10-Q/A

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q/A

Amendment No. 1

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF

THE SECURITIES EXCHANGE ACT OF 1934

FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2013

Commission File Number 1-31565

NEW YORK COMMUNITY BANCORP, INC.

(Exact name of registrant as specified in its charter)

 

Delaware     06-1377322
(State or other jurisdiction of
incorporation or organization)
    (I.R.S. Employer Identification No.)

615 Merrick Avenue, Westbury, New York 11590

(Address of principal executive offices)

(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

 

440,873,285

 
 

 Number of shares of common stock outstanding at 

August 1, 2013

 


EXPLANATORY NOTE

New York Community Bancorp, Inc. is filing this amendment (the “Form 10-Q/A”) to our Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2013 (the “Form 10-Q”), filed with the U.S. Securities and Exchange Commission (“SEC”) on August 9, 2013, solely to correct a typographical error in introductory language immediately preceding the accretable yield table that appears on page 19 of that Form 10-Q in “Part 1 — Item 1 — Financial Statements — Notes to the Unaudited Consolidated Financial Statements — Note 5. Loans — Covered Loans.” The introductory language, which previously referred to a three-month period, has been revised to refer to a six-month period as follows: “Changes in the accretable yield for covered loans for the six months ended June 30, 2013 were as follows.” In addition, the Company’s Exhibit 101 to the original 10-Q Filing which contained the XBRL (eXtensible Business Reporting Language) Interactive Data File contained the typographical error and has been filed herewith as corrected.

No other changes have been made to the original Form 10-Q.

This Form 10-Q/A should be read in conjunction with the original Form 10-Q, continues to speak as of the date of the Form 10-Q, and does not modify or update disclosures in the original Form 10-Q except as noted above. Accordingly, this Form 10-Q/A does not reflect events occurring after the filing of the Form 10-Q or modify or update any related disclosures. In particular, any forward-looking statements included in this Form 10-Q/A represent management’s view as of the filing date of the Form 10-Q.


NEW YORK COMMUNITY BANCORP, INC.

CONSOLIDATED STATEMENTS OF CONDITION

(in thousands, except share data)

 

     June 30,
2013
(unaudited)
   December 31,
2012

Assets:

         

Cash and cash equivalents

     $ 1,319,710         $ 2,427,258   

Securities:

         

Available-for-sale ($86,531 and $196,300 pledged, respectively)

       315,090           429,266   

Held-to-maturity ($4,551,901 and $4,084,380 pledged, respectively) (fair value of $5,540,835 and $4,705,960, respectively)

       5,626,605           4,484,262   
    

 

 

      

 

 

 

Total securities

       5,941,695           4,913,528   
    

 

 

      

 

 

 

Non-covered loans held for sale

       756,601           1,204,370   

Non-covered loans held for investment, net of deferred loan fees and costs

       28,051,342           27,284,464   

Less:   Allowance for losses on non-covered loans

       (140,689)          (140,948)  
    

 

 

      

 

 

 

Non-covered loans held for investment, net

       27,910,653           27,143,516   

Covered loans

       3,032,172           3,284,061   

Less: Allowance for losses on covered loans

       (60,431)          (51,311)  
    

 

 

      

 

 

 

Covered loans, net

       2,971,741           3,232,750   
    

 

 

      

 

 

 

Total loans, net

       31,638,995           31,580,636   

Federal Home Loan Bank stock, at cost

       482,173           469,145   

Premises and equipment, net

       265,321           264,149   

FDIC loss share receivable

       531,787           566,479   

Goodwill

       2,436,131           2,436,131   

Core deposit intangibles, net

       23,422           32,024   

Mortgage servicing rights

       215,055           144,713   

Bank-owned life insurance

       880,435           867,250   

Other real estate owned (includes $39,108 and $45,115, respectively, covered by loss sharing agreements)

       123,586           74,415   

Other assets

       327,528           369,372   
    

 

 

      

 

 

 

Total assets

     $ 44,185,838         $ 44,145,100   
    

 

 

      

 

 

 

Liabilities and Stockholders’ Equity:

         

Deposits:

         

NOW and money market accounts

     $ 9,437,891         $ 8,783,795   

Savings accounts

       5,423,628           4,213,972   

Certificates of deposit

       7,906,158           9,120,914   

Non-interest-bearing accounts

       2,520,185           2,758,840   
    

 

 

      

 

 

 

Total deposits

       25,287,862           24,877,521   

Borrowed funds:

         

Wholesale borrowings:

         

Federal Home Loan Bank advances

       9,104,698           8,842,974   

Repurchase agreements

       3,425,000           4,125,000   

Fed funds purchased

       100,000           100,000   
    

 

 

      

 

 

 

Total wholesale borrowings

       12,629,698           13,067,974   

Other borrowings

       362,319           362,217   
    

 

 

      

 

 

 

Total borrowed funds

       12,992,017           13,430,191   

Other liabilities

       217,498           181,124   
    

 

 

      

 

 

 

Total liabilities

       38,497,377           38,488,836   
    

 

 

      

 

 

 

Stockholders’ equity:

         

Preferred stock at par $0.01 (5,000,000 shares authorized; none issued)

       --           --   

Common stock at par $0.01 (600,000,000 shares authorized; 440,867,068 and 439,133,951 shares issued, and 440,858,405 and 439,050,966 shares outstanding, respectively)

       4,409           4,391   

Paid-in capital in excess of par

       5,333,295           5,327,111   

Retained earnings

       408,680           387,534   

Treasury stock, at cost (8,663 and 82,985 shares, respectively)

       (118)          (1,067)  

Accumulated other comprehensive loss, net of tax:

         

Net unrealized gain on securities available for sale, net of tax

       6,001           12,614   

Net unrealized loss on the non-credit portion of other-than-temporary impairment (“OTTI”) losses on securities, net of tax

       (5,984)          (13,525)  

Net unrealized loss on pension and post-retirement obligations, net of tax

       (57,822)          (60,794)  
    

 

 

      

 

 

 

Total accumulated other comprehensive loss, net of tax

       (57,805)          (61,705)  
    

 

 

      

 

 

 

Total stockholders’ equity

       5,688,461           5,656,264   
    

 

 

      

 

 

 

Total liabilities and stockholders’ equity

     $ 44,185,838         $ 44,145,100   
    

 

 

      

 

 

 

See accompanying notes to the unaudited consolidated financial statements.

 

1


NEW YORK COMMUNITY BANCORP, INC.

CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME

(in thousands, except per share data)

(unaudited)

 

     For the Three Months
Ended June 30,
     For the Six Months
Ended June 30,
 
         2013              2012              2013              2012      

Interest Income:

           

Mortgage and other loans

    $ 388,156           $ 406,481           $ 755,155           $ 804,665      

Securities and money market investments

     48,418            48,499            94,226            96,953      
  

 

 

    

 

 

    

 

 

    

 

 

 

Total interest income

     436,574            454,980            849,381            901,618      
  

 

 

    

 

 

    

 

 

    

 

 

 

Interest Expense:

           

NOW and money market accounts

     9,777            9,357            18,952            18,090      

Savings accounts

     5,206            3,565            9,227            7,061      

Certificates of deposit

     21,782            23,489            44,017            47,209      

Borrowed funds

     99,925            121,913            202,125            244,188      
  

 

 

    

 

 

    

 

 

    

 

 

 

Total interest expense

     136,690            158,324            274,321            316,548      
  

 

 

    

 

 

    

 

 

    

 

 

 

Net interest income

     299,884            296,656            575,060            585,070      

Provision for losses on non-covered loans

     5,000            15,000            10,000            30,000      

Provision for losses on covered loans

     4,618            18,448            9,120            18,448      
  

 

 

    

 

 

    

 

 

    

 

 

 

Net interest income after provisions for loan losses

     290,266            263,208            555,940            536,622      
  

 

 

    

 

 

    

 

 

    

 

 

 

Non-Interest Income:

           

Mortgage banking income

     23,216            58,323            49,325            93,488      

Fee income

     9,961            9,433            18,733            19,191      

Bank-owned life insurance

     7,337            6,802            14,590            16,387      

Gain on sales of securities

     123            141            16,745            859      

FDIC indemnification income

     3,694            14,759            7,296            14,759      

Other

     9,414            8,747            22,607            15,517      
  

 

 

    

 

 

    

 

 

    

 

 

 

Total non-interest income

     53,745            98,205            129,296            160,201      
  

 

 

    

 

 

    

 

 

    

 

 

 

Non-Interest Expense:

           

Operating expenses:

           

Compensation and benefits

     77,400            73,591            160,906            147,208      

Occupancy and equipment

     24,159            23,249            47,759            45,133      

General and administrative

     45,925            53,669            90,494            103,186      
  

 

 

    

 

 

    

 

 

    

 

 

 

Total operating expenses

     147,484            150,509            299,159            295,527      

Amortization of core deposit intangibles

     4,181            4,920            8,602            10,079      
  

 

 

    

 

 

    

 

 

    

 

 

 

Total non-interest expense

     151,665            155,429            307,761            305,606      
  

 

 

    

 

 

    

 

 

    

 

 

 

Income before income taxes

     192,346            205,984            377,475            391,217      

Income tax expense

     69,829            74,772            136,283            141,752      
  

 

 

    

 

 

    

 

 

    

 

 

 

Net income

    $ 122,517           $ 131,212           $ 241,192           $ 249,465      
  

 

 

    

 

 

    

 

 

    

 

 

 

Other comprehensive income, net of tax:

           

Change in net unrealized gain/loss on securities available for sale, net of tax of $2,845; $2,096; $2,382; and $3,473, respectively

     (4,203)           3,094            (3,518)           5,185      

Change in the non-credit portion of OTTI losses recognized in other comprehensive income, net of tax of $4,768; $16; $4,785; and $31, respectively

     7,513            26            7,541            49      

Change in pension and post-retirement obligations, net of tax of $1,008; $1,044; $2,016; and $2,086, respectively

     1,486            1,537            2,972            3,074      

Less:   Reclassification adjustment for sales of available for sale securities, net of tax of $50; $57; $2,098; and $332, respectively

     (73)           (84)           (3,095)           (527)     
  

 

 

    

 

 

    

 

 

    

 

 

 

Total other comprehensive income, net of tax

     4,723            4,573            3,900            7,781      
  

 

 

    

 

 

    

 

 

    

 

 

 

Total comprehensive income, net of tax

    $ 127,240           $ 135,785           $ 245,092           $ 257,246      
  

 

 

    

 

 

    

 

 

    

 

 

 

Basic earnings per share

    $ 0.28           $ 0.30           $ 0.55           $ 0.56      
  

 

 

    

 

 

    

 

 

    

 

 

 

Diluted earnings per share

    $ 0.28           $ 0.30           $ 0.55           $ 0.56      
  

 

 

    

 

 

    

 

 

    

 

 

 

See accompanying notes to the unaudited consolidated financial statements.

