputs to the valuation methodology are significant unobservable inputs that reflect a company’s own assumptions about the assumptions that market participants use in pricing an asset or liability.

A financial instrument’s categorization within this valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement.

The following tables present assets and liabilities that were measured at fair value on a recurring basis as of March 31, 2015 and December 31, 2014, and that were included in the Company’s Consolidated Statements of Condition at those dates:


	Fair Value Measurements at March 31, 2015 Using
(in thousands)	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Netting Adjustments⁽¹⁾		Total Fair Value
Assets:
Mortgage-Related Securities Available for Sale:
GSE certificates	$	--	$	18,771	$	--	$	--	$	18,771
GSE CMOs		--		--		--		--		--
Private label CMOs		--		--		--		--		--

Total mortgage-related securities	$	--	$	18,771	$	--	$	--	$	18,771

Other Securities Available for Sale:
Municipal bonds	$	--	$	940	$	--	$	--	$	940
Capital trust notes		--		11,004		--		--		11,004
Preferred stock		97,793		28,510		--		--		126,303
Mutual funds and common stock		17,104		1,588		--		--		18,692

Total other securities	$	114,897	$	42,042	$	--	$	--	$	156,939

Total securities available for sale	$	114,897	$	60,813	$	--	$	--	$	175,710

Other Assets:
Loans held for sale	$	--	$	351,467	$	--	$	--	$	351,467
Mortgage servicing rights		--		--		220,371		--		220,371
Interest rate lock commitments		--		--		8,862		--		8,862
Derivative assets-other⁽²⁾		6,004		4,464		--		(2,783)		7,685
Liabilities:
Derivative liabilities	$	(64)	$	(8,180)	$	--	$	6,047	$	(2,197)

(1)	Includes cash collateral received from, and paid to, counterparties.

(2)	Includes $4.1 million to purchase Treasury options.


	Fair Value Measurements at December 31, 2014 Using
(in thousands)	Quoted Prices in Active Markets for Identical Assets (Level 1)			Significant Other Observable Inputs (Level 2)			Significant Unobservable Inputs (Level 3)		Netting Adjustments⁽¹⁾			Total Fair Value
Assets:
Mortgage-Related Securities Available for Sale:
GSE certificates	$	--		$	19,700		$	--	$	--		$	19,700
GSE CMOs		--			--			--		--			--
Private label CMOs		--			--			--		--			--

Total mortgage-related securities	$	--		$	19,700		$	--	$	--		$	19,700

Other Securities Available for Sale:
Municipal bonds	$	--		$	942		$	--	$	--		$	942
Capital trust notes		--			11,482			--		--			11,482
Preferred stock		95,051			27,960			--		--			123,011
Mutual funds and common stock		16,984			1,664			--		--			18,648

Total other securities	$	112,035		$	42,048		$	--	$	--		$	154,083

Total securities available for sale	$	112,035		$	61,748		$	--	$	--		$	173,783

Other Assets:
Loans held for sale	$	--		$	379,399		$	--	$	--		$	379,399
Mortgage servicing rights		--			--			227,297		--			227,297
Interest rate lock commitments		--			--			4,397		--			4,397
Derivative assets-other⁽²⁾		2,655			8,429			--		(7,198	)		3,886
Liabilities:
Derivative liabilities	$	(346	)	$	(7,862	)	$	--	$	7,696		$	(512	)

(1)	Includes cash collateral received from, and paid to, counterparties.

(2)	Includes $2.6 million to purchase Treasury options.

The Company reviews and updates the fair value hierarchy classifications for its assets on a quarterly basis. Changes from one quarter to the next that are related to the observability of inputs for a fair value measurement may result in a reclassification from one hierarchy level to another.

A description of the methods and significant assumptions utilized in estimating the fair values of available-for-sale securities follows.

Where quoted prices are available in an active market, securities are classified within Level 1 of the valuation hierarchy. Level 1 securities include highly liquid government securities, exchange-traded securities, and derivatives.

If quoted market prices are not available for the specific security, then fair values are estimated by using pricing models. These pricing models primarily use market-based or independently sourced market parameters as inputs, including, but not limited to, yield curves, interest rates, equity or debt prices, and credit spreads. In addition to observable market information, models incorporate transaction details such as maturity and cash flow assumptions. Securities valued in this manner would generally be classified within Level 2 of the valuation hierarchy, and primarily include such instruments as mortgage-related and corporate debt securities.

In certain cases where there is limited activity or less transparency around inputs to the valuation, securities are classified within Level 3 of the valuation hierarchy. In valuing capital trust notes, which may include pooled trust preferred securities, collateralized debt obligations (“CDOs”), and certain single-issue capital trust notes, the determination of fair value may require benchmarking to similar instruments or analyzing default and recovery rates. Therefore, capital trust notes are valued using a model based on the specific collateral composition and cash flow structure of the securities. Key inputs to the model consist of market spread data for each credit rating, collateral type, and other relevant contractual features. In instances where quoted price information is available, the price is considered when arriving at a security’s fair value. Where there is limited activity or less transparency around the inputs to the valuation of preferred stock, the valuation is based on a discounted cash flow model.

Periodically, the Company uses fair values supplied by independent pricing services to corroborate the fair values derived from the pricing models. In addition, the Company reviews the fair values supplied by independent pricing services, as well as their underlying pricing methodologies, for reasonableness. The Company challenges pricing services’ valuations that appear to be unusual or unexpected.

The Company carries loans held for sale originated by the Residential Mortgage Banking segment at fair value. The fair value of loans held for sale is primarily based on quoted market prices for securities backed by similar types of loans. Changes in the fair value of these assets are largely driven by changes in interest rates subsequent to loan funding, and changes in the fair value of servicing associated with the mortgage loans held for sale. Loans held for sale are classified within Level 2 of the valuation hierarchy.

MSRs do not trade in an active open market with readily observable prices. The Company bases the fair value of its MSRs on the present value of estimated future net servicing income cash flows, utilizing 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 to reflect market conditions and assumptions that a market participant would consider in valuing the MSR asset. MSR fair value measurements use significant unobservable inputs and, accordingly, are classified within Level 3.

Exchange-traded derivatives that are valued using quoted prices are classified within Level 1 of the valuation hierarchy. The majority of the Company’s derivative positions are valued using internally developed models that use readily observable market parameters as their basis. These are parameters that are actively quoted and can be validated by external sources, including industry pricing services. Where the types of derivative products have been in existence for some time, the Company uses models that are widely accepted in the financial services industry. These models reflect the contractual terms of the derivatives, including the period to maturity, and market-based parameters such as interest rates, volatility, and the credit quality of the counterparty. Furthermore, many of these models do not contain a high level of subjectivity, as the methodologies used in the models do not require significant judgment, and inputs to the models are readily observable from actively quoted markets, as is the case for “plain vanilla” interest rate swaps and option contracts. Such instruments are generally classified within Level 2 of the valuation hierarchy. Derivatives that are valued based on models with significant unobservable market parameters, and that are normally traded less actively, have trade activity that is one-way, and/or are traded in less-developed markets, are classified within Level 3 of the valuation hierarchy.

The fair values of interest rate lock commitments (“IRLCs”) for residential mortgage loans that the Company intends to sell are based on internally developed models. The key model inputs primarily include the sum of the value of the forward commitment based on the loans’ expected settlement dates and the projected values of the MSRs, loan level price adjustment factors, and historical IRLC closing ratios. The closing ratio is computed by the Company’s mortgage banking operation and is periodically reviewed by management for reasonableness. Such derivatives are classified as Level 3.

While the Company believes its valuation methods are appropriate and consistent with those of other market participants, the use of different methodologies or assumptions to determine the fair values of certain financial instruments could result in different estimates of fair values at a reporting date.

Fair Value Option

Loans Held for Sale

The Company has elected the fair value option for its loans held for sale. The Company’s loans held for sale consist of one-to-four family mortgage loans, none of which was 90 days or more past due at March 31, 2015. Management believes that the mortgage banking business operates on a short-term cycle. Therefore, in order to reflect the most relevant valuations for the key components of this business, and to reduce timing differences in amounts recognized in earnings, the Company has elected to record loans held for sale at fair value to match the recognition of IRLCs, MSRs, and derivatives, all of which are recorded at fair value in earnings. Fair value is based on independent quoted market prices of mortgage-backed securities comprised of loans with similar features to those of the Company’s loans held for sale, where available, and adjusted as necessary for such items as servicing value, guaranty fee premiums, and credit spread adjustments.

The following table reflects the difference between the fair value carrying amount of loans held for sale for which the Company has elected the fair value option, and the unpaid principal balance:

March 31, 2015

December 31, 2014

(in thousands)

Fair Value
Carrying
Amount

Aggregate
Unpaid
Principal

Fair Value
Carrying Amount
Less Aggregate
Unpaid Principal

Fair Value
Carrying
Amount

Aggregate
Unpaid
Principal

Fair Value
Carrying Amount
Less Aggregate
Unpaid Principal

Loans held for sale

$351,467

$341,245

$10,222

$201,012

$194,692

$6,320

Gains and Losses Included in Income for Assets Where the Fair Value Option Has Been Elected

The assets accounted for under the fair value option are initially measured at fair value. Gains and losses from the initial measurement and subsequent changes in fair value are recognized in earnings.

The following table presents the changes in fair value related to initial measurement, and the subsequent changes in fair value included in earnings, for loans held for sale and MSRs for the periods indicated:


	Gain (Loss) Included in Mortgage Banking Income from Changes in Fair Value⁽¹⁾
	For the Three Months Ended March 31,
(in thousands)	2015			2014
Loans held for sale	$	4,369		$	1,667
Mortgage servicing rights		(21,943	)		(9,822	)

Total loss	$	(17,574	)	$	(8,155	)

(1)	Does not include the effect of hedging activities.

The Company has determined that there is no instrument-specific credit risk related to its loans held for sale, due to the short duration of such assets.

Changes in Level 3 Fair Value Measurements

The following tables present, for the three months ended March 31, 2015 and 2014, a roll-forward of the balance sheet amounts (including changes in fair value) for financial instruments classified in Level 3 of the valuation hierarchy:



(in thousands)	Fair Value		Total Realized/Unrealized Gains/(Losses) Recorded in					Issuances		Settlements		Transfers		Fair Value		Change in Unrealized Gains/(Losses) Related to
(in thousands)	January 1, 2015		Income/ (Loss)			Comprehensive (Loss) Income		Issuances		Settlements		to/(from) Level 3		at March 31, 2015		Instruments Held at March 31, 2015
Mortgage servicing rights		$227,297		$(21,943	)		$ --		$15,017		$ --		$ --		$220,371		$ (6,448	)
Interest rate lock commitments		4,397		4,465			--		--		--		--		8,862		8,807

(in thousands)	Fair Value		Total Realized/Unrealized Gains/(Losses) Recorded in					Issuances		Settlements		Transfers		Fair Value		Change in Unrealized Gains/(Losses) Related to
(in thousands)	January 1, 2014		Income/ (Loss)			Comprehensive (Loss) Income		Issuances		Settlements		to/(from) Level 3		at March 31, 2014		Instruments Held at March 31, 2014
Available-for-sale capital securities		$ 241,018		$(9,822	)		$ --		$ 6,808		$ --		$ --		$238,004		$ 43
Interest rate lock commitments		258		1,353			--		--		--		--		1,611		1,606

The Company’s policy is to recognize transfers in and out of Levels 1, 2, and 3 as of the end of the reporting period. There were no transfers in or out of Levels 1, 2, or 3 during the three months ended March 31, 2015 or 2014.