 

2


NEW YORK COMMUNITY BANCORP, INC.

CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY

(in thousands, except share data)

(unaudited)

 

    For the Six Months
 Ended June 30, 2013 
   

Common Stock (Par Value: $0.01):

     

Balance at beginning of year

    $ 4,391       

Shares issued for restricted stock awards (1,729,950 shares)

      18       

Shares issued for exercise of stock options (3,167 shares)

      --       
   

 

 

     

Balance at end of period

      4,409       
   

 

 

     

Paid-in Capital in Excess of Par:

     

Balance at beginning of year

      5,327,111       

Shares issued for restricted stock awards, net of forfeitures

      (5,093)      

Compensation expense related to restricted stock awards

      10,963       

Tax effect of stock plans

      314       
   

 

 

     

Balance at end of period

      5,333,295       
   

 

 

     

Retained Earnings:

     

Balance at beginning of year

      387,534       

Net income

      241,192       

Dividends paid on common stock ($0.50 per share)

      (220,034)      

Exercise of stock options

      (12)      
   

 

 

     

Balance at end of period

      408,680       
   

 

 

     

Treasury Stock:

     

Balance at beginning of year

      (1,067)      

Purchase of common stock (313,493 shares)

      (4,197)      

Exercise of stock options (5,344 shares)

      71       

Shares issued for restricted stock awards (382,471 shares)

      5,075       
   

 

 

     

Balance at end of period

      (118)      
   

 

 

     

Accumulated Other Comprehensive Loss, net of tax:

     

Balance at beginning of year

      (61,705)      

Other comprehensive income, net of tax

      3,900       
   

 

 

     

Balance at end of period

      (57,805)      
   

 

 

     

Total stockholders’ equity

     $  5,688,461       
   

 

 

     

See accompanying notes to the unaudited consolidated financial statements.

 

3


NEW YORK COMMUNITY BANCORP, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(unaudited)

 

     For the Six Months  Ended
June 30,
 
     2013        2012  

Cash Flows from Operating Activities:

       

Net income

    $ 241,192           $ 249,465     

Adjustments to reconcile net income to net cash provided by operating activities:

       

Provisions for loan losses

     19,120             48,448     

Depreciation and amortization

     13,919             12,139     

Accretion of premiums and discounts, net

     (1,071)            (742)    

Amortization of core deposit intangibles

     8,602             10,079     

Net gain on sale of securities

     (16,745)            (859)    

Net gain on sale of loans

     (42,973)            (92,976)    

Stock plan-related compensation

     10,963             10,375     

Deferred tax expense

     7,905             13,512     

Changes in operating assets and liabilities:

       

(Increase) decrease in other assets

     (66,401)            51,779     

Increase in other liabilities

     41,363             71,671     

Origination of loans held for sale

     (4,426,828)            (5,094,278)    

Proceeds from sale of loans originated for sale

     4,869,711             5,117,092     
  

 

 

      

 

 

 

Net cash provided by operating activities

     658,757             395,705     
  

 

 

      

 

 

 

Cash Flows from Investing Activities:

       

Proceeds from repayment of securities held to maturity

     506,277             1,378,707     

Proceeds from repayment of securities available for sale

     50,875             370,667     

Proceeds from sale of securities held to maturity

     191,142             --     

Proceeds from sale of securities available for sale

     414,186             330,859     

Purchase of securities held to maturity

     (1,814,586)            (1,415,389)    

Purchase of securities available for sale

     (357,000)            (379,890)    

Net (purchase) redemption of Federal Home Loan Bank stock

     (13,028)            65,959     

Net increase in loans

     (477,389)            (704,639)    

Purchase of premises and equipment, net

     (15,091)            (11,955)    
  

 

 

      

 

 

 

Net cash used in investing activities

     (1,514,614)            (365,681)    
  

 

 

      

 

 

 

Cash Flows from Financing Activities:

       

Net increase in deposits

     410,341             2,722,519     

Net increase (decrease) in short-term borrowed funds

     300,000             (1,277,000)    

Net decrease in long-term borrowed funds

     (738,174)            (94,801)    

Tax effect of stock plans

     314             (35)    

Cash dividends paid on common stock

     (220,034)            (219,217)    

Treasury stock purchases

     (4,197)            (2,554)    

Net cash received from stock option exercises

     59             --     
  

 

 

      

 

 

 

Net cash (used in) provided by financing activities

     (251,691)            1,128,912     
  

 

 

      

 

 

 

Net (decrease) increase in cash and cash equivalents

     (1,107,548)            1,158,936     

Cash and cash equivalents at beginning of period

     2,427,258             2,001,737     
  

 

 

      

 

 

 

Cash and cash equivalents at end of period

    $  1,319,710            $  3,160,673     
  

 

 

      

 

 

 

Supplemental information:

       

Cash paid for interest

      $275,018              $311,632     

Cash paid for income taxes

     102,718             171,965     

Non-cash investing and financing activities:

       

Transfers to other real estate owned from loans

     77,516             59,208     

See accompanying notes to the unaudited consolidated financial statements.

 

4


NEW YORK COMMUNITY BANCORP, INC.

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

Note 1. Organization and Basis of Presentation

Organization

Formerly known as Queens County Bancorp, Inc., New York Community Bancorp, Inc. (on a stand-alone basis, the “Parent Company” or, collectively with its subsidiaries, the “Company”) was organized under Delaware law on July 20, 1993 and is the holding company for New York Community Bank and New York Commercial Bank (hereinafter referred to as the “Community Bank” and the “Commercial Bank,” respectively, and collectively as the “Banks”). In addition, for the purpose of these Consolidated Financial Statements, the “Community Bank” and the “Commercial Bank” refer not only to the respective banks but also to their respective subsidiaries.

The Community Bank is the primary banking subsidiary of the Company. Founded on April 14, 1859 and formerly known as Queens County Savings Bank, the Community Bank converted from a state-chartered mutual savings bank to the capital stock form of ownership on November 23, 1993, at which date the Company issued its initial offering of common stock (par value: $0.01 per share) at a price of $25.00 per share. The Commercial Bank was established on December 30, 2005.

Reflecting nine stock splits, the Company’s initial offering price adjusts to $0.93 per share. All share and per share data presented in this report have been adjusted to reflect the impact of the stock splits.

The Company changed its name to New York Community Bancorp, Inc. on November 21, 2000 in anticipation of completing the first of eight business combinations that expanded its footprint well beyond Queens County to encompass all five boroughs of New York City, Long Island, and Westchester County in New York, and seven counties in the northern and central parts of New Jersey. The Company expanded beyond this region to south Florida, northeast Ohio, and central Arizona through its FDIC-assisted acquisition of certain assets and its assumption of certain liabilities of AmTrust Bank (“AmTrust”) in December 2009, and extended its Arizona franchise through its FDIC-assisted acquisition of certain assets and its assumption of certain liabilities of Desert Hills Bank (“Desert Hills”) in March 2010. On June 28, 2012, the Company completed its 11th transaction when it assumed the deposits of Aurora Bank FSB.

Reflecting this strategy of growth through acquisitions, the Community Bank currently operates 239 branches, four of which operate directly under the Community Bank name. The remaining 235 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 35 branches in Manhattan, Queens, Brooklyn, Westchester County, and Long Island (all in New York), including 18 branches that operate under the name “Atlantic Bank.”

Basis of Presentation

The following is a description of the significant accounting and reporting policies that the Company and its wholly-owned subsidiaries follow in preparing and presenting their consolidated financial statements, which conform to U.S. generally accepted accounting principles (“GAAP”) and to general practices within the banking industry. The preparation of financial statements in conformity with GAAP requires the Company to make estimates and judgments that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the consolidated financial statements, and the reported amounts of revenues and expenses during the reporting period. Estimates that are particularly susceptible to change in the near term are used in connection with the determination of the allowances for loan losses; the valuation of loans held for sale; the evaluation of goodwill for impairment; the evaluation of other-than-temporary impairment (“OTTI”) on securities; and the evaluation of the need for a valuation allowance on the Company’s deferred tax assets. The current economic environment has increased the degree of uncertainty inherent in these material estimates.

The unaudited consolidated financial statements include the accounts of the Company and other entities in which the Company has a controlling financial interest. All inter-company accounts and transactions are eliminated in consolidation. These unaudited consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in the Company’s 2012 Annual Report on Form 10-K. The Company currently has unconsolidated subsidiaries in the form of wholly-owned statutory business trusts, which were formed to issue guaranteed capital debentures (“capital securities”). Please see Note 7, “Borrowed Funds,” for additional information regarding these trusts.

When necessary, reclassifications are made to prior-year amounts to conform to the current-year presentation.

 

5


Note 2. Computation of Earnings per Share

Basic earnings per share (“EPS”) is computed by dividing net income by the weighted average number of common shares outstanding during the period. Diluted EPS is computed using the same method as basic EPS, however, the computation reflects the potential dilution that would occur if outstanding in-the-money stock options were exercised and converted into common stock.

Unvested stock-based compensation awards containing non-forfeitable rights to dividends are considered participating securities, and therefore are included in the two-class method for calculating EPS. Under the two-class method, all earnings (distributed and undistributed) are allocated to common shares and participating securities based on their respective rights to receive dividends. The Company grants restricted stock to certain employees under its stock-based compensation plans. Recipients receive cash dividends during the vesting periods of these awards (i.e., including on the unvested portion of such awards). Since these dividends are non-forfeitable, the unvested awards are considered participating securities and therefore have earnings allocated to them.