For Level 3 assets and liabilities measured at fair value on a recurring basis as of March 31, 2015, the significant unobservable inputs used in the fair value measurements were as follows:


(dollars in thousands)	Fair Value at March 31, 2015		Valuation Technique	Significant Unobservable Inputs	Significant Unobservable Input Value
Mortgage servicing rights	$	220,371	Discounted Cash Flow	Weighted Average Constant Prepayment Rate ⁽¹⁾	10.50%

				Weighted Average Discount Rate	10.00

Interest rate lock commitments		8,862	Discounted Cash Flow	Weighted Average Closing Ratio	75.62

(1)	Represents annualized loan repayment rate assumptions.

The significant unobservable inputs used in the fair value measurement of the Company’s MSRs are the weighted average constant prepayment rate and the weighted average discount rate. Significant increases or decreases in either of those inputs in isolation could result in significantly lower or higher fair value measurements. Although the constant prepayment rate and the discount rate are not directly interrelated, they generally move in opposite directions.

The significant unobservable input used in the fair value measurement of the Company’s IRLCs is the closing ratio, which represents the percentage of loans currently in an interest rate lock position that management estimates will ultimately close. Generally, the fair value of an IRLC is positive if the prevailing interest rate is lower than the IRLC rate, and the fair value of an IRLC is negative if the prevailing interest rate is higher than the IRLC rate. Therefore, an increase in the closing ratio (i.e., a higher percentage of loans estimated to close) will result in the fair value of the IRLC increasing if in a gain position, or decreasing if in a loss position. The closing ratio is largely dependent on the stage of processing that a loan is currently in, and the change in prevailing interest rates from the time of the interest rate lock.

Assets Measured at Fair Value on a Non-Recurring Basis

Certain assets are measured at fair value on a non-recurring basis. Such instruments are subject to fair value adjustments under certain circumstances (e.g., when there is evidence of impairment). The following tables present assets and liabilities that were measured at fair value on a non-recurring basis as of March 31, 2015 and December 31, 2014, and that were included in the Company’s Consolidated Statements of Condition at those dates:


	Fair Value Measurements at March 31, 2015 Using
(in thousands)	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total Fair Value
Certain impaired loans		$--		$ --		$1,751		$ 1,751
Other assets ⁽¹⁾		--		11,613		--		11,613

Total		$--		$11,613		$1,751		$13,364

(1)	Represents the fair value of OREO, based on the appraised value of the collateral subsequent to its initial classification as OREO.


	Fair Value Measurements at December 31, 2014 Using
(in thousands)	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total Fair Value
Certain impaired loans		$--		$ --		$23,366		$23,366
Other assets ⁽¹⁾		--		15,916		--		15,916

Total		$--		$15,916		$23,366		$39,282

(1)	Represents the fair value of OREO, based on the appraised value of the collateral subsequent to its initial classification as OREO.

The fair values of collateral-dependent impaired loans are determined using various valuation techniques, including consideration of appraised values and other pertinent real estate market data.

Other Fair Value Disclosures

FASB guidance requires the disclosure of fair value information about the Company’s on- and off-balance sheet financial instruments. When available, quoted market prices are used as the measure of fair value. In cases where quoted market prices are not available, fair values are based on present-value estimates or other valuation techniques. Such fair values are significantly affected by the assumptions used, the timing of future cash flows, and the discount rate.

Because assumptions are inherently subjective in nature, estimated fair values cannot be substantiated by comparison to independent market quotes. Furthermore, in many cases, the estimated fair values provided would not necessarily be realized in an immediate sale or settlement of such instruments.

The following tables summarize the carrying values, estimated fair values, and fair value measurement levels of financial instruments that were not carried at fair value on the Company’s Consolidated Statements of Condition at March 31, 2015 or December 31, 2014:


	March 31, 2015
					Fair Value Measurement Using
(in thousands)	Carrying Value		Estimated Fair Value		Quoted Prices in Active Markets for Identical Assets (Level 1)			Significant Other Observable Inputs (Level 2)			Significant Unobservable Inputs (Level 3)
Financial Assets:
Cash and cash equivalents	$	582,558	$	582,558	$	582,558		$	--		$	--
Securities held to maturity		6,784,883		7,028,201		--			7,027,192			1,009
FHLB stock⁽¹⁾		464,942		464,942		--			464,942			--
Loans, net		35,519,143		36,050,313		--			--			36,050,313
Financial Liabilities:
Deposits	$	28,931,387	$	28,984,723	$	23,082,998	⁽²⁾	$	5,901,725	⁽³⁾	$	--
Borrowed funds		13,264,402		14,251,356		--			14,251,356			--

(1)	Carrying value and estimated fair value are at cost.

(2)	NOW and money market accounts, savings accounts, and non-interest-bearing accounts.

(3)	Certificates of deposit.


	December 31, 2014
					Fair Value Measurement Using
(in thousands)	Carrying Value		Estimated Fair Value		Quoted Prices in Active Markets for Identical Assets (Level 1)			Significant Other Observable Inputs (Level 2)			Significant Unobservable Inputs (Level 3)
Financial Assets:
Cash and cash equivalents	$	564,150	$	564,150	$	564,150		$	--		$	--
Securities held to maturity		6,922,667		7,085,971		--			7,084,959			1,012
FHLB stock⁽¹⁾		515,327		515,327		--			515,327			--
Loans, net		35,647,639		36,167,980		--			--			36,167,980
Financial Liabilities:
Deposits	$	28,328,734	$	28,377,897	$	21,908,136	⁽²⁾	$	6,469,761	⁽³⁾	$	--
Borrowed funds		14,226,487		15,140,171		--			15,140,171			--

(1)	Carrying value and estimated fair value are at cost.

(2)	NOW and money market accounts, savings accounts, and non-interest-bearing accounts.

(3)	Certificates of deposit.

The methods and significant assumptions used to estimate fair values for the Company’s financial instruments follow:

Cash and Cash Equivalents

Cash and cash equivalents include cash and due from banks and fed funds sold. The estimated fair values of cash and cash equivalents are assumed to equal their carrying values, as these financial instruments are either due on demand or have short-term maturities.

Securities

If quoted market prices are not available for a specific security, then fair values are estimated by using pricing models, quoted prices of securities with similar characteristics, or discounted cash flows. These pricing models primarily use market-based or independently sourced market parameters as inputs, including, but not limited to, yield curves, interest rates, equity or debt prices, and credit spreads. In addition to observable market information, pricing models also incorporate transaction details such as maturity and cash flow assumptions.

Federal Home Loan Bank Stock

Ownership in equity securities of the FHLB is restricted and there is no established market for their resale. The carrying amount approximates the fair value.

Loans

The loan portfolio is segregated into various components for valuation purposes in order to group loans based on their significant financial characteristics, such as loan type (mortgage or other) and payment status (performing or non-performing). The estimated fair values of mortgage and other loans are computed by discounting the anticipated cash flows from the respective portfolios. The discount rates reflect current market rates for loans with similar terms to borrowers of similar credit quality. The estimated fair values of non-performing mortgage and other loans are based on recent collateral appraisals.

The methods used to estimate the fair values of loans are extremely sensitive to the assumptions and estimates used. While management has attempted to use assumptions and estimates that best reflect the Company’s loan portfolio and current market conditions, a greater degree of subjectivity is inherent in these values than in those determined in active markets. Accordingly, readers are cautioned in using this information for purposes of evaluating the financial condition and/or value of the Company in and of itself or in comparison with any other company.

Mortgage Servicing Rights

MSRs do not trade in an active market with readily observable prices. Accordingly, the Company utilizes a valuation model that calculates the present value of estimated future cash flows. The model incorporates various assumptions, including estimates of prepayment speeds, discount rates, refinance rates, servicing costs, and ancillary income. The Company reassesses and periodically adjusts the underlying inputs and assumptions to reflect current market conditions and assumptions that a market participant would consider in valuing the MSR asset.

Derivative Financial Instruments

For exchange-traded futures and exchange-traded options, fair value is based on observable quoted market prices in an active market. For forward commitments to buy and sell loans and mortgage-backed securities, fair value is based on observable market prices for similar loans and securities in an active market. The fair value of IRLCs for one-to-four family mortgage loans that the Company intends to sell is based on internally developed models. The key model inputs primarily include the sum of the value of the forward commitment based on the loans’ expected settlement dates, the value of MSRs arrived at by an independent MSR broker, government agency price adjustment factors, and historical IRLC fall-out factors.

Deposits

The fair values of deposit liabilities with no stated maturity (i.e., NOW and money market accounts, savings accounts, and non-interest-bearing accounts) are equal to the carrying amounts payable on demand. The fair values of certificates of deposit represent contractual cash flows, discounted using interest rates currently offered on deposits with similar characteristics and remaining maturities. These estimated fair values do not include the intangible value of core deposit relationships, which comprise a significant portion of the Company’s deposit base.

Borrowed Funds

The estimated fair value of borrowed funds is based either on bid quotations received from securities dealers or the discounted value of contractual cash flows with interest rates currently in effect for borrowed funds with similar maturities and structures.

Off-Balance Sheet Financial Instruments

The fair values of commitments to extend credit and unadvanced lines of credit are estimated based on an analysis of the interest rates and fees currently charged to enter into similar transactions, considering the remaining terms of the commitments and the creditworthiness of the potential borrowers. The estimated fair values of such off-balance sheet financial instruments were insignificant at March 31, 2015 and December 31, 2014.

Note 12. Derivative Financial Instruments

The Company’s derivative financial instruments consist of financial forward and futures contracts, IRLCs, and options. These derivatives relate to mortgage banking operations, MSRs, and other risk management activities, and seek to mitigate or reduce the Company’s exposure to losses from adverse changes in interest rates. These activities will vary in scope based on the level and volatility of interest rates, the type of assets held, and other changing market conditions.

In accordance with the applicable accounting guidance, the Company takes into account the impact of collateral and master netting agreements that allow it to settle all derivative contracts held with a single counterparty on a net basis, and to offset the net derivative position with the related collateral when recognizing derivative assets and liabilities. As a result, the Company’s Statements of Financial Condition could reflect derivative contracts with negative fair values that are included in derivative assets, and contracts with positive fair values that are included in derivative liabilities.

The Company held derivatives with a notional amount of $4.1 billion at March 31, 2015. Changes in the fair value of these derivatives are reflected in current-period earnings. None of these derivatives are designated as hedges for accounting purposes.

The Company uses various financial instruments, including derivatives, in connection with its strategies to reduce pricing risk resulting from changes in interest rates. Derivative instruments may include IRLCs entered into with borrowers or correspondents/brokers to acquire agency-conforming fixed and adjustable rate residential mortgage loans that will be held for sale, as well as Treasury options and Eurodollar futures.

The Company enters into forward contracts to sell fixed rate mortgage-backed securities to protect against changes in the prices of agency-conforming fixed rate loans held for sale. Forward contracts are entered into with securities dealers in an amount related to the portion of IRLCs that is expected to close. The value of these forward sales contracts moves inversely with the value of the loans in response to changes in interest rates.

To manage the price risk associated with fixed-rate non-conforming mortgage loans, the Company generally enters into forward contracts on mortgage-backed securities or forward commitments to sell loans to approved investors. Short positions in Eurodollar futures contracts are used to manage price risk on adjustable rate mortgage loans held for sale.

The Company also purchases put and call options to manage the risk associated with variations in the amount of IRLCs that ultimately close.

The following table sets forth information regarding the Company’s derivative financial instruments at March 31, 2015:


	March 31, 2015
	Notional		Unrealized ⁽¹⁾
(in thousands)	Amount		Gain		Loss
Treasury options	$	800,000	$	1,694	$	--
Treasury futures		25,000		191		--
Eurodollar futures		175,000		1		64
Forward commitments to sell loans/mortgage-backed securities		1,223,000		181		7,982
Forward commitments to buy loans/mortgage-backed securities		1,065,000		4,282		198
Interest rate lock commitments		823,808		8,862		--

Total derivatives	$	4,111,808	$	15,211	$	8,244

(1)	Derivatives in a net gain position are recorded as “Other assets” and derivatives in a net loss position are recorded as “Other liabilities” in the Consolidated Statements of Condition.

In addition, the Company mitigates a portion of the risk associated with changes in the value of MSRs. The general strategy for mitigating this risk is to purchase derivative instruments, the value of which changes in the opposite direction of interest rates, thus partially offsetting changes in the value of our servicing assets, which tends to move in the same direction as interest rates. Accordingly, the Company purchases Eurodollar futures and call options on Treasury securities, and enters into forward contracts to purchase mortgage-backed securities.

The following table sets forth the effect of derivative instruments on the Consolidated Statements of Income and Comprehensive Income for the periods indicated:


	Gain (Loss) Included in Mortgage Banking Income
	For the Three Months Ended March 31,
(in thousands)	2015		2014
Treasury options		$3,416		$ (399)
Treasury and Eurodollar futures		383		(55)
Forward commitments to buy/sell loans/mortgage-backed securities		1,772		3,495

Total gain		$5,571		$3,041

The Company has in place an enforceable master netting arrangement with every counterparty. All master netting arrangements include rights to offset associated with the Company’s recognized derivative assets, derivative liabilities, and cash collateral received and pledged. Accordingly, the Company, where appropriate, offsets all derivative asset and liability positions with the cash collateral received and pledged.

The following tables present the effect of the master netting arrangements on the presentation of the derivative assets in the Consolidated Statements of Condition as of the dates indicated:

March 31, 2015

Gross Amounts Not
Offset in the
Consolidated Statement
of Condition

(in thousands)

Gross
Amount of
Recognized
Assets ⁽¹⁾

Gross Amount
Offset in the
Statement of
Condition

Net Amount of
Assets Presented
in the Statement
of Condition

Financial
Instruments

Cash
Collateral
Received

Net
Amount

Derivatives

$19,330

$2,783

$16,547

$--

$16,547

(1)	Includes $4.1 million to purchase Treasury options.

December 31, 2014

Gross Amounts Not
Offset in the
Consolidated Statement
of Condition

(in thousands)

Gross
Amount of
Recognized
Assets ⁽¹⁾

Gross Amount
Offset in the
Statement of
Condition

Net Amount of
Assets Presented
in the Statement
of Condition

Financial
Instruments

Cash
Collateral
Received

Net
Amount

Derivatives

$15,481

$7,198

$8,283

$--

$8,283

(1)	Includes $2.6 million to purchase Treasury options.

The following tables present the effect the master netting arrangements had on the presentation of the derivative liabilities in the Consolidated Statements of Condition as of the dates indicated:

March 31, 2015

Gross Amounts Not
Offset in the
Consolidated Statement
of Condition

(in thousands)

Gross
Amount of
Recognized
Liabilities

Gross Amount
Offset in the
Statement of
Condition

Net Amount of
Liabilities
Presented in the
Statement of
Condition

Financial
Instruments

Cash
Collateral
Pledged

Net
Amount

Derivatives

$8,244

$6,047

$2,197

$--

$2,197

December 31, 2014

Gross Amounts Not
Offset in the
Consolidated Statement
of Condition

(in thousands)

Gross
Amount of
Recognized
Liabilities

Gross Amount
Offset in the
Statement of
Condition

Net Amount of
Liabilities
Presented in the
Statement of
Condition

Financial
Instruments

Cash
Collateral
Pledged

Net
Amount

Derivatives

$8,208

$7,696

$512

$--

$512

Note 13. Segment Reporting

The Company’s operations are divided into two reportable business segments: Banking Operations and Residential Mortgage Banking. These operating segments have been identified based on the Company’s organizational structure. The segments require unique technology and marketing strategies, and offer different products and services. While the Company is managed as an integrated organization, individual executive managers are held accountable for the operations of these business segments.

The Company measures and presents information for internal reporting purposes in a variety of ways. The internal reporting system presently used by management in the planning and measurement of operating activities, and to which most managers are held accountable, is based on organizational structure.

The management accounting process uses various estimates and allocation methodologies to measure the performance of the operating segments. To determine financial performance for each segment, the Company allocates capital, funding charges and credits, certain non-interest expenses, and income tax provisions to each segment, as applicable. Allocation methodologies are subject to periodic adjustment as the internal management accounting system is revised and/or as business or product lines within the segments change. In addition, because the development and application of these methodologies is a dynamic process, the financial results presented may be periodically revised.

The Company seeks to maximize shareholder value by, among other means, optimizing the return on stockholders’ equity and managing risk. Capital is assigned to each segment, the combination of which is equivalent to the Company’s consolidated total, on an economic basis, using management’s assessment of the inherent risks associated with the segment. Capital allocations are made to cover the following risk categories: credit risk, liquidity risk, interest rate risk, option risk, basis risk, market risk, and operational risk.

The Company allocates expenses to the reportable segments based on various factors, including the volume and amount of loans produced and the number of full-time equivalent employees. Income taxes are allocated to the various segments based on taxable income and statutory rates applicable to the segment.

Banking Operations Segment

The Banking Operations segment serves consumers and businesses by offering and servicing a variety of loan and deposit products and other financial services.

Residential Mortgage Banking Segment

The Residential Mortgage Banking segment originates, aggregates, sells, and services one-to-four family mortgage loans. Mortgage loan products consist primarily of agency-conforming fixed- and adjustable-rate loans and, to a lesser extent, jumbo hybrid loans, for the purpose of purchasing or refinancing one-to-four family homes. The Residential Mortgage Banking segment earns interest on loans held in the warehouse and non-interest income from the origination and servicing of loans. It also recognizes gains or losses on the sale of such loans.

The following tables provide a summary of the Company’s segment results for the three months ended March 31, 2015 and 2014, on an internally managed accounting basis:


	For the Three Months Ended March 31, 2015
(in thousands)	Banking Operations		Residential Mortgage Banking		Total Company
Net interest income		$289,285		$ 3,483		$292,768

Provision for loan losses		7		--		7

Non-interest income:
Third party⁽¹⁾		33,154		19,080		52,234
Inter-segment		(4,170)		4,170		--

Total non-interest income		28,984		23,250		52,234

Non-interest expense⁽²⁾		140,151		16,685		156,836

Income before income tax expense		178,111		10,048		188,159
Income tax expense		64,890		4,010		68,900

Net income		$113,221		$6,038		$119,259

Identifiable segment assets (period-end)		$47,573,020		$678,695		$48,251,715

(1)	Includes ancillary fee income.

(2)	Includes both direct and indirect expenses.


	For the Three Months Ended March 31, 2014
(in thousands)	Banking Operations				Residential Mortgage Banking			Total Company
Net interest income		$	281,247			$	2,903		$	284,150

Recovery of loan losses			(14,630	)			--			(14,630	)

Non-interest income:
Third party⁽¹⁾			21,884				15,351			37,235
Inter-segment			(3,779	)			3,779			--

Total non-interest income			18,105				19,130			37,235

Non-interest expense⁽²⁾			130,825				15,500			146,325

Income before income tax expense			183,157				6,533			189,690
Income tax expense			72,009				2,427			74,436

Net income		$	111,148			$	4,106		$	115,254

Identifiable segment assets (period-end)		$	46,918,973			$	648,497		$	47,567,470

(1)	Includes ancillary fee income.

(2)	Includes both direct and indirect expenses.

Note 14. Impact of Recent Accounting Pronouncements

In June 2014, the FASB issued Accounting Standards Update (“ASU”) No. 2014-11, “Transfers and Servicing (Topic 860)—Repurchase-to-Maturity Transactions, Repurchase Financings, and Disclosures.” The amendments in ASU No. 2014-11 require that repurchase-to-maturity transactions be accounted for as secured borrowings consistent with the accounting for other repurchase agreements. In addition, the amendments require separate accounting for a transfer of a financial asset executed contemporaneously with a repurchase agreement with the same counterparty (a repurchase financing), which will result in secured borrowing accounting for the repurchase agreement. The amendments require an entity to disclose information about transfers accounted for as sales in transactions that are economically similar to repurchase agreements, in which the transferor retains substantially all of the exposure to the economic return on the transferred financial asset throughout the term of the transaction. In addition, the amendments require disclosure of the types of collateral pledged in repurchase agreements, securities lending transactions, and repurchase-to-maturity transactions, and the tenor of those transactions. The accounting changes in ASU No. 2014-11 are effective for the first interim or annual period beginning after December 15, 2014. The disclosure for certain transactions accounted for as sales is required to be presented for interim and annual periods beginning after December 15, 2014, and the disclosure for repurchase agreements, securities lending transactions, and repurchase-to-maturity transactions accounted for as secured borrowings is required to be presented for annual periods beginning after December 15, 2014, and for interim periods beginning after March 15, 2015. The adoption of ASU No. 2014-11 did not have a material effect on the Company’s consolidated statement of condition or results of operations.