The following table presents the Company’s computation of basic and diluted EPS for the periods indicated:

 

     Three Months Ended
June 30,
   Six Months Ended
June 30,
(in thousands, except share and per share data)    2013    2012    2013    2012

Net income

       $122,517            $131,212            $241,192            $249,465    

Less: Dividends paid on and earnings allocated to participating securities

       (791)           (1,246)           (1,525)           (2,339)   
    

 

 

      

 

 

      

 

 

      

 

 

 

Earnings applicable to common stock

       $121,726            $129,966            $239,667            $247,126    
    

 

 

      

 

 

      

 

 

      

 

 

 

Weighted average common shares outstanding

       439,452,048            437,820,639            439,079,827            437,644,249    
    

 

 

      

 

 

      

 

 

      

 

 

 

Basic earnings per common share

       $0.28            $0.30            $0.55            $0.56    
    

 

 

      

 

 

      

 

 

      

 

 

 

Earnings applicable to common stock

       $121,726            $129,966            $239,667            $247,126    
    

 

 

      

 

 

      

 

 

      

 

 

 

Weighted average common shares outstanding

       439,452,048            437,820,639            439,079,827            437,644,249    

Potential dilutive common shares(1)

       3,298            4,063            3,445            4,698    
    

 

 

      

 

 

      

 

 

      

 

 

 

Total shares for diluted earnings per share computation

       439,455,346            437,824,702            439,083,272            437,648,947    
    

 

 

      

 

 

      

 

 

      

 

 

 

Diluted earnings per common share and common share equivalents

       $0.28            $0.30            $0.55            $0.56    
    

 

 

      

 

 

      

 

 

      

 

 

 

 

(1) Options to purchase 253,500 shares of the Company’s common stock that were outstanding in the three and six months ended June 30, 2013, at a weighted average exercise price of $22.14, were excluded from the respective computations of diluted EPS because their inclusion would have had an antidilutive effect. Options to purchase 4,981,879 shares of the Company’s common stock that were outstanding in the three and six months ended June 30, 2012, at a weighted average exercise price of $15.40, were excluded from the respective computations of diluted EPS because their inclusion also would have had an antidilutive effect.

 

6


Note 3. Reclassifications Out of Accumulated Other Comprehensive Loss

 

(in thousands)    For the Six Months Ended June 30, 2013

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

Unrealized gains on available-for-sale securities

     $   5,193        Gain on sales of securities
       (2,098)       Tax expense
    

 

 

    
     $ 3,095        Net gain on sales of securities, net of tax
    

 

 

    

Amortization of defined benefit pension items:

       

Prior-service costs

     $ 124        (2)

Actuarial losses

       (5,030)       (2)
    

 

 

    
       (4,906)       Total before tax
       1,982        Tax benefit
    

 

 

    
     $  (2,924)      

Amortization of defined benefit pension items, net of tax

    

 

 

    

Total reclassifications for the period

     $ 171       
    

 

 

    

 

(1) Amounts in parentheses indicate expense items.
(2) These accumulated other comprehensive loss components are included in the computation of net periodic (credit) expense. (Please see Note 9, Pension and Other Post-Retirement Benefits, for additional information).

 

7


Note 4. Securities

The following table summarizes the Company’s portfolio of securities available for sale at June 30, 2013:

 

     June 30, 2013
(in thousands)     Amortized 
Cost
       Gross
 Unrealized 

Gain
       Gross
 Unrealized 

Loss
        Fair Value 

Mortgage-Related Securities:

                         

GSE certificates (1)

      $ 27,848           $ 1,543           $ 2           $ 29,389  

GSE CMOs (2)

       62,160            970            --            63,130  

Private label CMOs

       13,465            --            95            13,370  
    

 

 

        

 

 

        

 

 

        

 

 

 

Total mortgage-related securities

      $ 103,473           $ 2,513           $ 97           $ 105,889  
    

 

 

        

 

 

        

 

 

        

 

 

 

Other Securities:

                         

Municipal bonds

      $ 1,077           $ 103           $ --           $ 1,180  

Capital trust notes

       32,666            4,471            2,478            34,659  

Preferred stock

       118,205            4,406            898            121,713  

Common stock

       49,619            2,776            746            51,649  
    

 

 

        

 

 

        

 

 

        

 

 

 

Total other securities

      $ 201,567           $ 11,756           $ 4,122           $ 209,201  
    

 

 

        

 

 

        

 

 

        

 

 

 

Total securities available for sale (3)

      $ 305,040           $ 14,269           $ 4,219           $ 315,090  
    

 

 

        

 

 

        

 

 

        

 

 

 

 

(1) Government-sponsored enterprises
(2) Collateralized mortgage obligations
(3) At June 30, 2013, the non-credit portion of OTTI recorded in accumulated other comprehensive loss (“AOCL”) was $570,000 (before taxes).

As of June 30, 2013, the fair value of marketable equity securities included corporate preferred stock of $121.7 million and common stock of $51.6 million, with the latter primarily consisting of an investment in a large cap equity fund and certain other funds that are Community Reinvestment Act (“CRA”) eligible.

The following table summarizes the Company’s portfolio of securities available for sale at December 31, 2012:

 

     December 31, 2012
(in thousands)     Amortized 
Cost
       Gross
  Unrealized  

Gain
       Gross
  Unrealized  

Loss
        Fair Value 

Mortgage-Related Securities:

                         

GSE certificates

     $ 85,488          $ 7,197           $ 6          $ 92,679  

GSE CMOs

       62,236            4,924            --            67,160  

Private label CMOs

       17,276            140            --            17,416  
    

 

 

        

 

 

        

 

 

        

 

 

 

Total mortgage-related securities

     $ 165,000          $ 12,261           $ 6          $ 177,255  
    

 

 

        

 

 

        

 

 

        

 

 

 

Other Securities:

                         

Municipal bonds

     $ 46,288          $ 128           $ 120          $ 46,296  

Capital trust notes

       35,231            7,363            4,159            38,435  

Preferred stock

       118,205            6,843            30            125,018  

Common stock

       43,984            1,191            2,913            42,262  
    

 

 

        

 

 

        

 

 

        

 

 

 

Total other securities

     $ 243,708          $ 15,525           $   7,222          $  252,011  
    

 

 

        

 

 

        

 

 

        

 

 

 

Total securities available for sale (1)

     $ 408,708          $ 27,786           $   7,228          $  429,266  
    

 

 

        

 

 

        

 

 

        

 

 

 

 

(1) At December 31, 2012, the non-credit portion of OTTI recorded in AOCL was $570,000 (before taxes).

 

8


The following tables summarize the Company’s portfolio of securities held to maturity at June 30, 2013 and December 31, 2012:

 

     June 30, 2013
(in thousands)     Amortized 
Cost
     Carrying  
Amount
   Gross
    Unrealized    
Gain
   Gross
   Unrealized   
Loss
    Fair Value 

Mortgage-Related Securities:

                        

GSE certificates

      $ 1,541,696         $ 1,541,696         $ 33,051         $ 34,912         $ 1,539,835  

GSE CMOs

       1,567,381          1,567,381          40,563          11,169          1,596,775  

Other mortgage-related securities

       3,054          3,054          --          --          3,054  
    

 

 

      

 

 

      

 

 

      

 

 

      

 

 

 

Total mortgage-related securities

      $ 3,112,131         $ 3,112,131         $ 73,614         $ 46,081         $ 3,139,664  
    

 

 

      

 

 

      

 

 

      

 

 

      

 

 

 

Other Securities:

                        

GSE debentures

      $ 2,304,716         $ 2,304,716         $ 7,722         $ 116,622         $ 2,195,816  

Corporate bonds

       72,698          72,698          9,651          --          82,349  

Municipal bonds

       61,396          61,396          17          3,257          58,156  

Capital trust notes

       84,908          75,664          1,180          11,994          64,850  
    

 

 

      

 

 

      

 

 

      

 

 

      

 

 

 

Total other securities

      $ 2,523,718         $ 2,514,474         $ 18,570         $ 131,873         $ 2,401,171  
    

 

 

      

 

 

      

 

 

      

 

 

      

 

 

 

Total securities held to maturity (1)

      $ 5,635,849         $ 5,626,605         $ 92,184         $ 177,954         $ 5,540,835  
    

 

 

      

 

 

      

 

 

      

 

 

      

 

 

 

 

(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 June 30, 2013, the non-credit portion of OTTI recorded in AOCL was $9.2 million (before taxes).

 

     December 31, 2012
(in thousands)     Amortized 
Cost
     Carrying  
Amount
   Gross
    Unrealized    
Gain
   Gross
   Unrealized   
Loss
    Fair Value 

Mortgage-Related Securities:

                        

GSE certificates

      $ 1,253,769         $ 1,253,769         $ 87,860         $ 5         $ 1,341,624  

GSE CMOs

       1,898,228          1,898,228          104,764          --          2,002,992  

Other mortgage-related securities

       3,220          3,220          --          --          3,220  
    

 

 

      

 

 

      

 

 

      

 

 

      

 

 

 

Total mortgage-related securities

      $ 3,155,217         $ 3,155,217         $ 192,624         $ 5         $ 3,347,836  
    

 

 

      

 

 

      

 

 

      

 

 

      

 

 

 

Other Securities:

                        

GSE debentures

      $ 1,129,618         $ 1,129,618         $ 15,739         $ --         $ 1,145,357  

Corporate bonds

       72,501          72,501          12,504          --          85,005  

Municipal bonds

       16,982          16,982          245          --          17,227  

Capital trust notes

       131,513          109,944          14,588          13,997          110,535  
    

 

 

      

 

 

      

 

 

      

 

 

      

 

 

 

Total other securities

      $ 1,350,614         $ 1,329,045         $ 43,076         $ 13,997         $ 1,358,124  
    

 

 

      

 

 

      

 

 

      

 

 

      

 

 

 

Total securities held to maturity (1)

      $ 4,505,831         $ 4,484,262         $ 235,700         $ 14,002         $ 4,705,960  
    

 

 

      

 

 

      

 

 

      

 

 

      

 

 

 

 

(1) At December 31, 2012, the non-credit portion of OTTI recorded in AOCL was $21.6 million (before taxes).