In May 2014, the FASB issued ASU No. 2014-09, “Revenue from Contracts with Customers (Topic 606).” The amendments in ASU No. 2014-09 create Topic 606, “Revenue from Contracts with Customers,” and supersede the revenue recognition requirements in Topic 605, “Revenue Recognition,” including most industry-specific revenue recognition guidance throughout the Industry Topics of the Codification. In addition, the amendments supersede the cost guidance in Subtopic 605-35, “Revenue Recognition—Construction-Type and Production-Type Contracts,” and create new Subtopic 340-40, “Other Assets and Deferred Costs—Contracts with Customers.” In summary, the core principle of Topic 606 is that an entity recognizes revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. ASU No. 2014-09 is effective for annual reporting periods beginning after December 15, 2016, including interim periods within that reporting period. Early application is not permitted. The Company is in the process of evaluating the effects the adoption of ASU No. 2014-09 may have on its consolidated statement of condition or results of operations.

In January 2014, the FASB issued ASU No. 2014-01, “Investments – Equity Method and Joint Ventures (Topic 323), Accounting for Investments in Qualified Affordable Housing Projects.” The amendments in ASU No. 2014-01 provide guidance on accounting for investments by a reporting entity in flow-through limited liability entities that manage or invest in affordable housing projects that qualify for low-income housing tax credits. The amendments permit reporting entities to make an accounting policy election to account for their investments in qualified affordable housing projects using the proportional amortization method, if certain conditions are met. ASU No. 2014-01 is effective for annual periods, and interim reporting periods within those annual periods, beginning after December 15, 2014, with early adoption permitted; it should be applied retrospectively to all periods presented. The adoption of ASU No. 2014-01 on January 1, 2014 did not have a material effect on the Company’s consolidated statement of condition or results of operations.

In January 2014, the FASB issued ASU No. 2014-04, “Receivables – Troubled Debt Restructurings by Creditors (Subtopic 310-40), Reclassification of Residential Real Estate-Collateralized Consumer Mortgage Loans upon Foreclosure.” The amendments in ASU No. 2014-04 clarify when an in-substance repossession or foreclosure occurs, i.e., when a creditor should be considered to have received physical possession of residential real estate property collateralizing a consumer mortgage loan such that the loan receivable should be derecognized and the real estate property recognized. ASU No. 2014-04 is effective for annual periods, and interim periods within those annual periods, beginning after December 15, 2014. The adoption of ASU No. 2014-04 on January 1, 2015 did not have a material effect on the Company’s consolidated statement of condition or results of operations.

MANAGEMENT’S DISCUSSION AND ANALYSIS

OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

For the purpose of this discussion and analysis, the words “we,” “us,” “our,” and the “Company” are used to refer to New York Community Bancorp, Inc. and our consolidated subsidiaries, including New York Community Bank (the “Community Bank”) and New York Commercial Bank (the “Commercial Bank”) (collectively, the “Banks”).

Forward-Looking Statements and Associated Risk Factors

This report, like many written and oral communications presented by New York Community Bancorp, Inc. and our authorized officers, may contain certain forward-looking statements regarding our prospective performance and strategies within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. We intend such forward-looking statements to be covered by the safe harbor provisions for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995, and are including this statement for purposes of said safe harbor provisions.

Forward-looking statements, which are based on certain assumptions and describe future plans, strategies, and expectations of the Company, are generally identified by use of the words “anticipate,” “believe,” “estimate,” “expect,” “intend,” “plan,” “project,” “seek,” “strive,” “try,” or future or conditional verbs such as “will,” “would,” “should,” “could,” “may,” or similar expressions. Our ability to predict results or the actual effects of our plans or strategies is inherently uncertain. Accordingly, actual results may differ materially from anticipated results.

There are a number of factors, many of which are beyond our control, that could cause actual conditions, events, or results to differ significantly from those described in our forward-looking statements. These factors include, but are not limited to:

—

general economic conditions, either nationally or in some or all of the areas in which we and our customers conduct our respective businesses;

—

conditions in the securities markets and real estate markets or the banking industry;

—

changes in real estate values, which could impact the quality of the assets securing the loans in our portfolio;

—

changes in interest rates, which may affect our net income, prepayment penalty income, mortgage banking income, and other future cash flows, or the market value of our assets, including our investment securities;

—

changes in the quality or composition of our loan or securities portfolios;

—

changes in our capital management policies, including those regarding business combinations, dividends, and share repurchases, among others;

—

our use of derivatives to mitigate our interest rate exposure;

—

changes in competitive pressures among financial institutions or from non-financial institutions;

—

changes in deposit flows and wholesale borrowing facilities;

—

changes in the demand for deposit, loan, and investment products and other financial services in the markets we serve;

—

our timely development of new lines of business and competitive products or services in a changing environment, and the acceptance of such products or services by our customers;

—

changes in our customer base or in the financial or operating performances of our customers’ businesses;

—

any interruption in customer service due to circumstances beyond our control;

—

our ability to retain key personnel;

—

potential exposure to unknown or contingent liabilities of companies we have acquired or may acquire in the future;

—

the outcome of pending or threatened litigation, or of matters before regulatory agencies, whether currently existing or commencing in the future;

—

environmental conditions that exist or may exist on properties owned by, leased by, or mortgaged to the Company;

—

any interruption or breach of security resulting in failures or disruptions in customer account management, general ledger, deposit, loan, or other systems;

—

operational issues stemming from, and/or capital spending necessitated by, the potential need to adapt to industry changes in information technology systems, on which we are highly dependent;

—

changes in legislation, regulation, policies, or administrative practices, whether by judicial, governmental, or legislative action, including, but not limited to, the Dodd-Frank Wall Street Reform and Consumer Protection Act, and other changes pertaining to banking, securities, taxation, rent regulation and housing, financial accounting and reporting, environmental protection, and insurance, and the ability to comply with such changes in a timely manner;

—

changes in the monetary and fiscal policies of the U.S. Government, including policies of the U.S. Department of the Treasury and the Board of Governors of the Federal Reserve System;

—

changes in accounting principles, policies, practices, or guidelines;

—

a material breach in performance by the Community Bank under our loss sharing agreements with the FDIC;

—

changes in our estimates of future reserves based upon the periodic review thereof under relevant regulatory and accounting requirements;

—

changes in regulatory expectations relating to predictive models we use in connection with stress testing and other forecasting or in the assumptions on which such modeling and forecasting are predicated;

—

the ability to successfully integrate any assets, liabilities, customers, systems, and management personnel of any banks we may acquire into our operations, and our ability to realize related revenue synergies and cost savings within expected time frames;

—

changes in our credit ratings or in our ability to access the capital markets;

—

war or terrorist activities; and

—

other economic, competitive, governmental, regulatory, technological, and geopolitical factors affecting our operations, pricing, and services.

In addition, we routinely evaluate opportunities to expand through acquisitions and conduct due diligence activities in connection with such opportunities. As a result, acquisition discussions and, in some cases, negotiations, may take place at any time, and acquisitions involving cash or our debt or equity securities may occur.

Furthermore, the timing and occurrence or non-occurrence of events may be subject to circumstances beyond our control.

Please see Item 1A, “Risk Factors,” for a further discussion of factors that could affect the actual outcome of future events.

Readers are cautioned not to place undue reliance on the forward-looking statements contained herein, which speak only as of the date of this report. Except as required by applicable law or regulation, we undertake no obligation to update these forward-looking statements to reflect events or circumstances that occur after the date on which such statements were made.

RECONCILIATIONS OF STOCKHOLDERS’ EQUITY AND TANGIBLE STOCKHOLDERS’ EQUITY;

TOTAL ASSETS AND TANGIBLE ASSETS; AND THE RELATED MEASURES

Although tangible stockholders’ equity and tangible assets are not measures that are calculated in accordance with U.S. generally accepted accounting principles (“GAAP”), management uses these non-GAAP measures in their analysis of our performance. We believe that these non-GAAP measures are important indications of our ability to grow both organically and through business combinations and, with respect to tangible stockholders’ equity, our ability to pay dividends and to engage in various capital management strategies.

We calculate tangible stockholders’ equity by subtracting from stockholders’ equity the sum of our goodwill and core deposit intangibles (“CDI”), and calculate tangible assets by subtracting the same sum from our total assets. To calculate our ratio of tangible stockholders’ equity to tangible assets, we divide our tangible stockholders’ equity by our tangible assets.

Tangible stockholders’ equity, tangible assets, and the related financial measures should not be considered in isolation or as a substitute for stockholders’ equity or any other measure prepared in accordance with GAAP. Moreover, the manner in which we calculate these non-GAAP financial measures may differ from that of other companies reporting non-GAAP financial measures with similar names.

Reconciliations of our stockholders’ equity and tangible stockholders’ equity; our total assets and tangible assets; and the related financial measures at March 31, 2015 and December 31, 2014 follow:


	March 31, 2015		December 31, 2014
(in thousands)
Stockholders’ Equity		$ 5,794,797		$ 5,781,815
Less: Goodwill		(2,436,131)		(2,436,131)
Core deposit intangibles		(6,359)		(7,943)

Tangible stockholders’ equity		$ 3,352,307		$ 3,337,741

Total Assets		$48,251,715		$48,559,217
Less: Goodwill		(2,436,131)		(2,436,131)
Core deposit intangibles		(6,359)		(7,943)

Tangible assets		$45,809,225		$46,115,143

Stockholders’ equity to total assets		12.01%		11.91%
Tangible stockholders’ equity to tangible assets		7.32%		7.24%

Executive Summary

New York Community Bancorp, Inc. is the holding company for New York Community Bank, with 242 branches in Metro New York, New Jersey, Ohio, Florida, and Arizona; and New York Commercial Bank, with 30 branches in Metro New York. With assets of $48.3 billion at March 31, 2015, we rank among the 25 largest U.S. bank holding companies and, with deposits of $28.9 billion at that date, we also rank among its 25 largest depositories.

Both of our banks are New York State-chartered and both are subject to regulation by the FDIC, the Consumer Financial Protection Bureau, and the New York State Department of Financial Services. In addition, the holding company is subject to regulation by the Board of Governors of the Federal Reserve System (the “FRB”), and to the requirements of the New York Stock Exchange, where shares of our common stock are traded under the symbol “NYCB”.

As a publicly traded company, our mission is to provide our shareholders with a solid return on their investment by producing a strong financial performance, maintaining a solid capital position, and engaging in corporate strategies that enhance the value of their shares. In support of this mission, we maintain a consistent business model, as described below:

—

We originate multi-family loans on non-luxury apartment buildings in New York City that are subject to rent regulation and feature below-market rents;

—

We underwrite our loans in accordance with conservative credit standards in order to maintain a high level of asset quality;

—

We originate one-to-four family loans through our proprietary web-based mortgage banking platform and sell the vast majority of those loans to government-sponsored enterprises (“GSEs”), servicing retained;

—

We are intent upon maintaining an efficient operation; and

—

We grow through accretive acquisitions of other financial institutions, branches, and/or deposits.

The merits of this time-tested business model are reflected in the following achievements:

—

We are a leading producer of multi-family loans for portfolio in New York City;

—

We have produced a consistent record of above-average asset quality;

—

We rank among the nation’s top 20 aggregators of one-to-four family loans;

—

We consistently rank among the nation’s most efficient bank holding companies; and

—

We have generated solid earnings and maintained a consistent position of capital strength.

Among the external factors that tend to influence our performance, the interest rate environment is key. Just as short-term interest rates affect the cost of our deposits and that of the funds we borrow, market interest rates affect the yields on the loans we produce for investment and the securities in which we invest.

The following table summarizes the high, low, and average five- and ten-year Constant Maturity Treasury (“CMT”) rates in the three months ended March 31, 2015, December 31, 2014, and March 31, 2014:


	5-Year CMT For the Three Months Ended			10-Year CMT For the Three Months Ended
	March 31, 2015	December 31, 2014	March 31, 2014	March 31, 2015	December 31, 2014	March 31, 2014
High	1.70%	1.76%	1.77%	2.24%	2.45%	3.01%
Low	1.18	1.37	1.44	1.68	2.07	2.60
Average	1.46	1.60	1.60	1.97	2.28	2.77

In addition, residential mortgage interest rates impact the volume of one-to-four family mortgage loans we originate in any given quarter, in view of their impact on new home purchases and refinancing activity. Accordingly, when residential mortgage interest rates are low, refinancing activity typically increases; as residential mortgage interest rates begin to rise, the refinancing of one-to-four family mortgage loans typically declines. In the first three months of 2015, residential mortgage interest rates declined from the levels in the trailing and year-earlier quarters and, as a result, the volume of one-to-four family loans we produced for sale rose. One-to-four family loan originations rose $517.5 million sequentially and $855.4 million year-over-year to $1.5 billion, and income from originations (which is included in “Mortgage banking income”) rose $6.8 million and $11.7 million, respectively, during the corresponding periods, to $15.5 million.

The impact of market interest rates on our multi-family and commercial real estate lending is far less overt than the impact on our production of one-to-four family mortgage loans. Because the multi-family and commercial real estate loans we produce generate prepayment penalty income when they repay, the impact of repayment activity can be especially meaningful. In the first quarter of 2015, prepayment penalty income rose $8.3 million and $9.8 million, respectively, from the levels recorded in the trailing and year-earlier quarters to $30.1 million, primarily reflecting an increase in property transactions as borrowers took advantage of the increase in property values in our primary market niche.

Reflecting the sequential rise in prepayment penalty income, our net interest income rose $9.1 million sequentially to $292.8 million and our net interest margin grew seven basis points to 2.68%. While our net interest margin fell four basis points year-over-year over, net interest income rose $8.6 million from the year-earlier level, largely reflecting the increase in prepayment penalty income recorded over that time.

Also less overt, but nonetheless having an impact on our operations, has been the significant increase in regulation and supervision required under the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (the “Dodd-Frank Act” or, more simply “Dodd-Frank”). For example, as a bank holding company with assets in the range of $10 billion to $50 billion, we submitted our 2014 Dodd-Frank Act Stress Test (“DFAST”) report, including the results of our stress tests, to the FRB in March 2015. The results of our stress tests will be disclosed in June of this year.

With assets of $41.2 billion at December 31, 2010, and a fundamental focus on growth through acquisition, we began in 2011 to prepare for the possibility of exceeding the threshold for classification as a “Systemically Important Financial Institution” (“SIFI”) as such term is defined by the Dodd-Frank Act. Since then, we have invested significant human, technological, and financial resources into our enterprise risk management program, while also strengthening our corporate governance policies, procedures, and practices.

Essentially, a bank is designated a SIFI when its total consolidated assets average more than $50 billion over the four most recent quarters. In the third quarter of 2014, we began taking steps to manage our assets below the threshold for a SIFI bank. Reflecting the specific actions we took in the first quarter of this year, we recorded total assets of $48.3 billion at March 31, 2015, as compared to $48.6 billion at December 31, 2014. In the three months ended March 31, 2015, we sold $553.3 million of loans, largely through participations, and reduced our securities portfolio by $135.9 million through a combination of repayments and calls.

The reduction in assets was largely offset by the production of multi-family and commercial real estate loans totaling $2.3 billion in the first quarter of this year.

Because of our unique lending niche and our conservative underwriting standards, the losses on loans we experienced during and since the 2008 economic crisis have been well below the averages for our industry peers. The first quarter of 2015 was our fourth consecutive quarter with net recoveries instead of net charge-offs, bringing the total of net recoveries to $1.3 million over the past twelve months. In addition, non-performing non-covered assets represented 0.29% of total non-covered assets at the end of the quarter, and non-performing non-covered loans represented 0.19% of total non-covered loans.

While the quality of our assets generally reflects the nature of our primary lending niche and the benefit of conservative underwriting, it also reflects the direction of property values and economic conditions in the markets where our held-for-investment loans are produced.

The following table presents the unemployment rates for the United States and our key deposit markets in the months ended March 31, 2015, December 31, 2014, and March 31, 2014. While unemployment declined year-over-year in each of these markets, the sequential comparison indicates a linked-quarter increase in New York City, as well as in Florida, Ohio, and New York State.


	For the Month Ended
	March 31, 2015	December 31, 2014		March 31, 2014
Unemployment rate:
United States	5.5%		5.6%		6.6%
New York City	6.5		6.4		8.1
Arizona	5.4		6.5		7.3
Florida	5.5		5.4		6.4
New Jersey	6.8		5.7		7.6
New York	5.8		5.7		7.2
Ohio	5.4		4.7		6.2

(Source: U.S. Department of Labor)

Yet another key economic indicator is the Consumer Price Index (the “CPI”), which measures the average change over time in the prices paid by urban consumers for a market basket of consumer goods and services. The following table shows the change in the CPI for the twelve months ended at each of the indicated dates:

Given the impact that home prices have on residential mortgage lending, we believe the S&P/Case-Shiller Home Price Index is an important economic indicator for the Company. According to this index, home prices rose 4.2% across the U.S. in the twelve months ended February 2015, as compared to 4.6% and 0.2%, respectively, in the twelve months ended December 2014 and March 2014.

In addition, the volume of new home sales nationwide was at a seasonally adjusted annual rate of 481,000 in March 2015, according to estimates set forth in a U.S. Commerce Department report issued on April 23, 2015. The March 2015 rate was 11.4% lower than the rate reported in February 2015 and 19.4% above the rate reported in March 2014.

Yet another pertinent economic indicator is the residential rental vacancy rate in New York, as reported by the U.S. Department of Commerce, and the office vacancy rate in Manhattan, as reported by a leading commercial real estate broker, Jones Lang LaSalle. These measures are important in view of the fact that 81.1% of our multi-family loans and 87.6% of our commercial real estate loans are secured by properties in New York, with Manhattan accounting for 34.8% and 51.8% of our multi-family and commercial real estate loans, respectively. As reflected in the following table, residential rental vacancy rates improved modestly linked-quarter, while office vacancy rates in Manhattan rose to a slightly greater degree during the same time.


	For the Three Months Ended
	March 31, 2015	December 31, 2014	March 31, 2014
Residential rental vacancy rates:
New York	4.6%	4.7%	5.9%
Manhattan office vacancy rate:	10.0	9.7	11.1

Notwithstanding the inconsistency in economic indices in the current first quarter, the Consumer Confidence Index^® moved up to 101.4 in March 2015 from 92.6 in December and from 82.3 in March 2014. An index level of 90 or more is considered indicative of a strong economy.

Recent Events

On April 28, 2015, the Board of Directors declared a quarterly cash dividend of $0.25 per share, payable on May 22, 2015 to shareholders of record at the close of business on May 11, 2015.

Critical Accounting Policies

We consider certain accounting policies to be critically important to the portrayal of our financial condition and results of operations, since they require management to make complex or subjective judgments, some of which may relate to matters that are inherently uncertain. The inherent sensitivity of our consolidated financial statements to these critical accounting policies, and the judgments, estimates, and assumptions used therein, could have a material impact on our financial condition or results of operations.

We have identified the following to be critical accounting policies: the determination of the allowances for loan losses; the valuation of mortgage servicing rights (“MSRs”); the determination of whether an impairment of securities is other than temporary; the determination of the amount, if any, of goodwill impairment; and the determination of the valuation allowance for deferred tax assets.

The judgments used by management in applying these critical accounting policies may be influenced by adverse changes in the economic environment, which may result in changes to future financial results.

Allowances for Loan Losses

Allowance for Losses on Non-Covered Loans

The allowance for losses on non-covered loans is increased by provisions for non-covered loan losses that are charged against earnings, and is reduced by net charge-offs and/or reversals, if any, that are credited to earnings. Although non-covered loans are held by either the Community Bank or the Commercial Bank, and a separate loan loss allowance is established for each, the total of the two allowances is available to cover all losses incurred. In addition, except as otherwise noted in the following discussion, the process for establishing the allowance for losses on non-covered loans is largely the same for each of the Community Bank and the Commercial Bank.

The methodology used for the allocation of the allowance for non-covered loan losses at March 31, 2015, December 31, 2014, and March 31, 2014 was also generally comparable, whereby the Community Bank and the Commercial Bank segregated their loss factors (used for both criticized and non-criticized loans) into a component that was primarily based on historical loss rates and a component that was primarily based on other qualitative factors that were probable to affect loan collectability. In determining the respective allowances for non-covered loan losses, management considers the Community Bank’s and the Commercial Bank’s current business strategies and credit processes, including compliance with applicable regulatory guidelines and with guidelines approved by the respective Boards of Directors with regard to credit limitations, loan approvals, underwriting criteria, and loan workout procedures.

The allowance for losses on non-covered loans is established based on our evaluation of incurred losses in our portfolio in accordance with GAAP, and is comprised of both specific valuation allowances and general valuation allowances.

Specific valuation allowances are established based on management’s analyses of individual loans that are considered impaired. If a non-covered loan is deemed to be impaired, management measures the extent of the impairment and establishes a specific valuation allowance for that amount. A non-covered loan is classified as “impaired” when, based on current information and/or events, it is probable that we will be unable to collect both the principal and interest due under the contractual terms of the loan agreement. We apply this classification as necessary to non-covered loans individually evaluated for impairment in our portfolios. Smaller-balance homogenous loans and loans carried at the lower of cost or fair value are evaluated for impairment on a collective, rather than individual, basis. Loans for which the terms have been modified, resulting in a concession, and for which the borrower is experiencing financial difficulties, are considered troubled debt restructurings (“TDRs”) and classified as impaired.