The Company had $482.2 million and $469.1 million of Federal Home Loan Bank (“FHLB”) stock, at cost, at June 30, 2013 and December 31, 2012, respectively. The Company is required to maintain this investment in order to have access to the funding resources provided by the FHLB.

The following table summarizes the gross proceeds, gross realized gains, and gross realized losses from the sale of available-for-sale securities during the six months ended June 30, 2013 and 2012:

 

     For the Six Months  Ended
June 30,
(in thousands)          2013                2012      

Gross proceeds

     $ 414,186        $ 330,859  

Gross realized gains

       5,193          859  

Gross realized losses

       --          --  
    

 

 

      

 

 

 

In addition, during the six months ended June 30, 2013, the Company sold held-to-maturity securities with gross proceeds of $191.1 million and gross realized gains of $11.6 million. These sales occurred because the Company had collected a substantial portion (at least 85%) of the initial principal balance.

 

9


The $99.5 million market value of the capital trust note portfolio at June 30, 2013 included three pooled trust preferred securities. The following table details the pooled trust preferred securities that had at least one credit rating below investment grade as of June 30, 2013:

 

     INCAPS
Funding I
  Alesco Preferred
Funding VII Ltd.
  Preferred Term
Securities II
(dollars in thousands)     Class B-2 Notes    Class C-1 Notes    Mezzanine Notes 

Book value

       14,964         553         452  

Fair value

       19,319         574         952  

Unrealized gain (loss)

       4,355         21         500  

Lowest credit rating assigned to security

       CCC         C         C  

Number of banks/insurance companies currently performing

       19         52         10  

Actual deferrals and defaults as a percentage of original collateral

       9 %       17 %       26 %

Expected deferrals and defaults as a percentage of remaining performing collateral

       22         25         46  

Expected recoveries as a percentage of remaining performing collateral

       --         --         --  

Excess subordination as a percentage of remaining performing collateral

       22         --         --  

As of June 30, 2013, after taking into account the Company’s best estimates of future deferrals, defaults, and recoveries, two of its pooled trust preferred securities had no excess subordination in the classes it owns and one had excess subordination of 22%. Excess subordination is calculated after taking into account the projected deferrals, defaults, and recoveries noted in the table above, and indicates whether there is sufficient additional collateral to cover the outstanding principal balance of the class owned.

In the following table, the beginning balance represents the credit loss component for debt securities for which OTTI occurred prior to January 1, 2013. For credit-impaired debt securities, OTTI recognized in earnings after that date is presented as an addition in two components, based upon whether the current period is the first time a debt security was credit-impaired (initial credit impairment) or is not the first time a debt security was credit-impaired (subsequent credit impairment).

 

 

(in thousands)    For the Six Months
 Ended June 30, 2013 

Beginning credit loss amount as of December 31, 2012

      $ 219,978  

Add:   Initial other-than-temporary credit losses

       --  

            Subsequent other-than-temporary credit losses

       --  

            Amount previously recognized in AOCL

       --  

Less:    Realized losses for securities sold

       --  

            Securities intended or required to be sold

       --  

            Increases in expected cash flows on debt securities

       4,256  
    

 

 

 

Ending credit loss amount as of June 30, 2013

      $ 215,722  
    

 

 

 

 

10


The following table summarizes the carrying amounts and estimated fair values of held-to-maturity debt securities, and the amortized costs and estimated fair values of available-for-sale debt securities, at June 30, 2013, by contractual maturity. Mortgage-related securities held to maturity and available for sale, all of which have prepayment provisions, are distributed to a maturity category based on the ends of the estimated average lives of such securities. Principal and amortization prepayments are not shown in maturity categories as they occur, but are considered in the determination of estimated average life.

 

 

     At June 30, 2013     
(dollars in thousands)    Mortgage-
Related
Securities
   Average
Yield
   U.S. Treasury
and GSE
Obligations
   Average
Yield
   State, County,
and Municipal
   Average
Yield
(1)
   Other Debt
Securities 
(2)
   Average
Yield
   Fair Value

Held-to-Maturity Securities:

                                            

  Due within one year

      $ --          --%          $ --          --%          $ --          --%         $ --          --%         $ --  

  Due from one to five years

       --          --              60,502          4.17              1,486          2.96              --          --              69,250  

  Due from five to ten years

       2,100,609          3.08              894,214          2.52              --          --              46,830          4.04              3,004,703  

  Due after ten years

       1,011,522          3.51              1,350,000          2.62              59,910          2.85              101,532          5.52              2,466,882  
    

 

 

      

 

 

      

 

 

      

 

 

      

 

 

      

 

 

      

 

 

      

 

 

      

 

 

 

Total debt securities held to maturity

     $ 3,112,131          3.22%          $ 2,304,716            2.62%         $  61,396          2.85%         $  148,362            5.05%         $  5,540,835  
    

 

 

      

 

 

      

 

 

      

 

 

      

 

 

      

 

 

      

 

 

      

 

 

      

 

 

 

Available-for-Sale Securities: (3)

                                            

  Due within one year

      $ 65          3.88%          $ --          --%         $ 125          5.90%         $ --          --%         $ 193  

  Due from one to five years

       7,351          7.02              --          --             533          6.36             --          --             8,357  

  Due from five to ten years

       19,061          3.65             --          --             419          6.59             --          --             20,415  

  Due after ten years

       76,996          4.47             --          --             --          --             32,666          4.27             112,763  
    

 

 

      

 

 

      

 

 

      

 

 

      

 

 

      

 

 

      

 

 

      

 

 

      

 

 

 

Total debt securities available for sale

      $ 103,473            4.50%          $ --            --%         $ 1,077            6.39%         $ 32,666            4.27%         $ 141,728  
    

 

 

      

 

 

      

 

 

      

 

 

      

 

 

      

 

 

      

 

 

      

 

 

      

 

 

 

 

(1) Not presented on a tax-equivalent basis.
(2) Includes corporate bonds and capital trust notes. Included in capital trust notes are $15.5 million and $452,000 of pooled trust preferred securities available for sale and held to maturity, respectively, all of which are due after ten years. The remaining capital trust notes consist of single-issue trust preferred securities.
(3) As equity securities have no contractual maturity, they have been excluded from this table.

At June 30, 2013, the Company had commitments to purchase $413.1 million of securities, all of which were GSE securities.

 

11


The following tables present held-to-maturity and available-for-sale securities having a continuous unrealized loss position for less than twelve months and for twelve months or longer as of June 30, 2013:

 

At June 30, 2013

(in thousands)

   Less than Twelve Months    Twelve Months or Longer   Total
      Fair Value        Unrealized Loss        Fair Value        Unrealized Loss       Fair Value       Unrealized Loss

Temporarily Impaired Held-to-Maturity Debt Securities:

                            

GSE debentures

     $  2,120,642         $ 116,622         $        --        $      --       $  2,120,642         $    116,622  

GSE Certificates

       896,722          34,912          --          --         896,722          34,912  

GSE CMOs

       390,518          11,169          --          --         390,518          11,169  

Municipal notes/bonds

       56,653          3,257          --          --         56,653          3,257  

Capital trust notes

       24,441          560          34,721          11,434         59,162          11,994  
    

 

 

      

 

 

      

 

 

      

 

 

     

 

 

      

 

 

 

Total temporarily impaired held-to-maturity debt securities

     $  3,488,976         $ 166,520         $ 34,721        $  11,434       $  3,523,697         $  177,954  
    

 

 

      

 

 

      

 

 

      

 

 

     

 

 

      

 

 

 

Temporarily Impaired Available-for-Sale Securities:

                            

Debt Securities:

                            

   GSE certificates

     $         --         $   --         $    198        $    2       $          198         $         2  

   Private label CMOs

       13,370          95          --          --         13,370          95  

   Corporate bonds

       --          --          --          --         --          --  

   State, county, and municipal

       --          --          --          --         --          --  

    Capital trust notes

       1,955          45          4,979          2,433         6,934          2,478  
    

 

 

      

 

 

      

 

 

      

 

 

     

 

 

      

 

 

 

Total temporarily impaired available-for-sale debt securities

     $   15,325         $   140         $  5,177        $   2,435       $      20,502         $     2,575  

Equity securities

       78,970          963          994          681 (1)         79,964          1,644  
    

 

 

      

 

 

      

 

 

      

 

 

     

 

 

      

 

 

 

Total temporarily impaired available-for-sale securities

     $   94,295         $  1,103         $  6,171        $   3,116       $      100,466         $     4,219  
    

 

 

      

 

 

      

 

 

      

 

 

     

 

 

      

 

 

 

 

(1) The twelve months or longer unrealized losses on equity securities of $681,000 at June 30, 2013 relate to an investment in a financial institution. The principal balance of the investment was $1.7 million at that date.