We generally measure impairment on an individual loan and determine the extent to which a specific valuation allowance is necessary by comparing the loan’s outstanding balance to either the fair value of the collateral, less the estimated cost to sell, or the present value of expected cash flows, discounted at the loan’s effective interest rate. Generally, when the fair value of the collateral, net of the estimated costs to sell, or the present value of the expected cash flows, is less than the recorded investment in the loan, any shortfall is promptly charged off.

We also follow a process to assign general valuation allowances to non-covered loan categories. General valuation allowances are established by applying our loan loss provisioning methodology, and reflect the inherent risk in outstanding held-for-investment loans. This loan loss provisioning methodology considers various factors in determining the appropriate quantified risk factors to use to determine the general valuation allowances. The factors assessed begin with the historical loan loss experience for each major loan category. Our allowance for loan losses methodology also considers an estimate of the historical loss emergence period (which is the period of time between the event that triggers a loss and the confirmation and/or charge-off of that loss) for each loan portfolio segment.

The allocation methodology consists of the following components: (1) First, we determine an allowance for loan losses based on a quantitative loss factor for loans evaluated collectively for impairment. This quantitative loss factor is based primarily on historical loss rates, after considering loan type, historical loss and delinquency experience, and loss emergence periods. (2) The quantitative loss factors applied in the methodology are periodically re-evaluated and adjusted to reflect changes in historical loss levels, loss emergence periods, or other risks. (3) Lastly, we allocate an allowance for loan losses to qualitative loss factors. These qualitative loss factors are designed to account for losses that may not be provided for by the quantitative loss component due to other factors evaluated by management which, include, but are not limited to:

—

Changes in lending policies and procedures, including changes in underwriting standards and collection, and charge-off and recovery practices;

—

Changes in international, national, regional, and local economic and business conditions, and developments that affect the collectability of the portfolio, including the condition of various market segments;

—

Changes in the nature and volume of the portfolio and in the terms of loans;

—

Changes in the volume and severity of past-due loans, the volume of non-accrual loans, and the volume and severity of adversely classified or graded loans;

—

Changes in the quality of our loan review system;

—

Changes in the value of the underlying collateral for collateral-dependent loans;

—

The existence and effect of any concentrations of credit, and changes in the level of such concentrations;

—

Changes in the experience, ability, and depth of lending management and other relevant staff; and

—

The effect of other external factors, such as competition and legal and regulatory requirements, on the level of estimated credit losses in the existing portfolio.

By considering the factors discussed above, we determine an allowance for loan losses that is applied to each significant loan portfolio segment to determine the total allowance for loan losses.

In the first quarter of 2015, we changed the historical loss period we use to determine the allowance for loan losses on non-covered loans from a rolling 16-quarter look-back period to a rolling 24-quarter look-back period, as we believe this to be a more appropriate reflection of the Company’s historical loss experience. This change has not had a significant effect on the allowance for losses on non-covered loans, nor is it expected to do so for the foreseeable future.

The process of establishing the allowance for losses on non-covered loans also involves:

—

Periodic inspections of the loan collateral by qualified in-house and external property appraisers/inspectors, as applicable;

—

Regular meetings of executive management with the pertinent Board committee, during which observable trends in the local economy and/or the real estate market are discussed;

—

Assessment of the aforementioned factors by the pertinent members of the Boards of Directors and management when making a business judgment regarding the impact of anticipated changes on the future level of loan losses; and

—

Analysis of the portfolio in the aggregate, as well as on an individual loan basis, taking into consideration payment history, underwriting analyses, and internal risk ratings.

In order to determine their overall adequacy, each of the respective non-covered loan loss allowances is reviewed quarterly by management and the Board of Directors of the Community Bank or the Commercial Bank, as applicable.

We charge off loans, or portions of loans, in the period that such loans, or portions thereof, are deemed uncollectible. The collectability of individual loans is determined through an assessment of the financial condition and repayment capacity of the borrower and/or through an estimate of the fair value of any underlying collateral. For non-real estate-related consumer credits, the following past-due time periods determine when charge-offs are typically recorded: (1) Closed-end credits are charged off in the quarter that the loan becomes 120 days past due; (2) Open-end credits are charged off in the quarter that the loan becomes 180 days past due; and (3) Both closed-end and open-end credits are typically charged off in the quarter that the credit is 60 days past the date we received notification that the borrower has filed for bankruptcy.

The level of future additions to the respective non-covered loan loss allowances is based on many factors, including certain factors that are beyond management’s control, such as changes in economic and local market conditions, including declines in real estate values, and increases in vacancy rates and unemployment. Management uses the best available information to recognize losses on loans or to make additions to the loan loss allowances; however, the Community Bank and/or the Commercial Bank may be required to take certain charge-offs and/or recognize further additions to their loan loss allowances, based on the judgment of regulatory agencies with regard to information provided to them during their examinations of the Banks.

An allowance for unfunded commitments is maintained separate from the allowances for non-covered loan losses and is included in “Other liabilities” in the consolidated statements of condition.

Allowance for Losses on Covered Loans

We account for the loans acquired in the AmTrust Bank (“AmTrust”) and Desert Hills Bank (“Desert Hills”) acquisitions (our “covered loans”) based on expected cash flows, in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 310-30, “Loans and Debt Securities Acquired with Deteriorated Credit Quality” (“ASC 310-30”). In accordance with ASC 310-30, we maintain the integrity of a pool of multiple loans accounted for as a single asset with a single composite interest rate and an aggregate expectation of cash flows.

Covered loans 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, we periodically perform an analysis to estimate the expected cash flows for each of the loan pools. A provision for losses on covered loans is recorded to the extent that the expected cash flows from a loan pool have decreased for credit-related items since the acquisition date. Accordingly, during the loss share recovery period, if there is a decrease in expected cash flows due to an increase in estimated credit losses as compared to the estimates made at the respective acquisition dates, the decrease in the present value of expected cash flows will be recorded as a provision for covered loan losses charged to earnings, and the allowance for covered loan losses will be increased. During the loss share recovery period, a related credit to non-interest income and an increase in the FDIC loss share receivable will be recognized at the same time, and will be measured based on the applicable loss sharing agreement percentage.

Please see Note 6, “Allowances for Loan Losses” for a further discussion of our allowance for losses on covered loans, as well as additional information about our allowance for losses on non-covered loans.

Mortgage Servicing Rights

We recognize the right to service mortgage loans for others as a separate asset referred to as mortgage servicing rights, or “MSRs.” MSRs are generally recognized when one-to-four family loans are sold or securitized, servicing retained, and are initially recorded, and subsequently carried, at fair value.

We base the fair value of our MSRs on the present value of estimated future net servicing income cash flows, utilizing an internal valuation model. The model we utilize is based on 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. We reassess, and periodically adjust, these underlying inputs and assumptions to reflect market conditions and changes in the assumptions that a market participant would consider in valuing MSRs.

Changes in the fair value of MSRs occur primarily in connection with the collection/realization of expected cash flows, as well as changes in the valuation inputs and assumptions. Changes in the fair value of MSRs are reported in “Mortgage banking income” in the period during which such changes occur.

Investment Securities

The securities portfolio primarily consists of mortgage-related securities and, to a lesser extent, debt and equity (together, “other”) securities. Securities that are classified as “available for sale” are carried at their estimated fair value, with any unrealized gains or losses, net of taxes, reported as accumulated other comprehensive income or loss in stockholders’ equity. Securities that we have the intent and ability to hold to maturity are classified as “held to maturity” and carried at amortized cost, less the non-credit portion of other-than-temporary impairment (“OTTI”) recorded in accumulated other comprehensive loss, net of tax (“AOCL”).

The fair values of our securities, and particularly our fixed-rate securities, are affected by changes in market interest rates and credit spreads. In general, as interest rates rise and/or credit spreads widen, the fair value of fixed-rate securities will decline; as interest rates fall and/or credit spreads tighten, the fair value of fixed-rate securities will rise. We regularly conduct a review and evaluation of our securities portfolio to determine if the decline in the fair value of any security below its carrying amount is other than temporary. If we deem any decline in value to be other than temporary, the security is written down to its current fair value, creating a new cost basis, and the resultant loss (other than the OTTI on debt securities attributable to non-credit factors) is charged against earnings and recorded in “Non-interest income.” Our assessment of a decline in fair value includes judgment as to the financial position and future prospects of the entity that issued the investment security, as well as a review of the security’s underlying collateral. Broad changes in the overall market or interest rate environment generally will not lead to a write-down.

In accordance with OTTI accounting guidance, unless we have the intent to sell, or it is more likely than not that we may be required to sell a security before recovery, OTTI is recognized as a realized loss in earnings to the extent that the decline in fair value is credit-related. If there is a decline in fair value of a security below its carrying amount and we have the intent to sell it, or it is more likely than not that we may be required to sell the security before recovery, the entire amount of the decline in fair value is charged to earnings.

Goodwill Impairment

Goodwill is presumed to have an indefinite useful life and is tested for impairment, rather than amortized, at the reporting unit level, at least once a year. We performed our annual goodwill impairment test as of December 31, 2014 and found no indication of goodwill impairment at that date.

Goodwill would be tested in less than one year’s time if there were a “triggering event.” There were no triggering events identified during the three months ended March 31, 2015.

The goodwill impairment analysis is a two-step test. However, a company can, under Accounting Standards Update (“ASU”) No. 2011-08, “Testing Goodwill for Impairment,” first assess qualitative factors to determine whether it is necessary to perform the two-step quantitative goodwill impairment test. Under this amendment, an entity would not be required to calculate the fair value of a reporting unit unless the entity determined, based on a qualitative assessment, that it was more likely than not that its fair value was less than its carrying amount. The Company did not elect to perform a qualitative assessment in 2014. The first step (“Step 1”) is used to identify potential impairment, and involves comparing each reporting segment’s estimated fair value to its carrying amount, including goodwill. If the estimated fair value of a reporting segment exceeds its carrying amount, goodwill is not considered to be impaired. If the carrying amount exceeds the estimated fair value, there is an indication of potential impairment and the second step (“Step 2”) is performed to measure the amount.

Step 2 involves calculating an implied fair value of goodwill for each reporting segment for which impairment was indicated in Step 1. The implied fair value of goodwill is determined in a manner similar to the amount of goodwill calculated in a business combination, i.e., by measuring the excess of the estimated fair value of the reporting segment, as determined in Step 1, over the aggregate estimated fair values of the individual assets, liabilities, and identifiable intangibles, as if the reporting segment were being acquired in a business combination at the impairment test date. If the implied fair value of goodwill exceeds the carrying amount of goodwill assigned to the reporting segment, there is no impairment. If the carrying amount of goodwill assigned to a reporting segment exceeds the implied fair value of the goodwill, an impairment charge is recorded for the excess. An impairment loss cannot exceed the carrying amount of goodwill assigned to a reporting segment, and the loss establishes a new basis in the goodwill. Subsequent reversal of goodwill impairment losses is not permitted.

Quoted market prices in active markets are the best evidence of fair value and are used as the basis for measurement, when available. Other acceptable valuation methods include present-value measurements based on multiples of earnings or revenues, or similar performance measures. Differences in the identification of reporting units and in valuation techniques could result in materially different evaluations of impairment.

For the purpose of goodwill impairment testing, management has determined that the Company has two reporting segments: Banking Operations and Residential Mortgage Banking. All of our recorded goodwill has resulted from prior acquisitions and, accordingly, is attributed to Banking Operations. There is no goodwill associated with Residential Mortgage Banking, as this segment was acquired in our FDIC-assisted AmTrust acquisition, which resulted in a bargain purchase gain. In order to perform our annual goodwill impairment test, we determined the carrying value of the Banking Operations segment to be the carrying value of the Company and compared it to the fair value of the Company.

Income Taxes

In estimating income taxes, management assesses the relative merits and risks of the tax treatment of transactions, taking into account statutory, judicial, and regulatory guidance in the context of our tax position. In this process, management also relies on tax opinions, recent audits, and historical experience. Although we use the best available information to record income taxes, underlying estimates and assumptions can change over time as a result of unanticipated events or circumstances such as changes in tax laws and judicial guidance influencing our overall or transaction-specific tax position.

We recognize deferred tax assets and liabilities for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases, and the carryforward of certain tax attributes such as net operating losses. A valuation allowance is maintained for deferred tax assets that we estimate are more likely than not to be unrealizable, based on available evidence at the time the estimate is made. In assessing the need for a valuation allowance, we estimate future taxable income, considering the prudence and feasibility of tax planning strategies and the realizability of tax loss carryforwards. Valuation allowances related to deferred tax assets can be affected by changes to tax laws, statutory tax rates, and future taxable income levels. In the event we were to determine that we would not be able to realize all or a portion of our net deferred tax assets in the future, we would reduce such amounts through a charge to income tax expense in the period in which that determination was made. Conversely, if we were to determine that we would be able to realize our deferred tax assets in the future in excess of the net carrying amounts, we would decrease the recorded valuation allowance through a decrease in income tax expense in the period in which that determination was made. Subsequently recognized tax benefits associated with valuation allowances recorded in a business combination would be recorded as an adjustment to goodwill.

On March 31, 2014, tax legislation was enacted that changed the manner in which financial institutions and their affiliates are taxed in New York State. The most significant changes affecting the Company are summarized below:

—

New York State tax is now determined by measuring the apportioned income of the combined group of all domestic affiliates of a New York taxpayer that participate in a unitary business relationship, rather than by applying differing rules based on the tax status of each affiliate;

—

Taxable income is apportioned to New York State based on the location of the taxpayer’s customers, with special rules for income from certain financial transactions. The location of the taxpayer’s offices and branches are no longer be relevant to the determination of income apportioned to New York State;

—

The statutory tax rate was reduced from 7.1% to 6.5%; and

—

Thrift institutions that maintain a qualified residential loan portfolio are entitled to a specially computed modification that reduces the income taxable to New York State.

While most of the provisions of this legislation are effective for fiscal years beginning in 2015, the statutory tax rate will not be reduced until 2016. It is expected that this law will result in a modest reduction in our current income tax expense. The amount of the impact on our future tax expense will be affected by any changes in our operations, structure, or profitability.

In April 2015, new legislation was enacted that changed the tax laws of New York City that are applicable to the Company in a manner similar to the changes that were made to the New York State laws described above. These changes were also effective January 1, 2015. However, the New York City laws would differ from the New York State laws in certain ways including by:

—

Retaining an alternative tax on capital;

—

Measuring the apportionment of income to New York City by a weighted average of the measured New York City receipts (primarily based on customer location), payroll, and property. However, the payroll and property factors are phased out over three years, at which time the apportionment rules will be identical to those for New York State;

—

For financial institutions with total assets below $100 billion, the New York City statutory tax rate drops from 9% to 8.85%; and

—

Tax relief is provided for net income earned on residential portfolio loans that are secured by rent-regulated units or situated in low-income communities in New York City. This benefit is phased out for financial institutions with total assets between $100 billion and $150 billion.

Since the law was enacted in April, the impact of the New York City tax legislation will first be reflected in our earnings for the three months ended June 30, 2015.

These changes in the tax laws of New York City will result in a one-time reduction in deferred tax expense of approximately $1.5 million in the second quarter and a modest increase in the ongoing income tax expense of the Company. The amount of the impact on our future tax expense will be affected by any changes in our operations, structure, or profitability.

Balance Sheet Summary

Loans

At March 31, 2015, loans, net represented $35.5 billion, or 73.6%, of total assets, a $128.5 million decrease from the balance at December 31, 2014. Included in the March 31st amount were covered loans, net of $2.3 billion; non-covered loans held for investment, net of $32.9 billion; and non-covered loans held for sale of $351.5 million, as more fully discussed below.

Covered Loans

“Covered loans” refers to the loans we acquired in our FDIC-assisted AmTrust and Desert Hills transactions, and are referred to as such because they are covered by loss sharing agreements with the FDIC. At March 31, 2015, covered loans represented $2.3 billion, or 6.6%, of the total loan balance, an $87.2 million decrease from the balance at December 31, 2014. In addition to repayments, the reduction reflects $14.2 million of non-residential loans acquired in the Desert Hills transaction that are no longer covered by our FDIC loss sharing agreements, in accordance with their terms. These loans are now classified as “purchased credit-impaired” (“PCI ”) loans and are included in the balance of non-covered “Other loans” at March 31, 2015.

One-to-four family loans represented $2.2 billion of total covered loans at the end of the current first quarter, with all other loan types (primarily consisting of home equity lines of credit, or “HELOCs”) representing $188.7 million, combined.

Covered one-to-four family loans include both fixed and adjustable rate loans. At March 31, 2015, $1.7 billion, or 70.3%, of our covered loans were adjustable rate loans, with a weighted average interest rate of 3.27%. The remainder of the covered loan portfolio consisted of fixed rate loans at that date. The interest rates on the adjustable rate loans in the covered loan portfolio are indexed to the one-year LIBOR or the one-year Treasury rate, plus a spread in the range of 2% to 5%, subject to certain caps.

The AmTrust and Desert Hills loss sharing agreements each require the FDIC to reimburse us for 80% of losses up to a specified threshold, and for 95% of losses beyond that threshold, with respect to covered one-to-four family loans and covered other real estate owned (“OREO”).

Geographical Analysis of the Covered Loan Portfolio

The following table presents a geographical analysis of our covered loan portfolio at March 31, 2015:


(in thousands)
California			$ 410,461
Florida			391,654
Arizona			174,324
Ohio			150,350
Massachusetts			115,312
Michigan			107,149
New York			83,227
Illinois			82,466
Maryland			64,571
New Jersey			57,556
Nevada			56,038
Minnesota			52,757
Washington			50,785
All other states			544,778

Total covered loans			$2,341,428

Non-Covered Loans Held for Investment

Non-covered loans held for investment represented $33.0 billion, or 92.5%, of total loans at the end of the current first quarter, down $12.9 million from the balance at December 31, 2014. In addition to multi-family loans and commercial real estate (“CRE”) loans, the held-for-investment portfolio includes substantially smaller balances of one-to-four family loans; acquisition, development, and construction (“ADC”) loans; and other loans, with specialty finance loans and leases and other commercial and industrial (“C&I”) loans comprising the bulk of the “Other loan” portfolio.

In the first quarter of 2015, we sold $553.3 million of loans, largely through participations, in connection with our current focus on managing our assets below the SIFI threshold, as mentioned in the Executive Summary. During this time, we also produced $2.7 billion of loans for investment, including $2.3 billion of multi-family and CRE loans, combined.

The following table presents information about the loans held for investment we originated in the three months ended March 31, 2015, December 31, 2014, and March 31, 2014:


	For the Three Months Ended
(in thousands)	March 31, 2015		December 31, 2014		March 31, 2014
Mortgage Loans Originated for Investment:
Multi-family	$	1,674,446		$1,879,470	$	1,946,585
Commercial real estate		610,874		417,715		472,673
One-to-four family		788		24,525		85,209
Acquisition, development, and construction		70,794		17,351		55,929

Total mortgage loans originated for investment	$	2,356,902		$2,339,061	$	2,560,396

Other Loans Originated for Investment:
Specialty finance	$	230,670		$ 296,310	$	104,941
Other commercial and industrial		91,501		89,894		151,034
Other		1,676		1,386		1,584

Total other loans originated for investment	$	323,847		$ 387,590	$	257,559

Total loans originated for investment	$	2,680,749		$2,726,651	$	2,817,955

The individual held-for-investment loan portfolios are discussed below.

Multi-Family Loans

Multi-family loans are our principal asset. The loans we produce are primarily secured by non-luxury, residential apartment buildings in New York City that are rent-regulated and feature below-market rents—a market we refer to as our “primary lending niche.” Consistent with our emphasis on this niche, multi-family loan originations represented $1.7 billion, or 62.5%, of the total held-for-investment loans we produced in the first three months of this year.

At March 31, 2015, multi-family loans represented $23.5 billion, or 71.1%, of total non-covered loans held for investment, a $381.7 million decrease from the balance at December 31st. In addition to a modest decline in originations, the reduction in multi-family loans reflects an increase in property transactions and refinancing activity (which resulted in higher prepayment penalty income) and the sale of $410.5 million of multi-family loans, largely through participations. The average multi-family loan had a principal balance of $4.9 million at the end of the current first quarter, as compared to $5.0 million at December 31st.

The vast majority of our multi-family loans are made to long-term owners of buildings with apartments that are subject to rent regulation and feature below-market rents. Our borrowers typically use the funds we provide to make building-wide improvements and renovations to certain apartments, as a result of which they are able to increase the rents their tenants pay. In doing so, the borrower creates increased cash flows to borrow against in future years. We also make loans to building owners seeking to expand their real estate holdings with the purchase of additional properties.

In addition to underwriting multi-family loans on the basis of the buildings’ income and condition, we consider the borrowers’ credit history, profitability, and building management expertise. Borrowers are required to present evidence of their ability to repay the loan from the buildings’ current rent rolls, their financial statements, and related documents.