 

12


The following tables present held-to-maturity and available-for-sale securities having a continuous unrealized loss position for less than twelve months and for twelve months or longer as of December 31, 2012:

 

At December 31, 2012    Less than Twelve Months    Twelve Months or Longer   Total
(in thousands)      Fair Value       Unrealized Loss    Fair Value    Unrealized Loss   Fair Value    Unrealized Loss

Temporarily Impaired Held-to-Maturity Debt Securities:

                            

GSE debentures

      $ --         $ --         $ --         $ --        $ --         $ --  

GSE certificates

       2,238          5          --          --         2,238          5  

GSE CMOs

       --          --          --          --         --          --  

Corporate bonds

       --          --          --          --         --          --  

Capital trust notes

       --          --          32,148          13,997         32,148          13,997  
    

 

 

      

 

 

      

 

 

      

 

 

     

 

 

      

 

 

 

Total temporarily impaired held-to-maturity debt securities

      $ 2,238         $ 5         $ 32,148         $ 13,997        $ 34,386         $ 14,002  
    

 

 

      

 

 

      

 

 

      

 

 

     

 

 

      

 

 

 

Temporarily Impaired Available-for-Sale Securities:

                            

Debt Securities:

                            

   GSE certificates

      $ 297         $ 5         $ 53         $ 1        $ 350         $ 6  

   Private label CMOs

       --          --          --          --         --          --  

   Corporate bonds

       --          --          --          --         --          --  

   State, county, and municipal

       45,096          120          --          --         45,096          120  

   Capital trust notes

       --          --          4,371          4,159         4,371          4,159  
    

 

 

      

 

 

      

 

 

      

 

 

     

 

 

      

 

 

 

Total temporarily impaired available-for-sale debt securities

      $ 45,393         $ 125         $ 4,424         $ 4,160        $ 49,817         $ 4,285  

Equity securities

       15,262          30          28,989          2,913 (1)       44,251          2,943  
    

 

 

      

 

 

      

 

 

      

 

 

     

 

 

      

 

 

 

Total temporarily impaired available-for-sale securities

      $ 60,655         $ 155         $ 33,413         $ 7,073        $ 94,068         $ 7,228  
    

 

 

      

 

 

      

 

 

      

 

 

     

 

 

      

 

 

 

 

(1) The twelve months or longer unrealized losses on equity securities of $2.9 million at December 31, 2012 relate to available-for-sale equity securities that consisted of a large cap equity fund and investments in certain financial institutions. The principal balance of the large cap equity fund was $30.2 million and the twelve months or longer unrealized loss was $2.2 million at that date. The principal balance of investments in financial institutions totaled $1.7 million and the twelve months or longer unrealized loss was $709,000 at that date.

 

13


An OTTI loss on impaired securities must be fully recognized in earnings if an investor has the intent to sell the debt security, or if it is more likely than not that the investor will be required to sell the debt security before recovery of its amortized cost. However, even if an investor does not expect to sell a debt security, it must evaluate the expected cash flows to be received and determine if a credit loss has occurred. In the event that a credit loss occurs, only the amount of impairment associated with the credit loss is recognized in earnings. Amounts relating to factors other than credit losses are recorded in AOCL. Financial Accounting Standards Board (“FASB”) guidance also requires additional disclosures regarding the calculation of credit losses, as well as factors considered by the investor in reaching a conclusion that an investment is not other-than-temporarily impaired.

Available-for-sale securities in unrealized loss positions are analyzed as part of the Company’s ongoing assessment of OTTI. When the Company intends to sell such available-for-sale securities, the Company recognizes an impairment loss equal to the full difference between the amortized cost basis and the fair value of those securities. When the Company does not intend to sell available-for-sale equity or debt securities in an unrealized loss position, potential OTTI is considered based on a variety of factors, including the length of time and extent to which the fair value has been less than the cost; adverse conditions specifically related to the industry, the geographic area or financial condition of the issuer, or the underlying collateral of a security; the payment structure of the security; changes to the rating of the security by a rating agency; the volatility of the fair value changes; and changes in fair value of the security after the balance sheet date. For debt securities, the Company estimates cash flows over the remaining life of the underlying collateral to assess whether credit losses exist and, where applicable, to determine if any adverse changes in cash flows have occurred. The 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 June 30, 2013, the Company did not intend to sell the securities with an unrealized loss position in AOCL, and it was more likely than not that the Company would not be required to sell these securities before recovery of their amortized cost basis. The Company believes that the securities with an unrealized loss position in AOCL were not other-than-temporarily impaired as of June 30, 2013.

Other factors considered in determining whether or not an impairment is temporary include the length of time and the extent to which fair value has been below cost; the severity of the impairment; the cause of the impairment; the financial condition and near-term prospects of the issuer; activity in the market of the issuer that may indicate adverse credit conditions; and the forecasted recovery period using current estimates of volatility in market interest rates (including liquidity and risk premiums).

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 debentures at June 30, 2013 were primarily caused by movements in market interest rates and spread volatility, rather than credit risk. The Company purchased these investments either at par or at a discount or premium relative to their face amount, and the contractual cash flows of these investments are guaranteed by the GSEs. Accordingly, it is expected that these securities will not be settled at a price that is less than the amortized cost of the 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 June 30, 2013.

The Company reviews quarterly financial information related to its investments in capital trust notes, as well as other information that is released by each of the financial institutions that issued the 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 June 30, 2013. It is possible that these securities will perform worse than is currently expected, which could lead to adverse changes in cash flows from these securities and potential OTTI losses in the future. Events that may occur in the future at the financial institutions that issued these securities could trigger material unrecoverable declines in the fair values of the Company’s investments and therefore could result in future potential OTTI losses. Such events include, but are not limited to, government intervention; deteriorating asset quality and credit metrics; significantly higher levels of default and loan loss provisions; losses in value on the underlying collateral; deteriorating credit enhancement; net operating losses; and further illiquidity in the financial markets.

 

14


At June 30, 2013, 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. The unrealized losses on the Company’s equity securities at the end of June 2013 were primarily caused by market volatility. The Company evaluated the near-term prospects of a recovery of fair value for each security in the portfolio, together with the severity and duration of impairment to date. Based on this evaluation, and the Company’s ability and intent to hold these investments for a reasonably sufficient period of time to realize a near-term forecasted recovery of fair value, the Company did not consider these investments to be other-than-temporarily impaired at June 30, 2013. Nonetheless, it is possible that these equity securities will perform worse than is currently expected, which could lead to adverse changes in their fair values, or the failure of the securities to fully recover in value as presently forecasted by management. This would cause the Company to potentially record OTTI losses in future periods. Events that could trigger material declines in the fair values of these securities include, but are not limited to, deterioration in the equity markets; a decline in the quality of the loan portfolios of the issuers in which the Company has invested; and the recording of higher loan loss provisions and net operating losses by such issuers.

The investment securities designated as having a continuous loss position for twelve months or more at June 30, 2013 consisted of six capital trust notes, two mortgage-backed securities, and one equity security. At December 31, 2012, the investment securities designated as having a continuous loss position for twelve months or more consisted of seven capital trust notes, three equity securities, and one mortgage-backed security. At June 30, 2013 and December 31, 2012, the combined market value of the respective securities represented unrealized losses of $14.6 million and $21.1 million. At June 30, 2013, the fair value of securities having a continuous loss position for twelve months or more was 26.2% below the collective amortized cost of $55.4 million. At December 31, 2012, the fair value of such securities was 24.5% below the collective amortized cost of $86.1 million.

Note 5. Loans

The following table sets forth the composition of the loan portfolio at June 30, 2013 and December 31, 2012:

 

     June 30, 2013    December 31, 2012
(dollars in thousands)         Amount         Percent of
Non-Covered
 Loans Held for 
Investment
        Amount         Percent of
Non-Covered
 Loans Held for 
Investment

Non-Covered Loans Held for Investment:

                   

Mortgage Loans:

                   

Multi-family

     $ 19,218,540            68.54%         $ 18,595,833            68.18%  

Commercial real estate

       7,310,119            26.07              7,436,598            27.27      

Acquisition, development, and construction

       417,948            1.49              397,917            1.46      

One-to-four family

       375,585            1.35              203,435            0.75      
    

 

 

      

 

 

      

 

 

      

 

 

 

Total mortgage loans held for investment

       27,322,192            97.45              26,633,783            97.66      
    

 

 

      

 

 

      

 

 

      

 

 

 

Other Loans:

                   

Commercial and industrial

       671,074            2.39              590,044            2.16      

Other

       44,985            0.16              49,880            0.18      
    

 

 

      

 

 

      

 

 

      

 

 

 

Total other loans held for investment

       716,059            2.55              639,924            2.34      
    

 

 

      

 

 

      

 

 

      

 

 

 

Total non-covered loans held for investment

     $ 28,038,251             100.00%         $ 27,273,707             100.00%  
         

 

 

           

 

 

 

Net deferred loan origination costs

       13,091                 10,757        

Allowance for losses on non-covered loans

       (140,689)                (140,948)         
    

 

 

           

 

 

      

Non-covered loans held for investment, net

     $ 27,910,653               $ 27,143,516         

Covered loans

       3,032,172                 3,284,061         

Allowance for losses on covered loans

       (60,431)                (51,311)        
    

 

 

           

 

 

      

Total covered loans, net

     $   2,971,741               $   3,232,750         

Loans held for sale

       756,601                 1,204,370         
    

 

 

           

 

 

      

Total loans, net

     $ 31,638,995               $ 31,580,636         
    

 

 

           

 

 

      

Non-Covered Loans

Non-Covered Loans Held for Investment

The vast majority of the loans the Company originates for investment are multi-family loans, most of which are collateralized by non-luxury apartment buildings in New York City that feature below-market rents. In addition, the Company originates commercial real estate (“CRE”) loans, most of which are collateralized by properties located in New York City and, to a lesser extent, on Long Island and in New Jersey.

 

15


The Company also originates acquisition, development, and construction (“ADC”) loans, one-to-four family loans, and commercial and industrial (“C&I”) loans for investment. ADC loans are primarily originated for multi-family and residential tract projects in New York City and on Long Island, while secured and unsecured in-market C&I loans are made to small and mid-size businesses in New York City, on Long Island, in New Jersey, and, to a lesser extent, in Arizona. In-market C&I loans are typically made for working capital, business expansion, and the purchase of machinery and equipment. In June 2013, the Company began the funding of asset-based, equipment financing, and dealer floor plan loans to nationally recognized borrowers throughout the U.S. All of these C&I loans are senior debt-secured.

Payments on multi-family and CRE loans generally depend on the income produced by the underlying properties which, in turn, depends on their successful operation and management. Accordingly, the ability of the 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 estimated cost of construction, including interest; and the estimated time to complete and/or sell or lease such property. The Company seeks to minimize these risks by maintaining conservative lending policies and rigorous underwriting standards. However, if the estimate of value proves to be inaccurate, the cost of completion is greater than expected, the length of time to complete and/or sell or lease the collateral property is greater than anticipated, or if there is a downturn in the local economy or real estate market, the property could have a value upon completion that is insufficient to assure full repayment of the loan. This could have a material adverse effect on the quality of the ADC loan portfolio, and could result in significant losses or delinquencies.

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

To minimize the risk involved in specialty finance C&I lending, the Company participates in broadly syndicated asset-based, equipment financing, and dealer floor plan loans that are presented by an approved list of select, nationally recognized sources with whom it has established long-term funding relationships. The loans, which are secured by a perfected first security interest in the underlying collateral and structured as senior debt, are made to large corporate obligors, the majority of which are publicly traded, carry investment grade or near-investment grade ratings, participate in stable industries, and are located nationwide. To further minimize the risk involved in specialty finance lending, the Company re-underwrites each transaction; in addition, it retains outside counsel to conduct a further review of the underlying documentation.

The ability of the Company’s borrowers to repay their loans, and the value of the collateral securing such loans, could be adversely impacted by continued or more significant economic weakness in its local markets as a result of increased unemployment, declining real estate values, or increased residential and office vacancies. This not only could result in the Company experiencing an increase in charge-offs and/or non-performing assets, but also could necessitate an increase in the provision for losses on non-covered loans. These events, if they were to occur, would have an adverse impact on the Company’s results of operations and its capital.

While the vast majority of the one-to-four family loans the Company holds for investment are loans that were acquired in merger transactions prior to 2009, the portfolio also includes hybrid jumbo one-to-four family loans that the Company has been originating for investment since 2012. Such loans feature conservative loan-to-value ratios and are made to borrowers with a strong record of repaying their debt.

Loans Held for Sale

The Community Bank’s mortgage banking operation is one of the largest aggregators of one-to-four family loans for sale in the nation. Community banks, credit unions, mortgage companies, and mortgage brokers use its proprietary web-accessible mortgage banking platform to originate and close one-to-four family loans in all 50 states. These loans are generally sold, servicing retained, to GSEs. To a much lesser extent, the Community Bank uses its mortgage banking platform to originate fixed-rate jumbo loans under contract for sale to other financial institutions. Although the volume of jumbo loan originations

 

16


has been immaterial to date, and the Company does not expect the origination of such loans to represent a material portion of the held-for-sale loans it produces, it decided to originate jumbo loans to complement its position in the residential loan origination marketplace. The Company also services mortgage loans for various third parties, primarily including those it sells to GSEs. The unpaid principal balance of serviced loans was $20.5 billion at June 30, 2013 and $17.6 billion at December 31, 2012.

Asset Quality

The following table presents information regarding the quality of the Company’s non-covered loans held for investment at June 30, 2013:

 

(in thousands)     Loans
 30-89  Days 
Past Due
   Non-
 Accrual 
Loans
   Loans
 90 Days or  More 
Delinquent and
Still Accruing
Interest
    Total Past 
Due
Loans
      Current   
Loans
   Total Loans
Receivable

Multi-family

      $ 23,195         $ 112,904         $ --         $ 136,099         $ 19,082,441          $ 19,218,540  

Commercial real estate

       12,432          30,329          --          42,761          7,267,358          7,310,119  

Acquisition, development, and construction

       --          6,737          --          6,737          411,211          417,948  

One-to-four family

       2,738          10,881          --          13,619          361,966          375,585  

Commercial and industrial

       814          4,767          --          5,581          665,493          671,074  

Other

       546          1,475          --          2,021          42,964          44,985  
    

 

 

      

 

 

      

 

 

      

 

 

      

 

 

      

 

 

 

Total

      $ 39,725         $ 167,093         $ --         $ 206,818         $ 27,831,433          $ 28,038,251  
    

 

 

      

 

 

      

 

 

      

 

 

      

 

 

      

 

 

 

The following table presents information regarding the quality of the Company’s non-covered loans held for investment at December 31, 2012:

 

(in thousands)    Loans
 30-89 Days 
Past Due
   Non-
 Accrual 
Loans
   Loans
 90 Days or  More 
Delinquent and
Still Accruing
Interest
    Total Past 
Due
Loans
      Current   
Loans
   Total Loans
Receivable

Multi-family

      $ 19,945         $ 163,460         $ --         $ 183,405         $ 18,412,428          $ 18,595,833  

Commercial real estate

       1,679          56,863          --          58,542          7,378,056          7,436,598  

Acquisition, development, and construction

       1,178          12,091          --          13,269          384,648          397,917  

One-to-four family

       2,645          10,945          --          13,590          189,845          203,435  

Commercial and industrial

       262          17,372          --          17,634          572,410          590,044  

Other

       1,876          599          --          2,475          47,405          49,880  
    

 

 

      

 

 

      

 

 

      

 

 

      

 

 

      

 

 

 

Total

     $ 27,585        $ 261,330        $ --        $ 288,915        $ 26,984,792          $ 27,273,707  
    

 

 

      

 

 

      

 

 

      

 

 

      

 

 

      

 

 

 

The following table summarizes the Company’s portfolio of non-covered held-for-investment loans by credit quality indicator at June 30, 2013:

 

(in thousands)    Multi-Family      Commercial  
Real Estate
  Acquisition,
 Development, and 
Construction
  One-to-Four 
Family
  Total
  Mortgage  
Segment
   Commercial 
and
Industrial
  Other   Total Other
Loan Segment

Credit Quality Indicator:

                               

Pass

       $19,015,112        $ 7,228,098        $ 410,897        $ 366,868        $ 27,020,975        $ 652,336        $ 43,510        $ 695,846  

Special mention

      60,273         32,753         --         276         93,302         11,913         --         11,913  

Substandard

      141,954         48,768         7,051         8,441         206,214         6,825         1,475         8,300  

Doubtful

      1,201         500         --         --         1,701         --         --         --  
   

 

 

     

 

 

     

 

 

     

 

 

     

 

 

     

 

 

     

 

 

     

 

 

 

Total

       $19,218,540        $ 7,310,119        $ 417,948        $ 375,585        $ 27,322,192        $ 671,074        $ 44,985        $ 716,059  
   

 

 

     

 

 

     

 

 

     

 

 

     

 

 

     

 

 

     

 

 

     

 

 

 

 

17


The following table summarizes the Company’s portfolio of non-covered held-for-investment loans by credit quality indicator at December 31, 2012:

 

(in thousands)   Multi-Family     Commercial   
Real Estate
  Acquisition,
  Development, and  
Construction
  One-to-Four
Family
  Total
Mortgage  
Segment
   Commercial 
and
Industrial
  Other   Total Other
Loan Segment

Credit Quality Indicator:

                               

Pass

      $18,285,333       $ 7,337,315       $ 383,557       $ 195,232       $ 26,201,437       $ 561,541       $ 49,281       $ 610,822  

Special mention

      55,280         26,523         --         294         82,097         10,211         --         10,211  

Substandard

      253,794         72,260         11,277         7,909         345,240         18,292         599         18,891  

Doubtful

      1,426         500         3,083         --         5,009         --         --         --  
   

 

 

     

 

 

     

 

 

     

 

 

     

 

 

     

 

 

     

 

 

     

 

 

 

Total

      $18,595,833       $ 7,436,598       $ 397,917       $ 203,435       $ 26,633,783       $ 590,044       $ 49,880       $ 639,924  
   

 

 

     

 

 

     

 

 

     

 

 

     

 

 

     

 

 

     

 

 

     

 

 

 

The preceding classifications follow regulatory guidelines and can be generally described as follows: pass loans are of satisfactory quality; special mention loans have a potential weakness or risk that may result in the deterioration of future repayment; substandard loans are inadequately protected by the current net worth and paying capacity of the borrower or of the collateral pledged (these loans have a well-defined weakness and there is a distinct possibility that the Company will sustain some loss); and doubtful loans, based on existing circumstances, have weaknesses that make collection or liquidation in full highly questionable and improbable. In addition, one-to-four family residential loans are classified utilizing an inter-regulatory agency methodology that incorporates the extent of delinquency and the loan-to-value ratios. These classifications are the most current available and generally have been updated within the last twelve months.

Troubled Debt Restructurings

The Company is required to account for certain held-for-investment loan modifications or restructurings as Troubled Debt Restructurings (“TDRs”). In general, a modification or restructuring of a loan constitutes a TDR if the Company grants a concession to a borrower experiencing financial difficulty. Loans modified as TDRs are placed on non-accrual status until the Company determines that future collection of principal and interest is reasonably assured, which generally requires that the borrower demonstrate performance according to the restructured terms for a period of at least six consecutive months.

The following table presents information regarding the Company’s TDRs as of June 30, 2013 and December 31, 2012:

 

     June 30, 2013    December 31, 2012
(in thousands)     Accruing     Non-Accrual    Total    Accruing    Non-Accrual    Total

Loan Category:

                             

Multi-family

        $10,608           $  93,604           $104,212           $  66,092           $114,556           $180,648  

Commercial real estate

       2,232          16,625          18,857          37,457          39,127          76,584  

Acquisition, development, and construction

       --          --          --          --          510          510  

Commercial and industrial

       1,329          --          1,329          1,463          --          1,463  

One-to-four family

       --          --          --          --          1,101          1,101  
    

 

 

      

 

 

      

 

 

      

 

 

      

 

 

      

 

 

 

Total

        $14,169           $110,229           $124,398           $105,012           $155,294           $260,306  
    

 

 

      

 

 

      

 

 

      

 

 

      

 

 

      

 

 

 

The $35.2 million decline in accruing CRE loans noted in the preceding table was due to the pay-off of a single CRE loan in the first quarter of 2013. The $22.5 million decline in non-accrual CRE loans was primarily due to the pay-off of a $22.0 million loan relationship.

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 June 30, 2013, loans on which concessions were made with respect to rate reductions and/or extension of maturity dates amounted to $114.2 million; loans on which forbearance agreements were reached amounted to $10.2 million.

The eligibility of a borrower for work-out concessions of any nature depends upon the facts and circumstances of each transaction, which may change from period to period, and involve judgment by Company personnel regarding the likelihood that the concession will result in the maximum recovery for the Company.

In the six months ended June 30, 2013, the Company classified two loans (both CRE loans) totaling $1.7 million as non-accrual TDRs. While other concessions were granted to the borrowers, the interest rates on the loans were maintained. As a result, these TDRs did not have a financial impact on the Company’s results of operations.