While a small percentage of our multi-family loans are ten-year fixed rate credits, the vast majority of our multi-family loans feature a term of ten or twelve years, with a fixed rate of interest for the first five or seven years of the loan, and an alternative rate of interest in years six through ten or eight through twelve. The rate charged in the first five or seven years is generally based on intermediate-term interest rates plus a spread. During the remaining years, the loan resets to an annually adjustable rate that is tied to the prime rate of interest, plus a spread. Alternately, the borrower may opt for a fixed rate that is tied to the five-year fixed advance rate of the Federal Home Loan Bank of New York (the “FHLB-NY”), plus a spread. The fixed-rate option also requires the payment of one percentage point of the then-outstanding loan balance. In either case, the minimum rate at repricing is equivalent to the rate in the initial five- or seven-year term.

As the rent roll increases, the typical property owner seeks to refinance the mortgage, and generally does so before the loan reprices in year six or eight. At March 31, 2015 and December 31, 2014, the expected weighted average life of the multi-family loan portfolio was 2.6 years and 3.0 years, respectively.

Multi-family loans that refinance within the first five or seven years are typically subject to an established prepayment penalty schedule. Depending on the remaining term of the loan at the time of prepayment, the penalties normally range from five percentage points to one percentage point of the then-current loan balance. If a loan extends past the fifth or seventh year and the borrower selects the fixed rate option, the prepayment penalties typically reset to a range of five points to one point over years six through ten or eight through twelve. For example, a ten-year multi-family loan that prepays in year three would generally be expected to pay a prepayment penalty equal to three percentage points of the remaining principal balance. A twelve-year multi-family loan that prepays in year one or two would generally be expected to pay a penalty equal to five percentage points.

Prepayment penalties are recorded as interest income and are therefore reflected in the average yields on our loans and assets, our interest rate spread and net interest margin, and the level of net interest income we record. No assumptions are involved in the recognition of prepayment penalty income, as such income is only recorded when cash is received.

Our emphasis on multi-family loans is driven by several factors, including their structure, which reduces our exposure to interest rate volatility. Another factor driving our focus on multi-family lending has been the comparative quality of the loans we produce. Reflecting the nature of the buildings securing our loans, our underwriting standards, and the generally conservative loan-to-value ratios (“LTVs”) our multi-family loans feature at origination, a relatively small percentage of the multi-family loans that have transitioned to non-performing status have actually resulted in losses, even when the credit cycle has taken a downward turn.

We primarily underwrite our multi-family loans based on the current cash flows produced by the collateral property, with a reliance on the “income” approach to appraising the properties, rather than the “sales” approach. The sales approach is subject to fluctuations in the real estate market, as well as general economic conditions, and is therefore likely to be more risky

in the event of a downward credit cycle turn. We also consider a variety of other factors, including the physical condition of the underlying property; the net operating income of the mortgaged premises prior to debt service and depreciation; the debt service coverage ratio (“DSCR”), which is the ratio of the property’s net operating income to its debt service; and the ratio of the loan amount to the appraised value of the property (i.e., the LTV). The multi-family loans we are originating today generally represent no more than 75% of the lower of the appraised value or the sales price of the underlying property and typically feature an amortization period of 30 years, in some cases with an initial interest-only period. In addition to typically requiring a minimum DSCR of 120% on multi-family buildings, we obtain a security interest in the personal property located on the premises, and an assignment of rents and leases.

Accordingly, while our multi-family lending niche has not been immune to downturns in the credit cycle, we continue to believe that the multi-family loans we produce involve less credit risk than certain other types of loans. In general, buildings that are subject to rent regulation have tended to be stable, with occupancy levels remaining more or less constant over time. Because the rents are typically below market and the buildings securing our loans are generally maintained in good condition, they have been more likely to retain their tenants in adverse economic times. In addition, we underwrite our multi-family loans on the basis of the current cash flows generated by the underlying properties, and generally exclude any short-term property tax exemptions and abatement benefits the property owners receive.

Commercial Real Estate Loans

In the first three months of 2015, CRE loans represented $610.9 million, or 22.8%, of the loans we originated for investment, a $193.2 million increase from the volume produced in the trailing quarter and a $138.2 million increase from the volume produced in the year-earlier three months.

At March 31, 2015, CRE loans represented $7.8 billion, or 23.7%, of total loans held for investment, a $188.5 million increase from the balance at December 31, 2014. The average CRE loan had a principal balance of $5.2 million and $5.0 million at the corresponding dates.

The CRE loans we produce are secured by income-producing properties such as office buildings, retail centers, mixed-use buildings, and multi-tenanted light industrial properties. The pricing of our CRE loans is similar to the pricing of our multi-family credits. While a small percentage of our CRE loans feature ten-year fixed-rate terms, they primarily feature a fixed rate of interest for the first five or seven years of the loan that is generally based on intermediate-term interest rates plus a spread. During years six through ten or eight through twelve, the loan resets to an annually adjustable rate that is tied to the prime rate of interest, plus a spread. Alternately, the borrower may opt for a fixed rate that is tied to the five-year fixed advance rate of the FHLB-NY plus a spread. The fixed-rate option also requires the payment of an amount equal to one percentage point of the then-outstanding loan balance. In either case, the minimum rate at repricing is equivalent to the rate in the initial five- or seven-year term.

Prepayment penalties apply to our CRE loans, as they do our multi-family credits. Depending on the remaining term of the loan at the time of prepayment, the penalties normally range from five percentage points to one percentage point of the then-current loan balance. If a loan extends past the fifth or seventh year and the borrower selects the fixed rate option, the prepayment penalties typically reset to a range of five points to one point over years six through ten or eight through twelve. Our CRE loans tend to refinance within three to four years of origination; the expected weighted average life of the CRE portfolio was 3.2 years at both March 31, 2015 and December 31, 2014.

The repayment of loans secured by commercial real estate is often dependent on the successful operation and management of the underlying properties. To minimize our credit risk, we originate CRE loans in adherence with conservative underwriting standards, and require that such loans qualify on the basis of the property’s current income stream and DSCR. The approval of a loan also depends on the borrower’s credit history, profitability, and expertise in property management, and typically requires a minimum DSCR of 130% and a maximum LTV of 65%. In addition, the origination of CRE loans typically requires a security interest in the fixtures, equipment, and other personal property of the borrower and an assignment of the rents and leases.

One-to-Four Family Loans

Consistent with our short-term focus on containing the growth of our assets, we limited the volume of one-to-four family loans we produced for investment, and reduced our portfolio of such loans by $33.9 million to $105.1 million in the three months ended March 31, 2015. Originations of held-for-investment one-to-four family loans fell to $788,000 in the current first quarter from $24.5 million and $85.2 million in the trailing and year-earlier three months, respectively.

Acquisition, Development, and Construction Loans

ADC loans held for investment rose $50.4 million sequentially, to $308.5 million, representing 0.94% of total held-for-investment loans at the end of March. The increase in the March 31st balance reflects a rise in originations, which totaled $70.8 million in the current three-month period.

Because ADC loans are generally considered to have a higher degree of credit risk, especially during a downturn in the credit cycle, borrowers are required to provide a guarantee of repayment and completion. In the three months ended March 31, 2015 and 2014, we recovered losses against guarantees of $144,000 and $40,000, respectively.

Other Loans

Other loans represented $1.3 billion, or 4.0%, of total loans held for investment at the end of the current first quarter, and were up $163.7 million from the balance at December 31st. Specialty finance loans and leases accounted for $632.9 million of the March 31st balance, reflecting a modest three-month increase, while other C&I loans represented $628.3 million, reflecting a $151.9 million rise. The latter increase reflects the transfer of certain other C&I loans in the amount of $153.6 million from “held for sale” to “held for investment” in the first three months of this year.

The remainder of the “other loan” portfolio includes non-covered PCI loans, home equity loans, and HELOCs, as well as consumer loans, most of which were originated by our pre-2009 merger partners prior to their joining the Company.

Specialty Finance Loans and Leases

Our specialty finance subsidiary is based in Foxboro, Massachusetts, and staffed by a group of industry veterans with expertise in originating and underwriting senior secured debt and equipment loans and leases. The subsidiary participates in syndicated loans that are brought to us, and equipment loans and leases that are assigned to us, by a select group of nationally recognized sources, and generally are made to large corporate obligors, many of which are publicly traded, carry investment grade or near-investment grade ratings, and participate in stable industries nationwide.

The loans and leases we fund fall into three distinct categories (asset-based lending, dealer floor-plan lending, and equipment loan and lease financing). Each of these credits is secured with a perfected first security interest or outright ownership in the underlying collateral, and structured as senior debt or as a non-cancelable lease. The pricing of our asset-based and dealer floor-plan loans are at floating rates predominately tied to LIBOR, while our equipment financing credits are at fixed rates at a spread over treasuries.

Other Commercial and Industrial Loans

In contrast to the loans produced by our specialty finance subsidiary, the other C&I loans we produce are primarily made to small and mid-size businesses in the five boroughs of New York City and on Long Island. The other C&I loans we produce are tailored to meet the specific needs of our borrowers, and include term loans, revolving lines of credit, and, to a lesser extent, loans that are partly guaranteed by the Small Business Administration. A broad range of other C&I loans, both collateralized and unsecured, are made available to businesses for working capital (including inventory and accounts receivable), business expansion, the purchase of machinery and equipment, and other general corporate needs. In determining the term and structure of other C&I loans, several factors are considered, including the purpose, the collateral, and the anticipated sources of repayment. Other C&I loans are typically secured by business assets and personal guarantees of the borrower, and include financial covenants to monitor the borrower’s financial stability.

The interest rates on our other C&I loans can be fixed or floating, with floating rate loans being tied to prime or some other market index, plus an applicable spread. Our floating rate loans may or may not feature a floor rate of interest. The decision to require a floor on other C&I loans depends on the level of competition we face for such loans from other institutions, the direction of market interest rates, and the profitability of our relationship with the borrower.

Lending Authority

The loans we originate for investment are subject to federal and state laws and regulations, and are underwritten in accordance with loan underwriting policies and procedures approved by the Mortgage Committee, the Credit Committee, and the respective Boards of Directors.

In accordance with the Banks’ policies, all loans are reviewed by the Mortgage Committee or the Credit Committee, as applicable, and all loans of $10.0 million or more are reported to the respective Boards of Directors. At March 31, 2015, our largest loan was in the amount of $262.5 million; the interest rate on the credit was 3.7% at that date. The loan was originated by the Community Bank on June 28, 2013 to the owner of a commercial office building located in Manhattan and, as of the date of this report, has been current since the origination date.

Geographical Analysis of the Portfolio of Non-Covered Loans Held for Investment

The following table presents a geographical analysis of the multi-family and CRE loans in our held-for-investment loan portfolio at March 31, 2015:

At March 31, 2015

Multi-Family Loans

Commercial Real Estate
Loans

(dollars in thousands)

Amount

Percent
of Total

Amount

Percent
of T