During the six months ended June 30, 2013, there were no payment defaults on any loans that had been modified as TDRs during the preceding twelve months. A loan is considered to be in payment default once it is 30 days contractually past due under the modified terms.

 

18


The Company does not consider a payment to be in default when the loan is in forbearance, or otherwise granted a delay of payment, when the agreement to forebear or allow a delay of payment is part of a modification. Subsequent to the modification, the loan is not considered to be in default until payment is contractually past due in accordance with the modified terms. However, the Company does consider a loan with multiple modifications or forbearance periods to be in default, and would also consider a loan to be in default if it were in bankruptcy or was partially charged off subsequent to modification.

Covered Loans

The following table presents the carrying value of covered loans acquired in the AmTrust and Desert Hills acquisitions as of June 30, 2013:

 

(dollars in thousands)      Amount      Percent of
Covered Loans

Loan Category:

         

One-to-four family

      $ 2,753,300          90.8%   

All other loans

       278,872          9.2       
    

 

 

      

 

 

 

Total covered loans

      $ 3,032,172          100.0%   
    

 

 

      

 

 

 

The Company refers to the loans acquired in the AmTrust and Desert Hills acquisitions as “covered loans” because the Company is being reimbursed for a substantial portion of losses on these loans under the terms of the FDIC loss sharing agreements. Covered loans are accounted for under Accounting Standards Codification (“ASC”) Topic 310-30, “Loans and Debt Securities Acquired with Deteriorated Credit Quality” (“ASC 310-30”), and initially measured at fair value, which includes estimated future credit losses expected to be incurred over the lives of the loans. Under ASC 310-30, purchasers are permitted to aggregate acquired loans into one or more pools, provided that the loans have common risk characteristics. A pool is then accounted for as a single asset with a single composite interest rate and an aggregate expectation of cash flows.

At June 30, 2013 and December 31, 2012, the unpaid principal balances of covered loans were $3.6 billion and $3.9 billion, respectively. The carrying values of such loans were $3.0 billion and $3.3 billion, respectively, at the corresponding dates.

At the respective acquisition dates, the Company estimated the fair values of the AmTrust and Desert Hills loan portfolios, which represented the expected cash flows from the portfolios, discounted at market-based rates. In estimating such fair value, the Company (a) calculated the contractual amount and timing of undiscounted principal and interest payments (the “undiscounted contractual cash flows”); and (b) estimated the expected amount and timing of undiscounted principal and interest payments (the “undiscounted expected cash flows”). The amount by which the undiscounted expected cash flows exceed the estimated fair value (the “accretable yield”) is accreted into interest income over the lives of the loans. The amount by which the undiscounted contractual cash flows exceed the undiscounted expected cash flows is referred to as the “non-accretable difference.” The non-accretable difference represents an estimate of the credit risk in the loan portfolios at the respective acquisition dates.

The accretable yield is affected by changes in interest rate indices for variable rate loans, changes in prepayment assumptions, and changes in expected principal and interest payments over the estimated lives of the loans. Changes in interest rate indices for variable rate loans increase or decrease the amount of interest income expected to be collected, depending on the direction of interest rates. Prepayments affect the estimated lives of covered loans and could change the amount of interest income and principal expected to be collected. Changes in expected principal and interest payments over the estimated lives of covered loans are driven by the credit outlook and actions that may be taken with borrowers.

The Company periodically evaluates the estimates of the cash flows it expects to collect. Expected future cash flows from interest payments are based on variable rates at the time of the periodic evaluation. Estimates of expected cash flows that are impacted by changes in interest rate indices for variable rate loans and prepayment assumptions are treated as prospective yield adjustments and included in interest income.

Changes in the accretable yield for covered loans for the six months ended June 30, 2013 were as follows:

 

(in thousands)    Accretable Yield

Balance at beginning of period

       $1,201,172    

Reclassification to non-accretable difference

       (164,717)     

Accretion

       (80,326)    
    

 

 

 

Balance at end of period

        $956,129    
    

 

 

 

 

19


In the preceding table, the line item “reclassification to non-accretable difference” includes changes in cash flows that the Company expects to collect due to changes in prepayment assumptions and changes in interest rates on variable rate loans. As of the Company’s last periodic evaluation, prepayment assumptions increased and, accordingly, future expected interest cash flows decreased. This resulted in a decrease in the accretable yield. In addition, partially contributing to the decreases in the expected cash flows were additional decreases in expected cash flows from interest payments due to declining coupon rates. As a result, the Company’s covered variable rate loans continue to reset at lower interest rates.

In connection with the AmTrust and Desert Hills transactions, the Company has acquired other real estate owned (“OREO”), all of which is covered under FDIC loss sharing agreements. Covered OREO is initially recorded at its estimated fair value on the acquisition date, based on independent appraisals less the estimated selling costs. Any subsequent write-downs due to declines in fair value are charged to non-interest expense, and partially offset by loss reimbursements under the FDIC loss sharing agreements. Any recoveries of previous write-downs are credited to non-interest expense and partially offset by the portion of the recovery that is due to the FDIC.

The FDIC loss share receivable represents the present value of the estimated losses on covered loans and OREO to be reimbursed by the FDIC. The estimated losses were based on the same cash flow estimates used in determining the fair value of the covered loans. The FDIC loss share receivable is reduced as losses on covered loans are recognized and as loss sharing payments are received from the FDIC. Realized losses in excess of acquisition-date estimates will result in an increase in the FDIC loss share receivable. Conversely, if realized losses are lower than the acquisition-date estimates, the FDIC loss share receivable will be reduced.

The following table presents information regarding the Company’s covered loans 90 days or more past due at June 30, 2013 and December 31, 2012:

 

(in thousands)    June 30, 2013     December 31, 2012 

Covered Loans 90 Days or More Past Due:

         

One-to-four family

        $255,260           $297,265  

Other loans

       12,561          15,308  
    

 

 

      

 

 

 

Total covered loans 90 days or more past due

        $267,821           $312,573  
    

 

 

      

 

 

 

The following table presents information regarding the Company’s covered loans that were 30 to 89 days past due at June 30, 2013 and December 31, 2012:

 

(in thousands)     June 30, 2013      December 31, 2012 

Covered Loans 30-89 Days Past Due:

         

One-to-four family

           $61,213           $75,129  

Other loans

       4,178          6,057  
    

 

 

      

 

 

 

Total covered loans 30-89 days past due

           $65,391           $81,186  
    

 

 

      

 

 

 

At June 30, 2013, the Company had $65.4 million of covered loans that were 30 to 89 days past due, and covered loans of $267.8 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 $2.7 billion at June 30, 2013 and was considered current at that date. ASC 310-30 allows the Company to aggregate credit-impaired loans acquired in the same fiscal quarter into one or more pools, provided that the loans have common risk characteristics. A pool is then accounted for as a single asset with a single composite interest rate and an aggregate expectation of cash flows.

Loans that may have been classified as non-performing loans by AmTrust or Desert Hills were no longer classified as non-performing because, at the respective dates of acquisition, the Company believed that it would fully collect the new carrying value of these loans. The new carrying value represents the contractual balance, reduced by the portion that is expected to be uncollectible (i.e., the non-accretable difference) and by an accretable yield (discount) that is recognized as 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 provisions for losses on covered loans of $4.6 million and $9.1 million, respectively, in the three and six months ended June 30, 2013. These provisions were largely due to credit deterioration in the acquired portfolios of one-to-four family and home equity loans, and were largely offset by FDIC indemnification income of $3.7 million and $7.3 million, respectively, recorded in non-interest income for the three and six months ended June 30, 2013. The first quarter 2013 provision was largely due to credit deterioration in the acquired portfolios of one-to-four family and home equity loans, and was largely offset by FDIC indemnification income of $3.6 million recorded in non-interest income in the same quarter.

 

20


Note 6. Allowance for Loan Losses

The following tables provide additional information regarding the Company’s allowances for losses on covered and non-covered loans by segment (i.e., mortgage and other), based upon the method of evaluating loan impairment:

 

(in thousands)      Mortgage        Other        Total  

Allowance for Loan Losses at June 30, 2013:

              

Loans individually evaluated for impairment

      $ --         $ --         $ --  

Loans collectively evaluated for impairment

       123,915          16,774          140,689  

Acquired loans with deteriorated credit quality

       39,086          21,345          60,431  
    

 

 

      

 

 

      

 

 

 

Total

      $ 163,001         $ 38,119         $ 201,120  
    

 

 

      

 

 

      

 

 

 

 

(in thousands)      Mortgage        Other        Total  

Allowance for Loan Losses at December 31, 2012:

              

Loans individually evaluated for impairment

      $ 1,486         $ 1,199         $ 2,685  

Loans collectively evaluated for impairment

       126,448          11,815          138,263  

Acquired loans with deteriorated credit quality

       32,593          18,718          51,311  
    

 

 

      

 

 

      

 

 

 

Total

      $ 160,527        $ 31,732         $ 192,259  
    

 

 

      

 

 

      

 

 

 

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

 

(in thousands)      Mortgage        Other        Total  

Loans Receivable at June 30, 2013:

              

Loans individually evaluated for impairment

      $ 178,154         $ 6,601         $ 184,755  

Loans collectively evaluated for impairment

       27,144,038          709,458          27,853,496  

Acquired loans with deteriorated credit quality

       2,753,300          278,872          3,032,172  
    

 

 

      

 

 

      

 

 

 

Total

      $ 30,075,492         $ 994,931         $ 31,070,423  
    

 

 

      

 

 

      

 

 

 

 

(in thousands)      Mortgage        Other        Total  

Loans Receivable at December 31, 2012:

              

Loans individually evaluated for impairment

      $ 309,694         $ 17,702         $ 327,396  

Loans collectively evaluated for impairment

       26,324,088          622,223          26,946,311  

Acquired loans with deteriorated credit quality

       2,976,067          307,994          3,284,061  
    

 

 

      

 

 

      

 

 

 

Total

      $ 29,609,849         $ 947,919         $ 30,557,768  
    

 

 

      

 

 

      

 

 

 

Allowance for Losses on Non-Covered Loans

The following table summarizes activity in the allowance for losses on non-covered loans, by segment, for the six months ended June 30, 2013 and 2012:

 

     For the Six Months Ended June 30,
     2013        2012
(in thousands)    Mortgage    Other    Total        Mortgage    Other    Total

Balance, beginning of period

        $127,934              $13,014              $140,948                $121,995              $15,295              $137,290     

Charge-offs

       (6,024)            (7,019)            (13,043)              (28,982)            (2,813)            (31,795)    

Recoveries

       2,306             478             2,784               442             1,977             2,419     

Provision for losses on non-covered loans

       (301)            10,301             10,000               30,839             (839)            30,000     
    

 

 

      

 

 

      

 

 

        

 

 

      

 

 

      

 

 

 

Balance, end of period

        $123,915              $16,774              $140,689                $124,294              $13,620              $137,914     
    

 

 

      

 

 

      

 

 

        

 

 

      

 

 

      

 

 

 

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

 

21


The following table presents additional information regarding the Company’s impaired non-covered loans at June 30, 2013:

 

(in thousands)    Recorded
  Investment  
   Unpaid
  Principal  
Balance
   Related
  Allowance  
   Average
Recorded
  Investment  
   Interest
Income
  Recognized  

Impaired loans with no related allowance:

                        

Multi-family

     $ 131,457        $ 138,190        $ --        $ 165,906        $ 1,768  

Commercial real estate

       41,811          44,096          --          60,658          1,062  

Acquisition, development, and construction

       4,886          6,030          --          7,399          --  

One-to-four family

       --          --          --          734          --  

Commercial and industrial

       6,601          34,033          --          8,246          54  
    

 

 

      

 

 

      

 

 

      

 

 

      

 

 

 

Total impaired loans with no related allowance

     $ 184,755        $ 222,349        $ --        $ 242,943        $ 2,884  
    

 

 

      

 

 

      

 

 

      

 

 

      

 

 

 

Impaired loans with an allowance recorded:

                        

Multi-family

     $ --        $ --        $ --        $ 9,008        $ --  

Commercial real estate

       --          --          --          2,171          --  

Acquisition, development, and construction

       --          --          --          406          --  

One-to-four family

       --          --          --          --          --  

Commercial and industrial

       --          --          --          2,379          --  
    

 

 

      

 

 

      

 

 

      

 

 

      

 

 

 

Total impaired loans with an allowance recorded

     $ --        $ --        $ --        $ 13,964        $ --  
    

 

 

      

 

 

      

 

 

      

 

 

      

 

 

 

Total impaired loans:

                        

Multi-family

     $ 131,457        $ 138,190        $ --        $ 174,914        $ 1,768  

Commercial real estate

       41,811          44,096          --          62,829          1,062  

Acquisition, development, and construction

       4,886          6,030          --          7,805          --  

One-to-four family

       --          --          --          734          --  

Commercial and industrial

       6,601          34,033          --          10,625          54  
    

 

 

      

 

 

      

 

 

      

 

 

      

 

 

 

Total impaired loans

     $  184,755        $  222,349        $ --        $  256,907        $  2,884  
    

 

 

      

 

 

      

 

 

      

 

 

      

 

 

 

The following table presents additional information regarding the Company’s impaired non-covered loans at December 31, 2012:

 

(in thousands)    Recorded
  Investment  
   Unpaid
  Principal  
Balance
   Related
  Allowance  
   Average
Recorded
  Investment  
   Interest
Income
  Recognized  

Impaired loans with no related allowance:

                        

Multi-family

     $ 193,500        $ 211,329        $ --        $ 189,510        $ 4,929  

Commercial real estate

       80,453          81,134          --          72,271          1,705  

Acquisition, development, and construction

       10,203          14,297          --          20,954          790  

One-to-four family

       1,101          1,147          --          1,114          --  

Commercial and industrial

       10,564          14,679          --          10,021          380  
    

 

 

      

 

 

      

 

 

      

 

 

      

 

 

 

Total impaired loans with no related allowance

     $ 295,821        $ 322,586        $ --        $ 293,870        $ 7,804  
    

 

 

      

 

 

      

 

 

      

 

 

      

 

 

 

Impaired loans with an allowance recorded:

                        

Multi-family

     $ 20,307        $ 21,620        $ 1,055        $ 27,894        $ 802  

Commercial real estate

       2,914          2,940          402          3,693          98  

Acquisition, development, and construction

       1,216          1,494          29          1,877          --  

One-to-four family

       --          --          --          --          --  

Commercial and industrial

       7,138          10,252          1,199          1,785          1,405  
    

 

 

      

 

 

      

 

 

      

 

 

      

 

 

 

Total impaired loans with an allowance recorded

     $ 31,575        $ 36,306        $ 2,685        $ 35,249        $ 2,305  
    

 

 

      

 

 

      

 

 

      

 

 

      

 

 

 

Total impaired loans:

                        

Multi-family

     $ 213,807        $ 232,949        $ 1,055        $ 217,404        $ 5,731  

Commercial real estate

       83,367          84,074          402          75,964          1,803  

Acquisition, development, and construction

       11,419          15,791          29          22,831          790  

One-to-four family

       1,101          1,147          --          1,114          --  

Commercial and industrial

       17,702          24,931          1,199          11,806          1,785  
    

 

 

      

 

 

      

 

 

      

 

 

      

 

 

 

Total impaired loans

     $  327,396        $  358,892        $  2,685        $  329,119        $  10,109  
    

 

 

      

 

 

      

 

 

      

 

 

      

 

 

 

 

22


Allowance for Losses on Covered Loans

Under the loss sharing agreements with the FDIC, covered loans are reported exclusive of the FDIC loss share receivable. The covered loans acquired in the AmTrust and Desert Hills acquisitions are, and will continue to be, reviewed for collectability based on the expectations of cash flows from these loans. Covered loans have been aggregated into pools of loans with common characteristics. In determining the allowance for losses on covered loans, the Company periodically performs an analysis to estimate the expected cash flows for each of the loan pools. The Company records a provision for losses on covered loans to the extent that the expected cash flows from a loan pool have decreased since the acquisition date. Accordingly, if there is a decrease in expected cash flows due to an increase in estimated credit losses, as compared to the estimates made at the respective acquisition dates, the decrease in the present value of expected cash flows is recorded as a provision for covered loan losses charged to earnings, and an allowance for covered loan losses is established. A related credit to non-interest income and an increase in the FDIC loss share receivable is recognized at the same time, and measured based on the applicable loss sharing agreement percentages.

The following table summarizes activity in the allowance for losses on covered loans for the six months ended June 30, 2013 and 2012:

 

     For the Six Months
Ended June 30,
(in thousands)    2013    2012

Balance, beginning of period

     $ 51,311        $ 33,323  

Provision for loan losses

       9,120          18,448  
    

 

 

      

 

 

 

Balance, end of period

     $ 60,431        $ 51,771  
    

 

 

      

 

 

 

Note 7. Borrowed Funds

The following table summarizes the Company’s borrowed funds at June 30, 2013 and December 31, 2012:

 

(in thousands)    June 30,
2013
   December 31,
2012

Wholesale borrowings:

         

FHLB advances

     $ 9,104,698        $ 8,842,974  

Repurchase agreements

       3,425,000          4,125,000  

Fed funds purchased

       100,000          100,000  
    

 

 

      

 

 

 

Total wholesale borrowings

     $ 12,629,698        $ 13,067,974  

Junior subordinated debentures

       358,019          357,917  

Preferred stock of subsidiaries

       4,300          4,300  
    

 

 

      

 

 

 

Total borrowed funds

     $ 12,992,017        $ 13,430,191  
    

 

 

      

 

 

 

At June 30, 2013 and December 31, 2012, the Company had $358.0 million and $357.9 million, respectively, of junior subordinated deferrable interest debentures (“junior subordinated debentures”) held by wholly-owned statutory business trusts (the “Trusts”) that issued guaranteed capital securities.

The Trusts are accounted for as unconsolidated subsidiaries in accordance with GAAP. The proceeds of each issuance were invested in a series of junior subordinated debentures of the Company, and the underlying assets of each statutory business trust are the relevant debentures. The Company has fully and unconditionally guaranteed the obligations under each 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.

 

23


The following junior subordinated debentures were outstanding at June 30, 2013:

 

Issuer   Interest Rate of
Capital Securities
and Debentures
      

Junior

Subordinated

Debenture

Carrying

Amount

 

Capital

Securities

Amount

Outstanding

 

Date of

    Original Issue    

   Stated Maturity        First Optional    
 Redemption Date 
            (dollars in thousands)    

New York Community Capital Trust V (BONUSESSM Units)

        6.000 %           $144,093         $137,742     Nov. 4, 2002   Nov. 1, 2051   Nov. 4, 2007 (1)

New York Community Capital Trust X

        1.873           123,712         120,000     Dec. 14, 2006   Dec. 15, 2036   Dec. 15, 2011(2)

PennFed Capital Trust III

        3.523           30,928         30,000     June 2, 2003   June 15, 2033   June 15, 2008  (2)  

New York Community Capital Trust XI

        1.924           59,286         57,500     April 16, 2007   June 30, 2037   June 30, 2012  (2)  
         

 

 

     

 

 

             

Total junior subordinated debentures

            $358,019         $345,242        
         

 

 

     

 

 

             

 

(1) Callable subject to certain conditions as described in the prospectus filed with the SEC on November 4, 2002.
(2) Callable from this date forward.

On December 31, 2012, the Company redeemed the following junior subordinated debentures totaling $69.2 million: Haven Capital Trust II, Queens County Capital Trust I, Queens Statutory Trust I, LIF Statutory Trust I, and PennFed Capital Trust II. As a result, a $2.3 million loss on debt redemption was recorded in non-interest income in the fourth quarter of 2012.

Note 8. Mortgage Servicing Rights

The Company had mortgage servicing rights (“MSRs”) of $215.1 million and $144.7 million, respectively, at June 30, 2013 and December 31, 2012. The Company has two classes of MSRs for which it separately manages the economic risk: residential and securitized.

Residential MSRs are carried at fair value, with changes in fair value recorded as a component of non-interest income in each period. The Compan